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Report Contributors:
Paul Curtis
Wanda Arrington
Gloria Taylor-Upshaw
Catherine Allen
Sabrina Berry
Kelly Bonnette
Robert Hairston
Sheila May
Cynthia Poteat
Alexandra Zapata-Torres
Abbreviations:
CHP
Contractor-held property
CO
Contracting officer
CP
Contract Property
CPC
Contract property coordinator
DCMA
Defense Contract Management Agency
EPA
U.S. Environmental Protection Agency
EPAAR
Environmental Protection Agency Acquisition Regulation
FAR
Federal Acquisition Regulation
FAS
Fixed Assets Subsystem
FMSD
Facilities Management Services Division
FY
Fiscal year
GAO
U.S. Government Accountability Office
GFP
Government-furnished property
IFMS
Integrated Financial Management System
MATS
Management Audit Tracking System
OA
Office of Administration
OAM
Office of Acquisition Management
OARM
Office of Administration and Resources Management
OIG
Office of Inspector General
PMO
Property management officer
S&T
Science and Technology
WCF
Working Capital Fund
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail: OIG Hotiirie@epa.aov write: EPA Inspector General Hotline
phone: 1-888-546-8740 1200 Pennsylvania Avenue NW
fax: 202-566-2599 Mailcode 2431T
online: http://www.epa.aov/oia/hotline.htm Washington, DC 20460
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STA?.
*. U.S. Environmental Protection Agency 12-P-0388
? ^ Offira of Incinprinr fionoral April 3,2012
^ (fcjl z Office of Inspector General
IS3Z2J
* At a Glance
Why We Did This Review
We performed this review to
determine whether the U.S.
Environmental Protection
Agency (EPA) effectively
manages contractor-held
property (CHP). Specifically,
we wanted to determine
whether EPA (1) effectively
oversees CHP, (2) accurately
reports CHP, and
(3) adequately addressed prior
recommendations on CHP.
Background
EPA's Office of Administration
and Resources Management
(OARM) is responsible for
developing and establishing an
effective and efficient property
and contract management
program. In November 2009,
EPA transferred the oversight
of CHP within OARM, from
the Office of Acquisition
Management to the Office of
Administration, Facilities
Management Services Division.
EPA Should Improve Controls for Managing
Contractor-Held Property
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.gov/oiq/reports/2012!
20120403-12-P-0388. pdf
What We Found
EPA does not have effective oversight of CHP, did not accurately report CHP in
its fiscal year (FY) 2010 financial statements, and did not fully implement
corrective actions from an Office of Inspector General 2006 audit report. EPA
does not have effective oversight of CHP in terms of property administration,
policies and procedures over the CHP management program, and modifications
to contracts with CHP. Further, EPA incorrectly recorded CHP and reported
property in the wrong funding appropriation. As a result, EPA overstated CHP by
$34.6 million in the FY 2010 financial statements. EPA did not fully implement
corrective actions to address recommendations from our FY 2006 report,
EPA Needs to Strengthen Oversight of Government Furnished Property. EPA
provided corrective actions, but only implemented one of two recommendations.
Without accurate CHP records and proper property administration at contractor
sites, the Agency has no safeguards over property and could inaccurately report
CHP in the financial statements. In FY 2011, EPA addressed the accuracy of
CHP and adjusted its FY 2011 financial statements for the overstatements.
What We Recommend
We recommend that the Assistant Administrator for Administration and
Resources Management quantify the universe of CHP and assign more resources
to the property administration function, designate CHP as a significant
deficiency, develop and implement policies and procedures for the property staff,
train property staff and contracting officers on current and any new
responsibilities over contracts with government property, and revise or update the
corrective action plan in the Agency's Management Audit Tracking System for
the 2006 audit report and reference any corrective actions.
We recommend that the Chief Financial Officer develop and implement internal
controls that require the financial staff to review the funding appropriations for
contracts with government property.
EPA agreed with our recommendations and proposed acceptable corrective
action plans to address them.
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^1tDsrx
,2&
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
0 - WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
April 3, 2012
MEMORANDUM
SUBJECT: EPA Should Improve Controls for Managing Contractor-Held Property
Report No. 12-P-0388
FROM: Arthur A. Elkins, Jr.
TO: Craig E. Hooks
Assistant Administrator for Administration and Resources Management
Barbara J. Bennett
Chief Financial Officer
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency. 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 on the subjects
reported. Final determination on matters in this report will be made by EPA managers in
accordance with established audit resolution procedures.
Action Required
In responding to the draft report, the Agency provided a corrective action plan for addressing the
recommendations with milestone dates. Therefore, a response to the final report is not required.
The Agency should track corrective actions not implemented in the Management Audit Tracking
System.
We have no objections to the further release of this report to the public. This report will be
available at http ://www.epa. gov/oig.
If you or your staffs have any questions regarding this report, please contact Melissa Heist,
Assistant Inspector General for Audit, at (202) 566-0899 or heist.melissa@,epa, gov: or Paul
Curtis, Director, Financial Statement Audits, at (202) 566-2523 or curtis.paul@epa.gov.
-------
EPA Should Improve Controls for
Managing Contractor-Held Property
12-P-0388
Table of Contents
Chapters
1 Introduction 1
Purpose 1
Background 1
Noteworthy Achievements 2
Scope and Methodology 3
2 EPA Does Not Have Effective Oversight of CHP 6
EPA Needs Improved Controls for Property Administration 6
Property Staff Need Internal Policies and Procedures to Manage CHP 8
EPA Should Modify Contracts to I nclude CHP 10
Conclusion 10
Recommendations 11
Agency Comments and OIG Evaluation 11
3 EPA Did Not Accurately Report CHP in the Financial Statements 12
EPA Recorded Inaccurate Amounts for CHP 12
EPA Double Reported CHP in the Annual Financial Statements 13
EPA Did Not Properly Report CHP in the WFC Appropriation 14
Conclusion 16
Recommendation 16
Agency Comments and OIG Evaluation 17
4 EPA Did Not Adequately Address Prior Recommendations on CHP 18
Federal and EPA Requirements Govern Corrective Actions 18
EPA Planned Corrective Actions for Prior Recommendations 18
EPA Did Not Fully Implement Corrective Actions 19
Conclusion 20
Recommendation 20
Agency Comments and OIG Evaluation 20
Status of Recommendations and Potential Monetary Benefits 21
Appendices
A Agency Response to Draft Report 22
B Distribution 31
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Chapter 1
Introduction
Purpose
We performed this review to determine whether the U.S. Environmental
Protection Agency (EPA) effectively manages contractor-held property (CHP).
Specifically, we sought to determine whether EPA:
• Has effective oversight of CHP.
• Accurately reports CHP.
• Adequately addressed prior recommendations on CHP.
Background
Under Federal Acquisition Regulation (FAR) Part 45, government-furnished
property (GFP) (referred to herein as CHP) is defined as the property in the
possession of, or directly acquired by, the government and subsequently furnished
to a contractor for performance of a contract. CHP also includes contractor-
acquired property, which the FAR defines as property acquired, fabricated, or
otherwise provided by the contractor for performing a contract and to which the
government has title.
