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
-------
------- |