350R93903
\
5 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
OFFICE OF
THE INSPECTOR GENERAL
March 31, 1993
MEMORANDUM
SUBJECT: Management of Extramural Resources at the Environmental
Research Laboratory, Athens, Georgia
Audit Report No. E1JBF2-04-0300- 3100156
FROM: /JKenneth A. Konz
/(Assistant Inspector General
// for Audit '-J
s
TO: Gary J. Foley
Acting Assistant Administrator
for Research and Development
Christian R. Holmes
Assistant Administrator
for Administration and Resources Management
Attached is the final report entitled "Management of
Extramural Resources at the Environmental Research Laboratory,
Athens, Georgia (ERL-A)." Our overall audit objective was to
evaluate ERL-A's management and use of extramural resources in
relation to applicable laws, regulations, and'policies.
Over a period of up to 7 years, the audit concluded that
ERL-A management had avoided or circumvented laws, regulations,
and Agency procedures in the award and funding of certain
contracts, cooperative (CAs) and interagency agreements (lAGs).
ERL-A misused or abused the use of contracts, CAs, and XAGs for
the apparent purposes of supplementing inadequate intramural
resources and federal staff, retaining long-term on-site
contractors, and favoritism to former employees, employers, and
alma maters. This misuse and abuse of extramural instruments was
promulgated under an ERL-A management culture that apparently
encouraged research accomplishments at the expense of statutory,
regulatory, and sound procurement and management practices.
Of equal concern, however, is the lack of proper review and
oversight of ERL-A extramural activities by the Office of
Research and Development (ORD), the Contract Management Division
(CMD) - Cincinnati, and the Grants Administration Division (GAD).
Inadequate oversight by these Headquarters elements precluded
earlier detection and correction of resource management problems
at ERL-A.
Printed on Recycled Paper
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Action Required
We have designated the Office of Research and Development
(ORD) as the action official for this audit. In accordance with
EPA Order 2750, you as the action official, are required to
provide this office a written response to the audit report within
90 days of the final audit report date. We also request, that as
action official, you coordinate with and obtain a written
response from the Assistant Administrator for Administration and
Resources Management (OARM) for planned corrective actions
related to recommendations for CMD -Cincinnati and GAD. Written
responses should indicate milestone dates for any initiated or
planned corrective actions.
ORD's response to recommendations in the draft report was
considered sufficient to resolve most of the recommendations made
to ORD and ERL-A management; however, ORD's planned actions on
several recommendations need revision or clarification before
resolution. These recommendations and our concerns are
identified in appropriate sections of Chapter 3 and Appendix I.
This audit report contains findings that describe problems
the Office of Inspector General (OIG) identified and the
corrective actions the OIG recommends. This report represents
the opinion of the OIG. Final determinations on matters in this
report will be made by EPA managers in accordance with
established EPA audit resolution procedures. Accordingly, the
findings described in this report do not necessarily represent
the final EPA position.
If your staff has any questions or need additional
information regarding this report, please have them contact me at
260-1106.
Attachments
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EXECUTIVE SUMMARY
PURPOSE
Increasing workloads, without commensurate increases in federal
staff and intramural funding, have contributed to a heavy
dependence by the Office of Research and Development (ORD) on
contractors and other extramural support for accomplishment of
its mission. ORD's extramural funding substantially increased
between 1987 and 1992 while intramural funding only marginally
increased. During the same period federal staff at ERL-A
actually decreased while the laboratory's workload more than
doubled. Currently, almost 70 percent of ORD's annual fund
allocations represent extramural resources. ORD's Fiscal Year
(FY) 1990 Federal Managers' Financial Integrity Act (FMFIA)
report identified the management of extramural resources as a
material internal control weakness. The Agency perceived this
program activity as a material weakness due to the substantial
lack of EPA staff to properly manage and oversee extramural
operations.
EPA has been criticized in prior years by Congress and ,the public
for perceived over-reliance on contractor support to perform many
of its critical mission functions. In 1992, OIG's identification
of significant contract management weaknesses, related to one,of
EPA's largest technical support contracts,1 substantially
increased congressional criticism and oversight of EPA's
extramural management processes. Some of the serious contract
management weaknesses identified in this audit were related to
contractor activities at ORD laboratories.
As early as 1983, OIG reported deficiencies in ORD's extramural
procurement and management processes. In 1992, following the
audit of the Computer Sciences Corporation (CSC) contract and
identification of serious contract management problems and
conflict of interest situations (COIs) at ORD's Duluth, Minnesota
laboratory, OIG initiated joint audit/investigative surveys at
several ORD laboratories to assess the full extent of extramural
management problems in ORD field units. The OIG survey at the
Environmental Research Laboratory - Athens, Georgia (ERL-A)
identified problems with the laboratory's solicitation of
contracts and other extramural agreements and the overall
management and control of extramural resources. As a result of
the survey, the OIG initiated an audit of ERL-A and related
activities at the Office of Administration and Resources
Management's (OARM's) Contract Management Division (CMD),
Cincinnati, Ohio, and Grants Administration Division (GAD),
Washington, D.C. The primary objective of the review was to
1 Audit Report No. E1NME1-04-0169-2100295,, "EPA's Management
of Computer Sciences Corporation Contract Activities," issued March
31, 1992.
i Audit No. E1JBF2-04-0300
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Executive Summary
determine if ERL-A, in coordination with CMD and GAD, properly
used, administered, and controlled extramural funds to obtain
services under contracts, cooperative agreements (CAs), or
interagency agreements (lAGs) in compliance with applicable laws,
regulations, and Agency directives.
BACKGROUND
With a current annual budget of about $450 million, ORD's primary
mission is to provide quality, timely scientific and technical
information, products and assistance in support of Agency
programs and goals through twelve environmental laboratories
which employ about 1,900 EPA staff. ERL-A is one of the 12 ORD
laboratories. Although environmental laws, which ERL-A research
supports, increased from 2 in the early 1980's to 14 in 1992,
ERL-A's EPA staff actually decreased during this same period.
To accomplish the mission with strictly imposed federal
employment ceilings, ERL-A and other ORD laboratories have
increased their dependency on extramural level-of-effort (LOE)
contracts, CAs, and lAGs to conduct or supplement much of their
research. Between FYs 1986 and 1991 contractor staff at ERL-A
increased from 38 (30 percent of total ERL-A staff) to 70 (44
percent of total staff).
The following chart illustrates ERL-A's tremendous growth in
extramural support in relation to EPA staff between 1986 and
1991.
ERL-A Staff Versus Contractor/Cooperator On-Site Support
FYs 1986-1991 .
% Change From Base Year
1986 1987 1988 1989 1990 1991
Contractors Q
Cooperators I
ERL-A Staff H
0
0
0
15.8
6.5
-2.8
47.4
-25.8
-7
50
35.5
-4.6
84.2
29
-3.2
84.2
29
-4.6
Fiscal Years
ii
Audit No. E1JBF2-04-0300
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Executive Summary
ERL-A's FY 1991 budget totaled $14.05 million. Of that, $7.7 .
million (54.'8 percent) was appropriated for extramural research
under contracts ($4.11 million), CAs ($2.91 million), and lAGs
($640,000). This included agreements with 5 contractors valued
at approximately $4 million which .provided 70 full-time
contractor employees for laboratory support. Twenty other on-
site personnel were provided under CAs and the Senior
Environmental Employee (SEE) Program. Contractors, cooperators,
and SEE personnel represented about 57 percent of ERL-A's '
available human resources, providing -technical, scientific, and
administrative support. In 1992, ERL-A's extramural funding
increased to 58.5 percent of its total budget ($9.3 million of
$15.9 million). Of this increase, 52 percent was for CAs and
lAGs ($3.55 million, in 1991 to $5.4 million in 1992). However,
lAGs increased over 228 percent between 1991 and 1992 ($640,000
to $2.1 million).
With this level of dependency on extramural -support, strong
management controls were necessary to offset inherent contracting
risks and the potential for fraud,, waste, and abuse of federal
resources. However, Agency managers either did not establish or
properly implement the control systems needed to adequately
protect against such risks. At ERL-A the priority of good
contract management and control was lost among the high-priority
scientific endeavors emphasized by research-oriented personnel;
RESULTS IN BRIEF •
ERL-A's apparent lack of intramural funding, coupled with a
management emphasis on mission accomplishment by any available
means, encouraged ERL-A's circumvention, avoidance,, and
noncompliance with laws, regulations, and Agency policies, related
to the use and funding of extramural contracts and agreements.
The circumvention and avoidance of competitive awards and
apparent favoritism toward certain contractors and institutions
appeared to be accepted practices at ERL-A. Questionable uses of
extramural resources, combined with heavy dependence on
extramural support for critical functions and weak management
controls, elevated ERL-A's vulnerability to wasteful, abusive,
and potentially illegal practices. In addition, ERL-A's lack of
control over extramural support agreements provided inadequate
assurance as to the quality of the oversight of related research
and the effective use of scarce Agency resources. Of equal
concern, however, was the obvious lack of controls, oversight,
and review of ERL-A extramural activities by ORD, CMD-Cincihnati,
and GAD.
Misuse and/or abuse of contracts, CAs, and lAGs by ERL-A occurred
over extended periods of up to 7 years. Questionable use or
abuse of extramural resources was identified in all 5 contracts,
iii Audit Mo. E1JBP2-04-0300
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Executive Summary
11 CAs, and 6 lAGs (maximum potential value of $44 million)
reviewed during the audit. ERL-A improperly used extramural
resources in: (1) awarding repetitive sole-source 8(a) contracts
and related contract modifications to avoid competition and
retain long-term on-site contractors and contractor staff, (2)
splitting and underestimating contract requirements to avoid 8(a)
dollar limit for sole source contracts and to avoid competitive
award, (3) supplementing inadequate intramural funding and
federal staff, (4) awarding an IAG to a foreign government
without authority, (5) using lAGs to exchange extramural research
funds with another Agency principally for federal employee
travel, (6) awarding, primarily noncoropetitively, assistance
agreements for the direct benefit of ERL-A research projects.
When competitive procedures were used, ERL-A biased the
competition or compromised the award procedures through potential
COIs of those who evaluated proposals.
In addition, improper uses of about $210,000 in Salary and
Expense (S&E) funds and Superfund monies for acquisition and
erection of an office building and excessive travel costs were
also disclosed during our review of ERL-A's extramural resource
activities (see Chapter 5).
PRINCIPAL FINDINGS
EPA'S MANAGEMENT CONTROL SYSTEMS DID NOT DETECT ORPRECLUDE ERL-
A'S CONSISTENT ABUSES AND MISMANAGEMENT OF EXTRAMURAL RESOURCES
Our review of ERL-A's use and management of extramural resources
involving the award of $44 million in contracts, CAs, and lAGs
revealed frequent avoidance or noncompliance with statutes,
regulations, policies and guidance that governed the acquisition,
use, and management of contracts and assistance agreements (see
Chapters 3 and 4). Questionable award and/or use of extramural
resources were found in all 5 contracts, 11 CAs, and 6 lAGs
reviewed. ERL-A's questionable actions were initially encouraged
by the lack of intramural resources, including the FTEs (federal
staff) needed to accomplish the laboratory's increasing research
missions. Over a long period of growing extramural support but
limited intramural funding and decreased EPA staff, ERL-A's
activities evolved into a sequence of questionable awards and
uses of extramural funds. Inadequate oversight by CMD-
Cincinnati, GAD, and ORD, all contributed to ERL-A's misuse and
abuse of extramural resources. A lack of written guidance and
conflicting, incorrect guidance from these same three
headquarters' elements, contributed to ERL-A's confusion as to
the proper use of extramural support and assistance mechanisms.
Overall, the management control systems needed to provide
reasonable assurance that ERL-A's use and management of
extramural resources was carried out in accordance with
iv Audit NO. E1JBF2-04-0300
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Executive Summary
applicable statute, regulation, and EPA policy were either not
established or not working. As a result, procurement and
assistance laws were abused and the overall,use and management of
extramural resources was not adequately managed and controlled.
MISUSE AND MISMANAGEMENT OF COOPERATIVE AND INTERAGENCY
AGREEMENTS
Our review of 11 CAs ($11.15 million maximum value) and 6 lAGs
($1.3 million maximum value)2 disclosed that in all 17 extramural
agreements, ERL-A managers: (1) improperly used less restrictive
CAs and lAGs to procure goods and services in lieu of the more
controlled contracting process, (2) did not encourage the
competitive award of CAs, (3) exhibited apparent favoritism in
noncompetitive CA awards, and (4) did not effectively manage CAs
to assure compliance with terms of extramural agreements or that
government assets were safeguarded against waste or abuse. ERL-A
staff apparently sacrificed adherence to statutory requirements.
and ORD policies and procedures to supplement inadequate
intramural resources. In addition, ERL-A seemed unaware of the
proper criteria for determining the use of CAs versus contracts.
As discussed in Chapter 2, inadequate and inconsistent guidance
from GAD and ORD Headquarters contributed to ERL-A's confusion
over the proper use and selection of extramural agreements.
Further, ORD and GAD oversight of ERL-A operations was
insufficient to prevent misuse and mismanagement of extramural
resources by ERL-A. ERL-A's misuse and mismanagement of
extramural agreements resulted in a lack of assurance that the
research performed under these agreements was properly overseen
and that government resources were adequately controlled and
effectively utilized.
Several deficiencies related to ORD's CA award and management
processes had been previously identified by a 1983 OIG audit of
ORD's CA program.3 Nine years later these problems remained
uncorrected at ERL-A. Based on our review at ERL-A, corrective
action taken on the prior audit was both inadequate and
ineffective because ORD issued faulty guidance, ERL-A ignored
some of the controls instituted by ORD and ORD failed to oversee
and ensure proper implementation by its laboratories.
2 ERL-A CAs and lAGs included in our sample, along with award
dates and potential values, are shown in Appendix III.
3 Audit Report No. ElgB2-ll-0019-30828, "Review of the Office
of Research and Development's Extramural Research Activities",
issued March 31, 1983.
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Executive Summary
ERL-A ABUSED CONTRACTING PROCESS TO RETAIN LONG-TERM CONTRACTORS
AND AVOID FULL AND OPEN COMPETITION
In all five on-site support contracts reviewed (maximum value of
$31.6 million), ERL-A abused the procurement process to retain
favored contractors and their employees and then utilized these
same contracts to perform prohibited contracting activities. To
obtain desired contracts and related services, ERL-A either
avoided or biased the competitive procurement process for all
five contracts4. Over the last six to seven years, ERL-A avoided
competition by using the 8(a) set-aside program to obtain
repeated sole-source acquisitions with current contractors. By
using the 8(a) non-competitive process, ERL-A prevented: (l) the
interruption of on-site contractor services and the loss of
contractor staff providing long-term technical/administrative
support, and (2) the additional administrative burden required
under a competitive procurement. After one incumbent contractor
at ERL-A no longer qualified for small business 8(a) status and
related sole-source awards, the contract was removed from the
8(a) set-aside program, without adequate justification, to allow
the incumbent an opportunity to compete. Then, during the
follow-on "full and open" competition, ERL-A biased the
procurement in favor of the incumbent. In another 8(a) set-aside
procurement, ERL-A split and underestimated procurement
requirements and costs to avoid the 8(a) competitive threshold
and justify sole-source awards. Further, ERL-A improperly used
these on-site contractors to supplement its in-house human
resource needs. ERL-A's substantial dependency on on-site
contractors, especially long-term contractor employees, to
accomplish its mission resulted in less than arms-length
relationships between ERL-A and contractor staff, including
prohibited personal services and favored treatment toward
incumbent contractors, and ERL-A ignoring the benefits that full
and open competition brings to the procurement process.
CIRCUMVENTION OF STATUTORY AND REGULATORY REQUIREMENTS EXTENDED
INTO OSES OF INTRAMURAL RESOURCES
Our review of extramural resource management at ERL-A also
disclosed questionable uses of intramural resources and a
potential violation of appropriation law restrictions. These
questionable actions related to the improper acquisition and
construction of an office building with S&E appropriated funds
and Superfund monies and the payment of excessive travel costs.
The building was obtained through a fiscal year-end contract
award. These questionable uses of intramural resources indicated
4 Contracts include the three contracts in our sample which
were subjected to indepth review and the limited review of two
related predecessor contracts.
vi Audit NO. E1JBF2-04-0300
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Executive Summary
that the circumvention of laws and regulations and misuse of
resources was not restricted' to extramural funds.
ERL-A'S FMFIA PROCESS DID NOT ENSURE PROPER CONTROL OVER
EXTRAMURAL RESOURCE MANAGEMENT
ERL-A's FMFIA process did not adequately identify internal
control weaknesses or ensure proper implementation of FMFIA
control objectives and techniques relative to the management of
contracts, CAs, lAGs and other support/administrative activities
that came to our attention during the audit. Many material
control weaknesses in ERL-A's extramural resource and
administrative activities were not previously identified in
ERL-A's FMFIA risk assessments. In addition, ERL-A had not
adequately assessed control techniques to ensure proper
implementation by-management staff. Critical control techniques
identified in ERL-A's FMFIA documentation were either not
implemented or improperly implemented by ERL-A management. As a
result, there was insufficient- assurance that Agency resources
were safeguarded against waste, fraud, abuse, and conflicts of
interest. Because many of ERL-A's extramural activities were of
a mission-critical nature, proper control of the extramural and
administrative operations were essential to the integrity of the
Agency's programs. • " ' "
MISSING RECORDS AND INCONSISTENT STATEMENTS BY- ERL-A. CONTRACTOR.
AND COOPERATOR STAFFS DELAYED AND POTENTIALLY LIMITED AUDIT
DISCLOSURE
During our audit, several impediments were encountered at ERL-A
that hampered the accomplishment of audit fieldwork and may Have
limited our assessment of laboratory operations. Impediments
included: (1) inconsistent (often contradictory) statements by
ERL-A staff, contractors, and cooperators and (2) missing
documentation in ERL-A's contract/cooperator and/or laboratory
correspondence files. In some cases, the inaccurate statements
made by ERL-A employees, contractors, and cooperators appeared to
be "textbook" answers to our questions rather than answers that
accurately reflected ERL-A day-to-day operations. Evidence
obtained indicated that ERL-A staff had been briefed prior to
start of audit fieldwork as to our audit objectives and the
"correct" answers to our questions. Also, some of the missing
records could be attributed to ERL-A's improper record retention
procedures. However, according to certain ERL-A managers, the
laboratory was seriously concerned about the negative impact of
our audit on ERL-A's operations and, in particular, about the
effect on contractors that worked at the laboratory. This
concern was based on the impact of the recent O'lG audit of Duluth
ERL on that laboratory's operations. . The missing records and
conflicting statements necessitated alternative record reviews
and additional interviews which would not have been, necessary if
vii Audit Ho. E1JBF2-04-0300
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Executive Summary
full disclosure had been made when questions were first asked.
These impediments significantly delayed completion of audit
fieldwork and left us unsure that all pertinent information and
conditions had been disclosed.
RECOMMENDATIONS
ORD, as well as CMD and GAD need to substantially strengthen
their oversight and control over the procurement, award, and use
of extramural resources at ERL-A to decrease the Agency's
vulnerability to abusive, and wasteful practices, ensure
compliance with applicable laws, regulations and policies, and
establish effective use of Agency resources. In addition, ERL-
A's vulnerability from over-reliance on contractor and
cooperators for performance of mission critical functions needs
to be reduced. Risk reduction can be achieved through increased
use of EPA staff to perform critical laboratory technical
operations and to retain Agency expertise and control over these
vital research activities. ERL-A staff's awareness' of the proper
ethical conduct of government business needs to be increased.
ERL-A management should also be advised that laws, regulations,
and policies governing the use and management of extramural
resources were established to protect the government's interests
and to safeguard government resources. Circumvention or
noncompliance with these requirements cannot be tolerated.
AGENCY COMMENTS
ORD generally agreed with the findings and those recommendations
made to ORD management. OARM did not agree with many of the
findings related to CMD - Cincinnati contract oversight and 8(a)
noncompetitive and subsequent competitive awards to one on-site
ERL-A contractor. Also, OARM expressed some disagreement with
certain statements and conclusions related to GAD oversight and
approval of certain lAGs and CAs at ERL-A. However, OARM did
agree with most of the recommendations related to CMD -
Cincinnati and GAD operations. Both ORD and OARM responses
included substantive planned or initiated corrective actions to
correct the deficiencies identified. Because ORD included
milestone dates for completion of initiated or planned actions,
most of the recommendations to ORD will be resolved upon issuance
of this report.
ORD and OARM responses to the report's findings and
recommendations have been summarized at the end of each
appropriate report chapter along with OIG's evaluation of these
responses. Agency responses to each individual recommendation
and any planned and initiated corrective actions or additional
Agency actions needed for resolution of each recommendation are
viii Audit No. E1JBF2-04-0300
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Executive Summary
presented in Appendix I. ORD and OARM's complete responses to
the draft report's findings and recommendations are available
upon request from the Office of Inspector General.
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Executive summary
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY ' 1
1 INTRODUCTION / . . . 1
PURPOSE 1
BACKGROUND 2
SCOPE AND METHODOLOGY 4
SCOPE LIMITATIONS AND IMPEDIMENTS 9
PRIOR AUDIT COVERAGE 10
2 EPA'S MANAGEMENT CONTROL SYSTEMS DID NOT DETECT OR
PRECLUDE ERL-A'S CONSISTENT ABUSES AND MISMANAGEMENT
OF EXTERNAL RESOURCES 13
BACKGROUND 13
INSUFFICIENT INTRAMURAL FUNDING AND EPA STAFF..'.. 14
GAD DID NOT PREVENT OR DETECT IMPROPER USE OF
. COOPERATIVE AND INTERAGENCY AGREEMENTS 15
LACK OF COMPETITION IN EXTRAMURAL AWARDS NOT
ADDRESSED BY GAD, CMD, OR ORD 17
LACK OF ORD OVERSIGHT AND CONFLICTING GUIDANCE
SENT MIXED MESSAGES TO ERL-A ON PROPER USES OF
EXTRAMURAL RESOURCES 21
MISMANAGEMENT, OF EXTRAMURAL RESOURCES NOT
PRECLUDED BY GAD, CMD, OR ORD 28
CONCLUSION 31
RECOMMENDATIONS . 32
AGENCY RESPONSE AND OIG EVALUATION. OF AGENCY
COMMENTS 36
3 MISUSE AND MISMANAGEMENT OF COOPERATIVE AND
INTERAGENCY AGREEMENTS 39
MISUSE OF COOPERATIVE AGREEMENTS 39
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Table of Contents
INAPPROPRIATE USES OF IAGS 61
RECOMMENDATIONS - USE OF EXTRAMURAL AGREEMENTS 70
ERL-A'S COOPERATIVE AGREEMENT AWARDS LACKED
COMPETITION 74
RECOMMENDATIONS - COMPETITION IN CA AWARDS 85
MISMANAGEMENT OF COOPERATIVE AGREEMENTS. 87
RECOMMENDATIONS - MISMANAGEMENT OF CAs 94
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 95
4 ERL-A ABUSED CONTRACTING PROCESS TO RETAIN LONG-TERM
CONTRACTORS AND AVOID FULL AND OPEN COMPETITION 99
BACKGROUND 99
ERL-A UTILIZED PROCUREMENTS TO RETAIN FAVORED
CONTRACTORS .*. 104
CONCLUSION 135
RECOMMENDATIONS ; 136
ERL-A MISUSE OF CONTRACTOR ACTIVITIES HAS
SUBSTANTIALLY INCREASED 140
CONCLUSION 148
RECOMMENDATIONS 149
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 150
5 CIRCUMVENTION OF STATUTORY AND REGULATORY
REQUIREMENTS EXTENDED INTO USES OF INTRAMURAL
FUNDS 155
THE ACQUISITION AND CONSTRUCTION OF AN ERL-A
OFFICE BUILDING WITH S&E FUNDS AND SUPERFUND
MONIES VIOLATED AGENCY PROCEDURES AND
APPROPRIATIONS LAW 155
ERL-A USED PURCHASE ORDERS TO CIRCUMVENT FEDERAL
TRAVEL REGULATIONS AND MAXIMUM PER DIEM RATES 159
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Table of Contents
RECOMMENDATIONS 162
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS •'. . 163
6 ERL-A'S FMFIA PROCESS DID NOT ENSURE PROPER CONTROL
OVER EXTRAMURAL RESOURCE MANAGEMENT 165
BACKGROUND : 165
ERL-A'S REVIEWS OF EXTRAMURAL RESOURCE MANAGEMENT
WERE INSUFFICIENT TO ENSURE ATTAINMENT OF FMFIA
CONTROL OBJECTIVES 166
INTERNAL CONTROLS OVER EXTRAMURAL MANAGEMENT
INEFFECTIVE 169
CONCLUSION -. .' . 180
RECOMMENDATIONS .*; .' 181
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 182
7 MISSING RECORDS AND INCONSISTENT/INACCURATE
STATEMENTS BY ERL-A, CONTRACTOR, AND COOPERATOR
STAFFS DELAYED AND POTENTIALLY LIMITED AUDIT
DISCLOSURE 183
BACKGROUND 183
INACCURATE, INCONSISTENT STATEMENTS BY ERL-A,
CONTRACTOR, AND COOPERATOR STAFFS 184
MISSING/INCOMPLETE FILE DOCUMENTATION AND
IMPROPER RECORD RETENTION PROCEDURES. 185,
CONCLUSION 186
. RECOMMENDATIONS 187
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS .- 188
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Table of Contents
APPENDIXES
APPENDIX I: AGENCY COMMENTS ON DRAFT REPORT
AND OIG EVALUATION 189
APPENDIX II: GLOSSARY OF ACRONYMS AND
ABBREVIATIONS 237
APPENDIX III: SAMPLE OF CONTRACTS, COOPERATIVE
AGREEMENTS, AND INTERAGENCY
AGREEMENTS AUDITED 239
APPENDIX IV: PRIOR AUDITS OF EXTRAMURAL
MANAGEMENT 241
APPENDIX V: SUMMARY OF DEFICIENCIES FOR
COOPERATIVE AGREEMENTS REVIEWED 243
APPENDIX VI: SUMMARY OF DEFICIENCIES RELATED
TO INTERAGENCY AGREEMENTS REVIEWED.. 247
APPENDIX VII: SUMMARY OF DEFICIENCIES RELATED
TO SAMPLE CONTRACTS REVIEWED 249
APPENDIX VIII: REPORT DISTRIBUTION 251
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CHAPTER 1
INTRODUCTION
PURPOSE
Due to increasing workloads and limited federal staffs, the
Office of Research and Development (ORD) has become highly
dependent on extramural support to accomplish its mission.
Almost 70 percent' or $342 million of ORD's total 1992 allocation.
of about $490 million was used for on-site and off-site
extramural support obtained through contracts, cooperative
agreements (CAs), grants, and interagency agreements (IAGs). OIG
audits and surveys at ORD laboratories in 1992 and prior years
disclosed serious management problems related to contracts and
CAS.
In FY 1990, ORD recognized its management of extramural resources
as a material internal control weakness in the Agency's annual
FMFIA report to the President. However, the OIG had already
reported1 major deficiencies in ORD's procurement process and
management of extramural resources in.1983, seven years earlier.
In 1986, the OIG further reported contracting deficiencies at the
Environmental Monitoring Systems Laboratory (EMSL) in Las Vegas.
In 1992, following the Agency's identification of extramural
resource management as a material weakness, the OIG reported
serious management problems related to the CSC contract
activities2 at ORD Laboratories in Research Triangle Park, North
Carolina; Gulf Breeze, Florida; and Corvallis, Oregon. Contract
management problems were also reported by OIG at ORD's Duluth,
Minnesota laboratory. Because of the severity of the deficiencies
identified in the management and use of certain ORD contracts,
contract activities, and other extramural agreements, the OIG in
1992 initiated joint audit/investigative surveys at several ORD
laboratories to assess the full extent of these problems.
A subsequent OIG survey at the Environmental Research Laboratory
- Athens, Georgia (ERL-A) identified problems with the
laboratory's solicitation of contracts and other extramural
1 Audit Report No. ElgB2-ll-0019-30828, "Review of the
Office of Research and Development's Extramural Research
Activities," issued March 31, 1983.
2 OIG Report "EPA Management of computer Sciences
Corporation Contract Activities, " Audit Report No. E1NME1-04-
0169-2100295, issued March 31, 1992.
Audit No. E1JBF2-04-0300
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Chapter 1
introduction
agreements and its overall management and control of extramural
resources. As a result of the survey, the OIG initiated an audit
of ERL-A and related activities at the Office of Administration
and Resources Management's (OARM's) Contract Management Division
(CMD), Cincinnati, Ohio, and Grants Administration Division
(GAD), Washington, D.C. The primary objective of the review was
to determine if ERL-A, in coordination with CMD and GAD, properly
used, administered, and controlled extramural funds to obtain
services under contracts, CAs, or lAGs in compliance with
applicable laws, regulations, and Agency directives.
BACKGROUND
ORD's mission is to provide high quality, timely scientific and
technical information, products and assistance in support of
Agency programs and goals. The Agency's research program is
conducted through twelve environmental laboratories across the
country employing about 1,900 scientific and administrative
staff, with an annual operating budget of about $450 million,
ORD's overall, planning process engenders an applied research and
development program focused on answering key scientific and
technical questions as a basis for EPA's programmatic and
regulatory decision-making. Short-term scientific and technical
studies support immediate regulatory and enforcement decisions
while a longer-term core research program extends the knowledge
base of environmental science and anticipates environmental
problems.
To accomplish the mission
with strictly imposed
federal employment ceilings,
ERL~A and. other QRD
laboratories have had to
increase their dependency on
extramural level-of-effort
(LOE) contracts, grants,
CAs, and lAGs to conduct or
supplement much of their
research. ERL-A's increased
reliance on extramural
support is illustrated by .
the pie charts. Between FYs
1986 and 1991 contractor
staff at ERL-A increased
from 38 (30 percent of total
Changes In ERL-A On-Site Staffing
Contractor*
70 44X
1986
1991
FY1986 -125 Funded Human Resources
FY1991 - 158 Funded Human Resources •
Audit No. E1JBF2-04-0300
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Chapter 1
Introduction
ERL-A staff) to .70 (44 percent of total staff) .
In a memorandum, dated November 9, 1990, the Director of the
Office of Environmental Processes and Effects Research (OEPER)
explained:
The use of on-site contractors has become a major
expense item throughout ORD. In certain instances,
expenditures for on-site services (using contracts,
cooperative agreements, or interagency agreements)
exceeds sixty percent of a laboratory's R&D budget.
On-site non-federal personnel have become a valuable
and necessary adjunct to our research program .^
ERL-A's FY 1991 budget totaled $14.05'million. Of that, $7.7
million (54.8 percent) was appropriated for extramural research
under contracts ($4.11 million), CAs ($2.91 million), and
JAGs/other ($640,000). This included agreements with 5
contractors valued at approximately $4 million which provided 70
full-time contractor employees for laboratory support. .Twenty
.other on-site personnel were provided under CAs and the Senior
Environmental Employee (SEE) Program. Contractors, cooperators,
and SEE personnel represented about 57 percent -of ERL-A's
available human resources, providing technical, scientific, and
administrative support. In 1992, ERL-A's extramural resources
increased to 58.5 percent of its total budget ($9.3 million of
$15.9 million total) with a 52 percent increase in funding for
CAs and lAGs ($3.55 million to $5.4 million). This increase in
extramural agreements occurred primarily in funding for
lAGs/other which increased 228 percent, from $640,000 in 1991 to
$2.1 million in 1992.
The following chart illustrates increases in contract, as well as
total funding between 1986 and 1992. ,
Audit No. E1JBF2-04-0300
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Chapter 1
Introduction
ERL-A Historical Funding
Million
1986 1987 1988 1989 1990 1991 1992
lAGs/Other E!
CAs/Grants •
Contracts H
Intramural •
$0.29
$2.77
$2.83
$4.4
$0.49
$1.48
$3.06
$4.91
$0.28
$1.5
$2.47
$4.97
$0.51
$1.75
$2.67
$5.69
$0.47
$2.34
$3.15
$6.28
$0.64
$2.91
$4.11
$6.39
$2.1
$3.3
$3.9
$6.6
Fiscal Years
With this level of dependency on extramural support, strong
management controls were necessary to offset inherent contracting
risks and the potential for fraud, waste, and abuse of federal
resources. However, Agency managers either did not establish or
properly implement the control systems needed to adequately
protect against such risks. At ERL-A the priority of good
contract management and control was lost among the high-priority
scientific endeavors emphasized by research-oriented personnel.
SCOPE AND METHODOLOGY
The audit primarily focused on the procurement, use, and
management of laboratory support services through contracts and
CAs. We also reviewed ERL-A's use of lAGs. During the audit, we
judgmentally selected and performed detailed reviews of three on-
site support contracts and their predecessor contracts, eleven
active CAs, and six lAGs (chart below shows audit universes and
samples).3 Predecessor contracts and other extramural agreements
were also selectively reviewed when considered necessary to fully
develop conditions identified during our audit and to establish a
3 See Appendix III for contracts, CAs, and lAGs reviewed.
Audit No. E1JBF2-04-0300
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Chapter 1
Introduction
historical perspective regarding the award of current contracts
and other extramural agreements.
AUDIT UNIVERSES AND RELATED SAMPLES
Audit
Area
Contracts*
CAs
lAGs
— —
Universe
(08/92)
4
27
17
Max. Value
(Millions)
$30.8
$14.2
$3 . 09
-
Sample
3
11
6
Max. Value
(Millions)
$22.9
$11.15
$1.3
The audit fieldwork was performed from May 1992 through December .
1992 .primarily at ERL-A, CMD, and GAD.
As previously stated, the overall audit objective was to
determine if ERL-A, in coordination with CMD and GAD, properly
administered and controlled extramural funds appropriated to
obtain services under contracts, CAs, or lAGs in compliance with
applicable laws, regulations, and Agency directives. Specific
objectives were to:
- Evaluate management controls over contracts, CAs, and lAGs
to assess their adequacy in:
1) protecting the Agency from fraud, waste, and abuse;
2} ensuring compliance with 'applicable laws,
regulations, and Agency directives related to
management of extramural contracts and
agreements; and
3) ensuring compliance with contract terms and the
quality of contractor performance.
4 Contract universe limited to on-site/near-site technical
support contracts. Predecessor contracts totalling $8.7 million
were subjected to a limited review but are not reflected in these
contract totals. Sample included all ERL-A technical support
contracts not previously audited (Computer Sciences Corporation
Contract).
Audit NO. E1JBF2-04-0300
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Chapter 1
Introduction
- Assess whether management had complied with applicable
laws, regulations, and directives when soliciting and
procuring contracts and other extramural services.
- Determine if ERL-A used its contracts and other extramural
agreements as Congress, OMB, and EPA intended to support
the Agency's research mission.
Audit Survey and Identification of Previously Reported Issues
During December 1991 and January 1992, CMD and ORD performed a
joint review of ERL-A contract management. Their review
consisted of file reviews at CMD and a subsequent site visit to
ERL-A in January 1992 to review site records and discuss contract
related issues. The ensuing report, issued July 14, 1992, cited
contract management deficiencies related to conflicts of
interest, contractor performance of inherently governmental
functions, personal services indicators, and inadequate contract
statements of work (SOWs) and related work assignments (WAs).
Our survey of ERL-A also revealed strong indications of potential
abuse in contracting for services and in contract administration
and oversight.
Because of on-going or proposed Agency actions in response to
recent OIG audits-, as well as actions proposed by EPA's Standing
Committee on Contracts Management,6 we concluded that issues
identified during the ERL-A survey such as prohibited personal
services indicators, contractor performance of inherently
governmental functions, conflicts of interest, inadequate invoice
review, inadequate SOWs/WAs, and other previously reported
contract management problems did not warrant further audit
effort. These issues were included in a Special Review report,7
issued November 30, 1992, to the Assistant Administrator for
Research and Development. This report was issued under
5 These reports include EPA * s Management^of^Computer
Sciences Corporation Contract Activities. Audit No. EINME1-04-
0169-21000295 (issued March 31, 1992) and Contracting Activities ,
at ^Environmental Research Laboratory - Duluthf Audit No. E1JBF1-
05-0175-2100443 (issued July 7, 1992).
6 CONTRACTS MANAGEMENT AT EPA; Managing Our Mission. Staff
Report of the Standing Committee on Contracts Management, June
1992.
7 Survey Report - ORD Environmental Research Laboratory,
Athens, GA, Report No. E1XMG2-04-0102-3400007, November 30, 1992.
Audit NO. E1JBP2-04-0300
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Chapter 1
Introduction
provisions of OIG Manual 150 for limited scope reviews. Since
these issues were not fully developed through a detailed audit,
the work was not performed in accordance with governmental
auditing standards. Our intent was to identify and report the
existence of these problems to top ORD management for immediate
action or for inclusion in on-going Agency corrective actions in
these areas.
Audit of Procurement, Use, and Management of Contracts
To assess ERL-A's overall use of contracts; the contract award
process; and general contract management and oversight, we
limited our review to two contractors8 that provided on-site
services to ERL-A under three separate contracts. - This included
two American Scientific International (AScI) contracts [68-CO-
0054 and 68-04-0012] and one Technology Applications, Inc. (TAI)
contract [68-C1-0024]. Also, where considered necessary, we
reviewed predecessor contracts and related transactions to assess
long-term ERL-A operations and to fully develop the deficiencies
noted. We also visited CMD to review related contract files and
determine CMD's role in ERL-A's-contracting decisions.
The contract audit fieldwork involved both interviews with key
Lab personnel and file reviews. We interviewed laboratory
management, project officers (POs), work assignment managers
(WAMs), and contractor\cooperator employees, including site
managers. We also reviewed official records in the possession of
POs and WAMs, and additional documentation provided by ERL-A
management, contractors, and cooperators. At CMD, we talked with
the contracting officers (COs) and contract specialists involved
in the contracts sampled. The audit fieldwork performed allowed
us sufficient insight into ERL-A operations, as related to
extramural contracts, for us to identify and substantively
document specific problems as related to the lab's solicitation,
award, use, management, and oversight of the contracts sampled.
Audit of Procurement. Use, and Management of CAs and lAGs
To assess the solicitation, award process, and ERL-A?s overall
use, management, and oversight of CAs and lAGs, we limited our
review to 11 CAs and 6 lAGs. The sample was selected
judgmentally based on information obtained during an initial file
8 We reviewed AScI (formally American Scientific
International, Inc.), and Technology Applications, Inc. Computer
Sciences Corporation also provided on-site support to ERL-A but
was not included because of recent OIG audit coverage.
Audit NO. E1JBF2-04-0300
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Chapter l
Introduction
review of all current CAs and lAGs. We primarily selected those
agreements which: (1) provided ERL-A on-site services; (2) were
awarded to institutions where key laboratory management had close
relationships; (3) purchased large amounts of equipment; (4)
provided for an inordinate amount of travel; (5) had large
amounts budgeted for subcontracts or consultants; or (6)
authorized other costs which appeared questionable.
Our general methodology for reviewing each CA and IAG in our
sample was to: (1) conduct an initial interview with each PO and
obtain files; (2) perform in-depth reviews- of ERL-A and PO files;
and (3) conduct follow-up interviews with POs, where necessary.
If co-POs or sub-POs were assigned by the PO to oversee .
individual subprejects/tasks under the agreement (i.e., the UGA
agreement) , we also interviewed a'-sample of those individuals and
reviewed any applicable files in their possession. The purpose
of this intensive review was to gain an overall understanding of
the solicitation, award, use, and management of each agreement
including an evaluation of related internal controls. Since UGA
was co-located with ERL-A, additional audit fieldwork was
performed at the University. We conducted interviews with
university Principal Investigators (PI) and reviewed the PI and
university records/files provided. Because of the distant
locations of other universities and government agencies with CAs
or lAGs in our sample, we did not conduct in-depth interviews
with their Pis or review related files.
After our initial review of the sampled ERL-A CAs and lAGs, we
visited GAD to review related files and determine its role in
ERL-A's assistance decisions. At GAD, we interviewed award
officials and grants specialists involved in the CAs and lAGs
reviewed. The audit fieldwork performed allowed us sufficient
insight into ERL-A operations, as related to CAs, for us to
identify and substantively document specific problems as related
to the lab's solicitation, award, use, management, and oversight
of the various agreements. Our review of the six lAGs was
primarily limited to their use by ERL-A.
The audit was conducted in accordance with Government Auditing
Standards (1988 revision) issued by the Comptroller General of
the United States. Our audit included tests of management and
related FMFIA controls, policies, and procedures specifically
related to the audit objectives. The findings in the report
include material control weaknesses identified during the audit
and our recommendations to correct the weaknesses, where
appropriate.
Audit MO. E1JBF2-04-0300
8
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Chapter l
Introduction
Certain data used in this report was extracted from EPA's
Contract Information System "(CIS) . No audit tests were performed
to evaluate the adequacy of manual or automated controls for CIS
or the validity of the data maintained by this system.
Therefore, we cannot and do not attest to the. accuracy or
integrity of the CIS data used in this report.
During the audit, two other issues were identified outside the
scope of extramural resources which, in our opinion, warranted
further audit effort. These issues related to (1) the potential
misuse of Salary ;and Expense (S&E) and Superfund appropriated
monies to acquire an office building and (2) improper travel
expenditures. No other issues came to our attention, as a result
of specified audit procedures which we believed were sufficiently
material to warrant further audit effort.
Our findings were discussed with personnel during audit fieldwork
and comments were obtained from the Environmental Research
Laboratory at Athens. We also briefed officials from the Office
of Research and Development and the Office of Acquisition
Management on our findings. The draft report was provided to the
Acting Assistant Administrator for Research and Development and
the Assistant Administrator for Administration and Resources
Management for comment. Major comments to the draft report from
the Office of Acquisition Management, the Grants Administration
Division, and the Office of Research and Development have been
incorporated into the appropriate report chapters. Agency
comments on recommendations and the OIG's evaluation are detailed
in Appendix I.
SCOPE LIMITATIONS AND IMPEDIMENTS
During the audit, we encountered several impediments to the •
accomplishment of our audit objectives. These impediments are
detailed in Chapter 7 of this report and summarized below.
ERL-A file documentation for the existing contracts and related
PO files appeared "sanitized" (i.e., cleared of all but official
finalized documents).• Documents such as correspondence,
telephone memos, and other routine records of'day-to-day
management were missing. ERL-A managers and staff provided
contradictory and often incorrect information. As the audit
progressed, it became evident that managers and staff had been
previously briefed as to the issues under audit and they, in
turn, provided "textbook" answers to our questions. In many
instances, this information conflicted with file evidence
obtained and with other interviews. In addition, ERL-A staff did
not fully disclose all of the information available to them. We
Audit NO. E1JBF2-04-0300
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Chapter 1
Introduction
were provided only documentation that we specifically requested
and answers to questions as specifically asked. More than once,
we became aware of an existing condition or documentation through
interviews with cooperator or contractor personnel that had not
been disclosed by Agency personnel but whose existence was later
confirmed by EPA staff.
These impediments necessitated additional record reviews and
interviews by assigned auditors which would not have been
necessary if full and truthful disclosure had been made when
questions were first asked. As a result of this situation, audit
fieldwork was significantly delayed. Because of the impediments
encountered during this review, either inadvertently or
intentionally, we are not confident that we have received all
information pertinent to our audit objectives.
PRIOR AUDIT COVERAGE
Because of the substantial increase in the use of service
contracts Government-wide, primarily due to increasing agency
workloads and limited federal staffs, Congress and the Office of
Management and Budget (OMB) have expressed concern over the use
and control of extramural resources. Strong management controls
are required to ensure that government resources are properly
used and adequately protected against fraud, waste, and abuse.
In response to the concerns of Congress and OMB, the EPA Office
of Inspector General (OIG) and the General Accounting Office
(GAO) have compiled a long list of audits and special reviews
which have repeatedly demonstrated problems in the way EPA
Offices manage and control contracts and other extramural
agreements. A 1983 OIG audit (Audit No. ElgB2-ll-0019-30828) of
ORD extramural activities under contracts, cooperative
agreements, and interagency agreements identified some of the
same problems discussed in this report. In addition to OIG
audits of Agency contracting issues, the General Accounting
Office (GAO) has issued several audit reports and given
Congressional testimony concerning problems with EPA's management
of consulting and management support service contracts. Although
none of these reports specifically involved ORD contract
activities, many of the conditions reported were similar or
relevant to those OIG has identified in this and previous OIG
special reviews and audits. Specifically:
- EPA's extensive use of support service contracts to perform
critical agency functions and augment insufficient EPA staff.
Audit NO. E1JBF2-04-0300
10
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Chapter 1
Introduction
- Potential performance of inherently governmental functions by
contractors.
- Excessive, improper use of contract consolidations and
modifications in lieu of open solicitation and competition for
services.
- Inadequate contract SOWs, monitoring,, and quality assurance
criteria to evaluate contractor performance.
- Contractor conflicts of interest (COIs).
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Introduction
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Audit No. E1JBF2-04-0300
12
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CHAPTER 2
EPA'S MANAGEMENT CONTROL SYSTEMS DID NOT DETECT
OR PRECLUDE ERL-ft'S CONSISTENT ABUSES AND MISMANAGEMENT
OF EXTRAMURAL RESOURCES
Our review of ERL-A's use and management of extramural resources
involving the award of $44. million in contracts, CAs, and lAGs
revealed frequent avoidance or noncompliance with statutes,
regulations, policies and guidance that governed the acquisition,
use, and management of contracts and assistance agreements (see
Chapters 3 and 4). Questionable award and/or use of extramural
resources were found in all 5 contracts, 11 CAs, and 6 JAGs
reviewed. ERL-A's questionable actions were initially encouraged
by the lack of intramural resources, including the FTEs (federal
staff) needed to accomplish the laboratory's increasing research .
missions. Over a long period of growing extramural support but
limited intramural funding and decreased EPA staff, ERL-A's
activities evolved into a sequence of questionable awards, and
uses of extramural funds. Inadequate oversight by CMD-
Cincinnati, GAD, and ORD, all contributed to ERL-A's misuse and
abuse of extramural resources. A lack of written guidance and
conflicting, .incorrect guidance from these same three
headquarters' elements, contributed to ERL-A's confusion as to
the proper use of extramural support and. assistance mechanisms.
Overall, the management control systems needed to provide
reasonable assurance that ERL-A's use and management of
extramural resources was carried out in accordance with.
applicable statute, regulation, and EPA policy were either not
established or not working. As a result, procurement and
assistance laws were abused and the overall use and management of
extramural resources was not adequately managed and controlled.
BACKGROUND
Extramural Management Systems
Management oversight and controls over extramural activities at
ORD laboratories is vested in three primary EPA Headquarters
components: ORD, CMD, and GAD.1 ORD has direct management
responsibility for all of. ERL-A's operations while CMD and GAD
share responsibility with ORD for oversight of contracts and
assistance agreements, respectively. Under Section 2560 of EPA's
1 internal Control Guidance for Managers and Coordinators,
1988, Addendum 3 - Assessment Unit Listing for EPA.
Audit No. E1JBF2-04-0300
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Chapter 2
Management Controls Did Not Detect Or Preclude ERL-A's Abuse and
Mismanagement Of Extramural Resources
Resource Management Directive - Internal Control, primary
organizations (i.e., ORD, CMD, GAD) have the responsibility to
develop and maintain effective systems of internal control over
their program operations and administrative functions. In
addition, these organizations have the responsibility to convey,
in writing, to employees at each level of management their
internal control responsibilities and expected performance.
Primary organizations are also required to evaluate internal
control systems on a continuing basis and ensure that those
systems are adequately documented and followed.
Management Accountability for ERL-A's Pattern of Abuse
ORD, CMD, and GAD management and control systems were
substantially deficient and failed to provide reasonable
assurance that ERL-A complied with the requirements and intent of
applicable statutes, regulations, and EPA policies in its
acquisition/award, use, and management of contracts and other
extramural agreements. Since ORD, CMD, and GAD had oversight
responsibilities for ERL-A's extramural activities, these primary
organizations must share accountability for the deficiencies
presented in this report. While we did not conduct detailed
reviews of ORD, GAD, or CMD organizational internal control
processes and operations, we did identify specific management
control weaknesses in their respective operations. As evidenced
below and in the following chapters of this report, existing
management/internal control systems of ORD, CMD, and GAD either
did not identify or, if identified, did not prevent ERL-A's abuse
of extramural resources.
INSUFFICIENT INTRAMURAL FUNDING AND EPA STAFF
From 1986 to 1991, EPA staff at ERL-A decreased 4.6 percent while
the laboratory's research responsibilities more than doubled.
During this same period, on-site contractor and cooperator staff
at ERL-A increased over 113 percent. With decreasing staff and
increasing workload, ERL-A began a pattern of avoidance and
noncompliance with statutory and regulatory requirements and the
apparent misuse of extramural resources to supplement its under-
staffed and under-funded intramural operations. Identified
abuses ranged from improper use of contractors and cooperators as
substitute federal staff to perform critical laboratory
functions, to the use of a CA funded with R&D monies for the
development of an ERL-A on-site day-care center, to the apparent
exchange of extramural funds through lAGs with another federal
agency to supplement FTE intramural travel funds. Constraints on
Audit NO. E1JBF2-04-0300
14
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Chapter 2
Management Controls Did Not Detect Or Preclude ERL-A's Abuse and
Mismanagement Of Extramural Resources
intramural funding thus led to innovative, albeit questionable,
use of extramural resources.
GAD DIP HOT PREVENT OR DETECT IMPROPER USE OF COOPERATIVE AND
INTERAGENCY AGREEMENTS
Our review of 11 CAs and 6 lAGs awarded and/or managed by ERL-A
disclosed that ERL-A managers and scientists circumvented
statutory requirements, regulations and Agency procedures and
improperly used less restrictive CAs and lAGs in lieu of more
controlled contracts to obtain goods and services. The misuse of
CAs was prompted by: (1) lack of federal employees (FTEs) and
related "intramural funding available to ERL-A; (2) ERL-A1s
determination to complete assigned tasks by any means available;
and (3) a management culture which encouraged the questionable
use of extramural funds. ERL-A's misuse of CAs -resulted from a
lack of controls at all management levels over the resources used
to fund extramural research; however, GAD is principally
responsible for oversight of assistance agreements. Therefore,
inadequate GAD guidance and oversight contributed substantially
to the improper award of CAs and lAGs.
According to the Assistance Administration Manual, Chapter 15,
GAD's pre-award responsibilities for assistance agreements
included the pre-award'administrative and legal review which
involved reviews of the scope of work, statutory authority,
budget items, and the quality assurance (QA) narrative statement.
However, our limited review of GAD operations disclosed a
relatively superficial review was performed of assistance
agreement awards. In addition, GAD had not established adequate
policies and procedures to guide the assistance award and
management processes and did not provide sufficient pre-award
review to preclude ERL-A's abuses of CAs and lAGs. Details of
ERL-A' s misuse of CAs and lAGs are included in Chapter 3 of this
report and are briefly discussed below.
Examples of ERL-A's misuse of CAs included: (1) use of a near- .
site university to provide on-site laboratory personnel for
direct support of ERL-A scientists and their research projects,
(2) CA supplement which allowed a cooperator staff to modify a
model for the direct benefit of ERL-A and use by one of ERL-A's
off-site contractors, (3) funding PhD attainment for an ERL-A
employee, (4) a CA sub-project to develop an operating plan for
the ERL-A's on-site child-care center, (5) the payment of a UGA
cooperator "in absentia", and (6) extensive foreign travel for
academics which directly benefitted ERL-A initiatives. lAGs were
Audit No. E1JBF2-04-0300
15 ; •
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Chapter 2
Management Controls Did Mot Detect Or Preclude ERL-A'S Abuse and
Mismanagement Of Extramural Resources
used inappropriately to; (1) exchange extramural funds with
another federal agency to supplement EPA travel, and (2) fund a
research project with a foreign government without statutory
authority.
If GAD had properly fulfilled its basic oversight and management
responsibilities to delineate the acceptable use of CAs, guide
the competitive CA process, and properly ensure effective CA
management, the problems identified above and discussed in
Chapter 3 may have been precluded.
Inadequate GAD Pre-Award Oversight and Guidance Perpetuated
Confusion Over Use of Extramural Assistance Agreements Versus
Contracts and Contributed to ERL-A's Noncompliance With
Applicable Statutes
GAD had not issued effective guidance on the criteria for
selecting and using extramural assistance agreements. The only
written guidance issued by OAEM/GAD was merely a restatement of
statutory provisions in EPA Order 1000.19 and in the Agency's
Assistance Administration Manual. However, this guidance did not
adequately address the appropriate use of assistance agreements
under provisions of the 1977 FGCA Act versus procurement through
contracts (see Chapter 3 and later sections of this Chapter).
This determination was left to individual program offices. ORD,
in turn, left the decision to contract or award a CA to each
individual laboratory.
Once a laboratory selected the extramural assistance mechanism,
there was virtually no review of that decision by ORD or GAD.
ORD had reviewed only 2 of the 27 active CAs awarded and/or
managed by ERL-A. Our review of GAD files and discussions with
GAD managers and staff disclosed that its pre-award
administrative review of proposed CAs was little more than a
checklist of required documents. GAD files contained very few
contacts with ERL-A POs or managers. There was no evidence of
any discussions or independent review surrounding the purpose or
propriety of specific proposed assistance agreements. In fact,
GAD officials exhibited a "hands-off" approach toward its
management and oversight responsibilities and compliance with its
few control requirements. . This approach is discussed further in
the section on mismanagement of CAs below.
As a result of this deficient oversight and guidance, contracts,
CAs, and lAGs were used by ERL-A without consideration of which
mechanism was most appropriate. In making their decision about
what extramural instrument to use, ERL-A managers did not use the
Audit NO. E1JBF2-04-0300
16 V.
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Chapter 2
Management controls Did Hot Detect Or Preclude ERL-A1s Abuse and
Mismanagement of Extramural Resources
criteria of the law, established regulations, or Agency or QRD
guidance. Instead the decision to use a contract, CA, or IAG was
guided by time considerations, the preferences of the ERL-A or,
university principal investigators and/or other ERL-A managers,
headquarters allocations, and administrative convenience.
It also became evident that without proper guidance ERL-A
managers did not understand the distinction between using
contracts, CAs, and grants. Twice during interviews, the ERL-A ,
director explained the difference between contracts and
cooperative agreements as the type and level of anticipated
interaction between contractors/cooperators and federal
employees. The amount of collaboration between federal employees
and cooperators is the actual criteria that should be used to
determine whether an assistance agreement is awarded as a CA or
grant. The anticipated federal participation does not enter into
the decision to contract or award an assistance (cooperative
agreement or grant) agreement. When ERL-A POs were asked why
they used CAs instead of contracts in obvious cases of direct
benefit; the POs defended the use of CAs by citing mutual benefit
to the laboratory and the university as the justification.
However, Senate Report 97-180, dated August 13, 1981, rejected
relative benefit as a factor in determining whether to contract
or award an assistance agreement. The Senate Report stated that
the principal purpose of the transaction (procurement or
assistance) was the only legitimate decision criteria.
LACK OF COMPETITION IK EXTRAMURAL AWARDS NOT ADDRESSED BY GAD,
CMP. OR PRO
In order to obtain favored contractors and cooperators, ERL-A did
not competitively award most of its contracts or CAs. For those
few contracts and CAs awarded competitively, there were no
controls in place to assure that the proposal review process was
fair and equitable. The noncompetitive environment at the
laboratory existed, in part, because of the failure of ORD, GAD,
and CMD to effectively promote and encourage competition at ERL-
A. GAD did not develop policies to encourage' the competition of
CAs and CMD did not insist that ERL-A comply with competitive
requirements for contracting. Although ORD policy stated that
competitive award of extramural instruments helped assure the
best research, ORD delegated broad discretionary authority to its
laboratory directors to decide whether or not to compete
extramural awards and relied on GAD .and CMD to provide oversight
for the award and management of extramural contracts and
agreements. Further, ORD did not take corrective action to end
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the pervasive influence of the prospective PO over the evaluation
of CA proposals and did not provide effective oversight of the
proposal review process. These last deficiencies were previously
reported in DIG Audit Report No. ElgB2-ll-0019-30828, entitled
"Review of the Office of Research and Development's Extramural
Research Activities," issued March 28, 1983.
GAD Did NotDevelop Policies To Encourage Competitive Award of
CAs and lAGs
GAD is responsible for Agency-wide guidance on competition in
extramural agreements. However, none has been established. GAD
managers stated that the FGCA Act encourages competition, but
does not require it. GAD managers further stated that
competition was a programmatic decision and ORD had established
some competition guidelines. However, ORD officials denied any
responsibility for guidance on extramural competitive awards. An
ORD official stated that GAD was the office charged with this
responsibility and ORD only began promulgating such guidance
because GAD had failed to do so.
In the absence of specific requirements for competition, ERL-A -
did not encourage the competitive award of CAs as emphasized by
the FGCA Act. Of the 27 active ERL-A CAs having a maximum
potential value of $14.2 million, 17 CAs totalling $10 million
were awarded noncompetitively despite the FGCA Act provision
encouraging competition and ORD Headquarters policies that
competing CAs helps assure the best research available. ERL-A
used its discretionary authority to award noncompetitive
agreements to individuals/institutions that its scientists
believed to be the best qualified to perform the research needed.
Several of the noncompetitive awards were to current employers of
former ERL employees and on-site cooperators and to alma maters
or former employers of laboratory management. These
noncompetitive awards created the appearance of favoritism in the
award process. Details of problems with ERL-A's noncompetitive
awards are included in Chapter 3 of this report.
CMP Permitted ERL-A To Manipulate Procurements to Retain Favored
Contractors
ERL-A was able to abuse the contracting process to retain favored
contractors and their employees and then utilized these same
contracts to perform prohibited contracting activities.
Although CMD identified questionable contracting practices at
ERL-A (i.e., AScI contract splitting, personal services, directed
subcontracting, etc.), CMD staff still permitted ERL-A contract
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managers to circumvent contract regulations to retain incumbent
contractors without going through the competitive process. CMD
staff stated that due to limited staff they were not able to
closely scrutinize contract activities at ERL-A and that they
primarily acted as a service provider to the EPA program offices.