The EPA Office of Administration and Resources Management (OARM) is
responsible for developing and establishing an effective and efficient Agency-
wide property and contract management program. The two OARM offices with
property responsibilities are the Office of Administration (OA) and the Office of
Acquisition Management (OAM). In November 2009, EPA transferred the
oversight of CHP from OAM to OA's Facilities Management Services Division
(FMSD). Currently, FMSD administers programs relating to property and supply
management, and OAM is responsible for the policies, procedures, operations,
and support of the Agency's procurement and contracts management program.
Several guidance documents govern CHP. When EPA property is in the
possession of a contractor, property management responsibilities under EPA
contracts are governed by Environmental Protection Agency Acquisition
Regulation (EPAAR) Section 1552.245-70, which outlines property
administration requirements for contractors. These requirements supplement those
contained in the government property clause(s) and FAR Part 45. Also, EPA's
Contract Management Manual, Chapter 45, requires EPA to maintain effective
control and accountability for all CHP. It specifically addresses the property
administration function to ensure that property in contractors' possession is
maintained and tracked in accordance with the contract.
12-P-0388
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The 4832 EPA Personal Property Policy and Procedures Manual is the primary
authoritative reference for property management. Property staffs manage personal
property—property that has not been provided to contractors as CHP—
in 24 accountable areas nationwide, to include headquarters, regions, and
laboratories. Each accountable area should have a property management officer
(PMO), property accountable officer, and property utilization officer, who are
responsible for ensuring that adequate and effective administrative controls are
established for all personal property under their jurisdiction. Although not
required, some PMOs currently track CHP as well. Chapter 5 of the manual
outlines policies for control, accountability, and CHP general management once
property is provided to contractors. Specifically, the manual describes CHP
responsibilities for contracting officers (COs), contracting officer representatives,
project officers, and contractors.
Under FAR Part 42, Contract Administration, Subpart 42.1, EPA had an
interagency agreement with the Defense Contract Management Agency (DCMA),
under which DCMA would provide EPA with property administration and plant
clearance services on EPA contracts. The agreement was effective in January
2006, and EPA terminated the agreement in May 2009.
Noteworthy Achievements
In fiscal year (FY) 2011, the Agency placed more emphasis on CHP during the
Office of Management and Budget's revised Circular A-123 internal control
reviews. EPA retained external auditors to assist in its annual efforts to comply
with the Office of Management and Budget's revised Circular A-123. The
external auditors' control assessment report noted the following concerns that
relate to our findings:
• Inadequate resources for managing personal property and CHP.
• Insufficient training and accountability for managing personal property
and CHP.
• Inconsistent policies and procedures for managing personal property and
CHP at headquarters and regional offices.
• Insufficient internal controls over CHP.
In FY 2012, after the assessment and in response to our FY 2011 financial
statement audit findings, OARM noted that it would review current policies and
procedures, and revise them as needed to ensure that they address responsibilities
for the removal of personal property from the Agency's financial system when it
is transferred to contractors. Current procedures are in place to inform COs,
project managers, contractors, and Agency property personnel on how to handle
property transfers to contractors. Additionally, frequent turnover of positions
necessitates an increase in both training and cross-training of COs and Agency
property managers. OARM also noted that it is committed to developing a
training program for all parties associated with the contract property process
12-P-0388
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during FY 2012. As part of an ongoing review and improvement program, OARM
plans to provide periodic training information to COs on the importance of
ensuring that all contracts having contract property clauses are identified as such
in the Agency's acquisition system.
Scope and Methodology
We conducted this audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives. We conducted our audit from February 2011
through February 2012,1 at EPA headquarters in Washington, DC. We also visited
contractor sites located in Research Triangle Park, North Carolina; Fort Meade,
Maryland; Reston, Virginia; and Edison, New Jersey.
We assessed internal controls over CHP related to the Agency's procedures,
including property and contract requirements. We reviewed FAR Parts 42 and 45,
and the U.S. Government Accountability Office's (GAO's) Standards for Internal
Control in the Federal Government. We also reviewed EPA's Management Audit
Tracking System (MATS) to determine the status of corrective actions for Office
of Inspector General (OIG) Report No. 2006-P-00035, EPA Needs to Strengthen
Oversight of Government Furnished Property.
We were not able to obtain a complete list of all CHP from OARM. We obtained
a listing of FY 2010 contracts with CHP valued at over $25,000 per property item
that OARM used to report CHP in the FY 2010 financial statement audit. From
the FY 2010 list, we judgmentally selected three high dollar and two smaller
dollar contracts at different locations (table 1). We obtained the contractors'
annual property reports and physical inventories lists as of FY 2010. We tested
samples, performed inventories, and reviewed property controls and data in the
Fixed Assets Subsystem (FAS). We reviewed supporting documentation for
acquisition costs associated with capital property items. For all samples, we held
interviews with EPA personnel and contractors, performed observations, and
analyzed property data.
1 We suspended the assignment in September 2011 and resumed work on the draft report in November 2011
12-P-0388
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Table 1: OIG testing schedule for EPA's contracts with CHP
Contract and location
Total number
of CHP items
in sample
Total value of
CHP in sample
Contract A—Research Triangle Park, NC
29
$6,681,107
Contract B1—Washington, DCa
21
997,591
Contract B2—Research Triangle Park, NCa
241
25,910,813
Contract C—Fort Meade, MD
8
457,900
Contract D—Edison , NJ
48
3,655,537
Contract E—Reston, VA
1
30,000
Total
348
$37,732,948
Source: OIG analysis.
8 Same contract in different locations.
Prior EPA OIG Reports
In OIG Report No. 2006-P-00035, EPA Needs to Strengthen Oversight of
Government Furnished Property, September 19, 2006, we found that OAM did
not have accurate and reliable records to indicate which contractors had received
EP A-provided GFP, the dollar value of the GFP provided, or whether contractors
had performed the required annual inventories. We also found that OAM needed
to improve the administration of its interagency agreements with DCMA. The
conditions we found were generally due to outdated policies and procedures that
did not assign specific responsibility for GFP property administration.
The EPA OIG also issued the following reports with findings related to EPA
property:
• OIG Report No. 12-1-0073, Audit of EPA 's Fiscal 2011 and 2010
Consolidated Financial Statement, November 15, 2011—This report
noted that EPA double counted 97 items of capitalized property in its
financial system because it did not remove from its financial system
property that had been transferred to contractors. Also, EPA headquarters
could not account for 1,284 personal property items in FY 2011 as
required by EPA's Personal Property and Procedures Manual.
Headquarters mid-level management was not knowledgeable about
Agency property management procedures, and EPA did not provide
planned property training for Agency employees during FY 2011.
• OIG Report No. 11-1-0015, Audit of EPA 's Fiscal 2010 and 2009
Consolidated Financial Statement, November 15, 2010—This report
noted that EPA headquarters could not account for certain personal
12-P-0388
4
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property items in FY 2010 as required by EPA's Personal Property and
Procedures Manual. The primary cause was that headquarters mid-level
management was not knowledgeable about Agency property management
procedures.
