U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Attestation Report
National Caucus and Center
on Black Aged, Inc.,
Incurred Cost Audit of Eight
EPA Cooperative Agreements
Report No. 08-1-0277
September 25, 2008
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Report Contributors:
Leah Nikaidoh
Bill Spinazzola
Richard Valliere
Abbreviations
Agreements Q83279001, Q83279101, Q83279201, Q83279401,
Q83279501, Q83297501, Q83297601, Q83297701
CFR Code of Federal Regulations
DOL U.S. Department of Labor
EPA U.S. Environmental Protection Agency
FCTR Federal Cash Transaction Report
FSR Quarterly Financial Status Report
FY Fiscal Year
OIG Office of Inspector General
Recipient National Caucus and Center on Black Aged, Inc.
SEE Senior Environmental Employment
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,V16D Sr/|,
I
5
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
08-1-0277
September 25, 2008
Catalyst for Improving the Environment
Why We Did This Review
We conducted this
examination to determine
whether the reported incurred
costs for eight U.S. Environ-
mental Protection Agency
(EPA) cooperative agreements
were reasonable, allocable,
and allowable in accordance
with the terms and conditions
of the agreements and
applicable regulations.
Background
EPA awarded eight
cooperative agreements to the
recipient to administer the
Senior Environmental
Employment (SEE) Program.
The SEE program provides
senior individuals to EPA to
help it carry out its activities
and programs.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.qov/oiq/reports/2008/
20080925-08-1-0277.pdf
National Caucus and Center on Black Aged,
Inc., Incurred Cost Audit of Eight EPA
Cooperative Agreements
What We Found
In our opinion, the outlays reported in the recipient's Quarterly Financial Status
Reports as of September 30, 2007, present fairly, in all material respects, the
allowable outlays incurred in accordance with the terms and conditions of the
agreements and applicable laws and regulations. We found, however, that the
recipient did not clearly disclose its allocation methods in its indirect cost
proposals. The recipient also charged employee leave costs to grants
disproportionately to the amount of time employees spent on each assistance
agreement.
What We Recommend
We recommend that EPA's Grants and Interagency Agreements Management
Division require the recipient to:
• Revise its cost policy statement to clearly disclose the basis for allocation of
costs, the costs being allocated, the intermediate cost pools used, and whether
the costs are allocated individually or as a pool;
• have the revised proposals submitted to its cognizant Federal agency; and
• use a more equitable method for allocating employee paid absences to
agreements.
In responding to the draft report, the recipient stated that it is working with its
cognizant agency to revise its indirect cost proposals, and agreed to revise its
policy for allocating employee paid absences to agreements. The corrective
actions, when implemented, will address the findings and recommendations.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
September 25, 2008
MEMORANDUM
SUBJECT: National Caucus and Center on Black Aged, Inc.,
Incurred Cost Audit of Eight EPA Cooperative Agreements
Report No. 08-1-0277
FROM: Melissa M. Heist
Assistant Inspector General for Audit
TO: Howard Corcoran, Director
Grants and Interagency Agreements Management Division
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency (EPA). This report contains findings that describe the
problems the OIG has identified and corrective actions the OIG recommends. This report
represents the opinion of the OIG and does not necessarily represent the final EPA position.
EPA managers in accordance with established audit resolution procedures will make the final
determination on matters in this report.
The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - is $122,954.
Action Required
In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to provide us
with your proposed management decision for resolution of the findings contained in this report
before any formal resolution can be completed with the recipient. Your proposed decision is due
on January 22, 2009. To expedite the resolution process, please e-mail an electronic version of
your proposed management decision to kasper .j anet@epa. gov.
We have no objections to the further release of this report to the public. For your convenience,
this report will be available at http://www.epa.gov/oig. We want to express our appreciation for
the cooperation and support from your staff during our review. If you have any questions, please
contact Janet Kasper, Director, Contracts and Assistance Agreement Audits, at (312) 886-3059.