However, CMD, through its contracting officers; is responsible
under FAR 1.602-2 for ensuring performance of all necessary
actions for effective contracting, ensuring compliance with the
terms of the contract, and safeguarding the interests of the
United States in its contractual relationships. However, over a
period of nine years and with the apparent awareness of CMD, ERL-
A managers manipulated 8(a) contracting requirements to avoid
competition and retain the incumbent laboratory support
contractors. ERL-A abuses of the 8 (a) set-aside program are
presented in Chapter 4 and some examples are presented below.
For example, ERL-A requested a large modification' (a--$2.4
million/200 percent increase over original contract value and
20-month contract extension) to the TAX on-site contract just
before the 8 (a) firm graduated from the program. A CMD legal
review questioned 'the propriety of extending a contract when a
firm was about to graduate from the 8 (a) program. However,
according to 0AM, OGC signed .the file to affirm legal sufficiency
of the contract and made the comment for CMD's consideration
only. Despite this concern, CMD forwarded the request to the
Small Business Administration (SBA). SBA approved the extension
of the TAI contract from a three to a five-year contract one day
before the firm graduated 'from the 8 (a) program. CMD
subsequently approved this large contract modification, which
significantly changed the scope of work of an on~site 8 (a)
contract, without requiring competition. ERL-A subsequently
removed this same contract from the 8 (a) program when the
incumbent contractor graduated and was no longer eligible for an
8(a) set-aside.
Similarly, another 8(a) on-site support contract with AScI was
split into two sole-source 8 (a) contracts, one with obviously
underestimated costs, to avoid the $3 million 8(a) competitive
threshold which would require a competitive procurement. ERL-A
split its on-site support contract into an off-site and on-site
8 (a) sole-source procurement with AScI. However, the off-site
contract was actually near site with the same contractor site
manager and SOW as the on-site contract. Both contracts were
being processed simultaneously within CMD and awarded by the same
CO. CMD knew that ERL-A had initially submitted a $4.9 million
request which was later reduced below $3 million because ERL-A ,
indicated a reduction in anticipated work. CMD staff were also . -
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aware that ERL-A subsequently certified that it had sufficient
work to support two contracts with a total estimated potential
value of $5.9 million. Although the contract files and
interviews showed that CMD staff questioned the appropriateness
of two sole-source procurements with the same contractor and
showed concern over the off-site proposal and the potential for a
split procurement, the CO awarded the on-site contract on
September 25, 1990. The off-site contract was awarded in March
1991 even though CMD knew that the site manager was the same, the
SOW was the same as the on-site contract, and the off-site work
would actually be performed near site.
Our review showed that CMD did review and sometimes question ERL-
A's contract actions; however, ERL-A's requested contracts and
modifications were always approved by CMD with only minor
changes. While CMD's actions in these cases may have been in
keeping with its perceived role as a service organization to ERL-
A, CMD was not fulfilling its primary obligation and
responsibility to ensure compliance with federal contracting laws
and regulations and to safeguard the interests and contract
resources of the federal government.
ORD Did Not Provide Oversight To Ensure Fair and Equitable Awards
of CAs
Although the purpose of the CA proposal review process was to
ensure the quality of research proposals, ORD did not have
sufficient controls over this process to ensure that the goal of
awarding CAs to the best institutions to support the most
productive research was obtained. Even in competitive CA awards,
the proposal review process and ultimately the fairness and
openness of the competition was also questionable. We identified
potential review panel COIs for almost every CA award in our
sample, both competitive and noncompetitive. Noncompetitive CA
awards were made to employers of former ERL-A employees and on-
site coordinators or to former alma maters or employers of
laboratory management, which created the appearance of favoritism.
In addition, none of the review panels for competitive CAs
included ORD Headquarters staff as required by ORD procedures and
ORD Headquarters never questioned its exclusion from the review
panels. Further, ORD did not take corrective action to eliminate
the previously reported2 pervasive influence of the prospective
2 OIG audit "Review of the Office of Research and
Development's Extramural Research Activities," Audit No.
ElgB2-ll-0019-30828, issued March 31, 1983.
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PO over the review process. Prospective POs were permitted to
select review panel members and often chaired the panel which
recommended proposals for CA award. This problem is similar to
problems identified in prior OIG audits relative to contract POs,
who participated and/or led technical evaluation and source
selection panels for contracts they currently managed. This
continuing deficiency in the proposal review process also
represented a significant control weakness.
Although an ORD manager told us that ORD did not want proposal
review panels to be a "good old boy network," the organization
did nothing to prevent this from happening. ORD did not even
enforce its own procedures when they obviously were disregarded
by laboratory management (i.e., exclusion of ORD staff-from
review panels). While we did not identify any specific conflicts
of interest, just the appearance of conflict can be damaging.
Potential COIs can lead to a situation where CA funds are not
effectively utilized to obtain the best research at the least
cost to the government. In addition, lack of competition and
potential favoritism in the CA award process could subject EPA to
criticism and protests, and erode public trust in EPA research.
LACK OF ORD OVERSIGHT AND CONFLICTING GUIDANCE SENT MIXED
MESSAGES TO ERL-A ON PROPER USE OF EXTRAMURAL RESOURCES
Prior to 1992, ORD3 performed very limited oversight of ERL-A
extramural activities, delegated broad discretionary authority to
its laboratory.directors, and relied on GAD and CMD for primary
oversight and guidance for ERL-A extramural activities. In 1992
ORD began to strengthen its oversight and control of extramural
resources and issued guidance, albeit conflicting guidance, on
the award and use of CAs. ORD's failure to timely implement
strong extramural resource management controls is especially
significant, considering the high degree of reliance that ERL-A
and other ORD laboratories have placed on extramural resources to
accomplish their mission since the early 1980's and the high
degree of vulnerability of extramural resources to fraud, waste
and mismanagement.
3 ORD' s Office of Environmental Processes and Effects Research
(OEPER) has direct oversight responsibility for ERL-A operations;
however, most of the guidance cited was issued by the Assistant
Administrator for Research and Development.
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QRD Needed to Strengthen Its Oversight Role
ORD has taken recent actions to identify extramural management
weaknesses, issue guidance, and strengthen controls over
laboratory use of extramural resources. In the 1990 FMFIA
report, ORD documented extramural management as a material
weakness. However, at the time of our review in early 1992,
internal controls had not been effectively established to
identify or prevent ERL-A's misuse and abuse of extramural
resources. Prior to 1990, when most of the questionable actions
cited in this report occurred, few, if any, controls were
documented or established by ORD for extramural resource
management. Although GAD is primarily responsible (in
coordination with ORD) for guidance and oversight of assistance
agreements, definitive guidance from GAD on the use of assistance
agreements was practically nonexistent" before ORD took the
initiative and issued interim guidance in October 1992. Also,
documents in ERL-A files indicated that ORD Headquarters during
this earlier period failed, on occasion, to comply with its own
extramural policies. ERL-A staff perceived tremendous pressure
from ORD to complete many time critical research projects with
inadequate in-house resources. Such perceived pressure, coupled
with inadequate ORD controls and oversight, may have fostered a
laboratory environment which encouraged the misuse of extramural
funding to supplement deficient federal staff and related
administrative support.
In January 1992, after the OIG's identification of serious
contract management deficiencies at ORD's Duluth laboratory,5 ORD
and CMD performed a review of ERL-A's on-site support contracts.
This was the first ever systematic review conducted by ORD of
ERL-A's management of extramural resources. ERL-A managers told
us that tremendous pressures existed at the laboratory to
accomplish the numerous research projects assigned by ORD. As
discussed in Chapter 1, the lab's responsibilities have increased
significantly while its EPA workforce has remained stable or
decreased. In the absence of ORD oversight of ERL-A's extramural
activities, ERL-A managers, under perceived pressure to complete
4 EPA' s Assistance Administration Manual, which outlined broad
policies and responsibilities, was the only guidance on assistance
agreements prior to ORD's October 1992 policy issuance.
5 OIG Audit Report No. E1JBF1-05-0175-2100443, Contracting
Activities at Environmental Research Laboratory Duluth, issued July
7, 1992.
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critical research, chose expediency over propriety and improperly
used extramural'resources in the form of contracts, CAs, and lAGs
to supplement federal staff.
Although, as previously stated, GAD had weak controls and
inadequate oversight over assistance agreements,, we also found
that ORD had few controls over the laboratory utilization of CAs
and lAGs. At the time of our audit, ORD policies and procedures
did not provide for ORD Headquarters oversight or review for most
CAs awarded by laboratories because laboratory directors were the
decision officials for all noncompetitive CAs under $250,000 and
all competitive CAs under $1 million.6 At ERL-A, for example, .
the lab director was the decision official for all but 2 of the
11 CAs in our sample and of ERL-A's total 27 active CAs, only 2
met the requirements for an ORD review. ERL-A management
indicated that decision memorandums for all CAs were forwarded to
ORD Headquarters. However, ORD/OEPER staff informed us that
occasionally ORD Headquarters did receive copies of decision
memorandums from laboratories for noncompetitive CAs under the
$250,000 threshold, but it was not required and they performed ho
review or analysis of the CA proposals when the laboratory
director was the decision official. These decision memorandums
were merely logged in and filed away. As a result of the lack of
Headquarters controls and/or guidance, ERL-A managers often made
what they referred to as "management calls." These "calls"
frequently resulted in inappropriate contract and assistance
agreement activities.
Our review of active CAs administered by ERL-A disclosed one case
where ORD/OEPER failed to comply with its own policies and
procedures in a 1989 CA award to the University of New Hampshire
(UNH). Despite total project costs of almost $1 million, the UNH
CA was awarded by ORD noncompetitively with no justification in
the decision memorandum as required by ORD's procedures. This
noncompetitive award also disregarded ORD's policy of encouraging
competition and awarding CAs to the best institutions to support
the most productive research. In addition, at least one
contractor employee was permitted to review this CA proposal, an
inappropriate action in this situation because there was
potential for competition between the contractor and the
6 ORD directive, entitled "COOPERATIVE RELATIONSHIPS. Interim
Guidance,, issued October 1, 1992, reduced laboratory director
approval of noncompetitive CA awards to $50,000 or less; however.,
required ORD approval for competitive CA awards was raised to $5
million.
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cooperator (see Chapter 3). Although originally awarded by ORD,
responsibility for administering the UNH CA was subsequently
transferred to ERL-A.
Conflicts Between ORD Policy and Federal Statutes Demonstrated
QRD-wide Confusion Over Proper Use of CAs and Contracts
On at least one occasion ORD issued interim policy related to the
use of CAs which contradicted provisions of the 1977 Federal
Grants and Cooperative Agreements (FGCA) Act and the intent of
Congress expressed in numerous congressional reports. Although
this guidance was issued subsequent to most of the abuses cited
in this report, such incorrect, conflicting guidance from ORD's
top management is indicative of the confusion found at ERL-A on
the proper award and use of CAs (see Chapter 3). This same
incorrect guidance was used by ORD as a basis for shifting
extramural resources from more controlled, restrictive (and
recently criticized) on-site laboratory support contracts to less
restrictive CAs.
ORD Headquarters Mandated Increased use of CAs and issued
Incorrect Guidance on the Use of CAs
Recent guidance from ORD, partly in response to OIG audits of the
CSC contract and ORD's Duluth laboratory, indicated that ORD's
response to criticism of its contracts management was to transfer
its extramural funding from contracts to other, less visible,
less restrictive extramural instruments - CAs. A March 16, 1992
memorandum from the Assistant Administrator (AA) for Research and
Development stated that he was planning to significantly increase.
the total allocation of extramural resources to competitive, off-
site cooperative research agreements. The AA directed that by
the end of FY 1993, 35.percent of the dollars currently devoted
to LOE contracts and CAs, particularly those providing direct
support to the in-house research program, be allocated,to
increased awards of competitive CAs and competitive completion
form (cost reimbursable) contracts. This emphasis on increased
extramural funding for agreements is reflected in ERL-A's 1992
budget which included a 52 percent increase in funding for CAs
and XAGs over their 1991 budget versus a 6 percent decrease in
contract funding from 1991. levels.
During the audit, several ERL-A staff told us that ORD
Headquarters, in past years, had directed the laboratory to
increase its use of contractors to accomplish laboratory tasks.
ERL-A POs told us that they used available resources for on-site
support contracts as ORD directed to accomplish the laboratories
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tasks. Now, they were being criticized for doing what they were
directed to do and being pushed in a new direction. One PO told
us that ORD's immediate response to recent OIG audits of
contracts, de-emphasizing contracts and emphasizing CAs, only
served to "put a cosmetic patch over the top" of problems which
have developed over the past ten years. This PO believed that to
arbitrarily cutoff contracts and increase CA support was not the
best or proper solution.
The AA, in his March 16, 1992 memorandum, justified the shift in
extramural emphasis by stating that increased relationships with
the academic community would accomplish the best science possible
at a reasonable cost. However, assistance agreements do not
require bids or cost/price analysis as required for contracts;
therefore, use of CAs would not necessarily ensure "a reasonable
cost" in comparison to contracts. In addition, the AA's
memorandum did not address the very different uses of .contracts
and CAs which are defined by the 1977 statute. The ORD directive
merely provided another arbitrary parameter within which ERL-A
and the other ORD laboratories would be required to operate.
A second ORD directive on the management of extramural resources,
entitled "COOPERATIVE RELATIONSHIPS. Interim Guidance," was
issued on October 1, 1992, by the AA for Research and
Development. The directive used the premise that ORD research
benefitted the general public as support for the use of CAs for
research that also "incidentally" benefitted the Agency. The
directive stated:
V
ORD is authorized under various statutes to conduct
research and development in different areas of
environmental science. . It is ORD's policy that the
primary purpose of such research is to "carry out a
public purpose of support or stimulation" as stated in
31 U.S.C. 6305. Such research is thus appropriate for
assistance agreements, recognizing that the results of
such research may incidentally be of direct benefit to
the Government.
In our opinion, ORD misinterpreted the FGCA Act. This directive
implies that all ORD research is for "a public purpose of
stimulation and support" as required by the FGCA Act for use of
assistance agreements and; therefore, CAs can be used in direct
support of ORD research projects. All funds expended by EPA,
whether for CAs, contracts, or any other purpose, should serve "a
public purpose" and benefit the general public. Therefore,
public benefit is not an acceptable distinction between use of
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contracts and assistance agreements. As discussed above,
Congressional intent, as documented in Senate Report 97-180,
dated August 13, 1981, was that the principal purpose of entering
into a transaction was the only legitimate criterion in deciding
whether to use a contract or an assistance agreement. Congress
specifically rejected the argument of relative benefit to justify
transactions under a CA instead of a contract. Our review of the
RFPs and/or decision memorandums in our CA sample showed that the
primary purpose of most CAs was not to provide assistance or
stimulation to the recipients, but rather to provide direct
support to ERL-A/ORD research and modeling projects.
The October 1992 ORD directive further established several
different categories of CAs. According to the guidance, Research
Program Support Agreements (RPSA) were determined appropriate for
the direct support of ORD's environmental research and
development activities. The scope of each RPSA would normally be
focused on one or several closely related major activities to be
accomplished in a defined time frame such as support of
scientific symposia. Laboratories would be authorized to spend
up to 10 percent of their extramural budget for RPSAs. The
guidance counseled that RSPAs could not be used to 'acquire goods
or services for the direct benefit of EPA. However, it was
unclear how this type of agreement would be providing assistance
to recipients as required under FGCA Act and how an agreement to
support ORD research activities could preclude the obtaining of
services that directly benefitted EPA. The RSPA appears to
authorize misuse of CAs by ORD units.
The AA for Administration and Resources Management (OARM) in a
memorandum, dated December 2, 1992, entitled "When to Use
Contracts and Cooperative Agreements and Grants," supports our
conclusion that projects which provide property or services for
the direct benefit or use of the Agency requires the contract
mechanism. The guidance specifically identified projects which
produce specific information that will be directly incorporated
into Agency technical, policy, or regulatory decisions as
activities that cannot be funded through assistance agreements.
The October 1992 ORD directive cited above does not appear to be
in compliance with OARM's guidance.
ERL-A Response to the Reduction of On-Site Technical support
Contracts
As discussed above, ORD Headquarters on March 16, 1992 directed a
35 percent reallocation of extramural funds from on-site LOE
contracts to off-site competitive contracts and CAs. As a
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result, ERL-A faced the eventual loss of long-term incumbent
contractor employees. The laboratory's initial response was to
develop a contingency plan to move these employees -onto other,
more acceptable contracts, or CAs with nearby universities.
ERL-A files contained a March 1992 draft contingency plan that
discussed strategies the laboratory could use to meet the
anticipated 50 percent reduction (later reduced to 35 percent) in
on-site LOE technical support dollars as proposed by ORD and
still retain the incumbent'on-site contractor staff. The plan
contained lists of the "on-board" contractor employees along with
notations as to how they could be retained. The strategies
included: moving the employees to superfund tasks or to a new
"off-site" contract; transferring them to an on-site computer
support contract; moving one employee to an IAG with USDA; and
moving the "PhD, post-doc types" to CAs at the University of
Georgia, Clemson University, National Research Council, and/or
Clark-Atlanta University. A note attached to the contingency
plan from the laboratory director stated, "It seems to me that we
may be able to absorb this cut with still having about the same
technical support." While the ORD policy of moving .contract
dollars to competitive off-site CAs and competitive completion
form contracts would be accomplished on paper, the status quo at
ERL-A would be maintained. As ERL-A's contingency plan
demonstrates ORD's decision to make an arbitrary re-allocation of
extramural resources to correct past contracting deficiencies
produced arbitrary results. As mandated by the 1977 FGCA Act,
deciding between a contract and an assistance agreement should be
based on the primary purpose of the transaction not an arbitrary
decision on allocation of:funds.
Poor Planning and Delays in Funding Sometimes Precluded the Use
of the Proper Extramural Mechanism
ORD's 1990 Resource Utilization Workgroup notes, previously
cited, documented concerns with the ability of laboratories to
responsibly plan in advance for the quantity, type and timing of
resources. - The consensus of the group was that delays of
resources coming to the laboratories caused considerable problems
and wasted administrative effort. Also, the group concluded that
year-end redistributions of funding usually came too late to
responsibly and effectively spend the resource. As a result, the
appropriate extramural agreements could not always be used
because CMD and GAD deadlines for submission of contract or
assistance proposals were already passed.
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The ERL-A director, as well as several ERL-A CA and IAG POs, and
Pis at UGA and other universities specifically mentioned that
funding delays had an adverse effect on managing extramural
resources. As an example, the laboratory director told us of a
two year wait for SERDP (Strategic Environmental Research and
Development Program) funds from the Department of Defense (DOD).
The funds were finally received late in FY 1992. Although the
timeframe for submitting contract proposals to CMD had already
expired, it was not too late to process a noncompetitive CA
through GAD. After our discussions with GAD officials concerning
their oversight of assistance agreements, ERL-A submitted a $3
million noncompetitive CA to GAD for SERDP, but it was not
approved. GAD determined that the scope of work was procurement
not assistance and that a contract would be the appropriate
mechanism. Since it was too late to process a contract, the
laboratory lost the SERDP funding.
MISMANAGEMENT OP EXTRAMURAL RESOURCES NOT PRECLUDEDBY GAD, CMD,
OR ORD
GAD, CMD, and ORD did not have adequate controls to"ensure that
ERL-A effectively managed contracts and other extramural
agreements and ensured compliance with the terms of extramural
agreements and proper expenditure of funds. As a result, neither
GAD, CMD, or ORD detected or prevented the major deficiencies in
ERL-A's management of extramural resources reported in Chapters 3
and 4. GAD and CMD's inadequate review and approval of ERL-A's
improper use of extramural resources in essence condoned ERL-A's
mismanagement of extramural agreements. Also, GAD's failure to
implement or enforce its limited controls over CAs did not
encourage proper management of assistance agreements by program
managers.
GAD Did Not to Provide Oversight and Guidance For. CA Management
GAD did not provide oversight in compliance with its
responsibilities as delineated in EPA's Assistance Administration
Manual contributed to ERL-A's mismanagement of extramural
agreements. GAD is the Agency's expert on the award and
administration of CAs, grants, and lAGs. In addition, GAD is the
"Award Official" or final approval authority for all ORD
assistance agreements. Without proper and definitive guidance
and oversight by GAD, there can be no effective system of
controls over Agency resources dedicated to assistance
agreements.
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According to the Assistance Administration Manual, GAD's
responsibilities for assistance awards included: (1) assurance
that all technical, legal, and administrative evaluations have
been made and that the application is awardable, and (2)
assurance that the proposed agreements meet the requirements of
applicable legislation, regulations, and program guidance. Also,
according to the Manual, GAD's responsibilities for post-award
administration of assistance agreements included: (l) evaluation
of recipient management systems, and (2) financial review of
recipient activities. GAD's post-award oversight mechanisms
included transmitting copies of Financial Status Reports (FSRs)
to POs for use in PO reviews of recipient activities and
receiving trip reports for PO site visits which may identify
recipient problems or problems with PO management. Finally, GAD
is responsible for overall Agency guidance on administration of
assistance agreements.
Despite these numerous oversight responsibilities, GAD grant
specialists, due to their heavy workloads, were unable to answer
even our basic questions related to ERL-A CAs we reviewed. GAD's
review of-proposed CAs was primarily a "paper process" to verify
that all required documents had been completed. There was no
evidence of any substantive review of the merits or propriety of
the proposed awards or their compliance with laws, regulations,
and Agency policies. One specialist explained that she was
responsible for 150 CAs. with this workload, we calculated that
she could only devote, approximately, 1.5 work days to each CA
which offered little time for oversight. As' a result, GAD
specialists had virtually no contact with POs during the
performance of CA projects.
GAD managers stated that POs did not need to contact GAD except
at closeout of a CA or grant. In addition, GAD did not require
trip reports from POs1 site visits and did not send copies of
FSRs for POs to review even though these control/oversight
mechanisms are required in their Assistance Administration
Manual. In addition, there was an overall lack of documentation.
of any management/oversight of the CAs by GAD.
There were few written policies and procedures on the
administration of CAs by POs other than the Assistance
Administration Manual which was provided only to the ERL-A
extramural coordinator, not to the lab POs. GAD also did not
make training mandatory for CA and IAG POs. GAD managers stated
that CA POs were not required, only encouraged, to take project
officer training. , GAD managers indicated that almost three
hundred POs had taken the assistance PO training in 1992 under a
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voluntary system. However, even with training, inexperienced POs
require close oversight and management which has not been
provided by ERL-A or GAD. GAD and ERL-A managers must remember
that POs were trained as scientists not administrators and a two
or three day training course will not make them effective, stand-
alone managers of millions of dollars in assistance agreements.
Under such inadequate oversight. and management by GAD, it is not
surprising that ERL-A POs were not adequately and effectively
overseeing their extramural agreements.
Perhaps the most serious example of GADfs lack of controls over
CAs was the disconnect between the technical monitoring that was
done by ERL-A POs and the financial management responsibilities
of GAD (see details in Chapter 3) . Because of GADs disregard for
its own financial management/control requirements, ERL-A POs
could not oversee the financial status of CA research projects.
Even though GAD's Assistance Administration Manual required that
FSRs be provided to POs, GAD did not comply with this requirement
and POs did not receive any cooperator financial reports, since
POs monitor the progress of CA projects and have direct contact
with the cooperator, they are the only individuals who could
effectively monitor cooperator use of federal funds: Because GAD
had not complied with its own requirements and.emphasized
financial management, ERL-A POs told us they had no financial
management responsibilities for their assigned CAs. Without PO
involvement in financial as well as technical oversight of CAs,
EPA has no effective system for assuring that CA funds and other
resources are appropriately used and safeguarded against waste
and abuse.
If GAD had fulfilled even its basic responsibilities and taken
the initiative to better oversee CA administration, some of the
problems described in this chapter and Chapter 3 may have been
prevented.
Lack of CMP Oversight Permitted ERL-A*s Post-Award Misuse cf
Contracts
Our audit disclosed that ERL-A improperly used contractor
resources to supplement its own in-house resource needs while CMD
performed minimal post-award oversight of ERL-A's contract
operations. At the time of our audit, CMD did not have adequate
controls in place to prevent this misuse. During 1992, CMD,
joined with ORD to perform an on-site review of ERL-A's contract
management activities. CMD and ORD found many of the contract
management problems we cited in our survey report (Report
NO.E1XMG2-04-0102-3400007, issued November 30, 1992) and in this
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audit report. However, this was CMD's first ever on-site review
of ERL-A contract activities and such reviews have not been
established as a continuing oversight/control technique by CMD.
Examples of post-award contract management problems identified
during our survey and audit are summarized below. Details of
these problems are included in Chapter 4.
ERL-A's AScI and TAI contracts and related WAs contained, broad
SOWs with undefined deliverables resulting in indefinite
contractor operations. ERL-A management misused these contracts
by personally directing the activities of contract employees to
enhance ERL-A research rather than adhere to a contractual
relationship. The lack of an arms-length contractual
relationship resulted in: (1) directed subcontracting; (2)
personal service relationships; (3) contractors being involved in
critical, if not inherently governmental functions; (4)
inadequate work assignments and statements of work (SOWs); and
(5) inadequate review and acceptance of contract charges. This
increased ERL-A's vulnerability to fraud, waste, abuse, related
conflict-of-interest situations, and a potential loss of the
Agency expertise in critical functions. In addition, ERL-A's
close relationship with on-site contractors and their employees
provided the incumbent contractor resident expertise in certain
research projects which significantly increased their value to
ERL-A. This created a potential contractor monopoly which
precluded or at a minimum inhibited future "open" competition for
on-site contract support.
CONCLUSION
Over the past 7 years, an ERL-A culture was allowed to develop
that encouraged the misuse and abuse of extramural resources.
With limited intramural funding, the success and stature of the
laboratory and individual scientists in the research community
was directly proportional to your slice of the extramural pie.
Extramural support provided great flexibility in the ability of
ERL-A programs to directly hire specific individuals and experts.
ERL-A could also obtain other FTE-type support from contracts and
assistance agreements because extramural activities were not
subject to the same level of scrutiny as intramural funding.
ERL-A staff repeatedly argued that "quality science" was the
primary motivation to ERL-A's actions, either within or around
established systems, to accomplish its primary goal - the
research mission. However, the mission was not sufficient
justification for avoiding and circumventing statutes,
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regulations, policies and guidance that governed the acquisition,
use, and management of extramural contracts and agreements.
Every EPA program has a mission and those missions must be
accomplished within administrative procedures established to
protect the government's interests and safeguard government
resources.
Effective management control systems must include adequate
guidance in the form of policies and procedures to assure that
internal control objectives are achieved. The ERL-A director
stated there was a definite lack of clear EPA guidance regarding
extramural management. She commented, "People like me are good
rule followers, that is, if I know the rules." However, without
specific guidance from ORD, GAD, and CMD, many of ERL-A decisions
became "discretionary" decisions of EKL-A managers to promote
their own interests rather than the government's interests.
The FAR provides that government business shall be conducted in a
manner above reproach. FAR 3.101-1 further states:
Transactions relating to the expenditure of public
funds require the highest degree of public trust and an
impeccable standard of conduct...While many Federal
laws and regulations place restrictions on the actions
of Government personnel, their official conduct must,
in addition, be such that they would have no reluctance
to make a full public disclosure of their actions.
ERL-A's extramural efforts fell far short of this standard.
Aided by CMD, GAD, and ORD inaction, poor management, and weak
controls, ERL-A was permitted to evade statutes, regulations,
policies, and guidance in its use of extramural resources.
RECOMMENDATIONS
Recommendations Jbo the As3istg**fc ^«i™inistrator» Research and
Development
We recommend that the Assistant Administrator for Research and
Development evaluate its management controls, CA guidance, and
resource allocations related to ERL-A's use and management of
extramural resources. Specifically, the Assistant Administrator
should:
- Review all ORD guidance related to CAs, in coordination with
OGC and GAD, to determine whether applicable guidance fully
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complies with the intent and statutory provisions of the 1977
FGCA Act, as amended. Obtain a formal written OGC opinion as
to compliance of current ORD policies with the intent and
provisions of the 1977 FGCA Act.
- Instruct ERL-A management to refrain from its pattern of
circumvention and noncompliance with laws, regulations, and
Agency policies related to extramural and intramural resources.
- Continue to promulgate and refine CA guidance to laboratories
which encourages or requires competitive awards and improves
ORD oversight and control of laboratory management of
assistance agreements.7
- Evaluate and strengthen ORD's oversight and controls over ERL
-A's contract management activities and encourage full and open
competition in laboratory contacts as intended by the
Competition In Contracting Act of 1984.
!*-*.
In addition, the Assistant Administrator for Research and
Development should require the:
Director. Environmental Processes and Effects Research to;
- Evaluate ERL-A's staffing needs and, if appropriate, request
through the budget process additional FTE positions for ERL-A's
resource/contract management functions, as well as mission
critical research projects. With the approval of EPA's
Comptroller and OMB, this may be accomplished through
conversion of extramural funds to intramural FTE support. Such
FTE increases could preclude continuing personal services
relationships with contractor staff, prevent contractor
performance of inherently governmental functions, and improve
contractor and cooperator oversight. , '
- Establish periodic, recurring on-site 'reviews of laboratory
management of contracts and assistance agreements to be
performed jointly with CMD and GAD, respectively.
7 ORD issued interim and draft guidance documents during our
audit which encouraged competitive CA awards, elevated approval
level for noncompetitive CA awards, and strengthened some oversight
and management controls for laboratory programs.
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- Evaluate the planning, timing, and funding processes for
research projects which may preclude laboratory selection
of the best and appropriate extramural mechanism.
- Eliminate arbitrary allocations of extramural resources which
may preclude ERL-A from using the appropriate extramural
mechanism.
Recommendations to the Assistant Administrator, Administration
and Resources Management
We recommend that the Assistant Administrator for Administration
and Resources Management establish proper management controls
over ERL-A contracts, cooperative agreements, and interagency
agreements. Specifically, the Assistant Administrator should
require the:
Director. Grants Administration Division to:
- Update, clarify, and communicate definitive written policies
and procedures on the award and administration of assistance
agreements, to include the specific eligible purposes of
assistance agreements under the 1977 FGCA Act, and provide this
guidance to ERL-A managers and POs, as well as to POs EPA-wide.
- Establish Agency-wide policy on competition in award of
assistance agreements that complies with the intent of the 1977
FGCA Act.
- Strengthen oversight and review of proposed CAs and lAGs to
ensure their compliance with applicable laws, regulations, and
Agency policies before official approval of these assistance
agreements.
- Provide increased oversight of PO and recipient management,
both technical and financial, to ensure proper PO compliance
with their oversight responsibilities and to ensure recipient
compliance with terms of their agreements. In addition, GAD
should aggressively enforce its requirements on program
operations and ensure that it is complying with its own
requirements to include obtaining PO trip reports and
submitting FSRs to POs for review.
- Review the adequacy and applicability of current PO training
and require such training for all CA and IAG POs.
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- Utilize the database of all current IAG and CA POs for
consultation, when needed, and to ensure they are provided
written guidance and training materials, in a timely manner.
- Evaluate the qualifications of all POs designated by program
offices and ensure the individuals have the proper training and
experience required. A certification program for CA and IAG
POs, similar to the certification of contract POs is
recommended. :
- Establish jointly with ORD, periodic/cyclical on-site reviews
of laboratory management of assistance agreements.
Director. Office of•Acquisition Management fOAMK and Director.
Contract Management Division - Cincinnati to;
- Strengthen CMD's contract review process to ensure that
contract proposals are thoroughly reviewed and that all
questionable actions are quickly resolved. Any procurement
requests for sole-source contracts, including noncompetitive-
8 (a) contract proposals, should be closely scrutinized as to
need for sole-source contracts and contract cost estimation to
avoid competitivekthresholds.
- Instruct cos to immediately notify CMD's director of any
potential violation of contract laws and regulations or any
unsound contract management practices identified. Also, ensure
that the director of CMD expeditiously resolves any potential
violations or unsound practices.
- Emphasize to CDs that their primary obligation is to ensure
compliance with contract laws arid regulations and to protect
the interests of the government while at the same time
providing timely service to programs. Establish controls to
ensure that CDs consistently comply with contract laws,
regulations, Agency policy and sound contract management
practices in all of their contract actions.
- Examine CMD's or EPA's competitive contracting process and
streamline where possible to eliminate unnecessary
administrative burden, delays, and incumbent bias (i.e.,
personnel commitments) and to overcome program management's
resistance to competitive process awards.
- Establish jointly with ORD, periodic/cyclical on-site reviews
of laboratory management of contacts
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AGENCY RESPONSE AND PIG EVALUATION OF AGENCY COMMENTS
ORD Response
ORD expressed no disagreement with the findings and
recommendations presented in Chapter 2. ORD suggested changes to
Chapter 2 and Chapter 3 to clarify our background information and
interpretation of the 1977 FGCA Act and related legislative
history. These changes were primarily incorporated into the
initial Background section of Chapter 2.
ORD included planned corrective actions for each recommendation
and milestone dates for completion of these actions. ORD's
response to the recommendations was acceptable for resolution of
recommendations addressed to ORD in Chapter 2. ORD's specific
comments to Chapter 2 recommendations are included in Appendix I.
GAD Response
GAD expressed concerns that the audit report overstated the FGCA
Act requirements regarding the proper utilization of CAs versus
contracts. Therefore, we modified certain statements in Chapters
2 and 3 based on suggested revisions by ORD Headquarters to
resolve concerns expressed by both GAD and ORD.
GAD stated that they had issued numerous policies on CA
administration and that the report was incorrect in stating that
there was a lack of policy or inadequate guidance from GAD.
However, during the audit we requested all of GAD's guidance on
CAs and only received the Assistance Administration Manual and
EPA Order 1000.19, issued 1979. GAD's response states that
current guidance or policy does need supplementing which
indicates, based on what we found, that current guidance is at
least inadequate. Therefore, we have changed "lack of" policy to
"inadequate" guidance or policy in the report.
GAD generally agreed with Chapter 2's recommendations to the GAD
director and the response included planned or initiated actions
for some recommendations. GAD's comments and OIG's evaluation on
Chapter 2's recommendations are detailed in Appendix I. GAD's
complete response to Chapter 2 and OIG's evaluation is available
on request.
QAM Response
Disagreements expressed by 0AM essentially deal with findings on
the award of repetitive TAI contracts at ERL-A. Specifically,
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OAM was concerned that the report implied that EPA programs
should not provide general support for the 8(a) program. In
addition, OAM believed that it had encouraged competition and
developed procedures to enhance the proposal review process.
Also, OAM appears to take the position that the TAI competitive
procurement was not restrictive and did not favor the incumbent.
The contract findings in Chapter 4 relate only to the AScI and
TAI contracts which provided on-site support at ERL-A and
presents information only on CMD's activities as it relates to
these two contractors. The report does not question the value of
the 8 (a) program in developing disadvantaged business and the
importance it plays in EPA's overall contracting scheme. Neither
does the report question the need for sole-source procurements
early in the life of an 8 (a) firm to shelter emerging firms and
give it a start in the marketplace. However, we do recognize
that the overall goal of the 8 (a) program is to promote the
development of small business concerns owned and controlled by
socially and economically disadvantaged individuals so that such
firms can compete on an equal basis in the American economy.
From our review of 8 (a) contracting at ERL-A, we could only
conclude that the goal of the Small Business, Act's 8(a) program
was not the laboratory's main interest in the program. Also,
based on our review of the 8 (a) statute and related legislative
history of the 1988 amendment of the Act, we could not conclude
that repetitive sole-source procurements to the same contractor,
during the entire time it qualified under the 8 (a) program, would
accomplish the prime objective of the Act which was to "promote
the development" of 8(a) firms. The Act was amended in 1988
because firms were graduating from the program and then could not
survive in the competitive environment. From our review, we
could only conclude that Congress under CICA and the Small
Business Act intended that competition be part of the 8 (a)
program.
We do not dispute. OAM' s claim that CMD does encourage
competition. We did not audit CMD's overall competitive award
efforts. We only examined competition for contract awards at
ERL-A and found it lacking. Therefore, we questioned the
judgement used by CMD in allowing the repetitive sole-source 8 (a)
awards which spanned an 11 year period to a contractor (TAI) who
had obtained a competitive position at ERL-A, and the splitting
of another 8(a) contractor's procurement with the intent of
avoiding competition requirements.
OAM generally agreed with Chapter 2's recommendations. OAM's
response included planned or initiated actions for some
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recommendations. OAM's comments and 'OIG's evaluation on Chapter
2's recommendations are detailed in Appendix I. OAM's complete
response to Chapter 2 and OIG's evaluation is available on
request.
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CHAPTER 3
MISUSE AND MISMANAGEMENT OF COOPERATIVE
AND INTERAGENCY AGREEMENTS
Our review of 11 CAs ($11.15 million maximum value) and 6 lAGs
($1.3 million maximum value)1 disclosed that in all 17 extramural
agreements, ERL-A managers: (1) improperly used less restrictive
CAs and lAGs to procure goods and services in lieu of the more
controlled contracting process, (2) did not encourage the
competitive award of CAs, (3) exhibited apparent favoritism in
noncompetitive CA awards, and (4) did not effectively manage CAs
to assure compliance with terms of extramural agreements or that
government assets were safeguarded against waste or abuse. ERL-A
staff apparently sacrificed adherence to statutory requirements
and ORD policies and procedures to supplement inadequate
intramural resources. In addition, ERL-A seemed unaware of the
proper criteria for determining the use of CAs versus contracts.
As discussed in Chapter 2, inadequate and inconsistent guidance
from GAD and ORD Headquarters contributed to ERL-A's confusion
over the proper use and selection of extramural agreements.
Further, ORD and GAD oversight of ERL-A operations was
insufficient to prevent misuse and mismanagement of extramural
resources by-1RL-A. ERL-A's misuse and mismanagement of
extramural agreements resulted in a lack of assurance that the.
research -performed under these agreements was properly overseen"
and that government resources were adequately controlled and
effectively utilized.
Several deficiencies related to ORD's CA award and management
processes had been previously identified by a 1983 OIG audit of
ORD's CA program.2 Nine years later these problems remained
uncorrected at ERL-A. Based on our review at ERL-A, corrective
action taken on the prior audit was both inadequate and
ineffective because ORD issued faulty guidance, ERL-A ignored
some of the controls instituted by ORD and ORD failed to oversee
and ensure proper implementation by its laboratories.*
MISUSE OF COOPERATIVE AGREEMENTS
In all 11 CAs reviewed, ERL-A circumvented statutory requirements
by improperly using less restrictive CAs in lieu of more ;
1 ERL-A CAs and lAGs included in our sample, along with
award dates and potential values, are shown in Appendix III.
2 Audit Report No. ElgB2-ll-0019-30828, "Review of the
Office of Research and Development's Extramural Research
Activities", issued March 31, 1983.
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controlled contracts to obtain goods and services for the direct
benefit of ERL-A and/or EPA. ERL-A also apparently misused CAs:
(l) to fund PhD attainment for an ERL-A employee, (2) to fund a
CA sub-project to develop an operating plan for ERL-A's child-
care center, (3) to make payments to a UGA cooperator "in
absentia", and (4) by not fully disclosing extensive foreign
travel for academics in support of ERL-A initiatives.
As previously discussed in Chapter 2 of this report, the misuse
of CAs was directly related to ERL-A's lack of full-time
equivalents (FTEs/federal employees) and related intramural
funding, their determination to complete their assigned tasks by
any means available, and a management culture which encouraged
the innovative, albeit questionable, use of extramural funds.
Misuse of CAs resulted in a lack of controls over the research
performed and the resources used. Such abuses of CAs were
condoned/encouraged by ORD Headquarters and were not prevented by
ORD or GAD controls over CA use and approval (See Chapter 2}.
Background
Authorizing Statute and Related Congressional Intent
:*-.
Public Law 95-224, the Federal Grant and Cooperative Agreement
(FGCA) Act of 1977, intended to eliminate ineffectiveness and
waste resulting from confusion over the definition and purposes
of the legal instruments used to carry out transactions between
federal and non-federal entities. The FGCA Act established
government-wide criteria for selection of the appropriate class
of legal instrument, e.g., contracts, grants, and CAs. The Act
required that the choice and use of these legal instruments
reflect the principle purpose and type of relationship expected
between the Federal and non-federal parties.
The current codification of the Act, 31 U.S.C. 6305, identifies
the following basic relationships found in transactions between
federal agencies and recipients of contracts, grants, or CAs:
Instrument Relationship
Contract The principal purpose of the relationship is to
acquire by purchase, lease, or barter, property or
services for the direct benefit or use of the
Federal government. This is Federal purchase for
Federal or third-party use.
Cooperative The principal purpose of the relationship is to
Agreement transfer money, property, services, or anything of
value to the recipient to accomplish a public
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purpose of support or stimulation; there willbe
substantial involvement between the Federal agency
and the recipient during performance of the activ-
ity, establishing the agency as a "partner" during
performance. Agency "control" as might be typical
during a contract is not anticipated.
Grant The principal purpose of the relationship is to
transfer money, property, services, or anything of
value to the recipient in order to accomplish a
public purpose of support or stimulation; there
will be no substantial involvement between the
Federal agency and the recipient during perfor-
mance of the activity. Normal grant monitoring
would not ordinarily be considered as substantial
involvement. The Federal agency is a "patron" of
the grantee.
The 1977 Act recognized that within an authorized assistance
program, different transactions involving procurement contracts
or assistance (i.e. stimulation or support) could occur.
However, Congress expressed concern that assistance agreements .
were being overused and wanted to assure that the cfioice of
instrument (i.e., contract v. CA or grant) was considered
carefully. Congress intended that the government's principal
purpose in using the extramural funding would determine the
proper mechanism. When the purpose was to provide direct
research products for the use of the federal government, a
contract was the proper mechanism-. When the purpose of the .
transaction was to provide assistance to accomplish a public
purpose of support or stimulation, a CA or grant would be the
appropriate mechanism. Therefore, in the selection of a
procurement or assistance instrument, the Act called on executive
agencies to make a judgmental determination on the principal
purpose of each individual transaction.
As previously stated, the FGCA Act's legislative history shows
the Act resulted from Congressional concerns over the misuse of
assistance agreements. Senate Report No. 95-449, dated September
22, 1977, from the Governmental Affairs Committee on the 1977 Act
stated that:
... the objective of this added flexibility [authority
to either employ contracts, grants, or cooperative.
agreements] is to require the agencies to make
conscious decisions on whether a particular transaction
or class of transactions is in fact a procurement
transaction for the direct benefit of the government or
whether it is an assistance transaction serving non~
41 Audit No. E1JBF2-04-0300
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Federal public purposes [emphasis added]. The
discipline of this choice will tend to prevent the use
of grants [and cooperative agreements] to avoid
competition.
The Senate Report specifically addressed research projects and
the use of CAs versus contracts:
When research is for the direct benefit of the
government, it should be competed under procurement
rules...The benefits derived through open competition
and improved control are expected to offset any
inconvenience that may result from the increased use of
contracts.
This report also included a quote from the previous Grants Act
reports which commented on research performed by educational
organizations:
Where the Government desires to engage the services of
an educational or nonprofit organization for the
conduct of a specific piece of research directed toward
a specific problem, the use of the contract form is
obviously in order.
In addition, Senate Report No. 97-180, dated August 13, 1981,
related to hearings on amendments to the FGCA Act, stated:
Congress is making every effort to achieve economy and
efficiency in the administration of Federal programs.
These goals are subverted if agencies ignore the
economies of competitive procurement and
indiscriminately use grants [and other assistance
agreements, i.e. CAs] in place of contracts....
Thus, an agency's research program could legitimately include
research conducted by federal personnel, through procurement
transactions (contracts), and through cooperative research
performed in concert with non-federal researchers under a CA.
For example, if the principal purpose of a transaction is to
assist a non-federal entity in advancing the state of knowledge
in an area of environmental science, then the existence of some
degree of indirect benefit to EPA's mission from some aspect of
the research may not negate the determination to award an
assistance agreement. However, if the principal purpose of a
transaction is to provide research in direct support of a
specific EPA research problem or on-going research project, the
use of the contract form is obviously in order.
42 Audit Ho. E1JBP2-04-0300
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Synopsis of CA Review and Award Process
CAs can be awarded either competitively, as encouraged under the
FGCA Act, or noncompetitively under certain conditions. The
awards, within certain dollar thresholds ($250,000
noncompetitive, $1 million competitive3) are reviewed and
approved by ORD Headquarters. Only 2 of the 27 active CAs (total
maximum value of $14.2 million) awarded by ERL-A had been
reviewed by ORD under these thresholds. All CA awards are
subject to final review and approval by GAD.
Requests for Proposals (RFPs) are issued for competitive awards.
Review panels, consisting of both laboratory and external
scientists, review and evaluate proposals for both competitive
and noncompetitive awards. Based on these reviews, the panel
chairman recommends proposals for award in "decision
memorandums." Laboratory directors approve or disapprove these
decision memoranda in making CA awards. Post-award CA management
is usually performed by EPA POs and cooperator project.
managers/Pis.
CAs Improperly Used to Directly Benefit ERL-A
All of the CAs in our sample appeared to either partially or
fully contribute directly to the support of ERL-A research
projects. A letter from the Assistant Administrator (AA) for
Administration and Resources Management, dated December 2, 1992,
provided the following examples of activities that cannot be
funded through assistance agreements:
- Provide technical, analytical, and application review
advice .for the direct benefit of EPA offices.
- Deliver computer models specifically for EPA regulatory use.
- Produce specific information that will be directly
incorporated .into Agency technical, policy, or regulatory
decisions.
All of the CAs in our sample funded one or more of these type
activities, in whole or in part, especially the last activity,
related to the production of specific information for
incorporation into Agency technical, policy, or regulatory
3 ORD issued interim guidance on October 1, 1992, that
lowered the threshold for noncompetitive CA awards to those
exceeding $50,000 and increased required ORD approval for
competitive awards to those over $5 million.
43 Audit No. E1JBF2-04-0300
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decisiqns. Although this guidance was issued subsequent to most
of the questionable uses of CAs cited below, it only clarified
already established provisions and intent of the 1977 FGCA Act
and it served to illustrate ERL-A's use of CAs for direct support
of its on-going research projects.
For example, ERL-A had used the UGA CA for years to provide on-
site laboratory personnel for direct support to ERL-A scientists
and their research projects. In addition, RFPs and decision
memorandums of several of the off-site CAs in our sample
indicated the importance of the research to ERL-A's or the
Agency's mission and the importance of a close working
relationship, including on-site cooperation. These documents
evidenced the direct benefit of the research to EPA. We also had
CAs where cooperators were tasked to perform work (i.e., computer
modeling development) similar to those activities already being
performed by ERL-A contractors.
ERL-A did not use the statutory criteria of end-consumer (EPA or
public purpose), as specified in Sections 4-6 of the 1977 FGCA
Act, in determining what extramural mechanism (CA or contract) to
use to accomplish research objectives. The mechanism used was
usually selected more on the type of entity performing the
research. If the laboratory wanted the work done by a
university, they automatically used a CA. ERL-A gave no
consideration as to whether a contract would be more appropriate
for the tasks to be performed by universities. Other factors
used by ERL-A to decide whether to use-a contract, CA, or IAG
included: (1) time considerations (CAs require less time for
award), (2) the preferences of ERL-A Pis and managers, (3)
Headquarters fund allocations for contracts and CAs, and (4)
administrative convenience. None of these factors relate to
statutory requirements for determining the use of CAs versus
contracts.
Both ERL-A's laboratory director and senior scientists
demonstrated an apparent misunderstanding of the basic
differentiation between CAs and contracts. The laboratory
director and other ERL-A scientists explained to us that the type
and level of interaction between cooperators and federal
employees was the difference. However, Senate Report No. 97-180,
dated August 13, 1981, related to the FGCA Act, specifically
stated that this is not a criteria for deciding between contracts
and assistance agreements.
...When choosing between procurement and assistance,
the degree of anticipated involvement is of no
consequence; the choice is governed solely by the
principal federal purpose in the relationship. It is
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only after an agency -has determined the principal
purpose of a transaction that the degree of involvement
by the federal government becomes a relevant inquiry.
Several ERL-A, GAD, and/or ORD staff also maintained that the
research being funded benefitted the universities more than it
benefitted ERL-A or EPA and that therefore the CA mechanism was
appropriate. However, Senate Report No. 97-180 stated as
follows:
An assessment of relative benefit to the parties affected by
a transaction needlessly complicates the task of determining
whether a contract or some other instrument should be used.
The Act requires no such analysis; it only requires an
agency to assess the principal purpose of the federal
government in entering into a transaction [assistance or
procurement] - and act accordingly.
Examples of CAs used for the direct benefit of ERL-A and EPA
follow:
1. UGA Cooperative Agreement Used For On-Site Support
On-Site Support: Under the $5.2 million UGA CA, awarded non-
competitively on September 30, 1991, at least-14 UGA employees
worked on-site at ERL-A in 1992. These pn-site cooperators
either directly supported ERL-A scientists with their research or
provided administrative support to ERL-A staff. Two of the on-
site UGA employees performed secretarial tasks for ERL-A staff.
The remaining 12 UGA employees consisted of 7 post-docs, 2
graduate research assistants, 1, research technician, and 2
student assistants. The original UGA CA proposal included five .
projects with numerous sub-projects. Most of the on-site UGA
employees worked under projects (total budget $1.3 million) oh
which the UGA project manager was named PI. Since the UGA
project manager had no expertise or involvement in the research
being performed by these UGA employees and had no contact with
the on-site UGA employees, we could only conclude these employees
were being used by ERL-A to directly support its own research.
EPA's Assistance Administration Manual, Chapter 44, Section 5b,
warns CA POs not to attempt to direct or supervise cooperator
employees. The ERL-A laboratory director was the PO for this CA.
The designation of the UGA Project Manager as the PI on sub-
projects in which he had no expertise or involvement was an
obvious ruse by ERL-A to obtain additional support staff for its
own research. ,
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ERL-A's most flagrant abuse of the UGA CA to supplement ERL-A
staff was the use of UGA employees as secretaries. A UGA
employee located at ERL-A served as a Senior Administrative
Secretary for the Assessment Branch from April 1991 through June
1992. In this position she told us she basically served as the
"office manager." The employee stated that she was told in June
that she could ho longer perform the duties of this position
because it would be "personal services." Her duties were then
limited to providing support to the UGA post docs located at
ERL-A. Due to lack of work, her position was terminated in
September 1992. Secretarial support for the Assessment Branch is
currently being provided by a full-time National Council of
Senior Citizens (SEE) employee.
Another UGA employee, who currently serves as the UGA Coordinator
and works on-site at ERL-A, also performed secretarial duties.
This employee's desk was adjacent to the laboratory director's
office. During the audit fieldwork, auditors worked with her for
two days to obtain CA files before they were informed that she
was not an EPA employee. Although the current on-site
coordinator's position is a full-time job, it was previously only
a part-time position.
This UGA coordinator stated that besides her coordinator duties,
she "obviously" answered the telephone. In addition, she said
that on a rare occasion she did typing. However, our review
disclosed that her role in ERL-A activities was more encompassing
than she had described. For example, a memo to ERL-A employees
in the Global Change Program directed them to notify the UGA
coordinator if they were unable to attend an upcoming meeting.
We also observed that almost every time we called the laboratory
director's office, the UGA coordinator answered the phone. In
addition, there were several occasions when the laboratory
director's secretary was not in the office and the UGA
coordinator apparently filled in for her.
On several occasions during the audit we were informed by ERL-A
management that the purpose of a CA was to provide for
collaborative research between scientists at ERL-A and scientists
at colleges and universities. Secretarial support for ERL-A
staff is not an appropriate use of R&D funds or of cooperator
employees. Subsequent to our briefing of the ERL-A laboratory
director on our concerns related to the use of UGA employees, we
learned that the UGA coordinator was no longer located in the
laboratory director's office. . Also, she now splits her time
between an office at ERL-A and an office at UGA.
Lack of UGA Input: There was also a lack of UGA PI input into
much of the research performed on-site by UGA employees. ERL-A
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sub-POs wrote or assisted in writing many of the sub-project
proposals and supervised/directed the research under some of the
sub-proj ects.
For instance, until questions arose during our audit survey, the
UGA Project Manager/Pi was unaware that he was listed as the UGA
PI on several of the sub-projects pertaining to on-site UGA
personnel. Regarding his designation as the PI on these
projects, he stated, "I said [during the audit survey] it was
totally inappropriate. I don't know how this came about. I
can't contribute to this kind of science." He said that he had
not contributed at all to the sub-projects on which he was listed
as the PI. According to the Project Manager, ERL-A has an undue
level of influence on the packaging of the CA and UGA received no
benefit or added value from these sub-projects. He added that
this is npt what a cooperative agreement is about.
Two letters from UGA Pis were very critical of ERL-A's management
of the CA and the restriction of their input into project
activities. Although these letters were either addressed to or
copied to the ERL-A PO/laboratory director, they were not
provided by ERL-A when we requested all UGA correspondence files.
We only learned of these letters from our review of UGA's files
and ERL-A sub-PO files related to the CA.
According to a July 1992 letter from one UGA PI to the UGA
Project.Manager, $40,029 of the budget for his sub-project was
designated as "off-campus" funds and would be used on a project
that the ERL-A sub-PO and an ERL-A co-worker were conducting.
The remaining $5,468 was allocated as "on-campus" funds. In
commenting on ERL-A's practice of listing UGA faculty as Pis in
sub-project proposals without informing them, the PI"wrote:
I have felt all along this was little more than a
vaguely veiled way of the local EPA laboratory getting
more funds for their own research by pretending to fund
investigators at the University.
The PI concluded this letter by stating:
I propose that the proper way to proceed is to reduce
my research award to $5,468 and to fund [sub-PO's] EPA*
work independently. Since the remainder is EPA money
being used to fund EPA investigators, I see no
justification for the University being involved at all.
Although the ERL-A sub-PO initially informed us that the UGA PI
was incorrect about the funding, we obtained a memorandum from
the sub-PO to the PI, dated June 1992, which contained the budget
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information as described by the UGA PI in his letter. The sub-PO
memorandum further stated:
I regret that recent EPA-HQ mandated constraints on our
non-competitive cooperative agreements with UGA greatly
limited the on-campus component. The remainder are
funds that were designated as "off-campus" by our
program manager and EPA HQ. These funds are being used
to support the work here by [ERL-A employee] and myself
plus to provide funds for the seminar series.
Another UGA PI wrote letters to the UGA Project Manager in
January 1992 and to the ERL-A PO (laboratory director) in
February 1992, in which she expressed concerns about ERL-A1s
management of the UGA CA. The UGA PI explained in her letter to
the EPA PO (laboratory director]I. that she was contacted by an
ERL-A scientist in Spring 1991 to discuss a potential cooperative
research project. She heard nothing else until she was told by
UGA's Office of Sponsored Programs in January 1992 that some
money had been put into her CA account. Her February 1992 letter
to the laboratory director (PO) further stated:
...I received a call from the Institute of Ecology
saying that [a UGA research technician] was over there
wanting them to sign his personnel forms because he was
my employee, and they had no idea which grant he was
supposed to be on.
According, to the letter, the UGA PI went over to ERL-A to discuss
this situation with the co-PO and sub-PO and:
... [The ERL-A co-PO] explained that he had put some
fiscal 1991 money into this subproject to support [the
UGA research technician]. He also explained that he
originally hired [the UGA research technician] on a UGA
project because he personally needed some technical
help in his laboratory, and [the UGA research
technician] worked for him. ...I told [the co-PO] that
my name was on this project, and I felt that I needed
to be involved in this research....
The UGA Pi's letter also stated:
For most of the 15 years I have been at UGA, I have
been involved in collaborative research projects. I
would very much like to work with the scientists at EPA
on this global change project, but it needs to be done
as collaborative research usually is done: principal
investigators meet, discuss, plan the research, go over
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the budgets, agree on personnel to be hired and their
work assignment, design experiments, discuss the data,
and review the resultant manuscript. I hope that is
also how the EPA views these collaborative projects.
If it is not, then I need to know that.
The UGA PI concluded the letter by urging the ERL-A PO to
schedule a previously proposed UGA Cooperators meeting.
...At the meeting I would like^to have clarified (1)
What is expected from this project, where it's to be
done, and when it is due; (2) a -budget stating how much
money will be available to do the work; (3) who is
working on this project, for what faction of his/her
time, and who is that person's supervisor; and-(4) if
equipment is.to be purchased, who has the
responsibility for purchasing, operating and
maintaining that equipment, and where does it remain at
the end of the project? I hope you find this a
reasonable request - 'it is the way I have become
accustomed to doing collaborative research. I think
other cooperators share my concern and would/ al,so like
to have this information clarified.
A subsequent meeting between the ERL-A laboratory director and
these UGA Pis was conducted in April 1992. Both of the UGA Pis
told us that many of the problems cited in their letters had
since been resolved. However, we find it disturbing that these
problems ever existed. Also disturbing is the failure of ERL-A
staff to provide these letters to us when we initially requested
UGA CA correspondence files;
Day-Care Center Development: According to a documented proposal,
ERL-A planned a $30,000 sub-project under the UGA CA for
development of an operating plan for ERL-A's planned, on-site
day-care center, an unallowable use of R&D funds. Such use of
R&D funds is not specified in current EPA/ORD policy and
potentially represents a violation of the Agency's 1992 R&D
Appropriation Act which states the purpose of R&D funds were:
For research and development activities, including
procurement of laboratory equipment, supplies, and
other, operating expenses in support of research and
development.... [emphasis added]
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Senate Committee Report 102-107 on EPA's 1992 appropriations
defines R&D operating expenses as follows:
...operating expenses, such as laboratory support,
supplies and materials, operation and maintenance of
facilities, equipment, automated data processing, human
resource development, and printing and reproduction.
Provisions in 40 U.S.C. 490b authorize the use of federal
facilities and equipment for the operation of day-care centers as
long as it is for the direct benefit of federal employees.
