oversight

Controls Over Contract Monitoring for Institute of Education Sciences Contracts.

Published by the Department of Education, Office of Inspector General on 2006-12-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             UNITED STATES DEPARTMENT OF EDUCATION
                                    OFFICE OF INSPECTOR GENERAL

                                                                         OPERATIONS INTERNAL AUDIT TEAM


                                                    December 14, 2006
                                                                                                  Control Number
                                                                                                  ED-OIG/A19G0004

Lawrence Warder, Chief Financial Officer
Office of the Chief Financial Officer
U.S. Department of Education
400 Maryland Avenue, SW
Washington, DC 20202

Grover J. Whitehurst, Director
Institute of Education Sciences
U.S. Department of Education
400 Maryland Avenue, SW
Washington, DC 20202


Dear Messrs. Warder and Whitehurst:

This Final Audit Report, entitled Controls Over Contract Monitoring for Institute of Education
Sciences Contracts, presents the results of our audit. The purpose was to determine whether the
Department’s contract monitoring process ensures (1) contractors adhere to the requirements of
the contract, and (2) the Department receives the products and services intended. Our review
included evaluation of the 10 Institute of Education Sciences (IES) contracts for which the
highest amount of payments were made during Fiscal Year (FY) 2005.




                                                   BACKGROUND 



The Department of Education (Department) contract management staff includes the Contracting
Officer (CO), Contract Specialist (CS), and the Contracting Officer’s Representative (COR). CO
and CS staff are located in Contracts and Acquisition Management (CAM) under the
Department’s Office of the Chief Financial Officer (OCFO). The COR is a member of the
Principal Office (PO) staff, in this case, IES.

The CO has overall responsibility for contract management. However, the contract monitoring
process is a team effort between the CO, CS, and COR. Contract monitoring is based on the



          Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Final Audit Report
ED-OIG/A19G0004                                                                      Page 2 of 22

terms and conditions in each contract, the requirements set forth in the Federal Acquisition
Regulation (FAR), and Department policies and procedures.

For FY 2005, payments under Department contracts totaled $1,474,385,045. Payments to IES
contracts totaled $351,921,139 (24 percent). During the year, IES was responsible for 142 of the
total 519 active contracts (27 percent). IES was the PO with the second highest amount of
contract payments for FY 2005, and was responsible for the most active contracts during the
year.

On September 20, 2002, the Office of Inspector General (OIG) issued an audit entitled, Audit of
the Department’s Process for Identifying and Monitoring High-Risk Contracts that Support
Office of Educational Research and Improvement (OERI) Programs.1 In the prior audit, we
found Department staff did not always ensure compliance with contract terms and conditions, or
follow established regulations, policies, and procedures in monitoring OERI contracts. We made
recommendations to IES and OCFO to improve contract monitoring for IES contracts related to
the following major areas: (1) staff familiarity with regulations, policies, procedures, and
contract terms; (2) deliverable tracking, receipt and acceptance; (3) written evaluations of
contractor reports; (4) invoice review process; and (5) requirements for issuing COR delegation
letters.

This report evaluates the current contract monitoring process for IES contracts and assesses the
effectiveness of corrective actions implemented as a result of the prior audit.




                                            AUDIT RESULTS 



We found the Department’s contract monitoring process for IES contracts did not always ensure
contractors adhered to the contract requirements and the Department received the products and
services intended. Department staff did not adequately document receipt and acceptance of
deliverables, prepare written evaluations of contractor-submitted reports, appropriately review
invoices prior to approving payment, and issue or sign COR appointment letters timely. This
occurred because Department staff were not always familiar with regulations, policies and
procedures, or with the terms of the contract they were assigned responsibility to monitor.

All of the issues noted were also reported in the prior audit of IES contract monitoring. The
corrective actions taken by the Department for these items in the prior audit were not always
effective, and further corrective actions are needed to improve monitoring in these areas.

In a combined response to the draft report, OCFO and IES concurred with the finding and
recommendations, and presented proposed corrective actions for implementing the
recommendations. The combined response is summarized after the finding, and is included in
full as Attachment 3 to this report.



1
    The IES was formerly part of the OERI. In 2002, IES became a separate PO.
Final Audit Report
ED-OIG/A19G0004                                                                                        Page 3 of 22


FINDING – Improvements Were Needed in Contract Monitoring for IES Contracts

We noted at least one area where improvements were needed in contract monitoring for each of
the 10 contracts reviewed. Specifically, we noted CAM staff and IES CORs did not always:

    1. 	 Adequately document receipt and acceptance of deliverables (10 contracts),
    2. 	 Prepare written evaluations of contractor-submitted reports (10 contracts),
    3. 	 Detect inappropriate charges on invoices prior to approving payments (3 contracts), and
    4. 	 Issue and/or sign COR appointment letters timely (3 contracts).

Federal Acquisition Regulation (FAR) Section 1.602-2, states,

         Contracting officers are responsible for ensuring performance of all necessary
         actions for effective contracting, ensuring compliance with the terms of the
         contract, and safeguarding the interests of the United States in its contractual
         relationships.

Department Directive (Directive) OCFO:2-108, Contract Monitoring for Program Officials,
dated September 16, 2004, Section II, states,

         The policy of the Department is: (a) to monitor every contract to the extent
         appropriate to provide assurance that the contractor performs the work called for
         in the contract; and (b) to develop a clear record of accountability for
         performance.

Details on the issues noted in each area follow. Attachment 2 includes details of issues noted for
each contract.


Issue 1 – Department Staff Did Not Adequately Document Receipt and Acceptance of
Deliverables

In all 10 contracts, we noted CAM staff and/or CORs did not adequately document receipt of
deliverables. Specifically, we noted improvements were needed to ensure all deliverables were
received, were received timely, met contract requirements, and acceptance of deliverables was
formally documented. (ED01CO0010, ED01CO0011, ED01CO0012, ED01CO0039/0007,
ED01CO0093/0004, ED01CO0120, ED02CO0023, ED02CO0034, ED02CO0035,
RN95127001)2

Directive Section VII.D.2, “Elements of a contractor’s performance of importance to the
Government,” states,

         a. 	 Contractor Performance Outcomes and Specifications – Deliverables provided
              by the contactor must meet the specifications called for in the contract.

2
  Contract numbers are provided parenthetically for each issue area. See Attachment 1 for a list of the contracts
reviewed, and Attachment 2 for details of the issues noted by contract.
Final Audit Report
ED-OIG/A19G0004                                                                          Page 4 of 22

       b. Timeliness – Deliverables must be provided on or before the exact due dates
          cited in the contract.
       c. Quality – Deliverables must conform to the quality called for in the contract.
       d. Cost Control – The contractor in cost-reimbursement contracts is to stay
          within the limit of funds specified in the contract and must expend funds in an
          efficient and well-managed manner....

