350R94016 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D C 20460 JUL 2 I 1994 OFF.CEOF THE INSPECTOR GENERAL MEMORANDUM SUBJECT: Audit Report Number E1SFF3-03-0162-4100462 Final Report of Audit on Contracts Not Closed FROM: Elissa R. Karpl Associate Assistant Inspector 'General for Acquisition and Assistance Audits (2421) TO: Jonathan Z. Cannon Assistant Administrator for Administration and Resources Management (3101) Attached is our audit report on Contracts Not Closed. The overall objective of this audit was to evaluate whether EPA closed contracts in a timely manner, deobligated unexpended monies associated with inactive contracts, and obtained refunds due the Agency. This report contains important findings and recommendations. This audit report contains findings that describe problems the Office of Inspector General (OIG) identified and corrective actions the OIG recommends. This audit report represents the opinion of the OIG. Final determinations on matters in this audit report will be made by EPA managers in accordance with established EPA audit resolution procedures. Accordingly, the findings contained in this audit report do not necessarily represent the final EPA position. ACTION REQUIRED We designated the Assistant Administrator for Administration and Resources Management as the action official for this audit. In response to the draft report, your office provided a responsive action plan for correcting the findings. In accordance with EPA Order 2750, we find your response to the report acceptable. Therefore, we are closing this report in Recycted/Recyelable Prfm«0 wtth Soy/Canota Ink on paper that contain! at toast 50% ncyd*d fiber ------- our tracking system as of this date. Please track corrective actions and milestone dates in the Agency's Management Audit Tracking,System (MATS). In addition, we ask that_ you provide us with the number -of contracts closed at "fiscal -year -errd -arid your goal for fiscal year 1995. We have no objections to the further release of this report to the public. Should you have any questions about this report, please contact p. Ronald JG&ndolfo or Carl Jannetti at (215) 597-0497. Attachment ------- Audit of Contracts Not Closed EXECUTIVE SUMMARY PURPOSE The purpose of the audit was to evaluate whether EPA closed contracts in a timely manner, deobligated unexpended monies associated with inactive contracts, and obtained refunds due the Agency. BACKGROUND EPA relies heavily on contractors to carry out its mission. During the past 23 years, the Agency's contract obligations have exceeded $12 billion for work performed under 14,500 contracts. EPA contractors provide a wide variety of services. Some of the contracted services include conducting scientific work that EPA uses to set environmental standards, overseeing cleanups of hazardous waste sites, assisting in maintaining numerous data information systems, and performing sample analyses for the Superfund program. In fact, contractors are involved in almost every Agency activity. EPA has three contracting offices that award and manage contracts. The offices are located in Washington, DC; Cincinnati, OH; and Research Triangle Park, NC. In addition, there are 10 regional offices, which are assigned primary responsibility for managing large Superfund contracts. * According to a Contracts Information System printout dated March 1993, EPA had approximately 2,000 inactive contracts valued at $5.5 billion. Of this amount, the Purchasing and Contracts Management Branch in Washington, DC was responsible for closing approximately 400 of these contracts valued at almost $3 billion; the Contracts Management Branch in Cincinnati, OH was responsible for closing over 500 of these contracts valued at almost $1 billion; the remaining 1,100 contracts valued at $1.5 billion were the responsibility of the Contracts Management Division in Research Triangle Park, NC and the 10 regional offices. The Federal Acquisition Regulation (FAR) 4.804 sets forth time standards for closing contracts. Firm-fixed price contracts other than small purchases should be closed within six months from the date on which the contracting officer receives evidence of physical completion. Cost reimbursement i Report No. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed and indefinite quantity contracts requiring settlement of indirect cost rates should be closed within 36 months from the date the contracting officer receives evidence of physical completion. All other contracts should be closed within 20 months from the date the contracting officer receives evidence of physical completion. Final audits or desk audits are performed to ensure the allowability, allocability, and reasonableness of the contractor's costs and serves as the basis for negotiating a final cost settlement. Desk audits should be performed on contracts of $2,000,000 or less when there is sufficient information to perform one. A desk audit will not be performed when certain conditions are present such as an indication of fraud or waste. With the enactment of Public Law 101-510 on November 5, 1990, timely contract closeout, deobligation of unexpended monies, and receipt of refunds due the Agency is even more important. These actions are needed to prevent the Agency from using current financial resources on old contractual issues. KESULTS-IN-BRIEF Closing inactive contracts in a timely manner could have allowed EPA to deobligate over $200 million. Some of these funds should have been deobligated almost 12 years ago and then used to pay for other Government programs or EPA initiatives. Moreover, excess funds totaling $7 million were not deobligated on closed contracts. Also, we estimate that EPA has'not requested refunds from contractors which could potentially amount to $2 million. The conditions disclosed during our audit are summarized in the following paragraphs and discussed in detail in Chapters II through IV of this report. PRINCIPAL FINDINGS CLOSING CONTRACTS COULD PROVIDE EPA ADDITIONAL MONEY EPA needs to close almost 2,000 inactive contracts. Closing these contracts in a timely manner could have allowed EPA to deobligate over $200 million. Some of these funds should have been deobligated almost 12 years ago and then used to 11 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed either pay for other Government programs or EPA initiatives. In addition, over one-half of the $200 million is Superfund monies which could be used for other Superfund projects. This condition occurred because closing contracts was a low priority at EPA. It is essential that EPA close contracts in a timely manner to ensure excess funds are deobligated and reprogrammed. Expedient action would also benefit EPA because a significant portion of the $200 million could be used by the Agency for current Superfund initiatives. For other appropriations. Public Law 101-510 required the Agency to return funds obligated prior to fiscal 1989 to the U.S. Treasury. As a result, any payments needed to finalize older contracts must now be paid from current year funds subject to a one percent limitation. Moreover, not closing inactive contracts and deobligating excess funds adversely affects the Agency's financial statements; it also prevents the Inspector General from issuing an unqualified opinion on these financial statements. DEOBLIGATING EXCESS FUNDS ON CLOSED CONTRACTS COULD YIELD EPA EXTRA FUNDS EPA needs to deobligate all excess funds once contracts are closed. We found over 100 contracts were closed as many as 11 years ago, and $7 million obligated on these contracts was not deobligated. Had this been done, the Agency could have reprogrammed $4.4 million for use in EPA Superfund programs and returned $2.6 million to the U.S. Treasury. Discussion with EPA personnel disclosed this occurred because Agency personnel did not prepare the necessary documentation needed to deobligate excess monies. RECOUPING OVERPAYMENTS FROM CONTRACTORS EPA needs to recoup overpayments from contractors. In addition to the amounts obligated unnecessarily, we estimate that the Agency has not requested refunds from contractors which could potentially amount to $2 million, while another $200,000 was requested untimely. This occurred because refunds are usually calculated during the closeout process, and as discussed previously, contract closeout was a low priority and was not consistently accomplished. ill Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Mot Closed RECOMMENDATIONS EPA should emphasize the importance of timely contract closeout to all personnel responsible for this function. Completed contracts should be closed in accordance with the time frames specified by FAR and excess funds deobligated in a timely manner. When closing contracts, the Agency should direct their initial efforts to those contracts with fiscal 1989 appropriations. Also, attempts should be made to obtain additional personnel or reassign personnel to contract closeout activities. Consideration should be given to retaining