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National Caucus and Center on Black Aged, Inc., 08-1-0277
Incurred Cost Audit of Eight EPA Cooperative Agreements
Table of Contents
Chapters
1 Background 1
2 Independent Auditor's Report 2
3 Results of Examination - Review of Reported Costs 4
Inadequate Disclosure in Indirect Cost Proposals 4
Inequitable Allocation of Employee Leave 4
Follow-up of Prior Findings and Recommendations 5
Recommendations 6
Recipient Response and OIG Comments 6
Schedules
Schedule of Reported Outlays 9
Status of Recommendations and Potential Monetary Benefits 10
Appendices
A Scope and Methodology 11
B Recipient's Response 12
C Distribution 16
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Chapter 1
Background
We have audited eight cooperative agreements (agreements) awarded to the
National Caucus and Center on Black Aged, Inc. (recipient). Total U.S.
Environmental Protection Agency (EPA) awards for these agreements were
$17,524,314. The recipient is a nonprofit organization with its headquarters in
Washington, DC. It assists EPA in administering the Senior Environmental
Employee (SEE) program. The SEE program supplies senior individuals that
provide technical assistance to EPA programs and activities. The recipient
administers the program for EPA, including paying SEE employees' salaries and
fringe benefits.
The following table provides some basic information about the authorized project
periods and funds awarded under each of the eight agreements:
Table 1-1: Schedule of Agreement Information
Agreement
No.
Q83279001
Q83279101
Q83279201
Q83279401
Q83279501
Q83297501
Q83297601
Q83297701
Total
Award
Date
12/15/2005
11/30/2005
04/06/2006
04/06/2006
03/22/2006
06/14/2006
11/01/2006
08/31/2006
Total Project
Period Costs
$ 1,331,187
321 ,747
1,938,391
2,233,175
5,718,027
2,927,445
1,237,857
1,816,485
$17,524,314
Total
Outlays
$ 849,207
148,122
560,140
959,060
1,910,541
432,139
62,100
461 ,675
$5,382,984
Project Period
02/01/2006-08/31/2009
01/01/2006-12/31/2009
07/01/2006-06/30/2009
07/01/2006-06/30/2009
07/01/2006-06/30/2009
07/01/2006-06/30/2010
10/31/2006-10/30/2009
09/01/2006-08/31/2009
Source: EPA assistance agreement award documents and recipient Quarterly Financial Status
Reports (FSR) as of September 30, 2007.
EPA awarded all eight agreements under the Environmental Programs Assistance
Act of 1984. They all have the same purpose of providing SEE employees to
various EPA program offices to assist them in accomplishing programmatic
activities and objectives.
Throughout the report we use the term questioned costs. Questioned costs are
outlays that are (1) contrary to a provision of a law, regulation, agreement, or
other documents governing the expenditures of funds; or (2) not supported by
adequate documentation.
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08-1-0277
Chapter 2
Independent Auditor's Report
We have examined the total outlays reported by the National Caucus and Center
on Black Aged, Inc. (the recipient), under the EPA assistance agreements as
shown below:
Table 2-1: Total Reported Outlays
Assistance
Agreement
Q83279001
Q83279101
Q83279201
Q83279401
Q83279501
Q83297501
Q83297601
Q83297701
Total
Quarterly Financial Status Reports
Date
Submitted
1 0/24/2007
10/24/2007
10/24/2007
10/24/2007
10/24/2007
10/24/2007
10/24/2007
10/24/2007
Period
Ending
9/30/2007
9/30/2007
9/30/2007
9/30/2007
9/30/2007
9/30/2007
9/30/2007
9/30/2007
Total Outlays
Reported
$ 849,207
148,122
560,140
959,060
1,910,541
432,139
62,100
461 ,675
$5,382,984
Source: The total outlays reported were from the recipient's
Quarterly FSRs as of September 30, 2007.
Our examination was conducted in accordance with the Government Auditing
Standards issued by the Comptroller General of the United States, and the
attestation standards established for the United States by the American Institute of
Certified Public Accountants. We examined, on a test basis, evidence supporting
the reported outlays, and performed such other procedures, as we considered
necessary under the circumstances. We believe that our examination provides a
reasonable basis for our opinion.
