oversight

Audit Of The 2007 Through 2010 Combined Federal Campaigns Of The National Capital Area Alexandria, Virginia

Published by the Office of Personnel Management, Office of Inspector General on 2012-03-14.

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

                                                      u.s. OFFICE OF PERSONNEL MANAGEMENT
                                                                  OFFICE OF THE INSPECTOR GENERAL
                                                                                   OFFICE OF AUDITS




Final Audit Report
Subject:


                  AUDIT OF THE 2007 THROUGH 2010 

                  COMBINED FEDERAL CAMPAIGNS 

                  OF THE NATIONAL CAPITAL AREA 

                      ALEXANDRIA, VIRGINIA 





                                            Report No. 3A-CF-OO-IO-034

                                                           March 14, 2012
                                            Date:




                                                             --CAUTION-
This a udit rtport has bttn distri buted to Ftdtrlll officials who art responsible for the administration ortht audited program. This audit
report may con tain proprietary data which is protected by .'edtra llaw (18 U.S.c. )?OS). Thertfore, while Ihis audit report is 1I\'aila blt
under Ihe Frttdom of Information AcllRd madt IIvailllblt to tht pu blic on the OIG ..·tbpagt. Clulion necds to bt tnrci~td btfore
rtltasing Iht report to tht genera l public 115 it may co ntain propridary information thlt was redaCltd from tht pubtidy d istributed cop~·.
                                   UN ITED STATES OFFICE OF PERSONNEL MANAGEM ENT 

                                                                     Washington , DC 20415 



  Office of the
inspector General




                                                                 AUDIT REPORT 




                                            AUDIT OF THE 2007 THROUGH 2010 

                                            COMBINED FEDERAL CAMPAIGNS 

                                            OF THE NATIONAL CAPITAL AREA 

                                                ALEXANDRIA, VIRGINIA 



                    Report No. 3A-CF-OO-IO-034                                                    Date:March 14, 2012




                                                                                                     ~t?~
                                                                                                    Michael R. Esser
                                                                                                    Assistant Inspector General
                                                                                                      for Audits




                                                                        --CAUTION-
       This l udi t report hlU bten di stri buted to Ftdcral officials ""bo arc respo nsi ble for Iht ad ministration of lhe au dited progf'll m. This lI udil
       report mA y contain proprietary data which is protected by Fcdrnllllaw (18 U.S.c. 19(15). Therefore. while this a udi t report is ava ila ble
       under the Frttdom of Informa tion "eland mad e ava ilable to th e public on Ih e OIG wcbpage. notio n news to be ucrciscd be fore
       rt ltasin g Iht report to the gcnuI I public n it mil)' co ntlin proprietary information tb a' was red ac led from Iht publicly distrib uted copy.




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                            UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                                 Washington. DC 2041 5 



    Office of the
IlIspeclor Gcncml




                                        EXECUTIVE SUMMARY 





                                 AUDIT OF THE 2007 THROUGH 2010 

                                 COMBINED FEDERAL CAMPAIGNS 

                                 OF THE NATIONAL CAPITAL AREA 

                                     ALEXANDRIA, VIRGINIA 



                    Report No. 3A-CF-OO-IO-034                        Date: March 14, 20 1 2

       The Office of the inspector General has completed an audit of the 2007 through 20 10 Combined
       Federal Campaigns (CFC) of the National Capital Area (NCA). Global Impact, located in
       Alexandria, Virginia, served as the Principal Combined Fund Organization (PCFO) during these
       campaigns. Our main obj ective was to determine if the CFCNCA was in compliance with Title
       5, Code of Federal Regulations, Part 950 (5 eFR 950). including the responsibilities of both the
       PCFO and the Local Federal Coordinating Committee (LFCC). The audit identified seven
       instances of non-compliance with the regulations governing the eFe. and questions $308,820 in
       expenses charged to the campai gns. In addition, we identified $764,069 in expenses that could
       have been put to better use for the campaigns.

      The following findin gs represent the results of our audit work as of the date of this report.

                                           AUDIT GUIDE REVIEW

       Our review of the Independent Public Accountant's completion of the agreed-upon procedures
       for the 2007 campaign showed that it complied with applicable provisions of the CFC Audit
       Guide For Campaigns with Pledges $1 Million and Greater (CFC Audit Guide).




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                          BUDGET AND CAMPAIGN EXPENSES

•   Untimely PCFO Reimbursement for 2007 and 2008 Expenses                             Procedural

    The PCFO reimbursed itself for CFC campaign expenses after the date set by the Office of
    Personnel Management’s (OPM) Office of the Combined Federal Campaign (OCFC) for
    final campaign disbursements in campaign years 2007 and 2008.

•   PCFO Overcharged for Travel Expenses                                                   $40,081

    It should be noted that although the PCFO labeled this expense category as travel expenses,
    they also included other types of expenses such as meals and appreciation luncheons in this
    category, which are included in the questioned amounts below. We noted the following from
    our review of these expenses:

       1. The PCFO was reimbursed for unreasonable, unallowable, or unsupported travel
          expenses in the amounts of $15,318 in 2007, $12,733 in 2008, and $12,030 in 2009.

       2. Additionally, the PCFO charged expenses to the wrong campaign in the amounts of
          $8,411 in 2007, $2,164 in 2008, and $5,228 in 2009. We are not requiring that these
          amounts be reallocated to the appropriate campaign since the campaign years in
          question are already closed.

•   PCFO Overcharged for Campaign Expenses                                               $268,739

    We noted the following from our review of campaign expenses:

       1. The PCFO was reimbursed for unreasonable, unallowable, or unsupported expenses
          in the amounts of $81,640 in 2007, $80,958 in 2008, and $106,141 in 2009.

       2. Additionally, the PCFO charged expenses to the wrong campaign in the amounts of
          $39,605 in 2007, $49,076 in 2008, and $22,366 in 2009. We are not requiring that
          these amounts be reallocated to the appropriate campaign since the campaign years in
          question are already closed.

       3. Finally, we identified $764,069 related to training events, CFCNCA conferences,
          design and marketing services, software applications and licensing fees, appreciation
          luncheons, and finale events that could have been put to better use by the PCFO.

•   Improper Accounting for Campaign Expenses by PCFO                                  Procedural

    The PCFO's accounting policies and procedures allowed for the reimbursement of accrued
    costs as well as actual costs, which could potentially result in overcharges to the campaign
    and limit the amounts disbursed to the participating charities.



                                                 ii
                     CAMPAIGN RECEIPTS AND DISBURSEMENTS

•   PCFO was Reimbursed for Estimated Expenses                                        Procedural

    The PCFO was incorrectly reimbursed $2,129 for estimated expenses related to a special
    distribution of funds.

•   Unearned Interest in the CFCNCA Bank Accounts                                     Procedural

    The PCFO did not obtain approval from the OCFC for earning a credit, instead of interest, on
    campaign funds in the CFCNCA           Account.

                                         ELIGIBILITY

•   Untimely Notice of Eligibility Decisions by LFCC                                  Procedural

    The LFCC did not issue its eligibility decisions within 15 business days of the closing date
    for receipt of applications, for charities wishing to participate in the 2008 campaign.




                                                iii
                                                   CONTENTS
                                                                                                                          PAGE

       EXECUTIVE SUMMARY ............................................................................................. i

  I.   INTRODUCTION AND BACKGROUND ................................................................... 1

 II.   OBJECTIVES, SCOPE AND METHODOLOGY .......................................................... 3

III.   AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 8

       A.     AUDIT GUIDE REVIEW ..................................................................................... 8

       B.     BUDGET AND CAMPAIGN EXPENSES ........................................................... 8

              1.   Untimely PCFO Reimbursement for 2007 and 2008 Expenses ...................... 8
              2.   PCFO Overcharged for Travel Expenses ........................................................ 10
              3.   PCFO Overcharged for Campaign Expenses .................................................. 21
              4.   Improper Accounting for Campaign Expenses by PCFO ............................... 32

       C.     CAMPAIGN RECEIPTS AND DISBURSEMENTS .......................................... 35

              1. PCFO was Reimbursed for Estimated Expenses ............................................ 35
              2. Unearned Interest in the CFCNCA Bank Accounts ....................................... 36

       D.     ELIGIBILITY ....................................................................................................... 37

              1. Untimely Notice of Eligibility Decisions by LFCC ....................................... 37

IV.    MAJOR CONTRIBUTORS TO THIS REPORT .......................................................... 39

       APPENDIX A (The PCFO response, dated June 23, 2011, to the draft audit report)
       APPENDIX B (The PCFO response, dated July 11, 2011, to the draft audit report)
       APPENDIX C (The PCFO response, dated July 18, 2011, to the draft audit report)
       APPENDIX D (The PCFO response, dated July 29, 2011, to the draft audit report)
                    I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the findings and conclusions resulting from our audit of the Combined Federal
Campaigns of the National Capital Area (CFCNCA) for 2007 through 2010. 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. In 2009, it consisted of 226 separate local campaign organizations located throughout
the United States, including Puerto Rico and the Virgin Islands, as well as overseas locations.
The Office of the Combined Federal Campaign (OCFC) at OPM has the responsibility for
management of the CFC. This includes publishing regulations, memoranda, and other forms of
guidance to Federal offices and private organizations to ensure that all campaign objectives are
achieved.

Each CFC is 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; determining the eligibility of local voluntary organizations; selecting and
supervising the activities of the PCFO; encouraging Federal agencies to appoint Loaned
Executives to assist in the campaign; ensuring that employees are not coerced in any way in
participating in the campaign; and acting upon any problems relating to a voluntary agency’s
noncompliance with the policies and procedures of the CFC. Loaned Executives are Federal
employees who are temporarily assigned to work directly on the CFC.

The primary goal of the PCFO is to administer an effective and efficient campaign in a fair and
even-handed manner aimed at collecting the greatest amount of charitable contributions possible.
Its responsibilities include training loaned executives, coordinators, employee keyworkers and
volunteers; maintaining a detailed schedule of its actual CFC administrative expenses; preparing
pledge cards and brochures; distributing campaign receipts; submitting to an audit of its CFC
operations by an Independent Certified Public Accountant (IPA) in accordance with generally
accepted auditing standards; cooperating fully with the 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 No. 12353 and No. 12404 established a system for administering an annual
charitable solicitation drive among Federal civilian and military employees. Title 5 Code of
Federal Regulations Part 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 the LFCC. The PCFO
is also responsible for establishing and maintaining a system of internal controls.



                                               1
All findings from our previous audit of the CFCNCA (Report Number 3A-CF-00-03-011, dated
May 9, 2005), covering the 2001 campaign, have been satisfactorily resolved.

The initial results of our audit were discussed with PCFO officials during the exit conference
held on December 8, 2010. The LFCC did not attend the exit conference. A draft report was
provided to the PCFO and the LFCC on May 31, 2011, for review and comment. The PCFO’s
responses to the draft report were considered in the preparation of this final report and are
included as Appendices. The draft responses are not included in their entirety because of their
size. Instead, we only included portions of the responses that directly addressed the PCFO’s
comments to our audit issues. No formal comments were provided by the LFCC to the draft
report.




                                                2
                  II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary purpose of our audit was to determine if the CFCNCA was in compliance with
5 CFR 950, including the activities of both the PCFO and the LFCC. One of our audit objectives
for the 2007 campaign was:

    Audit Guide Review
    • To determine if the IPA completed the Agreed-Upon Procedures (AUPs) as outlined in
       the CFC Audit Guide For Campaigns with Pledges $1 Million and Greater (CFC Audit
       Guide).

Additionally, our audit objectives for the 2007 through 2009 campaigns were as follows (for the
2010 campaign, the review was limited to the area specifically indicated below):

    Budget and Campaign Expenses
    • To determine if the PCFO solicitation, application, campaign plan, and budget were in
       accordance with regulations. (These areas were also reviewed for the 2010 campaign)
    • To determine if the expenses charged to the campaign were actual, reasonable, allocated
       properly, approved by the LFCC, and did not exceed 110 percent of the approved budget.

    Campaign Receipts and Disbursements
    • To determine if the pledge card format was correct and if the pledge card report agreed
       with the actual pledge cards.
    • To determine if incoming pledge monies were allocated to the proper campaign year and
       that the net funds (less expenses) were properly distributed to member agencies 1 and
       federations.
    • To determine if the member agencies and federations were properly notified of the
       amounts pledged to them and that donor personal information was only released for those
       who requested the release of information.

    Eligibility
    • To determine if the charity list (CFC brochure) was properly formatted and contained the
        required information; if the charitable organization application process was open for the
        required 30-day period; if the applications were appropriately reviewed, evaluated, and
        approved; if the applicants were notified of the eligibility decisions in a timely manner;
        and if the appeals process for denied applications was followed.

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

1
 The terms ‘member agencies’ and ‘agencies’, used throughout this report, refer to charitable organizations that
participate in the CFC.

                                                         3
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 the 2007 through 2010 campaigns. Global Impact, located in Alexandria,
Virginia, served as the PCFO during these campaigns. The audit fieldwork was conducted at the
offices of the PCFO from July 12 through July 23, 2010. Additional audit work was completed
at our Washington, D.C. office. The significant amount of time from the end of our audit to the
issuance of this report is due largely to the voluminous response by the PCFO to the draft report,
and the extensive review and analysis that was necessary to finalize the report.

The CFCNCA received campaign pledges, collected campaign receipts, and incurred campaign
administrative expenses for the 2007 through 2009 campaigns as shown below:

    Campaign               Total                      Total                Administrative
      Year                Pledges                    Receipts                Expenses
       2007             $60,799,023                 $57,895,815              $5,381,784

       2008             $62,733,353                 $59,728,858              $5,054,516

       2009             $66,535,844                 $64,768,634              $5,009,496

At the time of this report, 2010 information was not available since the campaign was still open.

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 came to our attention during
our review of the 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 the 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 tests of accounting records and such other auditing
procedures as we considered necessary to determine compliance with 5 CFR 950 and the CFC
Memoranda issued by the OCFC.

To accomplish our objective for the Audit Guide Review, we reviewed the CFC Audit Guide and
completed the AUP checklist to verify that the IPA completed and documented the AUP steps.

In regard to our objectives concerning the campaign’s budget and campaign expenses, we
accomplished the following:

   •   For the 2007 through the 2010 campaigns, we reviewed the PCFO’s applications to verify
       if they were complete.

                                                4
    •   For the 2007 through the 2010 campaigns, we reviewed a copy of the public notice to
        prospective PCFOs, and the LFCC meeting minutes to verify that the PCFO was selected
        in a timely manner.

    •   For the 2007 through the 2009 campaigns, we traced and reconciled the amounts on the
        PCFO’s Schedule of Actual Expenses to the PCFO’s general ledger.

    •   For the 2007 through 2009 campaigns, we reviewed the PCFO’s budgeted expenses, the
        LFCC’s approval of the budget, and matched a sample of actual expenses to supporting
        documentation. We examined the following campaign expense items for campaign years
        2007 through 2009:

        1. We judgmentally selected 61 travel and meals transactions (totaling $37,301 from a
           universe of 196 transactions totaling $46,952) for 2007; 30 travel and meals
           transactions (totaling $20,446 from a universe of 189 transactions totaling $32,819)
           for 2008; and 31 travel and meals transactions (totaling $40,212 from a universe of
           233 transactions totaling $60,597) for 2009.

        2. We judgmentally selected 228 campaign expense transactions, excluding travel
           expenses, (totaling $2,273,185 out of a universe of 621 transactions totaling
           $2,570,431) for 2007; 245 campaign expense transactions (totaling $2,541,549 from a
           universe of 839 transactions totaling $2,320,468) for 2008 2; and 191 campaign
           expense transactions (totaling $2,190,970 from a universe of 565 transactions totaling
           $2,514,154) for 2009. The sample and universe transaction amounts were derived by
           netting total expense debits and total expense credits.

        3. We judgmentally selected, based on a nomenclature review, whether the expense
           appeared to be unusual, and whether the expense benefitted the campaign: 59 indirect
           expense transactions (totaling $509,690 from a universe of 930 transactions totaling
           $1,150,198) for 2007; 32 indirect expense transactions (totaling $175,902 from a
           universe of 575 transactions totaling $656,927) for 2008; and 21 indirect expense
           transactions (totaling $96,171 from a universe of 190 transactions totaling $329,922)
           for 2009.

        4. We judgmentally selected a sample of all PCFO employees (i.e., CFCNCA staff
           members) who were 100 percent dedicated to the CFCNCA, or whose salary was
           allocated between CFC and non-CFC work. We had concerns about how the salaries
           were allocated so we tested the amount of the salaries that were charged to the
           campaign. Specifically, we selected 28 out of 132 employees in 2007, 21 out of 132
           employees in 2008, and 28 out of 132 employees in 2009.

    •   For the 2007 and 2008 campaigns, we reviewed the LFCC meeting minutes and verified
        that the LFCC authorized the PCFO’s reimbursement of campaign expenses.


2
 Because sample and universe transaction amounts were derived by netting total expense debits and total expense
credits, for 2008, the sampled transaction amount was greater than the universe transaction amount.