money from contractors funded with no-year appropriations so that they would more readily provide the documents necessary for closeout. AGENCY COMMENTS & OIG EVALUATION The Agency agreed with our findings and recommendations and indicated they have now placed a high priority on contract closeout. The Office of Acquisition Management (OAM) set a goal of closing out 700 contracts by the fiscal year end. As of June 1994, OAM has closed out over 465 contracts and deobligated over $7.5 million since the beginning of fiscal year 1994. OAM indicated they will set goals for closing contracts each fiscal year, and to the greatest extent possible, will dedicate personnel to this function. In addition, OAM refocused the efforts of staff in two divisions to work on contract closeout, and a third division has moved a "pre-closeout" group to provide greater visibility and separation from day-to-day contract management responsibilities. EPA's response to recommendation number 5 of Chapter II indicates retaining money from contractors is not an option for the Agency since regulations regarding the "M" account require EPA to expend its appropriations within five years of its expiration. The funds withheld would then have to be paid out of the Agency's current year appropriations and the benefit derived from retaining funds would be lost. While we "agree with this response as it pertains to one-year and two- year appropriations, we believe the Agency should withhold monies from those contracts funded with no-year appropriations, such as Superfund contracts. iv Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed EPA's comments are summarized at the conclusion of each finding, and the completed response is included as APPENDIX A to this report. Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed [This page was intentionally left blank.] VI Report NO. E1SFF3-03-0162-4100462 ------- Audit of contracts Mot Closed TABLE OF CONTENTS Page EXECUTIVE SUMMARY i CHAPTER I INTRODUCTION , ^ PURPOSE 1 BACKGROUND 1 SCOPE AND METHODOLOGY 6 PRIOR AUDIT COVERAGE 8 CHAPTER II CLOSING CONTRACTS COULD PROVIDE EPA ADDITIONAL MONEY 11 Contracts Not Closed 11 Other Alternatives 16 Additional Benefits 16 Actions Taken 16 RECOMMENDATIONS 18 CHAPTER III DEOBLIGATING EXCESS FUNDS ON CLOSED CONTRACTS COULD YIELD EPA EXTRA FUNDS 21 RECOMMENDATION 22 CHAPTER IV RECOUPING OVERPAYMENTS FROM CONTRACTORS 23 Other Matters 24 EXHIBIT A CONTRACTS NOT CLOSED AS OF SEPTEMBER 1993 25 EXHIBIT B CONTRACTS CLOSED AS OF SEPTEMBER 1993 27 EXHIBIT C CONTRACT FILES NOT LOCATED 28 APPENDIX A AGENCY COMMENTS 29 APPENDIX B DISTRIBUTION 33 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Mot Closed [This page was intentionally left blank.) Report No. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed CHAPTER I INTRODUCTION PURPOSE The purpose of the audit was to evaluate whether EPA closed contracts in a timely manner, deobligated unexpended monies associated with inactive contracts, and obtained refunds due the Agency. BACKGROUND The Environmental Protection Agency, created in 1970, now employs almost 18,000 people and has a budget of $7 billion. It is responsible for implementing 14 major laws that Congress has passed to restore and protect the environment. The mission of EPA is to protect the health and welfare of the American people by preventing, abating, and cleaning up pollution hazards. EPA accomplishes its mission by integrating research, monitoring, standard-setting, and enforcement activities. Overall, EPA strives to formulate and implement policies which lead to a compatible balance between human activities and the ability of natural systems to support and nurture life. EPA relies heavily on contractors to carry out its mission. During the past 23 years, the Agency's contract obligations have exceeded $12 billion for work performed under 14,500 contracts. EPA contractors provide a wide variety of services. Some of the contracted services include conducting scientific work that EPA uses to set environmental standards, overseeing cleanups of hazardous waste sites, assisting in maintaining numerous data information systems, and performing sample analyses for the Superfund program. In fact, contractors are involved in almost every Agency activity. EPA tracks the status of each contract through the Contracts Information System (CIS). Active contracts are denoted as being in Phase 65 in the CIS. Inactive contracts are coded as Phase 94 or Phase 96. Phase 94 contracts are inactive, because the period of performance was not updated in the CIS or the period of performance expired and was not coded as Phase 96. Physically complete contracts that have entered the closeout process are denoted by Phase 96. A contract is Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed physically complete when the performance period has expired, the required services have been inspected and accepted, or the Government terminated the contract. Contracts that are closed and retired are coded Phase 97. EPA has three contracting offices that award and manage contracts. The offices are located in Washington, DC; Cincinnati, OH; and Research Triangle Park, NC. In addition, there are 10 regional offices, which are assigned primary responsibility for managing large Superfund contracts. According to a CIS printout dated March 1993, EPA had approximately 2,000 inactive contracts (Phase 94 & 96) valued at $5.5 billion. Of this amount, the Purchasing and Contracts Management Branch in Washington, DC was responsible for closing approximately 400 of these contracts valued at almost $3 billion; the Contracts Management Branch in Cincinnati, OH was responsible for closing over 500 of these contracts valued at almost $1 billion; and the remaining 1,100 contracts valued at $1.5 billion were the responsibility of the Contracts Management Division in Research Triangle Park, NC and the 10 regional offices. According to the EPA publication of Who's Who and What's What in the Office of Acquisition Management dated November 1992, each contracting office has a branch specifically responsible for performing contract closeout activities. At EPA Headquarters in Washington, DC, the Purchasing and Contracts Management Branch is responsible for closing contracts through its Contract Closeout Unit. Even though the Contract Management Branches in Cincinnati, OH and Research Triangle Park, NC are responsible for contract closeout activities, these branches perform other activities and do not have a specific unit for contract closeout activities. Besides closing contracts, they are tasked with such duties as issuing work assignments and delivery orders, and providing incremental funding. The Federal Acquisition Regulation (FAR) 4.804 sets forth time standards for closing contracts. Firm-fixed price contracts other than small purchases should be closed within six months from the date on which the contracting officer receives evidence of physical completion. Cost reimbursement and indefinite quantity contracts requiring settlement of indirect cost rates should be closed within 36 months from the date the contracting officer receives evidence of physical completion. All other contracts should be closed 2 Report No. E1SPF3-03-0162-4100462 ------- Audit of Contracts Not Closed within 20 months from the date the contracting officer receives evidence of physical completion. EPA's Acquisition Handbook, Unit Two: Standard Procedures for Closing Out and Retiring Completed Contracts dated March 1992, established uniform and systematic procedures for promptly closing and retiring completed contracts. These standard procedures encompass the following closeout actions. Closeout action should begin when a contract is physically complete. The contracting officer is responsible for initiating closeout by: (1) completing an evaluation of contractor performance; (2) obtaining from the Project Officer an evaluation of contractor performance, and a certification that the goods/services have been received; and (3) resolving all outstanding issues or problems. For contracts requiring settlement of indirect cost rates, the contract specialist must request the contractor to submit a final indirect cost rate proposal in accordance with FAR 52.216-7. This final cost rate proposal is audited by the cognizant audit agency. The timing of these audits * is not specified in the FAR, but they must be completed before final audits are completed. Also, the contractor is required to submit a completion voucher and a cumulative claim and reconciliation promptly following completion of all work. , The completion voucher serves as a basis for requesting a final audit. After the above documents have been received and final indirect rates negotiated, the contract specialist then- requests a final audit from the cognizant audit agency or performs a desk audit. Either of these serves as the final audit which determines the allowability, allocability, and reasonableness of the contractor's costs and serves as the " basis for