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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
EPA Needs to Strengthen
Oversight of
Government Furnished Property
Report No. 2006-P-00035
September 19, 2006

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Report Contributors:
Nancy Dao
Iantha Maness
John Trefry
Abbreviations
DCMA
Defense Contract Management Agency
EPA
U.S. Environmental Protection Agency
FAR
Federal Acquisition Regulation
GFP
Government Furnished Property
OAM
Office of Acquisition Management
OIG
Office of Inspector General

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s	U.S. Environmental Protection Agency	2006-P-00035
£ %M \ Office of Inspector General	September 19,2006
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%; At a Glance
Why We Did This Review
We conducted this audit to
assess the effectiveness of the
U.S. Environmental Protection
Agency's (EPA's)
management of Government
furnished property (GFP).
We specifically sought to
determine whether EPA
properly manages GFP.
Background
As of September 30, 2005,
EPA's contractor-supplied
records indicated about
$110 million in EPA-provided
GFP for 153 contracts. Of this
amount, about $70 million
was for items costing $25,000
or more. EPA can either
perform GFP property
administration functions itself
or have the functions
performed by the Defense
Contract Management Agency
(DCMA) through an
interagency agreement.
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/2006/
20060919-2006-P-00035.pdf
Catalyst for Improving the Environment
EPA Needs to Strengthen Oversight of
Government Furnished Property
What We Found
EPA's Office of Acquisition Management (OAM) needs to improve its
management and administrative controls over GFP. OAM did not have accurate
and reliable records to indicate:
•	Which contractors had received EPA-provided GFP,
•	The dollar value of the GFP provided, or
•	Whether contractors had performed the required annual inventories.
OAM also needs to improve the administration of its interagency agreement with
DCMA. OAM did not have accurate records of contracts with GFP to compare
against the DCMA listing of contracts that DCMA was overseeing. As a result,
some contracts with GFP were not being administered by either OAM or DCMA,
and OAM had paid DCMA to administer GFP for some contracts that did not have
any GFP. These conditions generally occurred due to outdated policies and
procedures that did not assign specific responsibility for GFP property
administration. Improved management controls will enable EPA to better manage
its $110 million of GFP provided to contractors and reduce GFP vulnerability to
loss.
What We Recommend
OAM agreed to strengthen its policies and procedures, as well as its administration
of the interagency agreement with DCMA, and initiated corrective actions while
our audit was in progress. We recommend that the Assistant Administrator for
Administration and Resources Management ensure OAM completes current
efforts to update policies and procedures regarding management of GFP, including
the need to maintain accurate records and properly administer interagency
agreements with DCMA. The Assistant Administrator's response indicated
general agreement with our report and concurrence with our recommendation.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
September 19, 2006
MEMORANDUM
SUBJECT: EPA Needs to Strengthen Oversight of Government Furnished Property
Report No. 2006-P-00035
TO:
Luis A. Luna
Assistant Administrator
Office of Administration and Resources Management
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.
Final determinations on matters in this report will be made by EPA managers in accordance with
established audit resolution procedures
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 $116,760.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to this
report within 90 calendar days. You should include a corrective actions plan for agreed upon
actions, including milestone dates. 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 staff have any questions regarding this report, please contact me at 202-566-0847
or roderick.bill@epa.gov. or Carl Jannetti, the Product Line Director for Contract Audits, at
215-814-5800 or iannetti.carl@epa.gov.
Sincerely,
BTirA. Roderick
Acting Inspector General

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EPA Needs to Strengthen Oversight of Government Furnished Property
Table of Contents
Purpose 		1
Background 		1
Scope and Methodology 		1
Results of Review 		1
OAM Records Inaccurate and Unreliable		2
Interagency Agreement with DCMA Needs Improved Administration		3
Corrective Actions Taken 		4
Recommendation 		4
Agency Response and OIG Comment 		4
Status of Recommendations and Potential Monetary Benefits 		6
Appendices
A Details on Scope and Methodology		7
B Full Text of Agency Response		8
C Distribution		10

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Purpose
The U.S. Environmental Protection Agency (EPA) often uses contractors to accomplish its
environmental goals. In most cases, contractors supply the equipment needed to complete their
contracts. However, there are instances in which EPA provides the equipment - known as
Government furnished property (GFP) - to the contractors. Our objective was to determine
whether EPA properly manages GFP.
Background
As of September 30, 2005, contractor-supplied records indicated that about $110 million in EPA-
provided GFP was in the possession of 153 contractors. Of this amount, about $70 million was
for property items costing $25,000 or more, including such items as trace analyzers, remote
sensors, and geo-probe systems. Much of the property costing under $25,000 is expendable and
includes small appliances, clamps, shop vacuums, and respirators. EPA's Office of Acquisition
Management (OAM), within the Office of Administration and Resources Management, is
responsible for managing GFP.