We found during our examination that the recipient did not clearly disclose its
allocation process in indirect cost proposals and charged employee leave costs to
grants disproportionately to the amount of time employees spent on each
assistance agreement.
In our opinion, the outlays reported in the Quarterly Financial Status Reports as
of September 30, 2007, present fairly, in all material respects, the allowable
outlays incurred in accordance with the terms and conditions of the agreements
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08-1-0277
and applicable laws and regulations. Details of our examination are included in
Chapter 3 Results (^/"Examination.
Janet Kasper
Office of Inspector General
U.S. Environmental Protection Agency
April 2, 2008
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Chapter 3
Results of Examination - Review of Reported Costs
We found that the recipient did not clearly disclose its cost allocation methods in
its indirect cost proposals. The recipient also charged employee leave costs to
grants disproportionately to the amount of time employees spent on each
assistance agreement. These weaknesses are described in further detail in the
following paragraphs. Amounts reported by agreement and cost category are
included in the Schedule of Reported Outlays attached at the end of this report.
Inadequate Disclosure in Indirect Cost Proposals
The recipient did not clearly disclose its cost allocation process in its indirect cost
proposals. The recipient has established an indirect cost pool for general and
administration expenses. It also established an intermediate cost pool for each of
its funding sources. The intermediate pools used and the allocation process were
not clearly disclosed in indirect cost proposals. Clear disclosure is necessary to
determine what costs will be charged directly and what costs will be charged
indirectly. Clear disclosure also helps in determining whether the allocation
methods result in an equitable distribution of costs to grant programs and other
cost objectives.
The recipient has established an indirect cost pool for general and administration
expenses of the organization. The recipient also uses several intermediate cost
pools: one pool for each Federal agency that funds recipient activities and other
pools for activities related to private funding sources. The cost pool for each
Federal agency is used to accumulate the costs attributable to that agency's
programs that cannot be identified to any one grant. The recipient includes the
general and administration cost pool, allocation base, and indirect cost rate in its
indirect cost proposals. The intermediate pools are not clearly disclosed in
indirect cost proposals or in the recipient's cost policy statement. The recipient's
methodology for allocating costs to the intermediate pools is reasonable.
However, the recipient should revise its cost proposals and cost policy statement
to describe the intermediate pools used, the costs allocated, and the allocation
process.
Inequitable Allocation of Employee Leave
The recipient allocates employee leave to grants using a judgmental process that
does not comply with 2 Code of Federal Regulations (CFR) Part 230. The
regulation requires that leave taken be charged to organization activities
proportionately. The recipient does not use a method that results in a
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08-1-0277
proportionate allocation to its activities. It should therefore be required to
discontinue its current practice and use a more equitable method.
Our review of the recipient's timekeeping practices found that employees identify
leave taken to their home department (grant) on their timesheets. According to
recipient personnel, the home department is where most of an employee's regular
time is charged. Determining the home grant is a judgmental process and is not
the result of analysis. The recipient's executive vice president stated it was not
cost-effective to allocate leave to all of the grants that an employee works on. As
an alternative, the recipient records leave where most of the employee's time is
estimated to have been charged. In our tests of employee timekeeping practices,
we found that employees charge leave to grants disproportionately to the amount
of time spent on each grant. For example, an employee charged direct hours to
two different grants on a timesheet but only charged leave taken to one of the two
grants. A more equitable method would be to use the ratio of employee hours on
each grant to total employee hours for a specified period (such as fiscal year,
month, or pay period).
Title 2 CFR 230, Appendix B, paragraph 8.g(l) states fringe benefits in the form
of regular compensation paid to employees during periods of authorized absences
from the job, such as vacation leave or sick leave, are allowable, provided the
costs are absorbed by all organization activities in proportion to the relative
amount of time or effort actually devoted to each. The recipient's practice does
not comply with these requirements, resulting in inequitable leave charges to
individual cooperative agreements.