Directive Section VI.E.4 states the COR

       Maintains regular written communication with the CO concerning all aspects of
       contractor performance, including, but not limited to, providing monitoring
       information, advice, and requests for formal administrative action to the CO in a
       timely manner. Such communication may be informal, such as by electronic
       mail, but must be in writing so that a written record is available.

Directive Section VII.N.2 states,

       Only a CO can formally accept or reject deliverables. However, with respect to
       deliverables which the contractor must send directly to the COR, the COR will
       recommend acceptance or rejection to be furnished in writing to the CO.

Directive Section VII.O.1.a-d states,

       Deficient contractor performance is any inexcusable failure by the contractor to
       perform as called for in the contract. Examples include:

               a. 	Failure to make such satisfactory progress as to endanger contract
                    performance;
               b. 	Failure to submit required reports on time;
               c. 	 Failure to submit deliverables on time; and,
               d. 	 Failure to submit reports or deliverables as specified (quantity, quality,
                    etc.)

In 6 of the 10 contracts reviewed, Department staff stated that acceptance of deliverables was
indicated in the Contracts and Purchasing Support System (CPSS) when invoices are paid. Prior
to payment of invoices, a receipt for the invoice is created in CPSS. Department staff stated that
recommendation of acceptance of deliverables is noted on the receipts in CPSS. However, we
found this process did not adequately document the COR’s recommendation for acceptance or
rejection of specific deliverables. The CPSS information did not always indicate whether
deliverables were received timely, and whether the deliverables were determined by Department
staff to meet all requirements. Specifically, we found that complete information on deliverables’
dates of receipt/timeliness was not annotated in CPSS, and the acceptability of deliverables was
not indicated for four contracts. The other two contracts included blanket statements that all
deliverables were on time and acceptable, but they did not list the deliverables. These
determinations should be fully documented to protect the Department’s interests. Seven calendar
days after receipt, deliverables are considered to be constructively accepted by the Department if
no indication is made that the deliverables do not meet requirements. Since deliverable due dates
are not necessarily aligned with invoice billing dates, acceptance may have occurred due to the
Final Audit Report
ED-OIG/A19G0004                                                                         Page 5 of 22

passage of time if the invoice receipt process is used to document deliverable receipt and
acceptance. A separate process is needed to document the Department’s evaluation of
deliverables for timeliness and to ensure the deliverables meet requirements. (ED01CO0010,
ED01CO0011, ED01CO0012, ED02CO0023, ED02CO0035, RN95127001)

In another contract, the COR stated she never communicated with the CO/CS regarding
acceptance of deliverables, although she was required to since the deliverables were received by
the COR, not the CO. (ED02CO0034) In three other contracts, the CORs stated they sent
comments back and forth with the contractor until there were no more issues with the reports
received. (ED01CO0039/0007, ED01CO0093/0004, ED01CO0120) However, this represents
an inappropriate practice; as stated in the Directive cited above, only a CO has the authority to
accept or reject deliverables. By sending deliverables back to the contractor for correction, the
CORs were, in effect, rejecting the deliverables. We found these CORs were not aware of this
restriction.

In one of the contracts above, we also found the contractor did not meet all requirements of a
deliverable (RN95127001). Specifically, the contractor did not provide statistical detail as
required by the contract as part of the monthly report submissions. Section B.1.2 of the
Statement of Work in the contract terms states,

       At a minimum, the contractor shall include the following items in the Monthly
       Activity Report:

               1. Period covered;
               2. 	 Statistics on the number of [Education Statistical Services Institute]
                    ESSI personnel by labor category and assignment including
                    management and clerical support . . ..

The CS stated the absence of the statistical data was not a problem because the monthly reports
come in at the same time as the invoices, and the invoices show charges for personnel. However,
the COR stated the monthly reports do not come in at the same time as the invoices. No change
had been made to the contract to eliminate the requirement for the statistics on the monthly
report. Department staff should have noted the report did not comply with requirements, and the
CO should have rejected the deliverable until all requirements of the report were met.

Without close review of deliverables to ensure all requirements were met, and adequate
documentation on deliverable receipt and acceptance, the Department cannot ensure it has
received the products and services intended. By accepting deliverables that do not meet
requirements, the Department may be setting a precedent that may affect its ability to enforce
other requirements. By not fully documenting the receipt and acceptance or rejection of
deliverables, the Department may have difficulty pursuing action against a contractor for
nonperformance. Acceptance or rejection of deliverables by unauthorized personnel may also
compromise efforts to enforce contract requirements.
Final Audit Report
ED-OIG/A19G0004                                                                      Page 6 of 22

Issue 2 – CORs Did Not Prepare Written Evaluations of Contractor-Submitted Reports

In all 10 contracts reviewed, we noted that CORs did not prepare written evaluations of
contractor-submitted reports and provide the evaluations to the CO. (ED01CO0010,
ED01CO0011, ED01CO0012, ED01CO0039/0007, ED01CO0093/0004, ED01CO0120,
ED02CO0023, ED02CO0034, ED02CO0035, RN95127001)

Directive Section VII.G.2.a.ii states,

       The COR must make a written evaluation of each report. Depending on the type
       of contract and relative importance of the report, the evaluation might be either
       rigorous or reasonably informal. For example, the evaluation of a progress report
       should compare required versus actual performance, whereas the evaluation of an
       occasional report detailing technical rather than performance issues might simply
       note that it was read and found to disclose no problems.

In addition, Directive Section VII.G.3 states, “All evaluations of reports made by the COR must
be sent to the CO . . ..”

We found the CORs were not familiar with these requirements. Five CORs stated that any issues
noted with respect to the reports submitted by the contractor were discussed with the contractors,
but that written evaluations were not provided to the COs.. (ED01CO0010, ED01CO0011,
ED01CO0120, ED02CO0023, ED02CO0035) One COR stated written evaluation of progress
reports were documented in CPSS, which the CO could access. We found that although CPSS
information for this contract included some brief comments on what deliverables had been
received, the comments do not meet the requirements for a written evaluation of reports received.
(ED02CO0034)

The information contained in the contractor-submitted reports is generally technical in nature and
outside the scope of the CO’s expertise. Without feedback from the COR on the technical
aspects of the progress reports, the CO may not be aware of information that may indicate
problems with contract progress and the need for future actions. The Department’s interests
could be harmed in the event of a dispute if the CO is not kept fully informed of contract
performance issues.


Issue 3 -- Department Staff Did Not Detect Inappropriate Charges on Invoices Prior to
Approving Payments

In 3 of the 10 contracts reviewed, we noted CAM staff and CORs did not note problems with
invoices. Specifically, we found the Department paid invoices that included:

   • 	 Expenses not pre-approved when required (ED01CO0012, RN95127001),
   • 	 Application of incorrect direct labor or indirect cost rates (ED02CO0023, RN95127001),
       and
   • 	 Insufficient information and/or supporting documentation (ED01CO0012, 

       ED02CO0023). 

