\
Office of Inspector General
Strategic Planning DocumenT
EPA
350/
f 1998.4
FINANCIAL CONTRACT AUDITS
Contracts 2000 Strategy
Fiscal Years 1999-2003
JUNE 1998
-------
incur / Date
es O. Rauch
Principal Deputy Assistant Inspector General
For Audit
Concur / Date
Elissa R. Karpf
Deputy Assistant Inspector General
For External Audits
EXECUTIVE STEERING COMMITTEE: Jim Rauch and Lisa Karpf
CO-CHAIRS: Gordon Milbourn and Gary Greening
MEMBERS:
Margaret Harmon
Ken Prather
Mike Rickey
Steve Burbank
Ruth Nichols
Al Grand
-------
EPA Office of Inspector General
Contracts 2000 Strategy
Background
Historically, the Environmental Protection Agency's Office of Inspector General (EPA
OIG) has focused its financial contract audit resources on large-dollar, Superfund contractors.
More recently, we have broadened our focus to include smaller and non-Superfund
contractors. We have: assisted EPA's and other Federal agencies' procurement functions in
the award, administration and close-out of contracts; provided assistance to the OIG's Office
of Investigations (OI); and performed audits of contracts to prevent and detect fraud, waste
and abuse. Additionally, in Fiscal Year (FY) 1997 we centralized our oversight of and
coordination with the Defense Contract Audit Agency (DCAA).
In early FY 1998, the Office of Audit formed the Contracts 2000 Work Group, which
included each Division's financial contract audit manager(s) and External Audit Staff
members. The Work Group assessed where we have been in our contract audit program
during the last several years and what had provided the most value. Members interviewed
OIG executives and managers, and important customers and stakeholders, and then developed
this strategy.
Contract Audit Program Goals
The Office of Audit has three goals for its contract audit program.
O Support EPA's and other Federal agencies' procurement functions with needed audits
and advisory services to assist in the award, administration and close-out of contracts.
O Provide OI with needed contract audit, consulting and accounting services to support
their civil and criminal investigations.
O Prevent and detect instances of contract fraud, waste, and abuse.
EPA has recently issued a new strategic plan in accordance with the Government
Performance and Results Act. The OIG also has such a strategic plan, which includes its
vision and mission. The contract audit program's goals are clearly related to and supportive
of these documents.
O EPA's strategic plan's goal 10, Effective Management, seeks to "establish a
management infrastructure that will set and implement the highest quality standards for
. EPA Headquarters Library
1200
-------
Contracts 2000 Strategy
effective internal management and fiscal responsibility." Our contract audit program
supports this goal by focusing on accountability for contract dollars.
O The OIG's strategic plan highlights its vision and mission, as follows.
Vision — We are agents of positive change striving for
continuous improvement in our Agency's management and
program operations, and in our own offices.
Mission -- Our mission is defined in the Inspector General Act
of 1978 (Public Law 95-452), as amended. The Act requires the
Inspector General to: (1) conduct and supervise audits and
investigations relating to programs and operations in the
Agency; (2) provide leadership and make recommendations
designed to (i) promote economy, efficiency, and effectiveness
and (ii) prevent and detect fraud and abuse in Agency programs
and operations; and (3) fully inform the Agency Head and the
Congress about problems and deficiencies identified by the OIG
relating to the administration of Agency programs and
operations.
Our goals support the vision by focusing on improvements in the Agency's
management of its contracts and contractors, through which and whom EPA
accomplishes parts of its mission. Our goals also support the IG mission by providing
for audits relating to EPA's contracting operations and by preventing and detecting
fraud and abuse in EPA's contracting activities.
Contract Audit Program Strategy
The Office of Audit has identified the following primary customers for the contract
audit program:
O EPA and other Federal procurement officials;
O OIG investigators;
O Agency program officials; and
O Office of Audit performance auditors.
This contract audit strategy takes all of these customers into account, and provides specific
products and / or services for each of them. The principal focus is on two of our customers:
EPA and other Federal procurement officials, and OIG investigators.
