oversight

Audit of 2005 And 2206 East Alabama Area CFC - Anniston, Alabama

Published by the Office of Personnel Management, Office of Inspector General on 2009-01-30.

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

I
                                                                '.    -'        -        ,            , " " , ' . '        ,,-   .           -   .



                                                       . . ". US OFFICEOF PERSONNELMANACiEMENT ..
                                                                  OFFICE OF THE INSPEc;TQRGENERAL
                                                                                  .OFFICEQFAUDITS




    Subject:




                           . .' -I




                                                                          . .
                                                                           '.       ..       '.   .

                                                                 .--CA{jTION..~ .
      This audil report Ii~s been llistribUled.to Federal officials ",bo are respOnsible Jor th~ adminislJ"alioD \'f the audited program. Tbis audit'
      reportmay centatnpreprtetary d~la which is prolec~ed"yFederai law·(l8 U;S.C. ),)OS);lherefort,whilidhis aiJdilreportis available
    . under the Freedolilofhiforlllalion Arl;caution needste be exerCised before'reJeasiJigtbereflOrtt6Ibegeneralpublic.·                   '.
                            UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                                 Washington, DC 20415


   Office of the
Inspector General




                                             AUDIT REPORT




                                   AUDIT OF THE2005 AND 2006

                                     EAST ALABAMA AREA

                                 COMBINED FEDERAL CAMPAIGNS

                                     ANNISTON, ALABAMA




                    Report No. 3A-CF-OO-08-032                      Date: .January       30,   2009




                                                                         Michael R. Esser
                                                                         Assistant Inspector General
                                                                           for Audits



        www.opm.gov                                                                             www.usajobs.gov
                        UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                              Washington, DC 20415



  Officeof the
Inspector General




                                      EXECUTIVE SUMMARY





                                AUDIT OF THE 2005 AND 2006

                                  EAST ALABAMA AREA

                              COMBINED FEDERAL CAMPAIGNS

                                  ANNISTON, ALABAMA



                Report No. 3A-CF-OO-08-032                            Date: January 20 r 2009

      The Office of the Inspector General has completed an audit of the East Alabama Area Combined
      Federal Campaigns (CFC) for 2005 and 2006. The United Way of East Central Alabama,
      located in Anniston, Alabama, served as the Principal Combined Fund Organization (PCFO)
      during both campaigns. Our main objective was to determine if the East Alabama Area CFC
      was in compliance with Title 5, Code of Federal Regulations, Part 950 (5 CFR 950), including
      the responsibilities of both the PCFO and Local Federal Coordinating Committee (LFCC). The
      audit identified four instances of non-compliance with the regulations (5 CFR 950) governing the
      CFC.

                                         AUDIT GUIDE REVIEW

       •   Required Reports Not Submitted or Submitted Untimely by the LFCC

           The LFCC did not submit or submitted late required reports on the 2005 and 2006 CFC
           campaigns,

                                BUDGET AND CAMPAIGN EXPENSES

      •    Campaign Expenses Charged to the Incorrect Campaign Year

           The PCFO incorrectly charged $1,812 to the 2006 campaign for audit fees related to the 2005
           campaign,



        www.opm.goY                                                                        www.usajobs.goY
•   PCFO Expense Reimbursement Not Approved by the LFCC

    The LFCC did not review or approve the PCFO's reimbursement of campaign expenses for.
    the 2006 campaign.

                    CAMPAIGN RECEIPTS AND DISBURSEMENTS

•   One-Time Disbursement Threshold Not Approved by the LFCC

    The LFCC did not determine the one-time disbursement threshold amount or authorize the
    PCFO to make such payments for the 2006 CFC campaign as required by the Federal
    regulations.