Final Audit Report
ED-OIG/A19G0004                                                                        Page 7 of 22

Directive Section VII.A.6 states,

       The process of approving a contractor’s invoices for payment must be carried out
       carefully and quickly to protect the Government’s interests and ensure that the
       contractor is dealt with fairly.

Directive Section VII.G.2.d states,

       There are many varieties of payment provisions that might be incorporated into
       contracts depending on the nature of the work and other factors. It is the
       responsibility of the COR to become familiar with the payment provisions
       applicable to each contract he or she must monitor.... The COR must review
       invoices individually and collectively as part of the responsibility to monitor the
       contractor’s progress in performing under the contract.

Directive Section VII.N.4 states,

       The CO is responsible for approving a contractor’s invoices for payment, but
       usually after review and advice from the COR in conjunction with the CO’s own
       analysis concerning the contents of the invoice/voucher and the contractor’s
       performance relative to what is being billed.

OCFO Procedure CO-45, Processing Invoices/ Vouchers for Payment, dated September 15,
2000, Sections 1.d.2-3 and 5, states,
       2. Costs incurred – If the contract is cost-reimbursement, check the costs and
       labor hours on the invoice/voucher to ascertain whether they reasonably appear to
       reflect costs and hours incurred in performing the work. Review the costs for
       reasonableness, allocability and allowability in accordance with [Federal
       Acquisition Regulation] FAR Part 31 and verify that the labor rates used are those
       specified in the contract for the period covered by the invoice/voucher. If a
       disagreement or question exists over indirect cost rates, hours, costs incurred, or
       contractor compliance with contract requirements, notify the contractor that
       payment is being withheld pending resolution of the disagreement.
       3. Time-and-materials or labor-hours – If the invoice/voucher is labor-hour or time-and-
       materials, check the materials costs and labor hours on the invoice/voucher to ascertain
       whether they reasonably appear to reflect those incurred in performing the work. Review
       the materials costs for reasonableness, allocability and allowability in accordance with
       FAR Part 31 and verify that the labor rates used are those specified in the contract for the
       period covered by the invoice/voucher. Ensure that materials charges do not contain
       labor costs (e.g., under a subcontract) for any of the labor categories specified in the
       contract. Verify that the contractor did not increase labor rates for overtime, unless the
       contract included overtime rates and the overtime was authorized by the contracting
       officer. Check that the contractor substantiated the invoice/voucher (as required by FAR
       clause 52.2327) by evidence of actual payment, individual daily job timecards, or other
       substantiation approved by the contracting officer. If a disagreement or question exists,
       promptly notify the contractor.
       5. Arithmetical errors – If errors exist, promptly notify the contractor.
Final Audit Report
ED-OIG/A19G0004                                                                        Page 8 of 22


Costs Not Preapproved When Required

In 2 of the 10 contracts reviewed, invoices and supporting documentation detailed costs that
were not pre-approved when required. These costs included purchases of government property
and charges for consultants.
In one contract, government property totaling $5,249 was included on invoices paid in FY 2005,
but contract file documentation did not include preapproval of these purchases as required.
(RN95127001) Section G.3 of the contract, “Additional Requirements for Control of
Government Property,” states,
       The contractor shall request written authorization from the contracting officer
       before acquiring any contractually necessary property to which the Government
       will have title. In addition the request shall include complete descriptions of all
       individual items which exceed $1,000 in cost . . ..

Each of the items purchased exceeded $1,000 in cost and should have been preapproved by the
CO according to the terms above. CAM staff stated they were not aware the contractor had
purchased any property. However, the supporting documentation submitted with the invoices
clearly indicated the purchase of these items. The COR was aware these purchases were being
made, but the COR did not enforce the preapproval requirement. The COR was not familiar with
the government property clause in the contract which required preapproval.

Another contract included charges for consultants that were not preapproved as required.
(ED01CO0012) Specifically, 12 of 21 invoices for the year included a total of $184,376 in
charges for 64 different consultants that were not preapproved as required. Clause H.7 of the
contract, “Consultant Services and Consent,” states,

       The Contractor shall obtain the consent of the Contracting Officer prior to using
       any consultant on this contract. The Contractor shall determine whether any
       consultant that is used has in effect an agreement with another Federal agency for
       similar or like services and, if so, shall notify the Contracting Officer.

The contract file did not include any documentation to support approval of these consultants. As
a result of our inquiries, CAM staff obtained a spreadsheet from the contractor that included 34
consultant names and amounts charged to the contract. However, this spreadsheet did not
document the consent of the CO. The CS was subsequently able to locate supporting
documentation for 9 of 73 consultants listed on the invoices but not for the remaining 64
consultants.

Application of Incorrect Direct Labor or Indirect Cost Rates

We found Department staff did not note 2 of the 10 contractors did not apply correct labor and/or
indirect rates on invoices during the year. In one contract, the contractor did not apply the
correct labor rates on 6 of the 12 invoices for the year. (RN95127001) In four invoices, the
contractor applied a rate of $235.00 per hour for one category, rather than the specified rate of
$273.21 per hour, for 183 hours. The contractor was underpaid $6,992 in direct labor for this
Final Audit Report
ED-OIG/A19G0004                                                                       Page 9 of 22

error. On two additional invoices, the contractor charged 312 hours at $51.81 per hour, or a total
of $16,165, for a labor category that was not listed at all in the contract.

In another contract, we found the overhead rate on 3 of the 14 invoices did not match the
provisional overhead rate of 19.86% that was specified in the contract. (ED02CO0023) During
the first three months of FY 2005, the contractor applied a rate of 16.26% to direct labor on three
invoices. Thereafter, nine invoices during the year included the provisional overhead rate of
19.86%. We could not verify the overhead rate for two invoices that did not include supporting
documentation. The contract did not include documentation to support the lower overhead rate
of 16.26% on the three invoices. Therefore, we could not verify costs applied to determine any
under/overpayment to the contractor.

The CS stated when the contract was first awarded it did not have a provisional rate agreement
and the Department partnered with the Defense Contract Audit Agency in order to establish an
agreement. The CS did not know whether the provisional rate of 19.86% was ever officially
approved. The CS stated there should be documentation in the official files verifying the specific
approved overhead rate that should have been used. However, the only documentation in the
files was for the provisional rate agreement specifying a rate of 19.86%.

Insufficient Information and/or Supporting Documentation

Information on and/or submitted with invoices for 2 of 10 contracts reviewed was not sufficient
to allow CAM staff or the COR to adequately review the appropriateness of charges. Contract
terms for both contracts included the following in an attachment referenced in Section G.1,
“Invoice and Contract Financing Request Submission,” Section C (emphasis in original):

       The Government has the responsibility to pay the invoice, after determining
       which of the costs are reasonable, allocable, and allowable. To make this
       determination we must receive a detailed invoice with the costs broken out.