According to Senate Report 102-107 and House Report 102-94, EPA's
1992 S&E appropriation was to cover all EPA personnel and
administrative costs (to include federal employee benefits)
associated with EPA's program operations. Therefore, only S&E
funds could have been properly justified for such a direct
benefit to ERL-A employees.
When questioned regarding this proposal, the PO (the laboratory
director) stated, that UGA's role was to develop a curriculum for
an early childhood environmental education program. However,
testimonial and documented evidence obtained during the audit
indicated that the PO (laboratory director) knew or~ should have
known that the documented proposal was for a day-care operating
plan.
The ERL-A sub-PO and the UGA PI initially informed us that UGA's
role was to develop an operating plan for the day-care center.
When asked specifically if any curriculum development would be
done during the current phase, the UGA PI replied no. In June
1992, UGA submitted a "working copy" of the proposal to ERL-A,
which was for development of an operating plan for an ERL-A day-
care center. There was no curriculum development task in this
draft proposal. File documentation showed that the PO
(laboratory director) reviewed UGA's "working copy" of the
proposal in June 1992. The laboratory director stated in a
transmittal slip attached to the draft proposal that it was a
"good job so far— You need to work w/them in improving/revising
this plan..." The files also contained a copy of the budget for
a proposed Phase II, which included an estimated cost for the
director of the day-care center. The Phase II budget stated that
this cost was "included to provide information if ERL-A chose to
have the director's salary come out of UGA's budget." There was
a note on the budget from the PO (laboratory director) to the UGA
Coordinator, which documented that the PO had seen this Phase II
budget.
Subsequent to our review and questions regarding the day-care
center sub-project, the PO (laboratory director) had a meeting
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with the sub-PO and the UGA PI to make sure everyone understood
that UGA's role was to be curriculum development for the day-care
center. After this meeting, the UGA PI said that UGA's role had
changed. She said that UGA would now be developing a curriculum
to be used which had an environmental focus and that they had
until March 1993 to complete this task.
Although ORD policy includes environmental education as a proper
use of CA R&D funds, we continue to question the use of $30,000
of scarce federal resources for development: of a day-care center
curriculum, especially for ERL-A on-site child care - a direct
benefit to EPA employees. We do not believe this qualifies as
environmental education within the intent of ORD policy. . We
could not conclude that the use of R&D funds for such a purpose
furthered, enhanced, or promoted environmental research as
intended by Congress in appropriating these funds.
QRD/GAD Oversight; In 1991 ORD and GAD reviewed and approved the
UGA CA despite reviewer comments on the proposal that documented
the CA's direct benefit to ERL-A's on-site research and ERL-A's
intent to use the CA for direct support. " '
In the ERL-A review of the original $5.2 million UGA CA proposal,
an ERL-A in-house reviewer commented that this proposal provides
"an obvious direct benefit to the ERL-A in-house research." The
ERL-A in-house reviewer also said that "the primary strength of
this proposal lies in the obvious synergism that can be developed
between the UGA and ERL-A."
Because the UGA CA proposal exceeded ORD's maximum value
threshold for noncompetitive CA awards, the UGA proposal was
subject to review and approval by ORD Headquarters. ORD's
approval of the CA despite the obvious direct benefit to ERL-A's
research (a contradiction of provisions in the FGCA Act) is
indicative of weak or inadequate internal controls or ORD's
misunderstanding of the requirements of the 1977 Act and related
legislative history. In addition, GAD subsequently submitted
final approval for the UGA CA although our interviews with GAD
staff indicated they were well aware that direct EPA benefit was
not an eligible purpose for a CA. The weaknesses in ORD and
GAD's oversight of CA awards and uses are discussed in detail in
Chapter 2.
2. ERL—A Also Directly Benefitted From Off—site CAs
The University of Rhode Island (URI) CA (maximum value of
$389,375) is an example of an off-site CA which directly
benefitted ERL-A initiatives. The CA was competitively awarded
in September 1990. The requirements of the RFP were changed to
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better fit EPA's research priorities. The RFP and decision
memorandum for award of the CA both contained statements
emphasizing the importance of the work to ERL-A's and the
Agency's mission. File correspondence also documented attempts
by the PO to direct the PI' s research into areas important to
ERL-A.
The original CA RFP stated that the proposed research could
include research on sulfur cycle and/or carbon cycle gases as
relates to global climate change. However, the URI proposal
received a higher review score and was awarded the CA because URI
researchers stressed a carbon gas as its primary research agenda,
a factor the decision memorandum stated was quite important, as
it was consistent with EPA's current research priorities.
According to the PO, between the time the RFP was issued and the
full proposals were reviewed, the OEPER Director decided to de-
emphasize sulfur and focus on carbon cycle gases in EPA's
research.
The RFP for this CA emphasized the coordination of the research
with the ERL-A's in-house research:
Proposed investigations will be coordinated with ERL-
Athens' and ERL-Narragansett's inhouse research
programs pertaining to process model development and
testing, necessitating a close working relationship
between the performing organization and these
laboratories — Proposers should therefore be able to
meet periodically at selected sites and at the EPA
laboratories as needed.
The decision memorandum also stressed the importance of the CA
data to the Agency's planning and policy-making function.
Results of these investigations will enhance the
abilities of the Office of Policy,.Planning, and
Evaluation in efforts to extrapolate and model Global
Climate Changes This information will not only fill
data gaps in global climate models, but it is expected
to provide the foundation for development of
appropriate mitigation practices and management
strategies related to. marine systems.
Communication between the PO and PI showed on several occasions
the PO's attempt to direct the Pi's on-going research towards
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EPA's changing priorities. For example, in February 1991
correspondence to the URI PI, the ERL-A PO wrote:
As you know, there has been a change in direction in
the EPA research program on global climate change. Our .. '
process and effects work is now focusing on the carbon
cycle. < We have been told to de-emphasize research on
the sulfur and nitrogen gases, especially the
former...I encourage you to structure your upcoming
research to emphasize CO2, methane and various other
species and factors that influence their sources and
sinks...
June 1992 correspondence, from URI staff provided additional
evidence of ERL-A direction of URI's research.' A URI letter
requesting CA budget modifications stated:
The budget modifications requested are the direct and
indirect results of decisions by EPA. First, EPA
'. . requested, part way through the first year, that we
eliminate efforts on sulfur compounds and increase our
emphasis on carbon. We therefore -eliminated [name
deleted] subcontract for this work and shifted the
funds ($29,295) to cover the personnel and equipment
needed to enhance the sampling and modelling of carbon
dynamics.
In addition, a letter to the ERL-A PO from URI Co-Pi stated:
...In our discussions you suggested that EPA management
is more interested in being able to determine RITG
fluxes and their large scale patterns, rather than
focus on specific process studies at this stage. We
are prepared to consider some mid-course changes in
this project, if they do not compromise our ability to
bring the work done to date to successful completion.
... Over the next couple of weeks we would like to
discuss further our future plans with you, and find
wavs how this work can best meet EPA's needs [emphasis
added].
RFPs and decision memoranda for other ERL-A CAs, especially those
in the Global Change Program, contain language and objectives
similar to the URI CA provisions. This indicated the research to
be performed represented a direct benefit to ERL-A/EPA and the
data collected would be assimilated into Agency technical,
policy, or regulatory decisions. In addition, much of the work
under these CAs involved data collection tasks, which have been
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performed by contractors in other EPA programs (i.e., the EMAP
program) and.may have been more appropriately performed under
contracts for these projects.
Sub-contract Inappropriately Awarded as a Supplement to the CSU
CA
A May 1992 supplement of $50,000 to the Colorado State University
(CSU) CA was improperly used in lieu of subcontract support for
an ERL-A off-site contractor. According to correspondence from
the CSU PI to the ERL-A PO, the purpose of the work was to modify
a computer model for use by one of ERL-A's off-site contractors.
The Pi's letter stated:
...We have been in contact with [the contractor's
president] and he is in agreement with what is
contained in the [CA] supplement document. We are
confident that we will be able to deliver the agreed
upon products...
In a revised workplan for WA 13(1), dated October 1, 1991, the
contractor^ indicated that a sub-contract would be the
appropriate mechanism for this work. The workplan stated:
... if the CENTURY model is chosen as the primary tool
for evaluating greenhouse gas emissions and soil carbon
dynamics, the assistance of researchers from Colorado
State University may be needed. If this situation
arises, we will discuss it with the EPA Technical
Monitor and submit a request for either additional or
alternative subcontract support.
The ERL-A PO indicated that the funds used for the CSU CA
supplement had originally been set aside for a subcontract.
However, the University preferred doing the work as a supplement
to the CA and this was also easier for ERL-A to do
administratively. He added that the $50,000 supplement was very
small in comparison to the total project costs of $900,000. When
asked if the modeling work was a direct benefit to EPA, he
replied that the work mutually benefitted EPA and the university.
The CSU supplement was a clear example of an inappropriate use of
a CA when a contract would have been more appropriate. Again,
the justifications of mutual benefit and administrative
convenience are not in accord with the FGCA Act and congressional
intent.
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University of British Columbia (PBC) CA Used to Fund Foreign
Travel For Academics
The CA decision memorandum indicated that one of the primary
purposes of the CA was to fund foreign travel to meet ERL-A
commitments/on-going tasks (a direct benefit to ERL-A) under
bilateral agreements with China and the Soviet Union rather than
to provide assistance to UBC's research proposal. The UBC CA,
awarded May 31, 1990 (maximum value of $247,916), budgeted 71
percent or $175,847 of project funds to this international travel
and only 29 percent or $72,069 for personnel and supplies to
carry out the actual UBC research described in the CA proposal.
UBC's research proposal related specifically to the affects of
toxic substances/chemicals on aquatic areas and fish in
particular; however, documentation obtained during the audit
indicated that the international travel related to a broad range
of research activities, some of which was principally unrelated
to the UBC research project (i.e., Global Climate Change Research
Program, Office of International Activities tasks). For
instance, the CA decision memorandum, dated February 23, 1990,
listed one of the international meetings funded by the CA as -
"International Symposium on the Effects of Climate Change on
Biogenic Emissions of Trace Gases" to be held in Beijing, China
in May 1991. Over $42,000 was budgeted in the CA for 10 U.S.
scientists, 3 European scientists, and 3 South American
scientists to attend this symposium. This budget apparently did
not include the UBC PI who is Canadian.
i
In addition, the project budgets did not identify any'travel
funds for the UBC Pi to attend these international meetings. The
only travel budgeted for the UBC PI was $800 for two trips to
Bozeman, Montana4 and $800 for two trips to Athens, Georgia. The
decision memorandum did indicate that the UBC PI would be
involved with one international symposium, "International
Symposium on Fish Physiology, Toxicology, and Water Quality
Management" to be held in Sacramento, California. The other
international trips, which related to global climate change and
the US/USSR exchange programs, appeared to have no direct
correlation to UBC's research project.
When asked about the large travel budget, the PO (the laboratory
director) replied that it was common practice to have
international science meetings funded through CAs. She said that
these meetings were the best way to present the results of the
research.
4 UBC research proposal represented a collaborative effort
with on-going research at MSU, Bozeman, Montana.
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In describing the relationship of this project to the EPA's
mission, the UBC CA decision memorandum definitely stated that
the CA projects would directly support on-going research
projects/tasks at ERL-A, OPTS, OPPE, OAR, and OIA:
The proposed work is important to the achievement of
EPA program objectives, with immediate application of
results to the Ecological Risk Assessment Research
Program in support of the Office of Pesticides and
Toxic Substances [OPTS] and the Global Climate Change
Research Program in support of the Office of Policy,
Planning and Evaluation [OPPE] and the Office of Air
and Radiation [OAR]. The international collaborative
research activities and symposia are also in support of
the Office of International Activities [OIA] and meet
Laboratory [ERL-A] commitments to bilateral
agreements....
In addition to the stated direct benefit to EPA, we question the
addition of a large foreign travel budget to a relatively small
research budget which obscures the actual function of the CA. If
meetings are to be funded in this manner, the travel should be
directly related to the research proposed and this relationship
should be documented in the proposal and decision memorandum.
Further, separate CAs may be needed to fund such large travel
budgets in order to establish proper oversight and control of
this activity. Separate CAs for this purpose would clearly
identify the CA function and total amount of CA funds being used
for international travel to Agency managers with oversight
responsibility.
Egyptian CAs Misused in an Attempt to Return Former PGA
Cooperators to ERL-A
ERL-A misused both the U6A and two Egyptian CAs in this case.
ERL-A file documentation and the chronology of events indicated
that in September 1989 ERL-A awarded CAs to Mansoura and Menoufia
Universities in Egypt for the primary purpose of bringing back to
ERL-A the two Pis at these Universities as direct on-site support
for on-going ERL-A research projects. These Pis had previously
worked at ERL-A as post-docs under the UGA CA. The PO stated
that one of the Egyptian PI had not finished research he had
started for the PO as an on-site UGA employee and he needed him
back at ERL-A to finish this work. The maximum potential value
of the two CAs was $248,750 and $262,500, respectively. However,
the funding of the CAs was apparently dependent on the return of
the Pis to ERL-A because the Pis did not return to ERL-A and the
CA funding was never increased beyond the initial award of
$10,000 each.
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The Egyptian CA proposals were developed while the future Pis
were still working as UGA post-docs at the Athens Laboratory.
The ERL-A PO stated that he would not have permitted the Egyptian
Pis to write the proposals while they were working at ERL-A under
the UGA CA. However, April 1988 correspondence from the ERL-A PO
to the Menoufia University President stated that "We are working
with [the future Menouf ia PI] in writing the cooperative
agreement." In addition, it appeared the Mansoura PI was still .
working at ERL-A in 1989 when the CA was negotiated and approved.
The ORD International Activities Project Form for both CAs.
indicated that ERL-A intended to bring both Egyptian Pis back to
ERL-A for six months each. ERL-A staff began requesting the
Menouf ia Pi's return to ERL-A in April 1988, before he had even
left Athens. These requests were repeated in correspondence
dated in June and August 1988, again in November 1989 after the
CA to Menoufia was awarded, and twice in May 1990.
A May 2, 1990 letter from the ERL-A PO to the PI stated:
It is time to make arrangements for your return to the
Athens Laboratory as we had discussed. We can "pay your
salary while you are here but we cannot pay your travel
expense to and from the Athens Laboratory. I would
like you to come as soon as possible for 3 to 6 months.
We hope to have more money in the cooperative agreement
and we need to do planning and preliminary work so you
can get started on the research.
May 22, 1990 correspondence from the ERL-A PO to the Menouf ia PI
stated that he had sent letters to the university president and
department head requesting' that the PI spend 3-6 months at the
Athens laboratory starting on ,or around July 1, 1990. The PO
also stated:
I feel that it is important for you to spend this time .
in the Athens Laboratory to assist me in obtaining
additional funding and designing the experiments that
need to be carried out in EGYPT on this project. If
there is anything else I can do to insure your visit,
please let me know right away.
Another questionable aspect of the Egyptian CAs are two trips to
Egypt by the PO and his branch chief with air fare and lodging
paid for by the Egyptian universities. One purpose of these
trips, made in March 1988 and January 1992, was to negotiate the
CAs, to monitor their progress, and to obtain additional funding
for them. Federal employees are not permitted to use CA funds
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for travel. Although the travel plans for the ERL-A employees
stated that the funds were not coming from the CAs, this appeared
to be only a technicality. In actuality, ERL-A provided funding
to the Egyptian universities and they paid for EPA travel. Our
review of ERL-A operations indicated that it was not an uncommon
practice for ORD employees to have their travel paid for by other
organizations and countries.
Based on the events and documentation described above, we
concluded that ERL-A awarded the Egyptian CAs and expended
$20,000 under these CAs for the purpose of returning the Egyptian
Pis, both former UGA CA employees, to ERL-A as on-site support -
a direct benefit to ERL-A. However, the Pis never returned to
Athens and the CAs were permitted to expire without additional
funding. According to ERL-A files and PO comments, ERL-A never
received a QA Plan, progress reports, or any data under these
CAs. The only apparent benefit to the laboratory was two trips
to Egypt for two ERL-A scientists, with the air fare and lodging
paid by the Egyptian universities.
Further, in 1987 and 1988, ERL-A clearly directed and supervised
the work of the future Menoufia PI when he was a post doc at ERL-
A under the UGA CA. The University was so unaware "of the
Egyptian cooperator's activities that they continued to carry him
on their payroll for several months after he had returned to
Egypt. ERL-A file documentation shows that ERL-A staff were
aware that the Egyptian post-doc was being paid "in absentia."
The future Menoufia PI apparently returned to Menoufia University
in June 1988, but remained on the UGA payroll until October 21,
1988. An August 1988 letter from the ERL-A Branch Chief to the
future PI in Egypt stated, "While you are indeed a valued
employee, we cannot continue to pay you in absentia much longer."
UGA staff told us that they were unaware that the Egyptian
employee had returned to Egypt before October 1988.
Montana State University (MSU} CA Used to Fund A't'ta.i.'*""ent of an
Advanced Degree by a ERL—A Employee
In August 1989, ERL-A awarded a noncompetitive CA (maximum
potential value of $279,234) to MSU. One of the primary purposes
of the CA was to provide funding of Phd attainment for an ERL-A
employee through an IPA. This ERL-A employee actually wrote the
MSU proposal and decision memorandum for the CA. The research
involved appeared to be only a means to justify the funding of
the employee's Phd degree. The ERL-A PO later confirmed to us
that one of the primary purposes of the CA was to fund the ERL-A
employee's education. Before the IPA and CA were approved, a.
loner—term training request submitted by . ERL—A for this employee
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had been disapproved. This employee had chosen MSU (the
laboratory director's former employer) as the university for his
training and subsequent IPA assignment.
The ERL-A employee applied for long-term training at MSU in
October 1988. The purpose of the advanced academic training was
to enhance the employee's background in chemistry for application
in the area of mass spectrometry at an estimated cost of $27,420.
According to the employee this request was not approved; however,
ERL-A continued to pursue other means of providing this training
to the employee. In April 1989 he was accepted into the PhD
program at MSU. At this point ERL-A began working on both an IPA
for the employee to MSU and a CA with MSU to cover the costs of
the IPA. The IPA was reviewed by ORD Headquarters and approved
by the Acting AA for ORD on August 30, 1989. ERL-A's letter to
ORD transmitting the IPA for approval also informed ORD that a CA
was being awarded to MSU to help defray the cost of the IPA.
There is no evidence that ORD Headquarters ever questioned the
IPA, CA, or the basic purpose for these agreements. The MSU CA
was awarded on August 24, 1989.
The terms of the IPA agreement made MSU responsible for 51
percent of the ERL-A employee's salary and EPA responsible for 49
percent. The IPA agreement did not state or indicate that MSU's
share of the IPA cost would also be paid by EPA through the MSU
CA. When we asked a GAD official if this was misleading, the
official replied, "It is misleading." • She added that it was
allowable to fund an IPA through a CA. However, according to GAD
guidance CA funds cannot be used to train EPA staff.
Although the laboratory director and other ERL-A staff knew that
the purpose of the IPA assignment was for the ERL-A employee to
receive his PhD degree/training, the IPA Assignment Agreement did
not mention the degree or the training as required by the IPA
Policy and Procedures Manual, dated April 3, 1989. The training
was not mentioned in the decision memorandum for the CA either.
According to the EPA's Assistance Administration Manual, Chapter
l, Appendix 1-G, CAs are not to be used to provide training for
EPA employees. In addition, R&D appropriations have consistently
restricted the use of R&D funds to the direct support of R&D
activities. Congressional appropriations reports consistently
specify that S&E appropriated funds will be used for Federal
employee pay, benefits, and training. Therefore, CAs funded with
R&D monies can not legally be used to fund training of a Federal
employee.
The training/PhD degree was provided to this employee for an
estimated total cost of $200,000 with no commitment of the
employee to 3 years of federal service for each year of training
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as required when training funds are used. The CA funding
included 51% of the employee's salary and fringe benefits which
the IPA stipulated would be paid by MSU. The laboratory director
said that she had consulted with ORD about the ERL-A employee
getting his degree while on an IPA at a university. She stated,
"We were told that no policy exists. It was a management call
and I called it this way." However, the Assistance
Administration Manual, Chapter 1, does provide that CA funds may
not be used to train federal employees. When questioned about
the high cost to the taxpayers for the employee's PhD degree, the
laboratory director responded that "$100,000 per paper
[employee's dissertation and Pi's report] was really not a bad
deal."
A negative review of the CA proposal by one extramural reviewer
was not included in the CA decision memorandum which was written
by the employee receiving the IPA. According to a memorandum
from the IPA employee to the ERL-A laboratory director, he did
not use the review because it came in one week after the deadline
and he already had the decision memorandum written. The
extramural reviewer had rated the MSU proposal as "fair" and
suggested "declination in present form." The reviewer stated in
her opinion the proposal was weak in the presentation of the
experimental design and that the approach "lacks coherency" and
was "superficial." She also stated that neither of the MSU Pis
seemed to have a strong background in mass spectrometry and
suggested that another mass spectrometrist at MSU be included on
the CA.
In addition, the noncompetitive award of the MSU CA was based
upon unsupported or questionable justifications. The decision
memorandum, dated July 17, 1989, stated that the noncompetitive
award was based on the original ideas of MSU personnel, MSU's
excellent facilities, and on the immediacy of the technical
information needs of two other EPA Offices. None of these
conditions were supported by file documentation or justifications
as specified in ORD guidance on CA awards, dated November 1983.
In fact, the subject ERL-A employee wrote the CA proposal.
Therefore, MSU did not submit a unique proposal for which it
would be unethical to solicit as stated in ORD guidance. There
was no proof in the files that MSU had any better, unique, or
one-of-kind facilities than other institutions and the immediacy
of the need for the research is in doubt since over three years
elapsed with no publication of technical information by either
the employee or the MSU PI.
In conclusion, the MSU CA was questionably awarded
noncompetitively in order to fund an IPA assignment of an ERL-A
employee, primarily for advanced academic training and degree
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attainment. The fact that the CA covered MSU's share of the IPA
assignment was misleading. In addition, we guestion the
appropriateness of the person who was getting the IPA writing the
CA decision memorandum and specifically, deciding to exclude a
negative review of the proposal in the decision memorandum. We
do not believe that funding a PhD for an ERL-A employee through a
CA is an appropriate use of assistance agreements.
University of New Hampshire (PNH1 Supplement Improperly Awarded
as a CA In Lieu of a Grant
ORD improperly awarded a $250,000 supplement to the UNH CA in
September 1991 that did not include substantial involvement by
EPA as required for CA awards. The proper mechanism was a grantJ
According to the PO, one purpose of the UNH CA was to support
international work through the International Geosphere/Biosphere
Program (IGBP) . The PO informed us that the UNH PI is the
chairman of the IGBP committee on Global Analysis,
Interpretation, and Modeling (GAIM), which is supported by the
supplement to the CA.
There was no evidence in ERL-A documentation of substantial
involvement by EPA in the GAIM supplement as is required to
justify a CA in lieu of a grant. According to the PO, there is
little EPA oversight of the.committee's activities for political
reasons. He said that the committee is sensitive to potential
EPA "influence on the committee. As a result, EPA does not
exercise any approval authority over who is on the committee.
According to the CA supplement decision memorandum, the Director
of OEPER ordered the addition of the GAIM project to the CA. The
GAIM supplement was apparently added to the UNH CA for the
administrative convenience of ORD. Although this CA supplement
is probably the only example of real assistance we found in our
review, it should have been awarded as a separate grant because
EPA did not have substantial involvement in the work performed.
INAPPROPRIATE USES OF lAGs
Our limited review of six ERL-A lAGs disclosed abuses in all six
agreements similar to the misuses related to CAs. To achieve
ERL-A's objectives with limited intramural resources (i.e., S&E
funds), lAGs were used to change extramural R&D funds into travel
funds for FTEs, to award research funds to a foreign country
without statutory authorization, and to inappropriately provide
contractor staff for a joint project with the Air Force in
violation of FAR and IAG requirements. Internal control systems
at ERL-A, ORD, and GAD did not detect or preclude these abuses
(See Chapters 2 and 6). As a result, management oversight was
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limited, effective use of Agency resources was questionable,
laboratory initiatives were canceled without completion, and FAR
and Agency regulations/requirements were circumvented. . Also,
unauthorized reprogramming of funds between appropriations
(extramural to intramural) may have occurred through exchange of
extramural funds with another agency. As stated in Chapter 2,
ERL-A's management culture encouraged circumvention of
regulations and procedures and questionable uses of extramural
resources.
Two pairs of ERL-A lAGs (maximum value of $520,000) with NASA
appear to exchange extramural funds on related projects for use
by NASA and ERL-A employees for travel expenses. The net effect
was to re-program extramural funds, without authorization, into
FTE travel dollars for both agencies and circumvent Agency travel
ceilings for FTEs. Although one of the ERL-A POs involved stated
that the laboratory did not intend to circumvent any
appropriation or fund restrictions, the fact that another ERL-A
PO also exchanged travel funds through an IAG with another NASA
PO indicated recurring misuse and circumvention of regulations.
All four of the NASA lAGs we reviewed are related to the Global
Climate Change Program and their scopes of work appear to be
related. One pair was a funds-in IAG (IAG No. RW8093532Q) in
which ERL-A has or will receive up to $45,000 5in NASA funds for
FTE travel over the first year of the three year IAG performance
period and a funds-out IAG (IAG No. DW80935084) in which ERL-A
paid or will pay out up to $41,000 in extramural funds the first
year exclusively for NASA travel costs. The total maximum value
of the funds-out IAG prepared by ERL-A was $100,000. We could
not determine the maximum value of the funds-in IAG prepared by
NASA for the three year performance period. The NASA PO on this
pair of lAGs was a former EPA/ORD..employee. This pair of funds-
in and funds-out lAGs also had the same EPA and NASA POs.
The other pair of NASA lAGs was an even swap between the two
agencies - a funds-in IAG (IAG No. RW80935444) and a funds-out
IAG (IAG No. DW80935165), both budgeted $35,000 exclusively for
travel the first year. The funds-out IAG prepared by ERL-A had
5 The first year, authorized dollar amounts for funds-in
lAGs prepared by NASA include in-kind labor costs, as well as
reimbursable travel costs. Therefore, the maximum first year
value of the funds-in lAGs shown in Appendix III will be greater
than the travel dollars shown above. EPA will be reimbursed only
for travel costs.
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maximum value of $200,000 over the lAG's performance period. We
do not know the maximum value of the. f unds-in IAG prepared by
NASA. As with the previous pair of NASA lAGs, these lAGs had the
same EPA and NASA POs.
According to the EPA Resource Planning and Budgeting Manual,
Chapter 4, dated February 1, 1985, EPA allowance holders have a
travel ceiling which sets a maximum for FTE travel. The manual
also provides that funds transfers affecting the travel object
class require an approved change request and the issuance of a •
new Advice of Allowance before any funds may be committed or
obligated based on the reprogramming.
Resources Management Directives state that Advices of Allowance
are the Agency's principal mechanism for controlling funds and
ensuring that allowance holders, are allocating resources
according to EPA's Operating Plan. However, the NASA lAGs
represent more than a reprogramming or budget circumvention
within the S&E intramural appropriation but a potential
unauthorized transfer between separate appropriations, R&D
extramural and S&E intramural, which may violate or at least
circumvent appropriation restrictions.
The IAG Compendium also specifically states that lAGs may not be
used to circumvent travel ceilings; however, it appears that this
exchange of lAGs enables ERL-A and the NASA offices to indirectly
re-program their extramural funds, without authorization, into
travel money for FTEs and, thereby, circumvent travel ceilings
for federal employees. The first fiscal year budgets for all
four NASA lAGs show that, ERL-A intended to send $76,000 in
extramural funds budgeted for travel to NASA and would receive in
return $80,000 in travel dollars for their scientists.
An ERL-A PO for one pair of NASA lAGs replied that the Economy
Act of 1932 provided for lAGs to allow government agencies to
interact more effectively. The PO stated that current lAGs are
only for the exchange of travel monies because of the current
planning activities for BOREAS (Boreal Ecosystems Atmosphere
Study). He added that as the project progresses, other funds
will be needed for equipment, etc. However, according to the IAG
Compendium, the Economy Act cited by the PO allows agencies with
greater capabilities to provide related services or procure
specialized materials for other agencies with less experience.
The exchange of funds by two federal agencies for travel costs
alone does, not seem remotely related to this criteria.
The other ERL-A PO explained the exchange of lAGs by saying that
not all of the money on his NASA lAGs was used for travel. Some
of the funds ERL-A received were used for supplies and equipment.
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However, according "to file documentation, these IAG funds were
only recently re-categorized (August 1992) from travel to
equipment after our discussions with ORD and GAD officials about
our concerns with these lAGs. The ERL-A PO further said that EPA
scientists were under pressure to minimize research activities
that overlapped other agencies' efforts. The PO felt that the
cost savings they achieved outweighed any apparent improprieties.
The funds were for a specific targeted project, it was a one-time
situation requiring funds above the ERL-A appropriation, and the
amount of money involved was small.
Correspondence in one of the PO's files shows that the funds-in
and funds-out lAGs were developed concurrently with NASA and were
dependent on each other. The NASA PO wrote to the EPA PO.in
December 1990, stating, "A draft of what tasks for you to do
might look like, with the idea that you would ask us to do
something, similar." Then, in February 1991 he wrote:
I've changed a few words in the Scope of Work that I
originally drafted (what EPA does for NASA), made one
addition in your Task 1 and rewrote your Task 2 (what NASA
will do for EPA) fairly substantially to reduce any
potential duplication.
This memo also indicated that similar IAG exchanges had occurred
between other NASA and EPA offices.
A GAD Branch Chief was asked about the appropriateness of EPA
swapping IAGS with another Agency for travel. She replied that,
"I would get an OGC opinion on that real quick...That's sneaky.
I would question that." She said the effect would be that
agencies would be supplementing each other's travel. According
to this GAD Branch Chief, a laboratory can't have a "travel
grant," the Agency is not in that business. She said that a GAD
specialist reviewing lAGs should ask questions if there is only
one IAG line item and that line item is for travel. However, the
GAD employee stated that for her office to have caught this
"swap-out", the lAGs would have had to come in at the same time
and been assigned to the same specialist. She added: "The
program offices see the IAG as a free-wheeling deal."
Although the first year dollar amounts involved in this exchange
of lAGs between NASA and ERL-A for FTE travel were relatively
small, the three year funds-out for EPA could be $300,000. In
addition, this situation revealed a high potential for misuse
which was not prevented by the internal control systems of ERL-A,
ORD, or GAD.
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ERL-A Improperly Initiated an IAG to Venezuela Without Proper
Statutory Authority
On September 1, 1990, ERL-A initiated an IAG (maximum value of
$401,250) directly to the Institute Venezolano de Investigaciones
cientificas (IVIC) in Venezuela although the IAG compendium
states that lAGs with foreign countries are not authorized. GAD
erroneously approved the original award of the IAG with IVIC in
1990 and the first amendment which increased funding in 1992.
GAD refused to approve a continuation of the IAG at the end of FY
1992. Because of the improper award of this IAG, the almost
$200,000 funded to date under this agreement was lost because the
project/research will apparently not be completed.
According to the IAG Policy and Procedures Compendium "No element
of EPA is authorized to enter into an IAG with any foreign
organization." "The Compendium further states that the proper
procedure requires EPA to enter into an IAG with the Department
of State instead, unless an exception is made by the Office of
International Activities (OIA). We found no such exception in
the IAG files.
The IAG files did contain a Clearance of Foreign Research Award
which was signed by EPA officials but was not signed by the State
Department. Further, the Clearance form was a request for the
approval of an award of a foreign errant or contract, not an IAG.
A record of communication in the IAG files between the ERL-A
laboratory director and OIA also referred to expediting the State
Department Clearance for a Venezuelan cooperative agreement.
A record of communication, dated September 28, 1992, documented a
telephone conversation in which ERL-A's Extramural Assistant was
told by OGC that agreements with foreign governments would have
to be a grant or CA. This' was confirmed in a memorandum from the
Acting Chief of the Grants Information and Analysis Branch (GIAB)
to ERL-A, dated October 8, 1992, in which OGC had advised that
"the authority to transfer funds directly from EPA to foreign
governments or international organizations through an IAG is not
permitted since the authority for lAGs under the Economy Act or
the cooperative statutes is limited to agreements between federal
agencies."
The PO stated that they had discussed awarding a CA to Venezuela.
However, since the agreement was with a Venezuelan federal
laboratory in Venezuela, an IAG seemed more appropriate. He said
that CAs have primarily been used for universities and private
institutions. Awarding the agreement as an IAG instead of a CA
was a "judgement call" according to the PO. He also commented
that it is really more tedious to do an IAG than a CA because an
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IAG must be re-submitted every year. This statement conflicted
with statements made by GAD officials who said that programs and
laboratories liked to use lAGs because they were easier to award
than CAs.
In August 1992, GAD officials stated that they had been refusing
to approve foreign lAGs since July 1992. A GAD manager said that
she was not signing anymore foreign lAGs without a written memo
from OGC citing the statutory authority. She said that she could
not reconcile in her own mind how to do an IAG with a foreign
country. GAD is currently considering *awarding an IAG. to the
State Department as required by the IAG Compendium instead of
awarding lAGs directly to foreign countries.
A GAD manager said that programs like to award lAGs in lieu of
CAs to foreign countries because it's less work. lAGs require
only a decision memorandum/ no proposals, no competition, no
applications, and no reviews are necessary. She said that the
programs like to use lAGs because "It's a shortcut." She added
that GIAB mentioned to the OIA that foreign lAGs might not be
allowable and that they were being used as a shortcut in some
cases. She said they "hit the roof" and said that they were sure
this was not the intention.
The ERL-A PO was disturbed that the Venezuelan IAG was not
renewed when the project was two thirds complete, most of the
equipment was already bought, and the researchers were in the
middle of time-dated fieldwork. He stated that the laboratory
was not informed until September 28, 1992 that the Venezuelan IAG
would not be funded. Up to that point ERL-A thought that the new
policy prohibiting foreign lAGs would only apply to new lAGs, but
that those already in place would be renewed. The EPA PO
explained that the Venezuelan PO for the LAG was a very well-
known scientist and any "glitch" in his project could be very
embarrassing. He added EPA has been criticized for starting
projects and not completely funding the research and that
stopping this work in the middle of the project would be another
example of the Agency not meeting its commitments.
According to the PO, prior to the IAG award, ERL-A gave some
consideration to funding this research as a cooperative
agreement. However, upon examination of the Venezuelan IAG, we
concluded that the appropriate mechanism for this project would
have been a contract because the field studies and data gathered
would have directly benefitted ERL-A. The decision memorandum
stated that the information gathered would be used to "fill data
gaps in global climate models of tropical fluxes of trace gases!'
and that the ."direct client" of the project was EPA.
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Although the IAG provided IVIC with $144,000 in equipment (four
wheel drive vehicles, laboratory equipment, etc.) and CAs with
foreign countries are permitted, the primary purpose of the
agreement was to benefit ERL-A research. Therefore, it would
have been more appropriately awarded as a contract. In addition,
although we believe GAD acted appropriately in refusing to
approve the continuation of this IAG, the IAG was in place for
two years before this corrective action was taken. As a result,
almost $200,000 of funds were expended to date and the project
was left incomplete.
ERL-A Nohcomplied with FAR and IAG Requirements In Providing
Contractors to the Air Force Under the Tvndall AFB IAG
EPA improperly supplied contract employees to the Air Force under
the Tyndall Air Force Base (AFB) IAG (awarded May 25, 1990) by
disguising the contractor charges as FTE personnel in the IAG
budget. As a result, FAR requirements for identifying contractor
use and approval of a sole-source justification were
circumvented. In addition, a university researcher (and former
ERL-A on-site cooperator) specifically requested by Tyndall AFB
was hired as a consultant under ERL-A fs on-site TAI...contract
resulting in apparent directed subcontracting.
The budget included in the 'research proposal submitted by ERL-A
to Tyndall AFB showed almost ninety percent ($335,400) of the
$389,000 in funds ERL-A would receive from Tyndall were for
personnel. Neither the research'proposal/budget nor the IAG'
included funds allocated for procurement/assistance. In fact,
IAG Form 1610-1 specifically asks if funds will be used on
extramural agreements and ERL-A responded "no". However, we
found that funds designated in the IAG award and amendment as * EPA
personnel costs were actually expended on the TAI contract and
two CAs. ' .
The ERL-A Chemistry Branch Chief and the ERL-A PO both stated
that IAG funds were spent on the TAI contract but that none of
the funds were being used on the UGA cooperative agreement.
However, the May 1991 Report of Reimbursable Services Rendered
showed that funds were expended under CAs with both the National
Academy of Science and the University of Georgia.
According to the Interagency Agreement Policy and Procedures
Compendium, if contractors will be used, the name of the
contractor, the contract amount, and the percentage, if any, to
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be funded by EPA should be identified on EPA form 1610-1. The
Compendium also- states:
When using another agency's funds for a contract,
consider the FAR (see Chapter 3 - FAR) and obtain PCMD
approval of Sole Source justification...If grants or
cooperative agreements will be used, determine
recipient, award amount, and subproject amount, if
known (identify on EPA form 1610-1) and determine if
both agencies have required statutory authority for
assistance...
By failing to disclose that a contractor would be used, ERL-A
evaded FAR requirements, including those for competition or
approval of sole-source justification.
In addition, ERL-A cited the Economy Act as authorization for the
reimbursable IAG with Tyndall. However, this Act does not
authorize lAGs which use funds under assistance awards.
According to the Compendium, the Economy Act does not provide
authority where a receiving agency would award an assistance
agreement. The IAG Compendium also states:
In cases where an interagency agreement would involve
the use of a grant or cooperative agreement by the
receiving agency, independent program authority outside
of the Economy Act must be established. If independent
program authority exists, an IAG may be executed
provided both the receiving and providing agencies have
comparable assistance award authority.
Since the Tyndall IAG only cited the Economy Act as
authorization, ERL-A was not authorized to utilize assistance
agreements under- it. According to the Report of Reimbursable
Services Rendered for this IAG, however, at least $57,500 was
expended for CAs under this IAG.
File documentation further showed that Tyndall AFB initially
wanted a CA awarded to a northern university under the IAG
because of their past association with a researcher at that
university. The original research proposal ERL-A sent to the
Tyndall PO in June 1989 included tasks and dollars to fund the
CA. However, the IAG award did not include funds for a CA with
the university- and most of the funds budgeted for the CA in the
original proposal were moved to the personnel budget item.
Inter-office correspondence to the ERL-A laboratory director from
the Chemistry Branch Chief asked, "Is there any way we can get
money to [the university researcher] (30K) besides thru a CA?"
Apparently ERL-A decided against the CA approach because the
68 Audit NO. E1JBF2-04-0300
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researcher was subsequently hired as a.consultant under the TAI
on-site contract - apparent directed subcontracting.
In conclusion, ERL-A misstated how the funds" received from
Tyndall AFB under this IAG would be used, disguising the fact
that the work would be performed by contractors and cooperators
and not FTEs. Further, there was no GAD oversight to match IAG
expenditures to the IAG budget which would have disclosed that
contractors were being used to do the work instead of federal
personnel. Inadequate controls resulted in several hundred
thousand dollars worth of Air Force work being assigned to TAI
without any competitive bidding or approval of sole-source
justification. In addition, the hiring of the university
researcher requested by the Air Force as a consultant under the
TAI contract indicated ERL-A may have accommodated directed sub-
contracting by the Air Force.
Decision Memorandums Improperly Prepared
The IAG Compendium requires specific information be included in
an IAG decision memorandum. This includes EPA authority for
entering into the agreement, a summary of alternatives considered
other than the IAG, and a rationale and justification for
selecting the proposed agency. None of this information was
included in any of the decision memorandums for the six IAGS we
reviewed. In addition, the ERL-A PO for two of the lAGs wrote
and signed the decision memorandum and recommended approval of
the lAGs with himself as PO. The fact that the decision memos
were incomplete and two of them were inappropriately prepared by
the prospective PO is indicative of a lack of controls over the
IAG awards, both at ERL-A and at GAD (see Chapter 2). Deficient
controls and/or the failure to implement controls apparently led
to the misuses of lAGs detailed in this section. Weaknesses in
ORD, GAD, and ERL-A's internal control processes are discussed in
more detail in Chapter 6. .
Because lAGs do not require competition, proposals, applications,
or reviews they are even more vulnerable to misuse than other
extramural instruments. Despite this high level of
vulnerability, ORD and GAD did not implement adequate controls to
prevent the misuse of lAGs by ERL-A. ERL-A scientists and
managers appeared to be virtually unchecked in their use of lAGs
- re-programming extramural funds into FTE travel dollars,
awarding an IAG to a foreign country .without statutory
authorization, and falsely budgeting funds as FTE personnel
expenditures when they were used to fund contractor and
cooperator employees.
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During a discussion with ORD Headquarters management in January
1993, several ORD officials indicated that uses of CAs and lAGs
that we were citing as misuses may not violate any laws or
regulations. For example, the NASA lAGs, which exchanged
extramural funds between agencies to supplement intramural travel
of FTEs, was one of the cases cited by these officials. ORD
officials indicated they had requested an OGC opinion on this use
of lAGs.
Although these officials may be correct that no laws or specific
regulations were broken, ethical and internal control questions
still remain. The circumvention of budget and funding controls
established by Congress and the Agency through separate
appropriations for extramural and intramural activities should
not be encouraged or condoned regardless of the existence or non-
existence of specific appropriation or regulatory restrictions.
This policy would be ethically unsound and, in the case of the
NASA lAGs, could result in substantial bypasses of fund controls
the Agency currently has in place. If ORD Headquarters informs
its field units that such practices are "okay", laboratories may
be encouraged to become even more creative in their approaches to
supplementing their intramural resources. Such encouragement
without stringent controls (which do not currently exist) over
these creative funding mechanisms, may result in laboratories
violating laws and regulations far more serious than currently
contemplated.
RECOMMENDATIONS - USE OP EXTRAMURAL AGREEMENTS
Recommendations to the Assistant Administrator* Administration
and Resources Management
We recommend that the Assistant Administrator for Administration
and Resources Management ensure significant improvements are made
in ERL-A's extramural agreement award and management to comply
with applicable statutes, regulations, and policies, and to
safeguard Agency assets against waste or abuse. Specifically,
the Assistant Administrator should require the:
Director. Grants Administration Division to; .
- Provide guidance to ORD managers and CA POs on the differences
between acquisition and assistance and appropriate uses of
contracts and assistance agreements with illustrations and
definitive examples.
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- Assist ORD in preparing guidance on the proper uses of R&D
funds as relates to the specific types of activities
that are eligible for funding under CAs.
- Assign responsibility for ERL-A extramural agreements to one
grants specialist to .improve controls over extramural resources
through increased familiarity with laboratory operations/staff.
Currently, ERL-A agreements are assigned systematically to
whichever specialist can take another case. Therefore, ERL-A's
agreements are scattered among many specialists with no one
person seeing the whole picture of ERL-A agreement awards.
If one specialist had seen all of the NASA XAGs for exchange of
extramural funds for FTE travel, the GAD specialist may have
detected the improper use and disapproved the agreements.
- Provide guidance to POs that prohibit the use of lAGs for the
purpose of reprogramming appropriated funds and awarding
research funds to foreign countries unless proper approval or
statutory authority is obtained.
Recommendations to the Assistant Administrator, Research and
Development
We recommend that the Assistant Administrator for Research and
Development:
- In collaboration with GAD and the Comptroller, promulgate
definitive guidance on the proper uses of R&D funds
under CAs, especially those uses related to ambiguous project
areas .such as curriculum development. Prohibit the use of R&D
funds, either directly or indirectly, for the direct benefit of
federal employees.
- Receive and review all CA RFPs and decision memorandums to
assure that the purpose of the agreement is to provide
assistance and not directly benefit or support ERL-A/ORD
research projects.
- Develop a policy which clearly states how graduate
academic training and/or advanced degrees for EPA employees
will be funded, either through IPAs or established Agency
training programs. Require commitment of 3 years of federal
service for every 1 year of training received whether training
is funded through IPAs or regular training funds. Prohibit the
funding of federal employee training under CAs in accordance
with requirements of the Assistance Administration Manual.
- Develop a policy on the funding of foreign travel under CAs
which will result in improved ORD controls over any foreign
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travel funded by EPA, including, full disclosure to Congress of
total expenditures for foreign travel by FTEs, contractors, and
cooperators/non-federal persons (academics) under such
agreements.
- Remind the ERL-A director that directed and sole-source
contracting through lAGs is prohibited without proper
approval and that use of extramural agreements under lAGs
should be clearly disclosed on the IAG application in
accordance with the IAG Compendium. In addition, instruct the
ERL-A director that currently no authority exists under the
Economy Act for use of CAs under lAGs. . <
- Determine, with assistance from OGC, if any unauthorized
reprogramming of R&D funds to S&E funds occurred under the NASA
lAGs, Also, obtain a formal, written OGC opinion as to whether
R&D appropriations can be used under a CA or IPA for the direct
benefit, compensation, or training/travel expenses of a federal
employee.
Directory. Environmental Research Laboratory - Athens to;
- Provide to all POs all Agency policy and procedural guidance
necessary to effectively manage their extramural agreements
through the pre-award and post-award phases.
- Require ERL-A managers to review all current and future CA RFPs
and decision memorandums to assure that the primary purpose of
the agreement is to provide assistance and not to procure goods
and services which directly benefit ERL-A or ORD and that
decision memorandums for all extramural agreements have all of
the required elements. Terminate funding of those current CA
projects or subprojects that directly benefit or support ERL-A
or that violate laws, regulations or Agency policies. Award
contracts if there is a need for continuance of these CA
projects.
- Where appropriate, immediately move all UGA and other
cooperator employees off-site to preclude direct supervision of
cooperators by ERL-A staff and remove inappropriate direct
benefit to ERL-A under the UGA CA.
- Clearly identify in all CAs the primary function of the
CA. Large travel or equipment budgets should not be added
as an addendum to relatively small research budgets to obscure
the actual function of the CA.
- Provide all ERL-A employees with equal access to IPA
training opportunities. In addition, provide full disclosure
72 Audit No. E1JBF2-04-0300
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of all sources of funding in IPA applications and cease
utilizing CAs to fund IPAs for academic training of FTEs.
Prohibit ERL-A PCs, scientists, and on-site cooperators from
preparing or assisting in preparation of proposals and/or
decision memorandums for CAs in which they will benefit or act
in a PO capacity.
Establish policies which allow cooperators the maximum
involvement and control possible in their research projects.
Review and terminate lAGs with NASA that are being used to fund
FTE travel and circumvent Agency fund controls.
Require.and ensure proper documentation of authority,
rationale, and justifications in IAG decision memorandums
and preclude prospective POs from preparing IAG decision
memorandums. •
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ERL-A'S COOPERATIVE AGREEMENT AWARDS LACKED COMPETITION
ERL-A did not encourage the competitive award of CAs as
emphasized by the FGCA Act and did not have sufficient controls
in place to assure that the proposal review process for
competitive and noncompetitive awards was fair and equitable.
Almost 63 percent of ERL-A's 27 active CAs, comprising over $10
million of ERL-A's $14.2 million in CA funding, were awarded
without competition. ERL-A maintained, in many instances, it
knew the institutions and individuals best qualified to perform
the research assistance needed and used its discretionary
authority to award noncompetitive agreements to these
individuals/institutions. In fact, all seven of the
noncompetitive awards in our sample of 11 CAs were to current
employers of former ERL employees and on-site cooperators and to
alma maters or former employers of laboratory management. These
non-competitive awards created the appearance of favoritism in
the CA award process. The fairness and openness of the
competition in ERL-A's competitive CA awards is also
questionable. We reviewed five of the CAs which were awarded
competitively and, in every case, identified potential review
panel conflicts of interest (COIs) which may have compromised the
free and open competition in the CA awards. None of the review
panels for competitive awards in our sample included ORD
Headquarters staff as required by ORD procedures. Potential COIs
also existed for review panels involved in many of the
noncompetitive awards. As a result, CA funds may not be
effectively utilized to obtain the best research at the least
cost to the government. In addition, lack of competition and the
appearance of favoritism in the CA award process could subject
EPA to criticism and protests and erode public trust in EPA
research.
i.
Background
One of the major purposes of the FGCA Act of 1977 was to maximize
competition in the award of contracts and encourage competition,
where deemed appropriate, in the award of grants and CAs. An ORD
Policy on the Use of Cooperative Agreements, issued in January
1983, stated that ORD's policy was to: (1) assure that the
appropriate extramural mechanism is used, (2) assure maximum use
of competition, and (3) seek new, well qualified sources of
research. It required that all CAs having a total project cost
of $100,000 or greater be awarded competitively.
However, revised ORD guidance on competitive CA procedures, dated
November 2, 1983, eliminated the requirement for mandatory
competition of new CAs valued at $100,000 or more and gave
laboratory directors the discretion to decide when to compete
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CAs. The concurrence of the AA for Research and Development was
required for all award decisions when the total EPA cost was over
$250,000. In addition, the decision to award a CA
noncompetitively was required to be justified in a memorandum
that is included in the project file. A revised ORD delegation
of authority issued in November 1984 gave laboratory directors
approval authority for competitive CA awards up to $1 million.
Approval authority for noncompetitive awards remained at $250,000
total EPA cost6.
The November 1983 guidance also gave examples of situations that
would substantiate/justify a noncompetitive process. -This
included: (1) the recipient submitted a unique concept or
approach and it would be unethical for ORD to advertise for
applicants to use this approach, (2) the unique capabilities of
the recipient have placed it in a pre-eminent position, (3) the
recipient has personnel who are considered the foremost experts
in fields necessary to perform the work, (4) the recipient has
facilities, equipment or data which is specialized, vital to the
effort, and which no one else can provide, or (5) an urgent
situation exists where no other source could provide the research
in the time allowed.
Chapter 3 of the ORD Policy and Procedures Manual addresses
procedures for evaluating applications for both competitive and
noncompetitive CAs. Both types of CAs must be technically
reviewed by a panel of, both in-house and extramural reviewers.
Competitive CAs must be advertised widely using all available
means. Pre-proposals are usually requested and rated and full
proposals are then requested from the highest rated pre-
proposals. According to the Procedures Manual, the review team
should be comprised of one person from ORD headquarters, one
person from the ORD laboratory, and at least two extramural
reviewers. The laboratory director then makes the final
selection for award from the top three proposals and a decision
memorandum is prepared.
The ERL-A issued a Laboratory Operating Procedure (LOP) for
Competitive Cooperative Agreements in April 1987 and one for
6 AA for ORD issued "COOPERATIVE RELATIONSHIPS. Interim
Guidance," on October 1, 1992. This guidance reduced laboratory
director approval of noncompetitive CA awards to $50,000 or less;
however, required ORD approval of competitive awards was
increased to $5 million.
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Non-Competitive Cooperative Agreements in July 1991.. Both LOPs
state:
To help assure that cooperative agreements support the
best research available, ERL-A generally expects that
cooperative agreements will be awarded on a competitive
basis; the non-competitive award of a cooperative
agreement must be justified by unusual or urgent
circumstances and approved by the Director.
The Athens Competitive CA LOP also stated that one member of the
review panel will be selected by Headquarters and provides that
four extramural reviewers are required if the amount of the
projected agreement exceeds $250,000. It notes that no current
Project Managers for cooperators will be panel members.
Most CAs at the ERL-A Laboratory Are Not competed
Although the 1977 FGCA Act did not require that CAs be competed,
it specified that competition be encouraged. However, despite
this provision of the FGCA Act and ORD Headquarter and ERL-A
policies that competing CAs helps assure the best research
available, ERL-A awarded only about one third of its CAs
compet it ively.
Of the 27 active CAs at ERL-A in July 1992, 10 were procured
competitively and 17 (63 percent) were noncompetitive. Ten of
the 17 noncompetitive CA awards (59 percent) were just under the
$250,000 EPA cost limit necessary to avoid Headquarters approval
of a noncompetitive award. For example, three awards to Clemson
University at $249,000 to $250,000 each (total $749,850) had
project start dates within about a two week period in 1991. The
dollar value for the competitive CAs was approximately $4.2
million, while the noncompetitive CAs were over twice that at $10
million - over 70 percent of current CA funding. The
laboratory's two largest CAs, the University of Georgia and the
University of New Hampshire, were awarded noncompetitively. The
University of New Hampshire CA was awarded by ORD Headquarters.
Many of the extramural funds available for award went to
institutions or individuals to which ERL-A managers or scientists
had a past or current association, leading to the appearance of
favoritism.
Information was requested and provided by ERL-A on the proposed
CA funding packages sent to Washington for approval at the end of
FY 1992. We found that 11 of the 16 new proposed CAs (69
percent) were noncompetitive. After our audit fieldwork was
completed and apparently as a result of IG concerns, ORD has
informed us that of the 9 CAs actually awarded to date, 7 of them
76 Audit No. E1JBP2-04-0300
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Competitive Versus Noncorrpet i t i ve Awards
Millions
1991
1992
1993 . Total 91-93
Noncompete
Compete
$6.39
$0.949
$0.265
$0
$4.9
$1.1
$11.56
$2.05
Fiscal Years
Proposed Awards Shown lor 1993.
were —
competitive.
The ERL-A lab _
director has
informed us
that 14 of the
planned 18 new
CAs for FY 93
are or will be
competitive.
The chart at
right shows the.-
dominance of
noncompetitive .
awards for 1991
and 1992 and
the proposed —
awards for 1993. The value of the 5 proposed, competitively
awarded CAs was only $1.1 million versus almost $4.9 million
(81.7 percent of proposed CA funding) for the noncompetitive CA
proposals. The new proposed noncompetitive CAs included one for
$3 million with Georgia Tech which GAD Headquarters subsequently
disapproved. EPA's OGC concluded in its review.of the proposed
Georgia Tech CA, "assistance was not the appropriate funding
mechanism to use since .the proposed work appears to primarily
benefit EPA."
Appearance of Favoritism in Noncompetitive Awards
Many of the ERL-A's noncompetitive CA awards gave at least the
appearance of favoritism. ERL-A has awarded noncompetitive CAs
to former ERL-A employees, former UGA employees who worked at
ERL-A, and universities with which ERL-A employees have close
ties (former employers, alma maters) . In at least three of these
cases (Mansoura, Menoufia, and Montana State), critical reviews
of the noncompetitive CA proposal were excluded from the decision
memorandum and/or the funding package documents.
Relationships between cooperators and ORD/ERL staff related to
our 11 sample CAs and one non-sample CA disclosed during the
audit are presented below:
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Cooperator
Institutions
(Type Award) I/
Relationship With
ORD/ERL-A
Alaska (C)
No Known Relationship.
British
Columbia (NC)
UBC PI Co-Published
With ERL-A Director In 1988
Clemson (C)
Review Panel Chairman - UGA
Adjunct Professor.
UGA Has Large Subcontract
Under Clemson CA.
Colorado
State (C)
Former Employer - ERL-A
Director. (Part-time, 1975-77)
CSU PI - Former ERL-A Employee
(1979 -1981). (GS-7 Graduate
Student - part-time)
Georgia (NC)
Near-Site University Provides
On-Site Support To ERL-A Pis.
ERL-A Staff On UGA Adjunct
Faculty.
Mansoura (NC)
Mansoura PI - Former On-Site
Cooperator Under UGA CA.
Menoufia (NC)
Menoufia PI - Former On-Site ,
Cooperator Under UGA CA.
Montana
State (NC)
Former Employer - ERL-A
Director.
New
Hampshire (NC)
Alma Mater - ERL-A Director.
(Awarded by ORD Headquarters)
Rhode
Island (C)
Near-Site University For
Narragansett ERL-N.
Marine
Biology (C)
No Known Relationship.
Purdue 2/
Purdue PI - Former ERL-A
Employee.
I/ NC = Noncompetitive Award.
C — Competitive Award.
2/ Nonsample CA.
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The award of the CAs to Mansoura and Menoufia Universities in
Egypt is an illustration of both how ERL-A improperly used
noncompetitive CA awards and the problems with the proposal
review process discussed in this chapter. The prospective PO for
the Egyptian CAs provided the laboratory director with a list of
potential external reviewers and recommended that the reviewers
selected review both proposals since they were so similar. The
four external reviewers, whose reviews were included in the ERL-A
files, all came from this list.
One of the external reviewers was apparently a close colleague of
the PO. They worked together in the same laboratory in 1988.
Another reviewer that the PO recommended was also a colleague.
During June and July 1989, when reviews of the Egyptian proposals
were being requested, this reviewer and the PO were working
together to arrange an IAG between ERL-A and the Air Force. When
the IAG was approved, the external reviewer became the Air Force
PO. Unfortunately, the Air Force reviewer was on vacation when
the Egyptian proposals reached his office and his supervisor
reviewed the proposals instead and recommended that they not be
funded. This was the only review performed by an external
reviewer not personally selected by the prospective ERL-A PO.
one other external reviewer also recommended that the CAs not be
funded in their present form;'
However, only the two external reviews with positive comments
were included in the funding package and cited in the decision
memorandums for the CA awards. An external review which
questioned whether the fieldwork should be done in Egypt and
another review which recommended that the proposed work not be
funded in its present form were not included. Instead, the
decision memorandum stated, "There were no contrary reviews."
Two reasons given in the decision memorandum to justify the.
noncompetitive awards were that: (l) Egypt offers an ideal
environment for the field studies due the widespread and
sometimes poorly, controlled use of pesticides in the country, and
(2) both Pis had received training at ERL-A and had expertise in
fate processes of,organic pollutants. However, the
appropriateness of the Egyptian fieldwork location and the
expertise/experience of the Pis were both questioned by external
reviewers.
We found other examples of potential favoritism in noncompetitive
CA awards including the CA award to Montana State University
previously discussed in this chapter. Because*of the increased
vulnerability for abuse, ERL-A managers should exercise stringent
controls over noncompetitive CA awards to ensure fair and
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equitable treatment and effective use of Agency resources. The
justifications for noncompetitive awards in decision memorandums
should comply with ORD guidance and special efforts should be
made to assure that CAs are reviewed by scientists who are both
knowledgeable of the planned research and without close ties to
the prospective PO or other ERL-A staff. In cases where the
applicant has close ties to ERL-A, consideration should be given
to awarding the CA competitively to avoid the appearance of
favoritism.
