350R94017
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
NORTHERN DIVISION
77 WEST JACKSON BOULEVARD
CHICAGO, IL 60604-3590
January 25, 1994
MEMORANDUM
SUBJECT: Special Report E1KAG3-05-0217-4400020
Survey of EPA's Management of the Ann Arbor Facility
FROM:
TO:
>116
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Office of Inspector General
Report of Review
SURVEY OF EPA'S MANAGEMENT OF THE
ANN ARBOR FACILITY
E1KAG3-05-0217-4400020
January 25, 1994
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Inspector General Division ^
Conducting the Audit: Northern Audit Division
Chicago, Illinois
Program Offices involved: Office of Air and Radiation
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MANAGEMENT OF ANN ARBOR
EXECUTIVE SUMMARY
PURPOSE AND OBJECTIVE
The Office of Inspector General (OIG) performed a survey of
EPA's management of the Office of Air and Radiation's (OAR)
National Vehicle and Fuel Emissions Laboratory at Ann Arbor,
Michigan (Ann Arbor). Previously the OIG had found problems,
particularly with the use of extramural resources, at Agency
laboratories under another office, the Office of Research and
Development (ORD). The use of extramural instruments at EPA
has been receiving increased attention from Congress, the
OIG, and EPA itself. Therefore, we performed this survey of
Ann Arbor to evaluate its management of extramural
instruments.
RESULTS~IN-BRIEF
We found that:
In March 1992 OAR took the initiative to assess its
own contracting weaknesses based on the OIG'S
report on contracting activities at the Computer
Sciences Corporation (CSC).1
* OAR properly implemented procedures covering the
financial disclosure process and the use of the
imprest fund.
Through the above actions, Office of Mobile Sources (QMS) and
the Ann Arbor staff proactively reviewed and corrected
contracting problems, protected the Agency against potential
conflicts of interest, and safeguarded Government funds.
These are examples of good management practices.
With the exception of a lack of review of contractor
invoices, Ann Arbor did not have the same weaknesses the OIG
found in reviews of ORD laboratories (See Exhibit l). We did
find three areas that could be improved: (1) project officers
should more thoroughly review contractor invoices and request
appropriate documentation; (2) contracts with a specific
contractor need to be better managed; and (3) the rules for
1 EPA's Management of Computer Sciences Corporation
Contract Activities. Report No. 2100295 (March 31, 1992)
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award of interagency agreements (IAG) need to be more
judiciously implemented. Because our survey did not disclose
any material weaknesses in Ann Arbor's management of
extramural resources, we chose not to proceed into the.audit
phase.
AGENCY COMMENTS AND ACTIONS
In responding to our draft report, the Director, OMS agreed
to make improvements in the management of extramural
resources at Ann Arbor. The Director issued a policy on
January 12, 1994, that requires:
training of new project officers prior to their
assignment as project officers;
existing project officers to take the
recertification courses in a timely fashion; and
the new training, which is being developed for
project officers, be provided to OMS project
officers as soon as it can be scheduled. This
training includes information on invoice reviews
and other matters related to the management of
contracts, grants, interagency agreements, and
cooperative agreements.
The policy also instructs project officers to carefully
document significant matters, particularly any changes in
allocation of contract costs.
PIG EVALUATION
We are in substantial agreement regarding corrective actions.
As discussed at the end of each issue, the Director has
proposed actions that, when implemented, will substantially
resolve our concerns.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY i
CHAPTERS
1 INTRODUCTION . 1
PURPOSE 1
BACKGROUND 1
SCOPE AND METHODOLOGY 3
2 GOOD MANAGEMENT PRACTICES ... 5
OAR'S REVIEW 5
FINANCIAL DISCLOSURE PROCESS 7
IMPREST FUND 7
CONCLUSION 8
3 ISOLATED ISSUES 9
CONTRACTOR INVOICES USUALLY LACKED SUPPORTING
DOCUMENTATION 9
CONTRACTS WITH FEV OF AMERICA WERE NOT
PROPERLY MANAGED 13
USE OF INTERAGENCY AGREEMENTS AND COOPERATIVE
AGREEMENTS 17
EXHIBITS
EXHIBIT 1 RELATED OIG AUDIT AND SPECIAL
REPORTS 19
APPENDIXES
APPENDIX 1 DIRECTOR OF OFFICE OF MOBILE SOURCES
RESPONSE TO THE DRAFT 21
APPENDIX 2 ABBREVIATIONS 25
APPENDIX 3 DISTRIBUTION 26
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CHAPTER 1
INTRODUCTION
PURPOSE
The OIG performed a survey of EPA's management of extramural
instruments awarded for Ann Arbor. Our specific objectives
were to determine if:
resources were being used appropriately to support
the mission of Ann Arbor, and
appropriate rules and regulations were followed in
the management and administration of Ann Arbor.