For one contract, line items included on 9 of the 14 invoices paid during FY 2005 were not
sufficiently detailed to allow CAM staff and the COR to verify whether the overhead applied
was correct. (ED02CO0023) The contractor presented all other direct costs (ODC) as one lump
sum, but overhead was not applicable to all ODC. As a result, Department staff could not verify
whether the correct overhead rate was used, and whether overhead was only applied to
applicable costs. Based upon on our inquiries, CAM staff stated future invoices would include
detail on overhead-bearing ODC, and non overhead-bearing ODC. CAM staff and the COR
were not familiar with this issue, and therefore had not attempted to verify these costs on prior
invoices.

The indirect cost agreement for another contract included a provisional rate of 12.8% dated
November 2004, effective through November 2005. (ED01CO0012) According to the
agreement, the rate was to be applied to,

       Total direct costs less items of equipment, alterations and renovations, stipends
       and the portion of each competitive bid sub-award in excess of $25,000 regardless
       of the period covered by that subaward.
Final Audit Report
ED-OIG/A19G0004                                                                      Page 10 of 22

The invoices submitted by the contractor did not detail the calculation of the indirect rate, nor
disclose what rate was being applied. The invoices and supporting documentation also did not
provide sufficient detail to determine whether any costs were excluded from the rate calculation
(e.g. equipment, stipends, etc.).

We requested assistance from the CS to determine how the rates were applied, and found she
was not familiar with how the rate was to be charged or how the calculations on the actual
invoices were made, indicating that she had not verified the amounts charged on the invoices.
We also discussed this issue with the COR who stated that he did not verify the indirect rates on
the invoices. (See Attachment 2 for this contract for further information on the various rates
charged on the invoices reviewed.)

CAM staff and the CORs did not fulfill their responsibilities to ensure payments to contractors
were appropriate. The process followed for reviewing invoices did not detect the issues noted in
our review. As a result, inaccurate and unsupported payments were made to the contractors. In
some cases, the contractors underbilled and were underpaid because Department staff did not
note errors with the invoices. In other cases, the contractors overbilled and were overpaid for
items that had not been preapproved, for items that were not supported, or for inaccurate rate
applications. Without a vigorous invoice review process to ensure the contractors are complying
with contract terms and requirements, the Department lacks assurance that payments are proper,
its interests are protected, and contractors are dealt with fairly.


Issue 4 – Department Staff Did Not Issue and/or Sign COR Appointment Letters Timely

For three contracts, COR appointment letters were not issued by the CO or signed and/or
returned by the COR timely. Directive Section VI.C.2-3 states the CO,

       2. Ensures that a COR is designated for each contract. 3. Issues to the COR for
       each contract a memorandum outlining the COR’s basic contract monitoring
       responsibilities and limitations, and explains this information to the extent judged
       appropriate. COR appointment letters are issued not later than seven (7) days
       from the date of contract award.

Directive Section VI.E.1 states the COR

       Ensures receipt of appointment memorandum from CO by no later than seven (7)
       days from the date of award. Reads, signs and returns one copy of the original
       memorandum to the CO for inclusion in the official contract file within ten (10)
       days of receipt of the memorandum.

Specifically, we noted the following:

       •	      An appointment letter dated August 1, 2003, was not signed by the COR until
               November 17, 2003. (ED01CO0010)
Final Audit Report
ED-OIG/A19G0004                                                                              Page 11 of 22

          •	      Another contract was awarded on December 13, 2000, and the appointment letter
                  for the original COR was dated May 2001. An appointment letter was not in the
                  contract file for the current COR. (ED01CO0011)

          •	      One COR stated she was assigned to the contract in January of 2004. However,
                  the COR Appointment Letter was dated March 30, 2005, more than a year later.
                  (ED02CO0034)
The COR appointment memorandum reminds the COR of his/her responsibilities and limitations
in the monitoring process. The memorandum includes such things as training and certification
requirements, monitoring and communication responsibilities, and actions the COR does not
have the authority to perform. Without issuing and signing these documents timely, the CO does
not have assurance that the COR understands the extent and limitations of his/her responsibilities
and authority.

Summary

Improvements were needed in monitoring by CAM and/or IES staff for each of the 10 contracts
reviewed. Department staff were not always familiar with regulations, policies and procedures,
and/or were not always familiar with contract terms and conditions. The Department’s process
for documenting receipt and acceptance of deliverables needs improvement to fully document
contractor performance. CORs were not always aware of the requirement to provide written
evaluations of contractor-submitted reports and did not provide such evaluations in any of the
contracts reviewed. Department staff did not adequately review invoices to ensure amounts
charged were appropriate. Finally, COs did not ensure COR appointment letters were issued
and/or signed timely.

As a result, the Department lacks assurance contractors are adhering to contract requirements and
the Department is receiving the services for which it contracted. The Department is not able to
document whether all deliverables, including contractor reports, were received, were on time,
met contract requirements, and were formally accepted. Without COR evaluations of contractor-
provided reports, the CO is not kept informed of contract activity and may not be aware of
developing issues. Inadequate invoice review resulted in inappropriate or unsupported
payments. By not enforcing contracts requirements, the Department’s interests may not be
protected and contract terms may not be enforceable. Untimely issuance and/or signoff of COR
appointment memoranda could result in confusion over the responsibilities and limitations of the
COR’s duties.

In May 2005, OCFO implemented a policy to require that contract monitoring plans be
developed for contracts.3 In December of 2005, the contracting staff was notified that contract
monitoring plans for existing contracts must be established by January 31, 2006. At the time of
our fieldwork, these plans were still being developed. However, as of September 2006, contract
monitoring plans had been implemented for the six contracts reviewed that were still active.




3
    OCFO Procedure, CO-111: Writing and Implementing a Contract Monitoring Plan, May 31, 2005.
Final Audit Report
ED-OIG/A19G0004                                                                        Page 12 of 22

Recommendations:

We recommend that the Chief Financial Officer and Director, Institute for Education Services,
take actions to:

1.1 	   Develop and implement contract monitoring plans for all existing IES contracts. Ensure
        the plans specifically include areas to address the deficiencies noted in this report related
        to tracking deliverable receipt and acceptance, written evaluations of contractor-
        submitted reports, invoice review, and responsibilities and limitations of the CORs’
        duties.

1.2 	   Direct CAM and IES staff to work together to develop and/or review the plans to ensure
        clear communication between the CO, CS, and COR on the requirements of each
        contract, the means by which the requirements will be monitored, and who is responsible
        for that monitoring.

1.3 	   Develop and implement a process to fully document receipt and acceptance of
        deliverables. Ensure CORs provide written recommendations of deliverable
        acceptance/rejection to the CO in order to prevent constructive acceptance and to protect
        the Department’s interests.