                                                        5
   •   For the 2007 through the 2009 campaigns, we compared the budgeted expenses to actual
       expenses and determined if actual expenses exceeded 110 percent of the approved
       budget.

To determine if the campaign’s receipts and disbursements were handled in accordance with
CFC regulations, we reviewed the following:

   •   A judgmental sample of 75 pledge cards totaling $19,316, and 12 electronic pledges
       totaling $8,559 (from a universe of 139,404 pledge cards, totaling $62.7 million) from the
       2008 PCFO’s Pledge Card Report and compared the pledge information from the report
       to the actual pledge cards. Specifically, we judgmentally selected the first 25 pledge
       cards on each of 3 tabs in the Pledge Card Detail Schedule and the first 3 donors on each
       of 4 tabs in the Electronic Pledges File for review;

   •   Cancelled distribution checks for the 2008 campaign to verify that the appropriate
       amount was distributed in a timely manner;

   •   One-time disbursements, for the 2007 and 2008 campaigns, 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 for the 2008 campaign to verify that the PCFO notified
       the CFC agencies of the designated and undesignated amounts due them by the date
       required in the regulations;

   •   The donor list letters for the 2008 campaign sent by the PCFO to organizations to verify
       the letters properly notified the organizations of the donors who wished to be recognized;

   •   CFC receipts and distributions from the PCFO’s campaign bank statements, campaign
       receipts and agency disbursements, and campaign expense support to verify whether the
       PCFO accurately recorded and disbursed all 2007 and 2008 campaign receipts and
       disbursements;

   •   All bank statements used by the PCFO for the 2008 campaign to verify that the PCFO
       was properly accounting for and distributing funds; and

   •   The PCFO’s cutoff procedures and bank statements for the 2008 campaign to verify that
       funds were allocated to the appropriate campaign year.

To determine if the LFCC and PCFO were in compliance with CFC regulations regarding
eligibility we reviewed the following:



                                               6
   •   For the 2007 through 2009 campaigns, the public notice to prospective charitable
       organizations to determine if the LFCC accepted applications from organizations for at
       least 30 days;

   •   For the 2008 campaign, the process and procedures for the application evaluation
       process;

   •   For the 2008 campaign, a sample of eligibility letters to verify they were properly sent by
       the LFCC; and

   •   For the 2008 campaign, the LFCC’s processes and procedures for responding to appeals
       from organizations.

The samples mentioned above, that were selected and reviewed in performing the audit, 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.




                                                7
              III. AUDIT FINDINGS AND RECOMMENDATIONS
A.   AUDIT GUIDE REVIEW

     Our review of the IPA’s completion of the AUPs for the 2007 campaign showed that it
     complied with the applicable provisions of the CFC Audit Guide.

B.   BUDGET AND CAMPAIGN EXPENSES

     1.   Untimely PCFO Reimbursement for 2007 and 2008 Expenses                   Procedural

          The PCFO reimbursed itself for campaign expenses after the date set by OPM’s
          OCFC for final campaign disbursements to be made in campaign years 2007 and
          2008.

          The CFC Calendar of Events, issued by OPM’s OCFC, required the PCFO to make
          the final distributions to close out the campaigns by March 31, 2009, for the 2007
          campaign and March 31, 2010, for the 2008 campaign.

          We reviewed all of the PCFO’s CFC disbursements to determine if they were timely
          in accordance with the CFC Calendar of Events. During our review, we found that
          the PCFO's final expense reimbursements, for both the 2007 and 2008 campaigns,
          were made past the deadline set by the CFC Calendar of Events. Specifically, we
          found the following:

          •   For the 2007 campaign, the PCFO's final CFC expense reimbursement, totaling
              $11,025, was made in April 2010. This reimbursement was made over one year
              past the deadline (March 31, 2009) set in the CFC Calendar of Events.

          •   For the 2008 campaign, the PCFO's final two CFC expense reimbursements,
              totaling $10,568 and $33,170, were made in April and June 2010, respectively.
              Both payments were made past the March 31, 2010, deadline set in the CFC
              Calendar of Events.

          Additionally, 5 CFR 950.105(c)(2)(iii) states that in applying for the position of
          PCFO, the applying organization pledges to “abide by the directions, decisions, and
          supervision of the LFCC and/or Director” (OPM). It is our opinion that the CFC
          Calendar of Events as issued by the OCFC are directions received from OPM.

          As a result of misinterpreting the intent of the guidance provided in OPM's CFC
          Calendar of Events as to final campaign disbursements, the PCFO reimbursed itself in
          an untimely manner for both the 2007 and 2008 campaigns.




                                              8
PCFO Comments:

The PCFO contends that the OIG mistakenly alleges that all campaign expense
disbursements must be made on or before the second March 31 following the
commencement of the campaign. It interprets the deadlines for final campaign
disbursement that are included in OPM's CFC Calendar of Events to apply only to
distributions to charities, because final expense reimbursement cannot be completed
until all third party expense invoices or other demands for payment related to a
campaign are received by the PCFO. In some cases, third party expenses are incurred
right up to the Calendar's deadline and invoices are received by the PCFO after the
deadline has passed. If the OIG's interpretation is correct, those invoices would not
be able to be paid.

OIG Response:

We disagree with the PCFO's contention that the deadlines for final campaign
expense disbursement included in OPM's CFC Calendar of Events only apply to the
distributions to charities. The Calendar of Events clearly directs the PCFO to make
the final disbursement of “campaign funds” by its specified deadlines. There is
nothing that would indicate that “campaign funds” refers only to funds that are to be
disbursed to charities, as opposed to all remaining campaign funds that need to be
disbursed, including the PCFO's campaign expense reimbursement. The only
amounts that are excluded from the final disbursement are those costs that are accrued
to cover expenses that will be incurred after the close of the campaign.

Additionally, we would question whether the third party expenses mentioned by the
PCFO are being charged to the correct campaign. Typically, by the second February
following the commencement of the campaign, campaigns are not incurring expenses
for the current campaign, but for subsequent campaigns. For example, expenses
related to the solicitation of a PCFO are typically incurred at this time, and these
expenses should be charged to the upcoming campaign instead of the current
campaign. However, if the PCFO knows they are going to be incurring legitimate
campaign costs close to the March 31st deadline, then they should follow the guidance
contained in CFC Memorandum 2008-09, which directs the PCFO to accrue costs
that will be incurred after the close of the campaign and withhold funds for the
expense from the final campaign distribution. Once the actual expense is incurred,
the PCFO should compare the actual expense to the accrued amount. If the amounts
are equal, then the PCFO should request authorization from the LFCC to be
reimbursed for the actual expense amount. If the amounts are different, the
memorandum dictates that the difference should be handled in one of the following
ways:

•   If the cost is less than the amount withheld and the difference is less than one
    percent of the campaign's gross pledges, the amount remaining after paying the
    invoice should be distributed to the currently active campaign.



                                     9
     •   If the cost is less than the amount withheld and the difference is greater than one
         percent of the campaign's gross pledges, the campaign should be reopened and a
         distribution made to all organizations (except for those that received one-time
         disbursements).

     •   If the cost is greater than the amount withheld and the overage is less than one
         percent of the campaign's gross pledges, the PCFO should provide the LFCC with
         an explanation for the overage and request authorization from the LFCC to use
         funds from the currently active campaign to pay for the overage.

     •   If the cost is greater than the amount withheld and the overage is greater than one
         percent of the campaign's gross pledges, the LFCC should meet with the PCFO to
         determine the reasons for the overage. If the reasons were due to issues within the
         PCFO's control, then the LFCC may either authorize payment from the currently
         active campaign or require the PCFO to pay the overage. If the reasons were due
         to issues outside of the PCFO's control, the LFCC should authorize payment of
         the overage from funds of the currently active campaign.

     Consequently, as we mentioned in the finding above, we conclude that the PCFO
     misinterpreted the intent of the deadlines set in OPM's CFC Calendar of Events.
     Because of this misinterpretation, the PCFO reimbursed itself in an untimely manner
     for both the 2007 and 2008 campaigns. Additionally, by reimbursing itself after the
     deadline set for final distributions, the PCFO runs the risk of potentially including
     expenses that belong to other campaigns in its final expense reimbursement.

     Recommendation 1

     We recommend the OCFC and the LFCC ensure that the PCFO follows its internal
     procedures to ensure that all CFC funds, except for those campaign expenses that are
     accrued for reimbursement after the close of a campaign, are disbursed by the date
     required by the CFC Calendar of Events.

     Recommendation 2

     We recommend that, for those expenses that are accrued for reimbursement after the
     close of the campaign, that the PCFO follow the guidance included in CFC
     Memorandum 2008-09 as to how those amounts are to be disbursed once the actual
     invoice for them is received.

2.   PCFO Overcharged for Travel Expenses                                            $40,081

     The PCFO was reimbursed for unreasonable, unallowable, or unsupported travel
     expenses in the amounts of $15,318 in 2007, $12,733 in 2008, and $12,030 in 2009.
     It should be noted that although this expense category is called travel expenses, the
     PCFO also included other types of expenses such as meals and appreciation
     luncheons in this category, and we have included them in the questioned amounts
     above. Additionally, the PCFO charged expenses to the wrong campaign in the

                                          10
amounts of $8,411 in 2007, $2,164 in 2008, and $5,228 in 2009. We are not
requiring that these amounts be reallocated to the appropriate campaign since the
campaign years in question are already closed.

According to 5 CFR 950.105(b), the PCFO is responsible for conducting an effective
and efficient campaign in a fair and even-handed manner aimed at collecting the
greatest amount of charitable contributions possible.

Additionally, 5 CFR 950.106(a) states that the PCFO shall recover from the gross
receipts of the campaign its expenses reflecting the actual costs of administering the
local campaign.

Finally, 5 CFR 950.106(b) states that the PCFO may only recover campaign expenses
from receipts collected for that campaign. In other words, the PCFO may only be
reimbursed for its 2009 campaign expenses from the funds received for the 2009
campaign.

During our review, we examined travel expenses totaling $37,301 in 2007, $20,446 in
2008, and $40,212 in 2009. Consequently, for the 2007 through 2009 campaigns, we
sampled expenses totaling $97,959 out of a universe of $140,368. We judgmentally
selected this sample by choosing all transactions over $500, transactions which
included a description referencing the LFCC, and transactions posted several months
after the incurred date. During our review of these travel expenses, we found
numerous transactions which we determined were unallowable or unreasonable and
have cited the following as examples:

•   Documentation to support the expense was not provided;

•   Expenses were charged for events or items that did not directly benefit the
    campaign. For example:

       1. $1,095 was charged for Christmas party costs for Loaned Executives;

       2. $77 was charged for flower arrangements for employees; and

       3. $400 was charged for chair massages provided by an outside contractor at
          a Loaned Executive meeting; and,

•   Expenses of $3,766 were charged for lodging and meals for extra days when
    employees arrived early for a CFC conference or extended their stay after the
    conference.

Additionally, we found numerous transactions, totaling $18,161, for the cost of
breakfasts and lunches for the Local Application Review Committee (LAC), the
LFCC sub-committee that reviews the applications of organizations wishing to
participate in the CFC; the cost of lunches for the entire LFCC Board; and the cost of


                                     11
meals during the Loaned Executive meetings. In fact, our review showed that the
PCFO and LFCC frequently provided meals as part of their regular meetings, and
charged the costs of these meals to the campaign. Additionally, our review of other
meal expenses revealed a culture within the LFCC and the PCFO where the charging
of meals as part of the normal course of business was considered to be an acceptable
expense to the campaign. However, we believe these costs are unreasonable because
they did not provide a direct benefit to the campaign. Furthermore, providing meals
during CFC meetings is counterproductive to the CFC goal of collecting the greatest
amount of charitable contributions possible.

We determined that the PCFO overcharged $15,318 in 2007, $12,733 in 2008, and
$12,030 in 2009, for unreasonable, unallowable, or unsupported travel expenses. As
a result of overcharging these expenses during the 2007 through 2009 campaigns, a
total of $40,081 was not properly distributed to charities participating in the CFC for
these years. The total amounts questioned in each year by expense category are
summarized in the table below.

                               Questioned Expenses
 Expense Category                        2007         2008                   2009
                                      Campaign     Campaign                Campaign
 Meals Provided During Routine          $4,317       $6,193                 $7,650
 CFC Business Activities
 Unallowable Travel Expenses            $3,232       $1,568                   $495
 Loaned Executive Christmas Party       $1,095
 Appreciation Luncheons for             $1,872       $1,880                  $3,015
 Loaned Executives
 Chair Massages                                       $400
 Other Costs not Beneficial to          $4,802       $2,692                   $870
 Campaign
 Totals                                $15,318      $12,733                  $12,030

In its response to our draft report, the PCFO separated its comments into several
categories based on the nature of the items questioned in the audit finding. In order to
enhance readability, our final report incorporates the PCFO’s comments on a
category-by-category basis. Our responses immediately follow each separate PCFO
comment.

PCFO Comments – Meals at LAC and LFCC Meetings:

The PCFO contends that LFCC/LAC meals are reasonable and allowable campaign
expenses. According to the “Proven Practices and New Innovations” Memorandum,
which is part of the LFCC Campaign Manual, OPM specifically states that “[a] meal
served in conjunction with a campaign event is an allowable expense that may be
paid from campaign receipts. The cost would be included in campaign expenses.
The LFCC Chair makes decisions about the appropriateness of CFC-sponsored
dinners and luncheons.” The PCFO states that the meals in question were provided

                                     12
during official campaign meetings at which campaign business was transacted, so that
work performed by the LFCC and the LAC members, who are volunteers, could be
conducted more efficiently, which, in turn, benefits the campaign. For example,
during the LAC meetings at issue, LAC members reviewed numerous applications of
federations and charities for inclusion in the 2007 through 2009 CFCNCA.

Pursuant to 5 CFR 950.204(e), eligibility determinations must be completed
according to a timetable set by OPM. Consequently, the PCFO contends that meals
were provided to the LAC in order to allow them to complete their time sensitive
work and to provide a minor benefit to these workers, who furnish their time and
services without compensation. The per-person average cost of the breakfasts
provided to LAC members ranged from $7.47 to $8.60, and the average cost of
lunches provided ranged from $12.52 to $14.50. Additionally, lunches provided at
the 2007 through 2009 LFCC board meetings were also minimal and ranged from $11
to $13.50 per person.

OIG Response:

The PCFO’s comments demonstrate that it has taken the position that any event
where campaign business is conducted or where campaign staff is involved
constitutes a “campaign event”, the expenses of which are chargeable to the
campaign. The OIG finds this approach to the administration of a campaign
extremely disturbing and suspects that most donors would as well. We cannot agree
with such a broad interpretation given that the purpose of the campaign is to raise the
maximum amount of contributions for participating charities. Under the PCFO’s
definition of “campaign event”, Federal employees’ charitable contributions can be
used to finance an array of expenses that are clearly not contemplated as being
appropriate by the establishing Executive Orders or OPM regulations.

Consequently, we do not agree that meals provided in the course of conducting
routine campaign business are allowable campaign expenses. The PCFO contends
that because the meals were provided during official campaign meetings and allowed
the LFCC and the LAC members to conduct their work in a more efficient manner,
that these expenses also benefitted the campaign, making the meals allowable as part
of “campaign events.”

To further address the PCFO's comments, we asked OPM's OCFC for a definition of
what constitutes a “campaign event.” According to the OCFC, a “campaign event” is
an event that is a special and out-of-the-ordinary occurrence (in other words
something outside of the normal operating functions of the campaign). Such events
should also be geared toward the raising of monies for the campaign. On this basis,
we maintain our position that these meetings do not constitute “campaign events” and
the meals included as part of these routine meetings should not be paid for with
campaign dollars.




                                     13
In addition, the PCFO states that “meals were provided to the LAC…to provide a
minor benefit to these Campaign workers, who furnish their time and services without
compensation.” On the contrary, the LAC members continue to receive their full
Federal salary and benefits. They are acting in their official capacity as Federal
employees, and this work is considered to be part of their official duties.

Even if one accepted the argument that these expenses were appropriate, the PCFO
did not provide sufficient details to justify an operational need to provide meals to the
LAC members while completing their application reviews. The simple fact that the
CFCNCA, as the largest campaign in the program, has more applications to review
than other campaigns does not provide sufficient justification for the expense.

PCFO Comments – Expenses of Certain Events:

The PCFO maintains that meetings and events involving Loaned Executives,
CFCNCA staff, and LFCC members at which food was served are allowable
campaign expenses. The OIG challenges other campaign meetings and events at
which Loaned Executives and others in attendance received meals. At these
meetings, the Loaned Executives received training, exchanged information with
campaign staff and volunteers about the progress of the campaigns, or were thanked
and honored for their service on behalf of the CFCNCA. The PCFO contends that the
cost of these meals is allowable because campaign business was conducted at these
events, which benefits the CFC. With the exception of the end of campaign thank-
you events, the average cost per person of the lunches was less than $20, in some
cases, far less. The end of campaign thank-you lunches held once each season
averaged around $50 per person.