• OIG Report No. 10-1-0029, Audit ofEPA's Fiscal 2009 and 2008
(Restated) Consolidated Financial Statement, November 16, 2009—This
report noted that EPA did not conduct a physical inventory of 1,804 items
of accountable personal property at EPA headquarters in FY 2009 as
required by EPA's Personal Property and Procedures Manual. EPA did
not inventory all headquarters accountable property because it did not
develop procedures to account adequately for the replacement of
thousands of personal computers resulting from EPA implementing a new
desktop service provider.
We found no prior GAO reports with findings or recommendations related to
EPA's CHP.
12-P-0388
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Chapter 2
EPA Does Not Have Effective Oversight of CHP
EPA does not have effective oversight of CHP. We found that EPA needs to
improve oversight in three areas: (1) CHP administration, (2) policies and
procedures for the CHP management program, and (3) modifications to contracts
with CHP. Federal regulations and EPA's acquisition policies address some of the
controls needed to ensure that government property in the possession of
contractors is controlled, protected, and maintained in accordance with
contractual requirements. GAO's Standards for Internal Control in the Federal
Government requires EPA to have effective policies, procedures, techniques, and
mechanisms to address risks. However, EPA does not perform property
administration for property items provided to contractors. Property staff have
limited resources to govern CHP, and COs are not aware of property contract
requirements. Property staffs have dealt with CHP in diverse ways, which EPA
did not formalize through written policy. By not addressing these conditions, EPA
increases the likelihood that government property may be lost or stolen while in
the possession of contractors. In addition, EPA increases the risk of misstatements
to the financial statements.
EPA Needs Improved Controls for Property Administration
The contract property coordinator (CPC) did not perform property administration
for property items reported by contractors. The CPC is responsible for property
administration for all EPA contracts issued with government property or contracts
that include property clauses. Our audit indicated that EPA does not know how
much property is in the possession of contractors. We requested a complete listing
of CHP. However, EPA property officials could only provide a list of 72 contracts
in which contractors reported 948 capital items totaling $95 million for FY 2010.
From our testing of the capital items, we found that the CPC has not performed
property administration since 2008. Also, the interagency agreement with DCMA
to help with property administration was terminated in May 2009 with no
replacement. EPA used the incomplete FY 2010 listing to report capital CHP
amounts on the FY 2010 financial statements.
The CPC did not have a complete listing of all contracts with CHP and asked the
contract office to identify the contracts with CHP. In September 2010, the
contract office requested that COs review contracts with property clauses and
request annual property reports from contractors. COs are required to modify
contracts when adding, transferring, or disposing of government property, and
submit electronic copies of all contracts and modifications that include the
property clauses to the CPC. However, EPA COs often did not provide copies of
contracts and modifications to the CPC.
12-P-0388
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We reviewed some responses from contractors to the request for annual property
reports and found that one contractor did not report one capital property item
valued at $44,000. The property item was not included in the FY 2010 financial
statements; however, it was scheduled for disposal in January 2011.
In FY 2011, EPA worked to gather a more comprehensive and accurate list of
contractors having contracts and Agency contract property clauses to validate the
FY 2011 annual reporting.
Contract Management Manual Requirements
Currently, EPA does not perform the property administration function to ensure
that property in contractors' possession is being maintained and tracked in
accordance with the contract. The Contracts Management Manual,
Section 45.2.2, states:
[Property] administration ensures that all government property in
both the contractor's and its subcontractor's possession is
controlled, protected, maintained, used, and reported in accordance
with regulatory and contractual requirements.
To help with the property administration and the universe of contracts, COs
should notify the CPC of any changes to contracts. Section 45.2.5.1.2 states:
All EPA contracts issued with Government Property, or those,
which include the Government Property clauses and have the
potential to receive, purchase or acquire Government Property,
are automatically delegated to the EPA CPC for property
administration. The delegation gives the CPC authorization to
obtain property reports and annual physical inventory reports.
According to the Contracts Management Manual, the CPC is to:
[Review] all property and [annual] physical [inventory] reports to
ensure that the reports represent an accurate and complete
accounting of contractor held government property. Information
contained in these reports is used to provide Financial Information
to the OCFO for the Agency's financial statements.
Contracts and Property Staff Controls Need Improvement
A contract manager noted that many COs are not aware of the requirement to
submit electronic copies of contracts and modifications with government property
clauses to the CPC. Further, there is no internal control or comprehensive
reporting mechanism in place to ensure that the CPC receives notification of new
contracts that include CHP.
12-P-0388
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The property office has limited resources, and CPC has not performed property
administration due to workload. A senior property manager stated that a new staff
member has been hired to perform the property clearance functions because the
current CPC is performing the work of three staff members. He also stated that he
wanted to resolve the CHP issues internally, and EPA is not considering a new
interagency agreement for property administration.
Property Staff Need Internal Policies and Procedures to Manage CHP
EPA does not have internal policies and procedures for the management and
oversight of CHP as part of an overall property management program. EPA has
unofficially instituted a number of practices for overseeing and tracking CHP, but
has not formalized these practices in written policy. We found that in one
accountable area, contractors are accounting for CHP that they do not fully control.
Internal Policies Are Limited in Addressing CHP Requirements
Agency policy to address how property staff should handle CHP in their
accountable areas is limited to a section in EPA's Personal Property Policy and
Procedures Manual. Section 5.2.1 states:
When contractors are furnished with government property, it is
deleted from IFMS [Integrated Financial Management System] and
the contractor becomes responsible for the property until such time
as it is returned to the Government. In such cases, the Government
retains title to the property.
In addition, GAO's Standards for Internal Control in the Federal
Government state:
Control activities are the policies, procedures, techniques, and
mechanisms that enforce management's directives, such as the
process of adhering to requirements for budget development and
execution. They help ensure that actions are taken to address risks.
Control activities are an integral part of an entity's planning,
implementing, reviewing, and addressing the accountability for
stewardship of government resources and achieving effective
results.
Our review did not identify any property that EPA deleted from IFMS as noted in
the requirement. We did identify changes to the property status in IFMS's FAS.
We also found decal numbers from FAS on CHP.
EPA does not have an official policy to address CHP in FAS. There were no
official policies or procedures to address how PMOs should handle contractors
using CHP in shared office space, how decals should be provided to contractors
12-P-0388
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for newly purchased EPA property, or what acquisition documentation should be
maintained by EPA or the contractor for CHP.
Property staffs should rely on the FAR and the Contracts Management Manual as
policy for governing CHP. In addition, property staff stated that other offices have
too much control over CHP, which impedes their efforts to manage properly. As
of our review, EPA has not formally issued and implemented a comprehensive
policy to address CHP oversight.
EPA Did Not Address Diverse CHP Practices
Because EPA has not issued clear CHP policies and procedures to property staffs
Agency-wide, offices have dealt with CHP in diverse ways. Practices we found
during our interviews with contractors and property staffs include:
• Contractors in shared spaces with EPA employees stated that they have
CHP in an EPA facility, and EPA employees use equipment for which
contractors have the responsibility to annually inventory and report to EPA.