1.4 	   Provide training to CAM and IES staff responsible for monitoring IES contracts to ensure
        staff are aware of and adhere to regulations, policies and procedures that apply to their
        responsibilities as contract managers. Specifically include in the training the areas noted
        in this report.

1.5 	   Ensure COR appointment letters are issued timely by the CO, and signed and returned
        timely by the COR. Review all IES contracts to ensure that all current CORs have
        received an appointment letter and that a signed copy is included in the contract file.

1.6 	   Resolve, as appropriate, the specific invoice/payment issues noted in this review for
        contracts ED01CO0012, ED02CO0023, and RN95127001. As needed, modify the
        contracts or billing terms to ensure that adequate supporting documentation is provided to
        allow review and validation of invoice amounts, processes are implemented to review
        and approve equipment purchases or consultants, and labor and indirect rates are formally
        established and accepted. As needed, require contractors to resubmit billings or adjust
        invoices to correct prior under- or overpayments.

OCFO/IES Response:

In a combined response to the draft report, the OCFO and IES concurred with the finding and
recommendations, and presented proposed corrective actions for implementing the
recommendations. The OCFO stated that contract monitoring plans had been developed for all
IES contracts, and the plans addressed the deficiencies noted. The response stated that
OCFO/CAM and IES staff collaborated to develop the contract monitoring plans, and all CORs
will be requested to sign the contract monitoring plan as affirmation that they understand its
content.
Final Audit Report
ED-OIG/A19G0004                                                                       Page 13 of 22

OCFO stated it is exploring available tools to implement Department-wide for receipt and
acceptance of deliverables. OCFO stated it will evaluate current technology available in
EDCAPS, as well as other forms of electronic documentation and tracking and proposes to have
a solution for use by March 31, 2007.

OCFO stated it will schedule a training session at the IES sites to ensure staff are aware of and
adhere to regulations, policies and procedures that apply to their responsibilities. OCFO/CAM
staff will conduct the training jointly with senior IES officials for all CORs. The training will be
scheduled in February 2007, will be mandatory, and will cover the findings outlined in the audit.

OCFO stated that all files have appropriate COR appointment letters, and it commits to resolving
the specific invoice/payment issues noted for the three contracts by January 31, 2007.

See Attachment 3 to this report for the full text of the combined response.




                  OBJECTIVES, SCOPE, AND METHODOLOGY 



The objectives of our audit were to determine whether the Department’s contract monitoring
process ensures (1) contractors adhere to the requirements of the contract, and (2) the
Department receives the products and services intended. To accomplish our objective we
performed a review of internal control applicable to the process for monitoring contracts within
the Department. We interviewed OCFO and IES staff to obtain an understanding of the process.
We evaluated prior audits and reviews relating to the contract monitoring process to determine
possible vulnerabilities and any areas that required audit follow-up. We reviewed requirements
in the FAR and Department policy and procedures related to the contract monitoring process.
We reviewed contract files in CAM and those maintained by the COR, and other related
materials that supported the contract monitoring process for a sample of contracts as further
described below.

We focused our review on contracts that were active during the period October 1, 2004, through
September 30, 2005. We obtained a listing of contract payments for FY 2005 for all principal
offices from OCFO staff. The listing was extracted from the Financial Management Support
System (FMSS), a component of the Education Centralized Automated Processing System
(EDCAPS). In order to focus our review on contracts with significant activity that were most
likely to require active contract monitoring, we refined this list to eliminate payments that
represented interagency, purchase orders, and other types of payments, and those that totaled less
than $100,000 for a particular contract the year. In total, we identified 9,080 payments to 519
different contracts that totaled $1,474,385,044 for the year.

We determined that IES had the highest number of payments of any PO (1,705 or 19 percent),
the highest number of active contracts (142 or 27 percent), and the second highest amount of
payments during the year ($351,921,139 or 24 percent). We selected IES for review because it
represented a significant number of the active contracts and amount of payments during the
scope period, and to follow up on the prior audit recommendations and corrective actions.
Final Audit Report
ED-OIG/A19G0004                                                                    Page 14 of 22


We selected for further review the 10 IES contracts with the highest amount of contract
payments for the year. These contracts totaled $193,833,367 or 55 percent of the total
$351,921,139 total payments to IES contracts. These contracts were judgmentally selected for
review to provide coverage of the highest amount of contract payments. See Attachment 2 for a
list of the contracts selected for review, and the number and dollar value of FY 2005 payments to
those contracts.

During our review, we relied on computer-processed data obtained from EDCAPS/FMSS
representing contract payments for FY 2005. To assure ourselves of the completeness of this
data, we compared the contracts listed with payments to lists of active contract awards from
CAM’s website as of November 2004 and November 2005 -- a total of 996 unduplicated items.
We found that 629 of the active awards as of those two dates were included in the list of
contracts with payments during FY 2005. For the 367 contracts in the two lists from CAM’s
website that were not included in the listing of contract payments, we found that 251 were
multiple award task orders or blanket purchasing agreements under which separate orders would
be placed. These awards would not have payments. Of the remaining 116 awards, 3 were small
purchases and not considered contracts for the purposes of our review. Payments under these
purchases in FY 2005 were not material. All other contracts were either awarded after or ended
before FY 2005, or no payments were made under these contracts during FY 2005. Based on
this analysis, we determined the listing of contract payments was complete for the purposes of
our audit.

To evaluate the accuracy of the information contained in the contract payments listing received
from OCFO for the10 contracts reviewed, we confirmed the payment amounts with the hard
copy invoices in the contract files, and with payment information included in the Contract
Purchasing and Payment System (CPSS), another component of EDCAPS. We did not note any
exceptions. Based on these analyses, we determined the computer-processed data used was
sufficiently accurate and reliable for the purposes of our review.

We conducted fieldwork at Department offices in Washington, DC, during the period December
13, 2005, through June 28, 2006. We held an exit conference with OCFO and IES staff on
August 30, 2006. Our audit was performed in accordance with generally accepted government
auditing standards appropriate to the scope of the review described above.




                           ADMINISTRATIVE MATTERS



Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System. Department policy requires that you develop a final corrective action plan
(CAP) for our review in the automated system within 30 days of the issuance of this report. The
CAP should set forth the specific action items, and targeted completion dates, necessary to
implement final corrective actions on the findings and recommendations contained in this final
audit report.
Final Audit Report
ED-OIG/A19G0004                                                                     Page 15 of 22

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 522), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.

We appreciate the cooperation provided to us during this review. Should you have any questions
concerning this report, please call Michele Weaver-Dugan at (202) 245-6941. Please refer to the
control number in all correspondence related to the report.