The PCFO states that the lunches are important morale boosters to a critical
constituency that has been integral in making the CFCNCA successful. OPM has
stated that award ceremonies are appropriate and that costs related to them are
legitimate campaign expenses. In fact, in CFC Memorandum 2008-09, OPM has
mentioned that award ceremony costs are reimbursable campaign expenses. As there
is no OPM guidance precluding the amounts spent, in the judgment of the PCFO,
these amounts were reasonable.

Additionally, the OIG challenged the cost of a 2007 campaign Christmas party held
for the Loaned Executives. The PCFO stated that this party provided an opportunity
for the campaign to thank the Loaned Executives for their work and motivate them to
continue their work through the end of the campaign. Again, as no guidance against
such an event has been issued by OPM, in the PCFO's judgment, this event was
appropriate and reasonable.

OIG Response:

Again, we do not agree that meals provided in the course of conducting routine
campaign business, at end of the year campaign thank-you luncheons, and at a


                                     14
Christmas party for the Loaned Executives are allowable campaign expenses for the
reasons expressed above.

The appreciation luncheon in question occurred during the 2007 campaign and totaled
$3,560, which amounted to an average cost per person of approximately $51. This
cost is both unreasonable and excessive, in addition to being redundant since the
campaign also held a finale event, where campaign workers were again recognized
and rewarded. According to the OCFC, one thank-you lunch is an acceptable
campaign expense, but it does not see a need for or the benefit of multiple thank-you
lunches, unless the lunches were to thank different groups of people. It is for this
reason that we also disallowed the appreciation lunch of $1,880 charged to the 2008
campaign and the lunch of $3,015 charged to the 2009 campaign.

The PCFO contends that the Christmas Party for the Loaned Executives provided an
opportunity to thank the Loaned Executives for their work and to motivate them to
continue their work through the end of the campaign. While we agree that CFC
regulations and guidance from OPM are silent as to these types of events, we do not
see how this type of event addresses the campaign's primary aim of collecting the
greatest amount of charitable contributions possible.

Furthermore, as we noted above, the Loaned Executives are not campaign
“volunteers”. In fact, they are not volunteers at all. They are Federal employees who
are temporarily assigned, on a full time basis, to the CFCNCA and continue to receive
their regular salary and benefits from their employing Federal agencies during this
time. Work related to the CFCNCA is simply part of their official duties.
Consequently, the argument that these Federal employees need “morale boosters”
because they serve without compensation is without merit.

PCFO Comments - Travel and Conference Expenses:

The PCFO claims that expenses related to attendance by CFCNCA staff and LFCC
members at OPM CFC-related conferences are allowable campaign expenses. The
OIG questioned a variety of expenses incurred by the CFCNCA staff and LFCC
representatives related to days immediately before and after their attendance at annual
OPM conferences. The PCFO contends that these charges are allowable, as the
CFCNCA staff and LFCC representatives were involved in organizing and
conducting portions of the conferences, which explains why they needed to arrive
early or stay late. In a few instances, CFCNCA staff and LFCC representatives not
involved in conference organizing and planning arrived early to attend an evening
reception and/or to ensure prompt attendance at the beginning of the conference. As
such, the questioned lodging fees, taxi expenses, and excess baggage costs connected
with this travel were also allowable expenses.

Furthermore, the OIG challenged hotel expenses associated with the 2007 CFC
conference that included in-room hotel charges for a CFCNCA staff member and the
cost of a dinner attended by other CFC campaign representatives at which


                                    15
comparative campaign practices nation-wide were discussed. Again, these charges
should be allowable as they were incurred in connection with and benefitted the
campaign. Finally, the OIG asserted that the PCFO incorrectly charged some of the
2007 through 2009 conference expenses to the wrong campaign. Following generally
accepted accounting principles (GAAP), the PCFO charged the active campaign at
the time that the expenses were incurred, and no regulations or guidance from OPM
indicates that this practice is incorrect. In any event, even if the PCFO is found to
have been incorrect in its practices, the appropriate remedy would be a reallocation of
the expense to the correct campaign and not disallowing the expense in total.

OIG Response:

With one exception, we disagree with the PCFO's position that travel expenses related
to days immediately before and after attendance at annual OPM conferences are
allowable campaign expenses. The CFC workshops held during the 2007 through
2009 campaigns did not kick off until the early afternoon of the first day, which
should give most attendees plenty of time to arrive for the start of the conference
without having to arrive the day before, even if they are first day presenters. We did
allow the travel expenses related to one employee’s early arrival charged to each
campaign after confirming the legitimate need to arrive early. As to the expenses
charged to the campaign for days following the conferences, we do not understand the
justification that would warrant this type of expenditure.

Additionally, we disagree with the PCFO's position that certain expenses associated
with in-room hotel charges for a CFCNCA staff member and the cost of a dinner
attended by other CFC campaign representatives at which comparative campaign
practices nation-wide were discussed should be allowable costs. The in-room meals
were questioned because they were incurred before the start date of the conference.
The cost of the dinner was questioned because it was a large amount, and, as the
PCFO admitted in its response, was attended by other CFC campaign representatives.
The costs related to the other campaign representatives’ meals should have been
absorbed by their respective campaigns.

Again, we do not believe that the excessively broad definition used by the PCFO
regarding reimbursable expenses (i.e., those that relate in any way to campaign
business or which involve a CFCNCA staff member, Loaned Executive, or LFCC
member) transforms these expenses into allowable or reasonable costs to be charged
to the campaign.

Finally, the PCFO contends that expenses that we identified as being charged to an
incorrect campaign should be reallocated to the correct campaign instead of being
disallowed in total. It states in its response to the draft report that it followed GAAP
and, thus, charged the active campaign at the time that the expenses were incurred,
and no regulations or guidance from OPM indicates that this practice is incorrect. We
completely disagree with this statement. 5 CFR 950.106(b) states that the PCFO may
only recover campaign expenses from receipts collected for that campaign. In other


                                     16
words, the PCFO may only be reimbursed for its 2009 campaign expenses from the
funds received for the 2009 campaign. As a campaign period extends over almost
two years, expenses should be charged to the campaign to which they relate and not
to the campaign active at the time the expense was incurred, because multiple
campaigns can be open at various points in time during each campaign period. That
being said, since the campaigns in question are now closed, we are not recommending
that the amounts charged to an incorrect campaign be returned to the appropriate
campaign.

PCFO Comments – Minor Expenses to Boost Morale:

The PCFO contends that minor expenses to boost CFCNCA morale are allowable
campaign expenses. The OIG identified expenses related to flowers provided to a
departing CFCNCA staff member and “graduation items” related to a Loaned
Executive training event that were disallowed in the draft report. However, these
expenses were incurred in connection with campaign business and are within the
discretion of CFCNCA management to promote good will among staff and
volunteers, which, thereby, benefits the campaign and makes them legitimate
campaign expenses. Additionally, the OPM Proven Practices Memorandum states
that CFCs should “celebrate the[ir] achievement[s] through appropriate PR, including
the use of trinkets “to acknowledge the accomplishment.”

OIG Response:

With one exception, we disagree with the PCFO's position that minor expenses to
boost morale are allowable campaign expenses. The PCFO identified $77 for flowers
provided to a departing CFCNCA employee and $51 in “graduation items” related to
a Loaned Executive training event as allowable expenses under this category. While
we concur that the $51 is an allowable campaign expense and have removed it from
our questioned costs, we do not agree that the $77 paid for flowers is an expense that
benefits the campaign and assists in collecting the greatest amount of charitable
contributions possible, which, as mentioned previously, is the primary aim of the
CFC.

Additionally, we again have concerns regarding the PCFO’s stance that it is
appropriate to use CFC charitable contributions to pay for any expense related either
to campaign business, in the broadest sense of the term, or to any work in which a
CFCNCA employee or Loaned Executive is involved. Furthermore, we repeat our
belief that the argument regarding the need for additional motivation for Loaned
Executives is without merit.

One could also question whether these types of perks plus the meals and gifts
provided to these individuals violate the ethics rules in place at their represented
Federal agencies. It should be noted that the OCFC recently issued CFC
Memorandum 2011-07 that addresses this issue. While the Memorandum does not



                                    17
apply to campaign years under this audit, its guidance should be followed for current
and future campaigns.

PCFO Comments – Itemization of Expenses:

The OIG questioned $658 in travel and meeting expenses for receipts that were not
itemized or did not have supporting documentation. However, OPM regulations do
not require itemized receipts for expenses regardless of amount per 5 CFR
950.105(d)(7), which requires itemized receipts “to the extent possible”. The expense
description was included on the credit card bill and reviewed by appropriate
supervisors. Furthermore, the expenses were related to costs associated with an OPM
conference and are, therefore, a direct benefit to the campaign.

OIG Response:

We do not agree with the PCFO's contention that $658 in travel and meeting expenses
that were not itemized or did not have supporting documentation should be allowable
campaign expenses. The PCFO cites 5 CFR 950.105(d)(7), which requires that they
maintain a detailed schedule of its actual CFC administrative expenses with, to the
extent possible, itemized receipts for the expenses. However, 5 CFR 950.106(a)
states that the PCFO shall recover from the gross receipts of the campaign its
expenses reflecting the actual costs of administering the local campaign. An expense
description on a credit card statement is not sufficient for us to determine whether or
not the cost is a valid campaign cost, especially since the PCFO participates in other
campaigns, and the amount in question is of a sufficient level to warrant
documentation supporting its cost.

This is an example of the PCFO’s disturbing tendency to interpret the OPM CFC
regulations in a manner that minimizes accountability on the part of the PCFO. It
frequently emphasizes the phrase “to the extent possible” rather than the substance of
the regulation, which calls for the PCFO to maintain a detailed schedule of CFC
expenses. The PCFO is in a position of trust vis-à-vis the campaign. This
responsibility warrants that it be held accountable for complying with the spirit and
intent of the regulations.

PCFO Comments – Allocation of Expenses to Campaigns:

The PCFO claims that charges questioned by the OIG as having been booked to the
wrong campaign were, in fact, charged to the appropriate campaign. They state that
OPM's OCFC has provided no guidance regarding the year for which an expense not
clearly relating to a particular campaign must be charged. The PCFO followed
GAAP in booking expenses to the campaign year in which they were incurred. Even
if the OIG was correct that one or more expenses were charged to the wrong
campaign, the appropriate remedy would be to reallocate the expense to the
appropriate campaign, not to require the PCFO to repay the expense.



                                    18
OIG Response:

We disagree with the PCFO's position. As mentioned above, 5 CFR 950.106(b)
states that the PCFO may only recover campaign expenses from receipts collected for
that campaign. In other words, the PCFO may only be reimbursed for its 2009
campaign expenses from the funds received for the 2009 campaign. As a campaign
period extends over almost two years, expenses should be charged to the campaign to
which they relate and not to the campaign active at the time the expense was incurred,
because multiple campaigns can be open at various points in time during each
campaign period. That being said, since the campaigns in question are now closed,
we are not recommending that the amounts charged to an incorrect campaign be
returned to the appropriate campaign.

PCFO’s Comments – Documentation of De Minimis Transactions:

The PCFO contends that it is not required to maintain primary documentation for de
minimis transactions. In many instances, the OIG challenged the primary
documentation receipts for certain expenses, mostly involving meals. The PCFO
contends that no CFC regulation or OPM guidance requires receipts for de minimis
travel expenditures. 5 CFR 950.105(d)(7) states that PCFOs must “maintain[] a
detailed schedule of its actual CFC administrative expenses with, to the extent
possible, itemized receipts for the expenses.” Consequently, the regulation
contemplates that PCFOs need not require receipts in all circumstances. For example,
under the Internal Revenue Service (IRS) guidelines, the PCFO need not require
CFCNCA staff to file such receipts if their charges are less than the amount threshold
set by the IRS. In other instances, the OIG states that, while receipts were provided
for expenses, they were insufficient to allow the related cost. The PCFO contends
that the documentation provided to the OIG to support these expenses is sufficient to
establish that the meals were incurred during the conduct of the campaign and are,
therefore, allowable campaign expenses.

OIG Response:

We do not agree that the PCFO does not need to maintain documentation to support
expense amounts that fall below the IRS threshold. As mentioned previously, 5 CFR
950.106(a) states that the PCFO shall recover from the gross receipts of the campaign
its expenses reflecting the actual costs of administering the local campaign. Without
documentation supporting the purpose of the expense, we cannot verify whether the
expense is a valid campaign expense. This becomes especially important when the
PCFO participates in multiple campaigns and we need to ensure that the campaign
being audited is only charged its fair share of the cost.

Furthermore, we repeat our concern regarding the PCFO’s interpretation of this
regulation, which fails to focus on the purpose of the regulation – requiring
transparency on the part of the PCFO with regard to its expenses.



                                    19
PCFO Comments – Expenses Not Benefitting the Campaign:

The PCFO does concur that the following expense transactions did not provide a
sufficient benefit to the CFCNCA to justify their legitimacy as a valid campaign
expense.

   1. For the 2007 campaign, charges by a CFCNCA staff member for dry cleaning,
      movie rentals, and gift shop purchases totaling $69;

   2. For the 2007 campaign, charges by a CFCNCA staff member for a Mardi Gras
      tour while attending a CFC conference totaling $17;

   3. For the 2007 campaign, charges by a CFCNCA staff member for attending a
      non-CFCNCA award ceremony sponsored by a third party organization
      totaling $521;

   4. For the 2007 campaign, charges by a CFCNCA staff member for a movie
      rental while on travel for the campaign totaling $16;

   5. For the 2007 campaign, charges by a CFCNCA staff member for a movie
      rental for an undetermined amount while on travel for the campaign;

   6. For the 2007 campaign, charges by a CFCNCA staff member for driving to a
      CFC conference in Orlando, Florida rather than flying. The CFCNCA staff
      member was reimbursed a total of $957, but should only have been
      reimbursed for the total costs of an airline ticket, baggage fees, and any local
      transportation charges;

   7. For the 2008 campaign, charges by a CFCNCA staff member for neck
      massages for Loaned Executives, totaling $400, to alleviate stress during a
      particularly intense time in the campaign. PCFO upper management
      determined early in 2009 that this type of perk did not portray the appropriate
      image for a public charity fundraising campaign and should stop; and,

   8. For the 2009 campaign, charges by a CFCNCA staff member for a movie
      rental while on travel for the campaign totaling $31.

The PCFO intends to review with the campaign staff the kinds of expenses identified
above to ensure that they do not occur in the future.

OIG Response:

We concur with the PCFO's position on the expense items in this category and agree
that $1,054 directly identified as unallowable charges by the PCFO was
inappropriately charged to the related campaigns.



                                    20
     Recommendation 3

     We recommend that the PCFO distribute $40,081 as undesignated funds to the
     charities participating in the 2010 campaign.

     Recommendation 4

     We recommend that the OCFC provide additional guidance to all LFCCs and PCFOs
     as to what should be considered unallowable campaign expenses, including but not
     limited to those items questioned above.

     Recommendation 5

     We recommend that the LFCC establish policies and procedures requiring a more
     detailed budget and expense review to ensure that it only approves allowable and
     reasonable campaign expenses.

     Recommendation 6

     We recommend that the OCFC and the LFCC ensure that the PCFO follows CFC
     regulations and OPM guidance when determining in which campaign period an
     expense belongs.

3.   PCFO Overcharged for Campaign Expenses                                        $268,739

     The PCFO was reimbursed for unreasonable, unallowable, or unsupported expenses
     in the amounts of $81,640 in 2007, $80,958 in 2008, and $106,141 in 2009.
     Additionally, the PCFO charged expenses to the wrong campaign in the amounts of
     $39,605 in 2007, $49,076 in 2008, and $22,366 in 2009. We are not requiring that
     these amounts be reallocated to the appropriate campaign since the campaign years in
     question are already closed. Finally, we identified $764,069 related to training
     events, CFCNCA conferences, design and marketing services, software applications
     and licensing fees, appreciation luncheons, and finale events that could have been put
     to better use.

     According to the CFC regulations at 5 CFR 950.105(b), the PCFO is responsible for
     conducting an effective and efficient campaign in a fair and even-handed manner
     aimed at collecting the greatest amount of charitable contributions possible.
     Additionally, 5 CFR 950.106(a) states that the PCFO shall recover from the gross
     receipts of the campaign its expenses reflecting the actual costs of administering the
     local campaign. Finally, 5 CFR 950.106(b) states that the PCFO may only recover
     campaign expenses from receipts collected for that campaign. In other words, the
     PCFO may only be reimbursed for its 2009 campaign expenses from the funds
     received for the 2009 campaign.




                                          21
             We examined a sample of campaign expenses, not including travel, salary, or indirect
             expenses, totaling transaction amounts of $2,273,185 in 2007, $2,541,549 in 2008,
             and $2,190,970 in 2009. Consequently, for the 2007 through 2009 campaigns, we
             sampled expenses totaling $7,005,704 out of a universe of $7,405,053. We
             judgmentally selected this sample based on transactions with high dollar amounts,
             nomenclature, or items which appeared to be unreasonable charges to the campaign,
             based on the nature of the expense. During our review of these expenses we found
             numerous transactions which we determined to be unallowable or unreasonable and
             have cited the following as examples:

                  •   Cost was not beneficial to the campaign or could not be supported - $163,949;

                  •   Washington by Night Tour for the Loaned Executives - $1,159;

                  •   Private Box, mascot visit, and group tickets cost for a Washington Nationals
                      baseball event - $11,315;

                  •   Jazz band costs at a leadership conference - $1,500; and

                  •   Chair massages provided by an outside contractor during a Wellness
                      Fair - $280. 3 According to the PCFO, these massages were provided to
                      Loaned Executives.