Large Noncompetitive CA Awarded to PGA
ERL-A awarded the $5.2 million UGA CA noncompetitively, avoiding
the contract procurement process and ensuring that the laboratory
would continue to have UGA on-site support through the CA as
previously discussed. This CA was awarded noncompetitively
despite the reservations of the OEPER Director and^despite
external reviewers' comments concerning the difficulty of
reviewing the proposal due to its great diversity and size. As a
result of these problems, the CA was scheduled to be terminated
in March 1993 instead of October 1994 as specified in the CA and
the work is planned to be re-competed as at least three separate
CAs. However, documentation in ERL-A files indicated that the
laboratory anticipated that UGA would win at least one of the
awards which raised questions about how fair and open this
competition will be.
The decision memorandum for the September 1991 UGA CA stated four
primary reasons for a noncompetitive award: (1) the proximity of
the UGA and the complementary nature of UGA's and ERL-A's
expertise and interests, (2) the immediate need for technical
information for certain program offices and ERL-A's
responsibility to provide technical assistance to Regions and
States, (3) many of the ideas in the proposal are original with
UGA personnel, and (4) close ties with UGA will enable ERL-A to
capitalize on the University's unique expertise.
Although one justification for noncompetitive award in the
decision memorandum referred to UGA's unique expertise, one
subproject's sole-source justification was based on an ERL-A Pi's
previous research in the area. In addition, the decision
memorandum stated that many of the ideas in the proposal were
original with UGA personnel. However, ERL-A staff either wrote
or assisted in writing at least eleven subproject proposals.
A February 1992 memorandum indicated that OEPER's Director was
concerned about the extent and degree of integration of the
laboratory and the University research activity called for in the
CA's Research Plan. According to the OEPER Director, "The
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Research Plan reads as if the University is proposing an
extension to the Laboratory itself." However, he conditionally
approved and funded the Research Plan for the UGA CA because time
did not allow competition to take place without projects and
employees being terminated.
Although the OEPER Director initially believed that a peer review
would sort out the problems with the CA, the December 1991
Research Plan apparently changed his mind. He questioned "the
degree of independence we must observe with respect to on-site
cooperative agreement research." The OEPER Director decided to
fund the UGA CA only through March 1993 with no new projects to
be started during the interim. During this period the laboratory
is to develop ^requests for pre-proposals (RFPs) for the research
areas coveredvin the current UGA CA.
ERL-A file documentation, dated May 1992, outlined guidelines for
the UGA recompete and indicated there would be four RFPs.
Assume UGA may bid on all 4 RFPs, but desire that they
win #1, which may carry at least 1/3 of the budget.
SPARC should cinch UGA for #1 [emphasis added]^ This
#1 should be managed thru (the UGA Program Manager's)
office, other Universities should win enough of 2, 3
and 4 to assure that UGA is reduced by the required 39%
from FY '91.
The quote above shows that it was ERL-A's intention to manipulate
the recompete of the UGA CA. The plan to include the SPARC
(SPARC Performs Automated Reasoning in Chemistry) project in RFP
#1, which will have the largest budget, to "cinch" it for UGA
suggests that the climate of evasion and circumvention of
statutes and regulations at ERL-A remains unchanged. A change
from a noncompetitive award to a biased competitive award is not
proper corrective action.
QRD Awarded the University of New Hampshire (UNH) a
Noncompetitive CA Without Required Justification
Despite total costs of almost $1 million, the UNH CA was awarded
noncompetitively in 1989 by ORD Headquarters without
justifications documented in the original decision memorandums as
required by ORD procedures. PO responsibilities for this CA were
transferred to an ERL-A PO in October 1990. A supplemental CA
award of almost $900,000 was made in September 1991, also
noncompetitively. The decision memorandum justified this
noncompetitive CA supplement because: (1) UNH is already, working
on a similar deforestation project for NASA in Brazil, and (2)
the UNH PI was selected by peers to chair the GAIM core project.
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Although the PO for the CA was at ERL-A, the supplemental award
to increase the CA scope of work was approved by ORD
Headquarters.
Reviewers were very critical of the original UNH proposal. Some
of the reviewers expressed concerns about the breadth of the
proposal given the staff and resources at UNH and suggested
reducing the scope of the research. The PO believes that the
negative comments by the staff at another EPA laboratory were
probably a reflection of the fact that they wanted to do similar
work. When discussing the negative reviews of the proposal, the
PO mentioned that one of the reviewers was a contractor and
probably should not have been commenting on the proposal.
ERL-A incorrectly categorized the original UNH CA as competitive,
which distorted the ratio of competitive to noncompetitive CAs
for the laboratory. The original decision memorandum did not
document any competition and the PO stated that probably meant
there was none. The ERL-A extramural coordinator called the UNH
PI who informed her that the award had been competitive.
However, an OEPER staff member subsequently confirmed on August
31, 1992, that he had researched the original CA files and
concluded that the CA had not been competitive.
By awarding a total $2 million noncompetitive CA to UNH, ORD
Headquarters disregarded its own procedures requiring
justification of noncompetitive awards. The justification
procedures were instituted by ORD to ensure that CA awards were
made "to the best institutions to support the most productive
research." We also believe that it was inappropriate for
contractor employees to review CA proposals, especially where
there was potential competition between a contractor and a
cooperator.
Lack of Controls Over the Proposal Review Process - Previously
Identified Problems Remain Uncorrected.
ORD's laboratories rely heavily on the proposal review process to
ensure the quality of research proposed by CA applicants for both
noncompetitive and competitive CAs. However, the process lacked
sufficient controls to ensure that ORD's goal of awarding CAs to
the best institutions to support the most productive research was
obtained. The widespread potential COIs of review panel members
and other irregularities in the proposal review process increased
the potential for favoritism in the award of both competitive and
noncompetitive CAs. The pervasive influence of the prospective
PO over the review process also represented a significant control
weakness.
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Audits by the General Accounting Office (GAO) in October 19807
and EPA's OIG in March 1983s both reported that prospective POs
had undue control of the grant/CA review and selection process.
The OIG audit recommended that the Acting AA for Research and
Development fully enforce existing CA procedures or develop new
procedures to ensure that POs are removed from selecting external
reviewers, preparing in-house reviews, and preparing decision
memorandums covering CA applications with which- they have been
involved. ORD senior management responded that they agreed with
these recommendations and had either already taken action or
planned to fully implement them.
Despite the ORD assurances that corrective action would be taken,
however, the ERL-A lab director brought to our attention that the
ORD Policies and Procedures Manual, issued in 1986, states that
the prospective PO will prepare the decision memorandum. As a
result, our review found that ERL-A's prospective CA POs, on a
routine basis, still recommended review panel members, performed
in-house reviews for competitive CAs, and sometimes wrote
decision memorandums for signature by a branch chief. In
addition, one of the controls established by ORD to correct this
problem was consistently ignored by ERL-A. Subsequent to the
1983 OIG audit, ORD required that one member on each review panel
for competitive CA awards be from ORD Headquarters. None of the
review panels for the 5 competitive ERL-A CAs in our sample
included a representative from ORD.
The existence of these deficiencies 9 years after the prior OIG
audit presents substantial evidence that ORD has provided little
oversight of the CA award process, especially considering that
ORD Headquarters should be fully aware when laboratories continue
to award CAs year after year and no ORD personnel have been
selected for applicable review panels.
Many examples of continuing problems and control weaknesses in
the CA proposal review process were previously discussed in this
chapter.
7 GAO report "Promising Changes Improve EPA's Extramural
Research; More Changes Needed", Audit No. GAO/CED-81-6, issued
October 1980.
8 OIG audit "Review of the Office of Research and
Development's Extramural Research Activities", Audit No.
ElgB2-ll-0019-30828, issued March 31, 1983.
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Potential Conflicts of Interest of Review Panel Members
We identified potential review panel COIs related to the award of
10 of the 11 CAs in our sample. According to ERL-A staff this
was the result of the small number of knowledgeable experts
available to review research proposals. Review panel members are
recommended by the prospective POs and although both ORD and
laboratory guidance require reviewers from ORD Headquarters on
the review panels for competitive CA awards, as previously
stated, none of the panels in our CA sample complied with this
requirement. In referring to CA proposal reviews, an ORD manager
stated, "We don't want it done by the good old boy network which
tends to be the process."
Examples of potential COIs we identified were:
- Panel members were from the same schools as the researchers
submitting pre-proposals/proposals or their
collaborators (i.e., ciemson, CSU, Marine Biology
Laboratory, URI).
- An ERL-A scientist, who served as the internal reviewer for one
CA award and the panel chairman on another award,"" was on the
adjunct faculty of UGA who had large subcontracts with both
institutions under the CA proposals reviewed. He recused
himself from one review, but not from the other although the
same subcontract arrangement was in both proposals (i.e.,
Alaska, Ciemson}.
- Panel members had collaborated and/or published with the
prospective PI, collaborator, or prospective PO (i.e. UBC, MBL,
Mansoura/Menoufia) .
- A reviewer who was the PI on another ERL-A CA and had his
travel to a symposium in the Peoples' Republic of China paid
for under the UBC CA (i.e., UGA).
- A reviewer who was recently a competitor on another ERL-A CA
(i.e., Ciemson}.
In these cases, the COIs may not be directly with the institution
who is awarded the CA, but. these conflicts still taint the
process.
Weak, vague conflict of Interest statement
The COI statement "being used by ERL-A review panels at the
beginning of our audit fieldwork did not clearly define the types
of relationships that could give the appearance of a COX.
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Instead, the statement left the definition of what constituted a
COI or the appearance of a COI to the discretion of the reviewer.
It stated:
I hereby certify that to the best of my knowledge and
belief, no conflict of interest exists which may
diminish my capacity to provide an impartial,
technically sound, objective review of the subject
proposal or otherwise result in a biased opinion or
unfair competitive advantage.
After being informed by us of potential review panel COIs, the
laboratory director ordered a revision of the COI statements
signed by reviewers.' She used as a model an old COI statement we
found in ERL-A files which was more explicit about what kinds of
relationships constitute a potential COI. While this is an
improvement over the previous COI statement, we believe that ERL-
A scientists need to be made more aware of the negative
implications of this tight-knit web of reviewers, proposers,
recipients, and ERL-A staff that would be both evident and
questionable to any outside observer.
RECOMMENDATIONS - COMPETITION IN CA AWARDS
Recommendations to the Assistant Administrator. Research and
Development
We recommend that the Assistant Administrator for Research and
Development ensure significant improvements are made in
assistance agreement awards that increase competition and assure
a fair and equitable proposal review process. Specifically, the
Assistant Administrator should require the:
Director. Office of Environmental Processes and Effects Research
to:
- Ensure that ORD personnel are included on ERL-A proposal review
panels for competitive CAs as required by ORD policies and
procedures.
- Provide training and/or guidance to ORD and ERL-A managers and
POs, in collaboration with GAD, to enhance ORD awareness of
potential COIs or the appearance of COIs in the review and
award of assistance agreements.
- Comply with prior audit recommendations to fully enforce
existing CA procedures or develop new procedures to ensure that
POs or prospective POs are removed from selecting, external
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reviewers, preparing in-house reviews, and preparing decision
memorandums covering CA applications.
- Evaluate the justifications for ERL-A noncompetitive CA awards
to ensure that they comply with ORD guidance, especially
repetitive awards at or near the threshold for ORD review and
approval.
- Establish for ERL-A and other ORD laboratories, stringent
controls over noncompetitive awards to assure fair and
equitable awards, eliminate the appearance of favoritism, and
require the effective use of Agency resources.
- Emphasize to ERL-A managers ORD's goal to compete CA awards.
- Instruct ERL-A managers that favoritism in noncompetitive CA
awards cannot be tolerated without clear, sound, and legal
justifications for such awards.
- Require complete and accurate justifications in CA decision
memorandums for noncompetitive awards including those awarded
by ORD Headquarters. Review decision memorandums for all
noncompetitive awards by ERL-A for inaccurate and/or
unsupported justifications.
- Closely review any follow-on competitive CA awards to UGA to
ensure competition procedures were unbiased and equitable.
- Require the ERL-A director to ensure that CA proposals are
reviewed by scientists who are knowledgeable about the projects
but who have no close ties with ERL-A or the prospective PO.
If CA applicant has close ties to ERL-A, require competitive
award procedures.
- Review adequacy of ORD corrective action on the prior OIG audit
findings related to CA review panel COIs and the influence of
the prospective PO over panel selections and panel
, recommendations. Ensure proper implementation of prior audit
corrective actions by ORD laboratories.
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MISMANAGEMENT OF COOPERATIVE AGREEMENTS
CAs were not properly managed after award to ensure compliance
with agreement terms or that Agency resources were being
effectively used and safeguarded by CA recipients. ERL-A either
did not have or did not implement procedures to determine
compliance for extramural agreements or the propriety of fund
expenditures by CA recipients. Also, there was an overall lack
of documentation of ERL-A's CA post-award management and
oversight. In addition, a disconnect existed between the
technical monitoring that was done by ERL-A POs and GAD's
financial management responsibilities. As a result, ERL-A did
not adequately oversee the financial status or technical progress
of its CA research.
Background ' ' " •
The Federal Managers' Financial Integrity Act of 1982 requires
that internal accounting and administrative controls be
established to provide reasonable assurances that: (1)
obligations and costs are in compliance with applicable law, (2)
funds, property, and other assets are safeguarded against waste,
loss, unauthorized use, or misappropriation, and (3) revenues and
expenditures applicable to agency operations are properly
recorded and accounted for to permit the preparation of accounts
and reliable financial and statistical reports and to maintain
accountability over the assets.
v
Chapter 44 of EPA's Assistance Administration Manual, entitled
"Project Officer Responsibilities," advises POs that they are
the recipients' main point of contact with EPA. The Chapter
states that "The Project Officer has the basic charge to manage
and monitor the performance of work under the terms of the
assistance agreement." It also states that the PO "must monitor
technical aspects of work performed and ensure that the recipient
complies with the terms of the assistance agreement." The PO
must provide "documentation to the Assistance Administration Unit
of correspondence, meetings, phone calls, etc., that have a
significant bearing on the performance of either the project or
the recipient or its contractors."
Disconnect Between Technical Monitoring and Financial Management
Responsibilities
The disconnect between the technical monitoring responsibilities
of the CA POs and the financial management responsibilities of
GAD resulted in a lack of assurances that federal funds, property
and other assets were protected against fraud, waste and abuse.
GAD received financial information (Financial Status Reports -
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FSRs) related to CA projects which was not provided to POs, and
POs should have had knowledge of technical progress on CAs which
was not provided to GAD. As a result, neither GAD nor ERL-A POs
had complete information on both the technical progress and
expenditures under .cooperative agreements that would be necessary
for proper control and management of recipient activities. When
questioned about oversight of expenditures under CAs, both GAD
and ERL-A staff talked about trusting the universities. We do
not believe "trust" fulfills the requirements of the FMFIA or
represents an effective internal control over the millions of
dollars in CAs awarded and managed by the ERL-A.
Inadequate Review Of Performance And Expenditures
Problems with ERL-A's management of CAs were similar to those
reported in DIG's report on EPA's Management of Computer Sciences
Corporation Contract (Audit No. E1NME1-04-0169-2100295), issued
in March 1992, i.e., lack of sufficient oversight of recipients'
performance, inadequate financial monitoring, inadequate guidance
to POs, and insufficient training of POs. Because assistance
agreements are not subject to the same strict FAR requirements as
contracts, there are fewer controls over their award and
management. As a result, CA POs have fewer tools to manage their
agreements and we found that they had chosen not to use even
these limited tools. POs were not receiving progress reports,
FSRs and/or QA plans as required under their CAs. Also, POs were
not making frequent site visits, as recommended. When they did
make site visits, they usually did not perform QA audits or write
up trip reports to document the results of their visits. As a
result, ERL-A and GAD had no assurances that recipients met the
terms of their agreements or that government assets were
safeguarded from fraud, waste, and abuse.
ERL—A POs Did Not Review Financial Status Reports
GAD staff received FSRs from the CA recipients, but did not
forward these to ERL-A POs, as required by the EPA's Assistance
Administration Manual. POs had little or no knowledge of
expenditures under their CAs because they did not request
required progress reports from university Pis, which should have
contained information on expenditures. Also, GAD staff did not
know the progress made under CAs because they did not receive
progress reports and because there was little, if any, contact
between GAD specialists and the POs at ERL-A.
In 40 CFR 30.505 CA recipients are required to submit FSRs within
90 days after each budget period and within 90 days after the end
of project completion or termination. According to Chapter 44,
Section 5c of the Assistance Administration Manual (December
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1984), the FSR must be reviewed by the Assistance Administration
Unit (AAU) to assure that the recipient uses the funds properly.
A copy should be sent to the PO who should then review it in
relation to the recipient's progress reports and notify the AAU
if there are any exceptions.
The FSRs received by GAD are only required at the end of each
budget period. Since the first budget period of a CA is normally
two years long, this means that- the Agency has no expenditure
information during the first two years of the projects. When
questioned about the adequacy of this form of financial
management oversight, a GAD manager replied, "The grants process
is a public-trust type of relationship. We rely on the grantees
to follow the regulations." GAD managers also stated that POs
should make sure that the CA funds are being spent as intended.
However, we found that ERL-A POs were not monitoring, expenditures
under CAs and the POs generally denied any responsibility for
financial oversight. Some POs had little, if any, knowledge, of
expenditures made under their CAs.
Although special conditions in the UGA CA required that the UGA
Project Manager submit to the ERL-A PO quarterly FSRs for each
subproject, the ERL-A PO (laboratory director) said~that she did
not receive FSRs. She stated, "I think we should get it. I
think it's dumb we don't get them. We don't get them for JAGs
either." She said she feels this is unfortunate because they
cannot really monitor fund uses because they do not see actual
expenditures. However, the PO added, "I trust the University."
Progress Reports Not Used To Monitor Agreements
All eleven of the CAs reviewed required progress reports -, usually
quarterly, as one of the special conditions. However, most of
the ERL-A POs were not requiring or receiving them. Several of
the POs stated that requiring progress reports might interfere
with the progress of the research. Others spoke of receiving
oral progress reports, but we found no records of communication
documenting these in CA or PO files. According to a standard
special condition included in CAs, the progress reports should be
used by POs to monitor status, progress, problems with the
project, changes in key personnel, and expenditures.
OMB Circular A-110, issued July 1976, provides that performance
reports shall not be required more frequently than quarterly or
less frequently than annually. Chapter 44, Section 5d, of EPA's
Assistance Administration Manual advises POs to insist on high
quality progress reports as well as their timely submission.
Chapter 44 also states that progress reports can alert POs in
advance to problems the recipient may have in meeting schedules
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for completing certain work elements, whether the overall
approach should be modified, and whether a deviation is needed.
Under the UGA CA, quarterly progress reports were required to be .
submitted to the ERL-A PO by subproject as one of the special
conditions of the CA; however, no progress reports were found at
ERL-A or UGA during the audit. The ERL-A PO stated that
quarterly progress reports were not essential and that they
tended to slow down the research progress. The UGA Project
Manager stated that quarterly progress reports would really, be
counter-productive. In addition, most UGA CA sub-POs told us
that they did not receive progress reports. However, some sub-
POs stated that they received oral progress reports. As a
paradoxf however, some of the ERL-A on-site subprojects were
providing progress reports to UGA because ERL-A was actually
directing the research.
An example of how failure to.require quarterly progress reports
can negatively impact the management of a CA occurred under the
UGA CA when there was a discrepancy found concerning tasks UGA
would perform under a $30,000 subproject. According to the PO
{laboratory director) , UGA's task was to develop a curriculum for
an early childhood environmental education program.'~ However,
both the ERL-A sub-PO and the UGA PI told us that the purpose of
the subproject was for UGA to develop an operating plan for the
ERL-A *s planned day-care center. When we informed the laboratory
director of the discrepancy between her statements and those of
the sub-PO and UGA PI, she stated, "I'm surprised to hear that."
If the PO had been receiving the required progress reports, she
would have known of the apparent misunderstanding over UGA's
subproject tasks.
When the PO for the Montana State University (MSU) CA attempted
to get the required progress reports from the MSU PI, he was
chastised by the laboratory director for making this request. He
referred to this as getting his hand "spanked." The PO was told
that it was not necessary to document things like this because it
could all be handled over the phone. The PO said that he was
told that one of the special conditions of the CA stated that
progress reports could be oral. Although in the initial funding
package request one of the special conditions included oral
progress reports, the special conditions in the actual award of
the CA did not include this statement.
Quality Assurance Not An Integral Part Of CA
Data Collection Activities
Although ERL-A included QA audits of CAs in the list of internal
control reviews they had performed between 1989 and 1991, we
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found no evidence of QA audits in CA files. In addition, the
ERL-A QA Officer had recommended that QA plans be submitted prior
to the start of any significant fieldwork or laboratory data
collection activities for four large Global Change Program CAs we
reviewed. However, cooperators had not submitted the required QA
plans prior to audit fieldwork. Both ERL-A and ORD officials
agreed that lack of QA procedures was a problem. The ERL-A QA
Officer stated that there was no way for ERL-A to monitor CA QA
plans because of insufficient travel funds for field trips and an
insufficient number of POs with available "time to make site
visits. As a result, there is a lack of assurance that the data
being collected under CAs to develop national environmental
policy is reliable or that all acquired data collected under
these CAs are suitable for the user's intended purpose.-
The responsibility for performance of QA activities was assigned
to ERL-A staff. However, because of increased work loads or
other priorities, ERL-A viewed QA as "collateral" duties and
delegated them to contractor employees. QA reviews of CA
proposals found in CA files were performed by the TAI site
manager, a contractor. The TAI site manager served as the
laboratory's QA Officer and performed QA reviews of, extramural
agreements as recently as May 1992. OIG concluded in our ERL-A
survey report9 that QA was an inherently governmental function
that should not be performed by a contractor employee.
ERL-A's QA Officer/Director of Research stated that he did not
feel uncomfortable with the current QA of CA field studies
because the present ERL-A level of CA funding was so small.
However, he stated that five years from now the Agency would be
putting $200 million in CAs and lAGs and that the numbers/data
generated would substantially impact policy decisions. The
increased use of off-site CAs will result in an extra burden on
QA/QC procedures. The QA Officer stated that QA was not one of
his major functions and that he did not have "the time, the
resources, or the intellect" to do QA for all extramural
projects. He added that the lack of resources to adequately
perform QA functions makes the Agency "vulnerable." In lieu of
required QA plans and audits, the QA Officer relied upon the
ability and experience of ERL-A's POs, site visits by these POs,
and the fact that publications generated by the CA research go
through the peer review process. They also had confidence that
the universities had good QA procedures.
9 ORD Environmental Research Laboratory,. Athens, Georgia,
E1XMG2-04-0102-3400007, November 30, 1992.
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EKL-A POs appeared to be unconcerned about the lack of QA plans.
One of the POs stated that just having a well-documented QA plan
was no guarantee that proper procedures are followed. He felt
that a better guarantee was the experience and good reputation of
the researcher. He added that in his opinion the peer review
process resulted in good controls. Another PO stated that the
quality of the science was assured through journal articles,
books, and other publications and databases.
When we informed the laboratory director about our concerns
pertaining to the lack of QA documentation, the laboratory
director stated, "I'm worried about that myself." When
questioned about the accuracy of data without a QA plan, the
laboratory director stated, "If they (universities) were totally
lying and were clever about it, it would be hard to detect."
Based on our preliminary findings, the laboratory director took
some corrective actions during the audit with respect to QA. The
laboratory director stated that ERL-A had received additional end
of the year travel dollars and that she sent all of the POs out
to the various universities for site visits. She added that they
would be performing QA audits during these visits. Laboratory
Operating Procedure No. 5330-8 entitled, "Site Visits," written
in September 1992, established policies and procedures for site
visits made by project officers. One of the items listed to be
done during the site visits is a QA audit.
Infrequent Site Visits Limited Effective Monitoring
As previously stated, ERL-A POs did not make frequent site visits
to cooperator locations primarily due to the lack of travel
funds. This same condition was reported in the 1983 OIG audit
report and continues to be a problem nine years later. When site
visits were made, POs usually did not prepare the required trip
reports and never forwarded copies to GAD for inclusion in the
official files, as required by the Assistance Administration
Manual, Chapter 44. When questioned about the lack of trip
reports in the official files, GAD managers stated that there was
no requirement for trip reports. They were apparently unaware of
the requirements of their Assistance Administration Manual.
OMB Circular A-110 (July 1976) states that the Federal sponsoring
agency shall make site visits as frequently as practicable to
review program accomplishments and management control systems and
to provide such technical assistance as may be required. EPA's
Assistance Administration Manual, Chapter 44, Section 5b, also
emphasized the use of site visits as a tool to monitor assistance
agreements. The Manual states that site visits should be used to
monitor: (1) actual versus scheduled performance/accomplishments,
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(2) condition of equipment/property used on, or purchased for,,
the project, (3) resources (personnel, equipment, facilities,
etc.) charged to the project are actually used on the project,
and (4) conditions that might adversely affect EPA's interest,
i.e., change in the recipient's financial status, personnel
problems, noncompliance with labor/civil rights laws, and/or
over-extension of the facilities.
The Assistance Administration Manual, Chapter 44, further advises
POs to provide constructive advice/criticism during site visits,
but not to attempt to supervise either the project or the
recipient's employees. In addition, POs are to prepare a trip
report that highlights their findings and evaluates the quality
of work being performed, copies of the trip reports are to be
provided to the Assistance Administration Unit (AAU) for
inclusion in the official file, as well as documentation of any
follow up actions that are taken.
Site visits are probably the POs1 best tool to monitor
performance and expenditures under CAs. The failure of. ORD/ERL-A
to provide adequate travel funds to perform site visits and the
failure of the POs to effectively use these visits, when travel
funds were available, weakens ERL-A's ability to assure
recipients' compliance with CA terms and to ensure that federal
assets are safeguarded.
Lack Of Documentation of CA Management/Over sight in ERL-AFiles
A general lack of documentation for the management/oversight of
ERL-A cooperative agreements existed at ERL-A;.especially for the
UGA CA. ERL-A POs normally did not receive progress reports as
required. When they did, they were usually oral not written. In
addition, although most POs stated they telephoned Pis, there
were almost no records of conversations, almost no trip reports,
and very few fax documents. This lack of documentation left no
audit trail, but more importantly, it left no record of either
the decision-making process or of ERL-A's monitoring of
activities under the extramural agreements. Lack of
documentation in ERL-A CA files and ERL-A's improper records
retention policy is also addressed in Chapter 6 of this report.
The deficiencies in ERL-A files were especially evident in the
case of UGA, the only university where we interviewed cooperator
employees and reviewed cooperator files. From these cooperator
interviews and file reviews we received information that we were
not given by ERL-A staff and found documentation that was not
included in ERL-A files. ,
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The ERL-A PO, most of the sub-POs, and the UGA Project Manager
stated that their contacts pertaining to the DGA CA had been
verbal. Both ERL-A and UGA personnel explained that the lack of
documentation occurred as a result of the long-term relationship
between ERL—A and UGA and because UGA was a local university.
The ERL-A PO and the UGA Project Manager both stated that they
had no written correspondence with each other pertaining to the
CA; however, correspondence between the ERL-A PO and UGA Project
Manager was later found in other files.
RECOMMENDATIONS - MANAGEMENT OF CAS
Recommendations to the Assistant Administrator. Research and
Development
We recommend that the Assistant Administrator for Research and
Development ensure significant improvements are made in
assistance agreement management to assure compliance with
agreement terms and that Agency resources are being effectively
used and safeguarded against waste and abuse. Specifically, we
recommend the Assistant Administrator require the:
Director. Office of Environmental Processes and EffectsResearch
to:
- Review the adequacy of corrective action taken on the prior
1983 OIG audit finding related to infrequent and inadequate PO
site visits and determine whether ORD laboratories properly
implemented ORD's actions in this area.
Director. Environmental Research Laboratory^ -Athens to;
- Require that CA POs obtain quarterly progress reports from
cooperators, in compliance with CA special conditions and
Agency policies, to assist them in monitoring the status,
progress, problems, and expenditures under CAs. CA special
conditions should require written progress reports to document
laboratory review and oversight of cooperator activities.
- Require that CA POs comply with all Lab Operating Procedures
and
Assistance Administration Manual requirements in the management
of CAs.
- Require frequent, periodic site visits by CA POs and allocate
sufficient travel resources to accomplish this critical control
technique.
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Require management review of PO trip reports for CA/IAG site
visits and that the reports, in particular, adequately document
PO oversight of expenditures under extramural agreements.
Remind CA POs of their financial management responsibilities as
delineated in EPA'.s Assistance Administration Manual and
request that GAD' provide FSRs to POs for their use in
monitoring cooperator financial transactions.
Provide CA POs with copies of FSRs from GAD as required
by the Assistance Administration Manual and that they review
the FSRs and report any discrepancies to GAD.
Require POs to maintain adequate written records to document
their management and oversight of CAs, including but not
limited to all ERL-A and recipient correspondence relating to
the award, performance, and closeout of assistance agreements.
Require and ensure that cooperators submit QA plans and that
ERL-A staff properly perform QA audits of cooperator projects
and document these audits in ERL-A files.
AGENCY RESPONSE AND PIG EVALUATION OF AGENCY COMMENTS
ORD Response
ORD generally agreed with the findings and recommendations
presented in Chapter 3. Corrective actions and milestone dates
for completion of these actions were sufficient to resolve all
but 6 recommendations made to ORD and ERL-A management. Those
recommendations that require additional information or changes
regarding planned or initiated corrective actions prior to
resolution are presented in Appendix I to this report.
GAD Response
GAD disagreed with certain statements in Chapter 3 regarding
specific CAs and lAGs questioned. We generally disagreed with
GAD's comments.
GAD agreed with our statement regarding the MSU CA that CAs can
not be used to train federal employees; however, GAD indicated
that an EPA employee on an IPA to a recipient organization is
considered an employee of that organization and could be trained
under a cooperative agreement if the training were needed to
complete the project. -
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The employee's training under the MSU CA was not needed to
complete the project as the GAD response suggests. Rather, the
project was conceived in order to provide a Phd for the EPA
employee.
In addition, we disagree with GAD's implication that an EPA
employee on an IPA is no longer a federal employee and,
therefore, can be trained using CA monies. Although an EPA
employee's services have been temporarily assigned to a recipient
organization, the individual, in our opinion, remains an active
federal employee because the federal government still dictates
the individual's level of compensation and benefits, not the
recipient organization. Also, the employee continues to accrue
federal retirement benefits and annual/sick leave, maintains his
federal health benefits, and is required to return to the federal
government, without submission of an SF-171, upon expiration of
the IPA. Therefore, the individual on an IPA retains all the
attributes of a federal employee except for the possible sources
of funding of his compensation and benefits. In the case of the
cited IPA, even MSU's contribution to the individual's salary and
benefits under the IPA came from CA funds awarded by ERL-A.
Therefore, EPA paid 100 percent of the IPA costs.
In addition, CAs funded from R&D appropriations cannot be used to
train federal employees. R&D appropriations and related
congressional reports do not authorize federal staff
compensation, benefits, travel or training expenditures from R&D
funds. Only the S&E appropriation and certain trust funds can be
used to fund personnel costs. Therefore, if EPA employees on an
IPA are still federal employees, the use of R&D funds under a CA
to train these employees may constitute a violation of
appropriation law.
GAD also disagreed with our conclusion that the Venezuelan IAG
was awarded without proper statutory authority. According to
GAD, OGC had rendered an opinion that Section 103 of the Clean
Air Act authorized the issuance of XAGs and that with OIA
approval, GAD had properly awarded the Venezuelan IAG under
policy in effect at that time. However, OGC later ruled that
Section 103 did not authorize foreign lAGs and GAD discontinued
approving foreign lAGs.
GAD's response concerning the Venezuelan IAG omits critical
information. The application form that GAD stated was used for
this IAG, indicates the form is for approval of a "foreign
grant/contract." In addition, documentation in ERL-A's files
indicated that OIA was asked to assist with State Department
approval of a cooperative agreement to Venezuela. The IAG
96 Audit NO. E1JBF2-04-0300
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compendium at. the time required an OIA exception to award an IAG
directly to a foreign organization or government. We found no
such exception, only OIA's apparent approval of a foreign CA. In
addition, OGC had only rendered an opinion that Section 103 of
the Clean Air Act authorized lAGs. OGC never stated that foreign
lAGs were authorized. Later OGC clarified that foreign lAGs were
not authorized under Section 103 and the IAG compendium was
incorrect in allowing an OIA exception to issuance of such lAGs.
Therefore, OGC's rulings support our conclusion that statutory
authority never existed, for the issuance of the Venezuelan IAG.
GAD's complete response to findings presented in Chapter 3 is
available upon request.
GAD generally concurred with Chapter 3's recommendations to the
GAD director. GAD'.s response to each recommendation in Chapter 3
and actions needed for resolution of each recommendation are
presented in Appendix I.
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98 Audit NO. E1JBF2-04-0300
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s
CHAPTER 4
ERL-A ABUSED CONTRACTING PROCESS TO RETAIN LONG-TERM
CONTRACTORS AND AVOID FULL AND OPEN COMPETITION
In all five on-site support contracts reviewed (maximum value of
$31.6 million), ERL-A abused the procurement process to retain
favored contractors and their employees and then utilized these
same contracts to perform prohibited contracting activities. To
obtain desired contracts and related services, ERL-A either
avoided or biased the competitive procurement process for all
five contracts1. Over the last six to seven years, ERL-A avoided
competition by using the 8(a) set-aside program to obtain
repeated sole-source acquisitions with current contractors. By
using the 8 (a) non-competitive process, ERL-A prevented: (1) the
interruption of on-site contractor services and the loss of
contractor staff providing long-term technical/administrative
support, and (2) the additional administrative burden required
under a competitive procurement. After one incumbent contractor
at ERL-A no longer qualified for small business 8(a) status and
related sole-source awards, the contract was removed from the
8(a) set-aside program, without adequate justification, to allow
the incumbent an opportunity to compete. Then, during the
follow-^on "full and open" competition, ERL-A biased the
procurement in favor of the incumbent. In another 8~(a) set-aside
procurement, ERL-A split and underestimated procurement
requirements and costs to avoid the 8(a) competitive threshold
and justify sole-source•awards. Further, ERL-A improperly used
these on-site contractors to supplement its in-house human
resource needs. ERL-A's substantial dependency on on-site
contractors, especially long-term contractor employees, to
accomplish its mission resulted in less than arms-length
relationships between ERL-A and contractor staff, including
prohibited personal services and favored treatment toward
incumbent contractors, and ERL-A ignoring the benefits that full
and open competition brings to the procurement process.
BACKGROUND
History of Growth In Contractor Support
Since 1977, ERL-A has been using on-site contractors to support
its mission. Over the years, as ERL-A's research
1 Contracts include the three contracts in our sample which
were subjected to indepth review and the limited review of two
related predecessor contracts.
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responsibilities grew from supporting two to twelve environmental
laws, so did its dependency on contractors. However, while the
mission grew, its S&E appropriation and FTE ceiling remained
fairly stable. Growing needs for additional federal staff,
equipment, and travel to support in-house research did not
increase in direct proportion to the laboratories increased
responsibilities. In contrast, extramural funding available for
contracts, CAs, and lAGs steadily increased from $5.9 million in
1986 to $9.3 million in 1992.
ERL-A Historical Funding
Million
1986 1987 1988 1989 1990 1991 1992
lAGs/Other B
CAs/Grants •
Contracts H
Intramural •
$0.29
$2.77
$2.83
$4.4
$0.49
$1.48
$3.06
$4.91
$0.28
$1.5
$2.47
$4.97
$0.51
$1.75
$2.67
$5.69
$0.47
$2.34
$3.15
$6.28
$0.64
$2.91
$4.11
$6.39
$2.1
$3.3
$3.9
$6.6
Fiscal Years
With increasing responsibilities and limited in-house resources,
ORD and ERL-A, following Agency policy, turned to the private
sector to augment its on-site needs for scientific, technical,
and administrative support. Strictly imposed federal employment
ceilings made on-site contractor support staff critical to the
accomplishment of ERL-A research goals. From 1986 to 1991, on-
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site contractor and cooperator support grew by 84 percent and 29
percent, respectively, as illustrated in the chart below. On-
site extramural support became important in all areas of
laboratory operations.
On-Site Staffing Changes/1986 to 1991
% Change From Base Year
1UU
80
60
40
20
0
-20
An
•°'-FTEs
+ Contractors
•^Cooperators
; -••-'• "-'••;•-.'- -''
.;:;..:. ',, .:
: 1
^®
': i
».[
;'?SS
• • -'i — L_ —
::' ; ,,!!:.::;A.!! .•*•' •'•'•• '.
. - " !'ri", ";-;:"; -_ :' ;
HI
' '•: = '*--:%:
— , „ . " — t : —
.!,',,,<'•• , :
ill
• / * ":.*•'
•-> — -.
Sgp '£
Illll
lip;';
" •'-"•y:^;-.
::.'2=484.2
:'L~v ii I.-';..-
!!§*
* " *°-4.6
1986 1987 1988 1989 1990 1991
FTEs
Contractors
Cooperators
0
0
0
-2.8
15.8
6.5
-7
47.4
-25.8
-4.6
50
35.5
-3.2
84.2
29
-4.6
84.2
29
ATHENS LAB
Base Year = 1986
ERL-A utilized two methods to procure scientific, technical and
administrative contract support to augment its oh-site resources;
(1) 8(a) set-aside program and (2) full, unrestricted
competition. However, ERL-A*s overwhelming choice for procuring
contract assistance was the sole source, 8(a) set-asides.
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Small Business Act. Section 8 fal Contracts
The purpose of Section 8(a) under the Small Business Act (15
U.S.C. 637)2 was to promote the development of small business
concerns owned and controlled by socially and economically
disadvantaged individuals so that such concerns can compete on an
equal basis in the American economy.
The Small Business Administration (SBA) is responsible for
certifying companies as eligible 8(a) status and for monitoring
contractors certified under the 8(a) program. The 8(a) program
assists small and disadvantaged businesses in building the needed
experience where they can successfully compete against other non-
targeted businesses. Small disadvantaged businesses retain their
8(a) status for up to nine years or until they attain a certain
dollar revenue threshold, whereupon they are required to graduate
from the program to full and open competition for government and
private sector contracts.
EPA's 8 fa) Set Aside Contract Program
Under the Small Business Act, EPA and other Federal agencies are
required to establish and conduct programs to increase small
business enterprise participation in government procurements.
Heads of federal contracting activities are responsible for
effectively implementing the Small Disadvantaged Business
Utilization (SDBU) Programs within their agency's activities,
including achieving program goals. In 1991, EPA's goal was to
award eight percent of its contracts in support of small and
disadvantaged business. EPA's Office of SDBU is responsible for
providing guidance and assistance to EPA contracting and program
offices concerning Section 8(a) contracting.
According to the EPA Project Officer's Handbook - Chapter 3,
Section 3.106-8(c), the PO has the primary responsibility for
identifying suitable procurements for small business 8(a) set-
asides. While the PO may recommend that a requirement be met
through a set-aside, the determination to set-aside the
procurement rests with the CO. The CO may reserve the entire
amount (total set-aside) or a portion (partial set-aside) of a
2 The Small Business Act was amended November 15, 1988 under
the Business Opportunity Development Reform Act of 1988. Referred
to in this report as the Small Business Act.
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ERL-A Abused contracting Process To Retain Long-term Contractors And
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procurement, for the exclusive participation of small 8 (a)
business concerns.
EPA programs electing to contract under an 8(a) set-aside may
rely on SBA to provide the names of eligible firms or can propose
one of its own. The recommendation of an 8 (a) contractor for
contract award may be made either by the CO or the PO after
appropriate consultation with EPA's SDBU Specialist. If EPA
proposes a contractor, SBA advises EPA as to whether*the proposed
firm is 8 (a) approved. Under the 1988 amendments to the Small
Business Act, when an agency proposes a specific contractor for
an 8 (a) procurement, SBA must honor that request. This
requirement places a significant amount of responsibility on the
requesting agency.3
The Project Officer's Handbook - Chapter 3, Section, 106-8(c)
states that it is EPA's policy not to seek an 8 (a) set-aside
contract when one or more of four conditions exist. The last of
these conditions states:
... The contracting office can make a noncompetitive-
award directly to a small minority business concern, or
there is a reasonable probability that an award can be
won by such a small minority business concern through
normal competitive procedures.
Competition In Contracting Act
The Competition in Contracting Act (CICA) of 1984 (Public Law 98-
369) requires that, with certain limited exceptions, an executive
agency shall obtain full and open competition in conducting a
procurement for property or services. Under the Act, there are
seven exceptions which would permit the award of contracts under
procedures other than full and open competition. Small and
disadvantaged business set-asides were not specifically listed as
an exception for awarding sole-source procurements under the
CICA. The Act makes specific reference to competition and small
and disadvantaged businesses stating:
3 GAO Report SMALL BUSINESS; Problems in RestructuringSBA's
Minority Business Development Programf GAO/RCED-92-68, addresses
problems SBA encountered in meeting geographical goals when it must
accept contractors recommended by Agencies.
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In fulfilling the statutory requirements relating to
small business concerns and socially and economically
disadvantaged small business concerns, an executive
agency shall use competitive procedures but may
restrict a solicitation to allow only such business
concerns to compete.
However, FAR 6.302 specifically authorizes the Small Business
Act, Section 8(a).program for other than full and open
competition in awarding 8(a) contracts. This allowed for sole
source, as well as competitive acquisitions, under the 8(a)
program.
1988 Amendments to Small Business Act
The 1988 amendments to the Small Business Act,4 resulted in the
revision of FAR 19.805-1 (effective October 1, 1989) to require
competition for all 8(a) set-aside procurements if:
(1) There is a reasonable expectation that at least two
eligible and responsible 8(a) firms will submit offers
and that award can be made at a fair market price; and
(2) The anticipated award price of the contract,
including options, will exceed $5 million for
manufacturing acquisitions and $3 million for all
others.
ERL-A UTILIZED PROCUREMENTS TO RETAIN FAVORED CONTRACTORS
Over the last six to seven years, ERL-A officials utilized the
SBA's Section 8(a) set-aside program to award $16 million in
sole-source contracts to long-term on-site contractors and then
biased a $16.8 million competitive procurement to retain the
favored contractor after the company was no longer eligible for
8(a) sole-source awards. Specifically, ERL-A: (1) exploited its
8(a) sole-source contracting authorities to further on-site
resource capabilities under the Technology Applications
Incorporated (TAI) contract without competition which included a
* Business Opportunity Development Reform Act of 1988, Public
Law 100-656, November 15, 1988.
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contractor promoted modification that expanded the scope and
significantly increased the value of the sole-source contract one
day before the contractor's 8(a) eligibility expired; (2)
requested, after TAI graduated from the 8 (a) program, that the
contract no longer be designated as an 8 (a) set-aside to allow
the incumbent to compete for the business; and (3) then biased
the subsequent competitive procurement in favor of TAI. In 8(a)
sole-source awards to American Scientific International (AScI),
ERL-A intentionally split a request for contract and
underestimated the cost of one of the resulting contracts to
avoid the $3 million competitive threshold established under the
1988 amendments to the Small Business Act. In our opinion, these
actions demonstrated ERL-A's favored treatment of incumbent
contractors and its willingness to avoid and, if necessary, to
impede competition in order to retain these long-term
contractors.
Background
Since 1982, ERL-A awarded four scientific and technical support
contracts to TAI and three to AScI, totaling about $31.7 million.
Six of these seven contracts, totaling about $16 million, were
awarded as 8(a) sole-source contracts. The remaining contract
was classified as an "unrestricted competitive" award, valued at
$16.9 million, to TAI after TAI's 8(a) eligibility expired.
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ERL-A ON-SITE TECHNICAL SUPPORT CONTRACTS SINCE 1982
FOR CONTRACTORS IN OUR SAMPLE
Contractor
Contract # Type
Award. Amount
Date Expired (HPV)
staff
Years
TAX
68-03-3154
TAX 5
68-03-3198
TAX
68-03-3351
TAI
68-C1-0024
ASCI
68-03-3551
ASd ' >
68-CO-0054
ASd
68-C1-0012
8 (a) Sole
Source
8 (a) Sole
Source
8 (a) Sole
Source
Competi-
tive
8 (a) Sole
Source
8 (a) Sole
Source
8 (a) Sole
Source
10/01/82
10/01/83
05/05/86
05/09/91
09/30/87
09/25/90
03/21/91
09/30/83
05/04/86
04/30/91
09/30/95
O9/30/90
09/30/93
09/30/92
$332,283
$859,000
$6 ,564 ,577s
$16,83^3,253
$2,164,193
$3,291,044
$2,734,210
8
6
31
S37
24
26
10
5 Originally a 5-year contract (2 base/3 option years) with
maximum potential value (MPV) of about $1.89 million. However,
last two option years not exercised in order to award follow-on
contract 68-03-3351.
6 Original estimate was $1.2 million for contract 68-03-3351,
but modifications increased contract value to over $6.6 million and
extended performance period to 5 years.
7 Estimated contractor staffing level by the fourth option
period of the contract.
8 Last option period not exercised.
on September 30, 1992.
Contract allowed to lapse
9 AScI contracts 68-CO-0054 and 68-C1-0012 essentially split
the SOW for predecessor contract 68-03-3551 into on-site and near-
site contracts with significant increase in staff years from 24 to
36.
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As shown above, TAI on-site support has grown from 8 staff years
in 1982 to a potential 53 staff years under the current TAI
contract. AScI contract staff years increased from 24 in 1990 to
36 in 1991. Over the life of these contracts, ERL-A became
increasingly dependent on TAI and AScI to provide on-site support
services. This dependence created a virtual contractor monopoly
which evolved into a prohibited personal services relationship
between ERL-A and its on-site contractors. Contractor employees
became immersed into ERL-A's day-to-day operations and were
treated like any other federal resource. This prohibited
relationship resulted in contractor performance of inherently
governmental functions (IGFs) and increased ERL-A's vulnerability
as contractor staff became more essential to critical laboratory
operations.
ERL-A Initiated Repetitive Sole-Source Contracts To TAI In Lieu
of Competition
ERL-A disregarded the overall goals of the Small Business Act and
abused its authorities to maintain and further its on-site
resource capabilities with a minimum of administrative burden.
Between October 1982 and May 1991, ERL-A initiated three 8(a)-
sole-source contracts to TAI. Under 8(a) sole-source contracts,
TAI's presence at the laboratory grew from 6 employees supporting
one branch to 31 employees supporting all four branches. Most of
this growth occurred under TAI's third sole-source contract (68-
03-3351) which was significantly modified both in amount ($3.7
million - 143 percent of original contract estimate) and scope
near the end of TAI's 8(a) eligibility. As long as TAI was an
8(a) contractor, ERL-A used the 8(a) umbrella to sanction sole-
source procurements. Even after TAI had gained a competitive
position and a reasonable probability existed that TAI could win
an ERL-A award through normal competitive procedures, ERL-A
elected not to compete.
ERL-Afs initial support of the 8(a) set-aside program was
encouraged by ORD and CMD. The first two contracts awarded to
TAI and ERL-Afs management of those contracts were in basic
compliance with the intent of the Small Business Act. However,
as ERL-A responsibilities increased, annual intramural funding
and authorized staffing levels remained relatively the same while
extramural funding steadily increased. ERL-Afs dependency on the
extramural funding grew as contractor support extended into all
operations of the laboratory. One manager explained that as ERL-
A became increasingly dependent on contract support: "Everyone
wanted a piece of the [extramural] pie." ERL-A staff fought for
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extramural resources as the only available means of task
accomplishment.
The four TAI on-site contracts discussed below demonstrate the
development of ERL-A's dependency on contractors to augment its
intramural resource and FTE deficit. While ERL-A's management of
the first two TAI contracts were generally in compliance with the
intent of the Small Business Act, they offer a historical
perspective on TAI's growth at ERL-A. ERL-A's 1985
reorganization, commensurate with increases in extramural funding
and related increases in TAI's contract, was the beginning of
ERL-A's dependency and resulting favoritism for the contractor.
This was clearly evidenced in ERL-A's procurement and management
of the third and fourth TAI contracts.
Contract No. 68-03-3154. Awarded October l. 1982; TAI's first
sole-source 8(a) contract at ERL-A (68-03-3154) was a one-year
level-of-effort (LOE) contract. When this contract was awarded,
TAI had already been in business approximately 5 years and had
contracts with other Federal agencies. The purpose of the ERL-A
contract was to support the Biology Branch in chemical and
biological analyses for a project called Aquatic Ecosystem
Simulator (AEcoS). This initial TAI contract succeeded a
contract ERL-A had with Bionetics .Corporation10 and was awarded
as part of the Agency's commitment to support small and
disadvantaged business.
The original procurement request rationale showed that contract
68-03-3154 was originally intended to be competitively bid and
that the period of performance was planned at 36 months.
However, a PO file memorandum dated March 23, 1982 documented
that Washington had highly recommended the use of an 8 (a) firm.
The memorandum further documented that all or some of the
employees working under the existing Bionetics contract could be
hired by the new firm at ERL-A's recommendation. The PO
concluded:
I believe the success of a contract does not depend on
the company that operates it but rather on the people
who work here under the contract, and we have a large
input into the selection of these people [emphasis
added].
10 Bionetics Corporation performed on-site support at ERL-A
from March 1980 to September 1982 under contract 68-03-2926.
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Since ERL-A would have direct input into the selection of the
contractor staff, changing contractors was- no longer viewed as
much of a problem. The PO also concluded in the March 1982
memorandum that ERL-A would have little risk because if the
company did not operate up to ERL-A's expectations, it would be
easy to terminate the contract. Another advantage, as described
by the PO, was that under the existing statute TAI would remain
8(a) eligible for five years with a possible two-year extension.
This would provide ERL-A an opportunity to award repetitive
follow-on sole-source procurements to TAI and at the same time
eliminate the more "time consuming competitive process."
ERL-A subsequently submitted a request for an 8(a) set-aside with
TAI. in a June 1, 1982 letter to CMD, the PO stated that TAI's
proposal included the resumes of all but one of the individuals
who had been working under the Bionetics contract. However,
TAI's proposed cost for the first year was about $100,000 higher
than that being paid to Bionetics. ERL-A files documented that
on June 29, 1982 the PO petitioned CMD to reconsider and allow
the laboratory to compete the on-site procurement. The PO argued
that it would be in the "worst interest of the government" to pay
a higher cost to contract with an 8(a) contractor considering the
Lab's budget constraints. The PO claimed that there were other
available firms with much lower overhead and G&A rates and
requested that, instead of an 8(a) set-aside with TAI, CMD extend
the Bionetics contract into FY 83 to accommodate budget
constraints and to allow a competitive follow-on. However, ERL-A
apparently agreed to a one-year contract with TAI despite the
higher cost. Because the FY 83 cost of the TAI contract exceeded
the available resources, ERL-A decreased the scope of the
contract to approximate its budgeted resources. The award of
this 8(a) sole-source contract to TAI demonstrates an EPA
weakness in controlling contractor costs. Although this contract
award contributed to EPA's goals for 8(a) contracts, ERL-A
actually suffered because it paid a higher cost for the same
employees for less work.
Contract No. 68-03-3198. Awarded October 1. 1983; This was TAI's
second 8 (a) sole-source contract.' The PO said that ERL-A
retained TAI for the second contract because they were pleased
with TAI' s work and TAI had been very accommodating to ERL-A.
Therefore, on October 1, 1983, TAI was awarded a new five-year
contract having a two-year base period and three one-year
options. The contract's" initial estimated value was $1,889,999.
During our review of contract files, no evidence was found that
competing this procurement was ever discussed by ERL-A or CMD.
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Before the first option on contract 68-03-3198 was exercised,
ERL-A went through a reorganization which necessitated an
expansion of the contract. Contract support was expanded to the
Director's Office, Program Operations Office, and the four
research branches. Indirect research support would include
graphic services, consulting services, typing services for
reports, manuscripts, and setup of symposia, conferences, peer
reviews, and meetings. Because of the numerous changes to the
contract scope, ERL-A decided not to exercise the contract
options under 68-03-3198 and instead awarded a third sole-source
contract to TAX with a greatly expanded scope. However, until the
new contract could be procured, ERL-A, through CMD, modified 68-
03-3198 (modification 11, dated December 11, 1984) to compensate
for the expanded scope.
Contract No. 68-03-3351. Awarded May 5. 1986: This contract was
TAI's third straight 8(a) sole-source award. ERL-A's
procurement proposal to CMD on May 13, 1985 requested a
noncompetitive 8(a) contract for the period May 5, 1986 to
September 30, 1989 for an estimated cost of $2.6 million. By the
expiration of this contract, the value increased through
modifications over two and one-half times ($6.55 million) the
original $2.6 million estimate, the number of contract employees
increased over 100 percent, and the period of performance was
extended by 2 years to a 5 year performance period. ERL-A's
justification for its third noncompet-itive procurement (68-03-
3351) was that the contract would be awarded to a firm [TAIJ
pursuant to Section 8(a) of the Small Business Act. In the
proposal, ERL-A attempted to further justify the sole-source
procurement as follows:
The information to be developed or the resources to be
provided by the contract are not available in EPA or
from other sources. Existing contractual mechanisms
are inadequate in scope to address the breadth of
support to be secured under the proposed contract
[emphasis added].
This justification appeared to fit one of the seven exceptions
outlined in the CICA for awarding contracts under procedures
other than competitive. Specifically, the Act states that an
executive agency may use procedures other than competitive
procedures when "the property or services needed by the executive
agency are available from only one responsible source and no
other type of property or services will satisfy the needs of the
executive agency." However, the CICA, requires that two rules be
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applied to determine if services are unique and available from
only one source.
(1) ... the property or services shall be considered to
be available from only one source if the source has
submitted an unsolicited research proposal that
demonstrates a unique and innovative concept ... ; and
(2) in the case of a follow-on contract for the
continued development or production of a major system
or highly specialized equipment when it is likely that
award to a source other than the original source would
result in (i) substantial duplication of cost ... or
(ii) unacceptable delays in fulfilling the executive
agency's needs ....
in the case of the TAI procurement, neither applied. The work
provided for in the TAI contract was not of a unique nature and
did not involve the development of major systems or highly
specialized equipment which would justify other than a
competitive procurement. The work performed by TAI consisted
mainly of "bench-level" support for research and development
which was available from other sources. In contrast^, ERL-A had
argued the availability of alternative sources approximately four
years earlier when it awarded TAI its first contract. CMD took
no exception to ERL-A's procurement proposal and awarded a third
8(a) sole-source contract to TAI.
During this time, the Section 8 (a) program provided for both
sole-source arid competitive procurements. FAR 6.302-5 provided
that when procuring under the Small Business Act, Section 8(a)
program agencies could use other than full and open competition.
This interpretation allowed for sole-source as well as
competitive acquisitions under the 8(a) program authority. Since
competitive thresholds were not put into the authority until
October 1, 1989, ERL-A and CMD had the choice between competition
among 8 (a) firms, an 8 (a) sole-source award, or unrestricted
competition. ERL-A's and CMD's request was for a sole-source
8(a) award. According to the Project Officers' Handbook, April
1984 [M-3.106-8(c)(1) ], CMD's subsequent approval of a sole-
source 8 (a) award was contrary to EPA's policy not to seek an
8(a) contract if:
The contracting office can make a noncompetitive award
directly to a small minority business concern [not
participating in the 8(a) program], or there is a
reasonable probability that an award can be won by such
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a small minority business concern through normal
competitive procedures.
Awarding a third 8(a) sole-source procurement to TAI also
potentially violated the intent of the CICA which specifically
stated:
In fulfilling the statutory requirements relating to
small business concerns and socially and economically
disadvantaged small business concerns, an executive
agency shall use competitive procedures but may
restrict a solicitation to allow only such business
concerns to compete.
While a sole-source acquisition could be used, the CICA
encouraged competition for small and disadvantaged business and
the Small Business Act encouraged the development of firms so
they could compete in the American market.
At the time of this third sole-source procurement TAI had
acquired a competitive, if not monopolistic, position at ERL-A.
TAI had been performing successfully as the on-site~ contractor
for the past two years and its employees were already on-site and
familiar with the work being performed. Furthermore, TAI had
also gained a competitive edge through the contract modification
to 68-03-3198 which expanded its staffing at ERL-A to perform the
revised SOW tasks while the follow-on contract was being
negotiated. Although awarding 8(a) sole-source contracts was
administratively easier and less time-consuming for ERL-A,
competing contracts gives the added benefit to the government of
controlling costs. TAI had already fully demonstrated its
ability to perform and to compete, at a minimum, with other firms
participating in the 8(a) program.
It was to ERL-A's advantage to restrict the procurement to TAI
because of its desire to retain the contract employees they had
developed and to guarantee continuity of services to preclude
interruption of mission-critical research. ERL-A's continued
efforts to award TAI sole-source contracts increased with its .
vulnerability to contractor support. There was no evidence in
ERL-A or CMD files where competition was ever considered for this
contract procurement. ERL-A's award of this sole-source
procurement to TAI again avoided competition under the veil of
the 8 (a) program and continued to demonstrate its favored
treatment of the incumbent.
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SignificantModifications ofContract 68-03-3351 Circumvented
Competition: ERL-A also avoided competition for contract awards
when it made two substantial modifications (modifications 7 and
16} to contract 68-03-3351. Each modification's estimated value
was over $1 million and resulted in additional services performed
by TAI. Both modifications were initiated and promoted by the
contractor. Modification 16 significantly extended the scope and
period of contract performance just one day before TAI's
graduation from the 8(a) program when its eligibility for 8(a)
sole-source awards would expire. In our opinion, both
modifications represented a substantial change in the .size and
scope of the contract and further abused the 8(a) program. By
the expiration of contract 68-03-3351, its value increased over
two and one-half times the original estimate, the number of
contract employees increased over 100 percent, additional
contractor duties were added, and the period of performance was
extended by two years to a five-year performance period.