BACKGROUND
Recently, the use of extramural instruments at EPA has been
receiving increased attention from Congress, the OIG, and EPA
itself. The OIG has focused attention on the use of
extramural resources at several ORD laboratories. The OIG
identified issues that repeatedly have been acknowledged as
areas of concern in surveys and audits performed the past few
years. The recurring and widespread issues included work
outside the scope of the contract or agreement, personal
services, inadequate invoice review, limited competition, and
conflicts of interest. These problems pertained to the use
and management of extramural resources, potential conflicts
of interest, and imprest funds. To determine if the issues
found at the labs were Agency-wide problems, we conducted
this survey of Ann Arbor's (an OAR lab) management of
extramural instruments.
Extramural Resources
Ann Arbor's budget for fiscal 1992 was $39.8 million of which
$20.3 million was budgeted for extramural resources. Based
on the active extramural instruments that we identified,
contracts represented 92 percent of the extramural resources
spent at Ann Arbor. Grants and cooperative agreements
accounted for 7 percent of the resources spent, while 1
percent was spent on lAGs.
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History and Organization
OAR's National Fuel and Vehicle Emissions Laboratory in Ann
Arbor, Michigan was established in 1971, shortly after the
creation of EPA. The lab is not a separate entity, rather it
is composed of four divisions which are part of OAR's OHS.
The Division Directors at the lab report to the Director of
OMS in Washington, D.C. The Director of QMS has ultimate
responsibility for the Ann Arbor lab. Also, representatives
from OMS Headquarters' Program Management Office (PMO), Field
Operations and Support Division, and Manufacturers Operations
Division are. located at Ann Arbor.
Workforce
As shown in Figure 1, 287 out of 442 employees, or 65 percent
of the Ann Arbor workforce, are EPA employees and 79, or 18
percent, are on-site contractors. The other 17 percent of
the workforce includes 55 Senior Environmental Employment
Program (SEEP) staff, 18 students, and 3 others, including 2
volunteers.
Figure 1: Composition of Ann Arbor's Workforce
Ann Arbor Workforce
March 1993
65% EPA (287)
1% Other (3)
12% SEEPs (55)
4% Students (18)
18% Contractor (79)
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Mission
Since the Ann Arbor lab is part of QMS, it has a consolidated
mission statement. The lab's primary responsibilities
include developing national regulatory programs to reduce
mobile source related air pollution; evaluating emission
control technology; testing vehicles, engines, and fuels;, and
determining compliance vith Federal emissions and fuel
economy standards.
SCOPE AND METHODOLOGY
To accomplish our objectives, we reviewed:
EPA's award process and administration of
extramural instruments for Ann Arbor. This
included reviewing files at Ann Arbor, the
Cincinnati Contracts Management Division (CMD), and
the Grants Administration Division in Washington,
D.c. We discussed issues pertaining to the award
process and administration with officials at Ann
Arbor, Cincinnati, and Headquarters.
The financial disclosure statements submitted for
employees at Ann Arbor. These files were reviewed
at PMO in Washington, D.C. We also interviewed the
officials involved in tracking and reviewing the
statements.
The imprest fund at Ann Arbor. We interviewed the
Ann Arbor officials responsible for the fund and
performed a test of some of the transactions.
The 1992 OAR and QMS Reports on Management Controls
and Annual Assurance Letters. These documents were
reviewed to determine if OAR or QMS identified any
weaknesses or internal control problems relevant to
our review.
The contracts for Ann Arbor were awarded through Cincinnati
CMD. We obtained a list of the active contracts for Ann
Arbor from Cincinnati CMD. We obtained from the Grants
Administration Division in Headquarters a list of grants and
cooperative agreements, and a list of interagency agreements
that were active as of April 1993. No audit tests were
performed to evaluate the adequacy of manual or automated
controls for the information systems that generated these
lists, nor the validity of the data maintained by these
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MANAGEMENT OF ANN ARBOR
systems. Therefore, we cannot and do not attest to the
accuracy or integrity of this data.
There were 23 contracts, 14 grants and cooperative
agreements, and 7 lAGs. We judgementally selected a sample
of 11 contracts, 6. grants and cooperative agreements, and 4
lAGs for review. We selected instruments awarded in the past
three years, since 1990.
Our fieldwork was conducted from April 1, 1993, to November,
23, 1993. We provided position papers to Ann Arbor
management on October 18, 1993. Comments to the position
papers were incorporated into the draft report. On December,
1, 1993, we issued our draft report. We held an exit
conference with the Director of OMS on January 12, 1994.
The Director also responded to our draft report on January
12, 1994. After reviewing the response and conducting the
exit conference, we made appropriate changes and finalized
our report. The Director's response is included as Appendix
1.
This survey was a short term study of EPA activities. It was
not designed to be a statistical research study or a detailed
audit. Rather it was an information gathering study that
sought to identify issue areas for management attention.
Thus, it was more limited in scope than an audit, and, as
such, did not necessarily encompass all generally accepted
governmental auditing standards. Alternatively, this review
was conducted in accordance with the provisions of OIG Manual
Chapter 150, Special Reports.