             Additionally, we found numerous transactions for the cost of meals for the CFCNCA
             staff and Loaned Executive status report luncheons, and other campaign meetings,
             totaling $84,343, which appeared to provide no benefit to the campaign.

             Providing meals during routine CFC meetings does not contribute to achieving the
             CFC goal of collecting the greatest amount of charitable contributions possible. The
             total amounts questioned in each year by expense category are summarized in the
             table below.




3
 The chair massages included in this audit issue is an additional transaction to the $400 in chair massages that were
questioned previously.

                                                         22
                              Questioned Expenses
         Expense Category                2007                 2008           2009
                                      Campaign              Campaign       Campaign
Meals Provided During Routine CFC      $18,764               $36,919        $28,660
Business Activities
Loaned Executive Tour of                $1,159
Washington
Campaign Kick-Off Event                $11,315
Jazz Band at CFC Leadership             $1,500
Conference
Training/Conferences                                          $169
Questionable Allocation Methods         $5,439                                $584
Chair Massages                           $280
Other Costs not Beneficial to          $43,183               $43,870        $76,897
Campaign
Totals                                 $81,640               $80,958        $106,141

As a result of overcharging these expenses during the 2007 through 2009 campaigns,
a total of $268,739 was not properly distributed to charities participating in the CFC
for these years.

Finally, we identified the following expenses that, while the types of expenses are
legitimate campaign expense categories, the amounts spent were excessive in nature
and could have been more effectively spent so that more campaign dollars raised
went to the participating charities that desperately needed these funds. Specifically,
we identified the following:

•   Costs related to training and conferences - $208,169;

•   Costs related to design and marketing services - $30,250;

•   Costs related to appreciation luncheons and finale events - $153,150; and

•   Costs related to software applications and licensing agreements for systems
    owned by Global Impact when more cost effective systems that produce the
    needed documentation are available - $372,500

The total amounts questioned in each year by expense category are summarized in the
table below.




                                     23
                         Questioned as Better Use of Funds
 Campaign        Training and     Design and      Appreciation            Software
   Year          Conferences      Marketing       Luncheons for          Applications
                                   Services           Loaned                 and
                                                Executives/Finale         Licensing
                                                      Events             Agreements
   2007             $76,034                           $49,892
   2008              $4,000                           $50,881              $247,500
   2009            $128,135        $30,250            $52,377              $125,000
   Totals          $208,169        $30,250           $153,150              $372,500

In total, we identified $764,069 in funds that could have been put to better use by the
PCFO, which would have resulted in distributing additional monies to the
participating charities.

In its response to our draft report, the PCFO broke out its comments into several
categories based on the nature of the items questioned in the audit finding.
Consequently, our final report incorporates the PCFO’s comments on a category-by-
category basis. Our responses immediately follow each separate PCFO comment.

PCFO Comments – Provision of Meals:

The PCFO contends that the OIG is wrong as a matter of fact and law in asserting that
the expenses identified in this section are unallowable. The draft report challenges
meals provided to campaign workers and volunteers while CFCNCA business was
conducted. The OIG asserts that the meals provided no direct benefit to the campaign
and that such meals are counterproductive to the campaign's goal of collecting the
greatest amount of charitable contributions possible. However, OPM instructs CFC's
that meals and similar expenses are allowable. In fact, OPM's “Proven Practices and
New Innovations” Memorandum states:

   A meal served in conjunction with a campaign event is an allowable expense
   that may be paid from campaign receipts. The cost would be included in
   campaign expenses. The LFCC Chair makes decisions about the
   appropriateness of CFC-sponsored dinners and luncheons.

The OIG also misunderstands how successful fundraising campaigns are conducted.
Campaign volunteers donate their time and services to the CFC. Consequently, they
should be recognized, honored, thanked, and motivated to continue to put forth their
best efforts in soliciting potential donors to make financial contributions to
participating charities. Providing meals, entertainment, and other reasonable
accoutrements is critically important in conducting a successful campaign. In fact,
the PCFO has an excellent record of raising campaign funds while keeping expenses
below CFC national averages. For each of the campaign years under audit, the PCFO
spent the following:



                                     24
   1. Less than 9 percent of campaign revenue on expenses in 2007;

   2. Less than 8.1 percent of campaign revenue on expenses in 2008;

   3. Less than 7.4 percent of campaign revenue on expenses in 2009; and

   4. Less than 7 percent of campaign revenue on expenses in 2010.

Consequently, the PCFO contends that the OIG is incorrect in its assertions as to how
to raise the most money possible for participating charities. Moreover, its
recommendations that the PCFO repay the campaign expenses identified in the draft
report are arbitrary, capricious, unreasonable, and contrary to law.

OIG Response:

As mentioned previously, we do not agree that meals provided to campaign workers
and volunteers in meetings where CFCNCA business was conducted are allowable
campaign expenses. To support its position, the PCFO cites an OPM Proven
Practices Memorandum which states that meals served in conjunction with a
campaign event are an allowable expense. To address the PCFO's comments, we
looked to the OPM's OCFC for a definition of what constitutes a “campaign event.”
According to the OCFC, a “campaign event” is an event that is a special and out-of-
the-ordinary occurrence (in other words something outside of the normal operating
functions of the campaign). Such events should also be geared toward the raising of
monies for the campaign. Consequently, based on this definition of campaign event,
we maintain our position that these meetings do not constitute “campaign events” and
the meals included as part of these routine meetings should not be paid for with
campaign dollars.

The PCFO also asserts that the OIG misunderstands how successful fundraising
campaigns are conducted and makes the following statement:

   “Campaign volunteers donate their time and services. They must be recognized,
   honored, thanked, and motivated to continue to do so and to solicit potential
   donors to make financial contributions to beneficiary charities. Providing meals,
   entertainment and other reasonable accoutrements...is critically important in
   conducting a successful CFC campaign.”

These comments reflect that the PCFO itself misunderstands the nature of the role
and status that Federal employees play when working for a campaign. Federal
employees serving as LFCC members or Loaned Executives are not “donating” their
time and services. To the contrary, their work on the CFC is considered part of their
official duties for which they receive their Federal salaries. Consequently, the
argument that the additional motivation of which the PCFO speaks is “critically
important” is without merit.



                                    25
An additional matter raised by the PCFO is that it has an excellent record of raising
campaign funds while keeping expenses below CFC national averages. While the
PCFO may have kept expense percentages below CFC national averages, and a
campaign of this size would necessarily have more expenses than an average-sized
campaign, we believe its costs for its size were higher than they needed to be to
successfully perform its required duties.

In any case, the PCFO’s overall administrative costs have no bearing on whether a
specific expenditure is adequately supported and/or is an allowable expense.

PCFO Comments – Training Expenses:

The PCFO maintains that campaign staff and volunteer training expenses, including
meals and entertainment provided in connection therewith, are allowable campaign
costs. 5 CFR 950.105(d)(3) requires the PCFO to train its loaned executives and
other campaign workers in methods of non-solicitation and other aspects of campaign
operations, and this training must be separate from training given for other types of
campaign drives. To meet this requirement, the PCFO provides two large training
events at the beginning of each campaign season. The Campaign Leadership
Conferences train the hundreds of Key Workers, campaign managers, and others in
performing necessary tasks in an all day session. The PCFO also trains its Loaned
Executives in an intensive two full week session.

In its draft report, the OIG questions expenses related to the Campaign Leadership
Conferences. The questioned expenses relate to the cost of using a local hotel at
which over 600 campaign volunteers were trained. Because the conference lasted a
full day, the PCFO felt it was appropriate to provide refreshments and
after-conference entertainment as a way of thanking the volunteers for their
attendance and participation, and to ensure that the volunteers had a positive
experience during the training so that they would be motivated to solicit donations on
behalf of the CFC. This type of event is also specifically encouraged in OPM's
Proven Practices Memorandum.

The OIG also questions costs related to the two-week intensive training provided to
the Loaned Executives, including the costs for the trainer's fees, food and beverages,
mugs provided to the training participants, an evening tour of Washington, D.C., and
the cost of the breakout conference rooms in which small groups of trainees met to
receive training on particular topics. The CFCNCA depends heavily upon
enthusiastic Loaned Executive participation in the campaign, as they are the primary
contact between Federal agencies and the CFC. Consequently, the PCFO must find
appropriate ways to thank and motivate these individuals.

Finally, the OIG challenges expenses related to CFCNCA staff training, which was
approved by the LFCC. Staff training benefits the CFC, in that campaign workers
perform their job duties more effectively. As such, the expenses related to classes on
grammar and proofreading for a CFCNCA employee are allowable.


                                    26
OIG Response:

We concur with the PCFO's position that it is required to train its Loaned Executives
and other campaign workers, and we are not opposed per se to the training events and
conferences it held during the 2007 through 2009 campaign years. However, during
the 2007 through 2009 campaigns, the PCFO spent $208,169 on these types of events,
most of which were held in rather expensive hotels (e.g., the Grand Hyatt Hotel) or
conference centers (e.g., the Marriott Georgetown Conference Center).
Consequently, we are concerned with the excessiveness of the costs related to these
events and contend that these monies could have been put to better use for campaign
purposes, to include the distribution of more funds to participating charities.
However, since the CFC regulations and OPM guidance do not require specific
locales for training and conference events, we are not recommending that the PCFO
reimburse the campaign for these costs. We would, however, encourage the PCFO to
look at more cost effective venues for these types of events for future campaigns.

We are questioning the $1,500 spent for jazz band entertainment at a Campaign
Leadership Conference and $1,159 spent on a tour of Washington for the Loaned
Executives provided as after-conference entertainment. The PCFO contends that
providing refreshments and entertainment to thank the volunteers for their training
attendance and participation, and to ensure they have a positive experience during the
training, are appropriate costs. Once again, the OIG believes that the Federal salary
and benefits earned by these Federal employees is sufficient motivation for
performance of their official duties. The PCFO should not use campaign funds to
offer additional incentives.

Additionally, one could also question whether these types of perks provided to these
individuals violate the ethics rules in place at their represented Federal agencies. It
should be noted that the OCFC recently issued CFC Memorandum 2011-07 that
addresses this issue. While the Memorandum does not apply to campaign years under
this audit, its guidance should be followed for current and future campaigns.

Finally, we disagree that expenses related to grammar and proofreading training for a
CFCNCA employee are legitimate campaign costs since these types of courses have
nothing to do with supporting the core mission of the CFC and should have been paid
for out of the PCFO's own funds.

PCFO Comments – Campaign Promotional Events:

The PCFO claims that expenses related to campaign promotional events are allowable
campaign costs. In its draft report, the OIG questions or challenges a wide variety of
expenses that OPM itself encourages. The OPM Proven Practices Memorandum
states “Campaign kickoffs, progress reports, awards, victory events, and other
non-solicitation events to build support for the campaign are strongly
encouraged. Most successful campaigns have all or some of these kinds of
events.”


                                    27
At issue in the draft report is a 2007 campaign kick-off event, which began with an
event at a Washington Nationals baseball game and continued the following day in a
conference during which volunteers and workers were briefed on campaign
mechanics and proper solicitation methods. This event was held to have been
successful and was a key component to the success of the campaign, as evidenced by
the awarding of an Innovator Award to the PCFO by OPM. In fact, in explaining
why the award was given, OPM stated that the PCFO had “implemented a creative
strategy to fuel its $60 million [fundraising] goal.” OPM continues:

   “[T]he campaign kickoff was held at a Washington Nationals baseball game.
   Prior to the game, Admiral Thad Allen, Commandant of the U.S. Coast Guard and
   CFC Honorary Chairman, threw the ceremonial first pitch in honor of the 2007
   campaign. The Coast Guard provided the anthem singer, color guard and a Coast
   Guard rescue helicopter flyover. More than 600 campaign managers, loaned
   executives, key workers and friends attended the event... The Nationals mascot,
   Screech, was present at the CFC-NCA Leadership Conference as well as
   numerous agency kickoffs and rallies.

   The campaign theme has given Federal agencies and departments great latitude
   when it came to marketing their fund drives. But just as importantly, it provided
   them with an excellent opportunity to interject fun and enthusiasm in their
   campaigns.”

The CFC regulations at 5 CFR 950.105(b) specifically mention kick-off events. The
event is designed “to thank and motivate key volunteers and staff for the work they
will do during this year's campaign [and] ... provide[] a higher profile launch [for the
Campaign] with media possibilities.”

Additionally, the OIG challenged costs related to a Loaned Executive award
ceremony. These ceremonies are specifically authorized at 5 CFR 950.105(d)(11)
and in CFC Memorandum 2008-09. Moreover, OPM itself holds an annual CFC
awards ceremony, at which food and beverages are provided. Consequently, the
PCFO strongly disagrees that the costs related to the awards ceremonies it hosts for
CFC participants are unallowable. Similarly, the OIG challenged the expenses
associated with a CFC finale event, which is an award ceremony that is held at the
conclusion of each campaign year to thank and honor the numerous volunteers, Key
Workers, campaign managers, Loaned Executives, and the LFCC members. The
PCFO contends that this type of event is authorized by the CFC regulations and OPM
guidelines.

OIG Response:

We acknowledge that campaign kick-off events, when held for the purposes of
encouraging campaign participation, are legitimate campaign costs. However, by its
own admission, the PCFO states in its response that the event was designed “to thank
and motivate key volunteers and staff for the work they will do during this year's


                                     28
campaign...” We do not see how an event designed to thank and motivate key
volunteers and staff drives campaign participation. However, if the PCFO had
reached out to the Federal agencies and encouraged Federal employees who were
potential donors to attend this game to publicize the CFC, then we would have
allowed the cost for this event. As such, we are continuing to question the $11,315
for this event, which consists of $2,325 for a private box at the game; $6,620 for 600
tickets; $300 for a visit from the mascot; and $2,070 for food at the event, of which
$394 was spent on alcohol.

We also acknowledge that costs spent on award ceremonies and campaign finale
events are legitimate campaign costs. However, we are concerned about the
excessiveness of the costs that the PCFO incurred for these events. Specifically, the
PCFO spent the following on finale events cited in its response:

   1. $49,892 for a 2007 finale event held at the Ronald Reagan building;

   2. $50,881 on a 2008 finale event held at the Grand Hyatt Hotel; and

   3. $52,377 on a 2009 finale event held at the Grand Hyatt Hotel.

Because award ceremonies and finale events are, in our opinion, categories of
acceptable campaign expenses, we are not requiring that the PCFO return these
monies to the campaign. However, as the goal of the CFC is to collect the greatest
amount of charitable contributions possible, we would strongly encourage the PCFO
to look for more cost effective venues for holding these types of events so that more
campaign dollars raised go to the participating charities that desperately need these
funds.

PCFO Comments – Progress Report Meetings:

The PCFO contends that expenses related to report luncheon meetings are allowable
campaign costs. Throughout each campaign, the PCFO conducts luncheon meetings
so that campaign information can be exchanged among Loaned Executives, campaign
volunteers, and CFCNCA staff. The OPM Proven Practices Memorandum
specifically encourages these types of “progress reports” to help “…build support for
the campaign”. It further states that “[m]ost successful campaigns have all or some of
these kinds of events”. The OIG appears to seek to apply the General
Accountability Office's rulings that meals are not normally provided to Government
workers during meetings. However, the CFC is not a Federally financed program.
Instead, it relies principally on donated time and services of Federal employees, who
do so above and beyond their regular work duties. Because the CFC is not a
Federally financed program, appropriated tax dollars are not a substantial source for
the CFC's operational budget. Consequently, the expenses incurred in relation to
these meetings are necessary to promote meeting attendance as well as the overall
success of the campaign. Moreover, it would be arbitrary and capricious if the OIG



                                    29
attempted to recover money for these costs since there has never been any prohibition
against such expenditures.

Finally, the decision to serve lunch and similar accoutrements at strategy meetings
before commencement of the 2007 and 2009 campaigns and at mid-campaign report
gatherings during which issues related to the ongoing campaign are discussed is
appropriate, because such meetings contribute to the success of the campaign.
Moreover, because the LFCC approves the budget items related to these events, the
expenses actually incurred are thus allowable.

OIG Response:

While we do not have concerns with the PCFO conducting luncheon meetings so that
campaign information among Loaned Executives, campaign volunteers, and
CFCNCA staff can be exchanged, we do not agree that the cost of meals provided at
these luncheons is a legitimate campaign expense. To support its position, the PCFO
states that because the CFC is not a Government financed program it must rely
principally on the donated time and services of Federal employees, who do so above
and beyond their regular work duties. As we noted above, this is an incorrect
characterization of the status of Federal employees that participate in the
administration of the CFC. Attendance at such meetings is part of these Federal
employees’ official duties, for which they receive salaries and benefits that are paid
for with appropriated funds. In this context we do not believe that use of campaign
funds to provide additional “motivation” is either necessary or proper. Consequently,
we are continuing to question the costs of these meals, which include the following:

   1. $18,169 for a 2007 report luncheon;

   2. $33,834 for 2008 report luncheons; and

   3. $18,900 for a 2009 report luncheon.