negotiating a final cost settlement. It also helps establish proper final payment amounts and allows the contract to be closed. The desk audit is generally performed by the contract specialist at his or her physical location. Until recently, these audits were performed on contracts of $1,000,000 or less when there was sufficient information available. In November 1993, this threshold was raised to $2,000,000. The information needed for the desk audit is usually found in the contract file and includes such items as the basic contract and amendments, contractor's invoices/vouchers, and data Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Hot closed provided by the project officer. From this information, the contract specialist determines the final allowable contract amount. A desk audit will not be performed when certain conditions are present such as an indication of fraud or waste. In this instance, the contract specialist should request a final audit. For contracts over $2,000,000, a final audit is generally performed by the cognizant audit agency. It entails the reconciliation of a contractor's final claim under the contract to incurred costs. A final audit report is submitted to EPA which normally includes the auditor's opinion on the allowability of the costs claimed by the contractor. The report may also present comments on the contractor's operations and administrative procedures which are pertinent to the closeout of the contract. When the desk audit or final audit is completed and its findings are resolved, the contract specialist requests the contractor to submit the following closeout documents: Contractor's Assignment of Refunds, Rebates, Credits; Contractor's Release; a Contractor's Summary Report of Inventions and Subagreements or Subcontracts; and a final voucher. For fixed price contracts, the contractor only needs to submit a Contractor's Release and a final voucher. Upon receipt of these documents, final payment is made or a refund is collected by the Agency. If there are excess funds remaining on the contract, the contract specialist should prepare a modification to deobligate the funds. The contract is then closed and retired. In addition, quick closeout procedures can be used for settlement of indirect cost rates when the conditions specified by EPA Acquisition Regulation (EPAAR) 1542.708 (a)(1) through (3) and the Class Deviation issued on November 9, 1993, to EPAAR 1542.708 have been met. Basically, the EPAAR allows the settlement of indirect costs for a specific contract, in the absence of final indirect costs rates, if: (1) the contract is physically complete; (2) the amount of unsettled indirect cost to be allocated to the contract is relatively insignificant; and (3) agreement can be reached on a reasonable estimate of allocable dollars. Also, the contract must have an estimated cost, excluding fee, of $2,000,000 or less, and the cumulative estimated contract costs for the contractor does not exceed $5,000,000 per contracting or regional office in a fiscal year. 4 Report No. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed With the enactment of Public Law 101-510 on November 5, 1990, timely contract closeout is even more important, because any payments needed to finalize older contracts must now be paid from current year funds. Prior to this legislation, appropriation accounts maintained their fiscal year identity for 2 years after the period of availability for incurring new obligations had expired. After the two-year period, the obligated and unobligated balances were transferred and merged into "M" accounts and merged surplus authority, respectively, at which point they lost their fiscal year identity. These accounts were used to pay and adjust valid obligations incurred prior to expiration but not for new obligations. Because expired funds were merged after 2 years and lost their fiscal year identity, upward adjustments were not restricted to the amounts available in the appropriation originally obligated. To improve congressional oversight and control over spending of appropriation accounts, Public Law 101-510 requires: (1) Agencies to maintain records for each expired appropriation account reflecting obligated and unobligated balances by year for 5 years. (2) Obligated and unobligated balances are canceled, on September 30, 5 years after the funds could no longer be obligated regardless of whether or not goods or services contracted for have been provided. Thereafter, obligations and upward adjustments that would have been chargeable to the canceled appropriation account may only be paid out of current appropriations subject to a 1% limitation. The new legislation provided a timetable for phasing out "M" accounts. f Fiscal Years fFYs) Expiration of "M" Accounts Fys 83 and prior March 6, 1991 Fys 84 and 85 September 30, 1991 and 1992, respect ively. Fys 86, 87, and 88 September 30, 1993. 5 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed Because of this new legislation, timely contract closeout, deobligation of unexpended monies, and receipt of refunds due the Agency are essential. These actions are needed to prevent the Agency from using current financial resources on old contractual issues. SCOPE AND METHODOLOGY We performed the audit in accordance with the Government Auditing Standards (1988 Revision) issued by the Comptroller General of the United States as they apply to economy and efficiency and program results audits. Our review included tests of the program records and other auditing procedures we considered necessary. To accomplish our objectives, we performed our review at the EPA Office of Acquisition Management's Procurement Operations Division in Washington, DC, and the Contract Management Division in Cincinnati, OH. Specifically, we reviewed the Purchasing and Contracts Management Branch in Headquarters, and the Contract Management Branch in Cincinnati. In Washington, DC, the Purchasing and Contracts Management Branch through its Contracts Support Section's Closeout Unit was responsible for performing contract closeout activities. In Cincinnati, OH, the Contracts Management Branch was responsible for closeout activities, as well as post award management activities, such as processing work assignments and contract modifications, and reviewing monthly reports. During our survey and audit, we reviewed the Code of Federal Regulations (CFR), EPA's Acquisition Regulations, and various EPA policies and guidance applicable to contract closeout activities. We also reviewed various reports that addressed EPA contract management. We examined the post award section of each contract file. We reviewed contracts, modifications, delivery orders, work assignments, purchase requests and closeout documents such as the contracting officer's and the project officer's evaluation of contractor performance, and the project officer's certification of goods received. We reviewed reports on the status of indirect cost rate audits to determine if the contractor's rates were audited. We had discussions with EPA contracting officers and EPA personnel responsible for closeout activities. Our audit disclosed several areas needing improvement which are discussed in this report. 6 Report Mo. E1SFF3-03-0162-4100462 ------- Audit of contracts Not Closed During our survey, we randomly selected 24 of the 400 inactive contracts the Purchasing and Contracts Management Branch in Washington, DC was responsible for closing. The 24 contracts we reviewed were fixed price contracts with a total value of $55 million. We focused our survey on fixed price contracts since closeout of these contracts is required within six months of completion. As such, closeout of fixed price contracts should have been relatively quick. The results of our survey indicated that a comprehensive audit was warranted. During our audit, we randomly selected 26 of the 500 inactive contracts that the Contracts Management Branch in Cincinnati, OH was responsible for closing. The 26 selected had a total value of $45 million and included 17 cost contracts and nine fixed price contracts. In total, we reviewed 50 inactive contracts valued at $100 million to determine if EPA was closing contracts in a timely manner, deobligating excess funds, and obtaining refunds due the Agency. Our review evaluated the economy, efficiency and program results expected only in relation to the procedures used by ' EPA to ensure timely contract closeout. Our audit also included an evaluation of management controls and procedures specifically related to the audit objectives. The material internal control weaknesses that we noted and related recommendations to strengthen controls within the scope of this audit are included in Chapters II through IV of this report. During this audit, we obtained various printouts on inactive contracts, contract awards, and contracts closed from the Agency's Contracts Information System. We also obtained information from the Agency's Contracts Payment System which identified unliquidated balances for contracts. Although we used information maintained by EPA on computers, we did not audit the general and application controls of these data processing systems. The main purpose of our audit was not to express an opinion on the accuracy of the data processing systems, but to evaluate the Agency's implementation of the public laws and regulations as they deal with the contract closeout. We did, however, perform limited testing of the data processing systems by comparing manual records to information contained on the data systems and found no discrepancies that were significant enough to require additional review. Except 7 "»-!'