UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
OFFICE OF
THE INSPECTOR GENERAL
AJG - 4 —
MEMORANDUM
SUBJECT: Audit Report No. M5BG8-11-0051-81583
Audit of Superfund Interagency Agreements with
the Internal Revenue Service
FRCM: yfoH'Kenneth D- Hockman
(/ Divisional Inspector General for Audits
Internal Audit Division
TO: Harvey G. Pippen, Director
Grants Administration Division
We requested the Inspector General, Department of the Treasury,
to perform an audit of Superfund interagency agreements entered into
between EPA and the Internal Revenue Service (IRS). The Department of
the Treasury's report of June 27, 1988, is attached.
The report concludes that EPA was billed for $235,987 of which
$10,555 was unallowable because it occurred during nontaxable quarters
($9,960), and involved estimated rather than actual service center costs
($595). In addition, $40,254 was identified as unbilled because
incurred reimbursable costs were not reported by responsible functions,
and invoices, totalling $37,904, were not submitted quarterly to EPA as
required. The failure to report costs and bill quarterly are repeat
findings. The IRS plans to develop procedures to ensure that: (1)
reports contain appropriate costs; (2) bills are submitted quarterly;
(3) computer costing and billings are monitored for accuracy; and (4)
improved costing methods are developed.
EPA can initiate action that will promote timely billings as well
as aid in budgeting for future outlays. The audit also pointed out
incorrect billings that EPA can recover, /Accordingly, we are making
the following recommendations.
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We reoannend that the Director, Grants Administration Division:
1. Issue a memorandum to EPA's project officers requesting them
to follow up on other Agency's billings when not received as
indicated in the agreement(s) .
2. Ensure that $10,555 is offset against future billings, if
action was not already taken.
CO
In accordance with EPA Directive 2750, the Action Official is
required to issue a final determination on the costs questioned and
any other recommendations in this report within 150 days of the audit
report date. The Director, Grants Administration Division is the
Action Official for this report.
Should your staff have any questions concerning this report,
please have them contact John Walsh on 475-6753.
Attachments
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Distr'i Vxttion
Recipient Copies
A. Of f ioe of Inspector General
Director, Audit Operations Staff 3
B. HftadiMrt^rs Office
Director, Grants Administration Division (Hf-216) 3
Chief, Grants Information & Analysis Branch (Hi-216) 1
Director, Financial Management Division (Bf-226) 1
, Chief, Superfund Accounting Branch (IM-226) 1
/ Director, Office of Emergency & Remedial Response (WH-548) 1
Chief, Financial & Administrative Management Sec. (WH-548D) 1
Agency Followup Official (FM-208) 1
Audit Followip Coordinator (FM-208) 1
Attn: Program Operations Support Staff
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JUN * 7 SSil
[T REPORT
SIMBURSAB1
FISCAL YEARS 1984 THROUGH 1987
TABLE OF CONTENTS
DIGEST i
INTRODUCTION 1
BACKGROUND 1
AUDIT OBJECTIVES AND SCOPE OF REVIEW 2
RESULTS OF REVIEW 2
Costs Not Reported by Responsible Functions 3
EPA Not Billed Quarterly 5
Unallowable Costs Reported And Billed to EPA 6
Improved Method Needed to Determine
Service Center Costs " . . . . 8
DETAILED AUDIT OBJECTIVES AND SCOPE OF REVIEW Attachment I
SUMMARY OF UNBILLED SUPERFUND REIMBURSABLE
COSTS AND UNALLOWABLE COSTS BILLED ..." Attachment II
MANAGEMENT RESPONSES Attachment III
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INTERNAL AUDIT REPORT
SUPERFUND COSTS
1984 THROUGH 1987
DIGEST
This report covers our review of the Superfund interagency
agreement between the Internal Revenue Service and the
Environmental Protection Agency (EPA). EPA reimburses the-
Service for the costs incurred in providing EPA with statistical
tabulations of reported environmental taxes.
Over the four year period ended September 30, 1987, the
Service satisfactorily performed all requirements of the
Superfund reimbursable agreement. However, improvements in
management and financial controls are needed to assure that:
(1) the Service obtains full and timely reimbursement for the
costs incurred in performing work for EPA; and (2) corrective
actions taken in response to prior audit findings are adequate to
prevent a recurrence of the problems.
Our review identified a total unbilled cost of $78,158.
This occurred primarily because all incurred reimbursable costs
were not reported by the responsible functions (page 3), and EPA
was not always billed quarterly as required (page 5). The total
unbilled costs were offset by $10,555 because unallowable costs
were billed to EPA (page 6), and EPA was billed for estimated
rather than actual service center costs (page 8). Four of these
conditions were also identified in our prior audit.
To improve management and financial controls and prevent
these problems from recurring, we recommend that:
Local procedures and controls be developed to assure
that cost reports are submitted monthly and include all
appropriate costs (pages 4 and 7).
Controls be established to assure that bills are
submitted quarterly, and Requests for Data Services
include all important tax administration requirements
of congressional Superfund legislation (pages 6 and 7).
Performance of the new software be monitored to assure
that it provides accurate information on computer usage
for costing and billing of computer operations
(page 4).
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A costing method be developed for service centers that
assures compliance with generally accepted accounting
principles and is based on measurable criteria such as
actual returns processed (page 8).
Management agrees with the facts and recommendations as
presented in the report and is implementing corrective actions.
The management responses are included as Attachment III.
ii
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JUN *7 iSbc
INTERNAL AUDIT REPORT
REVIEW OF REIMBURSABLE SUPERFUND COSTS
FISCAL YEARS 1984 THROUGH 1987
INTRODUCTION
This report presents the results of our review of the
Internal Revenue Service's financial controls over an interagency
agreement between the Service and the Environmental Protection
Agency (EPA). The review was requested by the Inspector General,
Department of the Treasury, on behalf of the Assistant Inspector
General, EPA. We performed our review from June 1987 to February
1988 in the National Office, the Detroit Data Center, and the
Austin Service Center. The audit was conducted in accordance
with generally accepted government auditing standards.
BACKGROUND
In 1980, Congress passed the Comprehensive Environmental
Response, Compensation, and Liability Act. The Act established
the Hazardous Substance Response Trust Fund (commonly called the
Superfund) which is administered by EPA. The Superfund was
established to finance the costs of cleaning up chemical disposal
sites and spills of hazardous wastes. Taxpayers who produce or
import specified hazardous chemicals and petroleum are required
to finance the Superfund by paying environmental taxes quarterly
on Form 6627, Environmental Taxes, which is attached to Form 720,
Quarterly Federal Excise Tax Return.
Through an interagency agreement the Service provided EPA
with statistical tabulations of environmental taxes reported
during Fiscal Years 1981 through 1985. On September 30, 1985,
the Superfund law expired resulting in a nontaxable period which
extended to January 1, 1987, when the reauthorization bill, the
Superfund Amendments and Reauthorization Act of 1986 (SARA),
became effective. SARA reinstated the tax and also established a
new audit requirement for the Inspector General of each agency
that is carrying out any authority under the Act. Specifically,
each Inspector General is required to conduct an annual audit of
all uses of the Superfund in the prior fiscal year and submit an
annual report to Congress.
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The following procedures were used to process Superfund tax
returns from FY 1984 through FY 1986. (Although the Superfund
law expired on September 30, 1985, returns for prior taxable
periods were processed during FY 1986.) As returns were received
in the service centers, they were photocopied and sent to the
Detroit Data Center (DDC) for data accumulation. Quarterly
tables were prepared and sent to the National Office Statistics
of Income (SOI) Division. The SOI Project Coordinator reviewed
the tables to ensure that no sensitive tax information was
disclosed before forwarding the data to EPA. In FY 1987, the
processing procedures were changed. The service centers now send
photocopies of the returns directly to the SOI Project
Coordinator. The Coordinator reviews the returns for accuracy
and enters the tax data into a computer which produces the
statistical tables. DDC continues to provide computer
programming support to SOI.