• Property staff provided a contractor with a roll of EPA decals and allowed
the contractor to place the decals on government property. Property staff
also allowed the contractor to enter the information in EPA's property
database system.
• The PMO in one accountable area includes EPA-held property and CHP in
EPA's annual inventory and works directly with the project officer to
track CHP.
• Two PMOs had no knowledge or involvement with CHP in their
accountable areas.
• Contractors are required to report the value of government property on
their annual property reports; however, in several instances, neither EPA
nor the contractors had acquisition documentation to support the amount
reported by the contractor.
• One PMO changes the status of CHP in FAS from a "non-disposed" code
to a "disposition 9" code. The "disposition 9" code was established by
property staff, and not as official policy, to distinguish between active
items in IFMS and those items provided to the contractor. The code
indicates that EPA transferred the property to the contractor, and the item
becomes inactive and not counted as EPA-held property.
These practices exhibit the need for clear policies and procedures over CHP to
ensure that government property is safeguarded while in the possession of
contractors.
12-P-0388
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EPA Should Modify Contracts to Include CHP
EPA did not modify contracts to include CHP as required by FAR Part 45,
Subpart 45.1, Section 45.106. COs are to initiate the transfer of government
property using a contract modification. We found two contractors who reported
on their annual property reports a total of 49 capital property items on two
contracts that did not have CHP modifications in their contracts. For 48 items
valued at over $3.6 million dollars, the contractor transferred and used the same
property from one contract on a subsequent contract without a contract
modification. For the additional item, the program office purchased the property
for the contractor and did not notify the CO to modify the property item, valued at
$34,000, to the contract.
Federal and EPA Policies and Procedures Address CO Responsibilities
The FAR directly addresses CO responsibilities for contracts with government
property. Section 45.106 states:
Government property shall be transferred from one contract to
another only when firm requirements exist under the gaining
contract (See 45.102). Such transfers shall be documented by
modifications to both gaining and losing contracts. Once
transferred, all property shall be considered Government-furnished
property to the gaining contract.
Contracts Management Manual Section 45.2.5.1.1 states, among other things, that
it is the CO's responsibility to "[modify] the contract when adding, transferring, or
disposing of government property." Additionally, the CO is to "[submit] electronic
copies of all contracts, modifications, purchase orders, and Federal Supply
Schedule orders that include the Government property clauses to the CPC."
EPA Did Not Know Contracts Needed Changes
The CO for one of the two contracts we identified as not having CHP modifications
had just recently acquired the contract from another CO. She was not aware that
there was no contract modification for the 48 capital items currently used by the
contractor. On the second contract, the CO did not know that the program office
had purchased property for the contractor, and did not receive a request for a
contract modification from the contractor or project officer. As a result of our
inquiries, both COs stated that they would modify the contracts to add the CHP.
Conclusion
By having limited controls, not performing property administration, and not
tracking the universe of CHP, EPA increases the likelihood that government
property can be lost or stolen while in the possession of contractors. EPA should
12-P-0388
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manage CHP effectively, provide oversight, and accurately report the value of
CHP on the financial statements. At a minimum, EPA controls should include the
proper policies and procedures to track and document CHP that is relinquished to
contractors. By not ensuring that CHP is accounted for accurately under the
correct contract, EPA increases the risk of misstatements to the financial
statements.
Recommendations
We recommend that the Assistant Administrator for Administration and
Resources Management:
1. Quantify the universe of CHP and assign more resources to the property
administration function or contract the function to ensure proper oversight
and management of CHP.
2. Designate CHP as a significant deficiency until adequate controls are in
place to safeguard government property.
3. Develop and implement policies and procedures for the property staff that:
a. Address how EPA should maintain documentation to support
acquisition values reported by contractors on annual property
reports.
b. Require PMOs to have knowledge of CHP in their accountable
areas to ensure it is identified properly in FAS.
c. Define CHP responsibilities in locations where contractors and
EPA staff are co-located.
d. Explain the required exchange between property and contract staffs
to ensure EPA records property accurately in the financial
statements.
4. Train property staff and COs on current and any new responsibilities over
contracts with government property to ensure consistent application of and
adherence to EPA's administration of its property management program.
Agency Comments and OIG Evaluation
EPA agreed with our recommendations and proposed acceptable corrective
actions to address them. Appendix A contains the full text of the Agency's
response.
12-P-0388
11
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Chapter 3
EPA Did Not Accurately Report CHP in the
Financial Statements
EPA did not accurately report CHP in its FY 2010 financial statements. EPA
incorrectly recorded CHP and reported property in the wrong appropriation.
EPA's acquisition guidance requires contractors to create and maintain records of
all government property, regardless of value. The property manual states that
CHP should be deleted from the financial system. Additionally, the financial
policies state that the Reporting and Analysis Staff should not include the
Working Capital Fund (WCF) appropriation code in the year-end allocation of
CHP. By not reporting CHP accurately, EPA overstated CHP by $34.6 million in
the FY 2010 financial statements. EPA could significantly impact future financial
statements if the financial staff does not review contract funding sources for the
correct allocation prior to reporting on the statements. In FY 2011, EPA addressed
CHP financial reporting by adjusting the inaccuracies in its financial system and
deleting property reported in the WCF appropriation code from its FY 2011
financial statements.
EPA Recorded Inaccurate Amounts for CHP
EPA incorrectly recorded over $2.5 million in CHP based on contractors'
incorrect annual property reports. EPA cannot confirm that the costs reported by
contractors are reasonably accurate because EPA has not performed property
administration since 2008. We found the following inaccuracies in contractor
annual property reports:
• A contractor reported property items totaling $997,591without conducting
an inventory. The contractor had returned the property to EPA without
following the proper procedures, and reported property in its annual
property report that was in EPA's possession.
• A contractor reported a specialty vehicle with an acquisition cost of
$379,800, which was $23,800 more than the value of the capital property
as noted on the acquisition documentation.
• A contractor did not submit the required annual property report, due
September 30, for a capital property item valued at $44,000, until
February 2011.
• A contractor included a $1.5 million computer mainframe, which EPA had
disposed of on September 27, 2010, in its September 30, 2010, inventory
property list and annual property report.
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EPA's internal acquisition guidance requires that contractors maintain auditable
records. Specifically, EPAAR 1552.245-70, Paragraph 5c, states, "Support
documentation used for posting entries to the property record shall provide
complete, current and auditable data." Paragraph 6 states, "The contractor shall
conduct a complete physical inventory of EPA property at least once per year."
Paragraph 7 states, "EPA requires an annual summary report, for each contract,
by contract number, of Government property in the contractor's possession. The
annual summary is due as of September 30th of each year, and upon contract
termination or expiration."
EPA's CPC is to review the annual property reports from the contractors for
accuracy as stated in Contracts Management Manual Section 45.2.5.1.2. The
section states, "The CPC review[s] all property and physical [inventory] reports to
ensure that the reports represent an accurate and complete accounting of
contractor held government property." EPA uses the information in the annual
property reports from contractors to report property on the financial statements.
EPA did not ensure that the contractors maintained and tracked CHP as required
by the contract guidance.