Follow-up of Prior Findings and Recommendations
An Office of Grants and Debarment contractor (Leon Snead and Company, P.C.)
performed a limited review of the recipient's financial management system for
Fiscal Years (FYs) 2004 and 2005. The contractor's report, issued in March
2006, indicated that (i) the recipient did not have controls in place to ensure that
requested cash advances were limited to the minimum amounts needed to meet its
immediate cash requirements as required by 40 CFR 30.22(b), and (ii) amounts
reported on Federal Cash Transactions Reports (FCTRs) did not agree to amounts
recorded in the recipient's general ledger. We followed up on both of these
findings and found that they had been resolved.
We identified that the reason amounts reported on its FCTRs did not reconcile to
the recipient's general ledger is because the recipient is reporting unexpended
administrative costs as a reserve on its FCTRs. The EPA SEE program office
allows the recipient to report unexpended administrative costs as a reserve in
order to ensure that funds are available throughout the agreement period, and not
used by EPA program offices to hire additional SEE personnel. The recipient,
however, only draws an amount of administrative costs related to actual incurred
direct costs. The final reporting of actual incurred administrative costs is intended
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08-1-0277
to occur on the final Financial Status Report (FSR) at the completion of the
agreement. Any reserve will be eliminated at that time. We reviewed two
completed agreements, and found that the recipient was able to reconcile its final
FSR to its general ledger without exception.
During discussion with EPA and the recipient, we noted that the recipient does
not have written procedures to help assure that the final accounting of
administrative costs occurs. EPA stated that it would be beneficial for the
recipient to revise its accounting manual to include procedures for a final
reconciliation. The recipient agreed with this recommendation.
Recommendations
We recommend that EPA's Director of Grants and Interagency Agreements
Management Division require the recipient to:
3-1 Revise its cost policy statement to clearly disclose the basis for allocation
of costs, the costs being allocated, the intermediate cost pools used, and
whether the costs are allocated individually or as a pool.
3-2 Submit its revised cost policy statement to its cognizant Federal agency
for review.
3-3 Discontinue its practice of allocating employee leave based on an estimate
of the employee's home department and instead use a method that results
in a more proportionate distribution.
3-4 Revise its accounting manual to include procedures to ensure that the final
accounting of administrative costs occurs timely.
Further, we recommend that EPA's Director of Grants and Interagency
Agreements Management Division:
3-5 Verify that the grantee has revised the process for distributing employee
leave to grants and has updated its accounting manual to include
procedures to conduct the final accounting of administrative costs.
Recipient Response and OIG Comments
The recipient said it has revised the description of its cost allocation methods and
discussed the revised method with the U.S. Department of Labor (DOL), its
cognizant Federal agency. The recipient stated it has no reason to believe that
DOL will find the method unreasonable, and that our review disclosed that the
allocation process does not result in an inequitable distribution of costs.
However, the process is not clearly described in the recipient's cost policy
statement.
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We identified the following issues with the recipient's revised policy that need
clarification:
• The revised policy states in Section II that certain direct costs associated
with managing grants are charged to intermediate pools and allocated out
at least once a month based on labor time. However, the policy does not
define the term "labor time." It could mean labor hours, direct labor, or
total labor.
• The policy does not identify by name or number the general ledger
accounts allocated. Section III of the policy lists costs by name, but does
not clearly indicate if these costs are part of the allocation process and
included in an intermediate pool. In addition, the policy does not indicate
the intermediate pools used. Our tests disclosed that the recipient uses at
least one intermediate pool for each funding agency. The Department of
Labor, Health and Human Services, and EPA are three Federal agencies
that we identified. There are also various other intermediate pools for
private funding sources. The policy should disclose the pools used and the
Federal agency or funding source assigned to each.
• The policy states the costs are allocated out at least once a month, but does
not state whether the costs are allocated individually or as a pool. This
process should be described.
EPA's Guide on How to Prepare an Indirect Cost Rate Proposal for a Non-Profit
Organization, dated June 19, 2006 states that a cost policy statement is part of the
indirect cost proposal; changes to the policy should be submitted with the indirect
cost proposal when they occur. Therefore, the recipient needs to revise its cost
policy and submit it to its cognizant Federal agency for review.