The functions involved are required to report their
reimbursable costs to the appropriate budget staffs each month
and EPA is billed quarterly. The Service billed EPA for $45,066
in FY 1984; $54,210 in FY 1985; $64,333 in FY 1986; and, $72,378
in FY 1987 - a total Of $235,987.
AUDIT OBJECTIVES AND SCOPE OF REVIEW
The EPA Assistant Inspector General requested this audit for
two purposes: (1) to review the appropriateness of the direct
and indirect costs charged against the Superfund interagency
agreement during FY 1984 through FY 1987; and (2) to determine
whether the financial and management control deficiencies noted
in our prior audit were corrected. Our prior audit report, dated
February 13, 1984, identified a need to ensure that project costs
were accurately accumulated by the responsible functions and EPA
was timely billed. Details of our audit objectives and scope of
review are included as Attachment I.
RESULTS OF REVIEW
Over the four year period ended September 30, 1987, the
Service satisfactorily performed all requirements of the
Superfund reimbursable agreement. SOI, as project coordinator,
adequately performed its major task of providing EPA with
quarterly environmental tax tables. DDC and service center
staffs provided tax return processing and computer programming
support.
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We believe, however, that further improvements in management
and financial controls are needed. Our review identified a total
unbilled cost of $78,158 (see Attachment II). This occurred'\
primarily because all incurred reimbursable costs were not \
reported, and bills were not submitted to EPA quarterly as
required. The unreported costs were partially offset because
some unallowable costs were reported, and EPA was billed for
estimated rather than actual service center costs. Four of the
control weaknesses identified were also reported in our prior
audit. Specific details on these conditions follow.
Costs Not Reported by Responsible Functions
DDC and SOI did not report all reimbursable costs monthly;
and, in some instances, OOC did not include all appropriate
charges in monthly reports. As a result, the Service has not
billed EPA for $40,254 (see attachment II).
The Internal Revenue Manual requires that costs be
accurately reported each month. However, SOI did not submit
monthly cost reports for 9 months during FY 1984 through FY 1986;
and, DDC did not submit monthly reports for 29 months during FY
1984 through FY 1987. After reporting a similar problem in our
prior audit, SOI management appointed a special Coordinator to
establish controls and ensure that monthly reports were
submitted. However, when the Coordinator was detailed to another
office, management did not assure that his duties were
effectively performed by his replacement.
One reason DDC did not submit monthly cost reports is
because the Integrated Management Planning Information System
(IMPIS) does not produce timely cost data. Management plans to
replace IMPIS with the Data Center Work Planning and Control
System (DCWPC). Management believes that DCWPC, which is
presently being tested, will produce timely and auditable
information for preparation of monthly cost reports. In
addition, DCWPC should complement management's plans to
implement a full cost recovery system, which will fund DDC
through user charges. In effect, all DDC customers should
receive more accurate and detailed cost information.
In some instances, DDC did not include reimbursable
personnel benefits and computer costs in monthly reports. The
Economy Act of 1932, as amended, requires that agencies
performing services under reimbursable agreements recover all
actual costs. One reason some charges were not reported is
because management has not developed local procedures for
preparing monthly cost reports and for identifying the
appropriate types of costs to include in the report.
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The omission of computer costs from cost reports was also
identified in our prior audit report. At that time, the Value
Computing, Inc. (VCI) software was being modified and could not
provide accurate cost data for computer usage. The modification
was completed prior to issuance of our audit report and computer
costs were being accumulated. From FY 1984 through FY 1937,
computer costs of $14,067 were accumulated by the VCI software.
However, management stated that, due to additional problems with
the software, these costs were not accurate and therefore were
not reported.
Although we could not verify the accuracy of the $14,067,
use of data processing equipment is a direct cost of the project
and should be added to the monthly report. In addition, OMB
Circular A-130, "Management of Federal Information Resources,"
requires that agencies account for and recover the full costs,
including data processing costs, from users of an information
technology facility.
Management has procured new software, MVS Integrated Control
System (MICS), and believes that more accurate information will
be obtained. MICS provides an integrated, systematic method for
tracking computer utilization and related costs.
RECOMMENDATIONS
To improve management and financial controls and to prevent
these problems from recurring, we recommend that:
DDC and SOI management develop monitoring procedures
designed to assure that all monthly cost reports are
submitted. One method for monitoring the submission of
the reports is to use the reimbursement earnings
reports which are issued monthly by the Servicewide
Re imbursement Coord inator.
DDC management develop local procedures for preparing
monthly cost reports and specify the appropriate types
of costs to be included in the report.
- DDC management monitor the performance of the new MICS
software to assure that it provides accurate
information on computer usage for costing and billing
of computer operations.
Implementation of these recommendations should be
coordinated with the Servicewide Reimbursement Coordinator who is
currently developing a Reimbursement Program Handbook.
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MANAGEMFNT RESPONSES
Both SOI and DDC management will implement monitoring
procedures to assure that cost reports are submitted each month.
The SOI Superfund Project Manager will review all monthly cost
reports and verify the monthly Reimbursement Earnings Report.
Similarly, DDC will establish follow-up procedures and improve
communications with the National Office to keep apprised of the
Reimbursable Earnings Report.
DDC management will also develop local procedures which
illustrates how to prepare the monthly cost report and identify
the appropriate types of costs to include in the report. In
addition, until MICS is fully operational, DDC management will
monitor VCI computer usage data to ensure that it is accurate.
EPA Not Billed Quarterly
The Internal Revenue Manual requires that the Service bill
Federal agencies for reimbursable services at least quarterly.
However, the Service's reimbursable earnings were not properly
stated in FY 1985 and FY 1986, because the National Office
Accounting Section did not always prepare and submit quarterly
bills to EPA.
In FY 1984, the first and second quarter bills were combined
and submitted in June 1984. The third quarter bill was submitted
in September 1984, and the fourth quarter bill was submitted
timely in October 1984. In FY 1985, only one bill was prepared
for the entire year and it was submitted in August 1986. In FY
1986, one bill covering the entire year was submitted in July
1987. In FY 1987, the first bill for $37,904 covered the first
three quarters and was not submitted to EPA until the auditors
advised accounting personnel of the omission in September 1987.
The bill for the fourth quarter was submitted timely in October
1987.
A similar condition was identified in our prior audit
report. W« recommended that sufficient supervisory reviews be
performed to ensure that bills are issued quarterly. In
response, management stated that supervisory reviews were in
place as an ongoing process and reimbursable projects had been
assigned to one technician. However, management did not assure
that supervisory reviews were performed. In addition, the
technician resigned in April 1984 and his position was not
officially filled until July 1987.
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RECOMMENDATION
The Director, National Office Resources Management Division,
should implement additional managerial controls to assure that
supervisory reviews are performed and bills are submitted
quarterly.
MANAGEMENT RESPONSE
Management has implemented a new procedure which requires
the Accounting Section Chief to address the status of
reimbursable billings with the Accounts Unit Chief during
operational reviews. Additionally, a microcomputer will be
procured to automate the reimbursable billing process.
UnaHo^*frjLe Coots Reported And Billed to EPA
DDC and service center staffs processed 944 environmental
tax returns covering nontaxable quarters and reported the costs.
As a result, $9,960 of the cost billed to EPA in FY 1986 and FY
1987 was not allowable.