Federal Acquisition Regulation (FAR), Part 45, Government Property, prescribes the policies
and procedures for providing and managing GFP. Contractors are responsible for the GFP in
their possession, and for maintaining adequate systems to inventory, control, protect, and
maintain it. EPA's Contracts Management Manual, Chapter 45, Government Property, requires
contracting officers to perform property administration functions for contracts for which EPA
provides GFP. Contracting officers have discretion to perform these functions themselves or
have them performed by the Defense Contract Management Agency (DCMA). In August 1993,
EPA entered into an interagency agreement with DCMA to administer GFP in the possession of
EPA contractors.
Scope and Methodology
We performed this audit from November 2005 through March 2006, in accordance with
Government Auditing Standards issued by the Comptroller General of the United States.
Our audit included site visits to OAM headquarters, where we met with management and staff
responsible for the oversight and control of GFP. Further details on our scope and methodology,
including our scope limitations and review of internal controls structure, are in Appendix A.
Results of Review
OAM needs to improve its management and administrative controls of GFP. OAM did not have
accurate and reliable records to indicate:
•	Which contractors had received EPA-provided GFP,
•	The dollar value of the GFP provided, or
•	Whether contractors had performed the required annual inventories.
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OAM also needs to improve the administration of its interagency agreement with DCMA. OAM
did not have accurate records of contracts with GFP to compare against the DCMA listing of
contracts that DCMA was overseeing. As a result, some contracts with GFP were not being
administered by either OAM or DCMA, and OAM had paid DCMA to administer GFP for some
contracts that did not have any GFP provided. These conditions generally occurred due to
outdated policies and procedures that did not assign specific responsibility for GFP property
administration. Improved management controls will enable EPA to better manage its
$110 million of GFP provided to contractors and reduce GFP vulnerability to loss.
OAM Records Inaccurate and Unreliable
EPA did not maintain information indicating which of its contracts had GFP. EPA's Contracts
Management Manual requires contracting officers to maintain a Contract Property Management
Database that lists each GFP item and the amount of contractor-held property for each contract.
OAM's Contract Property Management Database should be updated whenever there is activity
that affects property management, such as the award of a contract that provides property, receipt
of an annual property report, or delegation of property administration to DCMA. Each
September, contractors are required to prepare an annual inventory report for each contract to
update the amount of GFP in their possession. This report is to be used by contracting officers in
updating the Contract Property Management Database, as well as for EPA's financial statements.
OAM is not required to request annual reports from all of its contractors. Rather, OAM
contracting officers are required to request annual property reports only for contracts that contain
a property clause (FAR 52.245-5 or EPA Acquisition Regulation 1552.245-73d). Since EPA
does not maintain the Contract Property Management Database required by the manual to verify
the amounts of GFP with contractors, OAM uses the inventory reports it receives from
contractors to identify the contractors with GFP and the dollar value of the GFP they possess.
As of September 30, 2005, EPA reported it had over 870 active contracts, and estimated about
650 were cost-type contracts with property clauses requiring the contractor to submit inventory
reports. The OAM property officer indicated that he asked EPA's contracting officers to obtain
inventory reports for all 650 contracts, but only received reports for about 400 contracts. OAM
did not determine whether the remaining 250 contracts had GFP. Therefore, OAM's inventory
reports indicating that $110 million in GFP had been provided under 153 contracts only took into
account potential GFP under 400 active contracts, not all 650 contracts with the property clauses.
As a result, OAM does not have reliable information showing contracts with GFP, the amount
and type of GFP provided to each contractor, the condition of the GFP, and whether OAM or
DCMA was performing property administration.
In January 2006, to better determine the number of contracts with GFP, we requested that OAM
ask its contracting officers to identify all active contracts under their purview with GFP. At that
time, there were only about 770 active contracts, and OAM's contracting officers indicated 138
had GFP. Nine of those were contracts that had been awarded prior to September 30, 2005, but
had not been included in the 153 contracts previously reported to have GFP. Neither the survey
of contracting officers nor OAM's inventory reports provide information regarding the amount
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of GFP expended, added to contracts, provided with new contract awards, or applicable to
contracts closed that year. As a result, OAM cannot determine or report which contracts have
GFP as well as the amount and condition of the GFP. This data is essential for accurate
reporting of contractor-held property in EPA's financial statements.