-------
Contracts 2000 Strategy
The strategy includes seven work functions, the mix of which changes over time. The
individual functions are outlined in the next section. In the short term (FY 1999 - 2000), the
strategy maintains its primary emphasis on cognizance at selected EPA contractors of
importance to the Agency. The strategy retains cognizance at the current set of contractors,
providing that EPA retains the preponderance of their auditable dollar value, while adding
new ones as appropriate. At the same time, the strategy builds up some .of the existing
functions and introduces new ones. Beginning in FY 2001, the strategy highlights both
cognizance and OI support. The other functions grow in the application of resources, which
is largely offset by slight decreases in the workload at cognizant contractors. Details are
shown year-by-year later in this document.
Table 1. shows the seven functions and links them to our three goals and four
customers.
Table 1. Goals Supported and Customers Served
by the Contract Audit Functions
Function
A: Audit cognizance at
selected contractors
B: Support for Office of
Investigations
C: Oversight of the DCAA
contract audit program for
EPA contracts
Primary Goal Supported
Support EPA's and other
Federal agencies'
procurement functions
Provide OI with needed
contract audit, consulting
and accounting services
Support EPA's procurement
functions
D: "Advisory and Assistance Support EPA's and other
Services" for EPA and other Federal agencies'
Federal agency procurement procurement functions
officials
E: Special request audits
Support EPA's and other
Federal agencies'
procurement functions
Customer(s) Served
• EPA and other Federal
procurement officials
• OIG investigators
• EPA procurement
officials
• EPA and other Federal
procurement officials
• Agency program officials
• Agency program officials
• EPA and other Federal
procurement officials
-------
Contracts 2000 Strategy
Function
F: Special self-initiated
audits
G: Support for OIG
evaluation of EPA
environmental work done
through contracts
Primary Goal Supported .
Prevent and detect instances
of contract fraud, waste, and
abuse
Prevent and detect instances
of contract fraud, waste, and
abuse
Customer(s) Served
• EPA procurement
officials
• Office of Audit
performance auditors
• Agency program officials
Financial Contract Audit Functions
Function A: Audit cognizance at selected contractors. Primary goal supported:
Support EPA's and other Federal agencies' procurement functions. Customers served: EPA
and other Federal procurement officials. Function description: Perform the full range of
contract audit services required at cognizant contractor locations, including forward pricing
reviews; incurred cost audits; system reviews; Cost Accounting Standards audits; joint
Financial Monitoring Reviews (FMRs) with EPA's Office of Acquisition Management
(OAM), if requested; etc.
Function B: Support for Office of Investigations. Primary goal supported: Provide OI
with needed contract audit, consulting and accounting services. Customer served: OIG
investigators. Function description: Provide well-trained contract audit professionals that will
contribute their audit and accounting skills in support of procurement-related investigations.
This can be for both proactive and reactive investigative initiatives.
Function C: Oversight of the DCAA contract audit program for EPA contracts.
Primary goal supported: Support EPA's procurement functions. Customers served: EPA
procurement officials. Function description: These services include processing Agency
requests for DCAA audits, reviewing and analyzing DCAA audit reports, processing DCAA
billings for audit work performed, resolving issues of concern with DCAA, etc. The
centralized DCAA monitoring team in the Washington Contracts Division (WCD) performs
these functions; however, other divisions may still occasionally perform some ad hoc liaison
activities with DCAA.
\
Function D: "Advisory and Assistance Services" for EPA and other Federal
agency procurement officials. Primary goal supported: Support EPA's and other Federal
agencies' procurement functions. Customers served: EPA and other Federal procurement
-------
Contracts 2000 Strategy
officials, and Agency program officials. Function description: These services are typically
very short efforts to respond to OAM or other Federal officials' questions or requests beyond
ongoing audits, in whatever form and time frame desired. This service will not result in an
"audit report."
Function £: Special Request Audits. Primary goal supported: Support EPA's and other
Federal agencies' procurement functions. Customers served: Agency program officials, and
EPA and other Federal procurement officials. Function description: These audits respond to
specific requests for specialized contract audit and related services at non-cognizant contractor
locations. They may be requested from a program office, OAM Headquarters, Regional
contracting officials, or project officers. Special Request Audits include: Superfund response
claims; unique, EPA-specific contractor claims; FMRs; audits of subcontractors with no on-
site DCAA presence; audits of EPA grant funds commingled with EPA contract dollars; etc.