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CHAPTER 2
GOOD MANAGEMENT PRACTICES
Overall, we found that the staff at Ann Arbor was exercising
several good management practices. We generally did not find
the problems the OIG had highlighted in prior reports, such
as work outside the scope of the contract and personal
service relationships. Additionally, the contract files
contained more documentation than we have seen in previous
surveys and audits. In particular, the contracting files for
Ann Arbor contained more correspondence between the
contracting and project officers than the contract files
reviewed a year ago for other labs. This correspondence
indicates increased coordination and communication between
the contracting and project officers.
We found that the Deputy Assistant Administrator for OAR took
proactive steps to determine and correct problems with
contract usage and practices within OAR. We also found that
QMS properly implemented procedures covering the financial
disclosure process and the use of the imprest fund. Although
OIG reports on other EPA labs cited issues regarding the
financial disclosure process and imprest fund, we did not
find similar problems at Ann Arbor.2 The efforts of the
staff at QMS and Ann Arbor are examples of (1) good
management practices and (2) protection against potential
conflicts of interest; and will help safeguard Government
funds.
OAR'S REVIEW
As a result of a March 1992 OIG report on EPA's contracting
relationship with CSC, the OAR assessed its contracting
environment. OAR senior managers identified a number of
management practices that could be immediately implemented to
improve the contracting situation and then formed a Quality
2 Contracting Activities at Environmental Research
Laboratory - Duluth. MN. Report No. 2100443 (July 7, 1992)
Management of Extramural Resources at the Environmental Research
Laboratory - Athens. GA. Report No. 3100156 (March 31, 1993)
Management of Extramural Resourcesat the Environmental Research
Laboratory - Narragansett. RI. Report No. 3100236 (June 16, 1993)
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Assessment Team (QAT) to take an in-depth look at OAR's
contracting services.
The QAT's objective was to review the contracting culture in
OAR. The QAT found:
.... many instances of inadvertent mistakes in
judgement, especially in the areas of personal
services, use of subcontractors, and conflicts of
interest.... At a minimum, additional effort must
be made to increase contracts related education of
all OAR personnel.
The QAT also found several areas that were working well
within the contracting framework in OAR. Management, project
officers, and work assignment managers agreed that the actual
contracts, once in place, work quite well. The CMD offices
in Cincinnati and Research Triangle Park (RTF) were generally
recognized as providing support to OAR with high quality,
team-oriented professionals who sincerely want to help. The
project officers listed the following as some effective tools
that work well:
1. regular written evaluations of contractor
performance and subsequent feedback to contractors;
2. having an active level of effort coordinator in
each office to assist work assignment managers and
to become a focal point with the project officer;
3. a well defined listing of deliverables;
4. favoring specificity over flexibility in statements
of work;
5. ongoing exchanges of ideas between project officers
in a forum;
6. allowing delegated signatory approval to alternate
EPA personnel;
7. management of contract activities with focus on
written technical directions; and
8. establishment and use of localized computer
databases and tracking systems.
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The use of the QAT appeared to offer positive and tangible
benefits for OAR employees by increasing the awareness of
proper contract management issues.
FINANCIAL DISCLOSURE PROCESS
We reviewed the most recent confidential disclosure
statements for the Ann Arbor staff and found officials
implemented all ethics requirements, and reviewed and tracked
all filings. The Deputy Ethics Official for QMS delegated
the responsibility to review the confidential disclosure
statements submitted for QMS personnel, including Ann Arbor,
to PMO. PMO has made diligent efforts to implement the
Office of Government Ethics and EPA requirements regarding
confidential statements, made sure all QMS staff have filed,
and carefully reviewed the statements for possible conflicts
of interest. PMO has developed a system which enables it to
track the receipt and review of all statements that have been
filed. Additionally, PMO can track the statements that
require further review.
Designated OMS staff reviewed the statements and inquired
into items that presented a potential conflict. They
followed up on items such as stock ownership, spousal
employment, and outside employment that appeared questionable
and asked for further detail as needed.
IMPREST FUND
We reviewed Ann Arbor's imprest fund and found the fund was
administered properly. The imprest fund is set at $5,000.
The turnover rate is about $1,482 every 14 days, which
satisfies the Treasury Department requirement of having the
fund turn over at least once every two months. The cashier
keeps copies of all receipts and vouchers, and she keeps a
register in which all transactions are recorded. This
contributes to the accountability of the fund. Ann Arbor
properly used blanket purchase agreements (BPA) for
repetitive purchases as suggested in Federal Acquisition
Regulations section 13.201 Blanket Purchase Agreements. Ann
Arbor's BPAs were for items such as cylinder gases;
automotive and electronic parts; and design, machining, and
fabrication.
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CONCLUSION
OAR's action of forming the QAT demonstrated it was aware of
contracting problems and was taking proactive steps to
correct them. We believe OAR's prompt attention to these
problems showed good management practices. Also, we did not
find any material weaknesses with the financial disclosure
process or the imprest fund. The efforts of the staff at OMS
and Ann Arbor are examples of (1) good management practices
and (2) protection against potential conflicts of interest;
and will help safeguard Government funds. The OMS and Ann
Arbor staff are to be commended for their efforts in these
areas.