Modification 7
Modification 7 increased the contract's LOE by "50 percent at an
additional cost of $1,287,821. The original LOE initially
provided for 16 man-years. Within eight months after contract
award, ERL-A was discussing the possibility of modifying the TAI
contract. On April 10, 1987 modification 7 was approved to
increase the LOE by the addition of eight new staff positions.
ERL-A file documentation indicated that the contractor may have
initiated and promoted the request to extend and modify the
contract. In a letter, dated December 17, 1986, TAI's president
wrote' to a CMD CO about extending their contract 'at the Gulf
Breeze Laboratory. TAI'was scheduled to graduate from the 8(a)
program on April 21, 1987 and would be precluded from competing
for the follow-on contract at Gulf Breeze. The Gulf Breeze
Laboratory and CMD had elected to keep the this procurement as an
8(a) set-aside. TAI's president wrote:
...we recognize that contractual considerations may
preclude this action [contract extension at Gulf
Breeze]. However, other alternatives exist. We
currently support the ERL (Athens, Georgia) and the
Environmental Monitoring and Support Laboratory
(Cincinnati, Ohio). ...Through the appropriate
modifications to either of these contracts, TAI could
continue to support the Gulf Breeze laboratory without
any cessation of services or disruption of personnel
[emphasis added]. In tact., a precedent for this action
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exists within the EPA and we will be happy to discuss
the details with you at the appropriate time.
A record of communication, dated January 7, 1987, showed that
within one month after receipt of this letter, ERL-A requested an
increase in the LOE under modification 7 roughly equivalent to
TAI's loss of contract work at Gulf Breeze. Therefore, the TAI
letter regarding loss of the Gulf Breeze contract and its
location in the ERL-A files raises questions as to ERL-A's actual
intent in requesting an increase of the LOE under ERL-A's TAI
contract. While the .value of modification 7 did approximate
TAI's contract loss at Gulf Breeze, none of the additional work
proposed,under modification 7 appeared related to TAI's Gulf
Breeze work.
ERL-A documented in the January 1987 record of communication that
SBA initially denied CMD's request for modification 7 to amend
the contract's LOE. SBA wanted ERL-A and CMP to compete the
contract. However, file documentation show that TAI later
informed CMD that SBA had reconsidered and was now saying that
the LOE could be increased for both the current and option years.
No file documentation existed at either ERL-A or CMD that showed
SBA resistance to TAI's request or a subsequent change in
attitude. Neither did we find any record of CMD's or ERL-A's
verification of TAI's statement. The only documented SBA
stipulation found was that the proposed modification must be
received in the SBA office prior to TAI's graduation date on
April 21, 1987. On March 10, 1987, ERL-A officials submitted a
procurement request to CMD stating that the modification was
necessary due to an underestimation of manpower needed to perform
laboratory support services for the various on-going research
programs at the facility. This modification request occurred
just ten months after contract 68-03-3351 was awarded. The
resulting modification 7, dated May 6, 1987, increased the LOE
for the base year by 6,080 hours and each of the two option years
by 15,360. This approximated the value of the contract TAI lost
at Gulf Breeze.
Modification 16
A subsequent change in the. Section 8 (a) set-aside program allowed
participating firms to extend their graduation date. TAI's
graduation date was extended 12 months from April 21, 1987 to
April 21, 1988. In November 1987, the second year of this 3-year
contract, TAI contacted ERL-A officials to request an extension
of the period of performance under 68-03-3351 for an additional
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20 months to a total of 5 years. TAI gave ERL-A officials a
package of sample documents with an example of where SBA approved
a 2-year extension of an engineering support contract between TAI
and the Department of the Navy. TAI informed ERL-A that:
Contracting Officer may elect to purchase additional
supplies or services called by the contract or may
elect to extend the term of the contract (FAR 17.201).
...FAR 17.204(e) states "The total of the basic and
option periods shall not exceed five years in the case
of services, and the total of the basic and option
quantities shall not exceed the requirements for five
years in the case of supplies, unless otherwise
authorized by.statute."
TAI also provided the laboratory pro-forma contract .modification
documents to assist ERL-A in its request to CMD. ERL-A officials
used the pro-forma examples (filled-in the blanks) submitted by
TAI and on December 15, 1987 requested an extension of the
contract from CMD under the 8 (a) program through April 1991. The
PO noted in the request to CMD that the extension would serve:
... to ensure continuity of services and to eliminate
the potential cost of having to recompete [once TAI
graduated from 8(a) eligibility]. Also, it would help
EPA to meet set-aside goals for disadvantaged
businesses.
SBA said that it would grant approval to the modification as long
as the contract SOW was not changed and, as stated previously,
the modification was in SBA's office prior to TAI's graduation
date on April 21, 1988.
ERL-A took maximum advantage of TAI's extended 8(a) graduation
date through issuance of modification 16 which extended the
contract's period of performance by two additional option periods
and increased the LOE by approximately four staff positions.
This change permitted TAI to continue providing services to ERL-A
20 months beyond its graduation from the 8 (a) program and
increased its on-site staff and workload without competing a new
contract.
In our opinion, contrary to SBA's warning, modification 16
changed the scope of the contract substantially because the
contract value increased by $2.4 million (a 92 percent increase
over the initial contract value). The modification also expanded
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the contract's scope to provide additional contract services for:
Chemistry Branch Support which included Chemical Dye
Transformation, Metal-Humic Interactions, Chemical Availability
Enhancement; Biology Branch Support included Trace Gas Fluxes and
Bioremediation Processes and Systems; Assessment Branch Support
which included technical liaison between ERL-A Assessment Branch
and OSW Waste Characterization Branch, Analysis Modeling Section;
and Indirect Support included quality assurance and Preventive
Maintenance Program Support. To get SBA approval, the scope of
the contract was to remain unchanged. However, from our
analysis, we concluded that these activities were major additions
to the scope of the original contract and, therefore, the scope
changed substantially.
A CMD legal review dated April 7, 1988, also questioned the
propriety of extending a contract when a firm was about to
graduate from the 8(a) program. The CMD attorney commented:
In light of legislation on the Hill which will preclude
awards to 8(a) firms which contain options when the
8 (a) firm is about to graduate, it concerns me that the
addition here of Options III and IV is an attempt to
keep TAI on-board for 2 more periods when firm is
graduating 4/21/88.
Nevertheless, on April 20, 1988, lust one day before TAI
graduated from the SBA 8 (a) set-aside program. SBA approved the
extension of the contract from a three to a five-year contract
with the addition of at least four staff years in 1988.
According to OAM, the legal comment was only advisory and OGC
signed the file signifying legal sufficiency of the proposed
modification.
EPA's vulnerability to the TAI contractor dramatically increased
under contract 68-03-3351. In the interest of ERL-A, the number
of contract employees under this third TAI sole-source contract
was increased by 100 percent and on-site contractor support
expanded to include almost all of the laboratory's operations.
At the end of this contract, the contractor support services had
developed into prohibited personal services relationships between
contractor staff and ERL-A. staff, contractor performance of
inherently governmental functions (IGFs), and directed
subcontracting by ERL-A to further avoid competition and to
obtain consultants and other laboratory needs unattainable with
limited intramural funds.
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ERL-A Biased the Competitive ProcurementProcess For TAI1s Fourth
contract Award, Contract 68-C1-0024
ERL-A recommended the removal of the technical support contract
from the 8(a) program after TAI graduated from the 8(a)
eligibility and then biased the follow-on competitive procurement
through its technical evaluation ranking factors and evaluation
of contractor proposals. ERL-A documented in its Acquisition and
Source Selection Plan and CMD concurred that the contract was
removed from 8(a) status to increase competition. However, only
two contractors submitted proposals for this procurement. In our
opinion, the second proposal was a token submission by the other
ERL-A on-site 8(a) contractor (AScI). AScI had not attended the
pre-proposal conference and its proposal was characterized as
deficient. . . .
At the time of the competitive procurement, ERL-A's vulnerability
to the TAI contractor had increased substantially. Of the seven
EPA contracts awarded to TAI since 1982, three provided technical
support directly to ERL-A. Over the life of these three
contracts, TAI became ERL-A's primary technical support
contractor. Since its initial contract in 1982, the number of
employees under the contract had grown from 6 to 31. ERL-A had
become as reliant on TAI employees, as it was on its own staff,
to perform work critical to the accomplishment of the
laboratory's mission.
ERL-A Recommended Removal the TAI Contract From The 8 fa) Program; •
At the end of contract 68-03-3351, when ERL-A could no longer use
the 8(a) umbrella to contract with TAI, ERL-A recommended that
the contract be removed from the 8(a) set-aside program. After
expiration of the third 8(a) sole-source contract (68-03-3351) on
April 30, 1991, ERL-A would have been required to compete its on-
site support contract under the 8(a) set-aside program because it
exceeded the $3 million competitive threshold established under
the 1988 amendments to the Small Business Act. If the contract
remained as a 8(a) set-aside, ERL-A risked losing TAI and its
employees because TAI no longer qualified as an 8(a) contractor
and would not be allowed to compete. By removing the contract
from 8(a) program and allowing for full and open competition, TAI
would be eligible to compete.
We found no justifiable support for removing this contract from
the 8(a) program. The proposed staffing levels, staffing mix,
and the SOW for this procurement did not differ substantially
from the requirements in the predecessor contract. The removal
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of the contract from the 8 (a) program contradicted ERL-A's
previous efforts to keep the procurement 8 (a) sole source, even
though they made substantial changes to the SOW and staffing
levels. Because of ERL-A's reliance on TAI and its prior efforts
to retain the incumbent, we could not determine any other reason
for the decision to remove the contract from the 8 (a) program
other than the desire of the ERL-A officials to allow the
incumbent to bid and to continue as ERL-A's on-site contractor.
FAR 19.501, entitled Set Asides for Small Business, states:
Once a product or service has been acquired
successfully by a contracting office on the basis of a
small business set-aside, all future requirements of
that office for that particular product or service not
subject to simplified small purchase procedures shall,
if required bv agency regulations [emphasis added], be
acquired on the basis of a repetitive set aside. This
procedure will be followed unless the contracting
officer determines that there is not a reasonable
expectation that 1) offers will be obtained from at
least two responsible small business concerns offering
the products of different small business concerns and
2) awards will be made at reasonable prices.
However, EPA had no regulation to require repetitive set-asides.
CMD's Small Business Specialist told us that the programs are not
obligated to keep any contract in the 8 (a) set-aside program and
can remove a contract at any time without justification. The
specialist provided two examples of when it would be acceptable
to remove a contract from 8(a) status: (1) if it was determined
that the solicitation would not receive enough bids from
small/minority business and (2) if the proposed work was within
the capability of large business only.
To justify unrestricted competition, ERL-A stated in the
Acquisition and Source Selection Plan (approved December 10,
1990} that the follow-on contract would be enlarged in scope to
over twice the original LOE due to increased demands on ERL-A's
support. The original LOE on the predecessor contract (contract
68-03-3351) was 16 contractor staff compared to the proposed
first-year staffing of 39 for the proposed contract. However,
approximately 31 TAI employees were actually on-site when the
predecessor contract expired which would only represent an
increase of 8 employees. In our opinion, this does not represent
a substantial enough increase in scope to argue that this
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contract could be performed by a large business only,
especially, since TAI had been successfully performing this
contracted work for nine years as an 8(a) contractor.
In addition, the SOW for the proposed contract changed minimally,
if at all, from the SOW on the predecessor contract. During the
pre-proposal conference on December 19, 1990, one contractor
asked "How do the requirements specified in this RFP differ from
the requirements in the current technical support contract" [68-
03-3351] at Athens-ERL?" - ERL-A responded that "The staffing
levels, staffing mix, and specific aspects of the statement of
work for the current contract do not differ substantially from
those requirements stated in this RFP." The primary change
between this competitive procurement and the predecessor contract
was that TAI was no longer an 8(a) contractor.
In the Acquisition and Source Selection Plan, ERL-A recommended
that the acquisition be competed on an unrestricted basis to
ensure adequate competition and to "accommodate the incumbent
contractor which has graduated from the 8(a) program." In our
opinion, this was not an acceptable reason to remove.the contract
from the 8(a) set-aside program. The purpose of the 8(a) program
is to develop the minority business to the point where it can be
competitive on an equal basis in the American economy not to
sustain that business once it graduates from.the program.
Regardless of the scope similarities between the current and
proposed contract, the specialist and contracting officer
accepted ERL-A's contention that the procurement was "Within the
capability of large business only."
ERL-A's logic in justifying full and open competition for this
award was inconsistent with past justifications for 8(a) sole-
source awards. Under the predecessor contract (68-03-3351), the
contract SOW expanded from support for one branch to support to
all the branches and the LOE increased by twice the original LOE
(from 16 employees to 31 employees.) At that time, ERL-A
justified keeping this contract as a sole-source procurement
because the work to be performed by the contractor, was unique and
not available from other sources. Since the SOW for the proposed
competitive contract, in ERL-A *s own words, remained basically
the same, the work would, according to prior ERL-A logic, still
be unique and allow awarding the contract under procedures other
than competitive. However, to fulfill its current objectives
[retention of TAI], ERL-A now argued that the new procurement was
only within the capability of large business.
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ERL-A Biased The RFP And Technical Evaluation To Favor TAI;
Once the procurement was removed from the 8 (a) set-aside program,
ERL-A went through the required actions for a competitive
procurement. Although it was fairly certain that TAI would have
a competitive advantage, ERL-A established technical ranking
factors which favored TAI and made it extremely difficult for
others to compete. For instance: (1) the technical evaluation
ranking factors put the most points (65 percent) on experience
and required key employee commitment letters which also favored
TAI; and (2) the proposed statement of work encompassed too many
tasks which made it difficult for competing contractors, other
than TAI, to have the technical expertise to fulfill all
responsibilities. These biases created an unfair advantage for
TAI as the incumbent contractor because they had most of the
employees required by the RFP already performing the SOW tasks
and ERL-A was openly pleased with TAI's performance. ERL-A
predicted significant interest in the contract and anticipated
strong competition. However, ERL-A's relationship with TAI and
the biasing of the procurement resulted in only one other
contractor, AScI, submitting a proposal for this procurement.
AScI was also an 8 (a) on-site contractor at ERL-A a~nd its
contract was due to expire and be re-awarded during this same
time period. With the submittal of only two proposals, we
believe that ERL-A actions discouraged competition. With all
this in favor of the incumbent, ERL-A's technical review
naturally led to the conclusion that the incumbent was the best
qualified for award. While this procurement went through the
competitive process, in our opinion, it was less than competitive
and failed to serve the best interests of the Federal government.
The Competition in Contracting Act of 1984 states that in
preparing for the procurement of property or services, an
executive agency shall:
(A) specify its needs and solicit bids or proposals in
a manner designed to achieve full and open competition
for the procurement;
(B) use advance procurement planning and market
research; and
(C) develop specifications in such manner as is
necessary to obtain full and open competition with due
regard to the nature of the property or services to be
acquired.
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On September 25, 1990, ERL-A submitted a Request for Contract for
a follow-on contract with TAI. The request was for a 17-month
base year and three option years at an estimated cost of $18.8
million. [After CMD review, the performance period was changed
to a 5-month base period and 4 one-year option periods.] To
promote competition, ERL-A outlined in the Acquisition and Source
Selection Plan nine ways they would enhance competition. ERL-A
also documented in the Plan that no restrictive criteria would be
used. Further, they would promote competition by placing more
emphasis on personnel qualifications and the'proposed management
plan than corporate experience, thereby enhancing the potential
for participation by firms that have not had direct experience
supporting ERL-A. The RFP contained two lists of contractors who
would possibly bid on the recompete of this contract. The first
list outlined six contractors with TAI being the first contractor
listed. The second was an alphabetical list of 58 additional
contractors.. The RFP was issued to 40 sources. During the pre-
proposal conference held on December 19, 1990, only three
contractors were present. When the RFP was closed on January 22,
1991, only two proposals were submitted, one from TAI and the
other from AScI, an 8 (a) on-site contractor also located at ERL-
A.
Proposals submitted for this procurement were evaluated on five
criteria: (1) Demonstrated Corporate Experience; (2)
Demonstrated Experience and Qualifications of Proposed Upper
Level Personnel—Base Level of Effort; (3) Qualifications of
Other Base Level of Effort Personnel; (4) Adequacy of Program
Management Plan; and (5) Adequacy of Quality Assurance Program
Plan. The maximum points that a contractor could obtain under
this RFP was 3600. Criteria 2 and 3 accounted for 65 percent of
the total available points. While most of the points were placed
on experience qualifications, TAI had an advantage, under
Criteria 1, 4, and 5, from being the incumbent for the last 9
years. For Demonstrated Corporate Experience, TAI had gained
experience in managing a contract with a SOW almost identical to
the one outlined in this RFP. For criteria 4 and 5, TAI had the
advantage because the TAI manager served as ERL-A's Quality
Assurance Officer which was an inherently governmental function.
ERL-A technical review of the two proposals resulted in TAI
receiving a score of 2640 and AScI receiving a score of 1800 (a
difference of 840 points). AScI's lower score was attributed in
great part to points lost in the experience qualifications
category because AScI did not obtain personnel commitment letters
as required by the RFP.
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Ranking Experience at 65 Percent Biased the Procurement
In their Acquisition and Source Selection Plan, ERL-A documented
that the offerer's capability of providing and managing highly
qualified scientific and technical personnel was considered more
important than cost factors under this acquisition. EKL-A placed
the most emphasis on personnel qualifications which accounted for
65% of the total available points. The RFP stated that the
contractor would be required to provide personnel who were highly
qualified in a number of technical and scientific disciplines.
The work provided for under the SOW of work primarily provided
for bench-level support. Through review of the AScI's technical
proposal and through an interview with another contractor in
attendance at the pre-bid conference, we determined that
obtaining employees qualified to perform under the proposed SOW
was not prohibitive. In fact, most of the employees AScI
proposed met the SOW qualifications. However, as the incumbent
contractor, TAI had a significant advantage because TAI had
provided support to Athens for the past nine years and ERL-A
officials were openly pleased with their work. Some favorable
comments made on the TAI's proposal in the Technical Evaluation
Report, dated February 20, 1991 were: (1) the employees had
experience with a contract SOW almost identical to the one in the
RFP, and (2) the employees were already on site and were
essentially or currently performing the same duties required by
the SOW. However, TAI's most significant advantage was that ERL-'
A had helped to develop expertise in the employees working under
TAI's contract. Therefore, to have a reasonable chance at
winning the contract the contractor would have to meet ERL-A's
personnel expectations and hire the employees already under the
TAI contract.
Discounting Corporate Experience Hurt Competitors
ERL-A documented that corporate experience was weighted much less
heavily (8 percent) than personnel qualifications, and this
should enhance competition by reducing the incumbent's advantage
in this area. We determined that this would not be the case when
ERL-A considered employees to be more important than the
contractor itself. Under this point allocation, another large
business might successfully demonstrate significant corporate
experience in performing similar support type contracts, but when
rated at 8 percent this experience would provide little
advantage.
The Technical evaluation report documented that TAI had
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demonstrated its ability to manage contracts similar in size,
nature, and scope to that described in the RFP. TAI described 6
contracts to show appropriate corporate experience. However,
approximately 50 percent of TAI's laboratory experience was
gained at ERL-A which could have been considered a weakness.
AScI had broad experience in conducting and managing contracts
such as the one described in the SOW. AScI reported 19 contracts
providing environmental services throughout the U.S. with
contract values ranging from $200,000 to $6,200,000. However, in
the technical evaluation, ERL-A emphasized that AScI's experience
spanned only a short period of time—less than 5 years. ERL-A
scored TAI and AScI equallytfor corporate experience.
Considering that ERL-A documented in the Acquisition and Source
Selection Plan that technical proficiency would be weighted more
heavily than cost, ERL-A officials did not seem interested in
determining the extent of AScI performance. TAI had an advantage
over any competitor because it was already performing the tasks
documented in the SOW in support .of all four branches and also
providing administrative support. However, AScI did not perform
on-site services for the Biology and Measurement branches under
its current contract at ERL-A. On April 9, 1991, the CMD .
contract specialist informed ERL-A that where the offerer is
known to have performed contracts for comparable work, their past
performance under the agreements should be evaluated. On April
15, 1991, ERL-A commented on the past performance of each of the
offerers in its supplemental technical evaluation report. ERL-A
responded in the report that:
Since both offerers are currently performing work at
the laboratory, we did not seek comments from other EPA
or government offices but are providing comments from
the branches that these contractors are supporting.
The RFP outlined contractor support for each of the four
branches. Because AScI did not provide services to the Biology
and Measurement Branches, no comments could be provided.
Therefore, it appeared in the supplemental narrative, that AScI
did not possess the capabilities to perform the duties in these
branches. AScI had outlined in its proposal work that it
performed in the area of Biology and Measurement under other
contracts. However, ERL-A elected not to obtain comments from
outside sources. This caused us to conclude that there was a
lack of any interest on behalf of ERL-A to actually determine the
technical proficiency of AScI.
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Commitment Letters and Start-Up Plan Created An Unfair Advantage -
ERL-A stated in the Acquisition and Source Selection Plan that
should a contractor other than the incumbent receive the contract
award, there was a further risk that ERL-A activities could be
disrupted during the contractor changeover. Therefore, TAI had
an obvious advantage in that it could guarantee 100 percent
productivity from day one of the contract. To minimize what it
considered to be an unacceptable disruption in service, ERL-A
required that offerers develop a start-up plan as part of an
overall management plan which would ensure full operations within
30 days of award. However, as described by ERL-A, a competing
contractor would require many months to become familiar with work
already being performed by the TAI employees. Further, as part
of the plan, contractors were required to submit commitment
letters for key employees. Unless a competing contractor hired
the employees already working under the TAI contract, they had
little chance of winning this procurement.
ERL-A's requirement for employee commitment letters gave an
additional advantage to TAI. The commitment letters were a
subcategory of experience qualifications which accounted for 65
percent of the total available points. The RFP required 37
employees for the base level of effort for which commitment
letters had to be .submitted. Through review of the technical
evaluation report, dated February 20,- 1991, we determined that
commitment letters were easily obtainable from employees already
working at ERL-A. Contractors usually did not obtain the letters
from contingency hires. As the incumbent, TAI already had 31 of
these 37 employees essentially performing the same duties
required by the SOW. Five of the remaining six employees .were
contingency hires. The technical evaluation report documented
that all the on-board TAI personnel had signed a letter of
commitment and the remaining positions would be filled as soon as
tasking was made available. However, the AScI proposal was
considered deficient in relation to the TAI contract for
experience qualifications because they failed to submit
commitment letters for the proposed employees. In most cases,
the employees AScI proposed did meet the technical qualifications
of the SOW. However, the non-submittal of the commitment letters
resulted in a loss of 585 points.
After the technical evaluation of the proposal was completed,
AScI had another opportunity to increase its score by improving
on the deficiencies in the proposal. A supplemental technical
evaluation of the proposals was issued April 15, 1991. TAI's
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score was increased from 2640 to 2910 and AScI's score was
increased from 1800 to 2245. The AScl proposal was still
deficient because they failed to provide commitment letters for
some of the employees. Therefore, we further question AScI's
resolve and whether AScl submitted a serious bid for the
contract.
'Under the commitment letters, the prospective employees would be
required to commit to working at ERL-A for a minimum of one year.
The purpose of commitment letters according to ERL-A was to
provide a way to evaluate the company's ability to provide the
necessary expertise. However, in our opinion, commitment letters
only served to give ERL-A a way to establish that current
contractor employees providing on-site research support would
continue to be employed.. However, commitment letters made it
more difficult for competing contractors to comply with the
personnel requirements of the RFP. We believe that the hiring of
acceptable employees could have been reasonably accomplished in
the 30-day transitional period. However, the 30 day start-up
period posed an additional obstacle to competing contractors. As
part of the start-up plan, the contractor had to demonstrate that
it would be "fully operational" at the end, of 30 days. ERL-A
documented the importance of retaining TAI employees in its April
16, 1991 request to extend the TAI contract 68-03-3351 by two
weeks (from May 1 - May 14, 1991) until the new contract could be
awarded. The new contract was anticipated to be awarded by May
1, 1991. ERL-A justified the extension under the authority of 41
U.S.C. 253 (c) (1) stating "only one responsible source for the
services to satisfy the Agency's requirement". Specifically, the
request noted:
Although other firms exist with the capability to
supply the general type of services required for "the
projects in progress, they do not have the in-depth
familiarity with these projects to step in and
immediately take over and continue task activities to
completion. For instance, the research activities
require "hands on" familiarity and technical expertise
relative to the methodology and instrumentation. New
personnel would require many months to gain the
familiarity and expertise inherent in the incumbent
personnel. Also, new personnel would'need to become
familiar with previous studies, technical approaches
that have been followed to date, and procedural
requirements.
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To further demonstrate the bias presented by the 30-day start-up
plan, the incumbent would be given 60 days to phase out
operations should they be unseated in this procurement. The
Acquisition and Source Selection Plan documented that under the
Continuity of Services clause the incumbent would be given up to
60 days after expiration of the contract for phase-in/phase-out
services. The phase-in/phase-out services required the incumbent
to provide phase-in training and to cooperate in any transition
should a different contractor be selected for award. Unless the
competing contractor could obtain commitment letters from the
employees already working under the TAI contract, it seems
unlikely that it could hire 37 employees for the on-site work and
be fully operational in 30 days. With a 65 percent ranking
factor, obstacles to fulfilling personnel requirements, in
particular commitment letters, would make it very difficult for
competitive firms to score in the competitive range.
SOW Encompassed Too Many Tasks
The SOW was also restrictive in that it encompassed too many
tasks which made it difficult for competing contractors to have
the technical expertise required to perform all tasks. There was
no apparent interest on the part of ERL-A or CMD to break up the
contract into smaller procurements which could have permitted
further small and disadvantaged business participation. However,
as discussed previously EKL-A's interest was in TAI and its
employees not in 8 (a) participation. Having an all encompassing
SOW would naturally favor the incumbent.
TAI Documented Minimum Competition
ERL-A officials also documented that they anticipated strong
competition. In the Acquisition and Source Selection Plan, ERL-A
documented that potential offerers had already expressed an
interest in the RFP including a number of EPA's on-site support
contractors. ERL-A represented that approximately 50 firms had
requested a copy of the solicitation. Because of the strong
competition anticipated, ERL-A documented that a market survey
was unnecessary as required by the Competition in Contracting Act
since a number of these organizations are known to have the
capability of performing the required services. The RFP was
subsequently issued to 40 companies identified as potential
sources.
While we did not see evidence of strong competition at the pre-
proposal conference or in subsequent proposals, we did find where
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TAI predicted its own chances of winning the ERI/-A contract at 95
percent. TAI summarized its strengths which included: proven
incumbent; high customer satisfaction;' detailed knowledge of
customer needs and requirements; and competitive salary
structure. TAI's self assessed weaknesses included: customer is
sensitive to increasing indirect costs; and as incumbent, we
could be vulnerable to lowballer on direct labor costs. Contrary
to ERL-A's claim that it anticipated strong competition, TAI
documented only minimum opposition. TAI noted that providing
qualified key personnel would be a major obstacle for its
competitors. This would be an obstacle primarily because
commitment letters were required under the request for proposal
and the most knowledgeable personnel were currently under the TAI
contract.
In a TAI Recapture Plan, dated November 29, 1990,"TAI anticipated
competition from only three contractors. Although the AScI
contractor worked on-site at ERL-A, AScI did not send a
representative to the pre-proposal conference held at ERL-A. The
pre-bid conference, held on December 19, 1990 showed that
anticipated competition was more in line with what TAI had
predicted because only three contractors (including TAI)
attended. Of the three firms attending the pre-bid conference,
only TAI submitted a proposal. We contacted the other two
contractors who attended the pre-proposal conference to determine
why they did not submit a proposal on the RFP. One contractor
did not submit a proposal because: (1) TAI had a reputation for
low-balling, (2) the perception was that ERL-A was pleased with
the work of the incumbent and EPA usually awarded to incumbents,
(3) the contract was fairly low-rated, meaning a lot of the
positions were for technician-level employees, and (4) the . .
contract was perceived as being a personal service contract.
On December 21, 1990, two days after the pre-proposal conference,
the other contractor who was in attendance at the pre-proposal
conference wrote a letter to CMD requesting that the date for
submittal of proposal be extended to January 31, 1991. CMD
extended the date to January 22, 1991. However, we found no
documentation in the CMD files relating to the request or why
CMD and ERL-A did not take this opportunity to increase
competition for this procurement by extending the date to January
31, 1991, as requested. File documentation from this contractor
show that the extension was requested due to the significant.
modifications expected in the RFP as a result of questions
discussed during the pre-proposal conference, as well as the time
and effort required to prepare a quality proposal in response to
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the new RFP requirements.
AScI Proposal Appears To Be TokenSubmission
The lack of apparent resolve on the part of AScI suggests that
the proposal may have been submitted as a token bid. This
assertion is made because: (1) AScI did not attend the pre-
proposal conference; (2) the AScI proposal was deficient and AScI
did not try to resolve important deficiencies; and (3) ERL-A did
not utilize all available opportunities to increase competition.
If ERL-A had received only one proposal, ERL-A would have been
required to take additional steps to increase competition. This
would have delayed the date of award and disrupted the work.
Also, if the work was supposed to be within the capability of
large business only, the receipt of a second proposal from an
8(a) contractor raises additional question as to the competitive
nature of this procurement. However, CMD accepted the two
proposals as being in the competitive range; thereby, ruling that
the procurement met the requirements of competition.
ERL-A's long-term utilization of TAI employees as equivalent FTEs
to perform personal services and IGFs contributed t'd TAI's
advantage in this procurement. ERL-A's and CMD's action or
inactions at the pre-proposal conference, the biased ranking
factors, a questionable second proposal, and a reluctance to
allow a short filing extension for a third competitor makes us
question the competitive nature of the TAI procurement.
AScI Contract Split To Circmnvent CompetitiveLRequirements Of The
Small .Business Act
ERL-A officials underestimated a follow-on contract (68-CO-0054)
with AScI to avoid the $3 million dollar competition threshold
established under the Small Business Act, Section 8(a). On July
3, 1990, ERL-A requested a second contract (68-04-0012) for AScI
which was intended for off-site services. The SOWs for the on-
site and off-site contracts were identical and "off-site" was
roughly two miles from ERL-A at a contractor facility established
for the sole purpose of providing support to the laboratory. The
proposed off-site facility was to be paid for under the contract.
According to ERL-A management, the prime motivation for a second
AScI contract was a pressing need for additional space at the
laboratory which necessitated the relocation of personnel off-
site. However, this factor alone would not justify two separate
8(a) contracts. In our opinion, the only purpose of two
contracts was to avoid the prolonged competition process for a
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single 8(a) contract in excess of $3 million and the possible
disruption of services if a contractor other than AScI should win
the award. By ensuring the retention of AScI and, more
importantly, its employees, ERL-A avoided the inconvenience and
the perceived risk of competition. This calculated action by
ERL-A intentionally circumvented established provisions of the
Small Business Act which required competition for 8 (a) contracts
over $3 million.
The 1988 revisions to the Small Business Act established monetary
competitive thresholds for 8(a) procurements. The statutory
thresholds were written into SBA regulation 13 CFR 124.311(a)(2)
which states:
... a contract opportunity offered to the 8(a) program for
award shall be awarded on the basis of a competition
restricted to eligible program participants if the
anticipated award price of the contract, including options,
will exceed $5,000,000 for contracts assigned manufacturing
Standard Industrial Classification (SIC) codes and
$3,000,000 for.all other contracts.
The congressional intent as shown in the Small'Business Act,
Section 101 was to increase competition in order to promote the
Congressionally mandated business development objectives and
purposes. By establishing maximum dollar amounts for 8(a) sole-
source contracting, Congress required competition within the 8(a)
program. Prior to the amendment's effective date of October 1,
1989, large sole-source acquisitions could be awarded without
competition. .
On-site ASel Contract
On February 22, 1990, ERL-A submitted a three-year $4.9 million
sole-source procurement request to be awarded sole source to AScI
for on-site support. The request was approved through the
Director of OEPER and the AA for Research and Development. On
March 14, 1990, without ERL-A's knowledge, CMD requested that SBA
approve a competitively bid 8 (a) set-aside .since the maximum
potential value of the contract exceeded the $3 million
noncompetitive threshold for 8(a) contracts established by the
1988 amendments to the Small Business Act. On March 19, 1990,
SBA notified CMD of its acceptance of the competitive set-aside.
SBA instructed CMD to advertise the procurement in the Commerce
Business Daily and issue a solicitation. v .
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On March 23, 1990, after its initial review of ERL-A1s request,
CMD informed ERL-A that the requested procurement exceeded the $3
million threshold for noncompetitive 8 (a) awards and would have
to be competitively bid. ERL-A then was faced with advertising
for a follow-on contract and developing technical evaluation
criteria for proposals. CMD further stated that, if the contract
was to be competitively awarded, ERL-A would have to provide
substantial effort to award the contract before September 30,
1990, when AScI's current contract expired.
Subsequent to CMD's communication to ERL-A that an award in
excess of $3 million would have to be competed, a note in the
ERL-A PO's file, dated April 9, 1990, documented:
In accordance with [Senior Science Advisor], the AScI
continuation procurement package beginning 10/1/90 should
not exceed $3 million for the three year period [emphasis
added].
The note also stated that the laboratory director concurred with
the decision. On April 11, 1990, two days after the date of this
file note, ERL-A submitted a new request to CMD for" an on-site
AScI contract with a revised cost estimate of $2.9 million. This
was just under the $3 million 8 (a) competition threshold
established in the Small Business Act.
ERL-A officials maintained that there was no intent to avoid
competition when they withdrew the initial procurement. There
was merely a reduction in anticipated work needed under the
contract. Our review of ERL-A and CMD file documents indicated,
that while the laboratory support functions described under the
original and revised contract request for on-site support
remained virtually the same, ERL-A took deliberate steps to
reduce the procurement to under $3 million threshold. While the
procurement request remained at three years, the estimated cost
was reduced to $2,984,073. ERL-A accomplished the reduction by
reducing consulting costs, and eliminating $168,886 in clerical
support costs, $708,410 in quantity option increases, and
$1,082,164 in labor categories and other direct costs. By
reducing the proposed cost estimate below $3 million, ERL-A was
able to award the 8(a) set-aside sole-source contract to the
incumbent, AScI, and avoid the additional administrative burden
of awarding an 8(a) competitive procurement.
No documented evidence was found that either OEPER or CMD
questioned the significant revisions and/or omissions to the
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proposed contract. The only written comment found related to the
reduction in the contract scope and estimated cost was a
statement in the revised contract request transmittal letter
dated April 11, 1990 as follows:
We have re-evaluated our needs for on-site contract
support and, as discussed with you on April 5, reduced
the level-of-effort accordingly.
There was no documented evidence in either CMD's or ERL-A's files
concerning the April 5, 1990 discussion mentioned in the
transmittal letter.
In response to ERL-A's revised contract request, CMD wrote to SBA
on April 19, 1990 explaining that:
... the scope of work for the procurement we offered to
the SBA for a competitive 8 (a) proposal has been
changed. Therefore, we are requesting a cancellation
of the set-side. We will evaluate the changes and
resubmit at a later date.
• "*-
In a second letter dated the same day, CMD informed SBA about
ERL-A"s proposed $2.9 million contract stating only that:
EPA would like to award this contract to an 8 (a)
contractor pursuant to Section 8 (a) of the Small
Business Act .... This procurement was hot publicly
synopsized because it is the feeling of this office
that eligible 8 (a) firms would be at a disadvantage and
could not win by normal competitive means.
Based on ERL-A's assessment of AScI's performance, CMD's
evaluation as to the contractor's ability to compete appears
contradictory. During interviews, ERL-A staff repeatedly told us
that ERL-A was very pleased with AScI's performance and AScI had
the ability to win a competitive procurement. Also, AScI had
recently won a $4.6 million full and open competitive procurement
at the Environmental Research Laboratory - Duluth and had ten
other noncompetitive awards in place with a maximum potential
value of $22.6 million. Given the number of contracts already
awarded to AScX noncompetitively and AScI's demonstrated ability
to compete successfully at Duluth, the validity of ERL-A's
noncompetitive 8(a) set-aside appeared questionable.
The $2.9 million procurement that ERL-A resubmitted to CMD was
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ultimately awarded to AScI as a sole-source contract on September
25, 1990 at a revised maximum potential value of $3.3 million.
The initial $2.9 million estimate was increased above the $3
million competition threshold during the pre/post and final
negotiations. The contractor's estimate was $212,283 above ERL-
A's original estimate due to the escalation of the contractor's
fixed fee and the annual labor hour estimate. During
negotiations, AScI also requested that consultant hours be
increased to reflect historical utilization of consultants. This
increased the final negotiated contract costs to $3.3 million.
CMD officials contended that sole-source procurements could be
negotiated above the $3 million threshold for noncompetitive
procurements as long as the procurement's estimated cost was
initially estimated below $3 million. CMD explained that SBA
refused to compete anything below $3 million.
Because the initial estimate, according to CMD's policy, was the
determining factor for a competitive versus sole-source 8(a)
contract, it was to ERL-A's advantage to underestimate its
initial estimate of contract cost. During the negotiation, CMD
allowed the contract cost to significantly exceed the $3 million
threshold and did not require competition. CMD's policy provides
no incentive to programs for accurate initial estimates of
contract costs.
Off-site AScIContract
On July 3, 1990, three months before award of the sole-source on-
site AScI contract, ERL-A requested a second 8fa^ sole-source
contract with AScI. The laboratory director said the primary
motivation for the off-site procurement was to alleviate serious
overcrowding at the laboratory by moving some of the contract
employees off-site. We were told by other managers that the
possibility of an off-site contract had been discussed for
several months. While we did find references as early as
February 1990 to an off-site contract, we believe the need for an
off-site contract became more advantageous when ERL-A learned
that it would have to compete its original $4.9 million follow-on
contract. Another ERL-A concern was the possibility that the
follow-on contract might not be in place by September 30, 1990
when the current contract .expired. Therefore, to avoid
additional processing delays, we believe ERL-A elected to hold
the on-site procurement below $3 million to allow a faster sole-
source procurement and follow-up with an off-site contract to
make up the difference.
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Our review disclosed that the SOW for the proposed off-site
contract was identical to that proposed for the on-site. The
only change was where "off-site" was substituted for "on-site."
The off-site procurement request was also deficient in that it
did not include an estimate for off-site support facilities4 on
July 25, -1990, ERL-A corrected this oversight by decreasing the
LOE by one staff year to "... compensate for rent estimates." A
note to the file which documented a meeting with the Senior
Science Advisor remarked "We already had 57K to play with from
the aggregate contract amount (Attach G)." Attachment G showed
the cost estimate for the off-site contract as $2,942,484 which
was approximately $57.000 from the S3 million dollar limit for a
noncompetitive 8(at contract. This statement clearly indicates
ERL-A's intention to also keep its initial cost estimate for the
off-site contract under the SBA $3 million ceiling for a
noncompetitive procurement.
During CMD's initial review of this off-site procurement request,
an internal review document contained a handwritten note from the
contracting officer to the Small and Disadvantaged Business
Utilization Specialist (SDBUS) stating "Talk to {ERL-A Official}
about some firm other than AScI." From interviews with the SDBUS
and the CO, they confirmed their telephone conversations with
ERL-A concerning the utilization of some other firm other than
AScI. CMD officials expressed concern with AScI obtaining an
additional sole-source procurement since CMD was concurrently
reviewing the on-site procurement package. CMD officials
suggested to ERL-A that they should either obtain another 8(a)
contractor or compete the contract. ERL-A officials responded to
CMD' s concerns by stating that they needed to retain AScI because
the AScI employees were performing work that was critical to the
lab's mission. They did not want the work interrupted by having
the contract awarded to another contractor or potentially delayed
by a long competitive award process. During an interview with
OIG auditors, the SDBUS stated that the program took the position
that if they could not request AScI through an 8 (a) set-aside,
then they would re-do the procurement as a sole source and
justify why they wanted AScI. Since the program was so
insistent, CMD decided to go with AScI as an 8(a). In interviews
with ERL-A officials, they confirmed the telephone conversations
with CMD responding that they wanted to retain AScI because the
AScI employees were performing work that was critical to the
lab's mission. They did not want the work interrupted by having
the contract awarded to another contractor or potentially delayed
by a long competitive award process.
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On July 30, 1990, CMD received written SBA approval for the off-
site 8 (a) sole-source procurement to AScI .and on August 15 1990,
CMD requested a proposal from AScI for the contract. This was
two weeks after the request for proposal for the on-site contract
was issued. While CMD had reviewed both requests, the CO
contended that she did not know that the proposed off-site work
was actually "near-site" until August 23, 1990, when AScI
submitted its proposal.
From August 23, 1990 to March 21, 1991, when the off-site
contract was eventually awarded, there was continual
correspondence between CMD, ERL-A, and AScI concerning position
requirements, labor rates, personnel, overhead rates, etc., which
delayed the procurement. In responding to questions from the
contract specialist regarding labor rates and personnel, AScI
stated in a September 21, 1990 memorandum that the site manager's
time would be split between his on-site and off-site
responsibilities. AScI added that "The technical requirements
for both the on-site and off-site contract in Athens, Georgia are
similar in the level of scientific and engineering expertise
required." If the contracts were to be managed by the same site
manager and required similar technical requirements^ there was
again no logical reason why the two contracts could not have been
combined and CMD should have been alerted to this fact.
Interviews with CMD personnel confirmed that they had serious
concerns over the off-site procurement. The CO indicated that
she brought the issue to the attention of the CMD's Director who
stated that ERL-A would not be allowed to proceed with the second
contract. However, no evidence was found in CMD's files
documenting the CMD Director's decision cited by the CO. Despite
apparent concerns over the off-site proposal and the potential
for a split procurement, CMD awarded the on-site contract on
September 25, 1990 and on March 21, 1991, after ERL-A certified
(incorrectly) that its needs had changed and there was sufficient
work to support both AScI contracts, CMD ultimately allowed the
award of the off-site contract as well. This was done even
though CMD was aware that the site manager was the same, the
proposed SOW was the same as the on-site contract, and the off-
site work would be performed actually near-site. Also, CMD was
aware that 10 months earlier ERL-A had submitted a $4.9 million
request which was later reduced below $3 million because of a
reduction in anticipated work, and that ERL-A was now certifying
(in just 10 months) that it had sufficient work to support two
contracts with a total estimated potential value of $5.9 million.
At this point, CMD should have been fully aware of the extreme
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steps ERL-A had taken to avoid competing the AScI procurement.
However, CMD elected to go ahead and award the off-site contract
without any documented explanation.
During our audit, the CO reviewed CMD's files for both the ERL-A
on-site and off-site contracts and apparently concurred with our
conclusion that ERL-A did underestimate and split the AScI
procurement to avoid competition. In a letter, dated February
13, 1992, the CO wrote to the ERL-A PO requesting that the ERL-A
contracts be recompeted at the end of FY 1992 to rectify the
situation. Her rationale was that "the original contract was
split into an on-site and an off-site contract in order to avoid
a competitive 8(a) RFP." In response, ERL-A maintained that it
was not its intent to split the AScI procurements to avoid 8(a)
competition. The off-site AScI contract expired on September 30,
1992 and was not renewed. Also, based on CMD's subsequent
review, the last option year scheduled to start on October l,
1992 for the on-site AScI contract was not .exercised.
CONCLUSION .^
TAI's dramatic growth at ERL-A was attributed to the increased
SOW and substantial modifications made to the predecessor
contract awarded in 1985. Contract support was expanded from one
branch to all four branches. TAI was also providing
administrative support. ERL-A's vulnerability to contract
support increased as it utilized the TAI employees as an
extension of intramural resources. As the mission of the
laboratory and contract support grew, EPA employees became
increasingly involved in the administrative oversight of TAI's
operations and TAI employees became the vehicle for getting the
work done. The loss of these 31 employees would have caused the
laboratory's work to suffer greatly. Some TAI employees had been
on-site at ERL-A longer than some EPA employees. For example,
the TAI Program Manager had been working on-site at ERL-A since
1980 which was longer than the current ERL-A Director and PO put
together.
The actions taken by ERL-A under the 8(a) umbrella to award
repetitive sole-source contracts to TAI disregarded the intent of
the Small Business Act, Section 8 (a) program and the CICA. ERL-
A's actions did not contribute to the development of small
minority businesses and avoided the recognized benefits of full
and open competition. ERL-A's favored treatment of the incumbent
corrupted the competitive process and increased the potential for
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the incumbent to establish a monopoly at the laboratory.
Subsequent removal of the procurement from the 8 (a) program
clearly indicated an act intended to favor the incumbent.
ERL-A's over-reliance on the AScI employees to perform mission-
critical work compelled them to reduce the requests for contract
to just under $3 million to: guarantee a sole-source procurement
to AScI; speed up the procurement process; and avoid any possible
cessation of AScI services as a result of changing contractors.
CMC's established role in the preaward procurement process was to
ensure compliance with applicable federal statutes and FAR and
EPAAR requirements. Post-award, CMD was also responsible for
evaluating the use and overall management of contracts. However,
CMD admitted that due to their heavy workload, they had become
more of a service than an oversight function. In retrospect, CMD
officials said the AScI contacts should have never been awarded
sole source. However, with knowledge on August 23, 1990, that
the proposed off-site contract was actually near-site and that
both contracts had the same SOW, CMD still awarded the on-site
contract on September 25, 1990. Not until our audit was
initiated did CMD attempt to rectify this overt act'to avoid
competition and. circumvent sound procurement practices.
Therefore, CMD was negligent in its oversight function in
allowing ERL-A to circumvent competitive procedures and corrected
the problem only under pressure from the OIG.
In our opinion, ERL-A's procurement practices were driven by its
desire to keep critical contractor employees and to maintain
continuity of services rather than on sound contracting practices
and cost-effective use of government resources. Once the on-site
contractors were procured, ERL-A treated them no differently than
FTEs.
RECOMMENDATIONS
Recommendations to the Assistant Administrator, Research aad
Development
We recommend that the Assistant Administrator for Research and
Development ensure significant improvements are made in ERL-A's
contracting process to obtain strict compliance with applicable
statutes, regulations, and EPA policies and ensure effective use
of Agency resources. Specifically, the Assistant Administrator
should:
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- Consider decreasing scopes of laboratory contract awards to
award contracts to more expert firms in each technical area and
to increase competition for technical support contracts.
- Create an extramural resource management position at remote
laboratories to oversee the management of extramural resources.
- Provide that ORD managers' performance standards and
evaluations clearly establish accountability for compliance
with procurement regulations and Agency's acquisition policies.
In addition, the Assistant Administrator for Research and
Development should require the:
Director. Environmental Processes and Effects Research to:
- Evaluate ERL-A's research mission focusing on core programs.
Establish "what research activities should be performed on-site
by FTEs or on-site/off-site via contracts and other extramural
agreements. " '
- Review ERL-A's on-site contractor tasks to determine whether
the work should be eliminated, moved off-site, or retained
under strict controls. This should include an evaluation of
existing and future contract activities that provide long-term
on-site support to determine if ERL-A is continuing to
improperly award such contracts or using its contracts
for prohibited contract activities. Particular attention
should be given to repetitive awards to the same contractor.
- Revise laboratory managers' performance evaluations to increase
the criticality and weight of proper procurement of extramural
resources .-
- Provide adequate guidance, in coordination with OGC and CMD, to
ensure that laboratory managers understand their extramural
limitations and provide close oversight over extramural
operations to include:
* The review of an annual Acquisition Plan prepared by
ERL-A and other ORD laboratories to demonstrate
laboratory compliance with ORD policy and procurement
regulations during the coming fiscal years
* Systematic reviews of laboratory operations, in
conjunction with CMD, to assure adherence with required
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contract acquisition and management regulations, including
applicable EPA/ORD policies. Also, to ensure that ERL-A
is in compliance with its acquisition and contract
management plans.
* Requiring more technical evaluation members from
organizations other than the laboratory procuring the
contract panels for competitive procurements to reduce the
potential for biased procurements.
* Eliminate requirement for employee commitment letters that
may bias contract awards in favor of incumbents.
In addition, we also recommend that the Assistant Administrator
for Research and Development require:
Director. Environmental Research Laboratory - Athens to:
- Develop, as part of the annual planning process, a detailed
Acquisition Plan, documenting ERL-A's planned acquisitions, the
justification for these acquisitions, and how competition will
be increased. Also, for each on-site support contract, a
contract management plan describing procedures arid controls to
ensure that contracts are properly used and managed in
accordance with the FAR and existing Agency policies. Both
documents should be reviewed and approved by ORD and CMD.
Recommendations to the Assistant Administrator, Administration
and Resources Management
We recommend that the Assistant Administrator for Administration
and Resources Management ensure significant improvements are made
in the contract acquisition, management, and oversight processes
conducted at CMD - Cincinnati to obtain compliance with
applicable statutes, regulations, and EPA policies.
Specifically, the Assistant Administrator should require the:
Director. Office of Acquisition Management fOAM) to:
- Provide written instructions to CAM, ORD, and ERL-A staffs
describing the appropriate procurement, use, and management of
8 (a) contracts under CMD's oversight.
- Require CMD to perform in-depth reviews of all future 8 (a)
procurements falling within close range of the threshold
for competing 8(a) contracts to assess if requested sole-source
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procurements are justified. The review should focus' on
determining if all necessary calculations have been included in
the estimated cost. CMD should make an assessment of the
contractor's ability to compete in consultation with the SDBUS
and SBA. The decision for an 8(a) competitive or sole-source
procurement should rest with CMD and the Agency's Competition
Advocate, not ORD or ERL-A. CMD should not routinely allow a
sole-source procurement when:
* contractors are currently performing work under an
existing contract for that location. CMD should be
sensitive to multiple sole-source contracts awarded or
proposed to be awarded to the same contractor within close
timeframes that may indicate an intent to avoid
competition.
* the contractor has demonstrated its ability to
successfully compete for similar contracts at other EPA
locations. For 8(a) firms, at a minimum, CMD should
require competition with other qualified 8(a) companies.
* Contract modifications would significantly increase the
contract's value over the competitive threshold or extend
the contract performance past expiration of the .
contractor's 8(a) eligibility.
Establish definitive guidelines for justifying removal of
contracts from 8(a) participation. Once a contract has been
set-aside for 8(a) participation for an extended period of
time, the labs should be encouraged to keep the contract in the
8 (a) program or adequately justify its removal. CMD should not
allow laboratories to remove a procurement from 8(a) status
just to accommodate a former 8 (a) contractor who has graduated
from the program. . ' •
Establish a maximum potential value or percentage increase for
all contracts that will1automatically trigger a re-compete.
Significant modifications that increase LOE or scope of
contracts should not be allowed.
Require ERL-A to remove any bias from all procurements. ERL-A
competitive procurements should:
* Permit short extensions of solicitation periods where such
extensions are justified due to circumstances/delays in
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submission of proposals caused by the Agency.
* Place a reasonable amount of technical evaluation
ranking points on the strengths of an incumbent
contractor.
* Require commitment letters only when absolutely necessary.
Contractors should be given sufficient time to staff-up
and become operational.
ERL-A MISUSE OF CONTRACTOR ACTIVITIES HAS SUBSTANTIALLY INCREASED
The AScI and TAI contracts and related WAs contained broad SOW
with undefined deliverables resulting in indefinite contractor
operations. ERL-A management misused contracts by personally
directing the activities of contract employees to enhance ERL-A
research rather than adhere to a contractual relationship. The
lack of an arms-length contractual relationship resulted in:
(1) directed subcontracting; (2) personal service relationships;
(3) contractors being involved in critical, if not IGFs;
(4) inadequate WAs and SOWs; and (5) inadequate review and
acceptance of contract charges. This contract misuse greatly
elevated ERL-A's vulnerability to fraud, waste, abuse, related
COI situations, and a potential loss of the Agency expertise in
critical functions. In addition, ERL-A's close relationship with
on-site contractors and their employees provided the incumbent
contractor resident expertise in certain research projects which
created a contractor monopoly on these projects and precluded, or
at a minimum, inhibited future "open" competition for on-site
contract support.
With the exception of directed subcontracting, issues related to
prohibited personal services, contractor performance of IGFs and
critical functions, inadequate WAs and SOWs, and potential COIs
were previously reported in OIG Survey Report E1XMG2-04-0102-
3400007 on ERL-A contract management, issued November 30, 1992.
Therefore, these issues are only briefly summarized below to
provide insight into ERL-A's overall misuse of support contracts.
ERL-A Involvement In Directed subcontracting
ERL-A officials directed the utilization of consultants under the
AScI and TAI contracts. In order to accomplish research projects
at the laboratory, ERL-A officials circumvented procurement
regulations by directing contract employees to obtain specific
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consultants sole source. EPA's October 1990 Contract
Administration manual clearly prohibits the directed hiring of
consultants by EPA:
EPA cannot direct the contractor to hire any
consultants or influence the selection of such
consultants in any way. And, as with subcontractors,
EPA has no privity of contract with any consultants
used in the performance of its contracts. The prime .
contractor is responsible for all aspects of
performance.
Under the Contract Administration Manual, EPA is also prohibited
from directing-the activities of a consultant acquired by a
contractor. EPA has no contractual authority with the consultant
since the privity of contract is with the contractor and not EPA.
In order to determine the technical qualifications, the benefits
to be derived from his or her use, the amount of usage, and the
rates proposed, all consultants are subject to the review and
approval of CMD. The Contract Administration manual requires
that: ' . .
A contract modification is executed to approve the use
of the consultant, and it will usually specify the
fixed rate to be charged and set a limit on the number
of hours and days the consultant can be used. This
way, the Government is protected against excessive use
of, and excessive charging by, expert consultants under
cost-reimbursement and indefinite quantity type
contracts.
During our review, consultant rates were found in ERL-A contract
files that varied from $50 to $100 a hour, often without
appropriate approval by CMD or any determination of
reasonableness for these charges. Therefore, the hourly or daily
rates charged by consultants may not have been commensurate with
the technical benefits derived. In addition, consultants used
were not approved at all or in advance by CMD as required. For
example, one AScI consultant utilized on Superfund sites under
contracts 68-03-3551 and 68-CO-0054 was obtained sole source and
paid at a rate of $100 a hour for a total of $63,225 over a two-
year period. We did not find in the contract files where this
contractor or his rates had been approved by CMD or where the
contract was modified to authorize his use.
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On March 19, 1992, a CMD procurement analyst reported to the CMD
Director isolated contract management issues relative to the
CMD/ORD review of on-site support contracts at ERL-A. The issues
were identified during CMD file reviews but were not considered
global in nature and reported directly to ERL-A in the July 14,
1992 CMD/ORD report on ERL-A's contract management. However,
these unreported issues were discussed with applicable ERL-A
project officers. For the AScI and TAI contracts, the
procurement analyst reported that consultants were often not
submitted to CMD for approval although they were provided for in
the work assignments and subsequently invoiced by the contractor.
For the TAI contract (68-C1-0024) , it was reported that the
contractor was showing the use of individual consultants but no
consultants had been previously approved by the contracting
officer as required under the contract. Consultants must be
approved separately even if work plans with hours for
unidentified consultants have been previously approved. For the
AScI contract (68-CO-0054), the March review documented an
example of one "weak" sole-source consultant approval that was
processed. However, the procurement analyst noted that there was
no price analysis of the proposed rate in the file as required by
the contract. The review also documented that wheri~requesting
approval of the consultant the on-site AScI contract manager
referenced previous consultant request letters; however, the
letters could not be located in the CMD files. This same issue
was reported again by the contract specialist to the CMD Director
on September 15, 1992. The procurement analyst and the contract
specialist both made the same basic recommendation to the CMD
Director. They recommended that CMD: .
Advise the contractor [AScI] of his responsibility to
secure competition to the maximum extent practical [for
subcontracts] and to include his price analysis of
proposed rates for the consultants proposed. Advise
the contractor that the contract requires the approval
of the CO prior to engaging consultants. Approval of
work plans that do not specifically identify the
consultants to be used even though they do not identify
[specific] "consultants" does not constitute CO
approval for the use of a specific consultant.
We found no evidence in CMD or ERL-A files to show where this
recommendation and others in the March and September reports were
made formally to the ERL-A Director.
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However, ERL-A did not ensure that contractors adhered to
contract provisions to secure competition for consultants to the
maximum extent practical and it did not submit consultants to CMD
for approval. Through interviews and file reviews at ERL-A, we
learned that ERL-A management had significant input into
selecting consultants under on-site contracts. Also, ERL-A was
engaged on behalf of the contractor to get consultant approval
after the fact. For example, on January 29, 1992, the AScI site
manager wrote CMD for approval of a sole-source acquisition of a
consultant to assist ERL-A on the Global Climate Project under
contract 68-CO-0054, work assignment 2A. The period of
performance was scheduled for February 3-7, 1992. On February
19, 1992, the contract specialist wrote AScI to explain that WA
2A did not provide for consultant services as approved by the CO
and that-the PO would have to request an amendment to the WA
before approval could be given. The contract specialist also
cautioned AScI that consultants do not "assist" ERL-A they
"support" in accomplishment of its mission. However, by February
19, 1992 (the date of CMD's letter), the consultant work had
already been performed with apparent knowledge of ERL-A
management as documented in'a subsequent memorandum.dated May 11,
1992 from the PO to ERL-A program managers. The PO^requested
that these managers prepare the necessary paperwork to justify
the sole-source acquisition of the consultant. The PO indicated
that he had .talked with CMD about the consultant issue and CMD
had agreed, with proper documentation, to approve this consultant
"after-the-fact" so the contractor could be paid for the work
already performed.
ERL~A violated contract provisions for hiring consultants on a
reoccurring basis. One ERL-A official stated that ERL-A
generally used contracts to hire the consultants they wanted.