PCFO Comments – Campaign Operational Expenses:

The PCFO maintains that expenses related to campaign operations are allowable
campaign costs. The OIG questioned the cost of CFCNCA break room supplies. The
provision of plastic utensils, plates, coffee, and cream and sugar for CFCNCA staff is
a reasonable campaign expense. These kinds of supplies exist in virtually all office
environments, including non-profit and Government offices. These kinds of items
promote efficiency in the office environment, so that the employees do not need to
leave the office when they need these supplies. They also promote a positive working
environment by offering a common space for staff to socialize during break times.




                                    30
OIG Response:

We agree that office break room supplies are reasonable campaign expenses.
However, we are still questioning these items because, while they were billed to the
PCFO, it appears that they were charged 100 percent to the CFCNCA instead of
being allocated between the CFCNCA and the other charitable campaigns conducted
by the PCFO.

PCFO Comments – Allocation of Accounting Issues:

The PCFO contends that it properly accounted for and allocated a questioned
CFCNCA expense. The OIG questioned why a March 31, 2008, accrual, totaling
$55,871, was allocated to the 2007 campaign. The allocation was made to the 2007
campaign on the last day of the solicitation period for that campaign, to reflect the
anticipated amount of costs for the 2007 campaign award ceremony, which was held
later in 2008. Only $7,618 was ultimately expended and the difference, $48,254, was
later reversed.

OIG Response:

While we concur that $55,871 was properly accrued and then subsequently reversed,
we have concerns with the PCFO’s process of charging the active campaign at the
time that the expense is incurred. 5 CFR 950.106(b) states that the PCFO may only
recover campaign expenses from receipts collected for that campaign year. In other
words, the PCFO may only be reimbursed for its 2007 campaign expenses from the
funds received for the 2007 campaign. As a campaign period extends over almost
two years, expenses should be charged to the campaign to which they relate and not
to the campaign active at the time the expense was incurred, because multiple
campaigns can be open at various points in time during each campaign period.

PCFO Comments – Agreement Regarding Certain Expenses:

The PCFO agreed that the following identified expenses were not reasonably incurred
on behalf of the CFCNCA or are otherwise unallowable.

  1. A 2007 expense for $280 worth of chair massages to Loaned Executives to
     reward their hard work. This type of benefit has since been cancelled because
     it does not portray an appropriate image for a public charity fundraising
     campaign;

  2. A 2007 expense where a CFCNCA staff member accidentally voided a
     disbursement to a participating charity, thereby incurring a $6 bank charge.
     Because the error was made by a CFCNCA staff member, it should not have
     been paid by the campaign;




                                   31
        3. A 2008 expense where third party invoices were paid late, causing fees in the
           amounts of $207, $8, and $10. Because these were errors caused by campaign
           staff members, the late fees should not have been paid by the campaign; and

        4. A 2009 expense where only 50% of the cost should have been charged to the
           CFCNCA. Therefore, $31 should not have been paid by the campaign.

     OIG’s Response:

     We concur with the PCFO's position on the expense items in this category and agree
     that $542 directly identified as unallowable charges by the PCFO was inappropriately
     charged to the related campaigns.

     Recommendation 7

     We recommend that the PCFO distribute $268,739 as undesignated funds to the
     charities participating in the 2010 campaign.

     Recommendation 8

     We recommend that the OCFC provide additional guidance to all LFCCs and PCFOs
     as to what should be considered unallowable campaign expenses, including but not
     limited to the types of items questioned above.

     Recommendation 9

     We recommend that the LFCC establish policies and procedures requiring a more
     detailed budget and expense review to ensure that it only approves allowable and
     reasonable campaign expenses.

     Recommendation 10

     We recommend that the OCFC and the LFCC ensure that the PCFO follows CFC
     regulations and OPM guidance when determining to which campaign period an
     expense belongs.

4.   Improper Accounting for Campaign Expenses by PCFO                           Procedural

     The PCFO's accounting policies and procedures allowed for the reimbursement of
     accrued costs as well as actual costs, which could potentially result in overcharges to
     the campaign and limit the amounts disbursed to the participating charities.

     5 CFR 950.106(a) states that the PCFO shall recover from the gross receipts of the
     campaign its expenses reflecting the actual costs of administering the local campaign.
     The regulation does not state that accrued or estimated campaign expenses are
     allowed costs to the campaign.

                                          32
During our review of the PCFO’s campaign expenses for the 2007 through 2009
campaigns, we found that a total debit amount of $35,000 was accrued for audit fees.
There were no credits to show an adjustment. The invoice provided by the PCFO
showed that the actual cost of the audit fees for the 2007 campaign was $31,154.
However, the PCFO was reimbursed for the general ledger’s ending balance as part of
its reimbursement for campaign expenses. Therefore, the PCFO was reimbursed for
the accrued amount of $35,000 instead of the actual expense. In addition to the audit
fees, our review also noted other accruals in each campaign that were likely
reimbursed in a similar manner.

Ultimately, accruals should not be included as part of the actual expenses because the
PCFO is only allowed to be reimbursed for its actual expenses. As a result of the
PCFO being reimbursed for accrued expenses, they are not in compliance with 5 CFR
950.106(a).

PCFO Comments:

The PCFO contends that the OIG reached mistaken conclusions based on its
misunderstanding of its accounting system. Because the OIG did not fully understand
the PCFO's application of GAAP, it concluded that it “could not determine that the
PCFO properly accounted for its campaign expenses for the 2007 through 2009
campaigns. The PCFO utilizes a standard accrual based accounting system. In
accounting for CFCNCA expenses, there are generally three types of accruals.

•   Anticipated expenses for vendor invoices that have not yet been received are
    accrued and then are corrected to reflect actual expenses when the PCFO receives
    the invoice, thereby creating a credit in the expense accounts that were charged
    for the anticipated expenses. The estimated accrued expenses are, consequently,
    zeroed out and the actual expenses are included.

•   Major expenses are amortized monthly so that the financial statements early in the
    year are not misleadingly large.

•   Audit fees for the campaign; expenses for the processing of campaign receipts and
    the distribution of money to charities; and other necessary expenses, where
    payments will be made between the end and the close-out of a campaign, are
    estimated and accrued. The initial estimates are performed on a department by
    department, vendor by vendor basis and are as close to accurate as possible, but,
    ultimately, are adjusted to actual cost prior to the campaign close-out.

Each of the above bullet points reflects the application of customary, generally
accepted accounting practices that the PCFO's IPA have deemed are fully consistent
with GAAP. In addition, the methods noted in the bullet points above are also fully
compliant with CFC Memorandum 2008-09.




                                    33
In estimating its audit fees for the audit of the 2007 campaign, the PCFO accrued
$35,000 and subsequently received an invoice from the IPA for $31,154. However,
before the 2007 campaign close-out, the PCFO was notified that OPM would be
conducting an audit of the 2007-2009 work papers. Consequently, instead of
adjusting the accrued amount to an actual cost and transferring the difference to the
undesignated contributions of the campaign, the PCFO, assuming that there would be
additional IPA audit fees due to the OPM audit, left the original accrual in place until
it received the IPA's final bill on August 3, 2010. After payment of the IPA's final
bill, a difference of $1,785 between the accrued amount and the actual cost remained
which was used to offset an expense overage on a subsequent campaign. The PCFO
contends that this method of accounting for expenses is fully consistent with CFC
Memorandum 2008-09, which stated, “If the cost is less than the amount withheld
and the difference is less than one percent of the gross pledges for the campaign
audited, the amount should be distributed with funds for the campaign currently being
distributed.”

OIG Response:

Based on the PCFO's response, we concur that the PCFO's financial records comply
with GAAP and that it utilizes an accrual based accounting system. However, in
following the accounting procedures required under an accrual based system, the
PCFO allowed itself to be reimbursed for accrued costs. Specifically, as cited in our
draft report, it included the $35,000 accrued for audit fees as part of its general
ledger's ending balance, which was subsequently included in its request for
reimbursement of its 2007 campaign expenses.

Reimbursement of expenses in this manner violates 5 CFR 950.106(a), which states
that the PCFO shall recover from the gross receipts of the campaign its expenses
reflecting the actual costs of administering the local campaign. It also violates the
intent of CFC Memorandum 2008-09, which instructs PCFOs to accrue costs that will
be incurred after the close of the campaign and withhold them from the final
campaign distribution to campaign members, as well as from the final expense
reimbursement to itself. In other words, the PCFO should not be reimbursed for its
accrued expenses until it receives an invoice for the actual cost. Once the actual cost
is known, the PCFO should then compare the difference between the accrued and
actual cost and make whatever adjustments are necessary in accordance with CFC
Memorandum 2008-09. It is our opinion that although CFC Memorandum 2008-09
specifically mentions audit expenses, that this type of accounting for CFC expenses
should be done for all accruals and not just audit-related accruals.

Consequently, we maintain that the PCFO's method of reimbursing itself for its
accrued costs does not comply with the CFC regulations, specifically 5 CFR
950.106(a), and that the PCFO should modify its policies and procedures for the
reimbursement of these types of expenses so that they do comply with the regulations
and the guidance provided in CFC Memorandum 2008-09.



                                     34
          Recommendation 11

          We recommend that the OCFC and LFCC require the PCFO to modify its accounting
          policies and procedures related to the reimbursement of accrued expenses so that they
          comply with the regulations and the guidance provided in CFC Memorandum
          2008-09.

C.   CAMPAIGN RECEIPTS AND DISBURSEMENTS

     1.   PCFO was Reimbursed for Estimated Expenses                               Procedural

          The PCFO was incorrectly reimbursed $2,129 for estimated expenses related to a
          special distribution of funds.

          5 CFR 950.106(a) states that the PCFO shall recover only the actual costs of
          administering the campaign.

          During our review of a transfer of funds from the CFCNCA Campaign Account to the
          CFCNCA Operating Account, we determined that the PCFO was reimbursed $2,129
          for estimated expenses related to a special distribution of campaign funds.
          Specifically, the OCFC determined that the United Way of Central Maryland
          (UWCMD) had erroneously received $106,436 during the 2002 and 2004 campaigns,
          and that the money should have been credited to the CFCNCA. To correct the issue,
          the UWCMD transferred the funds to the CFCNCA and the OCFC determined that
          the CFCNCA should treat these funds as undesignated funds for the 2008 campaign.
          The PCFO did distribute these funds as undesignated funds to the 2008 campaign,
          less estimated expenses of $2,129. The PCFO stated that they estimated their
          administrative expenses for this special distribution to be 2 percent. The PCFO was
          not able to provide supporting documentation for any actual expenses related to this
          special distribution. Therefore, we determined that the PCFO was reimbursed based
          on estimated and not actual expenses as allowed by the CFC regulations.

          Because the PCFO based its reimbursement on estimated instead of actual costs, it
          runs the risk of overcharging the campaign and thereby limiting the amount of funds
          that are distributed to participating charities.

          PCFO Comments:

          The transfer from the CFCNCA Campaign Account to the CFCNCA Operating
          Account, in the amount of $2,129, is allowable because it was a specially authorized
          administrative expense related to processing an additional amount creditable to the
          CFCNCA from earlier campaigns. The UWCMD determined that it had erroneously
          received $106,436, which should have been credited to the CFCNCA during the 2002
          and 2004 campaign years. An OPM Compliance Specialist determined that these
          funds should be distributed as undesignated funds for the 2008 campaign. The
          $2,129 was found to be the incremental administrative cost associated with this


                                              35
     special distribution of funds. Accordingly, this amount was transferred from the
     CFCNCA Campaign Account to the Operating Account.

     OIG Response:

     While we agree that the PCFO is entitled to a reimbursement of its administrative
     expenses for this special distribution of funds, we do not agree with the amount
     charged against the campaign because the amount was based on a good faith estimate
     instead of actual costs. As stated above, the CFC regulations require that the PCFO
     recover only its actual costs of administering the campaign.

     Recommendation 12

     We recommend that the LFCC ensure that the PCFO is only reimbursed for its actual
     costs related to the administration of the campaign pursuant to 5 CFR 950.106.

2.   Unearned Interest in the CFCNCA Bank Accounts                             Procedural

     The PCFO did not obtain approval from the OCFC for earning a credit instead of
     interest on campaign funds in the CFCNCA             Account, the account used to
     deposit campaign cash and check collections. 5 CFR 950.105(d)(8) states that it is
     the responsibility of the PCFO to keep and maintain CFC funds in interest bearing
     bank accounts, and that all interest earned must be distributed in the same manner as
     undesignated funds pursuant to §950.501.

     During our review of interest earned on funds in the CFCNCA                Account, we
     determined that the funds did not earn interest after June 2009. However, we
     determined that the PCFO negotiated with the bank to provide a credit instead of
     interest in order to obtain a higher benefit to the campaign. Specifically, after
     determining that                     would only offer interest at the rate of
            the PCFO negotiated with the bank to provide a credit on bank fees equal to up
     to basis points, which yielded a reduction in bank fees equal to $3,109 from July
     of 2009 through February of 2010. Had the PCFO accepted the bank's interest rate
     offer, only $93 in interest would have been earned during this same period.

     Although the PCFO did provide a net benefit to the campaign of $3,016, they should
     have obtained approval from the OCFC for earning a credit instead of interest on
     campaign funds.

     PCFO Comments

     The PCFO contends that it was correct in negotiating the credit on the bank fees in
     lieu of earning interest on campaign funds because it produced a net benefit to the
     campaign. It did not realize that it needed to obtain OCFC approval before making
     this type of change.



                                         36
          OIG Response:

          While we do not object to the PCFO’s efforts to earn a better benefit on campaign
          funds, we maintain that it should have obtained approval from the OCFC before
          making this type of change.

          Recommendation 13

          We recommend that the PCFO obtain approval from the OCFC for any changes to
          procedures which differ from the CFC regulations.

D.   ELIGIBILITY

     1.   Untimely Notice of Eligibility Decisions by LFCC                             Procedural

          The LFCC did not issue its eligibility decisions within 15 business days of the closing
          date for receipt of applications, for charities wishing to participate in the 2008
          campaign.

          5 CFR 950.801(a)(5) states that the LFCC “must issue notice of its eligibility
          decisions within 15 business days of the closing date for receipt of applications.”

          We reviewed a sample of eligibility letters that were sent by the LFCC to determine if
          the LFCC's eligibility decisions were made within 15 business days of the closing
          date of the applications, which for the 2008 campaign was March 11, 2008. The
          sampled eligibility notification letters were dated after April 1, 2008 (15 business
          days after the closing date for receipt of applications). Per the PCFO, “This was due
          to the bulk of approval letters that had to be written, printed, and submitted in a short
          period of time, due to the fact that the LFCC didn't approve the applications until the
          end of April.”

          As a result of the LFCC issuing notifications after April 1, 2008, agencies and
          federations were not notified of the LFCC’s eligibility decisions in a timely manner.
          Furthermore, those organizations accepted could not properly plan and budget for the
          coming year and those denied could not properly appeal the decision.

          PCFO Comments:

          The PCFO contends that at the time it mailed its eligibility decisions, it relied on the
          OPM Calendar of Events which states that “all local application decisions must be
          completed by the LFCC no later than May 2….” Consequently, it issued a majority
          of its 1,732 eligibility decisions by May 2, 2008, with the remaining decisions being
          mailed out on May 5, 2008. However, the PCFO does not oppose Recommendation
          14 below.




                                               37
OIG Response:

The OPM Calendar of Event’s May 2, 2008, deadline to issue eligibility decisions
was 15 business days following an assumed application closing date of April 14,
2008. However, the CFCNCA did not set an application closing date of April 14th.
Instead, its application closing date was March 11, 2008. Therefore, according to 5
CFR 950.801(a)(5), the deadline to issue eligibility decisions would be 15 business
days following March 11, or April 1, 2008. That being said, the PCFO does not
oppose Recommendation 14, which if implemented should prevent this issue from re-
occurring in future campaigns.

Recommendation 14

We recommend that the OCFC ensure that the LFCC issues notice of its eligibility
decisions within 15 business days of the closing date for receipt of applications in
compliance with 5 CFR 950.801(a)(5).

Recommendation 15

In the event that the PCFO is consistently unable to meet this deadline due to the size
of the CFCNCA campaign, we recommend that the OCFC consider changing the
regulations to include a calendar date for completing the local review that is similar to
the calendar date deadline for the national/international list. We would also
recommend that the modified regulations specify that this change is only applicable to
campaigns above a certain size.