                                              ii
                                         CONTENTS
                                                                                     PAGE

       EXECUTIVE SUMMARY                                                                   i


 1.    INTRODUCTION AND BACKGROUND                                                         1


II.    OBJECTIVES, SCOPE, AND METIIODOLOGY                                                 3


III.   AUDIT FINDINGS AND RECOMMENDATIONS                                                  6


            A. AUDIT GUIDE REVIEW                                                          6


               1. Required Reports Not Submitted or Submitted Untimely by the LFCC         6


            B. BUDGET AND CAMPAIGN EXPENSES                                               ~.6


               1. Campaign Expenses Charged to the Incorrect Campaign Year                 6

               2. PCFO Expense Reimbursement Not Approved by the LFCC                      7


            C. CAMPAIGN RECEIPTS AND DISBURSEMENTS                                         9


               1. One-Time Disbursement Threshold Not Approved by the LFCC                 9


IV.    MAJOR CONTRlBUTORS TO THIS REPORT                                                   10


       APPENDIX A (pCFO's response, dated October 27,2008, to the draft audit report.)

       APPENDIX B (PCFO's response, dated January 12,2009, to the draft audit report.)

                     I. INTRODUCTION AND BACKGROUND


Introduction

This report details the findings, conclusions, and recommendations resulting from our audit of
the East Alabama Area Combined Federal Campaigns (CFC) for 2005 and 2006. The audit was
performed by the Office of Personnel Management's (OPM) Office of the Inspector General
(OIG), as authorized by the Inspector General Act of 1978, as amended.

Background

The CFC is the sole authorized fund-raising drive conducted in Federal installations throughout
the world. It consists of 278 separate local campaign organizations located throughout the
United States and including Puerto Rico, the Virgin Islands, and Foreign assignments. The
Office of Combined Federal Campaign Operations (OCFCO) at aPM has the responsibility for
management of the CFC. This includes publishing regulations, memorandums, and other forms
of guidance to Federal officials and private organizations to ensure that all campaign objectives
are achieved.

CFCs are conducted by a Local Federal Coordinating Committee (LFCC) and administered by a
Principal Combined Fund Organization (PCFO). The LFCC is responsible for organizing the
local CFC, deciding on the eligibility oflocal voluntary organizations, selecting and supervising
the activities of the PCFO, and acting upon any problems relating to a voluntary agency's
noncompliance with the policies and procedures of the CFC. The PCFO is responsible for
training employee key-workers and volunteers; preparing pledge cards and brochures;
distributing campaign receipts; submitting to an extensive and thorough audit of its CFC
operations by an Independent Certified Public Accountant (lPA) in accordance with generally
accepted auditing standards; cooperating fully with OIG audit staff during audits and
evaluations; responding in a timely and appropriate manner to all inquiries from participating
organizations, the LFCC, and the Director of OPM; and consulting with federated groups on the
operation of the local campaign.

Executive Orders 12353 and 12404 established a system for administering an annual charitable
solicitation drive among Federal civilian and military employees. Title 5, Code of Federal
Regulations 950 (5 CFR 950), the regulations governing CFC operations, sets forth ground rules
under which charitable organizations receive federal employee donations. Compliance with
these regulations is the responsibility of the PCFO and LFCC. Management of the PCFO is also
responsible for establishing and maintaining a system of intemal controls.

Our previous audit of the East Alabama Area CFC was completed in 1997 and covered the 1994
through 1996 campaigns. The audit identified one area of non-compliance, which was
satisfactorily resolved through the OCFeO.

The initial results of our audit were discussed with PCFO officials during an exit conference held
on June 12,2008. A draft report was provided to the PCFO and the LFCC on




                                                 1

September 17,2008, for review and comment. The PCFO's responses to the draft report were
considered in preparation ofthis final report and are included as Appendices.




                                            2

               II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES


The primary purpose of the audit of the East Alabama Area CFC was to determine compliance
with 5 CFR 950. Our specific audit objectives for the 2006 campaign were as follows:

       Eligibility
           •	 To determine if the charitable organization application process was open for the
               required 30 day period; if applications were appropriately reviewed, evaluated,
               and approved; and if the appeals process for rejected applicants was followed.

       Budget and Campaign Expenses
          •	 To determine ifthe PCFO's budget was in accordance with the regulations.
          •	 To determine if expenses charged to the campaign were actual, reasonable, did
              not exceed 110 percent of the approved budget, and were properly allocated.

       Campaign Receipts and Disbursements
          •	 To determine if the total amount of funds received for the campaign, plus interest
             income and less expenses, was properly distributed to the designated
             organizations.
          •	 To determine if the total amount of undesignated funds was properly allocated
             and distributed to the various CFC participants.