                                             Sincerely, 



                                             Helen Lew /s/ 

                                             Assistant Inspector General for Audit Services 



Attachments
Final Audit Report
ED-OIG/A19G0004                                                            Page 16 of 22

                Attachment 1: Contracts Included in the Audit


                                                    Number of
                                                     FY 2005    Total Amount of
Contract Number             Vendor Name             Payments       Payments
ED01CO0010           Brown University                  14        $    9,506,651
                     North Central Regional
ED01CO0011           Education Laboratory              15        $ 10,874,114
                     Western Regional Educational
ED01CO0012           Laboratory                        17        $    8,440,929
ED01CO0039/0007      Mathematica Policy Research       18        $    8,040,604
ED01CO0093/0004      ABT Associates                    14        $    9,284,632
ED01CO0120           Westat                            12        $   11,087,880
ED02CO0023           Educational Testing Service       21        $   19,834,363
ED02CO0034           Westat                            15        $   53,639,562
ED02CO0035           NCS Pearson                       38        $   41,914,965
                     American Institutes for
RN95127001           Research                          41        $ 21,209,667

  Total number/amount of FY 2005 payments              205      $ 193,833,367
Final Audit Report
ED-OIG/A19G0004                                                                       Page 17 of 22

                             Attachment 2: Issues Noted by Contract

ED01CO0010 – Brown University, $9,506,6514

      1. 	 Department staff did not adequately document receipt of deliverables. The COR stated
           acceptance of deliverables is implied through payment of invoices in CPSS. Upon
           review, we found the COR did insert comments on the receipt summaries stating whether
           the deliverables were acceptable or not. However, this method does not adequately
           document what deliverables were received, when the deliverables were received, whether
           deliverables were timely, and whether deliverables met all contract requirements.

      2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
           provide the evaluations to the CO. The COR stated she makes comments directly on the
           reports and sends comments to the contractor, but she did not write any formal
           evaluations.

      3. 	 Department staff did not issue and/or sign COR appointment letters timely.
           During our review of the contract files, we found that the COR appointment letter dated
           August 1, 2003, was not signed by the COR until November 17, 2003.


ED01CO0011 – North Central Regional Education Laboratory, $10,874,114

      1. 	 Department staff did not adequately document receipt of deliverables. The CS stated
           acceptance of deliverables is implied through payment of invoices in CPSS. Upon
           review, we found the COR did insert comments on the receipt summaries stating all
           deliverables were on time and acceptable. However, this method does not adequately
           document what deliverables were received, when the deliverables were received, and
           whether deliverables met all contract requirements.

      2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
           provide the evaluations to the CO. The CS stated formal evaluations of the quarterly
           reports were not completed, although informal comments may be made. The COR
           provides comments to the contractor, not the CO.

      3. 	 Department staff did not issue and/or sign COR appointment letters timely.
          The only COR appointment letter found in the contract files was for a former COR,
          appointed until May 8, 2001, when the contract was awarded in December of 2000. The
          contract files did not include a copy of the appointment letter for the current COR,
          although he was appointed in approximately December 2004. Nor could the COR
          produce a copy of his appointment letter.




4
    Amounts listed represent the FY 2005 payments made under each contract.
Final Audit Report
ED-OIG/A19G0004                                                                      Page 18 of 22

ED01CO0012 – Western Regional Educational Laboratory, $8,440,929

   1. 	 Department staff did not adequately document receipt of deliverables. There was no
        formal acceptance of deliverables noted in the contract files. The COR stated acceptance
        of deliverables is implied through the payment of invoices in CPSS. However, we found
        recommendation of acceptance of deliverables in CPSS was not indicated on 4 out of 21
        receipt summaries for this contract (invoices #72, #73, #74, and #87).

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The COR stated he did not prepare individual written
        evaluations of reports received, but at the end of the year there was a past performance
        evaluation was completed.

   3. 	 Department staff did not detect inappropriate charges on invoices prior to approving
        payments.

      The contract included charges for consultants that were not preapproved as required.
      Specifically, 12 of 21 invoices for the year included a total of $184,376 in charges for 64
      different consultants that had not been approved. The contract file did not include any
      documentation to support approval of these consultants. As a result of our inquiries,
      CAM staff obtained a spreadsheet from the contractor that included 34 consultant names
      and amounts charged to the contract. However, this spreadsheet did not document the
      consent of the CO, nor include all consultants noted. The CS was able to locate
      supporting documentation for 9 of total 73 consultants listed on the invoices, but could
      not locate approval documents for the remaining 64 consultants. The CS stated it was
      difficult to locate the supporting documentation based on the fact that the contract has
      been going on a long time, and CAM had moved to a different building during that time
      period.

      In addition, we found the indirect cost agreement for this contract included a provisional
      rate of 12.8% dated November 14, 2004, effective through November 2005. According
      to the agreement, the rate was to be applied to,

              Total direct costs less items of equipment, alterations and renovations,
              stipends and the portion of each competitive bid sub-award in excess of
              $25,000 regardless of the period covered by that subaward.

      The invoices submitted by the contractor did not detail the calculation of the indirect rate,
      nor disclose what rate was being applied. The invoices and supporting documentation
      also did not provide sufficient detail to determine whether any costs were excluded from
      the rate calculation (e.g. equipment, stipends, etc.). By dividing the indirect costs by the
      subtotal direct costs on the invoices, we determined the following indirect rates were
      applied to the invoices paid in FY 2005 after the rate agreement went into effect:
Final Audit Report
ED-OIG/A19G0004                                                                     Page 19 of 22


              Performance Month      Rate           Performance Month      Rate
              December 2004           4.0%          May 2005               12.4%
              January 2005           11.6%          June 2005              12.3%
              February 2005          12.7%          July 2005              12.5%
              March 2005             12.6%          August 2005            10.5%
              April 2005             12.3%

      We requested assistance from the CS to determine how the rates were applied, and found
      she was not familiar with how the rate was to be charged or how the calculations on the
      actual invoices were made, indicating she had not verified the amounts charged on the
      invoices. We also discussed this issue with the COR who stated he did not verify the
      indirect rates on the invoices.


ED01CO0039/0007 – Mathematica Policy Research, $8,040,604

   1. 	 Department staff did not adequately document receipt of deliverables. The COR stated
        she would send comments to the contractor to ensure the deliverable is adequate. This
        represents an inappropriate practice, due to the fact that only a CO has the authority to
        accept or reject deliverables.

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The COR confirmed she did not send written
        evaluations of monthly progress reports to the CO for this contract.


ED01CO0093/0004 – ABT Associates, $9,284,632

   1. 	 Department staff did not adequately document receipt of deliverables. The COR stated
        she sent comments back and forth to the contractor until there were no more issues
        regarding the deliverable received. This represents an inappropriate practice, due to the
        fact that only a CO has the authority to accept or reject deliverables.