The nontaxable period resulted when the original Superfund
Law expired on September 30, 1985. After the Law expired,
taxpayers continued to pay the taxes, and the Service continued
to process the returns, apparently because Congress was
considering reinstating the expired taxes. However, over a year
passed before Congress reinstated the tax on January 1, 1987, the
effective date of the Superfund Amendments and Reauthorization
Act of 1986.
Consistent with the Comptroller General's principles, a
performing agency may bill EPA only for costs associated with
providing the goods or services. The DDC staff was not aware
that the Service did not have an approved reimbursable agreement
which covered returns for nontaxable quarters and was not
formally advised that the Superfund Law had expired. The Budget
Officer stated that he learned of the expiration through a phone
discussion with a National Office Budget Section employee. The
Budget Officer continued to submit cost reports to the National
Office, because the staff was still processing environmental tax
returns. He assumed that the National Office staff would not
bill EPA. Based on the average cost to process a return per year
at DDC, we estimate that EPA was billed $6,214 for the processing
of 944 nontaxable quarter returns.
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The service centers' excise tax software programs were not
revised to reflect all important tax administration requirements
of the congressional Superfund Law of 1980. Specifically,
software revisions did not include the expiration date of
September 30, 1985. If the expiration date had been included in
the software revisions, service center computers would have
listed the 944 nontaxable quarter returns on error registers.
Thus, service center staffs could have initiated immediate
corrective actions. This condition could recur since the
Superfund Amendments and Reauthorization Act of 1986 has an
expiration date of December 31, 1991.
In response to congressional legislation which affects the
processing of federal income tax returns, the Returns Processing
and Accounting Division (RP&A) is responsible for preparing and
submitting Requests for Data Services (RDS) to the Assistant
Commissioner (Computer Services). The RDS1 should include
appropriate information on processing capabilities and desired
outputs to assure that all necessary software revisions are
accomplished and the congressional law is effectively
implemented.
Management controls did not assure that the RDS included all
necessary tax provisions of the Superfund Law. As a result, in
FY 1986 and FY 1987, EPA was billed $3,746 of unallowable costs
for service center processing of 944 nontaxable returns.
Taxpayers who paid these taxes during the nontaxable period can
either apply for a refund or claim an adjustment on their current
excise tax return.
RECOMMENDATIONS
To prevent the reporting and billing of unallowable costs,
we recommend that:
DDC management establish controls to assure that cost
reports include only those costs which are associated
with providing the goods or services.
RP&A management establish controls to assure that RDS1
include all important tax administration requirements
of congressional Superfund legislation including any
expiration dates. This will provide Computer Services
with the information needed to properly revise the
software programs.
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MANAGEMENT RESPONSES
ODC management is in the process of establishing controls to
assure that cost reports include only those costs associated with
providing the goods or services.
The Director, RP&A Division, submitted a revised RDS which
includes the Superfund expiration dates.
Improved Method Needed to Determine Service Center Costs
The method used to determine reimbursable Superfund costs
incurred by service centers did not provide reasonable and
appropriate yearly costs for billing to EPA. This condition
resulted primarily because management billed EPA for an arbitrary
estimate of $1,000 per service center. These estimates were used
because the Project Coordinator did not believe it was cost-
effective to have each service center track actual returns
processed and determine the related costs. A similar condition
was identified in our prior audit report.
We determined that from FY 1984 through FY 1987, there was a
net over-billing of $595. However, when viewed on a yearly
basis, EPA was under-billed $5,320 and over-billed $6,237 in FY
1984 and FY 1987, respectively. Thus, the Service's reimbursable
earnings were not properly stated on a yearly basis.
Generally accepted accounting principles require that
earnings and costs be recorded on an accrual basis in tne period
realized or incurred. Thus, the costing method should assure
that reimbursable charges reflect valid and reasonable project
costs which will result in reimbursement in full for the work or
service provided.
RECOMMENDATION
SOI management should develop a costing method for service
centers that assures compliance with generally accepted
accounting principles. The method should be based on measurable
criteria such as actual returns processed, standard service
center costs, or historical cost data. Such a method should
result in an appropriate determination of reimbursable costs
incurred by service centers. We believe that Document 6746,
"Costing Reference for Service Center Processing," provides
appropriate cost factors to assist management in this effort.
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MANAGEMENT RESPONSE
The Director, SOI Division, does not plan to improve the
method used to determine service center reimbursable costs,
because EPA will only fund approximately 50 percent of future
Superfund project costs. Since service center costs are
relatively small, these costs will be absorbed in the SOI
appropriated budget.
Donald M. Eckberg
Audit Manager
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ATTACHMENT I
DETAIT.1i!p ft?PTT OBJECTIVES AND SCOPE OF REVIEW
Our review involved three major objectives which were
specified by the EPA Assistant Inspector General: (1) determine
the reasonableness, allowability, and allocability of direct and
indirect costs claimed under the agreement during fiscal years
1984 through 1987; (2) ensure compliance with the provisions of
Section 601 of the Economy Act of 1932 and amendments thereto,
and with Comptroller General Decisions, 56 Comptroller General
275 (1977), 57 Comptroller General 674 (1978); and (3) determine
whether the financial and management control deficiencies noted
in our prior audit were corrected.
The Act and Decisions specified in objective (2) contain the
criteria for types of costs to be reimbursed and the legal basis
for agreements between agencies. We accomplished our objectives
through the following audit procedures:
A. Interviewed appropriate managers and technical staff to
determine the process used to estimate contract costs,
accumulate and report costs, and submit quarterly billings.
B. Identified and evaluated, as appropriate, the internal
controls, and applicable procedures, rules or regulations
which assure that the process is efficient and effective.
C. Identified all appropriate cost reports and bills and
determined whether they were accurate, included appropriate
costs, were promptly submitted to EPA, and that payment was
received.
D. Performed analytical comparisons of cost and billing
information.
E. Reviewed appropriate guidelines to assure that reimbursable
costs were allowable and allocable to the agreement.
F. Determined and evaluated the current status of corrective
actions initiated to address prior audit findings and
recommendations.
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ATTACHMENT II
Page 1 of 2
SUMMARY
SUPERFUND REIMBURSABLE
AND UNALLOWABLE COSTS BILLED
A B
Office - Type of Cost Allowable Costs Unallowable Costs
rNot Reported Monthly) Not Billed
SOI - Personnel Costs $13,88oV
(3 months FY 1984)
(3 months FY 1985)
(3 months FY 1986)
DDC - Persoiu.e* Costs 10,933^/
(6 months FY 1984)
(8 months FY 1985)
(8 months FY 1986)
(7 months FY 1987)
DDC - Personnel Benefits Costs 1,374
(3 months FY 1985)
(3 months FY 1987)
DDC - Computer Costs 14,067
DDC - Nontaxable Returns Processing $6,2143-/
Service Centers -
Nontaxable Returns Processing 3,74647
Service Centers -
Estimated Cost Method _
Accounting Section - FY 1987
Costs Not Billed Timely 37.904
SUBTOTAL $40,254 $10,555
TOTAL $78.158 $10.555
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Attachment II
Page 2 of 2
Footnotes;
i/SOI personnel costs were not reported monthly because the
Coordinator was detailed to another office, and his duties were
not effectively performed by another employee. A similar
condition was identified in our prior audit report, dated
February 13, 1984. At that time, controls were not adequate to
assure that reimbursable costs were reported monthly. As
corrective action, management appointed a Coordinator to
establish controls and submit monthly cost reports, and issued
a memorandum on the proper reporting of reimbursable costs.
2/DDC personnel costs were not reported monthly because of
staffing problems in the budget office, a two month delay in
receipt of cost reports from the Integrated Management Planning
Information System, and a lack of monitoring procedures.