       PCFO as a Federation
          •	 To determine if the PCFO distributed funds only to member agencies.
          •	 To determine if the PCFO charged its member agencies for expenses in a
             reasonable manner.

Additionally, our audit objective for the 2005 campaign was:

       Audit Guide Review
          •	 To determine if the IPA completed the Agreed-Upon Procedures (AUP) as
              outlined in the February 2007 CFC Audit Guide (For Campaigns with Pledges
              $150,000 to $999,999) [CFC Audit Guide] for the 2005 campaign.

SCOPE AND METHODOLOGY

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient and appropriate evidence to provide a reasonable basis for our findings and
conclusions based on the audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on the audit objectives.

The audit covered campaign years 2005 and 2006. The United Way of East Central Alabama,
located in Anniston, Alabama, served as the PCFO during both campaigns. The audit fieldwork


                                               3

was conducted at the PCFO's offices from June 9 through June 13,2008. Additional audit work
was completed at our Washington, D.C. office.

The East Alabama Area CFC received campaign pledges, collected campaign receipts, and
incurred campaign administrative expenses for the 2005 and 2006 campaigns as shown below:

      Campaign                    Total                    Total                 Administrative
        Year                     Pledges                  Receipts                 Expenses

         2005                   $430,325                  $414,937                  $46A30
         2006                   $502,477                  $469,571                  $58,065

In conducting the audit we relied to varying degrees on computer-generated data. Our review of
a sample of campaign expenses and supporting data, a sample of pledge card entries, and the
distribution of campaign contributions and related bank statements verified that the computer­
generated data used in conducting the audit was reliable. Nothing else came to our attention
during our audit testing utilizing the computer-generated data to cause us to doubt its reliability.

We considered the campaign's internal control structure in planning the audit procedures. We
gained an understanding of management procedures and controls to the extent necessary to
achieve our audit objectives. We relied primarily on substantive testing rather than tests of
internal controls. The audit included such tests of the accounting records and such other auditing
procedures as we considered necessary to determine compliance with 5 CFR 950 and CFC
Memorandums.

In order to determine whether the LFCC and PCFO were in compliance with the CFC eligibility
regulations, we reviewed the following:
    •	 The public notice to prospective charitable organizations to determine if the LFCC
       .accepted applications from organizations for at least 30 days.
    -The process and procedures for the application evaluation process.
    - Sample eligibility letters to verify they were properly sent by the LFCC.
    - The LFCC's processes and procedures for responding to appeals from organizations.

in order to address our objectives concerning the budget and campaign expenses, we
accomplished the following:
    -	 Reviewed the PCFO application and completed the PCFO application checklist.
    -	 Reviewed the PCFO application for the 2006 campaign, a copy of the public notice to
       prospective PCFO's, and LFCC meeting minutes related to the selection of the PCFO.
    •	 Traced and reconciled amounts on the PCFO's Schedule of Actual Expenses to the
        PCFO's general ledger.
    - Reviewed supporting documentation for a judgmental sample of 14 actual expenses from
        5 expense accounts (out of 17 expenses accounts). Accounts were selected based on
       nomenclature review, as well as high dollar amounts paid.
    -	 Reviewed the LFCC meeting minutes and verified that the LFCC authorized the PCFO's
       reimbursement of campaign expenses.




                                                 4

   •	 Compared the budgeted expenses to actual expenses and determined if actual expenses
      exceeded 110 percent of the approved budget.