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The COR she was not aware of the policy regarding
        written evaluations of progress reports received.


ED01CO0120 – Westat, $11,087,880

   1. 	 Department staff did not adequately document receipt of deliverables. The COR stated
        she provides comments to the contractor regarding changes needed to deliverables until
        she has no other feedback. This represents an inappropriate practice due to the fact that
        only a CO has the authority to accept or reject deliverables.

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The COR stated she was not aware of any policy for
Final Audit Report
ED-OIG/A19G0004                                                                     Page 20 of 22

      preparing written evaluations of deliverables such as the monthly reports. The COR
      stated she sends comments to the contractor for any issues she may have. This represents
      an inappropriate practice due to the fact that only a CO has the authority to accept or
      reject deliverables.

ED02CO0023 – Educational Testing Service, $19,834,363

   1. 	 Department staff did not adequately document receipt of deliverables. There was no
        formal acceptance of deliverables noted in the contract files. The CS stated acceptance of
        deliverables is implied through the payment of invoices in CPSS. However, we found
        recommendation of acceptance of deliverables in CPSS was not indicated on 5 out of 14
        receipt summaries for this contract, (invoices #26, #27, #28, #31, and #34).

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The COR stated he did not prepare written
        evaluations of the reports. He said he gathers comments from a number of reviewers,
        which they discuss along with the authors (contractors) in a collaborative process to agree
        to the changes that should be made for the next draft. The COR stated the comments do
        not go to the CO, as they are more in the nature of internal working documents.

   3. 	 Department staff did not detect inappropriate charges on invoices prior to approving
        payments. We found the overhead rate on 3 of the 14 invoices did not match the
        provisional 19.86% overhead rate specified in the contract. During the first three months
        of FY 2005, the contractor applied a rate of 16.26% to direct labor on three invoices.
        Thereafter, nine invoices during the year included the provisional overhead rate of
        19.86%. We could not verify the overhead rate used for two additional invoices that did
        not include supporting documentation. The contract did not include documentation to
        support the lower overhead rate of 16.26% on the three invoices. Therefore, we could not
        verify costs applied to labor for these invoices totaling $569,549. In addition, the
        contract did not include documentation to support whether or not the provisional rate of
        19.86% was ever approved.

      CAM staff and the COR did not note this issue in their reviews of the invoices. The CS
      stated when the contract was first awarded it did not include a provisional rate agreement.
      The Department partnered with the Defense Contract Audit Agency in order to establish
      an agreement. The CS did not know whether the provisional rate of 19.86% was ever
      officially approved. The CS stated there should be documentation in the official files
      verifying the specific approved overhead rate that should have been used. However, the
      only documentation in the files was for the provisional rate agreement specifying a rate of
      19.86%. In addition, the CS stated this specific issue occurred before she was the CS for
      the contract, so could not assist us other than by reviewing the documentation in the
      contract files.

      In addition, for this contract, we found line items included on 9 of the 14 invoices paid
      during FY 2005 were not sufficiently detailed to allow CAM staff and the COR to verify
      whether the overhead applied was correct. The contractor presented all ODC as one
      lump sum, but overhead was not applicable to all ODC. As a result, Department staff
      could not verify whether the correct overhead rate was used, and whether overhead was
Final Audit Report
ED-OIG/A19G0004                                                                      Page 21 of 22

      only applied to applicable costs. Based upon on our inquiries, CAM staff stated future
      invoices would include detail on overhead-bearing ODC, and non overhead-bearing
      ODC. CAM staff and the COR were not familiar with this issue, and, therefore, had not
      attempted to verify these costs on prior invoices.


ED02CO0034 – Westat, $53,639,562

   1. 	 Department staff did not adequately document receipt of deliverables. The COR stated
        she never communicated to the CS/CO regarding acceptance of deliverables. We found
        brief comments in CPSS on what deliverables had been received, but these comments
        were not adequate to document whether deliverables were received on time, and whether
        the deliverables met all contract requirements.

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The COR stated she provided written evaluations of
        progress reports in CPSS. We found the comments in CPSS did not meet requirements
        for a written evaluation of reports received.

   3. 	 Department staff did not issue and/or sign COR appointment letters timely.
        The COR stated she was assigned to the contract in January of 2004. However, we found
        the COR Appointment Letter was dated March 30, 2005, more than a year later.


ED02CO0035 – NCS Pearson, $41,914,965

   1. 	 Department staff did not adequately document receipt of deliverables. There was no
        formal acceptance of deliverables noted in the contract files. The COR stated acceptance
        of deliverables is implied in CPSS when invoices are paid. Upon review, we found the
        COR did insert a statement on all 13 receipt summaries recommending payment based on
        the deliverables being on schedule and within budget. However, this methodology does
        not adequately document whether the deliverables met all contract requirements.

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The CORs stated he sent comments to the contractor
        in order to discuss issues regarding the reports. This represents an inappropriate practice
        due to the fact that only a CO has the authority to accept or reject deliverables.


RN95127001 – American Institutes for Research, $21,209,667

   1. 	 Department staff did not adequately document receipt of deliverables. There was no
        formal acceptance of deliverables noted in the contract files. The CS stated acceptance of
        deliverables is implied through the payment of invoices in CPSS. However, we found
        recommendation of acceptance of deliverables in CPSS was not indicated on all 12
        receipt summaries for this contract. We noted comments on the receipt summaries
        stating “invoices processed” and the date. These statements do not adequately document
Final Audit Report
ED-OIG/A19G0004                                                                     Page 22 of 22

      whether deliverables were received, were received on time, and whether the deliverables
      met all contract requirements.

      We noted one deliverable that did not include statistical data as required by the contract.
      The CS stated not including the statistical data was not a problem because the monthly
      reports come in at the same time as the invoices, which show charges for personnel.
      However, the COR stated the monthly reports do not come in at the same time of the
      invoices. No change had been made to the contract to eliminate the requirement for the
      statistics on the monthly report. This deliverable did not comply with contract
      requirements.

   2. 	 The COR did not prepare written evaluations of contractor-submitted reports and
        provide the evaluations to the CO. The CO stated no written evaluations were prepared
        for the monthly reports for this contract.

   3. 	 Department staff did not detect inappropriate charges on invoices prior to approving
        payments. The Department paid for equipment totaling $5,249 without preapproval.
        Each of the items purchased exceeded $1,000 in cost and should have been preapproved
        by the contracting officer according to the contract terms. CAM staff stated they were
        not aware that the contractor had purchased any property. However, the supporting
        documentation submitted with the invoices clearly indicated the purchase of these items.
        The COR was aware that these purchases were being made, but did not enforce the
        preapproval requirement. The COR was not familiar with the government property
        clause in the contract which required preapproval.