Another ERL-A official admitted that it was simply much easier to
obtain consultants through the contracts than to procure them
directly through CMD. Consultants under the AScI and TAI
contracts were utilized primarily for two reasons. First, the
AScI contract called for the contractor to organize and present
workshops to promote the use of models which predict the fate and
transport of pollutants. ERL-A would generally use the most
prominent scientist, usually the developer of the model to
present a workshop on the model. Prior to contracting with AScI,
ERL-A organized and presented these workshops. Both AScI and
ERL-A employees confirmed that there was a general agreement that
AScI would continue to use the consultants utilized previously by
ERL-A to conduct workshops and it was not likely that AScI would
chose another consultant without the ERL-A's consent.
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Consultants were also utilized to provide direct assistance to
ERL-A. For example, consultants provided guidance to KPMs on
Superfund Sites. During interview, one AScI employee stated that
ERL-A officials in almost every instance determined when and
which consultants were used under the AScI contract. ERL-A file
documentation confirmed the involvement of ERL-A management in
selecting consultants. For example, a January 22, 1990
memorandum from ERL-A's Director to the PO of the AScI contract
requested the PO to:
"put in 3 peer reviews per year with 3 reviewers
[consultants] brought in for them (expenses for 3 days,
plus travel to and from Athens). May do this thru TAI,
but best to include it here just in case."
Budgeting for unnamed consultants (e.g. peer reviews) under.the
AScI contract provided for directed subcontracting on the part of
the ERL-A management. Determining the need for consultants under
a contract is a determination that should be made by the
contractor not laboratory management. As discussed above, ERL-A
officials avoided competing the procurement of consultants by
directing AScI to select particular individuals instead of
soliciting bids.
Such AScI involvement on behalf of ERL-A to justify and acquire
consultants on a sole-source basis without CMD approval (doing
favors for ERL-A) created the potential for favoritism during the
contract procurement process and placed ERL-A employees in a
potential COI situation. The directed subcontracting occurred
because of the close relationship ERL-A managers had developed
with on-site contractors at the ERL-A laboratory. Essentially no
arms-length transactions existed at ERL-A.
ERL-A Used the Contract For Personal Services"
A 1992 ORD/CMD review identified all six of the FAR's indicators
of prohibited personnel service at ERL-A (FAR at 48 CFR subpart
37.1), including the appearance of direct supervision. Our audit
also documented evidence of prohibited personal services
relationships between ERL-A and its on-site contractors. ERL-A
managers clearly stated that, in the past, personal service
relationships did exist between ERL-A and its contractor staff.
" See OIG Survey Report E1XMG2-04-0102-3400007, issued
November 30, 1992, page 11, for additional details.
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As a result of our interviews at ERL-A and CMD, and file reviews
including the newly prepared WAS for FY. 1993, we remained
concerned that the new controls established at Athens to provide
and document technical direction are .intended more to avoid the
appearance of personal services rather than to actually establish
the proper arms-length relationship between ERL-A and its
contractors. In some instances, ERL-A is continuing contractual
relationships that require continuous and routine guidance by EPA
staff to obtain research objectives. Under these conditions,
this guidance may be no more than routine supervision under the
guise of technical direction. . •
As a consequence of the lack of an arms-length relationship
between laboratory and contract employees, numerous examples
existed of questionable activities by contract employees which
qualified as personal services. For example, in conjunction with
the US-USSR Bilateral Agreement, an AScI employee was selected by
ERL-A to travel to the Soviet Union for three months to perform
water quality modeling of the Don River. ERL-A justified this
assignment because the contractor employee was developing water
quality models under the AScI contract. Another contractor
employee accompanied ERL-A staff on a trip to Egypt. AScI staff
also performed as secretaries at ERL-A. One secretary working
under the AScI contract was assigned to the ERL-A Director for
four months before she was converted to FTE status. ERL-A also
utilized the TAI contract to perform -QA and health and safety
reviews of ERL-A's activities which involved evaluating the work
of EPA and other contract employees. In addition, TAI employees
looked to the EPA Pis for assignments and review of projects. As
a result, instructions to the contract staff came from EPA lead
scientists (Pis) who provided research direction and guidance to
the contract staff. These examples not only show a personal
services relationship that existed at ERL-A but that work
performed by contractors was sometimes outside the scope of on-
site support contracts. The PO admitted that he would have
preferred using FTEs to perform these functions, but with a
controlled FTE ceiling the workload had become too great for EPA
personnel to accomplish all required tasks.
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Potential Inherently Governmental Functions Were Performed
Under The TAI and AScI Contracts12
TAI and AScI employees performed potentially IGFs. The
justification for allowing contract employees to perform these
functions was based on the lack of available federal staff to
accomplish the mission of the laboratory and not on logical
decisions justifying the significant merits of using contract
personnel over EPA employees. As a result, contractor employees
performed as surrogate FTEs with their roles not always
distinguishable from that of the federal staff. Using contractor
employees to perform IGFs was a natural evolution from a
laboratory culture which apparently emphasized "science and
engineering research" at the expense of congressional, OMB, and
EPA legal and regulatory reguirements.
For example, contractor employees (AScI) assigned to the Center
for Exposure Assessment Modeling (CEAM) performed activities
which, in our opinion, were inherently governmental. The CEAM,
which consisted primarily of AScI employees, was initially
established to develop and modify computer models-designed to
predict the fate and transport of pollutants, and to provide
technical assistance to outside users of those models. CEAM's
functions were subsequently evolved into providing direct
assistance to RPMs on Superfund sites and other program offices.
To accomplish the CEAM mission, ERL-A staff was substantially
supported through the AScI contract. We were told that federal
FTEs were originally requested and would have been the preferred
source of needed expertise; however, because of established FTE
ceilings, the CEAM program had to rely heavily on the computer-
related and scientific expertise of contractor personnel.
TAI employees also performed inherently governmental activities
such as QA and health and safety. Overall responsibility for
performance of these activities was assigned to ERL-A staff.
However, because of increased work loads or other priorities,
ERL-A viewed QA and health and safety as "collateral1! duties and
delegated them to contractor employees. The performance of these
activities by TAI employees created a potential conflict-of-
interest situation where the contractor oversaw his own work, the
work of other contractors, and ERL-A.
12 See OIG Survey Report E1XMG2-04-0102-3400007, November 30,
1992, page 4, for additional discussion.
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inadequately Defined Work assignments/Statements OfWork Resulted
In Prohibited Contract Management Practices13
The POs for the AScI and TAI contracts prepared SOWs that did not
provide an adequate description of expected contractor activities
and acceptance criteria for deliverables or any other tool for
measuring the contractor's progress. These deficient .SOWs
permitted contractor .performance of virtually any activity
desired by ERL-A. As described above, the lack of adequate
contract definition contributed to contractor performance of
potentially IGFs, personal services relationships, and other
prohibited activities under the contract. Although CMD CDs
reviewed and approved.the SOW and WAs, CMD and ERL-A did not
attempt to correct deficiencies in these documents until after
the CMD/ORD contract management review (issued July. 1992} at ERL-
A.
The SOW and each WA should be the foundation of the work
performed under the contract. These documents identify the work
the contractor is legally obligated to perform, sets the.
boundaries within which the contractor must operate and provides
management tools for monitoring progress. These documents should
serve as a guide for both the contractor and ERL-A. However,
ERL-A's SOW and WAs for the TAI and AScI contracts did not
provide sufficient detail for contractor personnel to
independently perform the tasks being procured under the various
WAs. In addition, there was no acceptance criteria to enable the
WAMs to properly determine when an acceptable product or task was
completed. Such detail was not required by ERL-A management
since ERL-A staff were intimately involved in the day-to-day
performance of the contractor and its personnel. Further, the
work under these WAs primarily represented continuing support
rather than definite deliverables or products.
Inadequate Review and Acceptance of Contract Charges14
The ERL-A survey and subsequent audit work indicated that POs and
WAMs were not adequately reviewing contractor invoices to verify
that billed amounts were legitimate contract charges. ERL-A had
13 See OIG Survey Report E1XMG2-04-0102-3400007, November 30,
1992, page 17, for additional discussion.
14 See OIG Survey Report E1XMG2-04-0102-3400007, November 30,
1992, page 20, for additional discussion
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no independent record of contractor performance and relied
entirely on contractor supplied data/invoices to review and
approve invoices. In addition, the contractor's invoices were
inadequate for determining the propriety of contract charges.
This could have resulted in improper contract payments.
Under cost-reimbursable contracts the PO has the responsibility
to verify contractor invoices. At ERL-A, the PO stated that he
only performed a cursory review of the invoices. In addition,
since there were no WAMs in the past assigned to ERL-A contracts,
there was no independent review or monitoring of contractor work
to determine the appropriateness of contract charges. In our
opinion, the performance of only a cursory invoice review relates
directly to the close relationship that existed between ERL-A
managers and on-site contractors. Essentially no arms-length
transactions existed at the ERL-A laboratory. EPA managers
believed that they controlled the purchase and utilization of
labor hours, consultants, equipment and supplies under the
contracts. Therefore, ERL-A officials were less concerned with
the administrative review of contractor invoices. TAI and AScI
would only invoice them for what ERL-A managers directed the
contractors to do and purchase through the contract WAs.
CONCLUSION
Consultant use under contract should* be used solely for the
benefit of the contract and should be subjected to CMD review and
approval. By directing subcontracting under its on-site
contracts, ERL-A exceeded its authority and violated sound
procurement practices, as well as Agency contracting procedures.
Also, prohibited contract activities like personal services and
the contractor performance of IGFs should be avoided while
management controls over contractor performance improved.
While contracting for on-site services has created an increased
dependency on contractors for accomplishment of ERL-A1s mission,
it has also made the accomplishment of ERL-A's research more
complicated and increased the staff's administrative burden.
ERL-A was forced to use FTEs, hired primarily for their
scientific expertise, as practically full-time managers of on-
site contractors coupled with the. administrative responsibilities
dictated by contracting out essential on-site support. Unless
ERL-A obtains additional FTEs to perform the on-site scientific
and technical support work mandated by Congress, it will continue
to be placed in the dilemma of having to choose between achieving
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its mission through the improper utilization of contracts to
support on-site research or limiting the use of contract support
to comply with legal and regulatory requirements at the expense
of the mission.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Research"and
Development ensure significant improvements are made in ERL-A's
use and post-award management of contracts to ensure adherence'
with applicable statutes, regulations, and EPA policies.
Specifically, we recommend that the Assistant Administrator:
- Through ORD managers' performance standards and evaluations,
establish strict accountability for contract management in
compliance with regulations and contract terms. This should
include accountability for proper oversight and control of
laboratory extramural operations.
In addition, the Assistant .Administrator should require the:
Director. Environmental Processes and Effects Research to;
- Instruct ERL-A director to refrain from using on-site
contractors for directed subcontracting of consultants.
- Take necessary action to ensure that ERL-A contracts are
managed in accordance with regulations and Agency policies.
Specifically, the Director should:,
* Require ERL-A to submit a contract management plan
describing how contracts retained for on-site support will
be controlled to prevent improper contract activities
i.e., personal service relationships, directed
subcontracting, and contractor performance of inherently
governmental activities.
* Direct ERL-A to place available FTEs into the most
critical technical support positions .currently performed
by contractors which are determined.to be essential for
retention of Agency expertise or are inherently
governmental or personal services in nature. If
sufficient FTEs cannot be obtained to replace
contractors, either through staffing increases or
conversion of extramural funds, or the work cannot be
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moved off-site or performed on-site without a personal
services relationship, these positions and related tasks
should be eliminated.
- Perform periodic, on-site reviews, in conjunction with CMD, to
independently evaluate ERL-A's on-going use and management of
contracts. This should include a review of the overall
utilization of on-site contracts to eliminate contractor
performance of inherently governmental or personal services
which creates an over-dependence on incumbent contractors.
Recommendations to the Assistant Administratort__ Administration
and Resources Management
We recommend that the Assistant Administrator for Administration
and Resources Management ensure significant improvements are made
in the oversight of contract management. Specifically, the
Assistant Administrator should require the:
Directorf Office of Acquisition Management(QAM) to:
- Require CO approval for consulting expenditures Bunder contracts
and establish a policy of not authorizing after-the-fact
payments. CMD should ensure that proper approval is obtained
before consultant expenditures are made.
AGENCY RESPONSE AND OI6 EVALUATION OF AGENCY COMMENTS
ORD Response
ORD generally agreed with the findings and recommendations as
presented in Chapter 4. Corrective actions proposed by ORD
appear responsive to our recommendations and, therefore, fulfill
the acceptable action criteria of EPA Order 2750. ORD's comments
and OIG's evaluation on Chapter 4's recommendations are detailed
in Appendix I.
QAM Response
OAM generally agreed with our findings and recommendations
related to the splitting of the AScI contracts, and ERL-A's
misuse of contractor activities. However, OAM took exception to
our findings regarding ERL-A's abuse of the contracting process
as relates to the TAI's contracts. Specifically, OAM objected to
our conclusion that ERL-A exploited 8(a) procurements to retain
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TAI as a favored contractor and later biased a competitive
procurement in favor of TAI.
According to 0AM, standard practice within EPA and SBA was to
award consecutive sole-source 8 (a) contracts to firms that
remained certified under the 8(a) program. OAM contends that
during the period FY 1981 through FY 1989, the 8(a) program, did
not contain any provision for competition among disadvantaged
firms in civilian agencies. According to OAM, prior to FY 1990,
congressional legislation required agencies to support national
socioeconomic goals for diversity in the marketplace by utilizing
noncompetitive 8(a) contracts [the only 8(a) mode available]
wherever feasible. If EPA had decided to compete the TAI
services, OAM contends that 'it would have had to do so outside
the 8(a) program. Thus, in OAM's opinion, there was not a
potential violation of the intent of the Small Business Act and
CICA when TAI was repetitively retained under sole-source 8(a)
contracts.
Although the FAR provides a specific exception from competition
for 8(a) contracts, we know of no policy, regulation, or statute
that precluded competitive 8(a) contracts prior to~1988. In fact
the 1984 CICA encouraged competitive awards among socially and
economically disadvantaged small business concerns. OAM
apparently assumes that because 8(a) has a special exemption from
competition, only sole-source 8(a) contracts could have been
awarded. This assumption is not supported by any written policy,
regulation, or statute that we are aware of and OAM did not
identify any official written policy in this regard. Based our
examination of the Small Business Act's legislative history, the
exemption from competition was primarily for new 8(a) firms to
gain entrance to the marketplace. It was not intended to
continue repetitive sole-source contracts to established 8(a)
firms that had developed a competitive edge. It is.apparent that
Congress intended that some competition exist in the 8(a) program
prior to 1988. Congressional concern for lack of competition
between 8(a) firms prompted the 1988 amendments which required
the competing of 8(a) awards in excess of $3 million.
OAM's response also implies that EPA and SBA had established a
"standard" practice of awarding consecutive sole-source 8(a)
contracts to firms that remained certified under the 8(a)
program. However, OAM provided no written policy or reference to
support this position. In any case, FAR 19.811(b) states
agencies, not SBA, determine the type of contract award to the
8(a) firm. If EPA has allowed SBA to dictate the types of 8(a)
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contract awards, then it has improperly ceded its authority to
SBA.
OAM also disagreed with our finding that modifications 7 and 16
to the third TAX contract represented a substantial change in the
size and scope of the contract which further abused the 8(a)
program by avoiding competition and extending the contract period
20 months past TAI's graduation from the 8 (a) program. While OAM
agreed that both modifications did significantly increase the
size of the contract, it disagreed that the modifications
violated any provisions of the 8 (a) program as it existed at the
time the contract was modified. OAM also took exception to our
position that ERL-A improperly removed its technical support
contract from the 8 (a) program. OAM states that CMD reclassified
the contract because the size of the contract was such that it
was deemed too large for available 8 (a} firms and was not
suitable for the 8 (a) program. The only known 8 (a) firm that
might have potential to perform the requirement was AScI, an 8 (a)
contractor which already had similar contracts at Athens. OAM
maintains that 8 (a) requirements do not dictate that contracts
automatically stay in the 8 (a) program after an incumbent
graduates. However, OAM conceded that last minute, extensions of
8(a) contracts under sole-source 8(a) procedures just prior to
the expiration of the 8(a) firm's eligibility was not good
business practice and CMD would no longer allow it.
OAM's response correctly states that modification 7 to TAI's
third sole-source contract increased the contract's LOE by 50
percent; however, it fails to mention that modification 16
increased the LOE over 200 percent. This 1986 contract was
originally estimated at a cost of $2.6 million; however, at the
expiration of the contract the maximum value had grown, through
modifications to over $6.6 million, a 300 percent increase over
the original estimated cost. Also, contractor staff had gone
from 6 staff years under TAI's second contract to 31 staff years
under this third contract ( a 500 percent increase), the contract
was extended to five years, and the contract support had expanded
from support of one branch at ERL-A to support of all four ERL-A
branches. If this is not a change in contract scope, then CICA
restrictions on contract modifications to contract scopes without
competition are essentially meaningless. We believe these large
contract modifications to TAI's third sole-source 8(a) contract
constituted a change in scope under the CICA and that CMD should
have given some consideration to recompeting the contract.
Finally, OAM took exception to our contention that ERL-A used
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biased technical evaluation ranking factors which gave TAI a
competitive advantage and that the AScI proposal was a token
submission. OAM concludes that its file reviews did not reveal
any bias or unfair consideration in the RFP. In OAM's opinion,
the SOW represented the government' s minimum need for support
services at the Athens laboratory and the related technical
evaluation criteria placed the most weight on the decisive
requirement for successful contract performance, e.g., the
qualifications of dedicated staff located at ERL-A. According to
OAM, our interpretation of a lack of resolve on the part of AScI
represents only a weaknesses of a small 8 (a) firm not accustomed
to the competitive arena. Overall, OAM contends that the
solicitation process and award selection were conducted in
accordance with the precepts of FAR 15 and EPAAR 1515. However,
OAM did conclude that better evaluation measures must be found to
avoid prolonged incumbency by one firm at any given laboratory,
particularly for on-site contracts, where the advaritage of
incumbency is difficult to offset.
We maintain that ERL-A and CMD could have retained the contract
in the 8 (a) program if they had so desired. If the scope of the
contract in its form at that time was to large for"B(a) firms,
they could have split up the scope into smaller contracts to
allow 8 (a) firms to compete for the work. In fact, file
documentation evidences that ERL-A requested that the contract be
taken out of the 8 (a) program so that TAI would have a chance to
compete for the contract. The size of the contract scope was
only a secondary consideration which could have been solved by
breaking up the contract into smaller tasks.. Also, the fact
that ERL-A and CMD considered an existing 8(a) firm's bid for the
contract in the competitive range indicates that the
justification "of for large business only" was weak. AScI
received a substantially high technical score and the score was
not affected by the size of the contract versus AScI's status as
an 8(a) contractor.
OAM also maintains that there was no bias in the competitive
award to TAI but later states that they are trying to eliminate
the inherent bias in EPA's competitive procedures that favor
incumbent contractors. OAM goes to great lengths to justify the
need for personnel commitment letters and emphasis placed on
contractor experience with EPA operations in the competitive
award process; however, the perceived need for such evaluation
factors does not eliminate the large competitive edge such
factors give to incumbent contractors; thereby, substantially
discouraging competition.
\
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In conclusion, it was OIG's intention that TAI's contract awards
be viewed as a whole or as a trend to show ERL-A's avoidance of
full and open competition in order to ensure retention of TAI as
the on-site contractor. It was not intended that each individual
procurement be analyzed as to whether the procurement, in and of
itself, was proper and in compliance with policy and procedures.
In addition, repetitive sole-source awards to an 8(a) contractor
who has developed the expertise to compete does not further or
promote the mission of the 8(a) program to develop the 8(a)
contractor's competitive edge. It only reduces the Agency's
administrative burden in competing the contracts.
Except as discussed above, OAM generally agreed with the findings
and recommendations as presented in Chapter 4. OAM's response
included planned or initiated actions for some recommendations.
OAM's comments and OIG's evaluation on Chapter 4's
recommendations are detailed in Appendix I. A complete copy of
OAM's response to Chapter 4 and OIG's evaluation is available
upon request.
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CIRCUMVENTION OF STATUTORY AND REGULATORY
REQUIREMENTS EXTENDED INTO USES OF
INTRAMURAL RESOURCES
Our review of extramural resource management at EEL-A also
disclosed questionable uses of intramural resources and a
potential violation of appropriation law restrictions. These
questionable actions related to the improper acquisition and
construction of an office building with S&E appropriated funds
and Superfund monies and the payment of excessive travel costs.
The building was obtained through a fiscal year-end contract
award. These questionable uses of intramural resources indicated
that the circumvention of laws and regulations and misuse-of
resources was not restricted to extramural funds.
THE ACQUISITION AND CONSTRUCTION OF AN ERL-A OFFICE BUILDING WITH
SSE FUNDS AND SUPERFUND MONIES VIOLATED AGENCY PROCEDURES AND
APPROPRIATIONS LAWS
Appropriations laws and Agency restrictions on construction .and
acquisition of buildings with S&E funds were circumvented by the
purchase of a modular office building which was improperly
classified as personal property rather than real property. At
the end of FY 1988, ERL-A obligated $201,817 ($170,617 in
expiring FY 1988 S&E appropriated funds and $31,200 in Superfund
monies) to purchase, through a CMD year-end contract award, a
5,320 (70 feet by 76 feet) square foot modular building. In FY
1989, the structure was transported to ERL-A in five sections and
assembled on-site. With incidental installation costs of
$2,770, the total cost of. the construction totalled $204,587.
t
According to ERL-A managers, .prior to initiating its procurement
request on July 26, 1988, ERL-A contacted the Facilities
Management and Services Division (FMSD), Engineering, Planning,
and Architecture Branch (EPAB), Washington and the FMSD, Personal
Property and Supply Management Branch, Cincinnati to determine if
an office building qualified as personal or real property. While
we could not locate documented evidence of these contacts in ERL-
A files, ERL-A managers remembered that both offices stated that
the purchase would be considered personal property.
CMD files evidenced that on August 8, 1988, the CO contacted the
Chief of FMSD's EPAB about the acquisition of the portable
building for ERL-A. The CO faxed a copy of the building's
specifications for EPAB's review. In response, the EPAB Chief
told the CO that ERL-A did have the authority to purchase such
modules without EPAB oversight and without the use of EPAB (e.g.,
Buildings and Facilities Appropriation) funds. Based on FMSD's
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response and its previous designation of "portable" buildings as
personal property, the CO concluded in the August 8 memorandum
that the acquisition and award of the contract for this building
using S&E and Superfund monies was appropriate. The CO indicated
in the memorandum to the file that the Chief, EPAB was
subsequently apprised of the proposed acquisition but the Chief
provided no further response.
In FY 1989, the modular building was delivered to ERL-A and
permanently mounted on numerous concrete pillars next to ERL-A's
other facilities. The buildings floor plan and an exterior
photograph are shown below:
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As shown, this building did not appear to be any more readily
transportable than other ERL-A buildings constructed by more
conventional methods. The building, like a permanent building,
has electricity, heating/cooling units and water/sewer hookups.
Historically, Comptroller General decisions have ruled that such
modular buildings represent major construction projects or, at a
minimum, major acquisitions of real property. For example,
Comptroller General Decision B-235086 stated the following
concerning the acquisition of modular buildings by the Forest .
Service which were initially classified as transportable personal
property:
Congress provided the Forest Service with a specific
appropriation in fiscal year"1984 for the construction
and acquisition of buildings and other facilities.
...In fiscal year 1984, the Forest Service used the
more general National Forest system appropriation to
acquire three modular constructed buildings.
Generally, an appropriation for a specific object is
available for that object to the exclusion of a more
general appropriation. 65 Comp. Gen. 881, 884 (1986).
The existence'of a specific appropriation for the
construction and acquisition of a building would thus
preclude the Forest Service from using a more general
appropriation to pay for such a purchase.
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Here, each building was permanently installed and cost
more than .$100,000. Thus, we think it reasonable to
classify them as major construction projects. See 63 .
Comp. Gen. 422, 435 (1984). However, even if we did
not consider them "construction" projects, we would
nevertheless consider them "acquisitions" for purposes
of Pub. L. No.98-146. Therefore, since Congress
provided a specific appropriation for the "construction
and acquisition" of buildings, the Forest Service
improperly used the more general appropriation to
purchase buildings.
As in the Forest Service case above, EPA has a specific
appropriation for the construction and acquisitions of buildings
- the FY 1988 Buildings and Facilities Appropriation (Public Law
100-404) . In addition, the FY 1988 S&E Appropriation (Public Law
100-404) contained the following restrictive provisions for the
use of the S&E appropriation for construction and alteration of
facilities:
For necessary expenses, not otherwise provided for,
including... construction, alteration, repair,-
rehabilitation, and renovation of facilities, not to
exceed $25.000 per project...[emphasis added].
The 1988 Appropriations Act (P.L. 100-404) did not provide for
any utilization of Superfund money to purchase real property.
An ORD memorandum, dated November 10, 1987, to all laboratories
reminded laboratory managers that laboratory directors only have
the authority to charge B&F (Building and Facilities) items under
$5,000 to the S&E appropriation and:
B&F items which cost between $5,000 and $25,000 require
prior approval of the Facilities Management and
Services Division. Any item exceeding $25,000 must be
charged to the B&F appropriation.
Based on the size and permanent nature of this building and the
Comptroller General decisions regarding similar acquisitions, we
question the advice apparently provided by FMSD. In our opinion,
the acquisition of a 5,320 square foot modular building costing
in excess of $200,000, using "portability" as the justification,
violated Agency appropriation restrictions. CMD awarded this
contract on September 30, 1988 one day before the S&E
appropriation was due to expire.
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PotentialViolations of Appropriation Restrictions
This questionable use of S&E and Superfund monies for the
purchase of a modular building represented only one of at least
four instances of potential violations/circumvention of
appropriations lavs found during our audit of ERL-A extramural
resource management. In Chapter 3, R&D appropriated funds were
misused to fund, through CAs, the development of an ERL-A on-site
child-care center and the attainment of a Phd for an EPA
employee. These actions appeared to violate the purpose and
authorities contained in the applicable R&D appropriations.' In
another case in Chapter 3, extramural R&D funds were exchanged
through reciprocating lAGs with another federal agency to fund
intramural travel of employees working on a common project. This
situation again appeared to violate the purpose of the R&D
appropriation since S&E appropriated funds should be used for EPA
staff travel. At a minimum, we believe this represented
unauthorized reprogramming of extramural funds to intramural
uses. In conclusion, such circumventions of appropriation
restrictions usurp congressional oversight of Agency funding and
bypass Agency, as well, as congressional and OMB budgetary and
fund controls. • "
ERL-A USED PURCHASE ORDERS TO CIRCUMVENT FEDERAL TRAVEL
REGULATIONS AND MAXIMUM PER DIEM RATES
Through use of purchase orders, ERL-A circumvented travel
regulations and authorized per diem rates in order to hold
conferences at high cost Georgia resort areas at St. Simon's
Island and Callaway Gardens. For example, ERL-A sponsored a
"2-day" laboratory directors meeting (May 28 to May 30, 1991) at
a high-cost resort hotel on St. Simon's Island. ERL-A used a
purchase order to pay for accommodations, some meals and
refreshments. In documentation, dated April 2, 1991, entitled
"Justification For Other Than Full and Open Competition" attached
to the purchase order; the ERL-A director stated:
...this meeting requires uninterrupted time and
attention of attendees. Therefore, a meeting place
'other than EPA premises is needed.
ERL-A documentation indicated that only hotels and resorts on St.
Simon's^had been contacted and the King and Prince Hotel was
selected because the "... suggested source was the only one in the
area [emphasis added] with available rooms." This was used as
the basic justification for the sole-source purchase. However,
no evidence existed that ERL-A had checked lower cost areas such
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as Athens, Georgia (near the laboratory) or nearby Atlanta,
Georgia.
As stated above, ERL-A elected to pay for hotel accommodations
and some meals and refreshments with a purchase order rather than
having attendees claim the costs on individual travel vouchers.
However, attendees were issued individual travel authorizations
(TAs) and they claimed airfare, mileage, and other subsistence
and incidental costs associated with the St. Simon's conference.
By using the purchase order/invoice payment method, ERL-A was
able to circumvent the maximum per diem limits allowed by travel
regulations for the St. Simon's area. Based on our calculations,
ORD paid almost $1,750 in excess of the total maximum authorized
per diem (150 percent of authorized per diem for St. Simon's
area) for the "2-day conference" at St. Simon's. If the
conference had been conducted off-site in Athens (the nearest
location with adequate hotel facilities), ORD could have saved
almost $3,500 over the total travel cost for the St. Simon's
conference. In addition, ERL-A authorized and paid for
additional travel time/costs (some attendees arrived early, some
late, and some came all the way from the West coast" just for a
2-day meeting which included travel time) for the traveler's own
convenience and separately paid $436.16 for refreshments at
breaks which is not permitted. These types of abuses of
government funds can subject EPA to public criticism and erosion
of public trust.
ERL-A used another purchase order to exceed maximum per diem for
a three-day meeting at the Callaway Gardens resort. ERL-A
contacted only three facilities for comparative conference room
and guest room rates. Two of these facilities were high priced
resorts in the Atlanta vicinity (Lake Lanier Islands -
$105/night and Stone Mountain - $189/night) and the other was
Callaway Gardens ($92.50/night).
Based on this limited survey of high cost resorts, ERL-A selected
Callaway Gardens for a sole-source procurement because of "cost
and availability of lodging and conference facilities." There
are many large, convention center type hotels in the Atlanta
vicinity where rooms and facilities can be obtained at prices
below the $79 per day authorized lodging rate for Atlanta. None
of these hotels were contacted by ERL-A.
The Callaway Gardens conference took place just one week before
the St. Simon's trip discussed above. The authorized lodging
rate for the Callaway Garden area was $40 per day. However,
through the purchase order, ERL-A paid $92.50 a night for 35
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individuals including OEPER personnel. The rooms at Callaway
Gardens were used from May 18 through May 21, 1991, for a total
of 94 lodging nights. When compared to the authorized rate of
$40 per diem, this purchase was $4,935 in excess of total
authorized per diem. Even using the maximum authorized lodging
rate (150 percent of authorized rate or $60 per day) excessive
travel of $3,055 was incurred for this conference. In addition,
the Callaway Gardens invoice submitted with the purchase order
for payment included a $3,146 supplemental charge on the invoice
described only as "Environmental." ERL-A could produce no
supporting documentation or explain the purpose of this
expenditure. During.processing of the Callaway Gardens invoice,
a financial technician at the Commodities Payment Section,
Research Triangle Park, wrote ERL-A:
Invoiced as received does not provide information we
can use to match what you authorized on the purchase
order against what they are charging us. Will you
approve payment as billed or should we return the
invoice to the vendor.
On July 8, 1991, ERL-A instructed the technician to "Pay the
invoice as billed." On July 16, 1991, the ERL-A Laboratory
Director signed a statement found in ERL-A files which certified:
... all charges were appropriate and necessary to
accomplish the goals set for the Ecological Risk
Assessment Research Program Science Advisory Board
Review. Therefore, I authorize payment of this
purchase order. '
According to ERL-A files, the Callaway conference package at
$92.50 per night included many complimentary items such as free
admission to the Gardens park. However, other features of the
package included breakfast and dinner, a prime rib banquet, daily
greens (golfing) fees, etc., which may account for the $3,146
additional charge on the invoice.
We question whether paying excess lodging, totaling at least
$3,055, at a resort area within 90 minutes of Atlanta and its
available facilities (per diem lodging rate of $79 per day) ; and
an unexplained invoiced charge of $3,146 was either appropriate
or necessary.
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RECOMMENDATIONS
We recommend that the Assistant Administrator for Research and
Development:
- Provide guidance to ERL-A concerning appropriation law, proper
uses of funds, and appropriation restrictions related to funds
ERL-A receives.
- Obtain formal, written OGC legal opinions concerning:
(1) potential appropriation law violations related to ERL-A1s
use of S&E and Superfund monies to purchase and construct a
modular building; and (2) use of R&D funds to pay for
development of a day-care center for ERL-A staff and training
costs of an EPA employee (see Chapter 3). If any violations
occurred, report any resulting Anti-deficiency Act violations
in accordance with applicable law.
- Instruct ERL-A to refrain from using purchase orders to
circumvent maximum per diem rates and strictly comply with
federal travel regulations in the authorization and payment of
all travel costs.
- Instruct ERL-A to hold future conferences in locations that
offer suitable accommodations at the least cost to the
government and that comply with current EPA guidance on
restricting EPA meetings at resort areas.
- Require ERL-A to provide supporting documentation and
justification for the unidentified $3,146 charge on the
purchase order for the Callaway Gardens conference, instruct
ERL-A that future purchase order costs should be fully
justified in the purchase request and properly supported by
file documentation and invoices.
We also recommend that the Assistant Administrator for
Administration and Resources Management require the:
Director. Facilities and Management Services Division to:
- Review FMSD's policies on classification of real property
versus personal property as relates to the procurement of
modular structures and the proper funding for such structures.
If needed, issue revised or more definitive guidance on the
classification and funding of modular buildings.
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AGENCY RESPONSE AND PIG EVALUATION OF AGENCY COMMENTS
T
ORD Response
ORD generally agreed with the findings and recommendations as
presented in Chapter 5. Corrective actions proposed by ORD are
responsive to our recommendations and appear to fulfill the
acceptable action criteria of EPA Order 2750. ORD's comments and
OIG's evaluation on all Chapter 5's recommendations are detailed
in Appendix I.
0AM Response
OAM comments are no longer germane because the audit report was
changed in accordance with those comments. Neither OARM or OAM
responded to. our audit recommendation for the Director, PMSD.
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CHAPTER 6
ERL-A'S FMFIA PROCESS DID NOT ENSURE PROPER CONTROL
OVER EXTRAMURAL RESOURCE MANAGEMENT
ERL-A's FMFIA process did not adequately identify internal •
control weaknesses or ensure proper implementation of FMFIA
control objectives and techniques relative to the management of
contracts, CAs, lAGs and other support/administrative activities
that came to our attention during the audit. Many material
control weaknesses in ERL-A's extramural resource and
administrative activities were not previously identified in
ERL-A's FMFIA risk assessments. In addition, ERL-A had not
adequately assessed control techniques to ensure proper
implementation by management staff. Critical control techniques
identified in ERL-A's FMFIA documentation were either not
implemented or improperly implemented by ERL-A management. As a
result, there was insufficient assurance that Agency resources
were safeguarded against waste, fraud, abuse, and conflicts of
interest. Because many of ERL-A's extramural activities were of
a mission-critical nature, proper control of the extramural 'and
administrative operations were essential to the integrity of the
Agency's programs.
BACKGROUND
The Federal Managers' Financial Integrity Act (FMFIA) of 1982
requires that each executive agency establish internal accounting
and administrative controls in accordance with standards
prescribed by the Comptroller General. FMFIA specifies that
these controls are to provide reasonable assurance that agencies'
obligations and costs comply with applicable law; that Government
assets are safeguarded against waste, loss, unauthorized use, and
misappropriation; and that•revenues and expenditures are properly
accounted for and recorded for proper reporting and
accountability purposes.
OMB Circular A-123 and EPA Resources Management Directive 2560
prescribe the policies.and procedures for Agency implementation
of FMFIA requirements. ERL-A has been designated as an
assessable unit under EPA procedures. The FMFIA process for each
assessable unit consists of the following events: (1) risk
assessments every three years to identify vulnerable operations,
(2) a Management Control Plan (MCP) every five years which
details event cycles, control objectives and techniques, and
(3) Internal Control Reviews (ICR) and Alternate Internal Control
Reviews (AICR) annually. In addition, each EPA program manager
is responsible for periodically evaluating the internal control
systems in place and taking action to correct identified
weaknesses.
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ERL-A'S REVIEWS OF EXTRAMURAL RESOURCE MANAGEMENT WERE
INSUFFICIENT TO ENSURE ATTAINMENT OF FMFIA CONTROL OBJECTIVES
Although extramural resource management was identified by ORD as
a material weakness, no internal control reviews were conducted
by ERL-A to determine whether internal control responsibilities
were adequately defined and internal controls techniques were
properly implemented to meet its extramural control objectives.
CAs and on-site LOE contracts provided great flexibility to
program offices, but provided little incentive for efficiency and
placed a large oversight burden on EPA management to assure
performance. In addition, cooperative agreements and on-site
contracts were highly susceptible to favoritism and COI
situations. Considering the high risk nature and ERL-A's heavy
reliance on extramural resources in achieving the mission of the
laboratory, management should have ensured that an adequate
system of internal controls was established. However, ERL-A's
extramural resource management controls were not adequate or
effective in fulfilling this large oversight responsibility and
ensuring that extramural activities were needed and represented
the most cost-effective approach. In addition, ERE-A management
did not periodically evaluate implementation of established FMFIA
controls as related to extramural resource management as required
by EPA guidance. These conditions lead to the internal control
weaknesses in extramural resource management identified in this
and other chapters of this report.
ERL-A's internal Control Reviews Did Not identify Major Internal
Control Weaknesses
Although ORD in its 1990 and 1991 FMFIA internal control reviews
identified the management of extramural resources as a
presidential-level weakness, extramural management was not
identified as a material weakness at ERL-A. ORD reported in its
1990 FMFIA report:
... that there is a serious disparity between growth in
R&D funding and human resources available to manage the
resources properly. This imbalance may make ORD
vulnerable to fraud, .waste and mismanagement of funds.
ERL-A's internal control coordinator stated that at the time of
their 1991 FMFIA report, ERL-A did not see extramural management
as a material weakness, although no formal reviews were conducted
to verify their assumptions. As a result, many of the
deficiencies in ERL-A's extramural resource management identified
in this report went undetected and uncorrected.
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According to the EPA's Senior Council on Management "Controls, the
failure to identify previously reported Agency-wide weaknesses at
the assessable unit level was not uncommon. A synopsis of an
August 15, 1990, meeting of the Senior Council on Management
Controls recognized an inherent problem of Agency managers not
adequately identifying their internal.control weaknesses. EPA's
Deputy Administrator stated that "EPA must work to change the
culture not to hide weaknesses." A GAO representative at the .
meeting further defined the problem when he stated:
Internal controls and financial management systems are
... treated as paperwork exercise {and}... often
delegated to lower levels without senior management
involvement or understanding.
GAO also concluded, even when material weaknesses are identified
at the Agency level:
EPA program offices do not typically report these kinds
of fundamental problems as material weaknesses, but as
agency-wide weaknesses, which seem to be some sort of.
lesser problem that does not need to be brought to the
attention of the President and the Congress.
At ERL-A we found the same situation as identified by the Senior
Council on Management Controls. ORD identified extramural
resource management as a material weakness at the Agency level,
but ERL-A managers did not deem extramural resource management a
priority at the field,level. The identification of material
weaknesses as related to extramural resources was seen by ERL-A
as a responsibility of ORD, CMD, and GAD. In spite of their
reliance on external review, the Agency's FMFIA guidance states:
All EPA managers are responsible for operating
effective and efficient systems of internal control.
Periodically they must evaluate the internal control
systems and take actions to correct identified
weaknesses. . .
In our discussions with ERL-A management, it became evident that
many of the established controls over the management of
extramural resources were often viewed by laboratory management
as a bureaucratic hindrance. Achieving the ERL-A's mission of
research was deemed more important than working within the
constraints imposed upon them. 'The 1990 Lab Directors Retreat's
Resource Utilization Workgroup addressed the difficulty of
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working within resource limitations and regulatory constraints.
For instance, topics discussed at the retreat included:
- Congressional, OMB and EPA constraints on use of
resources make it more difficult to do quality science
and engineering research.
- Innovative uses of R&D [funds] to enhance in-house
research, facilities and skill mix are being used by
Laboratories in spite of the system.
The innovative use of R&D funds "in spite of the system" was in
essence the circumvention of internal controls as they related to
the use of extramural resources. The apparent attitude of ERL-A
management that the end justifies the means subsequently
contributed to the abuses detailed in previous chapters of this
report.
Internal Control Responsibilities Were Not Adequately Defined
Internal control responsibilities were not adequately defined at
all levels of extramural resource management. Specific FMFIA
requirements were not included in the performance standards of
all managerial levels and managers did not understand the
importance of the part they played in the internal control
system. This facilitated inadequate implementation of an
effective internal control system over ERL-A's extramural
resource management.
At ERL-A, extramural resource managers from the director down to
the PO and WAM level have an integral role in the Agency's
adherence to FMFIA. However, specific FMFIA requirements and
responsibilities were not included in PO and WAM performance
standards. Inadequate extramural resource oversight at these
management levels could produce material weaknesses in the
internal control system. OMB circular A-123 and EPA Resources
Management Directive 2560 require that each Senior Executive
Service, Merit Pay and any other employee with significant
internal control responsibilities maintain written performance
agreements against which a manager's internal control performance
can be recognized and evaluated. The performance agreement
should outline specific internal control responsibilities and
establish performance standards which are specific to the
employee under evaluation. In order to assure a viable,
effective internal control system, all levels of contract or
assistance management should have specific control
responsibilities defined in their performance standards.
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INTERNAL CONTROLS OVER EXTRAMURAL MANAGEMENT INEFFECTIVE
ERL-A's heavy reliance upon extramural resource activities to
achieve its mission and the vulnerability of many of ERL-A's
extramural activities to fraud, waste and mismanagement,
necessitated the need for extensive internal controls and reviews
to assure proper implementation of an effective internal control
system. However, ERL-A managers did not effectively utilize
available resources to design and implement an effective system
of internal controls. As a result, the procurement process was
abused, extramural agreements and intramural resources were
misused and mismanaged, and prohibited contract activities
developed. These conditions were previously reported in Chapters
2, 3, 4, and 5.
ERL-A DidNot Properly Document critical Event Cycles. Control.
Objectives and-Control Techniques
ERL-A managers did not identify all critical event cycles,
control objectives, and control techniques for the management of
extramural activities. ERL-A also did not properly follow
through and systematically test whether established internal
controls were adequate or functioning. In order to certify as to
the adequacy of event cycle documentation and controls, Agency
FMFIA guidance in Resources and Management Directive 2560
requires that these controls be systematically tested. If ERL-A
officials had systematically reviewed its existing internal
control documentation for extramural management, they would have
found that event cycles, control objectives and control
techniques were insufficient to permit a conclusion as to the
adequacy of internal controls. Without adequate and detailed
event cycle documentation, ERL-A's FMFIA process became merely a
"paper exercise".
As a result of identifying extramural management as a material
weakness in its 1990 FMFIA report, ORD contracted in early 1991
for a review of its administrative processes and internal
controls. The review objective was to assist laboratories in
meeting their FMFIA event cycle documentation requirements. The
review produced four studies which listed extensive control
objectives and control techniques for all levels of contract, CA,
and IAG administration including ORD Headquarters, CMD, GAD, and
individual laboratories. In transmitting these contractor reports
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to the laboratories, ORD's Director of the Office of Research
Program Management, stated:
It is expected that individual offices and laboratories
may use this report to evaluate and refine their
internal controls documentation and to identify
opportunities for improvement... Accordingly, the
report is not intended to be a standard procedures
manual for adoption by all laboratories, nor a
compilation of all the variations in procedures.
However, ERL-A did not utilize these documents to refine and
strengthen their event cycle documentation and control techniques
as suggested, but merely referenced these documents as examples
of detailed control techniques. These documents contain
extensive listings of control techniques for all levels of
contract, CA, and IAG management and many would not apply to
ERL-A's operations. In addition, this documentation by reference
was in direct contradiction of the Director's statement that the
"report is not intended to be a standard procedures manual".
Therefore, ERL-A did not establish realistic, detailed FMFIA
documentation or test ERL-A's internal controls related to its
management of extramural resources. ERL-A's FMFIA process
primarily remained "a paper exercise."
Contract Procurement and Management
Pre-award contract management or procurement related to planning,
requesting, evaluating proposals, and awarding of contracts was
omitted from ERL-A's FMFIA event cycles. ERL-A did include some
control objectives and techniques in their FMFIA documentation
related to post-award contract administration. These objectives
and controls were either superficial, inadequate, or not properly
implemented to preclude abuse, misuse, or mismanagement of
extramural resources.
Pre—Award Contract Management
As previously stated, ERL-A's FMFIA process did not. document the
pre-award process or control objectives/technigues for this
highly vulnerable process. Our audit disclosed that this process
was substantially abused by ERL-A (see Chapter 4). The 1991
FMFIA documentation produced by the Procurement and Contracts
Management Division (PCMD) listed the following control
objectives and control techniques for its pre-award process.
None of these critical control techniques had been documented or
implemented by ERL-A.
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Control Objective
To obtain maximum competition.
Impartial and comprehensive
evaluation of proposals.
Control Techniques (Examples)
-Adherence to EPAAR1.
-Review of RFPs one level
above CO.
-Acquisition Plan for RFPs
approved by Competition
Advocate.
-Adherence to EPAAR.
-Acquisitions over $5 million
require 3 member TEPs.
-All TEP members must be
appointed by Source Selection
Official.
-TEPs must certify to no COIs.
As previously stated in Chapter 4, ERLrA officials did not act in
the best interest of the Agency by maximizing full and open
competition. To ensure that favored, incumbent contractors and
their employees were retained, ERL-A: (1) abused 8 (a) set-asides
to guarantee repetitive sole-source procurements and (2) biased a
competitive procurement when 8 (a) eligibility expired. ERL-A's
circumvention and avoidance of competition did not guarantee that
the Agency received the best services.at the least cost, created
an atmosphere where contractors were reluctant to submit
proposals against incumbent contractors, created a potential
contractor monopoly over critical laboratory operations, and
increased EPA's vulnerability to extramural support for
accomplishing the ERL-A's mission.
In conclusion, ERL-A's pre-award process contradicted sound
contracting practices and compromised any control objectives that
could have been documented for this process.
Contract Administration
ERL-A did document certain event cycles and related control
objectives/techniques for overall or post-award contract
management. " Event cycles, included PO and WAM certifications as
to required experience and training, contract monitoring and
review, contract payments, and contract close-out. However, our
review disclosed that many of the controls identified were either
1 EPA Acquisition Regulations.
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insufficient to preclude improper actions or were ineffectively
implemented.
PO/WAM Oualif ications; Controls to ensure that POs and WAMs had
sufficient contract management and technical expertise to
properly manage the contract were not effective. Although
ERL-A's designated POs and WAMs had received the basic, required
contract management courses, their experience was inadequate for
the level of contract management responsibility delegated to
these positions. In some cases, the POs technical ability was
also inadequate for contract monitoring. In one case, the
(former) PO for an on-site technical support contractor was on
the laboratory's administrative staff and did not possess the
scientific or technical background necessary to monitor the
contractor's operations. Lack of contract management expertise
contributed to numerous deficiencies in SOW and WA preparation
and oversight. These problems were detailed in OIG's Survey
Report E1XMG2-04-0102-3400007 on ERL-A's contract management
operations, issued November 30, 1992.
In addition, ERL-A employees were performing contract management
functions without proper certification or delegation of
authority. This primarily involved EPA employee oversight of
contractor employees in prohibited personal services
relationships.
Contract Compliancet Neither ERL-A or CMD provided sufficient
resources to properly manage contracts and ensure compliance with
contract terms and conditions. Because of insufficient CMD
resources, many contract management duties had been effectively
delegated to ERL-A management who had no contract authority.
Also, the CO and PO did not adequately review all of SOWs and WAs
before approval or ensure that deficiencies noted in those
reviewed were corrected. As a result, prohibited personal
services relationships developed, contractors performed
potentially inherently governmental functions, and work was
performed outside the SOW. Details of these deficiencies were
presented in DIG Survey Report E1XMG2-04-0102-3400007, issued
November 30, 1992.
Invoice Review and Approval: Internal controls over the review
and approval of contractor invoices were not properly
implemented. As a result, improper contractor charges were paid
without question. ERL-A control techniques did identify the
requirement for the PO to review contractor invoices for
compliance with contract terms; however, only limited invoice
reviews were being conducted. Contractors did not provide
sufficient detail in their invoices for proper verification of
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charges and services received by ERL-A. Details of this problem
were included in OIG Survey Report E1XMG2-04-0102-3400007, issued
November 30, 1992.
Cooperative Agreement Management
Event cycles for CA award and administration were, totally .
excluded from ERL-A's FMFIA documentation until July 26, 1991.
ERL-A's FY 1991 event cycle documentation included a reference to
ORD.'s contractor report on CA controls, entitled "Documentation
of Administrative Processes/Internal Controls of Administrative
Processes/Internal Controls of Cooperative Agreements." As
previously discussed, this contractor report contained an
extensive list of possible CA controls for all levels of CA
management. ORD specifically informed laboratories that the
report was not to be used in its entirety in place of detailed
FMFIA documentation but merely as a guide in tailoring control
plans ,to individual laboratory needs. Therefore, ERL-A still has
not prepared detailed control techniques for CA activities at
ERL-A. Also, ERL-A's FMFIA process did not establish the
detailed documentation necessary to permit the
testing/verification of ERL-A's internal control processes
related to CAs.
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Below are examples of control objectives and techniques from
GAD's FMFIA documentation for CAs that should have been included
in ERL-A's control processes.
Control Objectives
Award CAs in compliance with
laws, regulations, policies.
Obtain maximum competition in
CA awards.
Assure project progress,
compliance, and timely,
accurate reporting.
Control Techniques (examples)
-Oversight of review and
approval process.
-Compliance with FGCA Act.
-Eligibility of recipient.
-Indirect cost-rate approval,
-Proper cost-sharing.
-Compliance with 1977 FGCA
Act.
-ORD Policy.
-Needs specified in form that
permits maximum competition.
-Properly maintain CA files.
-Monitoring compliance (site
visits).
-Obtaining and reviewing
progress and financial
reports.
However, ERL-A did not properly document CA event cycles and
controls and, as reported in Chapter 3, this contributed to the
misuse, abuse, and mismanagement of CAs. ERL-A circumvented
statutory requirements by using CAs, instead of contracts as
required, to obtain goods and services for the direct benefit of
the federal government (specifically ERL-A). Virtually all of
the CAs we reviewed produced specific information that would be
directly incorporated into Agency technical, policy, or
regulatory decision.
Also, ERL-A's CAs were not awarded in a competitive environment.
Almost 63 percent of ERL-A's active cooperative agreements,
comprising over $10 million of ERL-A's $14.2 million in CA
funding, were awarded without competition. Potential favoritism
was indicated in such noncompetitive awards to former employers
or alma mater of ERL-A staff or current employers of former ERL-A
staff or on-site cooperators. Also, doubt existed as to how
truly competitive were ERL-A's competitive CA awards. Five of
the CAs we reviewed were awarded competitively and, in every
case, we identified potential review panel COIs and/or other
irregularities which may have compromised the free and open
competition of the CAs.
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Finally, CAs were not properly managed after award. ERL-A either
did not have or did not implement procedures to assure compliance
with the terms of the extramural agreements or ensure that
government assets were safeguarded against waste or abuse. An
overall lack of documentation existed related to management and
oversight of the CAs. ERL-A POs were not properly fulfilling
their responsibility to ensure proper cooperator use of
government resources,
Interagencv Agreements
Until June 26, 1991, ERL-A had no established event cycles or
controls documented for the issuance and management of ZAGs.
ERL-A's FY 1992 event cycle documentation included a reference to
two ORD contractor reports which included examples of control
systems for lAGs. As previously discussed, these studies were
not intended to be referenced in entirety as detailed FMFIA
documentation for laboratories, but were to be used to tailor
controls to individual laboratory operations. These reports
contained extensive listings of possible control techniques for
all levels of IAG management. Therefore, ERL-A did not identify
or document any specific detailed control techniques for its IAG
activities through its reference to the contractor reports. In
addition, ERL-A's FMFIA process did not establish the necessary
detailed control documentation to permit testing/verification of
ERL-A's internal controls related to lAGs.
Examples of control objectives and techniques for CAs were found
in GAD's FMFIA documentation. These controls were not documented
or implemented by ERL-A.
Control Objective
Proper award and
administration of lAGs
Awards that promote
environmental mission.
•Control Techniques (examples)
-Reviews of IAG proposals/
approvals for compliance,
completeness, accuracy,
funding.
-Review of Agency authority
for lAGs used for grants or
CAs . . •
-Review for compliance with
statutory, policy, procedural
requirements . .
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The lack of detailed documented control objectives and techniques
for IAG award and administration contributed to the IAG
deficiencies cited in Chapter 3. As discussed in Chapter 3,
ERL-A misused lAGs to improperly supplement FTE travel,
improperly initiate research funds to a foreign government, and
circumvent/violate .procurement regulations in the use of an on-
site contractor and acquisition of a subcontractor for another
federal agency.
Administrative Management/Fund Controls
During our audit we also became aware of other administrative
management and fund control problems both related and unrelated
to extramural management. These deficiencies also pertained to
inadequate FMFIA processes and related internal controls. The
event cycles and related deficiencies are discussed below.
Records Management: Although ERL-A identified an event cycle for
records management with a control objective and control
techniques, the control techniques were not effectively
implemented. As a result, ERL-A failed to assure the
laboratories's file maintenance and record retention adhered to
federal and Agency policies. The following critical control
objective and a control technique related to record
storage/retention were documented in ERL-A's FY 1992 FMFIA
report.
Control objective; To ensure that all records are
maintained for easy retrieval and documentation.
Control Techniques: Assure that records are stored,
archived, and destroyed in accordance with Lab policy
and EPA procedures (e.g., specified by the Records
Management Manualr Office of Information Resources
Management.
The control technique cited above contained conflicting guidance
because laboratory record retention policies did not agree with
EPA records management policies. EPA policy required 5 to 10
year retention of PO, contract, CA, and/or IAG files to include
correspondence, notes, telephone memos, etc; however, ERL-A's
policy was to periodically purge such documentation from the
files contrary to Agency policy. Record retention problems are
also detailed in Chapter 7 of this report.
Our audit of ERL-A's extramural files disclosed that various
types of documents usually found in Agency records (i.e.,
telephone memos, routine correspondence, etc.) were sometimes
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absent. The ERL-A director suggested that systematic file
purging were the cause. The director identified the continued
practice of purging laboratory records as "operation clean
sweep." Lack of file space was used as a reason for this
practice; however, the laboratory had never used the Federal'
Records Center (FRC) for file storage.
Also, the ERL-A director maintained that the laboratory's files
were not official files subject to extended retention
requirements and that all official files were maintained at GAD
and CMD; however, EPA's procedures did not distinguish between
official and unofficial files. EPA's Records Management Manual,
Appendices C and E, specifically required retention of R&D
laboratory contract, CA, IAG, and PO files at R&D laboratories
for 5 to 10 years and an additional 3 to 9 years at the FRC.
These Appendices also identify routine correspondence, telephone,
memos, all records of day-to-day management as part of files
subject to retention.
A February 1992''evaluation report, entitled Records Management In
the Environmental ProtectionAgency, prepared by the National
Archives and Records Administration (NARA), 'found that proper
records management practices were implemented inconsistently
within EPA despite Agency directives and procedures that were
generally satisfactory. At ERL-A, the NARA evaluation team found
that:
No one responsible for files management has had
training in records management. Records have not been
transferred to the FRC [Federal Records Center], and
cutoffs are not used. Instead, records are retired or
destroyed in periodic purgings that are determined by
needs for additional office space.
As noted in the NARA report, records created or.acquired in the
course of government business are government property and that
willful and unlawful destruction of these records carries
penalties under the law. ERL-A by its own admission, routinely
destroyed laboratory records for which Agency policy specifically
identified extended retention either on-site or at the FRC.
Standards of Conduct: Event cycles and related controls for
standards of conduct were totally excluded from ERL-A's FMFIA
documentation. As an example of a control objective and control
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technique related to standards of Conduct, we utilized PCMD's
FMFIA documentation as follows:
Control Objective; To ensure that a program is in
place to establish and promote high standards of
conduct for both Government and contractor personnel.
Control Technicrues; Assignment of a Designated Ethics
Official [DEO] for personnel to contact to obtain
advice on standards of conduct. The Management Support
Staff distributes all ethics advisory memorandum and
keeps them of file for reference. Confidential
Statements of Financial Interests are filed up to three
times a year by managers and other senior level
personnel.
Although we found that ERL-A had implemented some of these
controls, the controls were not effective. ERL-A's DEO, who is
the ERL-A Director, did not ensure that ERL-A employees disclosed
their spouses' employment on their Confidential Statements of
Financial Interests. At least two managers with contract
oversight responsibilities (both POs) had not reported spousal
employment on their Confidential Statements. Because the
statements were incomplete as to spousal employment, the DEO
could not determine whether actual or apparent COIs existed. In
addition, the Agency did not require WAMs to file such
disclosures of financial interests even though they manage
contractors. Although WAMs at ERL-A had filed disclosure
statements, this was due to their management position and not
their contractual responsibilities. WAMs prepare work
assignments for contractors and monitor the contractors'
performance. Therefore, WAMs can influence a contractors' work
and award fees.
Employee Travel: Although event cycles, a control objective, and
control techniques for travel were included in ERL-A's event
cycle documentation, these controls were not always effective in
preventing abuse of travel funds and violation of travel
regulations. ERL-A's FY 1992 FMFIA report included the following
control objective and control techniques that were not properly
implemented at ERL-A.
Control Objective: TO assure travel is necessary,
properly authorized and documented, and in compliance
with regulations.
Control Technicrues: Signed copies of travel
authorization are submitted and approved by Lab
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Director before travel and filed. Signed copies of
travel voucher are submitted along with necessary
receipts after travel and filed. Requires use of
economy fares and other cost saving measures..-
As previously discussed in Chapter 5, our review disclosed that
ERL-A circumvented Agency travel regulations and authorized per
diem rates in order to hold conferences at high cost Georgia
resort areas such as St. Simon's Island and Callaway Gardens
without proper justifications. For the St. Simon's conference
alone, between $1,750 and $3,500 in questionable travel costs
were identified. While we did not determine total possible
excessive travel costs for the Callaway Gardens conference, we
did identify almost $8,100 in unsupported or questionable charges
on the purchase order used to pay for lodging, refreshments, and
entertainment at the conference. Details concerning questionable
travel costs for these two conferences were previously reported
in Chapter 5.
