Financial Management: Clarification of GAO Response to Allegations Regarding DFOH

Published by the Government Accountability Office on 1997-07-10.

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

General Accounting Office
Washington, D.C. 20548189

Accounting and Information
Management Division


July 10, 1997

The Honorable Ben Nighthorse Campbell
The Honorable Christopher J. Dodd
The Honorable Barbara A. Mikulski
United States Senate

The Honorable Dan Schaefer
House of Representatives

Subject: . Financial Management: Clarification of GAO Response to Allegations
           Regarding DFOH

In response to your requests and discussions with your offices, this letter
provides information regarding your constituents' concerns that certain issues
were not addressed in our September 1996 letter on allegations of fiscal
mismanagement by the Division of Federal Occupational Health (DFOH).'
DFOH is within the Health Resources and Services Administration (HRSA) of
the Department of Health and Human Services (HHS). Our previous letter
addressed a group of former and current DFOH employees' allegations that
during fiscal years 1992 and 1993 (1) DFOH violated the Economy Act by
including regional office rent allocations from HRSA in the costs reimbursed by
other federal agencies under interagency agreements and (2) HRSA augmented
(inappropriately increased) its appropriation by allocating these rent costs to

Our September 1996 letter concluded that the rent allocations were an
allowable cost under the Economy Act and, accordingly, that HRSA's
appropriation was not augmented. However, we found that DFOH did not have
an adequate cost accounting system to track the actual costs incurred under
each interagency agreement, as required under the Economy Act. Thus, for
fiscal years 1992 and 1993, DFOH could not offer any assurance that it had
complied with the Economy Act on an individual interagency agreement basis.
However, as stated in our previous letter, DFOH procured an off-the-shelf cost
accounting system to automate its operations and track actual costs. Proper

'DFOH Financial Management (GAO/AIMD-96-167R, September 30, 1996).

                             GAO/AIMD-97-113R Response to DFOH Allegations

                                1       fis57

 implementation of an adequately designed cost accounting system should enable
 management to fully meet the Economy Act's requirements.

We reviewed the concerns itemized in your constituents' letters and did not
identify any new information that would change the conclusions reached in our
previous letter. However, we have clarified certain issues brought forth in
those letters. The enclosure to this letter lists the constituents' concerns and
our responses. As agreed with your offices, our responses are limited to
financial matters that relate principally to the Economy Act and augmentation
allegations at DFOH that were the subject of our previous letter. We did not
perform any work related to personnel reprisal activities or federal acquisition

Please contact me at (202) 512-3317 if you or your staffs have any questions
concerning this letter.

Robert F. Dacey
Director, Civil Audits/Health,
 Education, and Human Services


Page 2                      GAO/AIMD-97-113R Response to DFOH Allegations
ENCLOSURE                                                           ENCLOSURE

                         DFOH ALLEGATIONS

Issue One

"An additional $300,000 central charge to [D]FOH in 1992 for communication
costs, allegedly for unpaid regional [D]FOH 'health unit' phone bills. The
promised justification for such charges was claimed to have been inadvertently
'destroyed. "'

GAO Response

Based upon our review of actual amounts obligated, DFOH records include
obligations of $278,975 for fiscal year 1992 communication costs. We obtained
HHS correspondence allocating central communication costs of $619,590 to
HRSA during this period; however, we could not trace DFOH's $278,975 portion
of this total to supporting detailed call records. DFOH officials indicated that
the 1992 detailed call records were destroyed in accordance with data retention
guidelines set forth by HHS. National Archives and Records Administration
(NARA) guidance states that communication vouchers, invoices, and related
records may be destroyed after 1 fiscal year. HHS states that it follows NARA
guidelines. Accordingly, we were unable to conclude as to the appropriateness
of this amount.

Issue Two

"A 1993 directive to disburse from central funds approximately one million
dollars to cover regional rents that [D]FOH regions allegedly owed, despite the
fact that each [D]FOH regional operation had already negotiated and paid its
rent - and other administrative support costs - at the regional level. Such funds
were never previously categorically disbursed by the central [D]FOH office."