**- Report No. E1SFP3-03-0162-4100462 ------- Audit of contracts Mot Closed for the matters discussed in Chapters II through IV, no other issues came to our attention which were significant enough to warrant expanding the scope of this audit. As part of this audit, we reviewed EPA's Annual Report on Internal Controls for fiscal year ended September 1992 that was prepared to comply with the Federal Managers' Financial Integrity Act (FMFIA). We found that none of the weaknesses cited in this report were disclosed in the annual report. However, the Agency identified contracts management as a material weakness due to the OIG's March 1992 audit report entitled EPA's Management of Computer Sciences Corporation Activities. This audit report identified widespread and systematic problems with contract management throughout the Agency. As a result, EPA formulated an implementation plan that included corrective actions and milestones. As a result of our survey, we initiated an in-depth review on June 8, 1993. We submitted "Position Papers" on potential issues to EPA on November 30, 1993. The fieldwork for this audit was completed on January 18, 1994. The Office of Acquisition Management responded to the position papers on January 27, 1994. We issued a draft report on May 10, 1994. EPA submitted their response to us on June 15, 1994. Overall, EPA concurred with our recommendations. EPA's comments are summarized at the conclusion of each finding, and the completed response is included as APPENDIX A to this report. PRIOR AUDIT COVERAGE The General Accounting Office, EPA, and EPA's Office of the Inspector General (OIG) issued several reports regarding EPA's contract management problems. Specifically, contract closeout activities have been one area of concern. EPA's SWAT Team's August 1992 report entitled Contracting Practices at the U.S. Environmental Protection Agency addressed contract closeout activities of the Agency. The report disclosed that a significant time lag occurred between the date of contract completion and the request for final audit. In addition, the Cincinnati Contracts Management Division (CCMD) lacked the resources to devote to contract closeout. Because there was a lack of resources, CCMD estimated there were 800 contracts in various stages of closeout. 8 Report No. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed The SWAT team recommended the CCMD determine the status of contracts and consider dedicating the necessary resources to promptly close and retire the completed contracts. The SWAT team also recommended CCMD follow Unit 2 of the EPA Acquisition Handbook, which established procedures for closing and retiring completed contracts. In addition, in the OIG's Final Audit Report on the Sample Management Office (E1SKF1-03-0065-2100666) issued September 30, 1992, we estimated that nearly $20 million remained obligated unnecessarily for contracts awarded under the Contract Laboratory Program. Because EPA failed to close these contracts, we recommended that contracts under the Contract Laboratory Program be closed in accordance with the FAR. This included deobligating funds and obtaining refunds in a timely manner. 9 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed [This page was intentionally left blank.] 10 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed CHAPTER n CLOSING CONTRACTS COULD PROVIDE EPA ADDITIONAL MONEY EPA needs to close almost 2,000 inactive contracts. Closing these contracts in a timely manner could have allowed EPA to deobligate over $200 million. Some of these funds should have been deobligated almost 12 years ago and then used to either pay for other Government programs or EPA initiatives. In addition, over one-half of $200 million is Superfund monies which could be used for current Superfund projects. This condition occurred because closing contracts was a low priority at EPA. It is essential that EPA close contracts in a timely manner to ensure excess funds are deobligated and reprogrammed. Expedient action would also benefit EPA because a significant portion of the $200 million could be used by the Agency for current Superfund initiatives. For other appropriations, Public Law 101-510 required the Agency to return funds obligated prior to fiscal 1989 to the U.S. Treasury. As a result, any payments needed to finalize older contracts must now be paid from current year funds subject to a one percent limitation. Moreover, not closing inactive contracts and deobligating excess funds adversely affects the Agency's financial statements; it also prevents the Inspector General from issuing an unqualified opinion on these financial statements. Contracts Not closed We reviewed 50 inactive contracts valued at $100 million that were awarded and managed by the Contracts Management Division offices in Washington, DC and Cincinnati, OH. Thirty-three were fixed price contracts and 17 were cost reimbursement contracts. Our review disclosed only one fixed price contract was closed in accordance with the time frames established by the Federal Acquisition Regulation (FAR) 4.804. However, many of the documents required by the EPA Acquisition Handbook to close this contract were not obtained. EPA was not required to close nine of the contracts reviewed because either the period of performance was extended or the time frames specified by the FAR had not elapsed. For the remaining 40 contracts, we found that: 11 " Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Hot Closed • Twenty contracts (eight fixed price and 12 cost reimbursement) should have been closed as many as eight years ago. There was over $1.5 million of unliquidated obligations associated with these contracts. Details are provided in EXHIBIT A. • EPA took from one to almost seven years to close 11 fixed price contracts and deobligate over $100,000 of excess funds associated with these contracts. Details are provided in EXHIBIT B. Further, many of the documents required by the Acquisition Handbook for closeout procedures were not obtained for one of these contracts. • EPA could not locate nine contract files valued at over $3 million. EXHIBIT C provides more details. In total, there were 31 contracts that were not closed in a timely manner, 20 of which are still open. Number of Number of Months Late Contracts Over 90 3 Over 40 11 Over 12 12 Under 12 _5 31 Examples of contracts EPA did not close include a time and materials contract (68-01-7247) awarded in September 1985 which enabled a contractor to perform excavation at a Superfund site. The total value of this contract was $25,000. Two weeks later in October 1985, the contract was completed. Closeout of this contract should have occurred in June 1987. Yet, over six years later, the contract was still not closed. . To close this contract, EPA personnel needed to evaluate the contractor's performance, certify that services were received, and perform a desk audit. These actions would have released $10,000, still obligated on this contract. In response to our position papers, the Agency indicated this contract was subsequently closed in January 1994. Another example is a contract (68-03-2423) EPA awarded more than 17 years ago. The value of the contract was $255,000 and the work was to be completed by June 1982. Since this was a cost-type contract and final indirect rates were 12 Report NO. E1SPP3-03-0162-4100462 ------- Audit of Contracts Not Closed needed, closeout was not required until June 1985. By September 1983, all of the indirect rates needed to close this contract were negotiated except fiscal 1982. EPA requested an indirect cost audit for fiscal 1982 in May 1983. However, the final rates were not negotiated until seven years later in August 1990. This delay occurred because the cognizant audit agency did not complete the audit until April 1990 due to other priority assignments. Even after the indirect rates were finalized, the contract could not be closed because the contractor did not submit a completion voucher and cumulative claim. Shortly after the contract expired, EPA requested that the contractor submit these documents. Two years later in October 1984, EPA again attempted to obtain these documents. At the time of our review, over eight years since the contract should have been closed, the documents had not been received. Moreover, we could find no evidence EPA made additional efforts to