2/To compute unallowable costs for DDC processing of 944
nontaxable returns, we deducted overhead since overhead is an
unavoidable cost which would be incurred whether or not the
nontaxable returns were processed; however, we could not
determine and deduct other unavoidable costs such as system
analysis and programming costs.
A/To compute unallowable costs for service center processing of
nontaxable returns, we multiplied the 944 nontaxable returns
processed times the appropriate service center cost factors.
The cost factors were developed by the Excise Tax Program
Analyst in the Returns Processing and Accounting Division,
using Document 6746, "Costing Reference for Service Center
Processing."
compute unallowable costs attributable to using estimated
costs for service center processing, we multiplied the actual
number of returns processed in the centers times the
appropriate service center cost factors (see footnote 4 above).
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1 of 2
Internal Revenue Service
memorandum
date: May 25, 1988
to: Commissioner
hrough: Deputy Commissioner (Planning and
from: Acting Assistant Commissioner
(Planning, Finance and Researc
subject: Audit of the Superfund Reimbursable Agreement
The draft audit report entitled, "Review of Reimbursable
Superfund Costs - Fiscal Years 1984 through 1987," identified
several areas warranting improvement in management and finan-
cial controls. Following are the assessments of the cause of
the findings and planned corrective actions by the Assistant
Commissioner (Hunan Resources Management and Support) and the
Director, Data Center.
Assistant Commissioner (Human Resources Management and Support)
Identification of Recommendation;
The Director, National Office Resources Management Division,
should implement additional managerial controls to assure that
supervisory reviews are performed and bills are submitted
quarterly.
* ...
Assessment of Cause(s);
Existing procedures were not followed which call for super-
visory review to ensure that billing for reimbursable services
is performed quarterly.
Corrective Action;
A new procedure has been implemented whereby the Accounting
Section Chief will address status of reimbursable billings with
the Accounts Unit Chief during operational reviews. This will
assure that the Accounts Unit Chief is maintaining effective
oversight of this area. Also, an IBM compatible microcomputer
will be procured to automate the billing process for reimbursable
services. These corrective actions should preclude future
problems in this area.
Proposed; Procure PC and implement an automated reimbursable
billing system by December 31, 1988. (Responsible Official:
Chief, National Office Financial Operations Branch, HR:N:F)
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Commissioner C
through: Deputy Commissioner (Planning and Resources) C:PR
Detroit Data Center (DDC)
Identification of Finding!
DDC had not submitted monthly reports for 29 months during FY-1984
through FY-1987.
Assessment of Cause(s):
DDC mangement had not ensured that established IRM guidelines were
followed. Local procedures had not been established to show the staff
how to prepare monthly cost reports or any follow-up procedures to
assure that all monthly reports were submitted.
Late receipt of the National Office annual reimbursable index,
which provides authority to bill, had resulted in several months
passing by before billing authority was received. Other contributing
factors to the findings were staffing shortages and late processing
of the Integrated Management Planning Information System (IMPIS) costs
reports.
Corrective Actions:
DDC management will establish local procedures to show the staff
how to prepare monthly cost reports. Follow-up procedures will also
be established to ensure that all monthly reporting requirements are
met. (Responsible Official: Chief, Customer Support Division,
PFR:D:CS)
Identification of Finding;
DDC had not reported reimbursable computer costs of $14,067 to
the National Office Financial Operations Branch for billing to EPA. This
was for the period from FY-1984 through FY-1987.
Assessment of Cause(s);
Although a similar condition was reported in the Internal Audit
Report (Reference Number 04104), dated February 13, 1984, the cause
of the problem at the time was due to Value Computing, Inc. (VCI)
software program modification problems producing inaccurate cost data
for computer usage. For the period FY-1984 through FY-1987, computer
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Commissloner C
through: Deputy Commissioner (Planning and Resources) C:PR
costs were accumulated by the software program. As a result of
additional problems with the VCI software, the cost of $14,067 was
not accurate and, therefore, was not reported. Consequently, the
Service's reimbursable earnings were understated by the unbilled
computer costs of $14,067.
Corrective Actions:
Effective October 1, 1987, DDC is being funded through user
charges. DDC management is in the process of implementing a full cost
recovery user charge system. When fully operational, the system should
produce more accurate and detailed costs for all DDC customers.
Further, to more accurately determine computer costs, a new
software program, MVS Integrated Control System (MICS), is currently
being implemented and it replaces the Value Computing, Inc. (VCI)
software program. Although MICS is at the very early stage of
implementation, it appears to be more reliable than VCI. Fully
implemented, MICS will provide an integrated, systematic method for
tracking computer utilization and related costs. (Responsible
Official: Chief, Systems Operation Division, PFR:D:0)
Identification of Finding;
DDC had not reported personnel and personnel benefits costs
monthly.
Assessment of Cau«e(s):
DDC management had not developed local procedures for preparing
monthly cost reports and for identifying the appropriate costs to
include in the report.
Corrective Actions:
Local procedures are being established to improve controls to
ensure that reimbursable cost reports are submitted moiituly and include
appropriate costs.
Another initiative to improve controls is the Data Center Work
Planning and Control System (DCWPC). It is presently being developed
at the DDC to track staff resource utilization and compute personnel
-------
-4-
Commissioner C
through: Deputy Commissioner (Planning and Resources) C:PR
costs associated with work on user projects. DCWPC will replace the
current system, Integrated Management Planning Information System
(IMPIS). IMPIS does not produce timely information and does not
provide a clear audit trail to determine the accuracy of monthly cost
reports. (Responsible Official: Chief, Customer Support Division,
PFR:D:CS).
Identification of Finding;
In fiscal years 1986 and 1987, DDC reported costs of processing
944 environment .1 tax returns which covered nontaxable quarterc. The
nontaxable period resulted when the original Superfund law iertuiaated
on September 30, 1985. After the law terminated, taxpayers continued
to pay the taxes, apparently because Congress was considering
reinstating the expired taxes. Congress reinstated the tax on
January 1, 1987, the effective date of the Superfund Amendments and
Reauthorization Act of 1986.
Based on the average cost to process a return per year at DDC,
Internal Audit Auditors estimated that EPA was billed $6,214 for the
processing of 944 nontaxable quarter returns.
Assessment of Cau»e(a);
DDC management was not formally advised that the Superfund law
had expired. DDC budget officer learned of the expiration of the law
through a telephone conversation with a National Office Budget Section
employee. The DDC budget officer continued to submit cost reports
to the National Office Financial Operations Branch because environmental
tax returns were still being processed at DDC. The Service (National
Office Financial Operations Branch ) should not have billed EPA for
costs related to processing returns filed for nontaxable quarters.
Although taxpayers continued to submit returns during this period, the
law had expired. Therefore, billing for these costs was not allowable
because there was no approved reimbursable agreement which covered
nontaxable quarters.
-------
-5-
Commissloner C
through: Deputy Commissioner (Planning and Resources) C:PR
Corrective Actions:
DDC management is in the process of establishing controls to
insure that cost reports include only those costs which are associated
with the goods or services provided. (Responsible Official: Chief,
Customer Support Division, PFR:D:CS).
DDC management is in the process of taking necessary action to
improve controls to ensure the effectiveness, propriety, and integrity
of reimbursable costing operations and staff compliance activities.
An action plan (.copy attached) has been developed to ensure that
corrective action has been taken to preclude repeat findings.
Attached, also, for your information is a copy of the
February 13, 1984, Internal Audit Report - Review of Reimbursable Costs
Incurred in Collecting and Reporting Environmental Tax Information.