To determine whether the campaign receipts and disbursements were handled in accordance with
CFC regulations, we reviewed the following:
   •	 A judgmental sample of 25 out of 2,3 54 pledge cards (selected by high total dollars
       pledged from the pledge card detail schedule) and compared them to the Pledge Card
       Report and actual pledge cards from the PCFO.
   •	 Cancelled distribution checks to verify that the appropriate amount was distributed in a
       timely manner.
   •	 One-time disbursements to verify that the PCFO properly calculated pledge loss and
       disbursed the funds in accordance with the ceiling amount established by the LFCC.
   •	 The PCFO's most recent listing of outstanding checks to verify that the PCFO was
       following its policy for such checks.
   •	 The Pledge Notification Letters to verify that the PCFO notified the CFe agencies of the
       designated and undesignated amounts due them before the March 15,2006, deadline.
   •	 The donor list letters sent by the PCFO to organizations to verify the letters properly
       notify the organization of the donors who wish to be recognized.
   •	 Forms 1417 provided by the PCFO and the oeFCO to identify material differences.
   •	 The PCFO Distribution Schedule to verify that the monthly disbursements reconcile with
       the PCFO's Campaign Receipts and Disbursements Schedule.
   •	 All bank statements used by the PCFO for the 2006 campaign to verify that the peFO
       was properly accounting for and distributing funds.
   •	 The PCFO's cutoff procedures and bank statements to verify that funds were allocated to
       the appropriate campaign year.
   •	 The General Designation Options and Undesignated Funds Spreadsheet and the
       Allocations and Disbursements Spreadsheet to verify whether the disbursements were
       accurate and proportionate to the PCFO's allocation rates.

To determine if the PCFO was in compliance with the CFC regulations asa federation (The
United Way of East Central Alabama), we reviewed the following:
   •	 Data reported on the CFC Receipts Schedule with supporting documentation to verify if
       the receipts were properly recorded.
   •	 The CFC Distribution Schedule to determine ifthe United Way of East Central Alabama
       disbursed funds to member agencies not participating in the 2006 CFC.
   •	 The United Way of East Central Alabama contract with its member agencies to determine
       if the fees were reasonable and supported.

The samples selected and reviewed above were not statistically based. Consequently, the results
could not be projected to the universe since it is unlikely that the results are representative of the
universe taken as a whole.

Finally, to accomplish our objective for the Audit Guide Review, we reviewed the CFC Audit
Guide and determined the type of audit to be completed by the IPA for the 2005 campaign. We
also completed the AUP checklist to verify if the IPA completed and documented the AUP steps.



                                                  5

             III. AUDIT FINDINGS AND RECOMMENDATIONS

The PCFO and LFCC administered the 2005 and 2006 East Alabama Area CFCs in compliance
with all applicable CFC regulations with the exception of the following areas.

A.   AUDIT GUIDE REVIEW

     1.   Required Reports Not Submitted or Submitted Untimely by LFCC

          The LFCC did not submit or was late in submitting required reports related to the
          2005 and 2006 campaigns.

          According to the CFC Audit Guide, Chapter I, PCFO, LFCC and IPA Reporting
          Responsibilities, the LFCC was required to submit the PCFO's most recent
          organization-wide financial statements, the LFCC Compliance Assessment for the
          2006 campaign, and AUPs and the related corrective action plan, if applicable, for the
          2005 campaign to OPM by September 15,2007.

          We requested these documents from the OCFCO and reviewed them to determine
          whether they were submitted by the required deadline. Our review showed that the
          LFCC:

                 •	 Did not submit the PCFO organization-wide financial statements to OPM;
                 •	 submitted the LFCC Compliance Assessment for the 2006 Campaign to
                    OPM on September 21,2007,6 days late, and;
                 •	 submitted the AUPs for the 2005 campaign to aPM on September 21,
                    2007, 6 days late.

          PCFO's Comments:

          The PCFO agrees with this finding. They stated that in the future, the LFCC will
          make every effort to submit the required reports on time.

          Recommendation 1

          We recommend that the OCFCO and PCFO work with the LFCC to ensure that it
          provides the required reports by the due date as set forth in the CFC Audit Guide.

B.   BUDGET AND CAMPAIGN EXPENSES

     1.   Campaign Expenses Charged to the Incorrect Campaign Year                       $1,812

          The PCFO incorrectly charged the 2006 campaign $1,812 for audit fees related to the
          AUPs for the 2005 campaign.




                                               6

     According to 5 CFR 950.1 06 (b) "The PCFO may only recover campaign expenses
     from receipts collected for that campaign year."

     We reviewed the 2006 campaign expenses to determine if the expenses were charged
     to the correct campaign year. We determined that the PCFO received and paid three
     invoices, totaling $1,812, from its IPA for AUPs performed for the 2005 campaign.
     Based on our review, we determined that the PCFO incorrectly charged the 2006
     campaign for expenses that should have been charged to the 2005 campaign.
     Application of a 2005 expense to the 2006 campaign is inappropriate because
     campaigns should only incur expenses related to that year's campaign.