      In addition, we found Department staff did not note the contractor applied incorrect labor
      on invoices during the year. The contractor applied incorrect labor rates on 6 of the 12
      invoices for the year. On four invoices, the contractor applied a rate of $235.00 per hour
      for one category, rather than the specified rate of $273.21 per hour, for 183 hours. The
      contractor was underpaid $6,992 in direct labor for this error. On two additional
      invoices, the contractor charged 312 hours at $51.81 per hour, or a total of $16,165, for a
      labor category that was not listed at all in the contract.

      The contract included a labor rate schedule in Modification 6. The CS stated that this
      schedule was the only rate schedule that applied to the invoice period under review, and
      confirmed the rates charged on the invoices were incorrect. However, neither CAM staff
      nor the COR noted these inaccuracies during review of the invoices.
                                                                                                   Attachment 3

                     UNITED STATES DEPARTMENT OF EDUCATION
                                     WASHINGTON. D.C. 20202-_ __



                                      NOV 2 0 2006

MEMORANDUM

TO: 	            Nancy Brown, Acting Director
                 Operations Internal Audit Team
                 Office of Inspector General

FROM: 	          Lawrence Warder                   '--   ~/~ 1~           t?   I


                 Chief Financial Officer        r:::ZLf ~~"
                 Grover J. Whitehurst, DireCtor
                 Institute of Education Scien s 

                                                         ­
SUBJECT: 	 DRAFT AUDIT REPORT: Controls over Contract Monitoring for IES
           Contracts, Control Number ED-OIGIAI9G0004

Thank you for your draft Office of Inspector General (OIG) audit report, Controls over
Contract Monitoring/or IES Contracts, ED-OIG/AI9G0004, dated October 11,2006.
The Office of the Chief Financial Officer (OCFO)/Contracts and Acquisitions
Management (CAM) recognizes that the Department faces challenges in contracts
management, and we are continuing our efforts to identify process improvements and
establish controls to provide better monitoring and oversight of the Department's
portfolio of contractor resources. We have made strides over the last 2 years to address
some of these challenges. In Fiscal years 2005 and 2006, OCFOICAM developed and
sponsored an agency-wide training program that reinforced the Department's contracting
processes, laws, and regulations to senior managers, contracting personnel, and relevant
program office personnel; developed procedures for writing contract monitoring plans;
and updated and distributed other pertinent contract procedural documents to improve
controls and efficiencies. However, OCFOICAM acknowledges that more work is
needed.

In the OIG draft report, you concluded from your sample, that OCFOICAM and the
Institute for Education Sciences (IES) staff did not adequately document receipt and
acceptance of deliverables; that IES Contracting Officer Representatives (CORs) did not
prepare written evaluations of contractor-submitted reports; that OCFOICAM and IES
staff did not detect inappropriate charges on invoices prior to approving payments; and,
that OCFOICAM and IES CORs did not timely issue and sign COR appointment letters.
Additionally, the audit noted that contract monitoring plans were missing in several of the
contracts. OCFO and IES have no comments on the objective, scope, methodology or
findings in this report. We concur with your finding and related issues and




   Our mission is to ensure equal access to education and to promote educational exceUence throughout the Nation.
                                                                      ED-OIG/A19G0004
                                                                                       p.2

recommendations and present the following proposed corrective actions for
implementing the OIG recommendations.

Finding - Improvements Were Needed in Contract Monitoring for IES Contracts

DIG Recommendation 1.1: Develop and implement contract monitoring plans for all
existing IES contracts. Ensure the plans specifically include areas to address the
deficiencies noted in this report related to tracking deliverable receipt and acceptance,
written evaluations ofcontractor-submitted reports, invoice review, and responsibilities
and limitations ofthe CORs' duties.

OCFO/IES Proposed Corrective Action: Contract monitoring plans have been developed
and are now in place for all existing IES contracts. The contract monitoring plans
address all noted deficiencies.

DIG Recommendation 1.2: Direct CAM and IES staffto work together to develop
and/or review the plans to ensure clear communication between the CO, CS, and COR on
the requirements ofeach contract, the means by which the requirements will be
monitored, and who is responsible for that monitoring.

OCFO/IES Proposed Corrective Action: OCFOICAM and IES staff collaborated to
develop the contract monitoring plans. Each contract monitoring plan was discussed
during the collaboration. All CORs however, will be requested to sign the contract
monitoring plan as affirmation that they understand its content by no later than December
29,2006.

DIG Recommendation 1.3: Develop and implement a process to fully document receipt
and acceptance ofdeliverables. Ensure CORs provide written recommendations of
deliverable acceptance/rejection to the CO in order to prevent constructive acceptance
and to protect the Department's interest.

OCFO/IES Proposed Corrective Action: OCFOICAM is exploring available tools to
implement Department-wide for receipt and acceptance of deliverables. We will evaluate
current technology available in EDCAPS, as well as other forms of electronic
documentation and tracking. We propose to have a solution available for use by March
31,2007.

OIG Recommendation 1.4: Provide training to CAM and IES staffresponsible for
monitoring IES contracts to ensure staffare aware ofand adhere to regulations, policies
and procedures that apply to their responsibilities as contract managers. Specifically
include in the training the areas noted in this report.

OCFO/IES Proposed Corrective Action: OCFOICAM will schedule a training session at
the IES sites to ensure staff are aware of and adhere to regulations, policies and
procedures that apply to their responsibilities. OCFO/CAM staffwill conduct the
training jointly with senior IES officials for all CORso The training will be mandatory,
                                                                      ED-OIG/A19G0004
                                                                                  p.3

and will cover the findings outlined in the audit. The training session will be scheduled
in February 2007.

OIG Recommendation 1.5: Ensure COR appointment letters are issued timely by the
CO, and signed and returned timely by the COR. Review all IES contracts to ensure that
all current CORs have received an appointment letter and that a signed copy is included
in the contract file.

OCFO/IES Proposed Corrective Action: All files have appropriate COR appointment
letters. OCFO/CAM regrets the finding that three appointment letters contained untimely
dates.

DIG Recommendation 1.6: Resolve, as appropriate, the specific invoice/payment issues
noted in this review for contracts EDOIC00012, ED02C00023, and RN95127001. As
needed, modify the contracts or billing terms to ensure that adequate supporting
documentation is provided to allow review and validation ofinvoice amounts, processes
are implemented to review and approve equipment purchases or consultants, and labor
and indirect rates are formally established and accepted. As needed, require contractors
to resubmit billings or adjust invoices to correct prior under- or overpayments.

OCFO/IES Proposed Corrective Action: OCFO/CAM commits to resolving the specific
invoice/payment issues noted for the three contracts. OCFO/CAM proposes to have all
payment issues resolved by January 31,2007.

Thank you again for this opportunity to respond. We trust that you will consider this
response in the preparation of your final audit report. Should you have any questions,
please contact Cynthia Bond-Butler, OCFO/CAM at 245-6221.