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*	- U.S. Environmental Protection Agency	14-P-0109

i	\ Office of Inspector General	February 4,2014
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At a Glance
Why We Did This Review
The purpose of this review was
to determine whether the
U.S. Environmental Protection
Agency's (EPA's) Region 6 is
managing task orders under
the Emergency and Rapid
Response Services (ERRS)
contracts effectively and
whether contractors are billing
Region 6 in accordance with
contract terms.
Region 6 awarded its two
current ERRS contracts
(EP-S6-07-01 and EP-S6-07-
02) in May 2007. At the time of
our preliminary review,
EP-S6-07-01 had 124 issued
task orders and EP-S6-07-02
had 50 issued task orders.
The combined total expended
amount on both contracts was
$77,579,001 as of October
2012.
This report addresses the
following EPA theme:
• Embracing EPA as a high
performing organization.
For further information,
contact our public affairs office
at (202) 566-2391.
The full report is at:
www.epa.aov/oia/reports/2014/
20140204-14-P-0109.pdf
Internal Controls Needed to Control Costs of
Emergency and Rapid Response Services Contracts,
as Exemplified in Region 6
What We Found
Region 6 manages field activities under the ERRS contracts within the terms of
the contract. However, our review of task order files and invoices submitted under
those task orders showed us that infrequent internal control reviews and
inadequate staffing levels hamper Region 6's ability to prevent and detect many
contract management shortcomings, such as:
Improper application of
general and administrative
rates resulted in higher
costs to the government.
•	Performing required annual invoice reviews.
•	Monitoring contractor adjustment vouchers.
•	Receiving prime contractor negotiated team
subcontract agreements on time.
•	Correctly coding task orders in the EPA Acquisition System.
•	Performing adequate internal control reviews.
Without adequate staffing levels, Region 6 is unable to conduct internal control
reviews. Such reviews are a tool for ensuring that products comply with
regulations and are consistently of high quality. Without internal control reviews,
crucial aspects in the acquisition cycle cannot be assessed and management
cannot determine and properly address weaknesses and vulnerabilities.
We identified two conditions that resulted in higher costs to the government. One
prime contractor was applying a general and administrative indirect rate to its
team subcontractors' other direct costs, which went against the prime contractor's
proposal and indirect cost rate letter. Also, both prime contractors were receiving
additional profit because the fixed labor rates negotiated between the EPA and
the ERRS prime contractors were based solely on the prime's labor rates.
Recommendations and Planned Corrective Actions
We recommend that the Region 6 Regional Administrator require procurement
personnel to conduct internal control reviews twice a year or declare contract
management as a weakness in Region 6's next Federal Managers' Financial
Integrity Act submission until Region 6 starts conducting internal control reviews.
We also recommend that the Regional Administrator address issues related to
subcontract other direct costs in the existing ERRS contracts, and require that
proposals for future ERRS contracts include subcontractor rates as required.
Region 6 concurred with three out of five recommendations. Region 6 did not
concur with recommendations 3 and 4, to require the contractor to adjust all
billings to reflect application of the correct rate to team subcontract other direct
costs, and to modify future billings. Region 6 believes the amounts involved are
immaterial and do not justify the investment in time that would be needed to
adjust all past invoices. These recommendations remain unresolved.

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