Interagency Agreement with DCMA Needs Improved Administration
OAM did not have accurate records to compare against the DCMA listing of contracts that
DCMA was overseeing. Contractors are responsible and accountable for GFP in their
possession. This includes keeping the Government's official records of GFP. These
responsibilities dictate that contractors maintain internal control systems to record receipt of
equipment and its use, perform annual inventories, reconcile physical inventories to an entity's
inventory records, and investigate lost or damaged items.
According to EPA's Contracts Management Manual, property administration functions to be
performed by EPA are to include:
•	Reviewing property control systems and procedures, such as property management,
acquisition, receiving, identification, records, movement, storage, physical
inventories, consumption, utilization, maintenance, subcontractor control, disposition,
and contract closeout.
•	Reviewing, approving, or withholding approval of a contractor's GFP management
procedures.
•	Investigating reports of lost, damaged, or destroyed GFP.
•	Reviewing inventory schedules and monitoring disposal of excess GFP.
OAM contracting officers are to either review and approve each contractor's property
management systems or delegate that responsibility to DCMA under interagency agreements that
have been issued since 1993. OAM contracting officers are required to perform risk assessments
as the basis for delegating the responsibility to DCMA, and contracts with significant dollar
values of GFP or that are higher risk should be delegated to DCMA.
While OAM's records indicated 153 contracts provided GFP, DCMA's separate records
indicated it was administering GFP on 120 EPA contracts. Our comparison of the records
disclosed that only 61 of EPA's 153 GFP contracts were being administered by DCMA
according to DCMA records. For the remaining 92 contracts not on the DCMA list (153 minus
61), several contracting officers indicated they believed a DCMA or OAM property officer was
administering the GFP. However, we found that none of those 92 had been delegated to DCMA
responsibility, and subsequent discussions with OAM's property officer indicated he also was
not administering the GFP for these contracts. Further, OAM's property officer could not
provide a list of contracts for which he performed property administration.
Further analysis of the 120 contracts for which DCMA performed property administration under
EPA's interagency agreement disclosed that 40 of the contractors had not submitted annual
property reports to EPA. As a result, OAM did not know whether these contractors had GFP.
Also, 19 of the contracts on DCMA's list had no GFP, according to EPA's records. A
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subsequent review of DCMA billings to EPA for Fiscal Year 2005 disclosed that EPA paid
approximately $10,000 to DCMA to administer GFP on contracts with no GFP. Discussions
with contracting officers for five contracts indicated that the risk assessments required by EPA
policy had not been performed before delegating these contracts to DCMA.
Corrective Actions Taken
OAM needs to revise its policies and procedures to address the issues we encountered.
OAM has agreed to strengthen its policies and procedures, as well as its administration of the
interagency agreement with DCMA, and initiated corrective actions while our review was in
progress. Revisions to the Contracts Management Manual are in process, and OAM estimates
the revisions will be completed by December 2006. OAM agrees its current system of
summarizing inventory reports received on an annual basis is ineffective, and plans to require
creation of a database that will provide a quarterly listing of all contracts with GFP. OAM has
identified all of the contracts being administered by DCMA that do not have GFP and initiated
action to remove them from DCMA's purview. This action should prevent EPA from making
future payments to DCMA for administering contracts without GFP. OAM created a risk
assessment checklist to document the decision-making process of whether the property
administration should be performed by it own staff or delegated to DCMA. In lieu of these
corrective actions already being initiated by OAM, we are not making any recommendations
other than to complete corrective efforts already in process. We also suggest that OAM discuss
the status of these initiatives in its Fiscal Year 2007 Financial Management Integrity report.
Recommendation
1. We recommend that the Assistant Administrator for Administration and Resources
Management ensure OAM completes current efforts to:
•	update policies and procedures regarding GFP management; and
•	maintain accurate records and properly administer interagency agreements with
DCMA.
Agency Response and OIG Comment
OAM stated it will develop additional procedures to ensure that contractors submit the required
annual summary property reports on a timely basis, and will follow up with any contractors that
do not respond. OAM said it expects to complete its Fiscal Year 2006 followup efforts by
December 31, 2006. OAM said it will also take action to maintain and periodically update a
listing of active contracts that have GFP, noting it has been doing this on a manual basis so far.
OAM indicated automating this listing should be completed by approximately March 31, 2007.
OAM agreed that its property records are not accurate and need to be improved. Over the past
year, OAM said it has been working hard to improve in this area. OAM now has a Contract
Property Coordinator who performs a risk assessment on each contract that may potentially have
GFP, to determine whether the property administration function should be delegated to DCMA.
The Contract Property Coordinator is working with DCMA to close/rescind delegations on
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contracts that do not have property, and ensure that DCMA is delegated administration over
contracts that have significant GFP. OAM said 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 OAM in managing the
interagency agreement properly. OAM said the Contract Property Coordinator 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.