Acquisition and Classification of Property; 'Event cycles and
related controls'for the acquisition and proper
classification/reporting of property, particularly real property,
were omitted from ERL-A's FMFIA documentation. Our review
disclosed that controls related to real property acquisitions and
related appropriation restrictions were needed but had not been
identified or implemented. As detailed in Chapter 5', ERL-A
circumvented appropriation restrictions on construction and
acquisition of buildings with S&E funds by purchasing a modular
office building and classifying the building as personal
property.
As previously reported in Chapter 5, ERL-A utilized $201^817 .in
1988 S&E appropriated funds and Superfund monies to purchase,
through a CMD awarded contract, a modular building (70' 76') in
five sections. This building was erected next to the existing
laboratory. The 5,320 square foot structure was permanently
mounted on concrete pillars. However, because the/modular
sections came as trailers, ERL-A improperly classified the
building as "portable" personal property instead of real property
and, thereby, ERL-A bypassed congressional limitations of $25,000
for S&E funding of non-budgeted construction, renovation, etc.
The 1989 EPA Salaries and Expense Appropriation Act (Public Law
100-104, August 19, 1988) specifically states:
For necessary expenses, not otherwise provided for,
including... construction, alteration, repair,
rehabilitation, and renovation of facilities, not to
exceed $25.000 per project...[emphasis 'added]
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Similar restrictions exist for the use of Superfund monies to
purchase real property.
ERL-A managers stated that they contacted Facilities Management
Services Division (FMSD) and were told that the property
classification and expenditure was correct. ERL-A had no
documentation of this FMSD approval and based on letters in the
contract files and interviews with ERL-A staff, we concluded that
both the CO and ERL-A presented the purchase to FMSD as
acquisition of "portable offices or trailers" rather than a
constructed "modular office building permanently erected on-
site." Comptroller General decisions have ruled that such
modular buildings are construction and subject to applicable
appropriation restrictions (i.e., Comp. Gen. B-235086,. issued
April 24, 1991). (see details in Chapter 5)
CONCLUSION
ERL-A's FMFIA process did not adequately identify internal
control weaknesses or ensure proper implementation of FMFIA
control objectives and techniques relative to contracts, other
extramural agreements, and certain administrative management
functions. ERL-A managers did not recognize the importance of
FMFIA requirements. ERL-A management gave the process low
priority and treated the process as a "paper exercise" rather
than as an opportunity to review and strengthen laboratory
operations. Therefore, few effective internal controls existed
at the laboratory to assure adherence to sound procurement/award
and management practices. Critical control objectives; and
techniques were either not identified in internal control
documentation or improperly implemented. Failure to fully comply
with FMFIA requirements contributed to the problems discussed in
this report - lack of competition, inappropriate use of contracts
and other extramural agreements, inadequate management and
oversight of extramural resources, and other improper uses of
administrative funds.
The establishment of event cycles, control objectives, and
control techniques is only a part of the FMFIA process. Internal
control systems are only as good as the effort devoted to
implementing those systems. ERL-A's extramural resource managers
did not assure that the controls established were functioning
properly by defining FMFIA responsibilities and conducting
systematic reviews of control activities.
Of greater concern, however, is the seriousness of management
problems and resource abuses at ERL-A that have gone mostly
180 Audit MO. E1JBF2-04-0300
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Chapter 6
ERL-A's FMFIA Process Did Not Ensure Proper Control over Extramural Resource
Management
undetected and uncorrected by ORD, CMD, and GAD internal control
systems. In addition, ORD management reviewed and accepted FMFIA
documentation produced by ERL-A in 1992 and prior years even
though this documentation obviously did not cover all critical "
event cycles in laboratory operations and control objectives and
control techniques were not detailed or sufficient to permit
evaluation and testing, and were not in accordance with ORD
instructions. Some of the most critical, vulnerable phases of
laboratory operations, such as contract pre-award management,
have never been addressed in ERL-A documentation. As we
concluded in Chapter 2, ORD, CMD, and GAD oversight of ERL-A
operations is seriously flawed and needs strengthening and
improvement.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Research and
Development require proper implementation of ERL-A's FMFIA
internal control process to ensure material weaknesses are
properly identified and adequate controls are established for
extramural resource management and administrative processes.
Specifically, the Assistant Administrator should require the:
Director. Office of Environmental Processes and Effects Research
to:
- Instruct the ERL-A director in the importance of proper
implementation of the FMFIA and establishment of effective
internal control systems over every critical phase of
laboratory operations.
- Incorporate into the ERL-A director's, as well as all other
laboratory directors1 performance standards, a critical
element for FMFIA implementation. .
- Establish more effective oversight of all laboratory FMFIA
documentation and implementation to .ensure that laboratory
directors properly implement FMFIA requirements in compliance
with statutory and Agency procedures and establish effective
controls that can be readily identified, tested and evaluated.
- Incorporate into laboratory directors' performance .standards
accountability for any future deficiencies in their FMFIA
processes, documentation, and control systems.
- Include in any future on-site reviews at ERL-A or other ORD
laboratories an evaluation of FMFIA documentation and
181 Audit No. E1JBF2-04-0300
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chapter 6
ERL-A's FMFIA Process Did Mot Ensure Proper Control Over Extramural Resource
Management
effectiveness of related control systems to ensure compliance
with applicable laws, regulations and policies.
Director. Environmental Research Laboratory - Athens to;
- Report extramural management as an ERL-A material weakness
for the FY 1993 FMFIA report.
- Review current FMFIA processes and documentation at ERL-A and
ensure that:
* All critical event cycles for extramural management and
administrative processes are identified with specific
control objectives and control techniques.
* Detailed control objectives and techniques are identified
for all critical event cycles and are tailored to ERL-A
operations including IAG and CA activities (not merely
references to all inclusive ORD reports).
. * Control objectives and techniques are documented in
sufficient detail to permit testing and evaluation of
control implementation.
* Reviews and tests are performed on established controls to
ensure adequacy and proper implementation.
- Document specific FMFIA requirements and responsibilities in
the performance standards of all ERL-A staff with contractor or
cooperator oversight functions and managers who supervise
employees with oversight responsibilities.
- Closely monitor the laboratory's FMFIA process and ensure that
ERL-A staff, with FMFIA responsibilities, are held accountable
for proper implementation of controls over their extramural
management activities.
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY COMMENTS
ORD generally agreed with the findings and recommendations as
presented in Chapter 6. Corrective actions proposed by ORD are
responsive to our recommendations and appear to fulfill the
acceptable action criteria of EPA Order 2750. ORD's comments and
OlG's response to all Chapter 6 recommendations are detailed in
Appendix I.
182 Audit NO. E1JBF2-04-0300
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CHAPTER 7
MISSING RECORDS AND INCONSISTENT STATEMENTS
BY ERL-A. CONTRACTOR. AND COOPERATOR STAFFS DELAYED AND
POTENTIALLY LIMITED AUDIT DISCLOSURE
During our audit, several impediments were encountered at ERL-A
that hampered the accomplishment of audit f ieldwork and may have
limited our assessment of laboratory operations. Impediments
included: (1) inconsistent (often contradictory) statements by
ERL-A staff, contractors, and cooperators and (2) missing
documentation in ERL-A's contract/cooperator and/or laboratory
correspondence files. In some cases, the inaccurate statements
made by ERL-A employees, contractors, and cooperators appeared to
be "textbook" answers to our questions rather than answers that
accurately reflected ERL-A day-to-day operations. Evidence.
obtained indicated that ERL-A staff had been briefed prior to
start of audit f ieldwork as to our audit objectives and the
"correct" answers to our questions. Also, some of the missing
records could be attributed to ERL-A's improper record retention
procedures. However, according to certain ERL-A managers, the
laboratory was seriously concerned about the negative impact of
our audit on ERL-A's operations and, in particular, about the
effect on contractors that worked at the laboratory. This
concern was based on the impact of the recent OIG audit of Duluth
ERL on that laboratory's operations. The missing records and
conflicting statements necessitated alternative record reviews
and additional interviews which would not have been necessary if
full disclosure had been made when questions were first asked.
These impediments significantly delayed completion of audit
f ieldwork and left us unsure that all pertinent information and
conditions had been disclosed.
BACKGROUND
Section 6(a)(l) of the Inspector General (IG) Act of 1978, as
amended, authorizes the Inspector General or his authorized
designee access to all records, reports, documents, papers,
materials, etc., available to the Agency. Further, Section
6(b) (1) of the Act requires the Agency to provide any information
requested by the Inspector General or his authorized designee
unless prohibited by existing statute or Agency regulation. In
addition, provisions of 18 U.S.C. 1516 prohibit deliberate
obstruction of a federal audit and subjects any such act to
criminal penalties.
EPA's Record Management Manual, Appendices c and E, describe
various types of files and related file documentation and the
proscribed record retention policy for each type of file for
Research and Development and Research and Development
Laboratories, respectively. Provisions of 44 U.S.C. 3105 and 36
183 Audit No. E1JBF2-04-0300
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Chapter 7
Missing Records and inconsistent: statements By ERL-A Staff,
Contractors, and Cooperators
CFR 1228.102 prohibit the deliberate destruction-or removal of
federal records. Provisions in 18 U.S.C. 2071 makes it a
criminal offense to conceal, remove, mutilate, obliterate, or
destroy any record, paper, or document that is filed or deposited
in any public office.
INACCURATE. INCONSISTENT STATEMENTS BY ERL-A, CONTRACTOR, AMP
COOPERATOR STAFFS
As stated above, EPA employees, contractors, and cooperators
supplied answers to our questions that contradicted file
documentation or answers given by other staff members. Some of
the answers provided to auditors appeared to be "textbook"
answers (the way things should operate per procedures rather than
how they really operate). We were told that briefings were
conducted at ERL-A as to the audit objectives and the importance
of providing the correct answers to our questions. Notes to one
such briefing was found during the audit which confirmed this
statement.
For example, one case of apparently contradictory statements came
from two UGA on-site staff. Both of these on-site cooperators
insisted that they did not work directly for or talk to the ERL-A
sub-PO on their projects but were only supervised by and talked
to the UGA PI who was located at the University. However, the
sub-PO on two occasions told us that these employees worked on
his subprojects at ERL-A and that he frequently talked with them
(often weekly) about their research. In addition, the UGA PI
(UGA Vice President for Research) said that until our earlier
audit survey he did not know he was the PI on these employees
subprojects. He further said he had no contact with these people
and knew nothing of their research.
We also questioned one of the on-site UGA employees as to whether
he had been briefed on how to respond to our questions. He
replied no and said that he had not been told that auditors were
at the laboratory. However, it was evident from the responses
of this and other cooperators that they had been briefed to tell
us that they were not supervised by EPA employees. The on-site
UGA CA coordinator subsequently told us that she had informed all
the on-site UGA employees (several of whom were foreign post-
docs) that auditors were present and that they should answer our
questions slowly and clearly to preclude misunderstandings.
Several inconsistent statements given by ERL-A staff involved the
ERL-A director. For example, on September 25, 1992, when we
informed the director that one of the UGA CA subprojects was for
184 Audit NO. E1JBF2-04-0300
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Chapter 7
Hissing Records and Inconsistent Statements By ERL-A Staff,
Contractors, and Cooperators
development: of an ERL-A on-site day-care operating plan, she
seemed surprised and said she was not aware of this. The
laboratory director was the PO for this CA subproject. She said
that the $30,000 R&D funded subproject was supposed to be for
developing a day-care environmental education curriculum.
However, both the ERL-A sub-PO and UGA PI had already informed us
that the subproject was definitely for the development of an
ERL-A on-site day-care operating plan. Also, ERL-A's and UGA's
CA files contained a "working draft" of the subproject proposal
submitted by UGA to ERL-A in June 1992 which specifically
identified the work as the development of a day-care operating
plan. There were no curriculum tasks in this draft proposal.
According to a transmittal attached to the draft proposal, the PO
(ERL-A director) had reviewed the proposal and commented "good
job so far...You need to work w/them in improving/revising this
plan..." Also, the ERL-A director had placed a note on an
attached proposed Phase II budget for the subproject indicating
that she had reviewed the budget also. This budget included the
salary for a day-care center director to be paid out of CA R&D
monies.
MISSING/INCOMPLETE FILE DOCUMENTATION AND IMPROPER RECORD
RETENTION PROCEDURES
ERL-A file documentation, especially PO files, for current
contracts was limited primarily to official executed documents
with little or no correspondence, memos of conversation, notes,
or other routine records to document the contract solicitation
and award processes. The routine records that good practice would
dictate be present for day-to-day contract management were
missing. However, we noted the predecessor contract files for
these same contractors contained much more of these routine
records and correspondence. Therefore, we were concerned that
the current files may have been "sanitized" prior to the audit.
File documentation on CAs and lAGs reviewed was equally lacking.
As previously discussed in Chapter 6, some of this missing
documentation may be attributed to ERL-A's record retention (or
"destruction") policy which conflicted with Agency records
management procedures. The ERL-A director told us that she
directed periodic systematic cleaning-out of ERL-A files. She
identified the records destruction as "operation clean sweep" and
indicated that this.was the reason routine correspondence,
telephone memos, etc., may be missing from current ERL-A PO,.
contract, CA, and IAG files. Since none of these files were over
two to three-years old, ERL-A's record destruction violated EPA's
record retention policies.
185 Audit NO. E1JBF2-04-0300
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Chapter 7
Missing Records and inconsistent Statements By ERL-A Staff,
Contractors/ and Cooperators
EPA's Records Management Manual, Appendix C, "Research and
Development Records," and Appendix E, "Research and Development
Laboratory Records," requires the retention of PO, contract and
assistance files and related records on-site for 5 (i.e., PO
files) to 10 years (i.e., contract files), with additional
retention at the Federal Records Center (FRC) for an additional 3
to 9 years before destruction. ERL-A has never transferred any
files to FRC for storage. The Records Management Manual further
identifies records ERL-A routinely purged as part of the files to
be retained. For instance, PO files were to include "site
visits, trip reports, telephone memos, and other records related
to day to day management ...."
ERL-A management explained that they did not realize that the
laboratory records for contracts and assistance agreements were
official files and, therefore, were subject to retention for more
than one year. ERL-A staff indicated that they thought the
official files were at CMD and GAD. However, our review
disclosed no EPA procedures or policy that specified what.
constituted official files or that would otherwise support the
laboratory*,s definition. EPA's Record Management Manual makes no
distinction between official and unofficial files,. Appendix E
specifically refers to "Research and Development Laboratory
Records" and specifically identifies PO records maintained at the
laboratories. According to Appendix E, PO files should be
retained for at least five years after closeout of the project
and these files should consist of the type records which were
periodically destroyed by ERL-A. We believe that the records
destroyed by ERL-A meet the definition of "Federal records" as
defined in44U.S.C. 3301. In addition, EPA Ethics Advisory 92-
24, dated December 10, 1992, issued by the Deputy General
Counsel, included NARA Bulletin No. 93-2, entitled "Proper
disposition of Federal records and personal papers." Section 8.
of this Bulletin stated:
As specified under 36 CFR 1222.42, nonrecord materials,
including extra copies of agency records kept only for
convenience of reference [emphasis added], may be
removed [permanent removal or destruction] from
Government agencies only with the approval of the head
of the agency or another agency official designated by
the agency head, such as the agency records officer or
legal counsel.
Although some of the missing documents may be attributed to
improper records retention policies, the importance of some of
the documents to our audit objectives and disclosure of
questionable activities at ERL-A raises doubts as to the intent
186 Audit NO. E1JBF2-04-0300
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Chapter 7
Missing Records and inconsistent Statements By ERL-A Staff,
Contractors, and Cooperators
of any records purging just prior to our audit. For example,
during our review of UGA files, we found reference to
correspondence between a UGA PI and the ERL-A director. This
correspondence was very critical of the way ERL-A managed and
funded UGA's CA projects and essentially used the CA to fund
EPA's research at the laboratory. Even though this letter was
addressed to the ERL-A director (who was the PO on these
subprojects), there were no copies of the correspondence in her
files or the other correspondence files provided by ERL-A staff
during the audit. We later obtained copies of these letters from'
the UGA Pis after lengthy negotiations with UGA and the Pis over
our access authority related to these letters. Although the
laboratory later found these letters-in their files, this did not
occur until after we became aware of the letters from UGA files
and had subsequently demanded a copy of .the correspondence from
ERL-A.
CONCLUSION
It was evident that ERL-A staff, contractors, and cooperators had
been briefed as to the "correct" answers to our questions. . • : '
Incorrect, inconsistent statements occur in many audits due to
human error or the natural instinct of individuals to protect
their work or organization; however, this was not always the case'
at ERL-A. At ERL-A, many of these occurrences may have resulted
from these same circumstances. However, the frequency of
incorrect/inconsistent statements and missing documentation and
the nature of missing records made us question the laboratory's'
intent.• ' -• -
ERL-A officials should be forewarned that any deliberate false
statements to federal auditors or intentional destruction of
Agency records to subvert audit disclosure could be construed as
obstruction of a federal audit and a violation of 18 U.S.C 1516
which is subject to disciplinary or criminal penalties. Federal
employees are required to fully disclose all pertinent facts and
related records during official inquiries,.
In addition, any destruction, removal or concealment of records
in a manner which is inconsistent with established Agency records
schedules or General Records Schedules is a violation of Agency
policy and federal law, as cited in 44 U.S.C. 3105 and 36 CFR
1228.102. We believe that ERL-A's handling and improper disposal
of records may have adversely impacted the OIG's ability to
obtain critical documentation related to ERL-A's management of
extramural resources. Without stringent controls over Agency
records, management accountability may be lost.
187 Audit NO. E1JBF2-04-0300
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Chapter 7
Hissing Records and Inconsistent Statements. By ERL-A staff,
Contractors, and Cooperators
RECOMMENDATIONS
Recommendations to the
Development
We recommend that the Assistant Administrator require the:
Director. Office of Environmental Process and Effects Research
to:
- Require that all,ERL-A managers and staff receive ethics
training regarding their responsibilities as federal officials •
for the ethical conduct of government business and federal
programs.
- Instruct ERL-A staff, contractors, and on-site cooperators that
deliberate obstruction of a federal audit or destruction of
federal records without proper approval is a crime punishable
under 18 U.S.C.
- Inform ERL-A staff, contractors, and cooperators--of
requirements of the IG Act and their obligation under the Act
to furnish full and accurate information to any
interrogatories by OIG auditors in the conduct of an official
inquiry.
- Require ERL-A to establish record retention policies and
procedures in accordance with EPA's Records Management Manual
and ensure that records documenting day-to-day management of
contracts and extramural agreements are maintained for the
proper retention period and for easy access by any potential
reviewers of this information.
- Require ERL-A director to utilize the FRC if additional storage
space is needed at the laboratory.
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY COMMENTS
ORD generally agreed with the findings and recommendations as
presented in Chapter 7. Corrective actions proposed by ORD are
responsive to our recommendations and appear to fulfill the
acceptable action criteria of EPA Order 2750. ORD's comments and
OIG's evaluation on Chapter 7's recommendations are detailed in
Appendix I.
188 Audit NO. E1JBF2-04-0300
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Appendix I
AGENCY COMMENTS ON DRAFT REPORT
AND QIC EVALUATION
OFFICE OF RESEARCH AND DEVELOPMENT (ORD) COMMENTS
Overa.11 _ OIG Eva.1 uation
ORD offered tio disagreement with the findings and recommendations
presented in this report. ORD response provides specific
corrective actions and milestone dates for completion of these
actions. ORD's corrective actions are considered acceptable for
resolution under EPA Order 2750 with the exception proposed
actions for recommendations 3IAA-5, 3ILD2, 3ILD-5, 3ILD-6, 3IIOD-
3, and 3IIIOD-1, Our concerns with the actions proposed for ':
these recommendations are presented after the applicable ORD
response below.
Assistant Administrator for Research and Development
Comment; on Findings jand Proposed Corrective Actions
In Draft Audit Resort E1JBF2-04-0300
CHAPTER 2 - RECOMMENDATIONS
2AA-1 Review all ORD guidance related to CAs, in coordination
with OGC and GAD, to determine whether applicable guidance fully
complies with the intent and statutory provisions of the 1977
Federal Grant and Cooperative Agreement (FGCA) Act, as amended.
Obtain a formal written OGC opinion as to compliance of current
ORD policies with the intent and provisions of the 1977 FGCA Act.
Response: Concur
Corrective Action: -The Director of ORD's Office of Research
Program Management (ORPM) will establish a 'team to review ORD
guidance related to CAs. OGC and GAD will be asked to
participate on the team. To support the review, OGC will be
asked for a written opinion on the extent-of compliance of
current ORD policies with the FGCA and for recommendations for
improving that guidance. If any changes to ORD policy are
needed, revised policy will be reissued within 60 days of the
189 Audit NO. E1JBF2-04-0300
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Appendix I
completion of the review. Final or interim guidance as
appropriate will be issued by September 307 1993, to reduce the
potential for confusion about which guidance or policy to follow.
2AA-2 Instruct ERL-Athens management to refrain from its pattern
of circumventing and noncompliance with laws, regulations, and
Agency policies related to extramural and intramural resources.
Response: Concur
Corrective Action: The Director of OEPER will instruct ERL-Athens
management to comply with Agency policies and regulations related
to extramural and intramural resources. These instructions will
be contained in a memorandum to be issued by March 31, 1993.
Additionally, a Deputy Laboratory Director position will be added
to the Athens organization. The Deputy will have full
operational responsibilities for the laboratory and will
strengthen the internal "check and balance" system for extramural
management.
2AA-3 Continue to promulgate and refine CA guidance to
laboratories which encourages or requires competitive awards and
improves ORD oversight and control of laboratory management of
assistance agreements.1
Response: Concur
Corrective Action: The Director of ORD's ORPM will continue to
refine and expand ORD policy requiring competition for CAs. ORPM
approval will be required for all non-competitive CA awards, and
AA approval will be required for any CA award over one million
dollars.
The Director of ORD's ORPM will also develop ORD policy to
improve ORD oversight and control of laboratory management of
assistance agreements. Although final policy may have to wait
for new Agency-wide policy, ORD interim policy will be issued by
September 30, 1993.
2AA-4 Evaluate and strengthen ORD's oversight and controls over
ERL-Athens contract management a'ctivities and encourage full and
1 ORD issued interim and draft guidance documents during
the audit which encouraged competitive CA awards, elevated
approval level for noncompetitive CA awards, and strengthened
some oversight and management controls for laboratory programs.
190 Audit NO. E1JBF2-04-0300
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Appendix I
open competition in laboratory contracts as intended by the
Competition in Contracting Act of 1984.
Response: "Concur
Corrective Action: The Director of OEPER will participate
actively in evaluating and strengthening all extramural
management in Athens and in assuring full and open competition
when appropriate. Effective immediately and continuing through
March 31, 1994, OEPER will review and approve all new contracts,
CAs, and lAGs proposed by the Athens laboratory. All
modifications and amendments to existing contracts, CAs, or lAGs
will similarly be reviewed by OEPER. OEPER will also approve all
new work assignments and will be sent copies of technical
directives at the same time they are sent to the Contract Office.
The Deputy Director of OEPER will carry out a complete audit of
all existing contracts, CAs and lAGs to verify they are
appropriate or to correct any differences that may exist. He
will report back the results of his review audit to the Director
of OEPER by May 15, 1993.
2AA-5 Evaluate ERL~Athens staffing needs, and if appropriate,
request through the budget process additional work years for
ERL-Athens resource/contract management functions, as well as
mission critical research projects. With the approval of EPA's
Comptroller and the Off ice of Management and Budget, this may be
accomplished through conversion of extramural funds to intramural
work year support. Such work year increases could preclude
continuing personal services relationships with contractor staff,
prevent contractor performance of inherently governmental
functions, and improve contractor and cooperator oversight.
Response: Concur
Corrective Action: ORD has reported the lack of sufficient
Federal work years to manage extramural resources as a material
weakness under the FMFIA. This weakness exists in each ORD
Office and Laboratory, not just in Athens. To solve the chronic
under-staffing problem will require support from the EPA
Comptroller and Administrator, OMB, and Congress. ORD management
is committed to addressing the underlying problem.
OIG identification of the under-staffing situation in Athens
provides an opportunity for an ORD-wide study. The Director of
OEPER will develop a plan and schedule for completing an
evaluation of the staffing at Athens. The plan will be submitted
to the acting AA for ORD by April 30, 1993. -After approval, the
191 Audit No. E1JBF2-04-0300
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Appendix I
methodology will be applied in the Athens laboratory as a pilot
test. This evaluation will be completed by August 15, 1993.
After modifications (if needed), the methodology will be used in
each ORD laboratory to determine staffing needs. This ORD-wide
evaluation effort will be conducted by ORPM during.FY 1994.
Notwithstanding the above actions, ORD will ensure compliance
with Administrator Browner's direction that EPA's mission will be
accomplished in full compliance with all laws, regulations, and
principles of sound management. To the extent that ORD does not
have the federal work years to do all the required work, proper
prioritization and planning will be used to determine what will
and will not be done.
2AA-6 Establish periodic, recurring on-site reviews of
laboratory management of contracts and assistance agreements to
be performed jointly with CMD and GAD, respectively.
Response: Concur
Corrective Action: ORD is accountable for the integrity of its
management of extramural resources. We are now hiring
acquisition specialists in every laboratory to assist our
management efforts.
For the Athens laboratory and the rest of OEPER, the Director of
OEPER will redesign management review procedures to incorporate
the review and audit practices that will be necessary to fulfill
his responsibilities and accountability for management of
extramural resources. The design for new management review
procedures will be completed by July 1, 1993.
The Director of ORPM will develop ORD-wide review procedures. CMD
and GAD will be invited to participate. When these procedures
are issued in FY 1994, ORD managers will be held accountable for
carrying out on-site reviews that will uncover the types of
problems found in the audit. They will be responsible for
getting expert advice from the contracts and grants offices on an
as-needed basis.
2AA-7 Evaluate the planning, timing, and funding processes for
research projects which may preclude laboratory selection of the
best and appropriate extramural mechanism.
Response: Concur
Corrective Action: Each of the ORD offices and laboratories have
the same situation as Athens, in that they do not know what their
192 Audit NO. E1JBF2-04-0300
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Appendix I
resources will be for a fiscal year until the Agency budget is
determined and distributed. This distribution is often after the
fiscal year begins. Nevertheless, the fact that a Laboratory may
not know its exact resources for the coming year is not an
acceptable excuse for failure to select the proper extramural
instrument for any project.-
ORD's Issue Planning process is intended to help Athens and other
ORD laboratories plan their projects better, including the
determination of the appropriate funding and extramural
mechanism. This process was started last year and is currently
being implemented in all of the ORD Offices and Laboratories.
To address the recommendation for Athens, the Director of OEPER
will require Athens to prepare its acquisition plans and
laboratory research work plans, in response to Recommendation
4IOD.4 and submit them when required. This guidance will be
issued by May 15, 1993.
2AA-8 Eliminate arbitrary allocations of extramural resources
which may preclude ERL-Atliens from using the appropriate
extramural mechanism.
Response: Concur
Corrective Action: The Director for OEPER will review allocation
formulas and policies that exist within OEPER. Any that are
considered arbitrary will be eliminated. The Office Director
will report to the AA on findings and actions taken by June 1,
1993. .
CHAPTER 3 - RECOMMENDATIONS
3IAA-1 In collaboration with GAD and the Comptroller, promulgate
definitive guidance on the proper uses of R&D funds under CAs,
especially those uses related to ambiguous project areas such as
curriculum development. Prohibit the use of R&D funds, either
directly or indirectly, for the direct benefit of federal
employees.
Response: Concur
Corrective Action: The Director of ORD's ORPM.will continue to
work with GAD, the Comptroller, and OGC to obtain more definitive
guidance on uses of R&D funds, especially those related to areas
of apparent ambiguity. In addition, we will issue revised
policies emphasizing the prohibition on the use of appropriated
funds for the direct benefit of Federal employees, except as
193 Audit NO. E1JBF2-04-0300
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Appendix I
authorized by law and regulation. These strengthened policies
will be issued by May 30, 1993.
3IAA-2 Receive and review all CA RFPs and decision memorandums
to assure that the purpose of the agreement is to provide
assistance and not directly benefit or support ERL-A/ORD research
projects.
Response: Concur
Corrective Action: The Director of OEPER will review all CAs and
decision memoranda from ERL-A to ensure that they are
appropriate. ORD's ORPM will develop ORD-wide policy clarifying
appropriate use of CAs and work with OEPER to assure review of
ERL-A agreements.
3IAA-3 Develop a policy which clearly states how graduate
academic training and/or advanced degrees for EPA employees will
be funded, either through IPAs or established Agency training
programs. Require commitment of 3 years of federal service for
every 1 year of training received whether training -is funded
through IPAs or regular training funds. Prohibit the funding of
federal employee training under CAs in accordance with Assistance
Administration requirements.
Response: Concur
Corrective Action: The Director of ORD's ORPM will develop and
issue new ORD-wide policy clarifying how graduate academic
training and/or advanced degrees for EPA employees will be
funded. This policy will emphasize the Agency requirements
specified in the recommendation.
3IAA-4 Develop a policy on the funding of foreign travel under
CAs which will result in improved ORD controls over any foreign
travel funded by EPA, including full disclosure to Congress of
total expenditures for foreign travel by FTEs, contractors, and
cooperators/non-federal persons (academics) under such
agreements.
Response: Concur
Corrective Action: The Director of ORD's ORPM will develop
ORD-wide policy on the funding of foreign travel under CAs and
the appropriate controls on such travel by September 30, 1993.
3IAA-5 Remind the ERL-Athens director that directed and sole
source contracting through lAGs is prohibited without proper
194 Audit NO. E1JBF2-04-0300
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Appendix I
approval and that use of extramural agreements under lAGs should
be clearly disclosed on the JAG application in accordance with
the IAG Compendium. In addition, instruct the ERL-Athens
director'that currently no authority exists under the Economy Act
for use of CAs under lAGs.
Response: Concur
Corrective Action: The Director of ORD's ORPM will develop and
issue an ORD Directive by May 30, 1993> reminding all ORD Offices
and Laboratories of the prohibitions on IAG usage reflected in
this recommendation.
DIG Evaluation
ORD'.s planned corrective action on recommendation 3JAA-5 did not
address disclosure to Congress of all CA expenditures for foreign
travel by FTEs, contractors, cooperators, and academics. We will
need ORD planned actions regarding such disclosure prior to
resolution of this recommendation.
3IAA-6 Determine, with assistance from OGC, if any unauthorized
reprogramming of R&D funds to S&E funds occurred under the NASA
lAG's.
Response: Concur
Corrective Action: The Director of ORD's ORPM has already
requested assistance from OGC in determining the propriety of
accepting NASA funds for EPA travel usage. We will submit any
other evidence we find in this matter to OGC for appropriate
determination as soon as we can assemble the documents. We
expect to have all the documents by April 30, 1993.
3ILD.1 Ensure that all POs have all available written guidance
necessary to effectively manage their extramural agreements
through the pre-award and post-award phases. .
Response: Concur
Corrective Action: Operating Procedures on CAs from pre- through
post-award phases are already sent to each ERL-A PO. The ERL-A
Extramural Assistant maintains relevant Operating procedures, GAD
guidance documents, the GAD Assistance Manual and IAG Compendium,
and related informational material for access by POs. On
February 9, 1993, an ERL-A Quality Action Team was formed and
charged to review the current set of policies and procedures,
including adequacy of current reference materials and their
195 Audit NO. E1JBF2-04-0300
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availability to POs. Training has been planned for all current
POs, with completion set for August 30, 1993. The training will
include problems of favoritism, conflicts of interest, and new
ORD/OEPER procedures to guard against such actions. A Procedures
Manual will be prepared by August l, 1993.
3ILD-2 Require ERL-A managers to review all current and future
CA RFPs and decision memorandums to assure that the primary
purpose of the agreement is to provide assistance and not to
procure goods and services which directly benefit ERL-A or ORD
and that decision memorandums for all extramural agreements have
all of the required elements. Terminate funding of those current
CA projects or sub-projects that directly benefit or support
ERL-A or that violate laws, regulations or Agency policies.
Award contracts if there is a need for continuance of these CA
projects.
Response: Concur
Corrective Action: ERL-A has initiated a project-by^-project
review of all current CAs to determine compliance with the intent
and statutory provisions of the 1977 FGCA Act, as amended. All
CAs or proposals found by this review to be out of compliance
with the Act will not be continued, awarded, or renewed unless
modifications are implemented to ensure compliance. The review
of current projects will be completed by April 15, 1993. In
addition, the DGA sub-project on day-care curriculum development
has been terminated effective March 8, 1993, and funds in this
sub-project will be deobligated and returned to the government.
The Deputy Director of OEPER will evaluate the results of these
reviews and concur if acceptable.
The Director of ORD's ORPM will work with GAD and OGC to review
current guidance on the use of CAs and will update existing
guidance by September 30, 1993.
OIG Evaluation
ORD actions do not address ORD compliance with OARM's December 2,
1992 policy letter which prohibited use of CAs to obtain (1) data
and reports for inclusion in EPA policies and technical,
regulatory decisions, (2) computer models for EPA regulatory use,
and (3) technical, analytical, and application review advice for
direct benefit of EPA offices. ORD's draft response to the audit
report indicated ORD would comply with OARM's policy; however,
the final response does not address this issue. If ORD does not
agree with OARM's policy letter, we need ORD's proposed actions
196 Audit Ho. E1JBF2-04-0300
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to resolve this policy disagreement before resolving this
recommendation.
3ILD-3 Where appropriate, immediately move all UGA and other
cooperator employees off-site to preclude direct supervision of
cooperators by ERL-A staff-and remove inappropriate direct
benefit to ERL-A under the UGA CA.
Response: Concur
Corrective Action: By March 31, 1993, all remaining UGA
cooperator employees will be moved off-site or their appointments
terminated.
3ILD-4 Ensure that all CAs clearly identify the primary function
of the CA. Large travel or equipment budgets should not be added
as an addendum to relatively small research budgets to obscure
the actual function of the CA.
Response: Concur
Corrective Action: The Deputy Director of OEPER will review all
active CAs to insure that the scopes of work describe the primary
function of the agreement. All CA amendments that change the CA
objectives or scope will be developed according to GAD guidelines
and reviewed and submitted for approval with any changes from the
original agreement clearly described and justified. When
appropriate, competitive CAs will be preferred.
The Director of ORD's ORPM will issue policy for all ORD CAs by
September 30, 1993, and will develop in consultation with the
office and laboratory directors a program to assure that the
policy is followed.
3ILD-5 Ensure that all ERL-A employees have equal access to IPA
training opportunities. In addition, provide full disclosure of
all sources of funding in IPA applications and cease utilizing
CAs to fund IPAs for academic training of FTEs.
Response: Concur
Corrective Action: Effective immediately, no IPA assignee whose
IPA is funded by a CA will be permitted to enroll in any academic
courses that may lead to any advanced degree without the approval
of the OEPER Office Director. The Laboratory will develop a
procedure for application and acceptance for .IPAs. The
procedures will be reviewed by OEPER Director and implemented by
197 Audit No. E1JBF2-04-0300
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June 1, 1993 and will be distributed to all employees.
The Director of ORD's ORPM is directed to develop and implement
an ORD-wide policy on IPAs, the rules on use of EPA funds to
support IPAs, and conditions under which IPAs can be used. The
policy will be effective when issued and incorporated in the ORD
Policy and Procedures Manual when updated in FY 1994.
OXG Evaluation
ORD's response to recommendation 3ILD-5 states that IPAs funded
by CAs can not be used for academic attainment unless approved by
the OEPER Director. This is the same approval level previously
used to approve the IPA partially funded by the MSU CA. We can
see no improvement in ORD oversight or control from this action.
In addition, appropriation restrictions could preclude approval
of any IPA for an EPA employee's academic training where R&D
funds under a CA are used to fund the IPA. Past R&D
appropriations have not authorized the use of R&D funds for
federal employee training, travel, compensation or benefits.
Only the S&E appropriation and certain EPA trust funds have been
authorized by Congress to support EPA personnel costs.
Although GAD views an EPA employee on an IPA as an employee of
the recipient organization (see GAD comments in this Appendix),
we believe the individual is still legally a federal employee
because the federal government determines the individual's level
of compensation and benefits, the individual continues to accrue
federal retirement and annual/sick leave benefits and maintains
his federal health and life insurance, and he is required to
return to federal service upon completion of the IPA without
applying for a federal position (SF-171). Therefore, we conclude
that R&D funds could not be legally used to train "federal
employees" under IPAs.
3ILD-6 Prohibit ERL-A POs, scientists, and on-site cooperators
from preparing or assisting in preparation of proposals and/or
decision memorandums for CAs in which they will benefit or act in
a PO capacity.
Response: Concur
Corrective Action: In accordance with existing ORD guidance, CA
proposals are jointly implemented research projects in which
Federal and academic cooperating scientists collaborate.
Scientific proposals must be prepared by the scientists proposing
to do the work. Preparation of decision memoranda is an
inherently governmental activity and is accomplished only by
198 Audit No. E1JBF2-04-0300
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Appendix I
appropriate Federal officials.
The Quality Action Team charged on February 9, 1993, to review
and modify existing ERL-A policies and procedures for CAs, or
propose new policies and procedures, has been specifically asked
to address this recommendation. The QAT will' complete their
deliberations by April 15, 1993. Until such time as the QAT
process is complete, and effective immediately, only Branch
Chiefs or other designated Federal officials other than the
existing or proposed PO, will be permitted to develop the
Decision Memorandum. The decision memo can only be approved by
the Laboratory Director (except for the next year, when the
deciding official will be the Director of OEPER). An internal
ERL-A memorandum announcing this policy was issued on March 8,
1993.
'OJG Evaluation
ORD's response indicates that ERL-A prospective POs will not be
permitted to prepare decision memorandums for CAs; however, a
change in the ORD Policy and Procedures Manual, dated January
1988, will be necessary to prohibit such practice ORD-wide. The
current manual permits PO preparation of CA decision memorandums.
We need to know whether ORD intends to change its manual to
preclude PO involvement in decision memorandums before resolving
this recommendation.
3ILD-7 Establish policies which allows cooperators the maximum
involvement and control possible in their research projects.
Response: Concur ;
Corrective Action: The Laboratory will establish policy that will
clearly put the cooperator in charge of the research being
proposed under the CA. Federal POs will not be permitted to
unilaterally change the scope or direction of the research. The
policy will be issued by April 30, 1993.
3ILD-8 Review and terminate XAGs with NASA that are being used
to fund FTE travel and circumvent Agency fund controls.
Response: Concur . "*":'•
Corrective Action: The Director of ORD's ORPM has already
requested assistance from OGC in determining the propriety of
accepting NASA funds for EPA travel usage. We will submit any
other evidence we find in this matter to OGC for appropriate
determination as soon as we can assemble the documents. We
199 Audit Mo. E1JBF2-04-0300
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Appendix Z
expect to have all the documents by April 30, 1993. Further
actions will be determined by the outcome of the review. If this
review indicates that funds are being improperly used for travel,
then the IAG will be modified or terminated as appropriate.
3ILD-9 Require and ensure proper documentation of authority,
rationale, and justifications in IAG decision memorandums and
preclude prospective POs from preparing IAG decision memorandums.
Response: Concur
Corrective Action: The Director of ORD's ORPM will develop and
issue new ORD-wide policies on required controls relative to lAGs
by September 30, 1993.
3IIAA Recommend the AA/ORD ensure significant improvements are
made in assistance agreements awards that increase competition
and assure a fair and equitable proposal review process.
Response: Concur
Corrective Action: As indicated in response to an earlier
recommendation, the Director of ORD's ORPM has undertaken a
comprehensive policy development process to make significant
improvements in the CA and IAG processes, including methods to
increase competition, policy will be effective when issued and
incorporated in the ORD Policy and Procedures Manual during FY
1994.
3IIOD-1 Ensure that ORD personnel are included on ERL-Athens
proposal review panels for competitive CAs as required by ORD
policies and procedures.
Response: Concur
Corrective Action: The Director of OEPER will reissue the policy
with respect to membership of HQ personnel on review panels for
CAs to be awarded by Athens and other laboratories. The Office
Director or his Deputy will select and deputize personnel in
laboratories other than the proposing laboratory to represent the
Office's interest in these review panels as necessary. This
redefined policy will be issued by May 1, 1993. CAs greater than
$500 thousand will require the use of an OEPER HQ peer review
mechanism or the OER standing peer review panels in arranging for
peer reviews of the proposals.
3IIOD-2 Provide training and/or guidance to ORD and ERL-Athens
managers and POs, in collaboration with GAD, to enhance ORD
200 Audit NO. E1JBF2-04-0300
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Appendix I
awareness of potential COls or the appearance of COIs in the
review and award of assistance agreements.
Response: Concur
Corrective Action: Written guidance on conflicts of interest in
panel selection or award of assistance requirements will be
developed and issued by OEPER by September 30, 1993. GAD will be
asked to assist. All CAs larger than $500 thousand will be
required to use the OEPER HQ peer review mechanism or the OER
standing peer review panels for arranging for peer reviews of the
proposals.
3IIOD-3 Comply with prior audit recommendations to fully enforce
existing CA procedures or develop new procedures to ensure that
POs or prospective POs are removed from selecting external
reviewers, preparing in-house reviews, and preparing decision
memorandums covering CA applications.
Response: Concur .. -
Correction Action: The Director of OEPER will issue guidance
removing POs from selection of panels, preparing in-house
reviews, and preparing decision memoranda covering CAs for all
OEPER laboratories effective April 1, 1993. The guidance will
also prohibit Laboratory Directors or the Office Director from
acting as a PO without the written approval of his or her
supervisor.
The Director of ORD's ORPM will develop and promulgate ORD~wide
policy to assure compliance with this recommendation and issue it
by September 30, 1993.
OIG Evaluation
ORD indicates that the OEPER Director will issue guidance by
April 1, 1993, eliminating POs from selection panels, in-house
reviews, and preparation of decision memorandums; however, these
practices are currently authorized in the ORD Policy and
Procedures Manual, dated January 1988, and a manual revision will
be required to permanently change these practices. Therefore, we
need a specific commitment from ORD to a revision of its current
policy and procedures manual before resolving this
recommendation: • '
3IIOD-4 Evaluate the justifications for ERL-Athens noncom- .
petitive CA awards to ensure that they comply with ORD guidance,
especially repetitive awards at or near the threshold for ORD
201 Audit NO. B1JBF2-04-0300
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Appendix I
review and approval.
Response: Concur
Corrective Action: The Deputy Director of OEPER with a small team
will review all active CAs at Athens that were not audited by the
DIG. This review will begin by April 30 and be completed no
later than September 30, 1993. All new CAs will be approved by
the OEPER Office Director for the next year. For the longer
term, the Director of OEPER, working with ORPM, will put in place
an annual review system to provide the appropriate oversight to
insure compliance with ORD and OEPER guidance.
3IIOD-5 Establish for ERL-Athens and other ORD laboratories
stringent controls over noncompetitive awards to assure fair and
equitable awards, eliminate the appearance of favoritism, and the
effective use of Agency resources.
Response: Concur
Corrective Action: The Director of OEPER will reissue to the
OEPER laboratories and emphasize the established ORD policy that
competition is the preferred way of doing ORD business and that
all noncompetitive awards must be approved by HQ. This guidance
will be distributed by April 15, 1993. The Director of ORD's
ORPM will issue similar guidance to all ORD Offices and
Laboratories by September 30, 1993.
3IIOD-6 Emphasize to ERL-Athens managers ORD's goal to compete
CAs awards.
Response: Concur
Corrective Action: The Director of OEPER will send a memorandum
to all OEPER Laboratory Directors and to all managers in
ERL-Athens reemphasizing ORD's goal of competition. The Director
will emphasize that the degree of competition achieved will be an
element in OEPER's management reviews and performance agreements
and assessments. The memorandum will also cite the need to avoid
favoritism of any kind in any non-competitive awards that may be
proposed. The memorandum will be promulgated by April 15, 1993.
3IIOD-7 Instruct ERL-A managers that favoritism in
noncompetitive CA awards cannot be tolerated without clear,
sound, and legal justifications for such awards.
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Response: Concur
Corrective Action: The Director of OEPER will send a memorandum
to all OEPER Laboratory Directors and to all managers in
ERL-Athens reemphasizing ORD's goal of competition. The Director
will emphasize that the degree of competition achieved will be an
element in OEPER's management reviews and performance agreements
and assessments. The memorandum will also cite the need to avoid
favoritism of any kind in any non-competitive awards that may be
proposed. The memorandum will be promulgated by April 15, 1993.
3IIOD-8 Require complete and accurate justifications in CA
decision memorandums for non-competitive awards including those
awarded by ORD headquarters. Review decision memorandums for all
non-competitive awards by ERL-A for inaccurate and/or unsupported
justifications.
Response: Concur
Corrective Action: The Director of OEPER will establish a process
to review all non-competitive awards by ERL-Athens and implement
the process by April.1, 1993.
The Director of ORPM will reissue and emphasize ORD policy
requiring complete and accurate justifications in CA decision
memorandums by September 30, 1993.
3IIOD-9 Closely review any follow-on competitive CA awards to
UGA to ensure competition procedures were unbiased and equitable.
Response: Concur
Corrective Action: The Director of OEPER will closely review any
follow-on awards to UGA to ensure competition.
3IIOD-10 Require the ERL-Athens director to ensure* that CA
proposals are reviewed by scientists who are knowledgeable about
the projects but who have no close ties with ERL-Athens or the
prospective PO. If CA applicant has close ties to ERL-Athens,
require competitive award procedures.
Response: Concur
Corrective Action: The Director of OEPER will send a memorandum
to all OEPER Laboratory Directors reemphasizing ORD's goal of
competition. The Director will also emphasize that the degree of
competition achieved will be an element in management reviews and
performance agreements. The memorandum will cite the need to
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Appendix I
avoid favoritism of any kind in any non-competitive awards that
may be proposed. The memorandum will be sent by April 15, 1993.
All Athens CAs will be reviewed for the next year for issues of
competitiveness, favoritism, and conflict of interests.
3IIOD-11 Review adequacy of ORD corrective action on the prior
OIG audit findings related to CA review panel COIs and the
influence of the prospective PO over panel selections and panel
recommendations. Ensure proper implementation of prior audit
corrective actions by ORD laboratories.
3IIIOD-1 Review adequacy of corrective action taken on prior 1983
OIG audit finding related to infrequent and inadequate PO site
visits and determine whether ORD laboratories properly
implemented ORD's actions in this area.
Response: Concur
Corrective Action: The Director of OEPER will work with ORPM and
GAD to determine and ensure proper implementation of the measures
necessary to provide the corrective actions called for in the
1983 OIG audit. OEPER will send a report of findings and
additional corrective actions to ORPM by April 30, 1993.
As part of ORPM's audit follow-up activities, an ORD-wide review
of actions promised in response to the 1983 will be conducted.
The review will be completed by August 30, so that any findings
can be incorporated in ORD's annual FMFIA assurance letter
process.
OIG Evaluation
As stated in response to ORD's planned actions on recommendation
3IIOD-3, implementation of corrective action on prior OIG audit
will require a change in ORD's current policy and procedures
manual and, therefore, we need an ORD commitment to an
appropriate manual revision before resolving this recommendation.
3IIIAA Recommend the AA/ORD ensure significant improvements are
made in assistance agreement management to assure compliance with
agreement terms and that Agency 'resources are being effectively
used and safeguarded against waste and abuse.
Response: Concur
Corrective Action: The AA/ORD established an ORD-wide work group
to implement a series of management improvements. The group is
204 Audit NO. E1JBF2-04-0300
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Appendix I
charged with developing guidance on how to conduct internal
control reviews on ORD's highly vulnerable areas, including
assistance management. The group's final report is due September
30, 1993.
3IIIOD Review adequacy of corrective action taken on prior DIG
audit finding related to infrequent and inadequate -PO site visits
and determine .whether ORD laboratories properly implemented ORD's
actions in this'area.
Response: Concur
Corrective Action: The Director of OEPER will work with ORPM and
GAD to determine and ensure proper implementation of the measures
necessary to provide the corrective actions called for in the
1983 OIG audit. OEPER will send a report of findings and
additional corrective actions to ORPM by April 30, 1993. See
response to 3IIOD-11.
3IIILD-1 Require that CA POs obtain quarterly progress reports
from cooperators, in compliance with CA special conditions and
Agency policies, to assist them in monitoring the status,
progress, problems, and expenditures under CAs. CA special
conditions should require written progress reports to document
laboratory review and oversight of cooperator activities.
Response: Concur
Corrective Action: On June 6, 1992, the ERL-A Director issued
LOPs 5330-6, requiring POs to maintain a comprehensive file of CA
activities including quarterly/other progress reports. LOP 5330-
8, effective September 28, 1992, requires all POs to conduct and
document site visits to ensure, inter alia, compliance with CA
Special Conditions. On February 9, 1993, a Quality Action Team
was established to review, enhance or modify existing policies
and procedures, or to propose new ones if required, for all
phases of CA pre-award and post-award management. This team is
charged to consider reporting, monitoring, and documentation
among the issues. Finally, and in compliance with LOP 5330-8,
all POs have had their performance standards updated since
November 30, 1992, to reflect increased and specific emphasis on
management and documentation of CA oversight. Laboratory
management will use these standards in evaluating performance at
the end of the current performance period.
3IIILD-2 Ensure that CA POs comply with all Lab Operating
Procedures and Assistance Administration Manual requirements in
the management of CAs.
205 Audit MO. E1JBF2-04-0300
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Response: Concur
Corrective Action: Effective November 30, 1992, all PO's
performance agreements were modified with an additional standard
requiring specific accountability for CA management. Branch
Chief agreements were also modified to focus more attention on
this element of supervision. On February 9, 1993, a Quality
Action Team was formed to review current practices and to propose
additional actions by April 15, 1993. In addition, the
Laboratory will establish an internal review and audit system for
each level of management to determine performance. The new
procedures will be in place by June 1, 1993.
The Director of OEPER will rely upon the Athens experience to
assure that similar review systems are adopted in other OEPER
laboratories for FY 1994.
3IIILD-3 Require frequent site visits by CA POs and allocate
sufficient travel resources to accomplish this critical control
technique-.
Response: Concur
Corrective Action: Effective September 28, 1992, LOP 5330-8, on
"Site Visits," was issued to establish policy and procedures for
PO site visits. This LOP, requiring a minimum of one site visit
per year coupled with one to two visits, to ERL-A per year, will
dramatically improve oversight. Additional management oversight
will be through the performance agreement process. Compliance
with this policy will be checked as part of OEPER's annual
management review process cited in the preceding responses.
3IIILD-4 Require management review of PO trip reports for CA/IAG
site visits and that the reports, in particular, adequately
document PO oversight of expenditures under extramural
agreements.
Response: Concur
Corrective Action: Effective September 28, 1992, ERL-A LOP 5330-8
was issued requiring site visits, specifically noting that the
visit should verify to the extent feasible that resources
(personnel, equipment, facilities, etc.) charged to the project
are actually used thereon. In the quarterly ERL-A management
reviews, each Branch Chief will report the progress of CAs and
document and review the trip report files. The LOP 5330-8 also
requires that trip reports be forwarded to GAD for their official
records file. Management control for this action will be through
206 Audit NO. E1JBF2-04-0300
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Appendix I
the newly implemented performance standards effective November
30, 1993, and the management review and audit process.
3IIILD-5 Remind CA POs of their financial management responsi-
bilities as delineated in EPA's Assistance Administration Manual
and request that GAD provide FSRs to POs for their use in
monitoring cooperator financial transactions.
Re spons e: Concur
Corrective Action: ORD will work with OARM to ensure that FSRs
are sent to the POs for review. The Laboratory Director will
issue written guidance to ERL-A POs by June 1, 1993.
3IIILD-6 Ensure that CA POs receive copies of FSRs from GAD as
required by the Assistance Administration Manual and that they
review the FSRs and report any discrepancies to GAD.
Response: Concur
Corrective Action: As part of the ongoing project-by—project
review of CAs and lAGs, we will request that all relevant FSRs.be
forwarded to the POs-from GAD or FMD, as OARM prefers. We would
prefer that FMD use FAX service to send copies of FSRs to the
POs. Any discrepancies noted upon PO review of those FSRs will
be reported to GAD.
3IIILD-7 Ensure that POs maintain adequate written records .to
document their management and oversight of CAs, including but not
limited to all ERL-A and recipient correspondence relating to the
award, performance, and closeout of assistance agreements.
Response: Concur
Corrective Action: LOP 5330-6, Project Officers' Files, was -
issued on June 6, 1992, requiring that POs organize and complete
their project (CA, IAG) files. The LOP requires, inter alia, .
that the following will be included in the PO files: letters,
memos, ROCs, phone calls, trip reports, deviations, close-out
memos, equipment, disposition memos, etc. Additional management
control will be provided through additions to the PO performance
standards (completed November 30, 1992) and soon to be
established management review and audit procedures for laboratory
and HQ management.
3IIILD-8 Require and ensure that cooperatprs submit QA plans and
that ERL-A staff properly perform QA audits of cooperator,
projects and document these audits in ERL-A files.
207 Audit No. E1JBF2-04-0300
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Appendix Z
Response: Concur
Corrective Action: QA plans are required for all CAs and lAGs
that make environmental measurements. Their existence and a
review of their adequacy are required upon funding (LOP 5330-5,
Documentation Requirements for Preparation of Cooperative
Agreement Funding Packages, 8-28-91). Effective September 28,
1992, LOP 5330-8, Site Visits, requires POs to conduct QA audits
as a major element of site visits. For current CAs and lAGs that
require QA plans, POs conducted site visits and performed QA
audits. All QA plans and their recent audits on file with both
the Laboratory QA Officer and each PO file will be forwarded to
the GAD files by May 1, 1993.
CHAPTER 4 - RECOMMENDATIONS
4IAA-1 Consider decreasing scopes of laboratory contract awards
to award contracts to more expert firms in each technical area
and to increase competition for technical support contracts.
Response: Concur
Corrective Action: All Technical Support contracts require OEPER
Director's review and approval prior to formal request for
procurement being sent to 0AM. As part of the review process,
the scopes of work are carefully evaluated to enhance
competition. The Director of OEPER will examine the types of
technical expertise required for on-site support at the Athens
Laboratory and issue a report by September 30, 1993. A copy of
the report will be provided to OIG.
4IAA-2 Create an extramural resource management position at
remote laboratories, independent of laboratory management, to
oversee the management of extramural resources.
Response: The AA-ORD previously directed that an extramural
management expert position be created in every ORD Laboratory
this year.
Corrective Action: The Director of ORD's ORPM has developed and
distributed model position descriptions for the extramural
management expert positions. ORPM is now assisting the
Laboratory Directors in the recruitment and hiring of qualified
personnel for these positions.
4IAA-3 Ensure that ORD managers' performance standards and
evaluations clearly establish accountability for compliance with
procurement regulations and Agency's acquisition policies.
208 Audit No. E1JBF2-04-0300
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Appendix I
Response: Concur
Corrective Action: The Director of ORD's ORPM will reissue policy
by April 30 to insure that performance standards include proper
accountability for extramural management. ORPM will require a
report from each office and Laboratory Director certifying that
this has been done.
4IOD-1 Evaluate ERL-Athens research mission focusing on core
programs. Establish what research activities should be performed
on-site by FTEs or on-site off-site via contracts and other
extramural agreements.
Response: Concur
Corrective Action: This evaluation will be completed as part of
the plan that will be developed and completed by September 1,
1993 in response to recommendation 2AA.5. All technical support
contracts must be approved by OEPER HQ, and part of this review
focuses on the on-site/off-site nature of the work.
41OD-2 Review ERL-Athens on-site contractor tasks to determine
whether the work should be eliminated, moved off-site, or
retained under strict controls. This should include an
evaluation of existing and future contract activities that
provide long-term on-site support to determine if ERL-Athens is
continuing to improperly award such contracts or using its
contracts for prohibited contract activities. Particular
attention should be given to repetitive awards to the same
contractor.
Response: Concur
Corrective action: The Deputy Director of OEPER in conjunction
with ORPM and OAM will conduct a review of existing work
assignments to determine if work should be eliminated. Review
will be completed by June 15, 1993. All future technical support
contracts require OEPER HQ review and approval so that
competition is enhanced and that there is no potential for
personal services and inherently governmental functions.
41OD-3 Revise laboratory managers' performance evaluations to
increase the criticality and weight of proper procurement of
extramural resources.
Response: Concur . "
Corrective Action: The Director of OEPER will rewrite the
209 Audit No. E1JBF2-04-0300
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Appendix I
performance standards for the OEPER Laboratory Directors to give
the needed emphasis to management of extramural resources. This
effort will be completed by May 1, 1993.
4IOD-4 Provide adequate guidance, in coordination with OGC and
CMD, to ensure that laboratory managers understand their
extramural limitations and provide close oversight over
extramural operations to include:
* The review of an annual Acquisition Plan prepared by
ERL-Athens and other OED laboratories to demonstrate
laboratory compliance with ORD policy and procurement
regulations during the coming fiscal years.
* Systematic reviews of laboratory operations, in conjunction
with CMD, to assure adherence with required contract
acquisition and management regulations, including applicable
EPA/ORD policies. Also, to ensure that ERL-Athens is in
compliance with its acquisition and contract management
plans.
t*^.
* . Requiring more technical evaluation members from
organizations other than the laboratory procuring the
contract panels for competitive procurement to reduce the
potential for biased procurement.
* Eliminate requirement for employee commitment letters that
may bias contract awards in favor of incumbents.
Response: Concur
Corrective Action: The Director for OEPER will review the current
schedule, format, and approval process for annual acquisition
plans and research workplans for the laboratories. By June 1,
1993, he will issue guidance for the development, submission and
approval of both documents by the Office of the Director prior to
September 30, 1993. (The Athens strategic study due September 1,
1993, is needed to complete the plan.)
The OD will carry out annual reviews and audits to comply with
this recommendation as described in our response to
Recommendation 3HOD.4.
OEPER already has a requirement for one member of the TEP to be
external to the Laboratory. OEPER will issue new guidance that
in panels with more than 4 or 5 members, the number of outsiders
must be two. Guidance will be issued by April 15, 1993.