     Additionally, application of expenses to the incorrect campaign year will adversely
     effect the net designations due to the charities and result in the wishes ofthe CFC
     donors not being fully realized, and may result in future difficulty in tracing expenses
     from previous campaigns.

     PCFO's Comments:

     The PCFO agrees with the finding and stated that it would begin setting aside monies
     in an escrow account to be used to cover the cost associated with the IPA's review
     and AUPs.

     Recommendation 2

     We recommend that the OCFCO and LFCC verify that the PCFO has put procedures
     in place to ensure that expenses are charged tothe campaign year they are related to.

2.   PCFO Expense Reimbursement Not Approved by the LFCC

     The LFCC did not review or approve the $58,065 in 2006 campaign expenses prior to
     the PCFO's reimbursement.        .

     5 CFR 950.1 04(b)( 17) states that the LFCC is responsible for "Authorizing to the
     PCFO reimbursement of only those campaign expenses that are legitimate CFC costs
     and are adequately documented. Total reimbursable expenses may not exceed the
     approved campaign budget by more than 10 percent." This provision is a control
     designed to help ensure that the PCFO reimburses itself for only appropriate and
     supportable expenses. Furthermore, 5 CFR 950.106(a) states that the PCFO is to
     recover expenses that reflect the actual cost of administering the campaign and are
     approved by the LFCC.

     Our review of the LFCC meeting minutes did not identify where the LFCC reviewed
     the PCFO reimbursement request or authorized the PCFO to reimburse itself $58,065
     for the expenses it incurred for the 2006 campaign. In addition, the PCFO was unable
     to provide any other documentation showing that the LFCC authorized the
     reim bursement.


                                           7
As a result, we concluded that the LFCC did not review the 2006 campaign expenses
nor approve the reimbursement expenses to ensure that the expenses were appropriate
and were not more that 110 percent of the approved budget.

PCFO's Comments:

The PCFO disagrees with the finding and stated that on April 10, 2007 it discussed .
the 2006 campaign's expenses and reviewed actual expenses against the budget with
the LFCC chairperson, and that it was determined that the actual expenses were in
line with the budget. As a result, the LFCC chairperson agreed to approve the
expenses and a check was written to cover the campaign expenses on April 13, 2007.
On April 24, 2007, the regular LFCC meeting was held and the expenses were again
reviewed against the budget and a vote approving the reimbursement was taken.

OIG Comments:

Based on the LFCC meeting minutes provided with their response, the PCFO is
correct that the reimbursement was approved on April 24, 2007. However, the
physical reimbursement of these expenses was made on April 13,2007 11 days prior
to the approval. This is not a correct application of the "approval" process. The
approval of one member of the LFCC, even the chairperson, does not substantiate
approval of the entire LFCC. Proper approval should be obtained prior to the
reimbursement of costs.

Furthermore, review of the meeting minutes determined that the LFCC did not review
the expenses to determine if they were "legitimate CFC costs" and were "adequately
documented." The meeting minutes state the following:

     '_explained that the budget was $56,315 however expenses totaled
     $58,065.20 which is 8.9% over the approved budget. OPM allows for the
     PCFO to be reimbursed up to 10% over the approved budget therefore on the
     motion of                    and second of             the United Way
     will be reimbursed the total expenses."

Based upon the meeting minutes and the PCFO's explanation, the only review by the
LFCC was to determine that the expenses did not exceed the budget by 10 percent. It
is the responsibility of the LFCC to ensure that the expenses charged to the CFC are
legitimate and adequately documented; if that is not the case, they are not to be
approved for reimbursement.

Recommendation 3

We recommend that the OCFCO ensure that the LFCC review the campaign expenses
before reimbursement to the PCFO, and that its basis for the approval is fully
explained and appropriately documented in the LFCC meeting minutes.




                                    8

          Recommendation 4

          We recommend that the OCFCO ensure that the PCFO obtains the approval ofthe
          LFCC prior to the reimbursement of campaign expenses.