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CHAPTER 3
ISOLATED ISSUES
We found three isolated issues we believe need to be
addressed. These extramural resource management areas could
be improved and efforts should be made to prevent similar
situations from occurring in the future. These areas are (1)
review of contractor invoices, which appears to be an Agency-
wide issue; (2) management of contracts with FEV of America
(FEV); and (3) use of an interagency agreement. With the
exception of the issue regarding invoice review, we had
issues with only a few of the instruments we reviewed; 3 out
of the 11 contracts and 1 of the 4 lAGs. We had no
reportable issues with the six cooperative agreements and
grants that we reviewed.
1. CONTRACTOR INVOICES USUALLY LACKED SUPPORTING
DOCUMENTATION
Both the OAR QAT on contracting and our review found problems
with invoice review and approval. The QAT found that the
process of reviewing invoices was under-utilized and
misunderstood. Our review found that for 8 of 11 contracts,
contractors did not submit detailed documentation to support
their actual costs. As a result, although Ann Arbor project
officers generally check for reasonableness of charges, they
can not be assured costs were being accurately reported.
Inadequate review of contractor invoices appears to be an
Agency-wide problem, not just at Ann Arbor, other OIG audits
and surveys, as well as OAR's QAT regarding contracting
services, have also found this problem.
OAR's Review . '
As discussed in Chapter 2, in 1992 OAR formed a QAT to assess
its contracting environment. According to the QAT, the
process of reviewing invoices was under-utilized and
misunderstood. The QAT found that project officers were
generally confused about what to look for and what to do if
they found something that appeared to be incorrect or
confusing. The contracting officers at RTF concurred that
the lack of review and approval of invoices was a weakness
throughout the Agency. According to OAR's review, most
project officers were not adequately trained to discern
reasonable and unreasonable charges on invoices. As a result
of the review, the QAT recommended training programs on
invoice review.
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Agency Policy
According to Chapter 11 in the EPA Contract Administration
Manual (Manual):
... the contractor has little incentive to
control costs, as he or she will be reimbursed for
whatever he or she spends doing the work barring a
determination that costs are unreasonable or
unallowable. Most of the risk in this situation is
borne by the government and a significant amount of
oversight is required.
Federal employees have a responsibility to monitor
the efforts of contractors in order to prevent
waste of public funds and to obtain the required
services within the amount budgeted. Therefore,
the importance of diligent financial management of
contracts cannot be emphasized too strongly.
If further detail is necessary, the Project Officer
should request an explanation from the contractor
and backup documentation, e.g., copies of vendor
invoices, a breakdown of the direct labor charges,
etc.
According to the OAR Contracts Management Directive, OAR-92-
01, issued September 3, 1992, project officers are
responsible for the review and approval of monthly invoices.
Some of the determinations the project officer needs to make
include if hours and rates are appropriate, if the number and
types of travel are reasonable, and if other direct costs are
reasonable.
Supporting Documentation Not Provided
For 8 of the 11 contracts that we reviewed, we found that the
information the project officers received regarding costs was
limited to contractor source data. The project officers
received little, if any, supporting documentation for the
costs contractors submitted. Without this documentation, the
project officers could not be assured the costs are
reasonable. For example, the project officers usually had no
details on travel or direct costs. Instead, the invoices the
contractors provided usually only listed the costs by
category, without details as to the composition of the costs
and no supporting documentation. Monthly reports sometimes
provided a breakdown by direct costs, indirect costs, and
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direct labor or by tasks. However, these breakdowns were
also not supported by backup documentation.
In one case, a requirement for supplemental, monthly
breakdowns of costs was incorporated into the contract's
statement of work, under the reports section. Although this
was a good step, the project officer still did not receive
any supporting documentation to those breakdowns.
In most cases, the project officers were apparently not
requesting documentation to support the costs claimed. For.
example, the project officer for one contract indicated that
he had never seen a source document from a contractor. It
appears the project officers reviewed and approved the
invoices based on the little information contained in the
invoices.
Agency Actions
In response to OAR's QAT recommendations, the Office of
Administration and Resources Management's (OARM) Office of
Acquisition Management (OAM) provided two training seminars
for project officers outlining the review process for
invoices and approvals needed for voucher payment.
Additional seminars on invoice payment were held with . .
Headquarters project officers. Also, on September 3, 1992,
OAR issued its first Contracts Management Directive which was
distributed to all OAR employees. Some of the areas the
Directive addressed included the issue of handling invoices,
information to consider when approving invoices, and who has
responsibility for invoice review. These actions will
improve the invoice review process for current project
officers. OAR needs to provide this same training and
direction on invoice review for new project officers in the
future. Also, OAM has developed an initiative to strengthen
the Agency's contract voucher review and approval process.
Conclusion
Both OAR's proactive QAT and our review found problems with
invoice review and approval. We generally found that
contractors did not submit, and project officers did not
request, detailed documentation to support contract charges.
As a result, in these cases the Agency can not be assured
that invoices submitted for payment were for actual costs
incurred for Ann Arbor activities.
The issue of inadequate invoice review appears to be an
Agency-wide, systematic problem. We have found this issue in
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several other audits. OAR recognized the problem in its QAT.