The recipient did not agree with our recommendations regarding the inequitable
allocation of employee leave. The recipient disagreed that it allocated leave on a
judgmental basis. Leave balances are maintained by department (the division in
which grants from the same agency are grouped). Leave is accrued based on the
number of hours worked under a grant and balances are maintained by
department. The liability and expense were incurred when the leave is accrued,
not when it is taken. When an employee is paid for all accrued leave, each of the
grant agreements would bear their fair share of the costs. The recipient stated,
however, that in the interest of moving forward, it is prepared to instruct its staff
to reduce leave balances proportionately rather than the practice of using the
department with the most accrued leave balance. The recipient submitted a
revised policy stating that:
Vacation and Sick Leave are accrued to various Cost Centers based on
direct labor hours. Leave earned but not used during each fiscal year is
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08-1-0277
recorded as cost in the period incurred. Use of Leave Hours are [sic]
distributed among departments with available leave balances.
The revised policy, when implemented, would address the recommendation.
However, the audit tests indicated that leave was recorded in departments as an
expense when it is taken and reported on employee timesheets, and not accrued as
the recipient described in the response to the audit report. In resolving the report,
EPA needs to verify that the recipient has changed how it charges leave to its
assistance agreements.
The recipient agreed to revise its accounting manual to include procedures for the
final accounting of administrative costs and a reconciliation of administrative
costs in FSRs and FCTRs to the general ledger. The procedure states that
reported administrative costs on the final FSR should be incurred costs and not
reserve amounts. In our opinion, the revised policy, if followed, will ensure that
amounts reported on the final FSR are incurred amounts and not unexpended
amounts.
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Schedule of Reported Outlays
Cumulative Costs as of September 30, 2007
Enrollee costs
Administrative Costs
S^irC^siS666"6™5
Indirect Costs
Reserve
Q83279001 Q83279101 Q83279201 Q83279401 Q83279501
$702,806 $112,936 $437,890 $788,916 $1,499,395
$ 21,686 $ 6,435 $ 16,164 $ 49,294 $ 49,455
6,837 2,605 5,877 19'840 18,598
31.654 ^™, 20.125 37.243 68305
Q83297501 Q83297601 Q83297701 Total
$299,142 $ - $371,675 $4,212,760
$ 17,475 $ - $ 11,146 $ 171,655
$ 63,670
6,233 ?76Se $ 193<943
14.288 $ 740,956
IS^g'kjgy |2, 182)100 |8,-@CgOOO 51 170224
Note
1
Total Claimed Outlays
$5,382,984
Note 1: The EPA SEE program office allows the recipient to report unexpended administration costs as a reserve in order to ensure that funds are
available throughout the agreement period. The final reporting of actual incurred administrative costs will take place on the final Financial Status report
at the completion of the agreement, and any reserve will be eliminated.
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Status of Recommendations and
Potential Monetary Benefit
POTENTIAL MONETARY
RECOMMENDATIONS BENEFITS (in $OOOs)
Planned
Rec. Page Completion Claimed Agreed To
No. No. Subject Status1 Action Official Date Amount Amount
3-1 6 Require the recipient to revise its cost policy U Director, Grants and
statement to clearly disclose the basis for allocation Interagency Agreements
of costs, the costs being allocated, the intermediate Management Division
cost pools used, and whether the costs are
allocated individually or as a pool.
3-2 6 Require the recipient to submit its revised cost U Director, Grants and
policy statement to its cognizant Federal agency for Interagency Agreements
review. Management Division
3-3 6 Require the recipient to discontinue its practice U Director, Grants and
of allocating employee leave based on an Interagency Agreements
estimate of the employee's home department Management Division
and instead use a more equitable method.
3-4 6 Require the recipient to revise its accounting 0 Director, Grants and
manual to include procedures to ensure that the Interagency Agreements
final accounting of administrative costs occurs Management Division
timely.
3-5 6 Verify that the grantee has revised the process U Director, Grants and
for distributing employee leave to grants and Interagency Agreements
has updated its accounting manual to include Management Division
procedures to conduct the final accounting of
administrative costs.
0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
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Appendix A
Scope and Methodology
We performed our examination in accordance with the Government Auditing Standards, issued
by the Comptroller General of the United States, and the attestation standards established by the
American Institute of Certified Public Accountants. We also followed the guidelines and
procedures established in the Office of Inspector General Project Management Handbook.