Attachments
-------
IK - MBIT Of THH BUPBftFUND HHIMBUMARLB AORfBMKMT-ACTION PLAN FOR TAKING CORR*CTIV« ACTION
CONDITION
1. Improved controls are needed to assure
that reimbursable cost reports arc
nulimlltpil monthly and Include
appropriate costs
CpJMCTIVB_ACTIpN
i:.Tlabllnh local procedures on
how tn prepare monthly cost
ro|>ortH timl/or follow-up
procedures to assure that all
monthly reports arc submitted
Establish Improved controls
to assure that reimbursable
cobt reports are submitted
monthly and include appropriate
costs
MtPOMIILE
OMAMliATIOM
PFRiDtCS
PROJECTED
COMPLETION
DAT!
10/01/68
DATE
COMH.JTP
STATUS/REMARKS
PFRtDlCS
10/01/88
Establish better relationships/
communications avenues with
National Office Resources
Management Division to keep
apprised of Annual Reimbursable
Index
PFR:D:CS
06/01/88
2. a. DDC did not submit monthly cost
reportB to the N.O. as required
b. one did not report reimbursable
computer costs to the N.O. for
bl Uing to ETA
c. DOC reported costs of processing
environmental tax returns which
covered nontaxable quarters
rintahl Ish and Implement a full-cost
Recovery User Charge System
a. rstflhlish and implement pilot PFR:D:CS 09/01/88
program
b. Implement fully opcratlonal PFRiDiCS 10/01/88
full-cost Recovery yn- ' Charge
System
c. F.stab'. Inn procedures governing PFR:D:CS 12/31/88
user charge system
MAV 0 5 1988
-------
-2-
1A riHDlHOfl CONDITION
COKMCTIVB ACTION
Determine and put Into effect
rates to be applied to coating
a. Establish procedure [or
developing and effecting rates
tn be applied to costing
Develop method t<> provide accurate
data concerning computer usage/costs
a. Establish project codes and/or
Correct Invalid project codes
b. Inter in measure until M1CS la
fully operational monitor and
ensure that VCI Data reflects
accurate data of computer usage
for costing of computer operations
c. Implement MVS Integrated Control
System (MICS) to more accurately
determine computer costs
OMAMIiATION
PFR:DiCSiB
PPRiDiCSiR
PPRiDiCS
PFR:D:0
PROJECTED
COMPLETION
DAT!
08/31/88
08/31/88
OATB
COMFLRID STATUS/REMARKS
PPR:DtO
09/30/88
09/30/88
Ongoing
08/01/88
Ongoing until Micfc
fully operational!
Is
AMDAHL S880 User
component installed.
UNISYS User component
to be Installed by
08/01/88.
(I) Install security software PFR:D:0
(2) Purchase .software for MICS to PFR:D:O
capture telecommunications costs
(a) Prepare necessary PFR:D:0
documentation to purchase
not tw.ire
01/02/89
Unscheduled
Unscheduled
Security software, ACF
was Installed on the
AMDAHL. Implementatlo
Is in progress.
Contingent upon DOC
assuming reoponslbllit
fpr telecommunications
operations
-------
-3-
IA FINDINGS CONDITION
RESPONSIBLE
CORRECTIVE ACTION OMANIIATION
-------
Internal Audit Retort
Review cf Reimbursable Costs Incurred is
Collecting and Retortins Environmental Tax Informatic •
At the request of the Inspector General, Department cf
the Treasury, en behalf of tie Acting Inspector General,
Environmental Protection Agency (Z?A), ve reviewed the
Service's ccst accounting and tilling actions pertaining tc
an interagency agreement between the IRS and EPA. Under the
terms of.the agreement, the Service provides environmental
tax inforxation to EPA vho then reimburses the Service for
the costs of accumulating the data.
The contract estimate, which was based oa EPA's
estimate cf annual environmental tax return filings, is
$200,000 for f'.ve years. Ou^- tests showed that the
estimated project costs are reasonable. However, ^nzgement
action is needed to ensure project costs are accurately
accumulated and EPA is timely billed.
Overall, we estimate that EPA was overcharged
approximately $18,000 for fiscal years 19S2 and 1983 because
Service controls did not ensure accurate accumulation of
reimbursable costs (page 3). This overcharge occurred
primarily because reported service center costs were not
based on actual return filings.
EPA was not always billed as required. Two quarterly
billings for fiscal year 1982 totaling $22,000 were not cade
until management was advised of this omission. Earnings
reports showing reimbursable costs are manually maintained
and must be periodically reviewed to determine the need to
prepare bills. 'Supervisory •cro'ntral"S~TLr«'~Tre'SdHd~to~ensure
that the earnings reports are reviewed and bills are issued
as required (page 6).
OFFICIAL.USI ONLY -
-------
Intsr^al Audit Rescrt
F>eview of Reimbursable Costs Iicurrsl in
Ccllectinz ace Reporting Environmental Is.-' Iif crmatitr.
Intrccucticn
Tills report preseat£ tie results of cur review of tie.
Service's ccst accounting and tilling actions pertai-ing to
an interager.cj agreement between the Service ace the
Environmental Protection Agency (IPA), for -hen the Service
provides environmental 13.3 information. The review was
requested by the Inspector General, Department of the
Treasury, on behalf of the Acting Inspector General, EPA, zz
ensure that only proper costs were charged to EPA for
reimbursement to the Service.
TTe reviewed documents and interviewed personnel at the
National Office, Detroit Data Center, t^o regional offices
and si.T service centers. Our review was conducted in
accordance with generally accepted government auditing
standards. The audit began in August 1983 and was completed
in November 19S3.
The Environmental Protection Agency administers the
Hazardous Substance Response Trust Fund (Superfund)
established by Congress to finance the costs of cleaning up
chemical disposal sites and spills of hazardous wastes.
Taxpayers who produce or import specified hazardous
chemicals and petroleum are required to finance the
Superfund by paying quarterly environmental taxes.
Because of the Paperwork Reduction Act of 1980, the
Service began providing EPA its needed statistical
information in fiscal year 1982, saving the taxpayers the
burden of providing identical information to both federal
agencies. EPA's requirements and" the terms for reimbursing
the Service are described in an inter-agency agreemer.t. The
contract estimate is $200,000 for five years.
Three I?.S functions - the 10 regional service centers,
the Detroit Data Center, and the National Office Statistics
of Income Division (SOI) - incur expenses necessary to
accomplish the requirements of the interagency agreement.
Before incurred costs can be charged to a reimbursable
project, Form 5490, Reimbursable Project Record, dust be
issued by the Operations Branch of th-3 Finance Division.
This fcrm contains a brief description of the services to fce
performed and includes estimated annual costs for each
organization involved with the project. Financial plan
codes are specified for ccst charging purposes.
rjsz CMLY
-------
Form 5490 should be i=3uec at t-e beginning of each
fiscal year so that current and actual costs can be reccrt
to the National Office conthlj as required by the Internal
Revenue Manual (IRM). Form 5439, Monthly Status Reccrt"-'
Re incur s able Projects, should be used by organizations icr
reporting costs to their respective regions. The regiccal
Fiscal Management offices trais-it the cost data tc the
National Office through ihe Accounting and Budget Executio
The Ir.M requires quarter!? billings of federal agencies
involved with reimbursable projects. To obtain pay-ren-, the
Service must issue SF 10S1 , Voucher and Schedule of
Withdrawals and Credits, describing the services perfor-ed
and the dollar amount to be paid.
Scooe and Objective of Review
The Acting Inspector General at E?A requested the
Treasury Inspector General to review the Service's
performance under the agreement. The Acting Inspector
General's concerns were as follows:
- Are the funds obligated by EPA reasonable and
necessary for IRS' performance under the
agreement? '—
Do the Service's internal controls adequately
ensure that only relevant costs are charged, to
EPA?