OARM is, appropriately, developing an Agency-wide initiative
in this area. In the meantime, OMS needs to ensure that all
its project officers are trained in reviewing invoices. Some
training has already been given to existing project officers.
OMS needs to ensure that future project officers are also
trained.
We agree with the finding cited in OAR's QAT review. We
believe training programs on invoice review are necessary and
should be implemented. It is important that the project
officer know the costs being charged for each task are
reasonable and allowable. With this information, the project
officer will be able to ensure that EPA does not pay for
inappropriate charges.
We did not make recommendations to OARM at this time because
similar contracting issues have already been addressed in
previous OIG reports.
Agency Comments and Actions
The Director, OMS agreed to act to resolve the issues
described above. The Director stated that his office has
reviewed the content of the standard EPA course for contract
project officers and found that the topic of invoice review
is covered fairly extensively. In response to our draft
report, the Director has issued a policy that requires: (1)
training of new project officers prior to their assignment as
project officers; (2) existing project officers to take the
recertification courses in a timely fashion; and (3) the new
training, which is being developed for project officers, be
provided to OMS project officers as soon as it can be
scheduled. This training includes information on invoice
reviews and other matters related to the management of
contracts, grants, interagency agreements, and cooperative
agreements.
OMS will also continue its current practice of tracking
training to make sure project officers take the courses in a
timely fashion. Since a project to improve QMS' ability to
manage contracts had been started prior to the OIG review,
the basis for the necessary tracking systems is already in
place.
OIG Evaluation
The Director has taken actions that should substantially
resolve the issues presented in this section.
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2. CONTRACTS WITH FEV OF AMERICA WERE NOT PROPERLY MANAGED
During our survey, we reviewed 11 contracts. We did not find
any widespread issues regarding these extramural instruments,
except for the issue regarding invoice review discussed
previously. However, we did find several issues concerning
three contracts with one firm, FEV:3
(1) FEV does not appear to be adequately monitoring the
work of FEV Motorentechnik, its subcontractor and
parent company in Germany.
(2) Work was transferred among the FEV contracts.
(3) Proper procedures were not always followed when
purchasing equipment.
(4) A subcontractor was paid for support it did not
provide.
Some of these instances occurred due to unique circumstances,
others due to improper management of the FEV contracts. As a
result, these actions either did not conform with Agency
regulations or were.not performed in the best interests of
the public.
FEV holds four active contracts at Ann Arbor with a maximum
total value of $9.1 million. We reviewed three of these four
contracts. The three contracts (68-CO-0038, 68-CO-0092, and
68-co-ooo?) were all awarded in 1990 within a month of each
other and had a maximum total value of $5.9 million. The
contracts were for the design and testing of low-emitting
engines and vehicles.
Monitoring Subcontracts With Parent Company
FEV has six employees and subcontracts most of its work to
its German parent, FEV Motorentechnik. This leads to
questions regarding how well the U.S. prime contractor can
monitor the work of its German parent and 'subcontractor. EPA
has to depend on the prime contractor to ensure the
subcontractor is performing adequately.
3 The firm has since changed its name to FEV Engine
Technology, Inc.
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According to a project officer for one of the FEV contracts,
there are several concerns regarding FEV's monitoring of its
parent company. First, it is difficult for FEV to monitor
its foreign subcontractor. The prime contractor is not in
Germany, so it can not easily visit the subcontractor.
Second, FEV does not appear to have enough personnel to
perform its share of the work on the four contracts, which
includes monitoring its subcontractors. Third, the FEV
project manager has had to monitor and direct his own
supervisor. According to the Manual, the Government's only
direct contractual relationship is with the prime contractor.
EPA has no right to deal directly with a subcontractor and
has no responsibility for monitoring the subcontractor.
This situation appears to have occurred due to unique
circumstances involving FEV's corporate structure. We are
presenting it here only for discussion purposes. The QIC's
Southern Audit Division has an ongoing assignment on EPA
subcontracting. We have forwarded this report to the
Southern Audit Division for its consideration in its work.
Transfer of Work Between Contracts
Through review of the contract files and discussions with Ann
Arbor officials, we found that work was transferred among the
FEV contracts. When contract ceilings were reached and
funding was depleted under one FEV contract, EPA's project
officer would initiate completion of the work assignment
under another FEV contract. It appears that the contracts
were written in such a manner that transferring of work
assignments among the contracts would not fall outside the
statement of work. Thus, the intent of awarding these
contracts to be used interchangeably seems questionable.
Equipment Purchases
Ann Arbor and Cincinnati CMD officials have not always
ensured that proper procedures were followed for purchasing
equipment. Under one FEV contract, neither EPA nor FEV
officials always followed the proper sequence for purchasing
hardware. Under another FEV contract, a subcontractor was
apparently paid for support it did not provide.
For FEV contract number 68-CO-0038, we found indications that
proper procedures for the purchase of hardware were not
always followed. According to the former project officer,
the procedure for purchases should take place as follows:
(1) the project officer sends a Justification of Need memo to
CMD, (2) CMD issues a contract modification approving the
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purchase, and (3) the contractor buys the hardware and then
invoices for the purchase. However, the former project
officer's notes indicated that:
he had not always prepared required documentation
in a timely manner;
the contract specialist had not always given
approval in a timely manner; and
the contractor had bought hardware and invoiced for
reimbursement before the purchase had been
authorized.