obtain these documents. This lack of action was not an isolated instance. For all 17 cost reimbursement contracts we reviewed, none of the contractors submitted the completion voucher within one year, as required by FAR 52.216-7(h). There, were contractors who still had not submitted their vouchers which were due as many as 10 years ago. Moreover, our review of EPA contract files did not disclose any documentation that indicated EPA made attempts to obtain the needed vouchers. This condition is noteworthy because without these documents, final audits cannot be performed and contract closeout is delayed. Eleven of the fixed price contracts included in our review already were closed—albeit not timely. For these type contracts, EPA personnel were responsible for preparing the necessary closeout documents and performing a desk audit. Closeout of fixed price and cost-type contracts differ because EPA does not need to wait for the contractor to submit any documentation to begin closeout on a fixed price contract. EPA needs only to request a final voucher after the desk audit is completed. Contract closeout was not any faster when EPA was responsible for providing the closeout documents. Even after the necessary closeout documents were prepared by EPA personnel, closeout was not accomplished in a timely manner. It took almost a year after EPA prepared the necessary documents to close two of these contracts, and the third took two years. 13 Report NO. E1SPP3-03-0162-4100462 ------- Audit of Contracts Not Closed It should be mentioned that EPA was already late in closing these contracts. By not closing these contracts when the closeout documents were prepared only added to the delay. For example, one contract (68-01-7373) was completed in June 1989, therefore, closeout should have occurred*in December 1989. In October 1989, the contract was assigned to a contract specialist for closeout. Upon review of the file, she determined that all the necessary documents were in the file except for the project officer's certification and evaluation. In order to proceed with closing, she requested and received these documents in November 1989. It was not until November 1991, that the contract specialist completed a desk audit, closed the contract. For the purpose of closing this contract EPA and the contractor mutually agreed to deobligate $15,000. The contract file did not contain any documentation to indicate why this contract was not closed two years earlier. There were no unresolved inquiries or outstanding issues pertaining to performance of the contract. Further, all required contract administration actions had been accomplished. In a second instance (68-01-7354), EPA notified the contractor in December 1986, that its contract would be terminated for lack of performance. In January 1987, the contract was transferred to the appropriate section for termination. Closeout should have been relatively easy because the contractor failed to deliver the goods and was not paid any EPA funds. It was not until almost five years later in August 1991, that the contract was assigned to a contract specialist for closeout. By November 1991, the documents needed for closeout were received, however, the contract was not closed for almost another year. Thus, it took over five years to close this contract and deobligate $9,500 even though it could have been quickly closed in January 1987. The delays in closing the 2,000 expired contracts occurred because closeout was a low priority and few resources were devoted to closing contracts. One contracting officer explained that pre-awards and administration received the most attention, while closeout, though equally important, did not receive much attention. He explained that you do not hear any complaints that a contract has not been closed. There was also confusion as to who was responsible for initiating the closeout process. When one contracting 14 Report HO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed officer was contacted regarding the reason why a contract was not closed, he explained that he depended on the Contract Closeout Unit to advise him when a contract was ready for closeout. It was brought to the contracting officer's attention that the EPA Acquisition Handbook, Exhibit T, held the contracting officer responsible for initiating closeout. Contract closeout is not a new problem for EPA. In a September 1992 audit report1, we disclosed that Contract Laboratory Program (CLP) contracts needed to be closed more timely. The CLP awarded fixed price contracts to laboratories to perform sample analyses for the Superfund program. We disclosed that only 85 of the 342 CLP contracts eligible to be closed were closed. We recommended that the Agency take action to close the CLP contracts in accordance with the FAR. During our current audit, we found that little has been accomplished in closing these contracts. Agency records indicated that only 34 additional CLP contracts were closed in the past year. EPA's SWAT Team's August 1992 report entitled Contracting Practices at the U.S. Environmental Protection Agency disclosed that the Cincinnati Contracts Management Division (CCMD) did not have a permanent staff,assigned to contract closeout. As a result, CCMD was notjable to devote significant time to closeouts. The SWAT Team recommended that CCMD consider dedicating the necessary resources to promptly close and retire the completed contracts. r The General Accounting Office's (GAO) December 1990 testimony before the Subcommittee on Oversight and Investigations stated that: As of October 1990, EPA had almost 2,400 expired contracts worth nearly $4.1 billion that have not yet been closed out. EPA has not even begun closing out over 1,000 of these 2,400 contracts although some were completed as many as 19 years ago. GAO cited that closeout delays occurred in part because EPA placed low priority on contract closeout. Another reason 1 Final Audit Report entitled Sample Management Office, E1SKF1-03-0065-2100666, Issued September 30, 1992. 15 Report No. E1SPP3-03-0162-4100462 ------- Audit of Contracts Not Closed cited by GAO was EPA did not have procedures that identified who was responsible for specific steps in contract closeout or established time frames for performing them. GAO recommended that EPA develop written procedures for closing expired contracts, including better defining closeout responsibilities and establishing time frames for meeting them. Other Alternatives One alternative to accelerate the closeout process was to perform desk audits rather than final audits for contracts of $2 million or less when the contracts meet the criteria set forth in the EPA Acquisition Handbook. Many of the contracts we reviewed appeared to have met the criteria for conducting a desk audit. The contract files we reviewed did not have- any indications of fraud or waste, nor were there indications that the contractors' performance was questionable. Additional Benefits It was unfortunate that EPA did not close contracts and deobligate the funds associated with these older contracts prior to the passage of Public Law 101-510. This law precludes EPA from using the funds that had been obligated under many of these contracts to pay the final amounts due. Presently, the Agency must use current funds to make these same payments. For this reason, it is extremely essential that EPA close contracts in a timely manner. By doing so, the Agency can use current funds to pay for current programs instead of making payments on old contracts. EPA should close contracts before amounts obligated are returned to the Treasury as required by Public Law 101-510. When closing contracts in the future, the Agency should direct their efforts to those contracts on which prior year funds are still available to make final payments. For example, completed contracts with fiscal 1989 appropriations should be closed prior to September 30, 1994. These contracts should take precedence over most others awaiting closeout because fiscal 1989 appropriations will revert to the Treasury in September 1994. 