EPA Double Reported CHP in the Annual Financial Statements
EPA recorded 146 CHP property items on four contracts twice in its FY 2010
financial statements. EPA recorded the same property as CHP and as EPA-held
property.
EPA reports property in its annual financial statements under the "General Plant
Property and Equipment" section. Property values are in two sections of the
financial statements. One section, "EPA Held Equipment," includes property in
EPA possession, and another section, "Contractor Held Property," is for property
in the contractor's possession. We reviewed FY 2010 annual property reports and
physical inventories from contractors, and looked up the property items in the
financial system to determine the property item's status. The IFMS FAS showed
that 146 CHP items were recorded as "non-disposed." These items are considered
active property in EPA's possession.
We sampled four contracts with CHP items valued at over $37 million (table 2).
We determined based on our review that EPA duplicated the property in its
financial system and subsequently duplicated the value in its FY 2010 financial
statements. This duplication resulted in an overstatement of $15.2 million.
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Table 2: Double-reported CHP
Contract
CHP
items
reported
Amount
reported as
contractor
held
EPA-held
property
items
in FAS
Amount
reported as
EPA held
Amount
duplicated
A
29
$6,681,107
17
$5,644,174
$5,644,174
B1a
21
997,591
21
997,591
997,591
B2a
241
25,910,813
58
4,965,388
4,965,388
C
8
457,900
8
457,900
457,900
D
48
3,655,537
42
3,139,977
3,139,977
Totals
347
$37,702,948
146
$15,205,030
$15,205,030
Source: OIG analysis.
a Same contract for property in different locations.
Guidance to property staff states that CHP should be deleted from the financial
system. However, the guidance does not state who should delete the property
from the financial system. Specifically, EPA's Personal Property Policy and
Procedures Manual Section 5.2.1 states:
When contractors are furnished with government property, it is
deleted from IFMS and the contractor becomes responsible for the
property until such time as it is returned to the government. In such
cases, the government retains title to the property.
PMOs should be notified to update IFMS when property is placed on contract to
ensure the accountability of property in IFMS and to keep property from
remaining in EPA's financial system as EPA-held property. Additionally, EPA
needs a policy to identify who is responsible and how CHP should be changed in
the financial system when property is provided to contractors and reported in the
financial statements.
EPA Did Not Properly Report CHP in the WCF Appropriation
In the FY 2010 financial statements, EPA reported CHP in the wrong funding
appropriation for one contract valued at over $25 million. We found that EPA
reported the entire contract funding in the Science and Technology (S&T)
appropriation (fund code C) instead of identifying the portion of the contract—
153 items valued at $16.8 million—that is associated with the WCF appropriation
(fund code WR).
The WCF staff enters its property into the financial system to account for assets
and properly record depreciation. We found that the Office of the Chief Financial
Officer's Reporting and Analysis Staff recorded the same property under the S&T
appropriation in its CHP allocations.
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Our testing showed that 153 property items on the contract, valued at
$16.8 million, had a WR fund code (figure 1). The other items on the contract had
funding for Super fund (fund code T) and Environmental Programs and
Management (fund code B). However, the Reporting and Analysis Staff did not
review the funding source for the contract and reported the entire contract under
fund code C in the FY 2010 financial statements. If the staff had reported the
items accurately, as broken out in figure 1, they would have been able to remove
the WCF portion of the contract items and value from the year-end CHP
allocations to prevent double reporting of CHP on the financial statements.
Figure 1: Funding on contract B2
>
Not Fully Tested Fund Code
Unknown
§2.8 million
35 items
§3.6 million
19 Items
Funds B, C,
orT
§2.7 million
34 items
Source: OIG analysis.
EPA's Resources Management Directive System 2540-14-P3, Exhibit 3,
Paragraph 7c, states:
The WCF enters into FAS assets held by contractors and purchased
with WCF funds in order to financially account for its assets,
properly record its capital equipment, and record monthly
depreciation expenses.
Paragraph 7f states:
WCF CP [contract property] is already in FAS and accurately
accounted for and depreciated. To ensure there is no double
counting of CP on the Agency's financial statements, the WCF
appropriation code is not included in the year end allocation of CP
by the Reporting and Analysis Staff (RAS). It is the responsibility
of the contractor to report CP.
The Reporting and Analysis Staff stated that they did not have the specific
funding information for this specific contract. They also stated that overall
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funding for contracts is usually allocated based upon the obligations associated
with the contract. Our review of the obligations for this contract noted that various
fund appropriations were allocated for this contract, including WCF. The
Reporting and Analysis Staff should review the funding appropriations prior to
allocating amounts for CHP in the financial statements.
During our FY 2011 financial statement audit, we addressed the accuracy of CHP
in its financial reporting and the recording of the $25 million contract. EPA
removed the contract from fund code C and its FY 2011 financial reporting.
Additionally, EPA stated it will:
[Review] current policies and procedures and revise as needed to
ensure they address responsibilities for the removal from its
financial system when it is transferred to contractors. Current
procedures are in place to inform contracting officers, project
managers, contractors and agency property personnel on how to
handle property transfers to contractors.
EPA also stated that Agency and contractor compliance remains a challenge, and
it is committed to developing a training program for all parties associated with the
contract property process during FY 2012.
Conclusion
EPA's FY 2010 total overstatement is $34.6 million. The overstatement includes
$17.8 million due to recording incorrect amounts from contractor annual reports
and recording duplicate property items. It also included $16.8 million due to not
removing WCF funding from one contract. EPA should develop controls to
ensure that the financial staff reviews contract funding prior to reporting CHP on
the financial statements. EPA increases the risk that a material misstatement may
occur and go undetected when Agency personnel and contractors do not comply
with internal policies already in place.
EPA management has placed more emphasis on CHP in FY 2011. EPA addressed
the accuracy of CHP in its financial reporting and the recording of the $25 million
contract. We believe EPA should continue its emphasis on accurately reporting
CHP in the financial system.
Recommendation
We recommend that the Chief Financial Officer:
5. Develop and implement internal controls that require the Reporting and
Analysis Staff to review the funding appropriations for contracts with
government property prior to allocating funds for CHP in the financial
statements.
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Agency Comments and OIG Evaluation
EPA agreed with our recommendations and proposed acceptable corrective action
plans to address them. Appendix A contains the full text of the Agency's
response.
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Chapter 4
EPA Did Not Adequately Address
Prior Recommendations on CHP
EPA did not fully implement corrective actions to address recommendations from
the OIG's FY 2006 audit report, EPA Needs to Strengthen Oversight of
Government Furnished Property. EPA provided corrective actions, but did not
fully implement them. Federal guidance and internal policies note that corrective
actions are essential to improving the effectiveness and efficiency of government
operations, and should be complete, accurate, and verifiable. If EPA does not
implement OIG recommendations to maintain accurate CHP records and perform
property administration functions at contractor sites, EPA is not safeguarding
property, which may be lost or stolen while in the possession of contractors.
Further, EPA could inaccurately report CHP in the financial statements.
Federal and EPA Requirements Govern Corrective Actions
Federal guidance and internal policies require EPA to complete corrective actions.