 GAO Response

According to DFOH officials and various agency memorandums, HRSA allocated
overhead costs of approximately $750,000 to DFOH in fiscal year 1993. These
costs included a variety of managerial support functions and regional office
rent. Prior to fiscal year 1993, HRSA had not allocated overhead to its
operating divisions, which included DFOH.

In our review of agency documents, we found correspondence from various
DFOH Regional Health Administrators indicating that DFOH had not previously
paid overhead costs, including regional office rent. The correspondence also
indicated the number of DFOH employees occupying space funded by HRSA.

Page 3                       GAO/AIMD-97-113R Response to DFOH Allegations
 ENCLOSURE                                                            ENCLOSURE
 HRSA used this number as a basis for allocating overhead costs to DFOH, as
 stated in our original letter. Additionally, we did not find any duplication of the
 regional office rent included in overhead cost allocations in other DFOH
 financial reports.

 Issue Three

 "The institution of undefined 'taps' upon [D]FOH central funds in 1993 by its
 parent organization, with the absence of accounting information regarding the
 use of such 'taps'."

 GAO Response

 DFOH and HRSA officials provided GAO with support for certain overhead cost
 allocations. However, HRSA management indicated they were unable to locate
 all accounting support for fiscal year 1993 following the transfer of accounting
 records from HHS regional locations to HHS central headquarters in fiscal year
 1995. Consequently, we are unable to respond to this issue.

 Issue Four

 "Despite several FOIA [Freedom of Information Act] requests, the inability or
 unwillingness of the Agency to provide complete 'standard' financial
 management reports for all regions for the fiscal years requested and for the
 disbursement of central funds by activity and object classes."

 GAO Response

 As agreed with your offices, we did not review issues pertaining to DFOH's
 compliance with FOIA requests.

 Issue Five

 "[D]FOH regional and central operations have paid their respective shares of
 rent and other administrative support costs for years, respectively, at the
 regional and central levels. Obviously such expenses are 'allowable' to charge
 to [D]FOH (no one has ever disputed this), but not twice."

 GAO Response

 This is the same as Issue 'Two above. As indicated, this overhead charge was
 not allocated to DFOH prior to fiscal year 1993. We reviewed documents which
 supported HRSA's notification of the management allocation and traced the
 overhead allocation to DFOH's books and records. We did not find any

Page 4                        GAO/AIMD-97-113R Response to DFOH Allegations
 ENCLOSURE                                                           ENCLOSURE
 duplication of the regional office rent included in overhead cost allocations in
 other DFOH financial reports.

 Issue Six

 "Moreover, there are various methods (e.g., per capita) that can be legitimately
 used to equitably distribute such costs. It is possible that a specific [D]FOH
 region was not paying what-at first glance-might have appeared to be its fair
 share of rent; on the other hand, it may have been overpaying for some other
 category of administrative support service (e.g., communications) in lieu

 GAO Response

 Under the Economy Act, payments for goods and services provided under
 interagency agreements are based on the actual cost of the goods and services.
 Actual cost includes all costs attributable to providing services and is comprised
 of both direct and indirect costs, including the allocation of overhead costs.
 GAO decisions interpreting the Economy Act state that these costs must have a
 significant relationship to the services provided under the interagency
 agreement (57 Comp. Gen. 674, 682-683 (1978)). The method used to allocate
 overhead costs is determined by management given the type of costs allocated,
 the detailed accounting records, and the expense of implementing the allocation
 methodology. We found the methods used to allocate overhead costs in fiscal
 years 1993 and 1994 to be reasonable.

 Issue Seven

 There were several references to a management survey performed by Donald
 Hirsch and Henry G. Kirschenmann, Jr. with respect to Anti-Deficiency Act and
 Federal Acquisition Regulations violations.

 GAO Response

 In preparing our previous letter, we considered this management survey, along
 with other agency reports, in assessing possible violations of the Anti-Deficiency
 Act and Economy Act. We did not perform any work related to violations of
 Federal Acquisition Regulations, as previously agreed with your offices.


Page 5                        GAO/AIMD-97-113R Response to DFOH Allegations