                                     38
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

             , Auditor-In-Charge

              , Auditor

           , Auditor


                  , Group Chief,

                 , Senior Team Leader




                                        39
                                                                                                 Appendix A




SCHANER & LUBITZ,           PLLC                               Kenneth I. Schaner, Esq.
6931 Arlington Road, Suite 200                                 ken@schanerlaw,com
Bethesda, Maryland 208 14                                      T: 240-482-2848 F: 202 -470-2241
www.schanerlaw.com                                             David M. Lubitz, Esq.
                                                               david@schanerlaw,com
                                                               T: 240-482-2849 F: 202-470-2240



                                                                June 23, 2011

VIA EMAIL AND U.S. PRIORITY MAIL 


                                                                       •

Special Audits Group
Office of Audits
Office of the Inspector General
United States Office of Personnel Management
1900 E Street, N,W. Room 6400
Washington, D_C_ 20415-1100

Subject: Responses of Global Impact To Draft Report No. 3A·CF-OO-1O-034

Dear_

Pursuant to you r suggestion, Global Impact will respond separately to each of the 14 sepa rate
tentative findings your office made in its Draft Report of May 31, 20 II (the "Report"). This
will allow your staff to review OUf responses as they receive them and to meet with Global
Impact staff if necessary to ask follow up questions and gather additional information. Our goal
wi ll be to provide you with comprehensive responses to all of your tentative findings prior to the
July 15, 2011 ex tended response deadline.

Our initial review of each finding in the Report demonstrates significant errors by your audit
team that render the initial findings materially inaccurate. We welcome this opportunity to
correct these inaccuracies and encourage your staff to ask ~ll relevant follow-up questions.

We recognize that the CFCNCA is large aDd complicated, involving thousands of entries and
transactions. Accordingly, your task of learning how the system works and rendering an
accurate report during a finite review period is quite difficult.

However, many of your tentative conclusions, if not corrected, make allegations of malfeasance
against Global Impact that are not true and are not supported by the facts. The truth is that
Global Impact assumed the role of PCFO in historically difficult economic times and managed
the CFCNCA to new revenue highs in years that charitable giving in other forums was Shrinking
dramatically, while reducing expenses as a percentage of revenues to new lows; and it did so in a
highly profess iona l manner.




         ----- .--- -- - --       - - - - - - - , -- - -- - ----­
For instances involving human error resu lting in mistaken transactions, many of which were not
the fault of Global Impact or CFCNCA staff, Globallmpact's in ~ema l system of checks and
procedures , and its employees, timely detected and corr~c ted such mistakes. Your draft report
suggests a different and inaccurate pictu re.

Our responses will correspond to the alphabetical and numerical topics set forth in the
"Contents" section of your Draft Report. Enclosed are the first two memoranda bearing the
identifiers "C.3 ." and "C.4.". The exhibits associated with eacb topic are, and in future
memoranda wiJI be, identified with a number after the alpha-numerical identifier related to each
particul ar topic; e.g., the first exhibit in the attached Memorandum relating to topic CA. is
identifie d as Exhibit C.4(l ),the second exhibit in the attached Memorandum is identified as
Exhibit C.4(2), and so on.

As add itional topics are com pleted, we wi ll send them to you. When all of aU f responses are
co mpleted, we will assemble them into one document and include an introductory section
explaining further how Global lmpacl has managed the CFCNCA to increase contributions to
designated cha rities while decreasing operating expenses and holding its expenses below the
national average for eFCs. We wi ll also discuss other relevant facts bearing on the highly
professional manner in which Global Impact conducts the CFCNCA.

We encourage your staff to make contact with Global Impact on eacb topic response as you
receive tbem. Global will fully cooperate with any follow-up questions posed by your staff, as il
has thro~gho ut this audit process.




General Counsel , Global Impact
                    OlG Audit Topic C.3.:




DIG Deleted pgs. 1,3 and 4 of this Portion oftbc PCFO's Response 

                Not Relevant to the Fina l Report 





                               1

       C. 	 Transfer #3 From The CFCNCA Campaign AccouIlt To The CFCNCA Operating
            Account, In The Amount Of $2,128.73, Is Allowable Because It Was A Specially
            Authorized Administrative Expense Relate.d to Processing Of An Additional Amount
            C reditable To The CFCNCA From Earlier Campaigns

On March 31, 2010, a transfer of S2,128.73 was made from the CFCNCA Campaign Account to
the CFCNCA Operating Account, after an OPM Compliance Specialist approved such amount as
an administrative expense for processing an add itional $106,436.46 received by the CFCNCA
from the United Way of Cent ral Maryland (UWCMD). UWCMD determined tbat it had
erroneously rece ived such amount, which should have been credited to the CFCNCA during the
its 2002 and 2004 campaign years . The OPM Compliance Specialist determined that the portion
of funds relating 10 the 2002 campaign should be treated as undesigoated fund s for tbe 2008
campaign year. $2,128.73 was found to be the incremental administrative cost associated with
this special distribution of fun ds received from UWCMD from the 2004 campaign. Accordingly
such amount was transferred from the CFCNCA Campaign Account to the CFCNCA Operating
Account. Attached at Exhibit C.3.(3) is the documentation that supports this allowable transfer.




                                       Deleted by the OIG 

                                 Not Relevant to the Final Report 





                                              2

PBC: According to Stan BtI""an. CFO. Global Impact, this Is the PCFO's best good faith esUmate of the expenses it
took to distribute the extra funds received from the United Way of Central Maryl,md. The PCFO estimat.d that the
eost was about 2% and they created this spreadsh.et to develop a breakdown of their good faith estimate. The
costs below are still estimated end not aetualexpenH'.

                      Central Maryland CFC Special Distribution

                                                     Unit          Unit Cost Total
                      Direct Processing
                                                               2   xx.xx       S       124.26
                                                               2   XX.XX       S        88.94
                                                               6   XX.XX       $       175.92
                                                               5   XX.XX       $       131.30
                                                               I   XX.XX       $       120.Q7
                      total                                                    $       640.49

                      checks                                  667 S     0.44 S         293.48
                      check stock                             667 S     0.09 S          60.03
                      envelopes                               667 S     0.13 $          86.71
                      postage                                 667 S     0.44 S         293.48
                      paper(reams)                          1.334 $     3.40 $           4.54
                      total                                                    $       738.24
                      Total Direct Processing                                  $     1,378.73
                      Investigation 10 @ $75                  10   S   75.00   S       750.00
                      Overal Total                                             S     2,128.73

                      Distribution                                             $ 106,000.00

                      % of Cost                                                             2%
                   OIG Audit Topic CA.:




OIG Deleted pgs. 1 - 3 of this Portion of the PCFO's Response
             Not Relevant to the Final Report




                              1

                                                                                          Appendix B




S~HANER & LUBITZ, PLLt                                        Kenneth I. Schaner, Esq.
6931 Arlington Road, Suite 200                                ken@schanerlaw.coID
Bethesda, Maryland 20814                                      T: 240-482-2848 F: 202-470-2241
www.schanerlaw.coID                                           David M. Lubitz, Esq.
                                                              david@schaneriaw.com
                                                              T: 24 0-482 -2 849 F: 202-470-2240



                                                              July 11, 2011


VIA EMAlL AND U.s_ PRJORJTY MAlL


          i                  Group
Office of Ihe Inspector General
United Stales Office of Personnel Management
1900 E Street, N.W. Room 6400
Washington, D_C- 20415-1100

Subject: Additional Responses of Global Impact To Draft Report No. 3A-CF-OO-1O-034

Dear _

With Ibe attacbments to this letter, we are providing you with additional responses to the
tentative findings of tbe May 31, 2011 Draft Report issued by your office. The attached
responses and supporting exhibits address Draft Report sections C.l, C.2, C.S, C.6, C.S and 0 .1.
On June 23, 2011 , we provided your office with responses and supporting exhibits 10 sections
C.3 and C.4 of the Draft Report.

We wi ll follow up with our remaining responses and supporting documents soo n. We continue
to encourage your staff to contact Global Impact, jJ your audit team has follow-up questions. As
it did during the audit process, Global Impact stands ready to provide full cooperation in
answering any of your audit team's questions.




          Schaner
            bitz
General Counsel, Global Impact
                            ---   - - - - - - - - - - - - -- - - - - -- - - - - - - -- -- - - - - - - - - - -




                          C.I.IC.2. 





OIG Deleted pgs. 1 - 2 of this Portion of the PCFO's Response 

             Not Relevant to tbe Final Report 

OIG Deleted pgs. 1 - 3 of tbis Portion of tbe PCFO's Response 

             Not Relevant to tbe Final Report 

                                        C.6. 

 Global Impact Properly Maintained eFF Funds in Interest Beari ng Accounts At All Times


In Section C.6. of the Draft Report, OI G conclude s that Global lrn pact improperly fai led to
maintain Combined Federal Campaign ("CFe") funds in interest bearing accounts for the
period July 2009 through January 2010 and therefore violated 5 C.F.R. § 950.1 05(d)(8). As
expla ined herein, this conclusion is incorrect.

For the C FCNCA Campaign account, Globa l Impact has entered into an interest bearin g
repurchase arrangement whereby the account is swept daily, the money is transferred out of the
account each night, the money contained therein is invested, and then returned the fo ll owing
morning w ith interest. See Exhibit C.6.( I). Contrary to the aud it team 's all egations, CFCNCA
Campaign account funds fo r the Jul y 2009 through January 20 I 0 period earned interest in the
amount of $ 2,38 1.64 . ld. at page 8. Such interest is renected in the monthl y statements and in
the Interest Income genera l ledger account for the period questioned in the Draft Repon and
attached to Exhibit I and pages 1·7 thereof.

The _         account arrangement is different. Because the_          accoun t holds CFCNCA
Campa ign fund s for only a sha n time period during the year, the cost of entering into a sweeps
an'angel11ent would be greater than any interest that                                 ining that
                         wou ld offer interest at the rate
negotiated with the hank to provide a credit on bank fees equal to up to
yielding a reduction in bank fees equal to $3, I 09.32. Had Global Impact acc:epted
interest rate afTer, only $92.69 in inte rest would have been earned during the period questioned
by the audit team. Global Impact therefore en tered into an arrangement on behalf of th e
CFCNCA that produced a net benefit to the CFCNCA of$3,O I6.63. Attached at Exhibit C.6.(2)
is a summary spreadsheet prepared by Global Impact reOecting this net benefit to the CFCNCA's
~ccou nl together with the bank statements supporting the ana lysis. In addition, this
: =ge had the <ldvantage of Federal Depos it insu rance Corporation (FDIC) protection of
C FCNCA ~ccou nt fund s through December 3 I. 2009.

Globa l Impact properly earned interest or another benefit fo r the CFCNCA on fund s held by it.
The a udit team erroneously determined tba t DO interest was earned by G lobal Impact.
Section C.6. and Recommendation 24 therefore should be withdrawn.
                           C.S.: 





OIG Deleted pgs. 1 - 2 of this Portion of tbe PCFO's Response 

             Not Relevant to tbe Final Report 





                               1

                                        D.I.: 

   Some Eligibility Decisions For The 2008 Campaie.n Were Mailed Untimelv. But 

    Such Decisions Were Mailed Three Davs Late, Not More Than A Month Late 



The audit team relies o n 5 C.F.R. §950.801(a)(5), which requires that eligib ili ty decisions
be issued within 15 business days of the closing date receipt fo r applications. The closing
date for receipt of2008 Campaign applications was March 11 , 2008.

At the time that Global lmpact mailed its e li gibi lity decisions, Global Impact relied on an
OPM-issued " Calendar of Events," which is attached hereto at Exhibi t 0 . 1.(1 ) at page 3.
The Calendar of Events states that ';all local app,iicati on decisions must be completed by
the LFCC no later than May 2, 2008."

The majority of the 1,732 eligibility decisions were issued on Friday May 2, 2008 and the
rest were mailed on Monday, May 5, 2008.

Global Impact does not oppose Recommendation 29.
                                                                                           Appendix C




SCHANER & LUBITZ, PLLC                                        Kenneth I. Schaner, Esq. 

6931 Arlington Road, Suite 200                                ken@s chaneriaw.cow 

Bethesda, Maryland 20814                                      T: 240-482-2848 F: 202-470-2241
w'Ww,schaneriaw,com                                           David M. Lubitz, Esq.
                                                              david@schanerlaw,coID
                                                              T: 240-482-2849 F: 202-470-2240




                                                             luly 18,2011


VIA EMAIL AND U.S. PRIORITY MAIL 



       '-nn". Sl,ecial A" di'ts Group
Office of the Inspector General 

United States Office of Personnel Management 

1900 E Street, N. W. Room 6400 

Washington, D.C. 2041 5·11 00 


Subject: Additional Responses of Global Impact To Draft Report No. 3A-CF-OO-IO-034

Dear

With the auachmenls to this letter, we are providing you with Global Impact's response to
section C.7. of the tentative find ings of the May 3 1, 2011 Draft Report issued by your office.
The attached response completes the findings and recommendations related to section C of your
Draft Report.

We will follow up witb our remaining responses and supporting documents soon. We continue
to encourage your staff to contact Global Impact, if your audit learn has fo llow-up questions. We
are surprised tbat to date the audit team has made no such contact with Global Impact since we
began submi tting responses to your office on June 23. As it did during the aud it process, Global
Impact stands ready to provide full cooperation in answering any or your audi t team 's questions.




~
Kenneth I. Schaner 

David M , Lubitz 

General Counsel, Global Impact 

                           C.?: 





OIG Deleted pgs.l- 2 of this Portion ortbe PCFO's Response 

             Not Relevant to the Final Report 

                                                                                              Appendix D




SCHANER & LUBITZ, PLLC                                          Kenneth l. SChaner. Esq. 

6931 Arlington Road, Suite 200                                  kenC1ilschanerlaw.com 

Bethesda, Maryland 20814                                        T: 240-482-2848 F: 202 -4 70-2 24 1 

W\VW,schanerlaw,coID                                            David M. Lubitz. Esq. 

                                                                david@schaneriaw.com
                                                                T: 240-482-2849 F: 202-470-2240


                                                               July 29, 2011

VIA EMAlL AND U.S. PRIORITY MAlL


~itSGrouP
Office of the Inspector General
United States Office of Personnel Management
1900 E Street , N.W. Room 6400
Washington, D.C. 20415-1100

Subject: Final Additional Responses of Global Impact To Draft Report No.       3A~ CF-OO -I0-034


Dear

With this letter, we are filing on behalf of Global Impact the remaining responses (Section B.l   +



B.4.) to the tentative findings of your office in its Draft RepoCl of May 31, 2011.

In the Draft Report, the audit team made 13 separate tentative findings questioning Global
Impact's management of the CFCNCA, its conformance to generaJty accepted accounting
principles (GAAP), and its comp liance with OPM regulations. As you can see from the
comprehensive nature of our responses, Globallmpact has taken very seriously your tentative
findings and has fully responded to eacb issue raised in the Draft Report.

Our responses, wh ic h are dealt with at very substantial length in the filings corresponding to each
section of the Draft Report:

    • 	 Demonstrate that Global fmpact -- through the generosity of NCA federal employees,
        even in these historically difficult economic times ~- has significanlly increased
        CFCNCA revenues during each of the years in which it has served as -P CFO, and at the
        same time substantially decreased costs of the Campaign;

    • 	 Show tbat Globallmpacl has fuUy complied with GAAP, and thai virtually aU of the
        questio ns raised by 010 can be answered by a proper understanding of G lobal Impact' s
        CFCNCA books and records, which the audit team repeatedly misinterpeted througbout
        ihe Draft Report; and ,
     • 	 Document full compliance with OPM regulations, published guidelines, and written
         in structions to the PCFO or the LFCC, many of w hich OIG did not note in its Report

Your audit team initiall y contacted Globallmpacl in January 2010, initially met with Global
Impact staff on July 6, 2010 and issued its Draft Report on May 31, 2011. We believe that your
staff worked hard and responSibly to determine whether GJoballmpact had fully complied with
the rules applicable to the PCFO of the CFCNCA We commend your staff for its hard work and
raising issues that are important to the Campaign. Globallmpact welcomes the OIG audit and
tbe opportunity to demonstrate that it bas fully responded to the issues raised in the Draft Report
and fully complied with Campaign rules applicable to it as PCFO. Global Impact recognizes that
serving as PCFO involves a public trust-a responsibility it takes very seriously.

Because the CFCNCA is the largest wo rkplace giving campaign in the world and involves
thousands of individual transactions to record the revenues and expense of each campaign, it is
not surprising that the audit staff could make a series of mistaken assumptions and erroneous
determi nations. We recognize thai the purpose of the draft report process is to allow this
response and a subsequent give and take period during which Global Impact is able to fully
explain wbicb of the audi t staffs assumptions are incorrect.

While tbe audit sta ff made some valuable contributions to raising Global Impact's awareness to
the importance of certain indi vidual transactious, as a general matter we are forced to observe
that most of the conclusions reached in the Draft Report are eit her erroneous and represent a
misunderstanding of the associated accounting entries, or, in the case of the determinations in
section B.2. and B.3. of the Draft Report, are incorrect as a matter of law and represent a
mysterious attempt by tbe audit staff to legislate new rules based on their subjective judgments
as to the value of certain expenditures decmed by Global Impact and others experienced with
fund raising as necessary to a successfu l fundraising campaign.