16 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Mot Closed Actions Taken In March 1992, the Agency revised the Acquisition Handbook which established procedures for closing and retiring completed contracts. However, as mentioned previously, confusion still existed as to who was responsible for initiating the closeout process. In the past, CCMD had requested additional resources for contract closeout; however, resources were not allocated for this function. Over the last several years, CCMD had periodically set up special teams to perform closeout functions for a limited period of time. These teams were tasked with closing a predetermined number of contracts. In most cases, the teams worked on the easier closeouts, resulting in the more difficult, older contracts remaining open. In August 1992, the Director of CCMD formulated a new policy requiring contract specialists to close contracts they administer. However, during our July 1993 visit to Cincinnati, this policy had not been implemented, but was scheduled to begin in October 1993. As of April 1994, this policy was in effect. CCMD personnel explained that for those contracts that expired after our visit in July 1993, closeout action was initiated, and in' some cases contracts closed, by the contract specialist who administered the contract. CCMD personnel stated this policy should help reduce the backlog of contracts requiring closeout. In October 1992, CCMD re-assigned one employee to work only on closing contracts. However, much of his efforts focused on retrieving and organizing contract files, determining what EPA needed for closeout, and reconciling CCMD's own closeout database. Since April 1993, he has worked exclusively on closing contracts. In addition, two other people closed contracts as time permitted. Based on the recent efforts of personnel at CCMD, contract closeout was now considered a priority at this location. CCMD personnel expressed an eagerness to close contracts and have made an effort to improve the situation. In November 1993, EPA attempted to alleviate the backlog of inactive contracts. The Director, Office of Acquisition Management revised the EPA Acquisition Regulations to permit more contracts to be closed using quick closeout procedures. 17 Report Mo. E1SFF3-03-0162-4100462 ------- Audit of Contracts Mot Closedx In response to our position papers, the Director, Office of Acquisition Management indicated eight of the nine missing files were located. She hoped to locate the last missing file shortly. Should this effort fail, she indicated they would reconstruct the missing file to determine whether or not the file has been closed. Therefore, we deleted our recommendation pertaining to this issue. The response also indicated several additional positive steps were taken in the contract closeout area. For example, EPA personnel targeted 23 contracts with a fiscal 1989 appropriation which will take precedence in the closeout process and should be closed by September 30, 1994. A newly formed Closeout Team at the Contracts Management Division within Research Triangle Park, NC was tasked with closing contracts for the Contract Laboratory Program. At the CCMD, one additional full-time employee was assigned to perform closeout functions while another employee was recently detailed for 120 days to expedite the reduction of the closeout workload. RECOMMENDATIONS We recommend the Assistant Administrator for Administration and Resources Management: (1) Emphasize the importance of timely contract closeout to all personnel responsible for this function. (2) Attempt to obtain additional personnel or reassign personnel for contract closeout if resource constraints have impeded closeout. (3) Close completed contracts in accordance with the time frames specified by FAR and deobligate excess funds in a timely manner. When closing contracts, the Agency should direct their initial efforts to those contracts with fiscal 1989 appropriations. (4) Take additional action to obtain the necessary closeout documents from contractors. If these documents cannot be obtained, the contracts should be closed without them. 18 Report NO. E1SFF3-03-0162-4100462 ------- Audit of contracts Not Closed (5) Consider retaining money from contractors funded with no-year appropriations so that in the future, contractors would more readily provide the documents necessary for closeout. AGENCY COMMENTS The Agency agreed with our recommendations and indicated they have now placed a high priority on contract closeout. Specifically, they agreed that closing contracts more timely would have allowed for deobligation of a substantial amount of funds and could, under certain circumstances, avoid utilizing current year funds to pay prior year expenses. In addition, a senior manager has been assigned to the Superfund Deobligation Task Force, which will develop guidance on deobligating and recertifying prior year Superfund funds. This Task Force also will aggressively pursue the deobligation of excess funds. The Office of Acquisition Management (OAM) set a goal of closing out 700 contracts by the fiscal year end. OAM has closed out over 465 contracts and deobligated over $7.5 million since the beginning of fiscal year 1994. OAM indicated they will set goals for closing contracts each fiscal year, and to the greatest extent possible, will dedicate personnel to this function. Further, the Agency will consider closing contracts without the closeout documents. OIG EVALUATION OF AGENCY COMMENTS The response from the Assistant Administrator for Administration and Resources Management is responsive to our recommendations. The actions planned and taken should dramatically increase the number of contracts closed. The Agency's response to our third recommendation indicates that EPA's vulnerability to the workload of the cognizant audit agency will increase as the backlog of contracts awaiting audit grows. This vulnerability may or may not materialize. If it does, there maybe other options available to the Agency, such as performing desk audits or quick closeouts. Moreover, EPA's response to recommendation number 5 of Chapter II indicates retaining money from contractors is not 19 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed an option for the Agency since regulations regarding the "M" account require EPA to expend its appropriations within five years of its expiration. The funds withheld would then have to be paid out of the Agency's current year appropriations and the benefit derived from retaining funds would be lost. While we agree with this response as it pertains to one-year and two-year appropriations, we believe the Agency should withhold monies from those contracts funded with no-year appropriations, such as Superfund. 20 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed CHAPTER ffl DEOBLIGATING EXCESS FUNDS ON CLOSED CONTRACTS .D YIELD EPj EPA needs to deobligate all excess funds once contracts are closed. We found over 100 contracts were closed as many as 11 years ago, and $7 million obligated on these contracts was not deobligated. Had this been done, the Agency could have reprogrammed $4.4 million for use in EPA Superfund programs and returned $2.6 million to the U.S. Treasury. We reviewed a Contract Payment System report on unliquidated balances that provided account balances for contracts with no payment activity for six months. This report contained over 1,100 contracts. We then used a Contract Information System report to determine the status of these contracts. From this review, we identified over 100 contracts that were closed in the Contracts Information System, but had not been closed in the Contracts Payment System. These contracts had $7 million still obligated even though final payments were made to the contractors. Final Payment Number of Made in Year Contracts 1982 to 1986 6 1987 to 1990 63 1991 to 1992 43 1993 5 118 For example, final payment for one contract (68-01-7351) was made in April 1991, and the contract was closed the same month. However, more than $1 million was still obligated in August 1993. Of this amount, over $800,000 was Superfund monies. Another contractor (68-01-6962) was paid its final payment in July 1989, and the contract closed the same month. For this contract, almost $400,000 of Superfund monies was still obligated at the time of our review. Discussion with EPA personnel disclosed this occurred because Agency personnel did not prepare the necessary paperwork (i.e. memorandum or contract modification) needed to deobligate excess monies. The FAR 4.804-5(a), recommends that excess funds should be deobligated after a final invoice I 21 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed is submitted. The EPA Acquisition Handbook, Unit 2, Paragraph 2.14, stipulates that excess funds can be deobligated even before the final invoice is received. It is essential that excess funds be deobligated so funds can be reprogrammed for other uses or returned to the Treasury. Expedient action could benefit EPA because a significant portion of this amount could be used by the Agency for its Superfund program. RECOMMENDATION ( We recommend the Assistant Administrator for Administration and Resources Management deobligate excess funds on all closed contracts as required by FAR. AGENCY COMMENTS EPA agreed with this recommendation and will work with the National Contract Payment Division staff to ensure that excess funds are deobligated in a timely manner. QIG EVALUATION OF AGENCY COMMENTS The action planned by the Assistant Administrator for Administration and Resources Management should correct the condition we disclosed. Moreover, personnel from the National Contract Payment Division contacted us for information concerning the excess funds still obligated on closed contracts. 