C.   CAMPAIGN RECEIPTS AND DISBURSEMENTS

     1.   One-Time Disbursement Threshold Not Approved by the LFCC

          The LFCC did not determine the one-time disbursement threshold amount or
          authorize the PCFO to make such payments for the 2006 CFC campaign as required
          by the Federal regulations.

          5 CFR 950.901 (i) (3) states that the "PCFO may make one-time disbursements to
          organizations receiving minimal donations from Federal employees. The LFCC must
          determine and authorize the amount of these one-time disbursements."

          We reviewed the LFCC meeting minutes to determine if the LFCC determined the
          amount of (i.e., threshold amount) and authorized one-time disbursements for the
          2006 campaign. As a result of our review, we found that the LFCC did not set the
          one-time disbursement threshold nor authorize the one-time disbursement.

          The PCFO informed us at the exit conference that it was not aware that the LFCC had
          to approve the threshold for one-time disbursements for each campaign. Instead it
          used a $500 threshold that was established a number of years ago.

           To comply with the regulation for future campaigns, the LFCC and PCFO should
           establish a one-time payment amount for each campaign year, and clearly document
          .its approval and the criteria the PCFO is to use to calculate the threshold amount.

          PCFO's Comments:

          The PCFO agrees with this finding and stated that in the future the LFCC will set the
          threshold annually for each campaign.

          Recommendation 5

          We recommend that the OCFCO verify that procedures have been put in place that
          ensure that the LFCC properly sets the one-time disbursement threshold amount and
          authorizes one-time disbursements for each campaign year.




                                               9

         IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

                 Auditor-In-Charge

               Auditor


                Group Chief

                 Senior Team Leader




                                      10

                                                                                                                                            APPENDIX A




October 27,2008                                                                                             'United       ~
                                                                                                                        Way~                 "    fM
Office of Personnel Management
Office of Inspector General                                                                                what matters.                    ™

Attention:
1900 E Street, N.W., Room 6400
Washington, DC 20415-1100




The East Central Alabama Combined Federal Campaign agrees with the finding under
A.l. Required Reports Not Submitted or Untimely Submitted by the LFCC, in that
the reports were submitted late. In the future, the LFCC will make every effort to submit
required reports on time.

The East Central Alabama Combined Federal Campaign disagrees with the finding under
B.l. Principal Combined Fund Organization (PCFO) Expense Reimbursement not
Approved by the LFCC. Attached are the April 24, 2007 minutes of the LFCC which
show that this reimbursement was approved.. Also attached are the February 22,2006
minutes of the LFCC showing that year's reimbursement was approved.

The East Central Alabama Combined Federal Campaign agrees with the finding under
B.2. Inappropriate Reimbursement for Audit Fees. The fee of$I,811 was charged to
the 2006 campaign because the 2005 campaign and all its disbursements were required to
be closed out prior to AUP. Attached is the method that will be used in the future to
reimburse fees required for AUF.

The East Central Alabama Combined Federal Campaign agrees with the finding under
C.l. One Time Distribution Threshold Not Approved by LFCC. In the future LFCC
will follow Recommendation 5 by setting this threshold annually for each campaign.

If you need further clarification, please contact me. Thanks for your assistance with this
matter.




                  United Way of East Central Alabama

               P.O. Box 1122 • 1505 Wilmer Avenue • Anniston, Alabama 36202-1122
        (?<;h\ ?1.h-A??Q •(Ann\ .dO.d.?':lR? • S::"v I')<:;&;.\ ?'l;I':_')'l;<:;&;' • • 0"0"" "nil,:..·.j,.,.,.",......... ""1   ....rro

                                                                                                APPENDIXB





-
On April 10, 2007 United Way of East Central Alabama as PCFO discussed campaign expenses,
reviewed actual expenses against budqeted, with the LFCC chairperson. We determined after a review
that the actual expenses were in line with the budget and the LFCC chairperson agreed to approve the
expenses in order that a check could be written to cover the actual. expenses. A check was written on
April 13, 2007 to cover the actual expenses of the campaign. On April 24, 2007 during the monthly LFCC
meeting the campaign expenses were reviewed against the budget and a vote to approve the decision for
reimbursement was taken. The LFCC approved the reimbursement.
Thanks for your assistance.



Executive Director

United Way of East Central Alabama