With respect to sections B.2. and 8.3. of your Draft Report, tbe new rul es devised by your staff:
(i) are contrary to specific OPM guidance stating that "a meal served in conjunction with a
campaign event is an allowable expense that may be paid from campaign receipts ... [and]
wou ld be included in campaign expenses[,)" see Final leiter Exhibi t 1 at page 1; (ii) are nowhere
found in regulat ions applicable to the CFC or gu idel ines published by OPM ; (iii) would
retroactively and unlawfully change longstanding campa ign practices; (iv) fail to take into
account the need for and value of campaign volunteers and the requirement that their efforts be
recognized; and (v) would cause a decrease in net contributions to the charities served by the
CFCNCA, which under Globallmpact's stewardship as PCFO has prospered during some of the
most difficult economic times in ow country's history.

Contrary to the Draft Report's findings, Global [mpact 's record as CFCNCA PCFO
demonstrates a continuous increase in Campaign revenues and a decrease of Campaign
expenses. The success of the CFCNCA is of course a tribute to [he generosity of federal
employees. But it is also a tribute to Global lmpact, which has been recognized by OPM fo r
excell ent Campaign management in each of the- years Global Impact served as the CFCNCA
PCFO -- and should be so recognized by OIG in its final report.
We note that your audit was conducted without seosible'ffiateriality Limitations, thereby forcing
Global Impact to research and respond to items that in some instances involved amounts of $6 or
less. While Globallmpac[ has responded fully to each item raised by DIG, no matter bow small,
we wonder whether the DIG staff would have been better served if it had concentrated on
material items, thereby minimizing audit expenses for the government and for the CFCNCA.

While the individual responses [0 the Draft Report should fu lly explain the errors made in each
determination in the Draft Report and why they must be withd rawn, for your convenience, we
are summarizing Global Im pact's responses below:

   • 	 8.1. The Draft Report is erroneous; There was no over-reimbursement. and the relatively
       small extra amount of total Campaign expenses over and above the amounts initially
       approved by the LFCC thereafter was approved by the LFCC, and a disbursement was
       made in accordance with CFC Memorandum 2008·09.

   • 	 8.2/3. The Draft Report is erroneous and except for certain immaterial expenses that
       Global Impact agrees should nol have been reimbursed is diametricall y opposed to
       specific OPM guidance. Attempt by the audit team to retroactively impose new rules
       nowhere is supported by applicable law and wou ld be arbitrary and capricious.

   • 	 S.4. The Draft Repo rt is erroneous. GlobaJ Impact properly accoun ted for all Campaign
       expenses. The audit team 's inability to reconcile Globallmpact's accounting occurred
       th rougb misread ing of Global Impact documentation and mi sunderstandings of Global
       Impact's accounting system, which complies with GAAP and Independent Public
       Auditor reviews.

                                     Deleted by the OlG 

                               Not Relevant to tbe Final Report 


   • 	 C.3. The Draft Report is erroneous. The audit team fai led to properly understand or seek
       explanations for the transactions it cited as unallowable . All questioned transactions are
       fully explained in the response.




                                     Deleted by the OIG 

                               Not Relevant to tbe Final Report

                                .	                          ;­
    • 	 C.6. The Draft Report is erroneous. Globa l Impact either maintained CFCNCA in
        interest bearing accounts, or negotiated a credit in lieu of interest that exceeded market
        interest rates.




                                          Deleted by the OJ G 

                                    Not Relevant to the Final Report 





    • 	 0 .1. The Draft Report is correct in its conclusion that so me eligibility determinations
        were sent out for the 2008 Campaign after the deadline established by OPM , bUI the
        proper deadline was May 2, 2008, not March 31, 2008 as the audit staff erroneously
        concluded, and only a small portion of the determinations were sent out 3 days lale ­
        most were timely. Nevertheless, Global Impact is laking steps to preven t late
        notifications from occurring again .

 The above conclusions reached by Global Impact •• that in most instances demonstrate that the
 findings reached by OIG in the Draft Report are erroneous •• are fully supported in the responses
 by documentary evidence set forth in extensive exhibits, by declarations and letters from
 experienced fundrai sers, and by the LPA , BOO Seidman, whose review of Global Impact's
·responses to the Draft Reporl is included herewith as Final Letter Exbibit 2. The IP A's review
 confi rms the accuracy of the data submitted Globa l Impact with its responses.

We note thaI many of tbe errors made by the audit team may have resulted tbrough failure of the
team to ask the proper questions of Global Impact accounting personnel. We suspect that in the
pressu re of other work and internal deadlines, the audit team did Dot feel it had sufficie nt time to
ask the proper questions aDd digest the proper explanations.

If not corrected before the final report, the findings and recommendations in the Draft Report
would damage the CFCNCA and Global Impact, and create an impression of ineffici ency and
waste that is belied by the information revealed in Global Impact's exhaustive responses during
the aud it process and to the Draft Report, and the results achieved by Globallmpact for the
CFCNCA.

We were receptive to your idea to submit Global Impact's responses as they were completed
rather than awaiting the final deadline, because we hoped the audit team would turn to each
response as it was received and ask for further explanations, if staff felt such explanations were
needed. We are surprised that no such meetings have been requested to date in view of our
findings, but assume that the audit staff now understands its errors, or will leave adequate time
alle r this filing 10 ask for further clarificaljoll. We can assure you thai we and the Global Impact
siaff will be available 10 you and your staff to respond to any further requesls.

We would be happy to, and hereby reques,t, a meeting with you and your staff in advance of
issuance of your [mal report to ensure tbat the findings and recommendations therein fairly
reflect Globallmpact's record as PCFO for the CFCNCA.




General Couns • Global Impact
                                                 6 . 1. ' 

   Global Impact Fully Complied With the CFC Cale ndar And Did Not Over-Reimburse Itse lf 



In Secti on B. I. , at pages 1-2, of the Draft Report, the audit team makes two incorrect assertions.
first, the audit team incorrectly alleges that a ll Campa ign expense disbursements must be made
on or before the second March 31 following the commencement of a Campaign. Second, the
aud it team incorrectly alleges that Globa l Impact ove r-reimbursed itself in the amount 0[$2,493
for 2008 Campaign expenses.

       a. 	 Actual Final Re imbursements For The 2007 And 2008 Campaigns Were Correctly
            Made

The Draft Report mistakenly a lleges that all Cam paign expense disbursements must be made on
or before the second March 3 1 foll owing the commencement of the campaign (the "Second
March 3 15t,,). i.e .• March 3 1, 2009 for the 2007 Campaign; and March 3 1, 20 I0 for the 2008
Campaign. OPM's CFC Calendar of Events. which requires that final disbursements be made on
or before the Second March 3 1~\ must be interpreted to apply to distributi ons to charities,
because final expense reimbursements cannot be completed until a ll third party ex pense invo ices
or other demands for payment re lated to a campa ign are received by the PCFO . Because a
campaign ends on lhe Second March 3 1st, some third party expen se invoices inev itab ly wi ll be
incurred right up to that date and received by the PCFO after it. If the audit team 's interpretat ion
was correct, those invoices would not be able to be paid.

For example. if the CFCNCA incurs a third campaign expense for information technology
services on the day before the Second Ma rch 3 15\ Globa l Impact wi ll not receive an invoice from
the third party contractor for such infonnation technology servi ces unti l some date after the
Second March 3 1st (the " Additional l.nvoicc"). Globa l Impact must be able to pay the Addit ional
Invoi ce after the Second March 31 SI.

Reco mm endations I a nd 2 should be withd rawn .




                                         Deleted by t he 01G 

                                   Not Relevant to tb e F inal R eport 

      Deleted by the OlG
Not Relevant to the Final Report




           2

                                       B.2./BJ.:
                     CFCNCA Travel And Campaign Expenses Are 

                     Within Regulatory Requirements And Allowable 


The audit team's assertions at subsections B.2. and 8.3 . of the Draft Report that Glohal
Impact was reimbursed for unreasonable, unallowable or unsupported travel expenses are
wrong as a matter of law and fact. The expenses identified at Sections B.2 and 8.3 of the
Draft Report were used in furtherance of the CFCNCA and were actual and approved by
the LFCC, as required by 5 C.F.R. §950.1 05(b). As explained further herein, the audit
team's assertion that Global Impact should repay them is arbitrary and capricious as a
matter of law and unreasonable as a matter of fact.

The audit team ' s attempt to disallow as Campaign expenses meals and similar charges
that were provided during Campaign events is based on a misreading and/or lack of
knowledge of the regulations governing Campaign operations and OPM issued guidance.
The audit team asserts a wholly new and untenable standard by which to judge Campaign
expenditures that is diametrically opposed to the way in which aPM guidcs PCFOs.

U.S. Office of Personnel Management, Combined Federal Campaign, "Proven Practices
and New Innovations," Campaign Events (hereinafter, " OPM Proven Practices Memo"),
which appears in the LFCC On-Line Campaign Manual (Feb. 200 I). states:

       A meal served in conjunction with a campaign event is an allowable
       expense that may be paid from campaign r eceipts. The cost would be
       included in campaign expenses. T he LFCC C hair makes decisions
       about the appropriateness of CFC-sponsored dinners and luncheons.

avai lable at http://\Y\\\\.bpnu.!O\·/dc/LFCC -Online/P\'Ovcn-i'rac lice s.tlsp. The OPM
Proven Practices Memo also slates that " Ic)ampaign kickoffs , progress reports ,
awards, victory events, and other non-solicitation events to build support for the
campaign are strongly encouraged."

The audit team 's "bel ief' that meals for Campaign participants do not benefit the
Campaign, Draft Report at pages 2 and 5, is irrelevant. OPM provides precisely the
opposite guidance. and. as explained more fully herein, OPM is correct (and the audit
team is incorrect) in detennining that such expenses do provide benefits to the CFe.

In this section of its response, Global Impact will address the assertions of the audit team
that are common to the transactions challenged in sections 8.2 and B.3 of the Draft
Report. Thereafter, in separate sections entitled " 8.2." and "8.3.", Global Impact will
address the specific transactions identified in the spread sheets that were attached to the
Draft Report.
       a. 	 By Every Reasonable Measure, Global Impact 's Service as PCFO For The
            CFCNCA Has Been Exemplary

Before turning to specifically address the meal s and similar expenses challenged by the
audit team at Sections 8.2 and B.3., Global Impact supplies the following infonnation to
demonstrate that its service as Principal Combined Fund Organization ("PCFO") of the
Combined Federal Campaign of the National Capital Area ('(CFCNCA") has been
"effective and efficient" and that it has "collect[ed J the greatest amount of charitable
contributions possible" for the CFCNCA. Tn its management of the CFCNCA, Global
Impact fully complies with 5 C.F.R. §950.1 05(b), which states that "the primary goal of
the PCFO is to conduct an effective and efficient campaign in a fair and even-handed
manner aimed at collecting the greatest amount of charitable contributions possible" fo r
theCFCNCA.

The audit team's interpretation of this regulation incorrectly and myopically focuses on a
dollar-for-dollar basis whether each individual expenditure directly produces additional
Campaign revenue. The audit team fails to recogni ze that expenditures on Campaign
infrastructure are necessary to achieve the "primary goal" as stated in the regulation. The
standard used by the audit team cannot be whether each particul ar expenditure directly
produces a corresponding greater donation or donations to the CFCNCA, but whether the
expenditures reasonably promote "an effective and efficient campaign" as a who le, as
judged by the amounts raised by the CFCNCA (effectiveness) and overall CFCNCA
expenditures as a percentage of amounts raised (efficiency).

Globallrnpact was chosen as the PCFO for the CFCNCA at least in part because of its
over 50 years of experience participating in and managing workplace giving campaigns.
Each year that GJoballmpact has been PCFO for the CFCNCA, it has increased
CFCNCA contribution revenue and decreased expenses, both in absolute tenns and as a
percentage of revenue. Exhibit 8.2.1B. 3.(1) at page I. Global Impact bas done this
despite the fact that during the audited Campaign years the Nation has undergone a
severe recession. CFCNCA campaign revenues have outpaced nationwide CFC giving
for each audited year. Jd . at page 2.

Remarkably, for each of the audit years, Global Impact has conducted the CFCNCA by
spending decreasing amounts of Campaign revenue on fundrai sing expenses. Exhibit
B.2 .1B.3 (2) . Of critical importance is the fact that Global Impact spent less than 9% of
Campaign revenue on expenses in 2007, 8.1 % in 2008, 7.4% in 2009 and 7.0% in 20 I O.
As explained in the following section, these amounts are well below the national average
for CFCs and well below the amounts recommended by reputable third party charity
watchdog organizations.

       b. 	 In Comparison To National Averages And Standards, The CFCNCA Run By
            Globallrnpact Ranks Among The Most Efficient Fundraising Campaigns

Page 1 of Exhibit B.2.1B.3 .(1) shows the national average for CFC Campaign expenses.
In eve.ry year, Globallmpact has spent far less than the national CFC average. The CFC


                                             2

Campaign national average has fluctuated between J0.2% and J0.5% during the years at
issue in this audit. See a1so Office of Personnel Management, Combined Federa1
Campaign, " Frequently Asked Questions," CFC Donations ("Historically, campaign
costs nation-wide have averaged ten percent .... On average, this cost is low compared
with other fundraising campaigns[.]"), available at http://,,W\, .opllUm \ 'e tc him1EI(!.3Sp.
By compari son, Global Impact has steadily decreased fundraising expenses, from a high
of8.9% in 2007 to 7.0% in 2010.

TIle focus on fundraising expenses a:s a pt::rct:ntagt: uf fundraising expenses is critically
important. That is how charitable fundraisers are judged in the fundraising industry.
Charity Navigator, \'ww.tlmril' navi!..!<lwr.orl!, a ratings service to which charities and
their donors pay close attention, states:

        Charities spend money to raise money. Effective charities must in part be efficient
        fundraisers, spending less to rai se more. We calculate a charity' s fundraising
        efficiency by determining how much it spends to generate $1 in charitable
        contributions. In other words, we di vide a charity's fundrai sing expenses by the
        total contributions it receives as a result. For example, Charity Z, with fundraising
        expenses of$500,OOO and total contributions of$3.4 million, has a fundraising
        efficiency of$0.147, which means it spends 14.7 cents to raise $1. After
        calculating a charity ' s fundraising efficiency, we conven the results to a
        numerical score ranging from 0 to 10.

http;//\,\lww.charitynav igator.org!i ndex.cfm?b.lY=CQntent.vjcw&cpid:::3S.

According to Charity Navigator, the general median charity fundraising efficiency is
SO. I O. http://www.chil rityn avicator,org/index,cfm Ibay/content-view /
cpicl !48.htm. CFCNCA's 2007-2010 record for fundraising efllciency is as follows:
2007 -$0.089; 2008 - $0.081; 2009 - $0.074; and 2010 - $0.70. Chariti es that spend
less than $0.10 for each $1 raised receive from Charity Navigator the highest fundraising
efficiency score of"IO". In its management of the CFCNCA, Global Impact has
achieved the highest possible efficiency score.

The Better Business Bureau's ("BBB") Wise Giving Alliance ("WGA") is another
watchdog service to which charities and donors pay close attention. WGA calls itself
"the nation's preeminent national charity evaluation organization,"
http://www.bbh.org I llS I pa rtne rsh jps Iwjse-gj vi n C,al l ja nce-corpora te- resay rees I.
According to WGA, the median customary fundraising efficient quotient should be
35%, meaning that no more than 35% of contribution's rece ived by an organization
related to its fund raising efforts should be spent on fundraising expenses.
http://www,bbb,Qrg/us/Charity-St<1n dards/ (Standard 9). As stated above, Global
Impact far exceeds the WGA's Standard for fund rai s ing efficiency and earns BBB's
highest efficiency score.




                                               3

         c. 	 OPM Repeatedly Has Recognized CFCNCA For Its Effect ive
              Fundraising Practices

This year, as it has for each year since 2003, Global Impact won an Innovator' s
Award from the Office ofPersOIIDei Management as "one oftbe Most Successful
CFe Campaigns of 20 10." http: //,,,',"\,'.oplll.!!o\'/nl' \\'SlopnH·C'L:0l..:nizcs·the-1110SI­
sllccessfu l-cfc-c<lm pai!ll1 s-of-20 1O.16 75.as px. In announcing the 2010 awards,
OPM Director Berry said that CFCNCA and the other awardees "went above and
beyond, making CFe such an enormous success. All federal workers can be
proud of their accomplishments and dedication." Id.

Similar statements in each of the last eight years have been made regarding the
CFCs for which Global Impact served as PCFO. See Exhibit B.2.1B.3.(3). Global
Impact is the only PCFO to have earned an Innovator Award for each year that is
has served as PCFO.

In 2007, the year that Global Impact received an Innovator' s Award for its
baseball themed campaign, for which Global Impact hosted an event at RFK
stadium, the expenses for which the aud it team has challenged as not benefitting
the Campaign, OPM said this:

        Keeping with this theme, the campaign kickoff was held at a Washington
        Nationals baseball game. Prior to the game, Admiral Thad Allen,
        Commandant of the U.S. Coast Guard and the CFC Honorary Chairman,
        threw the ceremonial first pitch in honor of the 2007 campaign. The Coast
        Guard provided the anthem singer, color guard and a Coast Guard rescue
        helicopter flyover. More tban 600 campaign managers, loaned executives,
        key workers and friends attended the event, in addition to the crowd of
        35,000. The Nationals mascot, Screech, was present at the CFC·NCA
        Leadership Conference as well as numerous agency kickoffs and rallies.