22 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed CHAPTER IV EPA needs to recoup overpayments from contractors. In addition, to the amounts obligated unnecessarily, we estimate that the total amount of refunds could potentially amount to $2 million. Also, another $200,000 was requested untimely. This occurred because refunds are usually calculated during the closeout process, and as discussed previously, contract closeout was a low priority and was not consistently accomplished. During the ten month period ended July 1993, EPA requested eight refunds amounting to over $200,000. We analyzed these refunds and found these contracts could have been closed and the refunds obtained as many as 10 years ago. As a result, while the Agency experienced budgetary cuts, EPA, in effect, provided the equivalent of interest-free loans to contractors because the contractors used EPA funds during this time. Examples of contracts with refunds that were requested untimely are illustrated below. REFUNDS REQUESTED UNTIMELY CONTRACT 68-01-5939 68-93-0011 68-92-0003 68-92-0004 68-01-4795 CONTRACT EXPIRED 03/80 11/82 06/84 06/84 08/82 CLOSEOUT REQUIRED 03/83 07/84 02/86 02/86 08/85 REFUND REQUESTED 01/93 06/93 06/93 06/93 10/92 HOS. LATE 118 107 88 88 86 - REFUND AMOUNT $ 9,505 $ 2,004 $ 10,568 $ 13,900 $123,350 EPA closed 202 contracts during the ten months ended July 1993. For eight of these contracts (or four percent), EPA received an average refund of $25,200. If this held true for the 2,000 inactive contracts (see Chapter II), EPA could potentially receive $2 million in refunds. A significant portion of these potential refunds could be Superfund monies that could be used for new Superfund projects. The remainder of these monies, although not available to EPA, would be available to the U.S. Treasury. 23 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed The FAR 52.216-7(h)(2) provides that the contractor shall pay the Government any refunds, rebates, or other amounts (including interest, if any) accruing to or received by the contractor. Good business practice dictates that EPA should initiate the closeout procedures required by FAR 4.804 in a timely manner to obtain these refunds from contractors as quickly as possible. We have not included a recommendation after this finding, because obtaining refunds is part of the closeout process and we have already recommended that the Agency focus efforts on closing the 2,000 inactive contracts. Our purpose for providing this finding was to inform the Agency that in addition to the funds obligated under these contracts, there are additional funds that had been disbursed to the contractors which should be repaid to the Government when the contracts are closed. Other Matters During our fieldwork, we found some contracts that were closed, but were not coded (Phase 97} as such in the Contracts Information System. The CIS still carried the contracts as inactive (Phase 94 or Phase 96) . We were informed that verification of the change was supposed to be performed by the contract specialist who was responsible for closing the contract; however, verification was performed only when there was "down" time. This was evident by the disparity between the number of closeouts recorded by the Contract Closeout Unit in Washington and the CIS. As of July 1993, the Contract Closeout Unit's report indicated that 63 contracts were closed while the CIS indicated that 27 contracts were closed. 24 Report No. E1SPF3-03-0162-4100462 ------- Audit of Contracts Not Closed EXHIBIT A - Page 1 of 2 CONTRACTS NOT CLOSED AS OF SEPTEMBER 1993 WASHINGTON, DC CONTRACT NUMBER 68-01-6879 68-01-7247* 68-01-6963 68-01-7081* 68-01-7480 68-W1-0039 CONTRACT COMPLETED JUL 1986 OCT 1985 FEE 1987 NOV 1987 SEP 1988 NOV 1992 TOTAL AVAILABLE FOR DEOBL] CLOSEOUT REQUIRED JAN 1987 JUN 1987 AUG 1987 MAY 1988 MAR 1989 MAY 1993 MONTHS LATE 80 75 73 64 54 4 $ TO BE DEOBLIGATED $ 506,000 $ 10,000 $ 366,000 $ 172,000 $ 2,200 $ 36,200 [GATION $1,092,400 * In response to our position papers, EPA indicated contracts were closed in January 1994. these 25 Report No. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed EXHIBIT A - Page 2 of 2 CONTRACTS NOT CLOSED AS OF SEPTEMBER 1993 CINCINNATI, OH CONTRACT NUMBER 68-01-5994 68-03-2423 68-03-2986 68-03-3116 68-01-6587 68-01-3918 68-03-3208 68-03-3279 68-CO-0096* 68-CO-0052* 68-03-4007 68-03-3439 68-03-3552 68-C8-0003 CONTRACT COMPLETED JAN 1982 JUN 1982 SEP 1982 SEP 1984 JUN 1985 APR 1986 SEP 1986 SEP 1988 MAY 1991 SEP 1991 SEP 1989 APR 1990 SEP 1990 SEP 1990 TOTAL AVAILABLE FOR DEOBL] CLOSEOUT REQUIRED JAN 1985 JUN 1985 SEP 1985 SEP 1987 JUN 1988 APR 1989 SEP 1989 SEP 1991 NOV 1991 MAR 1992 SEP 1992 APR 1993 SEP 1993 SEP 1993 MONTHS LATE 104 99 96 72 63 53 48 24 22 18 12 5 0 0 $ TO BE DEOBLIGATED $ 0 $ o $ 0 $ 24,400 $ 0 $ 0 S 0 $ 24,300 $ 1,700 $ 100 $ 83,400 $ 49,700 $ 8,700 $278,400 [CATION $470,700 * In response to our position papers, EPA indicated contracts were closed in November 1993. these Total Available for Deobligation Washington, DC $1,092,400 Cincinnati, OH 470,700 Total Si.563.100 26 Report NO. E1SFF3-03-0162-4100462 ------- Audit of Contracts Not Closed. EXHIBIT B - Page 1 of 1 CONTRACTS CLOSED AS OF SEPTEMBER 1993 CONTRACT NUMBER 68-63-0016 68-01-7354 68-01-7329 68-01-7486 68-CO-0031 68-01-7483 68-01-7373 68-C8-0077 68-W1-0058 68-CO-0073 68-C1-0048 CONTRACT COMPLETED MAY 1986 NOV 1986 DEC 1988 SEP 1988 JUL 1990 SEP 1989 JUN 1989 JUL 1991 DEC 1991 OCT 1991 JAN 1992 TOTAL $ DEOBLIGATED U> CLOSEOUT REQUIRED NOV 1986 MAY 1987 JUN 1989 MAR 1989 JAN 1991 MAR 1990 DEC 1989 JAN 1992 JUN 1992 APR 1992 JUL 1992 CLOSEOUT COMPLETED JUL 1993 AUG 1992 AUG 1992 APR 1992 JUN 1993 APR 1992 NOV 1991 APR 1993 JUL 1993 APR 1993 JUN 1993 MONTHS LATE 80 63 38 37 29 25 23 15 13 12 11 $ DEOBLIGATED $ 100 $ 9,500 $ 67,000 $ 10,000 $ 0 $ 0 $ 15,200 $ o $ o $ o $ o LTE $101,800 27 Report No. E1SPP3-03-0162-4100462 ------- Audit of Contracts Mot Closed EXHIBIT C - Page 1 of 1 CONTRACT FILES NOT LOCATED Washington. DC 68-W8-0067 68-88-1109* 68-04-2011* 68-01-7144* 68-93-0032* 68-WO-0045* 68-W1-0008* Cincinnati. OH 68-03-3507* 68-03-1912* * In response to our position papers, EPA indicated eight of the nine missing files were located—seven of which were closed and one is in the close-out process (68-03-3507). 28 Report NO. E1SFP3-03-0162-4100462 ------- UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D C 20460 APPENDIX A Page 1 of 3 JUN I 5 1994 MEMORANDUM OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT SUBJECT: FROM: Response to Draft Audit Report Number E1SFF3-03-0162 racts Not Closed i»n: / r To: Ton it Administrator for Administration and Resources Management (3101) Elissa R. Karpf , Associate Assistant Inspector General for Acquisition and Assistance Audits (2410) Thank you for the opportunity to provide comments on the draft findings on the audit of Contracts Not Closed, provided by your memorandum dated May 10, 1994. Attached is our response to your draft report. We appreciate your recognition of actions already taken, and agree that additional emphasis should be placed on the importance of timely contract closeout. This is now a priority with the Office of Acquisition Management (OAM). OAM has closed out over 465 contracts and deobligated over $7.5 million since the beginning of fiscal year 1994. OAM is now at 66% of its goal of closing out 700 contracts by the fiscal year end. In addition, we have refocused the efforts of staff in two divisions to work on contract closeout, and a third division has moved a "pre-closeout" group to provide greater visibility and separation from day-to-day contract management responsibilities. Should you have any questions regarding any of our comments, please contact Betty Bailey, Director, Office of Acquisition Management on 202-260-5020. Attachment \\ MS o-y.