We conducted this examination to express an opinion on the reported outlays as of September
30, 2007, and determine whether the recipient complied with all applicable laws and regulations,
as well as with any special requirements under the agreement. We conducted our fieldwork from
February 11, 2008, through April 2, 2008.
In conducting our examination, we performed procedures as detailed below:
• We interviewed EPA personnel and reviewed grants and project files to obtain
background information on the recipient and the agreements.
• We interviewed recipient personnel to understand the accounting system and the
applicable internal controls as they relate to the reported outlays.
• We reviewed the Fiscal Years 2005 and 2006 single audit reports to identify issues that
could impact our examination.
• We reviewed the recipient's internal controls specifically related to our objectives.
• We performed tests of the internal controls to determine whether they were in place and
operating effectively.
• We examined the reported outlays on a test basis to determine whether the outlays were
adequately supported and eligible for reimbursement under the terms and conditions of
the agreements and Federal regulations and cost principles.
The Office of Inspector General has not audited the recipient before. However, an Office of
Grants and Debarment contractor reviewed the recipient's financial management system for FYs
2004 and 2005. We followed up on the findings reported.
All of the agreements have been granted a waiver from the requirements of the Environmental
Results Order 5700.7 concerning the inclusion in the agreement work plan of well defined
outputs and outcomes, recipient reporting on accomplishments, and program office monitoring
of progress in achieving the outputs and outcomes. Therefore, we did not perform a review to
determine if the recipient achieved the intended results of the awards.
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Appendix B
Recipient's Response1
July 30, 2008
Leash Nikaidoh
U.S. EPA Office of the Inspector General
26 W. Martin Luther King Drive
MS: Norwood
Cincinnati, Oh 45268
Re: Draft Attestation [sic] Report - Incurred Cost Audit of Eight EPA Cooperative Agreements
Assignment No. OA-FY-08-0051
Dear Ms. Nikaidoh:
Thank you very much for the opportunity to respond to the U.S. Environmental Protection
Agency recent audit of the National Caucus and Center on Black Aged, Inc.'s (NCBA) EPA
programs.
Attached please find NCBA's response to the Draft Attestation report. As our response includes
several attachments, if possible, we request that all attachments be treated as confidential
information and not be released to the public.
We hope that our response has addressed all the questioned issues.
Please contact me at 202-624-1139 if I can be of further assistance.
Sincerely,
Elias Hussein
Executive Vice President
1 The recipient provided attachments,as part of its response. The attachments have been treated as confidential, per
the recipient's request, and have not been included in the report.
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Organization Response to the U.S. Environmental Protection Agency Office of
Inspector General Draft Attestation Report: National Caucus and Center on
Black Aged, Inc., Incurred Cost Audit of Eight EPA Cooperative Agreements.
Submitted July 30, 2008
Approval of Indirect Cost Rates
The primary conclusion of the audit is that NCBA claimed indirect costs without approved
indirect rates and did not obtain prior approval for its indirect cost methodology from its
cognizant agency, the Department of Labor. NCBA has consistently negotiated an indirect cost
rate agreement with the DOL for each year under review by EPA. NCBA's indirect cost
methodology had the approval of its cognizant agency. We differ from the auditors conclusion
because there is a fundamental difference between joint direct costs and indirect costs as defined
by OMB Circular A-122. Joint direct costs and indirect costs are treated differently under the A-
122 circular.
Under the circular, grantees are required to negotiate indirect cost rate agreements with their
cognizant agency as a condition of claiming indirect costs. However under Attachment A
Section D. point 4—Direct Allocation Method, the OMB recognizes that
"some non-profits treat all costs as direct costs except general administration and general
expenses. These organizations generally separate their costs into three basic categories:
(i) General administration and general expenses; (ii) fundraising, and (iii) other direct
functions..."