The Office of Management and Budget's Circular A-50, Section 5, states that
corrective action taken by management on resolved findings and
recommendations is essential to improving the effectiveness and efficiency of
government operations.
EPA Order 2750, Chapter 9, Section 2 and 3a, states that the action official or the
delegated program manager is responsible for implementing the corrective actions
and meeting the milestone dates. Chapter 9, Section 4, further states that events
may occur; for example, changes in organizations that can render the corrective
action plan outdated or inappropriate. In these cases, the action official will revise
the corrective action plan and submit it to the inspector general's office.
EPA Planned Corrective Actions for Prior Recommendations
In OIG Report No. 2006-P-00035, EPA Needs to Strengthen Oversight of
Government Furnished Property, September 19, 2006, we recommended that
EPA ensure that OARM OAM complete efforts to (1) update policies and
procedures regarding GFP management, and (2) maintain accurate records and
properly administer interagency agreements with DCMA.
In response to the recommendation, EPA updated policies and procedures
regarding CHP by revising the Contracts Management Manual in February 2009,
and EPAAR clauses in September 2009. EPA did not fully implement the
recommendation to maintain accurate records and properly administer interagency
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agreements with DCMA. In MATS, EPA stated the following in response to our
second recommendation:
OAM will also take action to maintain and periodically update a
listing of active contracts that have GFP. We have been doing this
on a manual basis so far. Automating this listing should be
completed by March 31, 2007.
We now have a Contract Property Coordinator (CPC) who
performs a risk assessment on each contract that may potentially
have GFP, to determine whether the property administration
function should be designated to DCMA. The CPC is working with
DCMA to close/rescind delegations on contracts that do not have
property, and ensure that DCMA is delegated administration over
contracts that have significant GFP. These efforts will: (1) allow
OAM to reconcile its property records with those of DCMA, which
will eliminate one area of concern for the OIG and (2) provide an
accurate database and internal control that will help OAM
determine which contracts need property reviews by DCMA. This
will significantly help us in managing the interagency agreement
properly. The CPC is also working to determine the level of
property administration needed for contracts that have GFP, but
were not delegated to DCMA because of their low risk level.
We expect to complete the reconciliation of our records with
DCMA, and have an automated accurate database for use in
determining the contracts that need property reviews by March 31,
2007. Determining the level of property administration needed for
contracts not delegated to DCMA is an ongoing process, which we
will continue to perform as needed.
EPA Did Not Fully Implement Corrective Actions
We agreed that EPA's actions noted in MATS would adequately address the audit
concerns, but the Agency did not implement the noted corrective actions. When
we reviewed the status of the second recommendation, we found that EPA
transferred the CPC position from OAM to OA FMSD in November 2009 and the
CPC continues to maintain manual listings of active contracts. There is no
automated listing of contracts as stated in the corrective actions. Also, the
interagency agreement with DCMA was terminated in May 2009 with no plans to
implement any new agreements. In FY 2010, there was no cumulative list of all
EPA contracts with CHP, and EPA was not performing property administration
over contracts with government property. Even though it noted the second
recommendation as complete in MATS, EPA still needs to implement corrective
actions.
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OAM's contract manager stated that maintaining accurate records and properly
administering the interagency agreements with DCMA are ongoing functions that
were moved to FMSD and are no longer an OAM action item. Further, the CPC
explained that EPA terminated the DCMA interagency agreement for
noncompliance, which included not providing detailed information on billing and
disposing EPA property without informing EPA. The CPC also stated that no one
is performing on-site audits. She stated that she is the only staff person and could
not perform the audits last year because of her workload.
In FY 2011, FMSD worked to gather a more comprehensive and accurate list of
contractors having contracts and Agency contract property clauses to validate the
FY 2011 annual reporting. We believe that EPA should update its corrective
action plan.
Conclusion
EPA continues to have inaccurate records because the CPC is the only FMSD
staff person who tracks and records CHP. Also, there is no system that provides a
continuous update of all EPA contracts with CHP. If EPA does not maintain
accurate CHP records, it could inaccurately report CHP in the financial
statements. By not performing property administration functions at contractor
sites, contractors may not be maintaining property in accordance with the contract
or EPA policies. As a result, property could be lost or stolen while in the
possession of contractors. EPA should take immediate action to update and
implement corrective actions to ensure adequate safeguards over CHP.
Recommendation
We recommend that the Assistant Administrator for Administration and
Resources Management:
6. Revise or update the milestone dates and the corrective action plan in
MATS for the 2006 audit report and reference any corrective actions, and
submit changes to the OIG for tracking.
Agency Comments and OIG Evaluation
EPA agreed with our recommendations and proposed acceptable corrective action
plans to address them. Appendix A contains the full text of the Agency's
response.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (in $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Claimed
Amount
Agreed-To
Amount
11 Quantify the universe of CHP and assign more
resources to the property administration function or
contract the function to ensure proper oversight and
management of CHP.
11 Designate CMP as a significant deficiency until
adequate controls are in place to safeguard
government property.
11 Develop and implement policies and procedures for
the property staff that:
a. Address how EPA should maintain
documentation to support acquisition values
reported by contractors on annual property
reports.
b. Require PMOs to have knowledge of CHP
in their accountable areas to ensure it is
identified properly in FAS.
c. Define CMP responsibilities in locations
where contractors and EPA staff are
co-located.
d. Explain the required exchange between
property and contract staffs to ensure EPA
records property accurately in the financial
statements.
11 Train property staff and COs on current and any new
responsibilities over contracts with government
property to ensure consistent application of and
adherence to EPA's administration of its property
management program.
16 Develop and implement internal controls that require
the Reporting and Analysis Staff to review the
funding appropriations for contracts with government
property prior to allocating funds for CHP in the
financial statements.
20 Revise or update the milestone dates and the
corrective action plan in MATS for the 2006 audit
report and reference any corrective actions, and
submit changes to the OIG for tracking.
Assistant Administrator for 10/31/12
Administration and
Resources Management
Assistant Administrator for 4/30/12
Administration and
Resources Management
Assistant Administrator for 10/31/13
Administration and
Resources Management
Assistant Administrator for 10/31/13
Administration and
Resources Management
Chief Financial Officer 10/31/12
O Assistant Administrator for 10/31/13
Administration and
Resources Management
O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
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Appendix A
Agency Response to Draft Report
March 9, 2012
MEMORANDUM
SUBJECT: Response to Draft Report: EPA Should Improve Controls for Managing
Contractor-Held Property Project No. OA-FY11-0046
FROM: Craig E. Hooks, Assistant Administrator
TO: Melissa M. Heist, Assistant Inspector General for Audits
Office of Inspector General
The Office of Administration and Resources Management appreciates the opportunity to review
the subject draft report. In conjunction with the Office of the Chief Financial Officer, we are
providing the attached detailed response.
OARM will continue to take significant steps to improve the contract property program. During
FY 2011, dramatic progress was made to improve our process for identifying those contracts
providing or allowing for contract property assignment. Recent technology enhancements, both
planned and implemented by OARM, are expected to further improve the quantity and quality of
information available to the agency.