This service will result in a formal Office of Audit product, such as an audit or special review
(e.g., agreed-upon-procedures) report.
Function F: Special Self-initiated Audits. Primary goal supported: Prevent and detect
instances of contract fraud, waste, and abuse. Customers served: EPA procurement officials.
Function description: Perform self-initiated audits of specific areas of concern or contracts
with indicators of .vulnerabilities, after consultation with OAM Headquarters or Regional
Contracting Officers. For example, target known or suspected problems identified in
performance audits or FMRs; ascertain the extent to which EPA is vulnerable to a particular
common weakness (e.g., service center costs, business meals, program management costs);
identify and audit potentially defectively priced contracts; etc.
Function G: Support for OIG evaluation of EPA environmental work done
through contracts. Primary goal supported: Prevent and detect instances of contract fraud,
waste, and abuse. Customer served: Office of Audit performance auditors, and Agency
program officials. Function description: This function is designed to combine OIG-wide
expertise to address the underlying question of the Government Performance and Results Act:
"What is the Agency getting for the money spent (in this case, on a particular contract)?"
The focus would be on specific contracts that the Agency is using to attain some
environmental result, such as the cleanup contracts at Fund-lead Superfund sites.
Resources Required
The following tables show the resources needed to implement the strategy. Table 2.
shows a five-year horizon, for long-range Office of Audit-wide planning purposes. Tables 3.
and 4. focus on FY 1999, and show resources by division. Table 3. reflects the staffing the
11
code 3201
Library
-------
Contracts 2000 Strategy
Work Group believes is necessary to accomplish the plan. Table 4. reflects the current
staffing level being applied to the contract audit program. There is a difference of 4.5 FTEs
between Tables 3. and 4. While these tables reflect the resources needed to accomplish the
plan, actual resource levels and allocations will be decided upon year-by-year during the
budgeting and planning processes.
Table 2. Five-year Plan - Resources Necessary
To Accomplish the Plan, by Year
Function
A: Cognizance
B: OI Support
C: DCAA Monitoring
D: Advisory & Assistance
E: Special Request Audits
F: Self-initiated Audits
G: Evaluation of
Environmental Work Done
Through Contracts
Management & SupportJ
Total
FY1999
21.5
10
3
1.25
1
2
2
3.25
44
FY2000
18
11
3
1.75
1.5
3
2.5
3.25
44
FY2001
16
13
3
1.75
2.5
3
2.5
3.25
45
FY2002
15
15
3
1.75
3.5
3
2.5
3.25
47
FY20I
15
15
3
1.75
3.5
3
2.5
3.25
47
1 Management and Support represents two FTEs assigned to WCD for the DIGA and secretary, and
Headquarters staff devoted to the contract audit program.
-------
Contracts 2000 Strategy
Table 3. FY 1999 - Resources Necessary
To Accomplish the Plan, by Division
Function EAD NAD
A: Cognizance 8 3.5
B: OI Support .5 1.5
C: DCAA Monitoring
D: Advisory & .5 .5
Assistance
E: Special Request .5
Audits
F: Self-initiated Audits
G: Evaluation of 1
Environmental Work
Done Through Contracts
Management & Support
Total 10 6
WAD SAD
2 1
.25
2.25 1
WCD
10
5
3
.5
2
1
2
23.5
HQ Totals
21.5
10
3
1.25
1
2
2
1.25 3.25
1.25 44
-------
Contracts 2000 Strategy
Table 4. FY 1999 - Resources Based on
Current Staffing Levels, by Division
C:
Function
A: Cognizance
B: OI Support
DCAA Monitoring
.-:••. BAD ^V
8
.5
;NAD#^AP?^
3
1.5 2
SAD WCD
9
1 5
3
D: Advisory & .5
Assistance
E: Special Request
Audits
F: Self-initiated Audits '
G: Evaluation of 1
Environmental Work
Done Through Contracts
Management & Support
Total 10
.5
.25
1WCD HQ
9
5
3
-5 .
.5
Totals
20
10
3
1.25
.5
.5
1
2.25
2
20
1.25 3.25
1.25 39.5
-------
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
-------
------- |