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OEPER has eliminated the need for prospective bidders to submit-
commitment letters from prospective employees on a case-by-case
basis for new recompetes of contracts. OEPER will issue general
policy by April 15, 1993.
4ILD.1 Develop, as part of the annual planning process, a
detailed Acquisition Plan, documenting ERL-A's planned
acquisitions, the justification for these acquisitions, and how
competition will be increased. Also, for each on-site support
contract, a contract management plan describing procedures and
controls to ensure that contracts are properly used and managed
in accordance with the FAR and existing Agency policies. Both
documents should be reviewed and approved by ORD and CMD.
Response: Concur
Corrective Action: ERL-Athens will prepare an annual plan
describing all planned extramural activity, including contracts,
CAs, and lAGs. This plan will be submitted to OEPER for review,
as part of OEPER *s review of all Athens extramural activity.
,-~
CMD, in conjunction with ORD, issued new guidance in FY92 that
required a detailed plan in FY93 for acquisitions valued at
$25,000 or more. To assist in acquisition planning, general
guidance was provided that requires an extensive justification
and HQ approval for all new on-site contracts. Further, 8 (a)
contractors that are about to graduate from the 8 (a) program will
compete for any new or follow-on work. All other contracts also
will be recommended for competition,
A draft LOP was prepared on January 15, 1993, to establish
policy, procedures, and guidance for the management of on-site
level-of-effort, research support contracts. It is being
reviewed by HQ and CMD. On February 12, 1993, an Athens
Management Control Enhancements Tracking System for Contracts was
established to ensure implementation of various control measures.
We have also developed a new strategy that dramatically downsizes
on-site contractor support in FY94. We are moving ahead with
plans to have this strategy implemented by October 1, 1993.
Also, the FY93 Management. Review focused entirely on extramural
management with emphasis on progress made in implementing the
recommendation of the joint ORD/CMD Acquisition Management
Improvement Review.
4IIAA Through ORD managers' performance standards and
evaluations, establish strict accountability for contract
management in compliance with regulations and contract terms.
This .should include accountability for proper oversight and
211 Audit No. E1JBF2-04-0300
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Appendix Z
control of laboratory extramural operations.
Response: Concur
Corrective Action: The Director of ORD's ORPM will reissue policy
by April 30, 1993, to insure that performance standards include
proper accountability for extramural management. ORPM will
require a report from each Office and Laboratory Director
certifying that this has been done.
4IIOD-1 Instruct ERL-Athens director to refrain from using
on-site contractors for directed subcontracting of consultants.
Response: Concur
Corrective Action: The OEPER Director has admonished the ERL-A
Director to refrain from any and all directed subcontracting.
4IIOD-2 Take necessary action to ensure that ERL-Athens
contracts are managed in accordance with regulations and Agency
policies. Specifically, the Director should:
* Require ERL-Athens to submit a contract management plan
describing how contracts retained for on-site support will
be controlled to prevent improper contract activities i.e.,
personal service relationships, directed subcontracting, and
contractor performance of inherently governmental
activities.
* Direct ERL-Athens to place available FTEs into the most
critical technical support positions currently performed by
contractors which are determined to be essential for
retention of Agency expertise or are inherently governmental
or personal services in nature. If sufficient FTEs can not
be obtained to replace contractors, either through staffing
increases or conversion of extramural funds, or the work can
not be moved off-site or performed on-site without a
personal services relationship, these positions and related
tasks should be eliminated.
Response: Concur
Corrective Action: The Laboratory has submitted a draft LOP for
approval. OEPER will review and approve or provide comments- by
April 15, 1993.
The FTE issue will be addressed by the on-site review by the
Deputy Director of OEPER cited in Recommendation 2AA.4. The
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Appendix I
Deputy Director will report his actions or his recommendations by
June 30, 1993. Proper controls will be established for any
remaining on-site work.
4IIOD-3 Perform periodic, on-site reviews, in conjunction with
CMD, to independently evaluate ERL-Athens on-going use and
management of contracts. This should include a review of the
overall utilization of on-site contracts to eliminate contractor
performance of inherently governmental or personal services which
creates an over-dependence on incumbent contractors.
Response: Concur
Corrective Action: The revised management review policy and
procedures to be prepared in response to Recommendation 2AA.6
will satisfy this recommendation.
CHAPTER 5 - RECOMMENDATIONS
5AA-1 Provide guidance to ERL-Athens concerning appropriation
law, proper uses of funds, and appropriation restrictions related
to funds ERL-Athens receives.
Response: Concur
Corrective Action: ORD understands the need for clear guidance
and agrees that each Office and Laboratory should know these
items. The Director of ORD's.ORPM will request assistance from
OGC and OARM in defining the limits of Agency policy in these
areas. ORPM will issue new, strengthened ORD-wide guidance on
these matters by September 30, 1993,
>
5AA-2 Obtain formal, written OGC legal opinions concerning: (1)
potential appropriation law violations related to ERL-Athens use
of S&E and Superfund monies to purchase and construct a modular
building; and (2) use of R&D funds to pay for development of a
day-care center for ERL-Athens staff (see Chapter '3). If any
violations in occurred, report any resulting Anti-deficiency Act
violations in accordance with applicable law.
Response: Concur
Corrective Action: The Director of ORD's ORPM has already
requested OGC legal opinion relative to these issues.
5AA-3 Instruct ERL-A to refrain from using purchase orders to
circumvent maximum per diem rates and strictly comply with
Federal travel regulations in the authorization and payment of
213 Audit No. E1JBF2-04-0300
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Appendix I
all travel costs.
Response: Concur
Corrective Action:. The OEPER Director will so instruct ERL-Athens
and other OEPER Laboratories by April 30, 1993. The Director of
ORD's ORPM will issue appropriate ORD-wide policy to all ORD
Offices and Laboratories by June 30, 1993.
5AA-4 Instruct ERL-A to hold future conferences in locations
that offer suitable accommodations at the least cost to the
government and that comply with current EPA guidance on
restricting EPA meetings at resort areas.
Response: Concur
Corrective Action: The OEPER Director will so instruct ERL-Athens
and other OEPER Laboratories by April 30, 1993. The Director of
ORD's ORPM will issue appropriate ORD-wide policy to all ORD
Offices and Laboratories by June 30, 1993.
5AA-5 Require ERL-A to provide supporting documentation and
justification for the unidentified $3,146 charge on the purchase
order for the Galloway Gardens conference. Instruct ERL-A that
future purchase order costs should be fully justified in the
purchase.request and properly supported by file documentation and
invoices.
Response: Concur
Corrective Action: The OEPER Director will request the supporting
documentation from ERL-A, analyze it, and report the results of
his analysis to the Director of ORD's ORPM by April 30, 1993.
Concerning purchase order costs, the OEPER Director will so
instruct ERL-Athens and other OEPER Laboratories by April 30,
1993. The Director of ORD's ORPM will issue appropriate ORD-wide
policy to all ORD Offices and Laboratories by June 30, 1993.
CHAPTER 6 - RECOMMENDATIONS
6AA Recommend the AA/ORD require proper implementation of
ERL-Athens FMFIA internal control process to ensure material
weaknesses are properly identified and adequate controls are
established for extramural resource management and administrative
process.
214 Audit NO. E1JBF2-04-0300
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Appendix Z
Response: Concur
Corrective Action: The Director of ORD's ORPM is directed to
implement an ORD-wide FMFIA improvement effort, including all
five elements listed. The first round of this project will be
completed by September 30, 1993. The Director of OEPER will
include an assessment of Athens' FMFIA process in the Laboratory
Director's FY 1993 performance evaluation.
60D.1 Instruct the ERL-Athens director in the importance of
proper implementation of the FMFIA and establishment of effective
internal control systems over every critical phase of laboratory
operations.
Response: Concur
Corrective Action: The Director of OEPER will issue a memorandum
to all OEPER Laboratory Directors emphasizing the importance of
proper implementation of the FMFIA. In that memorandum he will
indicate that OEPER will use the Athens Laboratory as a pilot for
structuring and completing a detailed FMFIA review and
evaluation. The Athens FMFIA effort will be completed by July 1,
1993, and will be used as the basis for action by other
laboratories and for reviews and approvals of FMFIA evaluations
by OEPER.
60D.2 Ensure that the ERL-Athens director's, as well as all
other laboratory directors' performance standards contain a
critical element for FMFIA implementation.
60D.3 Establish more effective oversight of all laboratory FMFIA
documentation and implementation to ensure that laboratory
directors properly implement FMFIA requirements in compliance
with statutory and Agency procedures and establish effective
controls that can be readily identified, tested and evaluated.
60D.4 Ensure that laboratory directors are held accountable for
any future deficiencies in their FMFIA processes, documentation,
and control systems.
60D.5 Include in any future on-site reviews at ERL-Athens or
other ORD laboratories an evaluation of FMFIA documentation and
effectiveness of related control systems to ensure compliance
with applicable laws, regulations and policies.
•. 4-
Response: Concur with 60D.2 through SOD.5
Corrective Action: As part of the Athens pilot, develop guidance
215 Audit NO. E1JBF2-04-0300
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Appendix 1
and procedures for the FMFIA development, review and evaluation
process for all OEPER laboratories. The new process will be
implemented in FY 1994.
6LD.1: Report extramural management as an ERL-A material weakness
for the FY93 FMFIA report.
Response: Concur
Corrective Action: Extramural management will be reported as a
material weakness for the FY1993 FMFIA report for ERL-Athens. As
part of that process, an action plan will be developed listing
corrective measures to be undertaken and the schedule for doing
so.
6LD.2 Review current FMFIA processes and documentation at ERL-A
and ensure that:
* All critical event cycles for extramural management and
administrative processes are identified with specific
control objectives and control techniques. Detailed control
objectives and techniques are identified for all critical
event cycles and are tailored to ERL-A operations including
IA6 and CA activities (not merely references to
all-inclusive ORD reports).
* Control objectives and techniques are documented in
sufficient detail to permit testing and evaluation of
control implementation.
* Reviews and tests are performed on established controls to
ensure adequacy and proper implementation.
Response: Concur
Corrective Action: The Athens Laboratory Director will develop an
improved FMFIA process. Current FMFIA processes and
documentation will be carefully reviewed. Specific control
objectives and techniques will be identified for extramural
management and administrative processes in event cycle
documentation. Detailed, ERL-A specific control objectives and
techniques will be identified for all critical event cycles
including IAG and CA activities. Control objectives and
techniques will be documented in sufficient detail to permit
testing and evaluation of control implementation. Established
controls will be reviewed and tested to ensure adequacy and
proper implementation.
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Appendix I
6LD.3 Document specific FMFIA requirements and responsibilities
in the performance, standards of all ERL-A staff with contractor
or cooperator oversight functions and managers who supervise
employees with oversight responsibilities.
Response: Concur
Corrective Action: Performance standards documenting specific
FMFIA requirements and responsibilities will be instituted by
April 30, 1993, for all ERL-A staff having contract, IAG or CA
oversight functions and for managers who supervise employees who
have such oversight responsibilities. Inclusion of the standards
will be verified and emphasized during mid-year reviews.
6LD.4 Ensure that ERL-A staff with FMFIA responsibilities are
held accountable for proper implementation of controls over their
extramural management activities.
Response: Concur
Corrective Action: ERL-A staff with FMFIA responsibilities will
be held accountable for proper implementation of controls over
their extramural management activities. The laboratory FMFIA
processes will include measures to check compliance with FMFIA
responsibilities. Performance evaluations conducted at the end
of FY 1993 will include such considerations.
CHAPTER 7 - RECOMMENDATIONS
7OD-1 Ensure that ERL-Athens managers and staff receive ethics
training regarding their responsibilities as Federal officials
for the ethical conduct of government business and Federal
programs.
Response: Concur
Corrective Action: A special ethics course tailored to ERL-Athens
issues will be developed by OEPER and Athens staff in
consultation with OGC by July 15, 1993. Training given at
ERL-Athens by September 30, 1993.
7OD-2 Instruct ERL-Athens staff, contractors, and on-site
cooperators that deliberate obstruction of a Federal audit or
destruction of Federal records without proper approval is a crime
punishable under 18 U.S.C.
7OD-3 Inform ERL-Athens staff, contractors, and cooperators of
requirements of the IG Act and their obligation under the Act to
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Appendix I
furnish full and accurate information to any interrogatories by
DIG auditors in the conduct of an official inquiry.
Response: Concur
Corrective Action: All OEPER staff, contractors, and cooperators
will be notified in a memo from the Office Director of the
requirements to full cooperate with IG Act. Memo will be
distributed by April 15, 1993.
7OD-4 Require ERL-Athens to establish record retention policies
and procedures in accordance with EPA's Records Management Manual
and ensure that records documenting day-today management of
contracts and extramural agreements are maintained for the proper
retention period and for easy access by any potential reviewers
of this information.
Response: Concur
Corrective Action: All OEPER units will be informed of the record
retention policies and procedures in accordance with EPA's
Records Management Manual including the proper procedures for
acquiring additional storage space by May 1, 1993.
218 Audit NO. E1JBF2-04-0300
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Appendix Z
GRANTS ADMINISTRATION DIVISION (GAD) COMMENTS
Response to Recommendations
Although GAD takes significant issue with many of the audit
findings, particularly its use of inflammatory language, we
generally believe the recommendations are reasonable. Our
concurrence or non-concurrence for each of the recommendations
applicable to GAD are as follows:
\ Agency CoTn'ment
0 Page 36: "Provide definitive written policies and
procedures on the award and administration of assistance
agreements, to include the specific eligible purposes of
assistance agreements under the 1977 FGCA Act, and provide this
guidance to ERL-A managers and POs, as well as to POs EPA-wide."
We concur with this recommendation, but we believe the
beginning of the recommendation should•say "Update, clarify, and
communicate...",
OIG 'Evaluation
GAD concurred with recommendation but did not cite corrective
action taken or planned or milestones for completion of any
planned corrective actions. We have changed the recommendation
to reflect the word changes requested by GAD.
Agency comment
0 Page 37: "Establish Agency-wide policy on competition
in award of assistance agreements that complies with the intent
of the 1977 FGCA Act."
We concur. We plan to develop EPA-wide criteria on
when programs should compete grants and cooperative agreements.
OIG Evaluation
GAD concurred with the recommendation and identified planned
corrective actions. However, a milestone date for completion of
corrective actions will be needed to resolve this recommendation.
219 Audit NO. E1JBF2-04-0300
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Appendix I
Agency Comment
0 Page 37: "Strengthen oversight and review of proposed
CAs and lAGs to ensure their compliance with applicable laws,
regulations, and Agency policies before official approval of
these assistance agreements."
We concur. We intend to review GAD's application
review process to assure that proposed cooperative agreements and.
interagency agreements comply with applicable laws, regulations,
and Agency policies. Based on this review we will develop a plan
on how best to strengthen the process, e.g., additional training
for grants specialists, shifting of resources, etc.
OIG Evaluation
GAD concurred with recommendation and included planned corrective
actions. However, milestone dates for completion of actions will
be needed to resolve this recommendation.
Agency comment
0 Page 37: "Provide increased oversight of PO and
recipient management, both technical and financial, to ensure
proper PO compliance with their oversight responsibilities and to
ensure recipient compliance with terms of their agreements. In
addition, GAD should aggressively enforce its reguirements on
program operations and ensure that it is complying with its own
reguirements to include obtaining PO trip reports and submitting
FSRs to POs for review."
We concur. We intend to develop a plan to meet this
recommendation by efficiently focusing available Agency resources
on front-end efforts to assure that reguirements are clearly
understood (e.g., training and communication) and implemented
(e.g., program office certification of compliance) and by selected
post-award monitoring with the resources available.
OIG Evaluation
GAD concurred with recommendation and included planned corrective
actions. However, more specific information on the actions planned
and milestone dates for completion of actions will be needed to
resolve, this recommendation.
Acrepcy Comment
0 Page 37, "Review the adeguacy and applicability of
220 Audit No. E1JBF2-04-0300
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Appendix I
current PO training and require such for all CA and IAG POs."
We concur. A new 3-day PO training course currently
under development will be required training for all POs. This new
course will be more current and up-to-date than the current PO
training course. We have scheduled pilot testing of this new
course in late FY 93. "We will conduct the training for all EPA POs
(approximately 1,900), using existing Agency resources over a
three-year period.
QIC Evaluation
GAD concurred with recommendation and included planned corrective
actions. However, milestone dates for completion of actions will
be needed to resolve this recommendation.
Agency Comment (
• . }
0 Page 37: "Compile and maintain the names and locations of
all current IAG and CA POs for consultation, when- needed, and to
ensure they are provided written guidance and training materials in
a timely manner."
GAD already has a computerized data base that includes
the names, phone numbers and addresses of the EPA Project Officers.
We agree that it is valuable to send POs appropriate written
guidance in a timely manner and will employ the existing data base
for that purpose. -
OIG Evaluation
The recommendation has been changed to reflect the existence of the
PO data base in accordance with GAD's response. The draft report's
statement that GAD did not have such a data base was based upon
interviews with GAD managers who were apparently unaware of the
existence of a PO data base.
GAD generally concurred with the intent of the recommendation.
However, specific corrective actions with milestone dates for
completion of these actions will be needed to resolve the
recommendation.
0 Page 37: "Review the qualifications of all prospective
POs and ensure the individuals have the proper training and
experience required. A certification program for CA and IAG POs,
similar to the certification of contract POs is recommended.11
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Appendix I
We believe the program offices are responsible for
reviewing the qualifications of all prospective POs and ensuring
individuals have the proper experience.
We concur with the need for PO certification. We plan to
phase in implementation of a certification program between FY 94
and FY 97 working within existing resources. In the interim, we
plan to issue provisional certification to all current POs with the
requirement that they must take and pass the three-day PO training
course and meet any other established requirements within the next
three years (consistent with our ability to provide the training
courses)-
OIG Evaluation
We have changed the recommendation to indicate that GAD should
perform a secondary review of the qualifications of POs designated
by program offices. If GAD is going to maintain the data base of
certified POsf there should be some review by GAD to ensure that
POs designated by program offices have had the required training
and are properly certified.
GAD concurred with the recommendation to establish a assistance PO
certification program.
0 Page 37; "Establish jointly with ORD, periodic/ cyclical
on-site reviews of laboratory management of assistance agreements."
We concur. We intend to work with ORD to develop a
practical plan on how to best address this recommendation within
existing resources.
OIG Evaluation
GAD concurred with the recommendation; however, more specific
planned corrective actions and milestone dates for completion of
these actions are needed to resolve this recommendation.
Aen
0 Page 70: "Provide guidance to ORD managers and CA POs on
the differences between acquisition and assistance and appropriate
uses of contracts and assistance agreements with illustrations and
definitive examples."
We concur. We are currently updating our guidance for
222 Audit No. E1JBF2-04-0300
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Appendix I
distinguishing between grants and contracts to include numerous
illustrations and case studies.
OIG Evaluation
• * V
GAD concurred with recommendation and included planned corrective
actions. However, milestone dates for completion of actions will
be needed to resolve this recommendation. ' ' '
Agency comment
0 Page 70: "Assist ORD in preparing guidance on the proper
uses of R&D funds as relates to the specific types of activities
that are eligible for funding under CAs."
We concur.
OIG Evaluation
GAD concurred with recommendation; however, planned corrective
actions and milestone dates for completion of these actions will be
needed to resolve this recommendation.
Agency Comment
0 Page 70: "Assign responsibility for EEL-A extramural
agreements to one grants specialist to improve controls over
extramural resources through increased familiarity with laboratory
operations/staff. Currently ERL-A agreements are assigned
haphazardly to whichever specialist can take another case.
Therefore, ERL-A's agreements are scattered among many specialists
with no one person seeing the whole picture of ERL-A agreement
awards. If. one specialist had seen all of the NASA lAGs for
exchange of extramural funds for FTE travel, the GAD specialist may
have detected the improper use and disapproved the agreements."
We non-concur with the statement that projects are
assigned haphazardly. Grants, cooperative agreements and lAGs are
assigned systematically using, a log. Projects are reassigned
periodically to even out the workload between specialists.
We also non-concur with the recommendation to assign all
of the ERL-A projects to one specialist. This recommendation
requires further review. We are concerned that it would create
uneven workloads among specialists and would slow down the
processing of new applications. Also, we do not agree that
assigning all projects to one grants specialist would prevent the
abuses alleged in the audit report. As noted in the report, each
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Appendix I
specialist has 150 projects. Each one is a different project,
administratively separate from all others, with different start
dates, different end dates, varying project officers, different
scopes of work, etc. Specialists administer cooperative agreements
project-by-project, rather than on a laboratory-wide basis.
We are, however, considering specific laboratory liaison
arrangements that deal with the concerns raised in the report.
OIG Evaluation
We removed the word "haphazardly" and inserted "systematically."
GAD non-concurred with assigning all ERL-A projects to one
specialist; however, GAD agreed to perform further review of this
proposal. One of GAD'S objections to this method of assigning
cases is that it may result in an uneven distribution of workload
and that each assistance agreement is administratively separate
with different start dates, different scopes of work, etc.
However, a GAD manager told us that if one grant specialist had
been assigned the NASA lAGs for instance, the specialist may have
detected the misuse of the lAGs to launder R&D fund_s into travel
funds for FTEs. The GAD manager also said under the current method
of assigning cases, this misuse of multiple lAGs would never be
detected. Therefore, if cases could be more or less evenly
distributed by location rather than next available specialist, we
continue to believe that better oversight of the propriety and use
of assistance agreements and lAGs could be obtained.
Agency Comment
0 Page 70: "Provide guidance to POs that prohibit the use
of lAGs for the purpose of reprogranoaing appropriated funds and
awarding research funds to foreign countries unless proper approval
or statutory authority is obtained."
We concur.
OIG Evaluation
GAD concurred with recommendation; however, planned corrective
actions and milestone dates for completion of these actions will be
needed to resolve this recommendation.
224 Audit MO. E1JBF2-04-0300
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Appendix x
OFFICE OF ACQUISITION MANAGEMENT (QAM) COMMENTS
CHAPTER 2 RECOMMENDATIONS
The draft audit report recommends that the Assistant
Administrator for Administration and Resources Management require
the Director of the CCMD to:
Strengthen CCMD's .contract review process to ensure that contract
proposals are thoroughly reviewed and that all questionable
actions are quickly resolved. Any procurement, requests for
sole-source contractor including noncompetitive 8' (a) contract
proposals should be closely scrutinized as to need for
sole-source contracts and contract cost estimation to avoid
competitive thresholds.
We agree with the OIG's recommendation. The CCMD review process
has been strengthened in the following areas:
a. As the result of Total Quality" Management (TQM)
findings, a team approach in now used to review all major
procurement request documents. The team consists of the assigned
CS for solicitation/award; the Cincinnati Acquisition Management
Branch (CAMB) Chief and/or PA; the Cincinnati Contract Management
Branch (CCMB) Team Leader and the CS on the incumbent contract
(for follow-on); and, after the first strategy meeting, program
personnel. Concerted efforts are made to limit and restrict SOW
services, identify the potential for Conflict of Interest (COI),
sensitive activities, personal services and inherently
governmental functions, and take appropriate measures. . Major
issues are escalated to division directors, office directors and
the Senior Resource Official for the program office. Although it
is recognized that all problems cannot be corrected in one year,
improvements have been achieved relative to FY 93 follow-on
solicitations to ORD on-site support contracts, including
reducing the emphasis for personnel qualifications and the number
of positions to be evaluated.
b. In FY 93 CCMD's internal control report identified the
TEP proposal evaluations as a weakness in the acquisition
process. More sample evaluations and instructive materials are
being developed for TEPs (see Attachment 8) and emphasis has been
placed on the TEP briefing conducted by the CS (see Attachment
9). This area will continue to be assessed for improvements.
c. Revised 8(a) procedures have been developed to ensure
that programs review qualification statements for more than one
8 (a) firm before selecting one for negotiation and that they
225 Audit NO. E1JBP2-04-0300
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Appendix I
provide written documentation to CCMD which establishes their
rationale for selection (see Attachment 2). Part of the
documentation includes statements about whether the program has
other contracts, or plans to have other contracts, with the
selected 8(a) firm. Program estimates are more closely
scrutinized. If any are close to $3 million; CCMD submits a
competitive request to the SBA and revises the estimate to more
than $3 million based on recent historical experience with
Program estimates versus 8(a) proposals.
These reviews have proven to be excellent control techniques
since they provide for the identification, elevation and
resolution of potential regulatory or legal vulnerabilities in a
proactive fashion.
QIGEvaluation
OAM generally concurred with the recommendation and identified
planned corrective actions. However, the response does not
identify what specific procedures and guidance were
institutionalized to correct deficiencies in OAM's procurement
process. In order to determine the adequacy of OAM's corrective
actions, OAM will have to provide examples of specific procedures
and guidance which were implemented.
OAM Comment
Instruct Contracting Officers (COs) to immediately notify
CCMD's director of any potential violation of contract laws
and regulations or any unsound contract management practices
identified. Also, ensure that the director of CCMD
expeditiously resolves any potential violations or unsound
practices.
We agree with the intent of this recommendation but not with the
idea that every problem be elevated to the director's level.
This would soon result in gridlock. In December 1992 the Office
of Acquisition Management (OAM) issued Procurement Policy Notice
(PPN) No. 93-01 (see Attachment 10} which instructed COs to
elevate any and all irregularities and established the chain of .
command for expedited resolution of such matters. Team leaders
have been designated in CCMB to oversee work processes and
identify such irregularities so that they will be expeditiously
elevated to the appropriate level.
OJG Evaluation
OAM generally concurred with the intent of the recommendation,
226 Audit No. E1JBF2-04-0300
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Appendix Z
but disagreed that every potential violation of the law and
unsound management practice be evaluated to the director level.
The December 1992 PPN No. 93-01 mentioned by OAM seems to
adequately address procedures for the escalation up the chain of
command any identified irregularities. Corrective actions
proposed by ORD are responsive to our recommendations and appear
to fulfill the acceptable action criteria of EPA Order 2750.
OAM Comment
Emphasize to COs that their primary obligation is to ensure
compliance with contract laws and regulations and to protect
the interests of the government while providing timely
service to programs. Establish controls to ensure that CSs
consistently comply with contract laws, regulations, Agency
policy and sound contract management practices in all of
their contract actions.
We agree with the recommendation. Team meetings are used to
emphasize CO responsibilities. Solicitation review boards have
been reinstituted to ensure that decision documents are well
supported; personal accountability has been increased by granting
warrants up to $5,000,000 to qualified CSs. In addition, CCMD
reorganized its CCMB into Teams to support the various POs. Team
leaders have been appointed to track workload and serve as
mentors to contract specialists assigned to the Teams.
A single Specialist has been assigned to manage all contracts
originating from a given Program Office (PO) such as ERL-A. This
specialist now works closely with the CO in the CAMS on any
follow-on contract to ensure that any lessons learned on the
current contract are incorporated into the follow-on. Also, by
being actively involved in the acquisition process, the contract
specialist assigned to manage the contract is aware of different
issues that occurred during the award phase and is better
prepared to manage the contract.
TOM principles have been applied to CCMD's voucher review process
and responsibilities as well as the development of new Work
Assignment Forms and Checklist which must be completed by each
Work Assignment Manager and Project officer for each Work
Assignment. The Checklist specifically addresses all issues
raised in the OIG report (e.g., work outside the SOW, personal
services, subcontract consent). The contract specialists have
been instructed to prioritize their efforts, with careful review
and approval of the Work Assignments and the .contractor's Monthly
Progress Report which supports the monthly voucher submission
being the top priorities. The Specialists' Performance Plans
227 Audit No. E1JBF2-04-0300
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Appendix I
have been changed to reflect this emphasis.
Special letters of instruction have been provided to all
cost-type contractors and Project Offices1 addressing the subject
of subcontractors and consultants (see Attachment 11) . Special
letters of instruction have also been provided to all contractors
and Project officers addressing the subject of Inherently
Governmental Functions and providing copies of Office of Federal
Procurement Policy (OFPP) Policy Letter 92-1 and EPA Order 1900.2
(See Attachments 12 & 13) .
OIG Evaluation
OAM generally concurred with the recommendation and identified
planned corrective actions. However, the response does not
identify what specific procedures and guidance have been
institutionalized to correct the past failure of COs and CSs to
adhere to laws and regulations. In order to determine the
adequacy of OAM's corrective actions, OAM will have to provide
examples of specific procedures and guidance which were
impl emented.
OAM
Examine CCMD's or EPA's competitive contracting process and
streamline where possible to eliminate unnecessary
administrative burdens delays and incumbent bias (i.e.,
personnel commitments) and to overcome program management's
resistance to competitive process awards.
We agree with the recommendation with one exception. As stated
previously, TQM teams are used to examine and streamline the
competitive process. Special care is being taken to
review/revise procurement request documents to restrict
vulnerabilities and enhance competition. Technical evaluation
criteria are scrutinized and revised to reduce emphasis on
personnel qualifications to 25% - 30% of the total weight with no
more than 15%. of total number of personnel evaluated. Market
surveys, public meetings and preproposal conferences (where
travel dollars are available) are used to encourage competition.
For some major on-site procurements, arrangements are made to
have a PO TEP Chair other than the one on the incumbent contract.
CCHD has been working diligently with programs to overcome any
program management resistance to the new contract management
paradigm. We are making progress but with the result of greatly
increased leadtimes and numerous extension to existing contracts
as a result of the learning process involved. We believe that
these delays in the short term are worthwhile in order to achieve
228 Audit No. E1JBF2-04-0300
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Appendix I
long term contract management improvements.
A number of quality actions teams from EPA's Standing Committee
on Contracts Management are exploring options to streamline the
procurement process. We anticipate implementation of their
recommended initiatives beginning this fall.
OIG Evaluation
OAM generally concurred with the recommendation and identified
planned corrective actions, except that they believe that some
delays in the short term are worthwhile in order to achieve long
term contract management improvements. We agree that those
processes which are essential to the integrity of EPA's .•
procurement process should not be overly influenced by time
considerations. But the response does not identify what specific
procedures and guidance have been implemented by OAM to expedite
the procurement process, eliminate unnecessary bias, and overcome
program management's resistance to competitive process awards.
In order to determine the adequacy of OAM1 s corrective actions,
OAM will have to provide examples of specific procedures and
guidance which were implemented.
OAM Comment
Establish-jointly with ORD, periodic/cyclical on-site
reviews of laboratory management of contracts.
We agree with the recommendation. We anticipated conducting
follow-up reviews during FY 93 but budgetary and workload
constraints prevented our conduct of these reviews. The FY 94
and FY 95 budget submissions will include funds, and FTE requests
to continue lab reviews on an annual basis.
OIG Evaluation
OAM generally concurred with the recommendation and identified
planned corrective • actions. However, the response does-not
identify the establishment of a formalized review process and the
scope and timing of planned reviews. In order to determine the
adequacy of OAM's corrective actions, OAM will have to provide a
specific information on their planned reviews.
CHAPTER 4 RECOMMENDATIONS - .- • •
The draft audit report recommends that the Assistant
Administrator for Administration and Resources Management require
the Director of the Office of Acquisition Management - to:
229 Audit NO. E1JBF2-04-0300
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Appendix Z
Provide written instructions to 0AM, ORD and ERL-A staffs
describing the appropriate procurement, use and management
of 8 (a) contracts under CCMD's oversight,
We agree with this recommendation. OAM has issued PPN 92-05 to
provide guidance on use and management of 8 (a) procedures (see
Attachment 17) which includes additional controls on 8 (a) set
asides. Forms (see Attachment 2) are provided to programs which
express an interest in awarding 8 (a) contracts.
PIG Evaluation
OAM concurred with the recommendation and identified planned
corrective actions. OAM identified a September 1992, Procurement
Policy Notice (PPN) 92-05 and Forms provided to program offices
as guidance on use and management of 8 (a) procedures. Although
PPN 92-05 addresses the issue of underestimating and splitting 8
(a) contracts, additional guidance should be provided by OAM
addressing other programmatic issues involving the 8 (a) program.
This guidance should emphasize that EPA is committed to
correcting problems within the 8 (a) program, not eliminating the
use of 8 (a) contracts . The guidance should also emphasize to the
program offices they should maintain an arms-length relationship
with 8 (a) contractors, unlike past practices where their
operations were essentially utilized as extensions of the
program. In addition, the guidance should emphasize that the •
purpose of the 8 (a) program is to develop 8 (a) contractors to
compete in the open marketplace, not to develop an unhealthy
dependence on EPA sole-source contracts. This symbiptical
relationship between 8 (a) contractors and program offices
resulted in abuses of the 8 (a) program such as, the
underestimation and splitting of contracts and extensive
modifications of sole-source contracts.
OAM
Ensure that CCMD performs an in-depth review of all future
8 (a) procurements falling within close range of the
threshold for competing 8 (a) contracts to assess if
requested sole-source procurements are justified.
We agree with this recommendation. CCMD's revised 8 (a)
procedures (see above) , require that Government estimates be
reviewed in depth by the SDBUO and the Chief, CAMB. Although the
procedures do not so state, CCMD itself increases the estimate to
request a competitive 8 (a) acquisition if the program estimate is
near $3 million if historical experience leads us to believe that
the final negotiated price will be over $3 million,
230 Audit MO. E1JBF2-04-0300
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Appendix Z
OIG Evaluation
OAM concurred with the recoflunendation and identified planned
corrective actions. However, a milestone date for completion of
corrective actions will be needed to resolve this recommendation.
QAM Comment
The OIG also recommends that CCMD should not routinely allow a
sole-source procurement when contractors are currently performing
work under an existing contract for that location. We agree with
the intent of this recommendation as well. Under CMD's new 8 (a)
procedures, program offices are required to fill out a
questionnaire which identifies any other 8(a) contracts the
requested contractor holds for the initiating program office and
any intention by the program office to request other contracts
for the firm. The questionnaires are retained by the SDBUO for
later reference as a. control measure. This will enable the SDBUO
to better manage the 8 (a) program and keep any one firm from
monopolizing any location (see attachment 2).
OIG Evaluation
OAM concurred with the recommendation and identified planned
corrective actions. However, a milestone date for completion of
corrective actions will be needed to resolve this recommendation.
OAM Comment
The OIG additionally recommends that CCMD should not routinely
allow a sole-source procurement when the contractor has
demonstrated its ability to successfully compete for similar
contracts at other EPA locations. We disagree with this
recommendation. The decision relative to noncompetitive or
competitive is based on applicable statutes and thresholds
established thereunder. Beginning in FY 90, those statutes have
included the requirement for 8 (a) firms which have been in the
program for 4.5 years' to participate in a certain percentage of
competitive procurements while continuing.to receive a certain
percentage of noncompetitive awards. The number of
noncompetitive and competitive solicitations in which any given
firm participates is monitored by SBA, not by individual user
agencies, since 8(a) contractors receive awards from numerous
other Federal Agencies, each with several contracting offices,
neither EPA nor any Agency other than SBA has the information
which would enable it to determine when a firm should be
competing and when it should receive a noncompetitive award.
That is why Congress has assigned to SBA the responsibility for
231 Audit No. E1JBF2-04-0300
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Appendix I
determining whether an individual contractor should compete any
given requirement. Furthermore, since competition is an expensive
process (costing offerers up to $100,000 per solicitation), and
these firms are still in the developmental stage (as shown by
their 8(a), status), Congress has wisely decreed that competition
shall be conducted only above a certain level ($3,000,000 for
services; $5,000,000 for supplies).
As an additional control, in accordance with FAR 19.806(b), if a
noncompetitive 8(a) proposal in deemed unreasonable and cannot be
negotiated down to a fair and reasonable price, SBA is notified
of the intention to withdraw the solicitation from the 8(a)
program and resolicit under full and open competitive procedures
(see Attachment 18).
OIG Evaluation
OAM's response is inaccurate because it makes assumptions based
on past management practices under the 8 (a) program, not legally
imposed requirements. Nowhere in the Small Business Act does it
state that SBA dictates to the Agency the method o£. procurement.
FAR 48 Section 19.809-1(b) states:
The Agency shall prepare the contract that the SBA will
award to its contractor in accordance with agency
procedures, as if the agency were awarding the contract
directly to the SBA's contractor.
SBA's role is of oversight of the 8 (a) procurement process to
promote the development of 8 (a) companies, not determination of
the Agency's method of procurement. The Agency, not SBA, is
often in the best position to determine whether a contract should
be awarded sole-source or competitively. OAM's first
responsibility should be to assure the integrity of EPA's
procurement process, and then meet requirements of the 8 (a)
program, otherwise, continued abuses in the procurement process
such as occurred in the awarding of the AScI and TAX contracts
may continue.
The statutes OAM refers to on competition in the 8 (a) program are
minimum requirements and do not prohibit the Agency from
requiring competition in procurements under the $3 million dollar
threshold. In addition, OAM implies that determination of
competition within the 8 (a) program is the responsibility of SBA
and that they don't have the information to determine when a firm
should be competing and when it should receive a noncompetitive
award. The award of the AScI contracts is in direct
contradiction to this statement. AScI was awarded .numerous sole-
232 Audit No. E1JBF2-04-0300
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Appendix I
source awards at EPA and essentially did not have contracts
outside of EPA. At ERL-A we were informed that AScI would have
had a commanding position in any recompete of the contract.
Given the primary purpose of the 8 (a) program was to develop
minority firms to compete in full and open competition, it would
seem self evident these contracts should have been competed.
Again, OAM has the primary responsibility to assure the integrity
of EPA's procurement process, not SBA.
OAM
The DIG recommends that CCMD should not routinely allow a
sole-source procurement when contract modifications would
significantly increase the contracts value over the competitive
threshold or extend the contract performance past expiration of
the contractor's 8 (a) eligibility. We agree with this recommen-
dation. Last minute sole source contract extensions are no
longer granted when the 8 (a) contractor is ready to graduate from
the program. No modifications have ever been issued by CCMD that
take an 8 (a) contract issued under noncompetitive procedures over
the competitive threshold. ••- •
. OIG Evaluation
OAM concurred with the recommendation and identified planned
corrective actions. However, a milestone date for completion of
corrective actions will be needed to resolve this recommendation.
OAM Comment
Establish definitive guidelines for justifying removal of
contracts from 8 (a) participation.
We agree with this recommendation. CCMD's 8 (a) procedures include
careful deliberation on whether to remove a contract from the
8 (a) program. The decision on whether or not to retain a
contract in the 8 (a) program past the date of the incumbent
contractor's graduation is based on relevant factors; such as
availability of qualified 8 (a) firms within the applicable
Standard Industrial Classification (SIC) manual code and results
of an SBA Impact Study [if the graduated 8 (a) firm is still a
small business] .
OIG Evaluation
OAM concurred with the recommendation and identified planned
corrective actions. However, a milestone date for completion of
corrective actions will be needed to resolve this recommendation.
233 Audit NO. E1JBF2-04-0300
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Appendix I
OAH Comment
Establish a maximum potential value or percentage increase
for all contracts that will automatically trigger a re-
compete .
We disagree with this recommendation. Arbitrary dollar amounts
or percentages cannot be substituted for good management
decisions. Each decision must stand on its own merits. We agree
that significant modifications that increase LOE or the scope of
contracts should not be approved unless specific statutory
authority exists to support the increase.
OIG 'Evaluation
At a minimum, OAM should consider establishing a maximum
potential value or percentage increase which would automatically
trigger a review by higher levels of management to determine
whether program offices are avoiding competitive procedures. OAM
is correct that arbitrary dollar amounts or percentages cannot be
substituted for good management decisions, but these good
management decisions were not always evident in the " past.
Therefore, we have changed the recommendation to require
"consideration of recompete" when a certain percentage increase
of maximum potential value is reached.
OAM
Ensure that ERL-A does not bias procurements by specifically
ensuring that competitive procurements do not deny short
extensions of solicitation periods where such extensions are
justified; that competitive procurements do not place an
unreasonable amount of technical evaluation ranking points
on the strengths of an incumbent contractor and that
competitive procurements do not require commitment letters,
We agree with the OIG recommendations with the exception of the
requirement for commitment letters. CCMD oversight of ERL-A and
other client programs has increased. The following measures are
in effect:
(i) Requests for extensions of proposal periods are granted
when they are reasonable and when they promote competition. As
in the case of the ERL-A RFP, a reduced extension may be granted
if the full time requested is not deemed to be needed.
(ii) Technical evaluation criteria and weights are reviewed
and revised to develop an equitable plan to ensure that the
234 Audit Mo. E1JBF2-04-0300
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Appendix I
Government receives the quality of goods and services it requires
without unduly restricting competition.
(iii) Commitment letters for key personnel are required in
order to preclude "bait and switch" tactics by unscrupulous
offerers. However, CCMD is working to decrease the number of key
personnel and thus the number of commitment letters required
while retaining safeguards for the Government's interests.
OIG Evaluation
OAM generally concurred with the recommendation- and identified
planned corrective actions, except for the elimination of
commitment letters. If the commitment letters are used as OAM
states to retain key personnel in order to preclude "bait and
switch" tactics, we do not disagree with their use. In the past
at ERL-A they were utilized to assure the retention'of all 37
contractor employees under the TAI contract. This resulted in an
overwhelming competitive advantage to the incumbent contractor in
obtaining the commitment letters. A milestone date for
completion of corrective actions will be needed to resolve this
recommendation.
The draft report recommends that the Assistant Administrator for
Administration and Resource Management direct the Office of
Acquisition management Director to ensure CCMD adequately reviews
ERL-A contracts for inappropriate contract activities and
compliance with contract provisions.
We agree with the recommendation. PPN 93-01 was promulgated by
OAM to instruct COs to notify the appropriate management official
of any and all irregularities, and to establish the chain of
command for expedited resolution of such matters. Team leaders
have been designated in CCMB to oversee work processes and
identify irregularities so that they will be expeditiously
elevated through the chain of command. The team leaders also
track workload and serve as mentors to contract specialists
assigned to the teams. A single specialist has been assigned to
manage all contracts originating from a given program office such
as ERL-A. This specialist now works closely with the Contracting
Officer in the AMB on any follow-on contract to ensure that any
lessons learned an the current contract are incorporated into the
follow-on. Also, by being actively involved in the acquisition
process, the contract specialist assigned to administer the
contract is aware of different issues that occurred during the
award phase and is better prepared to manage the contract.
235 Audit No. E1JBF2-04-0300
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Appendix I
In an effort by CCMD to provide increased controls, oversight,
and review of ERL-A contracting activities, CCMD conducted a
joint on-site contract management review of all ERL-A contracts
with ORD. We agree with the OIG that this type of on-site review
and follow-up should continue in the future as a part of CCMD's
on-going monitoring of ERL-A's contract management activities,
resources and travel funds permitting.
TQM principles have been applied to CCMD's voucher review process
and responsibilities as well an the development of new Work
Assignment Forms and Checklist which must be completed by each
Work Assignment Manager and Project Officer for each Work
Assignment. The Checklist specifically addresses all issues
raised in the OIG report (e.g., work outside the SOW, personal
services, subcontract consent). The contract specialists have
been instructed to prioritize their efforts, with careful review
and approval of the Work Assignments and the contractor's monthly
progress report which supports the monthly voucher submission
being the top priorities. Their Performance Plans have been
changed to reflect this emphasis.
Special letters of instruction have been provided to all cost
type contractors and project offices addressing the subject of
subcontractors and consultants. Special letters of instruction
have been provided to all contractors and project officers
addressing the subject of Inherently Governmental Functions and
provided copies of OFPP Policy Letter 92-1 and EPA Order 1900.2.
The OIG draft report also recommends, in particular that CO
approval should be required for certain expenditures under
contracts and CCMD should be required to establish a policy of
not authorizing after-the-fact payments. Under this policy, the
contractors should ensure that proper approval in obtained from
ERL-A and CMD before expenditures are made.
Current policy and procedures already exist in the contract (FAR
52.244-2). and regulations (FAR 1.602-3,.EPAAR 1501.602-3 and EPA
Contracts Management Manual Chapter 12) regarding the need for
advance approvals and subsequent ratifications. These policies
and procedures have been stressed in recent Branch meetings with
the contract specialists assigned to CCMB to manage post-award
contract actions.
OJG Evaluation
OAM concurred with the recommendation and identified planned
corrective actions. Based on OAM's response this recommendation
was rewritten.-
236 Audit No. E1JBF2-04-0300
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Appendix II
GLOSSARY OF ACRONYMS AND ABBREVIATIONS
AAU - Assistance Administration Unit
AEcoS - Aquatic Ecosystem Simulator . .
AFB - Air Force Base
AScI - American Scientific International .
BOREAS- Boreal Ecosystems Atmosphere Study
CA - Cooperative Agreement
CEAM - Center for Assessment Modelling
CFR - Code of Federal Regulations
CMD - Contracts Management Division
COI - Conflict of Interest
CPFF - Cost-Plus-Fixed-Fee
CSC - Computer Sciences Corporation
CSU - Colorado State University
EMAP - Environmental Monitoring and Assessment Program
EPA - Environmental Protection Agency ' '
EPAAR - EPA Acquisition Regulations
ERL-A - Environmental Research Laboratory '- Athens.
ERL-N - Environmental Research Laboratory - Narragansett
FAR - Federal Acquisition Regulations
FGCA - Federal Grant and Cooperative Agreement Act
FMFIA - Federal Managers Financial Integrity Act
FSR - Financial Status Report
FTE - Full-Time Equivalent
FY - Fiscal Year
GAD - Grants Administration Division
GAIM - Global Analysis Interpretation and Modelling
GAO - General Accounting Office ,
GIAB - Grants Information and Analysis Branch
IAG - Interagency Agreement
IG - Inspector General
IGBP - International Geosphere/Biosphere Program
IPA - Intergovernmental Personnel Act . .
IVIC - Institute Venezolano de Investigaciones Cientificas
LOE - Level of Effort
MBL - Marine Biology Laboratory
MPV - Maximum Potential Value
MSU - Montana State University
OARM - Office of Administration and Resources Management
OEPER - Office of Environmental Processes and Effects Research
•OGC - Office of General Counsel
OIA - Office of International Activities
OIG - Office of Inspector General
OMB - Office of Management and Budget
ORD - Office of Research and Development
237
Audit NO. E1JBF2-04-0300
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Appendix II
osw - Office of Solid Waste
PCMD - Procurement and Contracts Management Division
PI - Principal Investigator
PO - Project Officer
QA - Quality Assurance
QC - Quality Control
RFP - Request for Proposal
ROC - Record of Communication
RPM - Remedial Project Manager
S&E - Salaries and Expenses
SBA - Small Business Association
SDBUS - Small and Disadvantaged Businesses Utilization
Specialist
SPARC - SPARC Performs Automated Reasoning in Chemistry
SUNY - State University of New York
TAI - Technology Applications, Incorporated
UBC - University of British Columbia
UGA - University of Georgia
UNH - University of New Hampshire
URI - University of Rhode Island
WAM - Work Assignment Manager
238
Audit NO. E1JBF2-04-0300
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Appendix III
SAMPLE OF CONTRACTS, COOPERATIVE AGREEMENTS,
AND INTERAGENCY AGREEMENTS AUDITED
Recipient
Contracts:
Technology Applications, Inc.
American Scientific
International (AScI)
Cooperative Agreements:
Alaska, University of
Number
Date
Awarded
Amount
68-C1-0024
68-03-3351
68-03-3551
68-CO-0054
68-C1-0012
CR817688
British Columbia, University of CR816778
Clemson University
Colorado State University
Georgia, University of
Mansoura University {
Marine Biology -Laboratory
Menufiya University
Montana State University
New Hampshire, University of
Rhode Island, University of
Interagency Agreements;
Institute Venezolano de
Investigaciones
Cientificas
CR817664
CR818652
CR819053
CR816268
CR817734
CR816290
CR816316
CR816278
CR817743
05/15/91 $16,833,253
05/05/86 $ 6,564,577
09/30/&7 $ 2,164,193
09/25/90 $ 3,291,044
03/21/91 $ 2,734,218
09/29/90 $ 499,899
05/31/90 $ 247,916
08/21/90 $ 519,457
07/11/91 $ 949,533
09/30/91 $5,261,512
09/30/89 $ 248,750
09/05/90 $ 607,713
09/29/89 $ 262,500
08/24/89 $ 279,234
09/11/89 $1,883,230
09/14/90 $ 389,375
DWVZ934787 07/31/9.0 $ 401,250
239 Audit MO. E1JBF2-04-0300
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Appendix III
Recipient
NASA
NASA
NASA
NASA
U.S. Air Force (Tyndall AFB)
Number
DW80935084
DW80935165
RW80935320
RW80935444
RW57934704
Date '
Awarded
Amount
05/21/91 $ 100,000
07/10/91 $ 200,000
11/91 $ 160,000
01/92 $ 60,000
05/25/90 $ 389.000
$44.046.654
240
Audit NO. E1JBP2-04-0300
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Appendix IV
PRIOR AUDITS OF EXTRAMURAL MANAGEMENT
PIG Audits;
1983 Review of the Office of Research and Developments Extramural
Research Activities (Audit No. ElgB2-ll-0019-30828), March
31, 1983.
ORD Locations: Office of Research and Development,
Washington DC
Various laboratories at Research Triangle
Park, North Carolina and Cincinnati, Ohio.
1986 Contract ManagementPractices at Environmental Monitoring
Systems Laboratory - Las Vegas (Audit No. E1P25-09-0242-
6000773), March 26, 1986.
ORD Location: Environmental Monitoring Systems Laboratory,
Las Vegas, NV.
1992 EPA/s Managementof Computer Sciences Corporation Contract
Activities (Audit No. E1NME1-04-0169-2100295), March 31,
1992'.
ORD Locations: Office of Research Program Management
Atmospheric Research and Exposure Assessment
Laboratory, Research Triangle Park, North
Carolina. ,
Health Effects Research Laboratory, Research
Triangle Park, North Carolina.
Environmental Research Laboratory - Gulf
Breeze, Florida.
Environmental Research Laboratory -
Corvallis, Oregon.
1992 Contracting Activities at Environmental Research Laboratory
Duluth (Audit No. E1JBF1-05-0175-2100443), July 7, 1992.
ORD Location: Environmental Research Laboratory - Duluth,
Minnisota
241 Audit NO. E1JBP2-04-0300
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Appendix IV
GAPAudit Reports and Testimony:
1982 EPA/s Use of Management Support Services. (GAO/CED-82-36),
March 9, 1982.
1985 The Environmental Protection Agency Should Better Manage Its
Use of Contractors. (GAO/RCED-85-12), January 4, 1985.
1987 Status of EPA's Contract Management Improvement Program.
(GAO/RCED-87-68FS), January 1987.
1989 GAO Testimony - The Environmental Protection Agency's Use of
Consultants, (GAO/T-GGD-89-5), Februarys, 1989.
1989 GAO Testimony - Sound Contract Management Needed at the
Environmental Protection Agency, (GAO/T-RCED-89-8), February
23, 1989.
1991 Government Contractors: Are Service Contractors Performing
Inherently Governmental Functions?. (Audit No'.~ GAO/GGD-92-
11), November 1991.
242 Audit MO. E1JBF2-04-0300
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SUMMARY OF DEFICIENCIES FOR COOPERATIVE AGREEMENTS REVIEWED
ATHENS ENVIRONMENTAL RESEARCH LABORATORY
I
PI
DIRECT BENEFIT
CA (partially or fully)
Contributed To Direct Support
Of ERL-A Research Projects
RFP/Decision Memorandum
Indicated Importance Of
Research To ERL-A's Mission
QUALITY ASSURANCE PLANS
QA Plan Required Prior To
Start Of Research Activities
QA Plan Submitted By PI And
Filed in ERL-A Records
W
MANSOURIA&
CLEMSON CSU MENUFiYA MBL MSU UAF UBC UGA UNH URI
Y
Y
Y
N1/
Y
Y
Y
N1/
Y
Y
Y
N
N
N/A
N
N
1/ QA plans had not been submitted for Clemson and CSU at the time of our initial review of the CA files.
y However, during the audit (12/92 and 09/92, respectively) QA plans were obtained by ERL-A.
o
w
o
o
N
Y
N
N/A N/A
Y
Y
Y
N
1
(0
pi
»J
p**
w
-------
^ aUMMAKI Ur IJliri^ltSIN^llla rU«..l-UC»riiKAIIV14 AUKJBBMlJiniO iUiVUBWIllJ m
•* ATHENS ENVIRONMENTAL RESEARCH LABORATORY Y
a • "»
5 o
g MANSOURIA& £
4 CLEMSON CSU MENUFIYA MBL MSU UAF UBC UGA UNH URI gj
b
PROGRESS REPORTS
Quarterly Progress Reports
Required
Quarterly Progess Reports
Received By PO
Progress Reports Recieved -
Oral or Written
REVIEW PANELS
COIs or Appearance Of COIs
ORD Headquarters Staff Included
On Competitive Review Panels
Prospective PO Recommended
Panel Members
Prospective PO Performed
In-House Review Of CA
Prospective PO Wrote Decision
Memorandum
Y
N
N/A
Y
N
UK
Y
N
.,
Y
Y
0
Y
N
Y
Y
N
Y
Y
O
Y
N/A
Y
N
N
Y
N
N/A
Y
N
UK
Y
N
Y
N
N/A
N
N/A
N*
N
N*
Y
N
N/A
Y
N
UK
N
N
N
N/A
N/A
Y
N/A
Y
N
N
Y
N
N/A
Y
N/A
Y
N*"
Y
Y
Y
O
Y
N/A
Y
N
N
,
Y
N
N/A
Y
N
Y
Y
N
H
M
*
£
_p
•H
"2
3
«*
(M
-------
SUMMARY OF DEFICIENCIES FOR COOPERATIVE AGREEMENTS REVIEWED
ATHENS ENVIRONMENTAL RESEARCH LABORATORY
to
SITE VISITS
PO Made Required Site Visits
Dates Of Site Visits
PO Prepared Trip Reports
For Site Visits
PO Submitted Copies Of Trip
Reports To GAD As Required.
MANSOURIA&
CLEMSON C8.U MENUFiYA MBL MSU UAF UBC UGA UNH URI
N
N/A
N/A
N/A
Y
10/91;
07/92
Y2/
N
Y
03/88;
01/92
N
N/A
Y
UK
?3/
N
Y
09/91
Y
N
Y
09/91
N
N/A
N
N/A
N/A
N/A
N/A***
N/A
N/A
N/A
Y
05/91;
09/91 ;
09/92
Y4/
N
Y
'90;
'91
N
N/A
H-
21 CSU PO indicated thst site visits were made in 10/91 and 7/92; however, file only contained trip
report for 10/92.
31 MBL PO indicated site vists were made but dates unknown. PO also said trip reports prepared but
none were found in CA files.
M 4/ CA files contained only one trip report for 09/92.
§ ' '
S* * ERL-A employee on IPA recommended panel members and wrote decision memorandum.
i
2 * * Co-PO for UGA CA performed in-house review.
i.
o
o
* * * : Local university
CL
Sf
-------
Appendix V
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246 Audit No. E1JBF2-04-0300
-------
SUMMARY OF DEFICIENCIES RELATED TO INTERAGENCY AGREEMENTS REVIEWED
A THENS ENVIRONMENTAL RESEARCH LABORA TOR Y
Institute U.S. Air
Velnezola NASA NASA NASA NASA Force
DWVA934787 DW80935084 DW80935165 RW80935320 RW80935444 RW57934704
to
USE OF INTERAGENCY
AGREEMENTS
lAGSs Used To Circumvent FTE
Travel Ceilings/Restrictions
lAGs Awarded Outside Statutory
Authority
lAGs Used To Circumvent FAR
Procurement Restrictions/
Requirements
**" AWARD OF lAGs
g
• IAG Decision Memorandums
w Improperly Prepared
N
N
N
N
N
N
N
N
N
N
N
N
I
O
•O
ro
W
O
O
H
-------
Appendix VI
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248 Audit No. E1JBF2-04-0300
-------
Appendix VII
SUMMARY OF DEFICIENCIES RELATED TO.SAMPLE CONTRACTS REVIEWED
ATHENS ENVIRONMENTAL RESEARCH LABORATORY
USE OF CONTRACTS
Mission Critical/Potentially
Inherently Governmental Functions
Performed
Prohibited/Vulnerable Activities
Prohibited Personal Services
Prohibited Directed Subcontracting
PROCUREMENT OF CONTRACTS
Repetitive 8(a) Sole Source Awards
RFP and Technical Proposal Biased
To Favor Incumbant
Contracts Split To Avoid
Competition
Contract Costs Underestimated To
Avoid Competition
CONTRACT MANAGEMENT AND OVERSIGHT
Inadequately Defined Statements
of Work and Work Assignments
Inadequate CMD Oversight
Inadequate ORD Oversight
TAI AScl AScI
On-Site On-Site Off-Site
Y
Y
Y
Y
Y
Y
N
N
Y
Y
Y
Y
Y
Y
Y
Y
N/A
Y
Y
• Y
Y
Y
Y
Y
Y
Y
Y
N/A
Y
Y
Y
Y
Y
249
Audit No. E1JBF2-04-0300
-------
Appendix VII
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250 Audit No. E1JBF2-04-O300
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APPENDIX VIII
REPORT DISTRIBUTION
Office of Inspector General
Inspector General (A-109)
EPA Headquarters
,*••*! • •'
Assistant Administrator for Administration , and Resources-
Management (PM-208) '-^-<" v:>! '
•»c''.*". *-'.''
Assistant Administrator for" International Activities (A-106)
,1- •». * . » -*•
Office of General Counsel (LE-13,Qr)v **•••
* W»*'*- * '* "• v***t* , j
.-f.
Assistant Administrator for Research and Development (RD-672)
Director, Grants Administration Division CPM-216)
Director, Office of. ^Research Program Management (RD-674)
Director, Office of Environmental Process and Effects Research
(RD-682) ^ .... . ^n . .r .;r
Comptroller (PM-225) ~&4'"
Agency Follow-up Official (PM-208)
Office of Congressional Liaison (A-103)
Office of Public Affairs'(A-107)
cincinatti. Ohio
Director, Contracts Management Division (RM-266)
Athens. Georgia
Director, Environmental Research Laboratory
External
General Accounting Office
Audit No. E1JBF2-04-0300
251
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APPENDIX VIII
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252 Audit No. B1JBF2-04-0300
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