Should you or your staff have questions, please contact Renee Page, director of the Office of
Administration at (202) 564-8400 or page.renee@epa.gov.
Attachment
cc: Nanci Gelb
John Showman
Renee Page
John Bashista
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Draft Report: EPA Should Improve Controls for Managing Contractor-Held Property
Project No. OA-FY11-0046
Office of Administration and Resources Management
Chapter 2: "EPA Does Not Have Effective Oversight of Contractor-Held Property"
OIG Conclusion:
By having limited controls, not performing property administration, and not tracking the universe
of CHP, the Environmental Protection Agency increases the likelihood that government property
can be lost or stolen while in the possession of contractors. The EPA should manage CHP
effectively, provide oversight, and accurately report the value of CHP on the financial
statements. At a minimum, the agency's controls should include the proper policies and
procedures to track and document CHP that is relinquished to contractors. By not ensuring that
CHP is accounted for accurately under the correct contract, the EPA increases the risk of
misstatements to the financial statements.
OARM Response: OARM concurs with the overall conclusions and findings identified above
as they relate to its activities and actions. Our specific responses to the OIG's recommendations
are below:
Recommendations:
The OIG recommends that the Assistant Administrator for Administration and Resources
Management:
1. Quantify the universe of contractor- held property and assign more resources to the
property administration function or contract the function to ensure proper oversight and
management of CHP.
OARM Response: OARM concurs with this recommendation and will take the
following corrective actions:
• Reevaluate the location of the contract property function within OARM to ensure
that appropriate emphasis and resources are assigned to this area. Completion
date: June 2012.
• Improve OARM's ability to track contract property assets by implementing a new
property tracking system which will also enhance the tracking of contract
property within the EPA Acquisition System (EAS). Completion date: October
2012.
In the short term, OAM has implemented processes to account for property and
property clauses within contracts. The EAS was built to include a checkbox field
to report Government Furnished Property. Federal Procurement Data Systems -
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Next Generation also has a checkbox field, separate from and not fed by the EAS
field, for reporting GFP. The EPA is using these systems to track two data points
in the property management process - EAS tracks whether a contract contains the
GFP clause, while FPDS tracks which contracts actually have government
property assigned. These two reports should simplify the property tracking
process and provide a comprehensive listing of contracts with GFP. Additionally,
the Contract Property Coordinator has been provided EAS access for easier
transmission of contract information. OAM has also created a data quality
position that will monitor and assess the EPA's reporting information, including
reconciling government property data. Completed: FY2011 Ql.
• Additionally, in order to quickly respond to this issue OAM introduced guidance
that requires a quarterly assessment and certification to the OAM Director by the
operating division directors and regional acquisition managers. The assessment
and certification assures the OAM Director that each office has: 1) reviewed
reported GFP information for accuracy and completeness; 2) made any necessary
corrections to the data, and 3) validated that all necessary information has been
provided to the CPC. Completion date: Initiated FY2011 Q3.
• OAM has implemented a Balanced Scorecard Performance Measurement and
Management Program where CHP administration will be highlighted under
additional narratives beyond the quarterly assessment and management
certification. This includes a self-assessment review on CHP and adding CHP as
an area of increased review under the self-assessment and peer review
components of the Quality Assurance Program. OAM is developing required
performance goals against which procurement quality may be measured and
tracked. It is intended that this initiative will aid in the development of approaches
to create process improvements and training as needed, based upon Quality
Assurance Program review results. Completion date: Initiated FY2011.
2. Designate CHP as a significant deficiency until adequate controls are in place to
safeguard government property.
OARM Response: OARM concurs with this recommendation and will make the
requested designation. Completion date: Upon the release of the OIG Final Report
(estimated to be March/April 2012).
3. Develop and implement policies and procedures for the property staff that:
a. Address how the EPA should maintain documentation to support acquisition values
reported by contractors on annual property reports.
OARM Response: OARM concurs with this recommendation and proposes the
following corrective actions:
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• OARM will reinstitute its program of audits of the accountable areas to
monitor compliance with property requirements for data entry and document
maintenance. OARM will conduct at least six field audits each year to
evaluate and provide guidance to the property personnel in accountable areas.
Completion date: Initiated FY2012 Q3. This action could be impacted by
future constraints on travel and staffing.
• OARM will conduct monthly teleconferences with field property staff during
which their interaction with the contract property program will be discussed
and emphasis placed on accurate and timely data entry and document
maintenance. Teleconference's are held on the third Thursday of every
month.
Completion date: Initiated FY 2012 Q4.
• The personal property guidelines and manual will be modified to enhance the
information and emphasis on those actions where the personal property staff
interact with the contract property program. Completion date: October 2012.
b. Require Program Management Officers to have knowledge of CHP in their
accountable areas to ensure it is identified properly in FAS.
OARM Response: OARM concurs with this recommendation and will take the
following corrective actions:
• OARM will conduct monthly teleconferences with field property staff during
which their interaction with the contract property program will be discussed
and emphasis placed on accurate and timely data entry and document
maintenance. Teleconferences are held on the third Thursday of every month.
Completion date: October 2012.
• The personal property guidelines and manual will be modified to enhance the
information and emphasis on those actions where the personal property staff
interacts with the contract property program. Completion date: October 2012.
• OARM will clarify the procedures to be followed by PMOs, PAOs, and PUOs
and ensure awareness of all processes for acquiring, decaling, tracking, and
disposing of contractor property and how to work closely with contracting
officers to support the contract management program operations. Completion
date: October 2012.
c. Define CHP responsibilities in locations where contractors and the EPA staff are co-
located.
OARM Response: OARM concurs with this recommendation and will take the
following corrective actions:
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• While these activities and responsibilities are already generally defined, (75 %
use standard), guidance is difficult to implement and additional structure and
training is needed to ensure compliance. Absent any new clause from the FAR
or EPAAR, OARM will investigate the possibility of making procedural
changes to internal guidance to clarify and standardize the decision-making
process. Completion date: June 2012.
• OARM will initiate training for COs and POs to improve knowledge.
Completion date: Initiated in October 2011.
d. Explain the required exchange between property and contract staffs to ensure the
agency records property accurately in the financial statements.
OARM Response: OARM concurs with this recommendation and will take the
corrective actions outlined in sub-paragraph 3b above.
• In addition to the property guidelines and manual being modified, OAM and
the CPC are working to jointly update the Contracts Management Manual to
include any new or revised property policy and procedures to be followed by
the acquisition community. The EPAAR will also be reviewed for potential
updating. While EPAAR 1552.245-70 does require the contractor to conform
to the requirements in FAR 52.245-1, the only reporting requirement is for the
annual summary report which does not contain enough information to result in
meaningful Agency reporting. A complete update of EPA acquisition policy is
a part of the OAM Balanced Scorecard Performance Measurement and
Management Program. Completion date: September 2013.
• New training specific to the acquisition community will also be provided once
the policy/procedures have been updated. This will be mandatory training for
COs and will include information on the detailed property record that is
required to be included on a contract. Completion date: October 2013.