To satisfy the Acting In_s?_ector General's request, ^e
performed tests relating to~t"hV"InYeTz^e~n~c7~"a^r'e~si2^n'r-fc^-
fiscal years 1982 and 19S2. Detailed scope and objectives
c.i.9 ccntalied in Attachment I to this report.
Results of Review
We found that estiva:ed project costs totaling £200,000
were reasonable. However, actual costs-were not always
accurately accumulated and EPA was not always billed as
required for services performed.
-------
Es-j.-T2.ted Prc-ect Costs Were P.=zscc3.::le
Eased oz IPA's estimate of annual filings, the
Statistics of Income Division developed reasonable estimated
project costs using their ovn ezperience and input free Eata
Center and Returns Processing and Accounting personnel. -Tie
estimated costs for fiscal years 1332 and 19S2 totaled
$100,20C.
Costs Were N7ct Always Accurately Accumulated
The procedures used and the internal controls in effect
did not ensure that the costs incurred in satisfying this
interagency Agreement were always accurately computed or
were timely accumulated and reported to the National Office
for billing to EPA.
Te could net determine the esact project costs that
should have teen charged to EPA because costing approaches
were inconsistent, certain costs were not tracked, and
supporting documentation was not always retained. However,
we estimate that, ia the two fiscal years in which services
have been performed, EPA has beea overcharged approximately
$18,000 overall. The Serrice reported costs cf $106,459,
while we computed costs of $38,059 for the two years.
In both fiscal years reviewed (FT 1982 and 1983), Forms
5490, Reimbursable Project Record, were not timely issued;
Forms 54S9, Monthly Status Report - Reimbursable Projects,
were not always prepared each month; and costs charged to
the project were not always accurately computed.
For FY 1982, Form 5490 was issued December 7, 1981,
•during "tie third month of the year. The 1983 Form 549G vas
.not issued until June 17, 1983, during the ninth month of
the year. These forms were not issued timely because the
Finance Division's Operations Branch does not have controls
to ensure their timely preparation.
OFFICIAL L'SZ ONLY
-------
The late issuance of the Reimbursable Project Records
prevented monthly charging of ccsts as required because
regional Fiscal personnel were net notified to accumulate
reimbursable ccsts. Therefore, Fiscal personnel reported
the estimated service center ccsts shown or. F-:rms 5490
instead cf actual ccsts. In three instances, they charged
the entire estimated costs for all 10 centers to one center.
As.a result, reported ccsts totaled S22,447 for all service
centers or nearly S20.000 more than cur computed cost cf
53,485. We computed this cost by multiplying the Service's
estimated cost per return by the actual number cf returns
processed in each center. There wc.s no system to track
actual ccsts and it does not appear such a system would be
warranted based on the small volume cf returns.
Data Center direct labor ccsts were generally
accurately reported to the region each month after Form 34SC
was issued. However, fiscal year 1982 ccsts incurred by the
Data Center after August were not charged to the project.
We were advised that this occurred because the Form 5430
estimate had been satisfied by costs charged to date. Forms
5490 do not contain instructions explaining" that' actual '
incurred expenses should be reported even if they escsed the
estimated ccsts. These uncharged costs wers offset by
overestimating charged expenses in August. Estimates are
. required for each current month's cost because actual cost
data is not available when costs are reported to the _^-
National Office.
In FY 1983, no computer usage costs were charged by the
Data Center because the Data Center's accounting software
package was being modified and was not able to provide
accurate cost data for computer usage. Charges to EPA were
thus understated by the unrepcrted cos'fsT
The National Office Statistics of Income Division
correctly accumulated costs based on the number of hours the
project coordinator expended on the project as reflected c~
weekly time reports. However, they did net always report
the costs on a monthly basis. In fiscal year 1932, SOI
prepared Form 5489 for seven of the 10 months following the
Issuance of Form 5490. Curing FY 1933, SOI issued- only
Form 5489 which was a year-end report sh-"iig the eatire-
year's costs. Ecwever, SOI erroneously deducted benefits
ccsts frcm labor ccsts, resulting in an undercharge cf
approximately Sl.SCO.
^* ^ ^».^» *r *•*• ^ ^ • • * . -
Or r i'.IAL tec. C.._ :
-------
SOI's cost accounting instructions --err not
sufficiently detailed to ensure proper cost calculations or
classifications, and controls did not ensure ccntr.iy
» °-i a ••• ~ a c TTi^s n — r ha •• n ^
«.C»^^v*« "v^v ttB^U U™^«^
T-a/^ V"i'^ 2~-='»~a<™ V
^
P.e c c c^e — c a t i o G s
To improve ccst acccuctir.g for reimbursable prcjects,
we reccnxend that:
Opera: -oas Branch establish controls to ensure ?orz:
5490 are issued at the beginning of each fiscal year to
inform Fiscal personnel to accumulate reimbursatlu' ccsts
incurred.
Operations Branch provide instructions to Fiscal
personnel to include all incurred ccsts regardless of -
estimates shown on Foras 5490 and to report Service Center
costs based en actual filings and the estimated cost per
return.
Detroit Cata Center develop a method to provide
accurate data concerning ccnputer usage -costs.
National Office Statistics of Income Division
establish controls and improve costing instructions to
ensure Forms 5489 are issued monthly and show accurate and
properly categorized ccst data.
Management Response
Operations Branch has established controls during
fiscal year 1984 that include the issuance of Forms 5490 by
December 31 of each fiscal year. These controls w-rill be
described in a reimbursable project handbook that is
currently being written for the Internal Revenue Manual.
The revised handbook -ill also include instructions
addressing the repcr.i.ig of r-rirr/cursable project ccsts.
-------
The Dc.ta Center has re-ce-tly corrected the erroneous
adjustments -hat were etc5 to tie accounting software
package. Cc=puter usage costs are now being accumulated azc
charged tc reimbursable projects.
The National Office Statistics of Income Division has
appointed a ccordi-ator responsible for establishing
controls and submitting Forms 5439 monthly for £01
reimbursable projects. The coordinator will also prepare
cost computation and categorization instructions. These
actions will be completed by liarch 13, 1984.
EPA Was Not Always Billed As Required
The Service had not always timely prepared required
quarterly bills.
After the Ff 19S2 Fora 5490 was issued, organizations
began reporting costs in January 19S2. Tvo bills to EPA
were issued as required in March 1982 for services performed
to date. However, no bills were prepared for the regaining
$22,000 charged to the project until we notified the
Accounting Section of the National Office Financial
Operations Branch on October 11, 19£3 that these incurred
costs had not yet been billed. Accounting then prepared SF
1081 to EPA on that date. Bills should have been sent to
EPA for the Quarters ending June 30, 1S82 and Septeaber^SO,
1982.
Earnings reports generated by the Accounting and Eudget
Execution System are maintained in binders in the National
Office Accounting Section, where the bills are prepared.
Each quarter, the Accounts Receivable accoustiag _ tech_nic_ian__
must review the binder to determine the necessity to prepare
bills. This procedure did not identify the unbilled FT 18S2
costs. Fiscal year 1983 bills were properly issued as
required.
Recommendation
The National Office Accounting Section should provide
sufficient supervisory reviews to ensure that earnings
recorts are reviewed and bills are issued quarterly.
OFFICIAL USE
-------
Ua.naze:ient Response
To ensure that required bills are prepared and issued,
management vill conduct supervisory reviews. Also, the
accounts receivable function has been expanded free one to
fvo technicians, with one individual being responsible for
processing cnly reimbursable projects.
..
M 7 ~ V - - ~~ fs
• wl« ^ «..*«. *3 * ^ /^x^
D
Audit Manaser
,
v_ _ .-
-------
Detailed Audi' Gb.iectives and Scoce cf Review
To determine if the project cost estimates were
reasonably developed, we:
1. Interviewed SOI's project coordinator and other
personnel who developed the cost eszir.ate.