Apparently, the proper sequence of approvals was not
followed. . , ,
Finally, the Government appears to have paid for services
that were not provided. One of FEV's subcontractors was to
provide a highly fuel efficient vehicle and technical support
for this vehicle under contract number 68-CO-0092. The
subcontractor's original cost for this effort was $250,000.
However, after providing the vehicle, the subcontractor
declined to provide support. The former project officer
determined the cost of the subcontract should have been
reduced to $141,455. Yet, it appears the subcontract cost
was never reduced. Instead, according to the contract
specialist, the original cost of $250,000 was paid.
Therefore, $108,545 was overpaid.
According to Ann Arbor officials, although the subcontractor
did not provide the support service, FEV applied these funds
to the performance of additional testing services for EPA.
The substituted services were included in a larger contract
modification. However, the link between the overpaid
subcontract costs and the contract modification was not
clear.4 Also, according to the contracting officer, at the
4 The contract modification showed several deletions and
additions to the statement of work. One of the added tasks was
for high-powered engine testing. According to the project
officer, the contractor intended to perform this testing to make
up the subcontractor costs to EPA. There was no documentation,
however, showing that the $108,545 in question was transferred
from the deleted tasks to the high-powered engine testing.
Because the overall contract modification increased the contract
cost, the link to making up the subcontract costs was made even
more unclear.
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MANAGEMENT OF ANN ARBOR
time the project officer determined the needed reduction of
the subcontract cost, Ann Arbor had not informed her of this
situation.
Project officers need to continue to inquire into
questionable charges. However, they also need to discuss the
matters with Cincinnati CMD and keep records of changes in
allocation of contract costs.
Conclusion
Besides the problems with invoice review/ we had no major
contracting issues for 8 of the 11 Ann Arbor contracts we
reviewed. The three contracts we did have significant
concerns with were all awarded to the same contractor/ FEV.
One of the contract management problems, monitoring of the
subcontract, was due to unique circumstances beyond Ann
Arbor's control, other problems, such as the transfer of
work between contracts and not following proper equipment
purchasing procedures, are within Ann Arbor's control, and
could be improved in the future.
As previously noted, we did not make recommendations to OARM
at this time because similar contracting issues have already
been addressed in previous OIG reports.
Agency Comments and Actions
On January 12, 1994, the Director, QMS issued a policy
statement to resolve the issues described above. The policy
requires open communication between project officers and
appropriate 0AM personnel. The policy also directed QMS
managers to ensure that their project officers be
particularly careful to document significant matters,
particularly any changes in allocation of contract costs.
OIG Evaluation
Although we identified a case of apparent overbilling, Ann
Arbor officials regard other services that they received as
compensation for the amount paid. Therefore, we are not
requesting further action on this matter. However, project
officers need to continue to inquire into questionable
charges. They also need to discuss the matters with
Cincinnati CMD and keep records of changes in allocation of
contract costs. These actions have been addressed by the
Agency in the policy issued January 12, 1994, as discussed
above.
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MANAGEMENT OF ANN ARBOR
The Director has taken actions that should address the issues
presented in this section.
3. USE OF INTERAGENCYAGREEMENTS AND COOPERATIVEAGREEMENTS
During our survey, we reviewed four lAGs and six cooperative
agreements and grants. We did not find any widespread issues
regarding these extramural instruments. There was no pattern
of common problems. However,, we did find that one IAG was
apparently awarded to get around ceiling limitations on a
contract. In the future, the program needs to be more
judicious in its use of lAGs. In general, however, Ann Arbor
appears to be in compliance with Agency regulations in this
area.
IAG number 89935760-01 with the Department of Energy . (DOE)
appears to have been awarded as a means of getting around the
ceiling limitations on an EPA contract. Prior to the award
of this IAG, Ann Arbor used contract number 68-co-0014 with
Southwest Research Institute (Southwest) for work in the area
of fuels and fuel emissions. The. firm Bonner and Moore
performed work assignments as a subcontractor under that
contract. The Southwest contract then reached its ceiling,
so EPA officials awarded an IAG with DOE to get the work .
done.
DOE has a cooperative agreement with IIT Research Institute's
National Institute for Petroleum and Energy Research Division
who in turn has a subcontract with Bonner and Moore. The IAG
for the study of the effects of fuel parameter changes was
awarded on September 24, 1992, for $125,000. Using the IAG,
because the contract ceiling was reached, did not appear to
be the appropriate mechanism for obtaining continued
services. This gave the appearance that the IAG was awarded
to gain access to Bonner and Moore.
According to Chapter 51 of the EPA's Assistance
Administration Manual, an IAG may not be used to circumvent
the requirements of the Federal Procurement Regulations.
Since this IAG was used to obtain services of Bonner and
Moore once the contract ceiling was reached, it appears an
IAG was not the appropriate extramural instrument to use in
this case.