• OAM has implemented a Balanced Scorecard Performance Measurement and
Management Program where CHP administration will be highlighted under
additional narratives beyond the quarterly assessment and management
certification. This includes a self-assessment review on CHP and adding CHP
as an area of increased review under the self-assessment and peer review
components of the QAP. OAM is developing required performance goals
against which procurement quality may be measured and tracked. It is
intended that this initiative will aid in the development of approaches to create
process improvements, and training as needed, based upon QAP review
results. Completion date: Initiated FY2011.
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4. Train property staff and COs on current and any new responsibilities over contracts with
government property to ensure consistent application of and adherence to the EPA's
administration of its property management program.
OARM Response: OARM concurs with this recommendation and will take the
corrective actions outlined in sub-paragraph 3b above.
• The Office of Administration Contract Property Coordinator conducted
training at the OAM acquisition conference in March 2011. The training
provided updated information and guidance on contract property issues. As
part of an on-going review and improvement program, OAM and OA have
continued to provide periodic training sessions for COs about the importance
of ensuring that all contracts containing contract property clauses are
identified as such in the EAS. The most recent training session occurred in
January 2012. The coordinator has been requested to present several
additional webinar/mini-training sessions to OAM personnel over the next
fiscal year. Completion date: October 2012.
• New training specific to the acquisition community will also be provided once
the policy/procedures have been updated. This will be mandatory training for
COs. Completion date: October 2013.
Chapter 3: "EPA Did Not Accurately Report CHP in the Financial Statements with government
property prior to allocating funds for CHP in the financial statements."
OIG Conclusion:
EPA's FY 2010 total overstatement is $34.6 million. The overstatement includes $17.8 million
due to recording incorrect amounts from contractor annual reports and recording duplicate
property items. It also included $16.8 million due to not removing WCF funding from one
contract. EPA should develop controls to ensure that the financial staff reviews contract funding
prior to reporting CHP on the financial statements. EPA increases the risk that a material
misstatement may occur and go undetected when Agency personnel and contractors do not
comply with internal policies already in place.
EPA management has placed more emphasis on CHP in fiscal year 2011. EPA addressed the
accuracy of CHP in its financial reporting and the recording of the $25 million contract. We
believe EPA should continue its emphasis on accurately reporting CHP in the financial system.
OCFO Response: OCFO concurs with the overall conclusions and findings in this chapter as
they relate to our activities and actions, and we plan to take the corrective actions identified
below:
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Recommendations:
We recommend that the Chief Financial Officer:
5. Develop and implement internal controls that require the Reporting and Analysis Staff to
review the funding appropriations for contracts with government property prior to
allocating funds for CHP in the financial statements.
OCFO Corrective Actions: OCFO will develop and implement internal controls that
require the Reporting and Analysis Staff to review the use of funds to ensure obligations
support contractor-held property balances reported in the financial statements.
Completion date: October 2012.
Chapter 4: "EPA Did Not Adequately Address Prior Recommendations on CHP"
OIG Conclusion:
EPA continues to have inaccurate records because the CPC is the only FMSD staff person who
tracks and records CHP. Also, there is no system that provides a continuous update of all EPA
contracts with CHP. If EPA does not maintain accurate CHP records, it could inaccurately report
CHP in the financial statements. By not performing property administration functions at
contractor sites, contractors may not be maintaining property in accordance with the contract or
EPA policies. As a result, property could be lost or stolen while in the possession of contractors.
EPA should take immediate action to update and implement corrective actions to ensure
adequate safeguards over CHP.
OARM Response: OARM concurs with the overall conclusions and findings identified above as
they relate to OARM activities and actions.
Recommendation:
OIG recommends that the Assistant Administrator for Administration and Resources
Management:
6. Revise or update the milestone dates and the corrective action plan in MATS for the 2006
audit report and reference any corrective actions, and submit changes to the inspector
general's office for tracking.
OARM Response: OARM concurs with this recommendation and will take the
following corrective actions:
• Revisions to the MATS database will update the corrective actions from the 2006
audit. Completion date: May 2012.
o 2006 Corrective action: Update the policy and procedures regarding GFP
management. OAM did update both the Contracts Management Manual
(February 2009) and the EPAAR (September 2009) in response to the
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2006 audit. However, a new revision regarding GFP has already been
initiated in OAM. Completion date: September 2013.
o 2006 Corrective action: Maintain accurate records and properly administer
interagency agreements with DCMA. The interagency agreement with
DCMA was found to be too expensive and EPA was not receiving the
services that had been agreed upon. This agreement was terminated in
May 2009 so this corrective action should be deleted,
o 2006 Corrective action: Automated listing of contracts. EAS was built to
include a checkbox field to report GFP. Federal Procurement Data
Systems - Next Generation also has checkbox field, separate from and not
fed by the EAS field, for reporting GFP. The EPA is using these systems
to track two data points in the property management process - EAS tracks
whether a contract contains the GFP clause, while FPDS tracks which
contracts actually have government property assigned. Both of these
systems can be used by the CPC to retrieve reports on contracts with
property. Completed: FY2011 Ql.
• To augment the corrective actions from 2006, OAM has also developed guidance
requiring a quarterly assessment and certification to the OAM Director by the
Operating Division Directors and Regional Acquisition Managers. The
assessment and certification assures the OAM Director that each office has: 1)
reviewed reported GFP information for accuracy and completeness, 2) made any
necessary corrections to the data, and 3) validates that all necessary information
has been provided to the Contract Property Coordinator. This will provide a
check to the information that the coordinator has access to in EAS and Federal
Procurement Data Systems - Next Generation. Completion date: Initiated
FY2011 Q3.
• The Contracts Management Manual is being updated to include any new or
revised property policy and procedures to be followed by the acquisition
community. The EPAAR will also be reviewed for potential updating. While
EPAAR 1552.245-70 does require the contractor to conform to the requirements
in FAR 52.245-1, the only reporting requirement is for the annual summary report
which does not contain enough information to result in meaningful agency
reporting. A complete update of EPA acquisition policy is a part of the OAM
Balanced Scorecard Performance Measurement and Management Program.
Completion date: September 2013.
• As OAM continues to follow the Balanced Scorecard Performance Measurement
and Management Program, one of the goals identified was to assess the QAP
program for improvement opportunities. A Contract Management Assessment
Team has been established to review products from the OAM operations divisions
to ensure consistency among existing quality oversight and review programs.
OAM is developing required performance goals against which procurement
quality may be measured and tracked. This initiative will aid in the development
of approaches to create process improvements and training as needed, based upon
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QAP review results. Improving the management and oversight of GFP will be an
FY2012 program goal. Completion date: Initiated FY 2011. Additionally,
mandatory training for COs and additional training for CORs on what information
is required to be provided when adding property to a contract is anticipated to
significantly improve the agency's property management process. As part of the
training, best practices and/or standard operating procedures for documenting
property on contracts will be included to standardize reporting property and make
CHP information more accessible to the Contract Property Coordinator.
Completion date: October 2013.
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Appendix B
Distribution
Office of the Administrator
Assistant Administrator for Administration and Resources Management
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Office of Acquisition Management, Office of Administration and
Resources Management
Director, Facilities Management and Services Division, Office of Administration and
Resources Management
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
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