2. Reviewed documentation showing the development o:
the cost estimate.
3. Reviewed the Reimbursable Project Records for
fiscal years 1982 and 19S3.
4. Reviewed documentation showing actual costs
reported in FY 82 and FY 83.
B. To determine if costs charged to the project were
accurately accumulated, we:
1. Reviewed earnings reports showing costs charged b~
the Data Center, SOI and the 10 service centers
for fiscal years 1982 and 1983.
2. Reviewed the methods used by the above
organizations in accumulating and reporting costs
to the National Office.
3. Interviewed personnel at the National Office,
Detroit Data Center, Southwest and Central
Regions, and Austin, Andover, Cincinnati, Kansas
City, Philadelphia, and Ogden Service Centers
responsible for accumulating and reporting costs.
4. Reviewed FY 82 and FY 83 Reimbursable Project
rRecords.
OFFICIAL USE ONLY
-------
C. To ceter-i2e if EPA tad c = e_ bille
1. Reviewed earnings repcr'3 seal zz Na-ional 0;iic-
Acccu.i~ing ifecticc shc-inr iacurrad project
costs.
2. r.evie-ved Naticr.il Cizics Acccuctizg Secticn
records sco^ics bills to E?A a.2d pavreats receiv;
free EPA.
3. Interviewed tze Acccucts Rscsivacle acccuatiag
techciciaia rescoesiile for billinr EPA.
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I • t) p ™ 1~- —
to: Co—-Lssicner C
ircrr.: //vA=sistant Cc-r-issicncr (Support ar.d Ser^ces) /?!^/S
subject: Iraft Internal Audi* Report en the Review cf Rei-±ursabLe Ccsts Incurred
in Ccllectir.- and Reporting JL-,viror_-.er,tsI Tax Infer-;aticn
Pelleting ars sta~sr.er.t5 of the prcbier.s and crr.diticns identified by the
Internal Audit re\lev and stater.ent= cf csrrsctive actions taken cr olanned.
Identific.ition cf Fir.d:
EPA. wa= net alvays billed as stated en Per?. 5131 (Agrs-j-.»nt Ccverir.g
Reiriursabie Services). Ecth the 3rd and 4th Quarter billings ar-rjnt-
ing to $22,000 during Fiscal Year 1982 were not prepared until the
National Office Accounting Section was infor-ed by Internal Audit of
this ci~issicn.
A^sessr.ent of Cause: For the past 1-1/2 to 2 years, the accounts
receivable runcticn was assigned to one technician despite increasing
workload. Also, training required due to rapid turn-over of technicians
ciTdnished the effectiveness of this function. Since this is a ciar.ual
record keeping system iranager.ent did not have an effective mechanism to
monitor ccnplisnce with prescribed regulations.
Corrective Actions
Internal Audi- Reco—.endaticn: National Office Accounting Sectirn
shculz prciice sufficient super/isor;.' reviews to ensure that earnings
rspcns are reviewed and bills are issued quarterly.
Response: Supervisory reviews are in place as an ongoing process.
The accounts receivable function was expanded to two positions to .
alleviate the workload resulting from^lncTeased activity for account-
receivable. Responsibilities were assigned to alia-/ for one technician
to process ?.ei~!bursable Projects only, and to strengthen controls to
ensure billings ar= pr=par=d tir.ely in the future. The condition as
stated in the "internal Audit Retort is resolved. .All prior year
billings have been cr-qpisted. All costs for Fi' 82 (S36,4S5.2i) and
F:' S3 C^1"!?!^---) —v2 teen reiriurse-i. (Responsible Official:
Eirector, National Office Resources M^agen-ent'Division, FM:S:>0-
-------
• —'•-*«• • ••«•• ^— •_— *~"» ^ •• • •"• * *~_ ^_
In Fiscal year 1933, r.c cc— ucer USE.;* costs were charged by the Data
Center because the Data. Center's accounting scff.var? package was being
-edified and was not able tc provide acrjraie c:st data for crnrutsr
T-^age. darges t- EPA were thus tr.der2tat=d by the unreported crst=.
.-jjcssr.er.t cf Cause C5j : Eurir-g the c:urse cf fiscal year 1SS2 a-d:ust-
n-.er.ts were -.ace tc tne Data Center scfrv/are package, kr.cv-Ti as VCI C-'^-'-s
Ccrcuting, Inc.) This scfrvars pacl-tage s'jpplies crrputer usage infcrr.a-
ticn for crsting of c:.— uter cperaticns. Lrxerc-.r.vr^t to -^nager-ent at th;
Data Center scr.2 cf the a-djuszr.ents were incorrect and were net cisccvere:
until sc-.eti.-e later. At this point it was. determined that the effect
cf the errcrs was such that appropriate costs cculd net be determined.
Cn this basis the Data Center" elected net tc include computer cpsraticn's
cests for this rei-tbursable project.
orrective Actions
-—^.
Internal Audit Reconrendaticn(s): Detroit Data Cer.ter develop a
methcc to provics accurate cata concerning coroursr usage costs.
Response - The Data Center has since corrected, the 1983 errors
describee anc is new charging reirijursable projects with the amounts
reflected by VCI data. (Responsible Official:' Chief, Management Staff.
FM:S:D:M). '
Should you have -any questions, please call John McJCinlev, Sirtort
and Services Program Stafr, FM:S:PS en 566-6301.
-------
:r:5rn~; r.ever.uc
memorandum
cats: JAfllg £34
to: Ccr-JTiissicner C
rcm: Assistant Ccr.-aissicr.er (Returns arc Information Frccessir.or: 3-r
subject: internal Audit Report - Review of Reimbursable Costs' Incurred in Collecting
and Reporting Environmental Tax Information
The following are statements identifying the findings and the corrective
actions to be taken by the Statistics of Income Division in response r.c tr.e
Internal Audit Report on the Review of Reincursable Costs. Incurred in
Collecting and Reporting Environmental Tax Information.
Identity of Findings: As stated on pace A of the draft report (see
attachment), the Statistics of Income Division did not always report the ccsts
incurred on the Environmental Tax project on a monthly basis. In addition,
the Statistics"of Inccme Division deducted benefits costs from later costs,
resulting in an undercharge of approximately $1,800. This-was the result of
the Division not having sufficient cost accounting instructions to ensure
proper cost calculations or classifications, and controls to ensure monthly
reporting of incurred costs.
Assessment of Causes; The Statistics of Income Division recently underwent a
reorganization tc implement the full vertical integration of personnel 'within
the Division. As a result, the office which in the past had worked en
reimbursable agreements was £bo.U«r.er: and each section became responsible for
the administration of reimbursable agreements. • Since there were no formal
guidelines to fellow, the problem wer.t undetected.
Corrective Actions
Internal Audit Recommendations; The National Office Statistics of Income
Division should establish controls and improve costing instructions to ensure
Forms 5*89 are issued monthly and shew accurate and properly categorized cost
• data.*
Rescor.se; The Statistics of Inccms Divisicn has already begun to rectify the
problems uncovered by the Audit. A person has been designated as the
coordinator for all reimbursable, ccresnents into which theGiyisicr. .szters.