According to Ann Arbor officials, this case involved
extenuating circumstances. The Agency was required under a
Congressional deadline to accomplish this work. Officials
requested an extension of the contract and tried to find
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MANAGEMENT OF ANN ARBOR
another contract to complete this work. They were
unsuccessful in both efforts. Chapter 51 of the EPA's
Assistance Administration Manual also states that before the
originating office prepares an IAG, it must determine that
the proposed IAG is, after consideration of the available
alternatives, the best method of achieving the objective.
According to officials, they considered all alternatives and
this was their only choice to get the necessary services.
In this case, the use of the IAG does not appear to be
appropriate, yet it also appeared to Ann Arbor officials as
their only alternative for accomplishing their mission.
Making recommendations at this time is not merited since this
appears to be an isolated instance. However, the program
needs to be judicious in its use of lAGs in the future.
Conclusion -
We did not find any widespread issues regarding the award and
administration of XAGs and cooperative agreements. Out of
the ten agreements we reviewed, we found one isolated
instance in which EPA officials may not have used the
appropriate instrument. Therefore, in general, Ann Arbor is
in compliance with Agency regulations in this area.
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MANAGEMENT OF ANN ARBOR
EXHIBIT 1
PAGE 1 OF 1
RELATED PIG AUDIT AND SPECIAL REPORTS
Report Name
Management of Extramural Resources at
the Environmental Research Laboratory -
Athens, GA
Management of Extramural Resources at
the Environmental Research Laboratory -
Narragansett, RI
Contracting Activities at Environmental
Research Laboratory - Duluth, MN
Survey of Contracting Activities at the
Air and Energy Engineering Research
Laboratory
Survey Report ORD Environmental
Research Laboratory - Gulf Breeze, FL
Survey Report on Contracting Activities
at Environmental Research Laboratory -
Corvallis, OR
Survey Report on Contracting Activities
at the Atmospheric Research and
Exposure Assessment Laboratory
Survey Report on Contracting Activities
at the Health Effects Research
Laboratory
Date
03/31/93
06/16/93
07/07/92
02/26/93
09/29/92
02/03/93
09/30/92
09/30/92
Number
3100156
3100236
2100443
3400025
2300093
3400019
2300100
2700016
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[This page was intentionally left blank.]
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APPENDIX 1
PAGE 1 OF 4
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCV
I WASHINGTON. D-C. 20460
JAN 12 1994 0ť,Ťo.
*Ť IMO MOlATlON
MEMORANDUM
SUBJECT: Response to Draft.Report E1KAB3-05-0217, special Report on
the Survey of EPA's Management o/ the Ann Arbor facility
FROM: Richard D. Wilson,,
Office of Mobile
TO: Anthony C. Carrollo
Divisional Inspector Genera1! for Audits
Northern Division
Thank you for the opportunity to comment on the report on the
survey of the National Vehicle and Fuel Emissions Laboratory, a
part of the Office of Mobile Sources. It is pleasing to know that,
in midst of an extensive review of EPA's contracting activities and
extensive evidence of problems, your study did not reveal patterns
of problems in contracting at the NVFEL and that the areas other
than contracting (such as confidential financial disclosure process
and imprest fund) are well managed. The staff of QMS who work hard
at making sure that work is carried out properly in these areas are
also pleased that their efforts are recognised.
You recommend that we take action in two areas that seem to
need additional attention, the review of vouchers and dealing with
contractors and contracting officers on contracts administration,
especially in documenting changes related to costs. We agree with
your recommendations that additional attention is required in this
area. In addition, we are taking a closer look at the underlying
causes of the problems you identified and will continue to take
actions to improve the contracting process.
Specifically, in relation to the first recommendation ("to .
develop a policy to require training on invoice review for all new
project officers"), we have reviewed the content of the standard
EPA course for contract project officers and found that the topic
is covered fairly extensively. Since your findings were related to
work performed by project officers who had undergone this official
training, we have concluded that we have to go beyond your
recommendation. To make sure that the material in this course is
applied in practice, we are:
1. Issuing a policy statement that requires that training of new
project officers take place quickly. (See attached copy.)
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MANAGEMENT OF ANN ARBOR
APPENDIX 1
PAGE 2 OF 4
2. Requiring project officers , effective immediately, to sign-
in during each course segment to ensure that they attend
courses for the full time allotted.
3. Continuing our practice of tracking the tine when existing
project officers were last trained, and asking sure that the
recertification courses are taken in a timely fashion.
The basis for the tracking systems necessary are already in
place since we had started a project to improve our' ability to
manage contracts management processes prior to the initiation of
your study.
Additionally, since it is our understanding that the Office
of Acquisition Management's components are developing additional
training materials for project officers related to invoice review,
we will make sure that these materials are provided to all project
officers quickly and that any required training sessions are
scheduled expeditiously.