OAM said it expects to complete the reconciliation of its 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 OAM said it will continue to perform as
needed.
The Agency's response indicates a commitment to improve its administration of GFP. The
corrective actions taken and planned should improve the administration of GFP that EPA
provides to its contractors.
The full text of the Agency's response is in Appendix B.
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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
4 Ensure OAM completes current efforts to:
•	update policies and procedures regarding
GFP management; and
•	maintain accurate records and properly
administer interagency agreements with
DC MA
Assistant Administrator for
Administration and
Resources Management
03/31/07
Claimed
Amount
Agreed To
Amount
$20*
$20*
1 O = 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
* This amount represents $10,000 a year for 2 years for the recurring potential monetary benefits
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Appendix A
Details on Scope and Methodology
To determine whether EPA provided and managed GFP in accordance with applicable
regulations and requirements, we reviewed the FAR, EPA Acquisition Regulations, EPA's
Contracts Management Manual, and applicable EPA FAR deviations. We interviewed personnel
in OAM headquarters, contracting officers, and the Contract Property Coordinator to ascertain
the processes used to oversee and manage GFP. We compared EPA's documented processes to
its actual practices for GFP and discussed significant differences with OAM personnel.
We reviewed the 2005 annual GFP inventory reports received from contractors, Contract
Property Database spreadsheets, and Financial Data Warehouse information. We reviewed the
December 2005 survey of contracting officers performed by OAM, which OAM performed to
determine whether its property records were complete. We analyzed the lists of contracts EPA
delegated to DCMA for property administration, and the contracts for which EPA performed the
administration of GFP. We also reviewed DCMA billings submitted to EPA in Fiscal Year
2005, and interviewed a sample of contracting officers about their property management
practices.
We are not aware of any prior reports specifically related to this report's review objective.
Limitations
Our scope was limited to evaluating whether OAM properly manages GFP in the possession of
contractors. We did not determine whether the Agency acquires or disposes of GFP in
accordance with FAR, because EPA did not properly maintain its Contracts Property
Management Database. The information, which OAM is required to enter into the database, was
critical to achieving the audit objective of whether EPA properly approved contractor requests
for acquiring or disposing of GFP. Thus, we were not able to review that issue.
Internal Control Structure
In planning and performing this audit, we reviewed management controls related to our
objective. This included EPA's and DCMA's procedures for administering the GFP for
contracts under the control of both agencies. As part of this review, we examined EPA's Fiscal
Year 2005 Federal Managers' Financial Integrity Act Annual Assurance Letters issued to the
EPA Administrator for the Office of Administration and Resources Management. We did not
identify any internal Agency reviews addressing GFP.
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Appendix B
Full Text of Agency Response
MEMORANDUM
SUBJECT: Response to Draft Audit Report: EPA Needs to Strengthen Oversight of
Government-Furnished Property (GFP)
FROM: Luis A. Luna
Assistant Administrator
TO:	Carl A. Jannetti
Director, Contract Audits
Thank you for the opportunity to submit comments on the draft report entitled "EPA
Needs to Strengthen Oversight of Government-Furnished Property." We are in general
agreement with the draft report. We concur with your recommendations, and offer the following
comments:
Recommendation: We recommend that the Assistant Administrator for Administration
and Resources Management ensure OAM complete current efforts to review and update
policies and procedures regarding management.
Response: We concur. OAM will develop additional procedures to ensure that contractors submit
the required annual summary property reports on a timely basis, and will follow up with any
contractors that do not respond. We expect to complete our FY 2006 follow-up efforts by
December 31, 2006. 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 approximately March 31, 2007.
Recommendation: We recommend that the Assistant Administrator for Administration
and Resources Management ensure OAM complete current efforts to maintain accurate
records and properly administer interagency agreements with the Defense Contract
Management Agency (DCMA).
Response: We agree that our property records are not accurate, and need to be improved. Over
the past year, OAM has been working hard to improve in this area. 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
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delegated 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 data base 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 data base 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.
OAM will continue its current efforts to improve the oversight of Government-furnished
property (GFP). We look forward to receiving the final report, and we will respond with a plan
of action that addresses your recommendations in more detail at that point.
Should you have any questions, please te-contact Kerrie O'Hagan, Division Director of
the Policy, Training, and Oversight Division in the Office of Acquisition Management, at (202)
564-4479.
cc: John Gherardini
Kerrie O'Hagan
John Oliver
Michael Richardson
John Trefry
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Appendix C
Distribution
Office of the Administrator
Assistant Administrator for Administration and Resources Management
Agency Followup Official
Agency Followup Coordinator
Audit Followup Coordinator, Office of Administration and Resources Management
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Acting Inspector General
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