-------
The cccrcinatcr will te respcr.Hicls fc-r establishing
t.-s Fcrr, 5&c9 .T.cr.thly fcr all Statistics of Irccme C
cccrciratcr will slsc te rsspcr.sibir fcr prsparir.c t
c'stsrninir.c he* tr.e ccsts sr.cuid ts ccrncuted and cat
re ir.strjcticr.s fcr
(Faspcnsisie Official: Dirsctcr, £t=
Ccralsticn Dats: March 15, 15c^.)
tistics cf Incc-s Civisicn, C..".-:S
p^_-.. ,——p^. —o «
WW4 t^«.^MC» .*—'- *
As=cciai£ Ccmmissicner tC'cta Frccsssir.cJ C
-------
ir.tsrr.ai Revenue oervice
\^ •'
.
rrorr" Assistant Consissi-rr. ?r
(Planning, Finance a.-.i
suaject. Review cf Eeimb';ri-;=ble Ccstr Incurred for Report ing
Environsentsi 7=:: ":' f c-rr.sr. ior.
The purpose of this memorandum is to respond to the
preliminary findings and recommend.-t ions n?.de by the
Internal Audit Division regarding the EPA reimbursable
project, and to provide cur assessment of the cause cf th<
findings and planned corrective action.
Identified Findings
The procedures used and the internal controls in
effect did not ensure that the costs incurred were
accurately computed or timely accumulated. Reimbursable
project records, which are the basis for accumulating
reiabursable earnings, were issued late in the year.
Approaches used by the Service Centers in accumulating
ccsts were not always consistent, certain costs were not
tracked and supporting documentation, was net always
retained.
Assessment cf Cause
We agree with the report's findings and,believe that
the deficiencies were attributable to late issuance cf
reimbursable project records and inadequate instructions
for costing the project. &
Prior to FY 1?3'«, the Feinbu-sable Project Records
were not issued to field cffirrs until the signed
reiabursable agreements and costing instructions were
available. If the costing instructions were inadequate
the." the. project records were not issued or issuance was
delayed. Cur review of the £?A reimbursable project
indicates that adezua1:-? casting ins truot icr.£ vere no-
provided, as pcir.te.1 •':;*•. in th = report.
-------
3 e c
We believe that the r eerier, da tiers rcr.iair.ed ir. t.-.e
report will prove to be useful ir. i^crcvir.g the overall
operation of the Hei.r.cursaile Project prccran. C:" the
four reccrr.rjncatior.j rr.ade by IAD, two req-ire £ resprr.se
fron: the Fin=.r.c= Di v is icr . responses tc the r»r= ir.ir.r
reccr.senda tior.s will be furnished by the program areas
affsctec by the rercrt. The twc recor.-erd= t icr.z we ar =
adcrescirr are:
1. Cperst-i :r,s Er?.r.ch establish ccr.trcls tc er.r-ure
that ."cms 5^?0 a-e issued in the first charter cf
each fiscal year to infers field fiscal personnel t:
accumulate reimbursable ccsts incurred.
2. Operations Branch provide specific ccstir.g
instructions to field Fiscal personnel to include all
incurred costs regardless of estimates shown on Fern
5490 and to report service center cost based en
actual filings and the estimated ccsc per return.
Corrective Action (Reccnrer.daticn "O
We have established controls, beginning in fiscal
year 1984, which provide for the early issuance cf the
reimbursable project records and costing instructions.
-The controls include issuance of the reimbursable project
records by Decer.ber 31 of the current fiscal year. The
prelioin?ry reiabursable project records are distributed
to fiscal personnel for review. These records reflect the
reimbursable projects
in an area during the fiscal year. After the records are
reviewed, if any discrepancies are found, the project
records are updated and reissued. These controls will be
reiterated in" the reimbursable project handbook we are
currently develop ing.
et .
We believe that the above mentioned controls will
prove to be useful ir. notifying fiscal personnel of
projects going cr. in their ares early in the fiscal year
sc that the actuil erst asscci=tec with the rVircursabls
project car. be prcp^-rly tracked and reported.
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Corrective Action ( r.eccmrr.end=.: icn 2)
As stated in cur rsspor.sa tc recosmer.dation 1, we £.-s
r.cv revising the curre.it Ir.terr.s.1 Revenue Manual
instructicr.s for the Reinrurss-12 Project program. These
instructicr.s will include ?. section that addresses the
reporting cf earnings fcr reisbursable projects. We are
developing .1 ccrr.crsher.sive Reimbursable Project Handbook
fcr distribution to all concerned offices.
cc: Assistant Commissioner (Inspection)
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Internal Revenue Service
memorandum
2 of 2
.r I
date:
trom:
11981
i , ._ v/ L-i I ... x^
;•:••? /.??, -i F:M: '3
to: Commissioner
thru: Deputy Commissioner (Operations)
£/>(P //
Assistant Commissioned^ jf* \*~*^+.
(Taxpayer Service and Returns Processing)
TR
illbject: Draft Internal Audit Report - Review of Reimbursable Superfund
Costs-Fiscal Years 1984 through 1987
The following are statements identifying the findings and the
corrective actions to be taken by the Statistics of Income (SOI) and
Returns Processing and Accounting (RP&A) Divisions in response to the Draft
Internal Audit Report on the Review of Reimbursable Superfund Costs-Fiscal
Years 1984 through 1987.
Identity of Recommendation (page 4 of the draft report); To improve
management and financial controls and to prevent the problems associated
with not submitting monthly cost reports for 9 months during FY 1984
through FY 1987, SOI management should develop monitoring procedures
designed to assure that all monthly cost reports are submitted.
Assessment of Cause; A position was created on the SOI Division's
Coordination and Publications Staff as a direct result of the February 1984
Internal Audit report to coordinate and submit monthly reimbursable cost
reports for the Division. Our records Indicate that 9 monthly reports for
Superfund costs were omitted from-the SOI Division's reimbursable cost
reports during that period. The omissions were caused by details and
illnesses of the Division reimbursable coordinator.
Corrective Action; The SOI Division's Superfund project manager will
review all monthly earnings reports submitted to Budget and Reports Branch,
Resource Management Division, to Insure that the correct earnings have been
reported. The project manager will also verify the monthly reimbursement
earning* report issued by the Servicewide Reimbursement Coordinator.
Implementation Date;
Completed ^December 18, 1987
Responsible Official; Director, Statistics of Income Division TR:S
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-2-
Commissioner
thru: Deputy Commissioner (Operations) C:OP
Identity of Recommendation (page 7 of the draft report); To prevent the
reporting and billing of unallowable costs, RP&A management should
establish controls to assure that RDS' include all important tax
administration requirements of congressional Superfund legislation
including any expiration dates.
Assessment of Cause; The service centers' excise tax software programs
were not revised to reflect all Important tax administration requirements
of the congressional Superfund Law of 1980.
Corrective Action; An RDS has been submitted (RPA-8-0255) which sets dates v
for expiration based on Superfund legislation. The operational date
requested in the RDS is June 1, 1988.
Implementation Date;
Proposed June 1, 1988
Responsible Official; Director, Returns Processing and Accounting
Division TR:R
Identity of Recommendation (page 8 of the draft report); SOI management
should develop a costing method for service centers based on measurable
criteria such as actual returns processed, standard service center costs,
or historical cost data. The method should result in appropriate
determination of reimbursable costs incurred by service centers and assure
compliance with generally accepted accounting principles*
Assessment of Cause; SOI determined that it was not cost effective to have
each service center track actual costs for controlling and photocopying the
small volume of environmental tax returns, which amounts to approximately
400 returns per quarter for all service centers. The amount of $1,000 was
allocated to each service center for processing the returns. The February
1984 Internal Audit Report indicated that a system to track actual costs
for the service center support activity should not be implemented because
"it does not appear such a system would be warranted based on the small
volume of returns."
Corrective Action; SOI has not made plars to set up a tracking system for
service center support costs, because EPA will only be funding
approximately 50 percent of the costs for this project. Since the service
center costs are relatively small, they will be absorbed in the SOI
Division's appropriated budget.
Responsible Official; Director, Statistics of Income Division TR:S
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