In relation to the second recommendation {"instruct project
officers to discuss questions regarding payments for, and
administration of, contracts with the contracting officers. Also,
require project officers to keep records of any changes in
allocation of contract costs.*), ve will instruct our managers that
they place a high priority on emphasizing to their project officers
the need to communicate with contracting officers and that they
themselves take the lead in making sure that lines of communication
stay open. As a practical matter, in the case of the NVFEL this
means that part of our travel funds should be dedicated to funding
travel for our project officers since the contracting officers are
generally based in Cincinnati or Washington, D.C. (These points
are incorporated in the attached policy statement.)
Better record-keeping is also an item that we will emphasize,
although we hope that better communications with contracting
officers will result in a better identification of cases when
formal contracts documentation is required, obviating the need for
special actions on the part of the project officers that are
different from the ones required to properly document changes in
contract administration.
I have assigned to Laszlo Bockh, Director of the Program
Management Office, responsibility for an ongoing program of review
of contract management within QMS, including the continued
implementation of the policies and procedures discussed in this
response.
Attachment
cc: Nary Nichols, OAR Charles Gray, HPT
Or. Betty Bailey, OAK Don Zinger, QMS
Laszlo Bockh, PMO QMS Division Directors
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HANAOBMENT OF ANN ARBOR
APPENDIX 1
PAGE 3 OF 4
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
! WASHINGTON. O.C. 2MCO
, JAN 12 1934
A* AND UOUtriOM
ttBKOftAHDOM
SUBJECT: OMS Policy on Contract* Manage
PROM: Richard 0. Wilson,
Office of Mobil*
TO: Charles Cray, Director, RPT
Don Zinger, Assistant Director, OMS
Laszlo Bockh, Director, PMO
OMS Division Directors
The proper management of contracts activities is of paramount
inportance for the success of the programs for which the Office of
Mobile Sources is responsible. As you knew, the 16 has identified
(in the "Survey of BPA's Management of the Ann Arbor Facility")
certain contracts management related problems that ve Bust remedy.
To make sure that the problems identified by the ZG do not recur,
it is OMS policy that:
1. Training of new project officers is to take place prior
to assignment of duties as project officer. The
training is to be scheduled at the first available
training slot at an EPA location that is reasonably
accessible, including with the use of travel funds.
2. Newly appointed project officers will attend the project
officer training course for the full time allotted to
the course by the trainers.
3. Existing project officers will take the recertifieation
courses in a timely fashion, and will attend for the
full time allotted to the course by the trainers.
4. New training developed for project officers related to
invoice reviews and other matters related to contracts,
grants, interagency agreements, and cooperative
agreements management will be provided to OMS project
officers as soon as it can be scheduled by the trainers.
The policies of the above points are to be applied to
this training.
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MAMAOEMEHT Or Aim ARBOR
APPENDIX 1
PAGE 4 OF 4
It i> also the policy of QMS to maintain open comauni cat ions
with the components of the Office of Acquisition Management that
deal with OHS contracts in both the pre-award and post-award
phases. Maintenance of these communications is as essential to the
accomplishment of our mission as maintaining communications in any
other program area. Project officers must be given opportunities
to travel to meet with contracting officers as part of normal
contracts management operations. Project officers should also
carefully document significant matters, particularly any changes in
allocation of contract costs.
I expect all members of OMS's management team to actively
implement these policies.
ec: Anthony carrollo
Mary Nichols
Dr. Betty Bailey
Xatnerine Moore
Don Burian
QMS Branch Chiefs
QMS Project Officers
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APPENDIX 2
PAGE 1 OF 1
ABBREVIATIONS
Ann Arbor
BPA
CMD
DOE
FEV
IAG
Manual
0AM
OAR
OARM
OIG
QMS
ORD
PMO
QAT
RTP
SEEP
National Vehicle and Fuel Emissions Laboratory
at Ann Arbor, Michigan
Blanket Purchase Agreements
Contracts Management Division
Department of Energy
FEV of America
Interagency Agreement
EPA Contract Administration Manual
Office of Acquisition Management
Office of Air and Radiation
Office of Administration and Resources
Management
Office of Inspector General
Office of Mobile Sources
Office of Research and Development
Program Management Office
Quality Assessment Team
Research Triangle ParK
Senior Environmental Employment Program
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APPENDIX 3
PAGE 1 OF 1
DISTRIBUTION
Inspector General (2410)
Assistant Administrator for Air and Radiation (6101)
Chief, Administration Management Staff (NVFEL - Ann Arbor)
Audit Liaison, Office of Air and Radiation (6102)
Deputy Assistant Administrator for Acquisition and Finance
(3101)
Director, Office of Acquisition and Management (3801F)
Audit Liaison, Office of Acquisition and Management (3801F)
Director, Financial Management Division (3303F)
Director, Grants Administration Division (3901F)
Director, Contracts Management Division * Cincinnati
Deputy Ethics Official, Office of General Counsel (2310)
Agency Followup official (3101)
Attention: Assistant Administrator for Administration and
Resources Management
Agency Followup Coordinator (3304)
Attention: Director, Resource Management Division
Audit Followup Coordinator
Office of Program Management Operations (6102)
Associate Administrator for Communications and
Public Affairs (1701)
Associate Administrator for Congressional and
Legislative Affairs (1302)
Headquarters Library (3404)
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