> ''I 11 29 Recycled/Recyclable Printed with Soy/Cmola Ink on paper that contains at least 50% recycled fiber ------- APPENDIX A Page 2 of 3 ATTACHMENT CHAPTER II » - CLO8IW3 CONTRACTS COULD PROVIDE ' EPA, RDDITIOilAL HONEY FINDINGS We agree that closing contracts more timely would have allowed for deobligation of a substantial amount of funds and could, under certain circumstances, avoid utilizing current year funds to pay prior year expenses. RECOMMENDATIONS (l) Emphasize the importance of timely contract closeout to all personnel responsible for this function. We agree with this recommendation and have now placed a high priority on contract closeout. We will continue the practice of setting a goal for close-outs each fiscal year, and to the greatest extent possible, will dedicate personnel to this function. (2) Attempt to obtain additional personnel or reassign personnel for contract closeout if resource constraints have impeded contract closeout. We agree with the intent of this recommendation, however, current resource constraints preclude OAM from reassigning personnel to close out contracts, in light of the workload that we historically experience at the end of the fiscal year. As noted above, we will continue to set goals for contract close out and attempt to dedicate staff, as circumstances allow. (3) Close completed contracts in accordance with the time frames specified by FAR and deobligate excess funds in a timely manner. When closing contracts, the Agency should direct their initial efforts to those contracts with fiscal 1989 appropriations. We agree that completed contracts should be closed in accordance with the FAR time frames and that is our intent. This, however, may not be possible in those instances where final indirect cost rates have not been established for all periods, or incurred cost audits have not been performed. OAM is vulnerable to the workload and priorities of the cognizant audit agency. This vulnerability will only increase as OAM continues its close out activities, and the backlog of contracts awaiting audits grows. -1- 30 ------- APPENDIX A Page 3 of 3 A senior manager has been assigned to the Superfund Deobligation Task Force, which will develop guidance on deqbligating and recertifying prior year Superfund funds. This Task "Force also will aggressively pursue the' deobligation "of excess funds. (4) Take additional action to obtain the necessary closeout documents from contractors. If these documents cannot be obtained, the contracts should be closed without them. We agree with this recommendation. We will consider closing out contracts without the necessary closeout documents if an analysis of the contract file reveals a low risk in closing out the contract in this manner, and there is no indication of fraud, waste, or abuse or any type of investigation. (5) Consider retaining money from contractors so that in the future, contractors would more readily provide the documents necessary for closeout. Retaining money from contracts to ensure production of contract close out documents is not an option for the Agency since regulations regarding the "M" account require the Agency to expend its appropriations within five years of its expiration. Funds withheld would then have to be paid out of the Agency's current year appropriations and the benefit derived from retaining funds would be lost. CHAPTER III DEOBLIGATING EXCESS FUNDS ON CLOSED CONTRACTS COULD YIELD EPA EXTRA FUNDS We agree that EPA needs to deobligate all excess funds once contracts are closed. RECOMMENDATION We recommend the Assistant Administrator for Administration and Resources Management deobligate excess funds on all closed contracts as required by FAR. We agree with the recommendation to deobligate excess funds on all closed contracts and we will work with the National Contract Payment Division staff to ensure that excess funds are deobligated in a timely manner. -2- 31 ------- [This page was intentionally left blank.] 32 ------- UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C 20460 APPENDIX A Page 1 of 3 JUN 1 5 1994 MEMORANDUM OFFICE OF ADMINISTRATION AND RE SOURCES MANAGEMENT SUBJECT: FROM TO: Response to Draft Audit Report Number E1SFF3-03-0162 Donti (tor for Administration and Resources Management (3101) « Elissa R. Karpf, Associate Assistant Inspector General for Acquisition and Assistance Audits (2410) Thank you for the opportunity to provide comments on the draft findings on the audit of Contracts Not Closed, provided by your memorandum dated May 10, 1994. Attached is our response to your draft report. we appreciate your recognition of actxons already taken, and agree that additional emphasis should be placed on the importance of timely contract closeout. This is now a priority with the Office of Acquisition Management (OAM). OAM has closed out over 465 contracts and deobligated over $7.5 million since the beginning of fiscal year 1994. OAM is now at 66% of its goal of closing out 700 contracts by the fiscal year end. In addition, we have refocused the efforts of staff in two divisions to work on contract closeout, and a third division has moved a "pre-closeout" group to provide greater visibility and separation from day-to-day contract management responsibilities. Should you have any questions regarding any of our comments, please contact Betty Bailey, Director, Office of Acquisition Management on 202-260-5020. Attachment Wf jw/ow, 'I 29 Recycled/Recyclable Printed with Soy/Canola Ink on paper that contains at least 50% recycled fiber ------- APPENDIX A Page 2 of 3 ATTACHMENT CHAPTER II _ CLO6XWG*-COSTRACTS 'COOLI)1 9KD91OB "BPfc "ADOITtONRL MONEY FINDINGS We agree that closing contracts more timely would have allowed for deobligation of a substantial amount of funds and could, under certain circumstances, avoid utilizing current year funds to pay prior year expenses. RECOMMENDATIONS (1) Emphasize the importance of timely contract closeout to all personnel responsible for this function. We agree with this recommendation and have now placed a high priority on contract closeout. We will continue the practice of setting a goal for close-outs each fiscal year, and to the greatest extent possible, will dedicate personnel to this function. (2) Attempt to obtain additional personnel or reassign personnel for contract closeout if resource constraints have impeded contract closeout. We agree with the intent of this recommendation, however, current resource constraints preclude OAM from reassigning personnel to close out contracts, in light of the workload that we historically experience at the end of the fiscal year. As noted above, we will continue to set goals for contract close out and attempt to dedicate staff, as circumstances allow. (3) Close completed contracts in accordance with the time frames specified by FAR and deobligate excess funds in a timely manner. When closing contracts, the Agency should direct their initial efforts to those contracts with fiscal 1989 appropriations. We agree that completed contracts should be closed in accordance with the FAR time frames and that is our intent. This, however, may not be possible in those instances where final indirect cost rates have not been established for all periods, or incurred cost audits have not been performed. OAM is vulnerable to the workload and priorities of the cognizant audit agency. This vulnerability will only increase as OAM continues its close out activities, and the backlog of contracts awaiting audits grows . N -1- 30 ------- APPENDIX A Page 3 of 3 A senior manager has been assigned to the Superfund Deobligation Task Force, which will develop guidance on deobligating and recertifying prior year Superfund funds. This Task" Force 'also will aggressively pursue the deobli'gation of excess funds. (4) Take additional action to obtain tbe necessary closeout documents from contractors. If these documents cannot be obtained, the contracts should be closed without them. We agree with this recommendation. We will consider closing out contracts without the necessary closeout documents if an analysis of the contract file reveals a low risk in closing out the contract in this manner, and there is no indication of fraud, waste, or abuse or any type of investigation. (5) consider retaining money from contractors so that in the future, contractors would more readily provide the documents necessary for closeout. Retaining money from contracts to ensure production of contract close out documents is not an option for the Agency since regulations regarding the "M" account require the Agency to expend its appropriations within five years of its expiration. Funds withheld would then have to be paid out of the Agency's current year appropriations and the benefit derived from retaining funds would be lost. CHAPTER III DEOBLI6ATZN6 EXCESS FUNDS ON CLOSED CONTRACTS COULD YIELD EPA EXTRA FUNDS We agree that EPA needs to deobligate all excess funds once contracts are closed. RECOMMENDATION We recommend the Assistant Administrator for Administration and Resources Management deobligate excess funds on all closed contracts as required by FAR. We agree with the recommendation to deobligate excess funds on all closed contracts and we will work with the National Contract Payment Division staff to ensure that excess funds are deobligated in a timely manner. -2- 31 ------- [This page was intentionally left blank.] 32 ------- Audit of Contracts Not Closed APPENDIX B DISTRIBUTION Recipient Office of Inspector General Headquarters Office Inspector General (2421) EPA Headquarters Office Assistant Administrator for Administration and Resources Management (3101) Director, Office of Acquisition Management (3801F) Director, Contract Management Division at Cincinnati, OH Director, Contract Management Division at Research Triangle Park, NC Director, Financial Management Division (3303) Director, Program and Policy Coordination Office (3102) Associate Administrator for Congressional and Legislative Affairs (1301) Associate Administrator for Communications and Public Affairs (1701) Special Assistant to the Director, Office of Acquisition Management (380IF) Agency Followup Official (3102) Headquarters Audit Followup Coordinator (3802F) Agency Followup Coordinator (3304) Headquarters Library (3404) 33 Report No. E1SFF3-03-0162-4100462 ------- ------- |