Under this methodology joint costs are "prorated individually as direct costs to each
category and to each award using a base most appropriate to the particular costs being
pro-rated. This method is acceptable, provided each joint cost is prorated using a base
which accurately measures the benefits provided to each award or other activity. The
bases must be established in accordance with reasonable criteria, and be supported by
current data. Under this method, indirect costs consist exclusively of general
administration and general expenses. In all other respects, the organization's indirect cost
rates shall be computed in the same manner as that described in subparagraph 2"
NCBA uses the direct allocation method to distribute joint costs associated with executing
related grants—in the case of the EPA, at any given time, NCBA manages 15 to 25 cooperative
agreements that have similar operational needs. Joint direct costs that have a causal relationship
to time and effort are allocated on a monthly basis based on current time and effort data that is
attributable to each final cost objective—in this case to each individual awards. In a service
organization such as NCBA, time and effort is a well established base on which to allocate costs.
Joint costs that are related to the occupation of space are allocated using an analysis of physical
space. Both methods are well established in the industry as reasonable.
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NCBA asserts that its joint cost methodology is reasonable. We note that the EPA auditors agree
in that they did not question the reasonability of NCBA's joint cost allocation methodology only
that it was not a negotiated rate. Under A-122, joint costs are not allocated based on a negotiated
rate but rather based on current data and a reasonable methodology.
Nonetheless, NCBA has discussed this issue with its cognizant agency (DOL). Based on our
meeting and discussions, DOL is in agreement that these costs represent joint direct costs and not
indirect costs (see attachment I). On their recommendation, NCBA has updated its cost
allocation policy to explicitly describe NCSA's joint cost methodology. As EPA did not find the
methodology unreasonable, we have no reason to believe that the DOL will either. Attachment
II contains NCBA's revised cost methodology (Cost Policy Statement). We believe that these
joint costs should not be questioned and that no adjustment to grant expenses is needed.
Allocation of Employee Leave
The auditors asserted that NCBA allocated leave on a judgmental process. This is not true. The
auditors came to this conclusion because they did not take into account NCBA's leave tracking
system in its entirety. The auditors focused on the process when the leave was taken not when it
was accrued. NCBA accrues available leave based on the numbers of hours worked under a
particular grant agreement. Leave balances are maintained by individual departments
(departments are the over-arching division in which similar grants are grouped—e.g. all EPA
grants are grouped under the EPA department, all DOL grants are grouped under the DOL
department). For example if an employee earned 10 hours vacation leave by working 80% on
EPA projects and 20% on DOL, that employee would have a leave balance of 8 hours in the EPA
department and 2 hours in the DOL department. Time is accrued in proportion to effort as
required by OMB A-122. These leave balances are maintained by the departments as hours
available for the employees to use.
When an employee takes leave, he or she can use the leave hours accrued from any of the pools
in which hours were earned (in proportionate to effort expended) so long as a balance is available
(see attachment III). The liability for vacation leave (and hence the off-setting expense) was
incurred in the accrual of the vacation leave not when it was taken. At some point, when the
employee is paid for all accrued leave, each of the grant agreements would bear their fair share
of the costs.
NCBA believes this is an equitable methodology in which to account for vacation leave and does
not result in any material difference in terms of allocating expenses to final cost objectives.
Reducing the leave balance of one cost center/grant where there is sufficient accrued leave
balance available will not affect the final cost to the agreements. However, in the interest of
moving forward, NCBA is prepared to instruct its staff to reduce leave balances proportionately
rather than the practice of often times using the department with the most accrued leave balance
(see attachment IV, item #1:51).
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Final Reconciliation Procedures
NCB A has agreed to insert in its accounting manual procedures for the final accounting of
administrative costs and reconciliation of Financial Status Report and Federal Cash Transition
Reports . These procedures can be found in Attachment IV, item #3:60 & #3:70).
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Appendix C
Distribution
Office of the Administrator
Director, Grants and Interagency Agreements Management Division
Director, Office of Grants and Debarment
Assistant Administrator for Environmental Information
Assistant Administrator for Research and Development
Associate Administrator for Policy, Economics, and Innovation
Agency Follow-up Official (the CFO)
Agency Follow-up Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Office of General Counsel
Audit Follow-up Coordinator, Office of Grants and Debarment
Deputy Inspector General
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