        The campaign theme has given Federal agencies and departments great
        latitude when it came to marketing their fund drives. But just as
        importantly, it provided them with an excellent opportunity to interject fun
        and enthusiasm in their campaigns.

Exhibit B.2.1B.3.(3) at pages 10-1 I.

At various places within the spreadsheets that accompany the Draft Report, the audit
team challenges expenses related to donor and potential donor research as not benefitting
the Campaign. OPM certainly disagrees, because it repeatedly has relied on Global
Impact for the results of this research. Exhibit B.2.IB.3(4) at~!3 and accompanying
Exhibits C and D. In fact, in 2010 OPM awarded Global Impact an Innovator's Award
because of this research. Exhibit B.2/8.3. at page I .




                                                   4

In the Draft Report, the audit team repeatedly ch ides Global Impact for a "culture . ..
where the charging of meals as part of the normal course of business is an acceptable
carnpajgn expense." Draft Report at pages 3 and S. The "culture" of Global Impact and
the CFCNCA, is to produce excellent fundraising results, and to charge reasonable
expenses to the Campaign as the costs of producing these excell ent fundraising results .
The audit team ' s pejorative gloss on Global Impact's practices is neither founded in the
regulations and guidelines that govern PCFO conduct, nor in any analysis of the excellent
results achieved by Global lmpacl, and it is completely at odds with the views of the
Office of Personnel Management, which repeatedly has recognized Global Impact for its
innovative work on behalf of the CFCNCA.

In this regard, it is also worth noting the comments of              the representative
of the independent Charities of America and Local                      of America,
who also serves and has served as PCFO for a variety ofe FCs around the country. These
comments are attached at Exhibit 7 to this Response.

       My federation clients and their member charities ha ve gone on the
       r ecord to pra ise tbe work Globallmpact has don e as PCFO for the
       CFCNCA. They consider that campaign to be tbe bes t run in th e
       country. Don' t stop doin g wha t you a re doin g, and that includes
       meaJs a nd oth er recognition part ls1 of th e ca mp aign man agemcnt mi.l..

Exhibit B.2./B.3.(7).

       d. 	 CFC Regulations Allow Recovery Of Expenses For Meals Provided To
            Campaign Workers And Similar Expenses During Official Campaign
            Activities

The audit team identifies two CFC regu lations that govern reimbursement of Campaign
expenses, 5 C.F.R. §950.1OS(b) and § 106, in support or its assert ion that the expenses
cited in the Draft Report at sections 8.2 and 8.3 are unallowable. In particular, the audit
tearn singles out meal s provided to Campaign workers as constituting the majority of the
expenses identified in sections B.2 and 8 .3 . The audit team argues that these expenses
are Wlreasonable, "because they did not provide a direct benefit to the campaign," Draft
Report at pages 3 and 5, and thus are unallowable.

The regulations do not prohibit provision of mea1 s to Campaign workers and similar
expenditures, and OPM guidelines affirmatively .state that meals " scrved in conjunction
with a ca mpa ign Cl'ent is an a llowa ble expense tha t may bc paid from campaign
rece ipts." OPM Proven Practices Memorandum. By the Proven Practice Memorandum
and other guidance, OPM furth er encourages PC FOs to organize tbe non-solicitation
ca mpaign events such as " kickoffs, progress reports, awa rds, victory events, and
oth erls )" that the audit team now challenges. The audit team' s effort now to force
Global Impact to reimburse the CFC fo r the expenses it has incurred as PCFO for the
CFCNCA is arbitrary, capricious, unreasonable in vio lation of the Administrative
Procedures Act, 5 U.S.C. § 706(2)(A).


                                             5

By 5 C.F.R. §950. 105(b), "[tlbe primary goal of the PCFO is to conduct an effective and
efficient campaign in a fair and even-handed manner aimed at collecting the greatest
amount of charitable contributions possible." Section 105 goes on to state: "Therefore,
PCFO ' s should afford federated groups and agencies .. _ in the local campai gn area
adequate opportunity to offer suggestions relating to .. . the campaign . .. . the
opportunity to attend all campaign meetings, kick-off events, and training sessions[,] ...
and [with the general public] the opportunity to review at the PCFO office al l reports,
budgets, audits, training information, and other records pertaining to the ere."

The primary goal set forth in section l05(b), "to conduct an effective and efficient
campaign in a fair and even-handed manner aimed at collecting the greatest amount of
charitable contributions possible" thus is enforceable through the other requirements set
forth in that subsection: participation of local federated groups and agencies through
suggestions as to how the CFC should be conducted and attendance at all Campaign
events, and review by these groups and the public of all CEe-related records. No
suggestion is made that Global Impact violated any of these requirements, and the audit
team's recommendation that Global Impact repay expenses incurred in cond ucting the
CFC is not supported by this regulatory provision.

Section 106 provides that "[tJhe PCFO shall recover from the gross receipts of the
campaign its expenses, approved by the LFCC, reflecting the actual costs of
administering the local campaign." 5 C.F.R. § 950.106(a). The LFCC approved the
expenses now challenged by the audit team and the expenses indisputably were actually
incurred in administration of the CFCNCA. This regulatory provision not only does not
support the audit team's position that Global Impact should repay the identified expenses,
it affirmatively supports Global Impact 's proper incurrence of almost a ll of the expenses
challenged by the audit team at sections 8.2. and B.3. of the Draft Report.

Sections 105 and 106 of 5 C.F.R. Part 950 contain a multitude of very specific
statements about how PCFOs must conduct Campaigns. Nowhere do these
regulations say that reasonable meals in the context of conducting Campaign
business and similar Campaign expenses may not be charged to the Campaign.

The regulations provide that PCFOs must "conduct campaign operations, such as
training, kick·off and other events" separately from the non·CFC operations of a
PCFO, 5 C.F. R. §950.! 05(c)(2)(ii), and "[tJrainD agency loaned executives,
coordinators, and key workers in the methods of non·coerci ve solicitation ...
completely separate from training given for other types of charitable campaign
drives," as well as additional keyworker training on aspects ofeFC Campaign
operations, id. at subsection (d)(2). It is at these training, kick· offand other
events, which are mandated by the reguJations, that Globallmpact provides the
meals about which the audit team now complains. Nowhere in the discussion of
these mandatory separate training, kick-off and other events do the regulations
prohibit the provision of meals to Campaign workers. In fact, OPM's Proven
Practices Memo, available at hltp:lh \\'\\ .oplll.!.!ov/d d LFCC-Online/Prm·en­


                                             6
Prat'ict's.asp. specifically states that a "m eal sen-cd in conjun cti,o n with a
ca mpa ig'n is a n a llow able expense that may be paid from ca mpaign receipts,"
and it encourages, Kickoff Rallies, Victory Celebrations, and '~eaders hip
Breakfasts," among other things.

lndeed, in anticipation of the fact that the upcoming Campaign season is the 50 th
since the CFC fonnally was founded. the crc Foundation has with input from
OPM's Office of the Combined Federal Campaign just recentl y published a
toolkit for PCFOs, LFCCs and others encouraging CFCs to " {pJla n a specia l
celeb ration (luncheon, d inner or reception) for Fcdera l e mployees to network,
reflect on the accomplishments of20 11, and celebrate the 50 th anniversary
together." See Combined Federal Campagin 50 th Anniversary"50 th Anniversary
Toolkit," available at http ://w\\',,,.c fctodav.o ru/pdflC FC Too lkit Fl NA L.pd f at
P:'H!C' ~8 .


The audit team ' s imposition of new rules after the fact without legal support for
recovery of expenses actually incurred on behalf of the CFCNCA would be
arbitrary and capricious in violation of the Administrative Procedures Act, 5
U.S.C. § 706(2)(A): "To be sure, the requirement that an agency provide reasoned
explanation for its action would ordinarily demand that it di splay awareness that it
is cbanging position. An agency may not, for example, depart from a prior policy
sub silenlio or simply disregard rules that are still on the books." F.C.C. v. Fox
Television Stations, Inc., 129 S. Ct. 1800, 181 1 (2009).

The audit team ' s ncw suggestion that eFCs includi ng G lobal [mpact must not
expense meals to Campaign workers and simi lar Campaign expenditures would
mark a dramatic shift over the way in which the CFCNCA is conducted. In fact,
meals have been provided at such events for many years and by other CFes.
Exhibit 8.2.18.3.(4) at   and (5).

As di scussed in the fo llowing section, the audit team tacitly admits that PCFOs,
LFCCs and others involved in CFC operations have nol been accorded nbtice of
such a position. Accordingly, effort by the O la to force Global Impact to pay
such Campaign expenses itself would "depart from .. . prior policy sub silenlo"
a nd "di sregard rules that are still on the books/' which is arbitrary and capricious
in violation of 5 U.S.C. §706(2).

          e. 	 The Audit Team Tacitly Admits That Global Impact And Other
               PCFOs Have Not Been Provided Notice OrThe Standard It Has
               Created In The Draft Report

In Recommendations 6 and 8, the audit team suggests that OPM provide guidance
to PCFOs about what campaign expenses will be considered reasonable. In doing
so, the audit team tacitly admits that no notice of its newly articulated position has
been provided to Globallmpact and other PCFOs.



                                               7

Current regulations and guidance are sufficient. 5 C.F.R. §950. I06(a) is the
primary regulation governing recovery of Campaign expenses. The regulation
provides that expenses must be "approved by the LFCC." reflect " the actual costs
of administering the local campaign." and "shall not exceed I 0 percent of the
estimated budget" unless approved by the Director of OPM. The LFCC Manual ,
which was published in 2001. encourages a variety of fundraising events and
provides that meals served in conjunction with campaign events are allowable
Campaign costs.

Global Impact agrees that the actual costs of administering the CFCNCA also
should be reasonable. The regulations give the LFCC primary authority to
approve each Campaign budget and actual expenses. Regardless of whether OIG
agrees with Globallmpact and the LFCC that the Campaign expenses were
reasonable. there should be no dispute that it would be arbitrary and capricious to
impose a new legal standard months and years after the expenses have been
incurred, and to try to force Globallmpact to rei mburse those expenses from its
own operating expenses based on thi s new legal standard.

       [. 	 Payment of Mea ls For Campaign Workers And Similar Expenses Provide A
            Benefit To The eFe

The audit team argues for disallowance of meals and simi lar costs provided to
campaign workers because they do not " provide a direct benefit to the campaign."
The audit tearn also contends that providing meals " is counterproducti ve to the
CFC goal of collecting the greatest amount of charitable contributions possible,"
presumably because each dollar that pays for a meal instead could be provided to
a CFC charity. Draft Report at pages 3 and 5.

Nowhere in the regulations or OrM guidelines is there any requirement that a
particular expenditure "directly benefit" the Campaign by causing a
corresponding increase in Campaign revenue. The "direct benefit" standard
created by the audit team for this audit is unworkable. Many. if not most,
Campaign expenses incurred by Global lmpact and other PCFOs do not directly
contribute to Campaign revenue. For example. salaries of CFCNCA staff who
manage the Campaigns and do not solicit campaign funds do not "directly
benefit" Campaign revenue. Yet the audit team does not argue that Global Impact
cannot pay the salaries of CFCNCA campaign staff. Indeed. payment of meals
and similar expenses for campaign volunteers. who do solicit donations from
federal employees (and thus any benefit to such vol unteers arguably is more of a
direct benefit to the campaign than salaries of PCFO staff), is authorized precisely
because such volunteers are vital to the success of the CFC. Exhibit B.2.1B.3.(4)
at ~ 6, (5) at ~4, (6) and (7).

It is incorrect for the audit team to argue that money spent on meals for campaign
workers does not "co llectD the greatest amount of charitable contributions
possible." Draft Report at pages 3 and 5. This argument ignores the very real


                                             8

contri bution to campaign worker morale and loyalty that small expenditures like
meals afford the campaign, thereby increasing, not decreas ing, charitable
contributions. See Exhibits B.21B.3.(4) at ~~5, 6, and 12; (5) at ~7; (6) ("In
Hawaii, most of recognize the truth in the saying " Provide food and they wi ll
come!"); and (7) ("The do llars expended in providing appropriate
means/refreshment, some entertainment, and token gifts during campajgn events
are multiplied many times over in the extra revenues they generate through the
enthusiasm they engender among the campaign workers."). Indeed, CFCNCA
research shows that Campaign volunteers believe that interaction wjth, and
recognition from, co-workers and their department or agency leadership are the
two most important factors in motivating volunteers to participate in the
CFCNCA. Exhibit B.2.1B.3.(8). See also Exhibit B.2.1B.3.(4) at ' 12 .

As recognized in the OPM Proven Practices Memo, " Victory Celebrations ...
" acknowledgell tbe contributions of all tbe people wbo worked on th e
campaign," and " Leadership Breakfasts belp " Federal agency heads rto1
meet and share ideas for running successful eFe campaigns." In short, as
recognized by Charity Navigator, supra at page 2, charitable fundraisers must
"spend money to raise money."

The time and effort contributed by these Campaign workers greatly multiplies
CFC revenue, and the relatively small amounts expended on them are far
outweighed by the far larger Campaign dollars that are generated by these
motivated participants. 8.2/B.3.(7). Given that Global Impact is required to
perform the trainings identified at 5 C.F.R. 950.1 05(c)(2)(ii) aod (d)(2), it is
entirely reasonable for Global lrnpact to maximize the time that such persons are
available by offering amenities such as meals to Campaign workers, many of
whom are volunteers.

At various places in the spread sheets that tbe audit team attaches to its Draft
Report, the audit team argues that meals and similar charges are not allowable
because government workers typically are not provided with meals at trainings
and simi lar events, However, the vast majority of the Campaign workers work on
the CFCNCA as volunteers, not by virtue of their government salary, and Global
Impact as PCFO must seek ways to recognize, appreciate and motivate these
volunteers.

CFCNCA campaign expenses are not paid from-appropriated govemment funds,
and the rules that have been devised for determining whether federa ll y
appropriated money may be spent cannot be applied to CFCs. U.S. Government
Accountability Office, Office of General Counsel, Matter of: United Wav of the
National Capital Area, B-3 11 235 (May 16, 2008) ("All fees and reimbursement of
expenses paid to a PCFO are taken from federal employees ' donations through the
CFC; no appropriated funds are used to pay PCFOs.") (Citing OPM brief and
dismissing fo r lack ofjurisdiction a challenge to the selection ofG lobal lmpact by
theLFCC).


                                             9
In any event, it is not true that government workers never arc accorded meals at
government-sponsored events. For example. in Government Accowllabil ity
Office Decision 6-300826 (March 3, 2005), the National Institutes of Health was
pennitted 10 provide meals and li ght refreshments to federal goverrunent attendees
and presenters at an NIH-sponsored conference, which was held in furtherance of
N lI-I's statutory mission to conduct and support research.

Globnllmpact' s conduct of the CFCNCA is and has been "effecti ve and
efficient[,]" its Campaign expenditures have been "aimed at co llecting the
greatest amount of charitable contributions possible[,]" its budgets containing
such expenditures have been approved by the LFCC, which also approves actual
expenditures at the end of each Campai gn, and the CFCNCA Campaign resu lts,
which have increased at the same time that Global lmpact has decreased
Campaign expenses as a percentage of revenue, positively attest to Global
Impact's excell ent management of the CFCNCA.

The audit team must revise the way in which it has reviewed the expenses
identifi ed at topics B.2 and 8 .3 and apply the regulati ons as they exist to the
audited Campaign years. In doing so, the audit team should find that virtually
every expense identified at topics 8.2 and 8.3 is reasonable and allowable.

Recommendations 5, 6, 7 and 8 should be withdrawn.




                                              10 

                                       B.2.: 

                       Trave l Expenses Cha llenged In The 

                   Draft Report Are A llowable And Reasonable 



In this response, Global Impact provides category by category explanations that almost
all of the trave l and other expenses challenged by the audit team at section B.2 oflhe
Draft Report are al lowable and reasonable. The _particular expenses questioned or
challenged by the audit team are identified in this response by row number within the
Campaign year spreadsheets (2007, 2008 and 2009) that were attached to the Draft
Report.

Before turning to the explanations or the travel expenses challenged by the audit team , as
identified in subsection a. of this Response, G lobal Impact provides the add itional
documentation requested at various places within the Campaign spread sheets attached to
the Draft Report. In subsection b. of th is Response, Globa l Impact identifies like
categories of transactions questioned by the audit team within the spreadsheets attached
to the Draft Report. In subsection c., Global Impact addresses documentation relati ng to
de minimis expenses. In subsection d. of this Response, Globa l Impact identi fi es a few
expenses that were incorrectly charged to the Campaign.

       a. 	    Global Impact Hereby Attaches The Additional Documentation Requested
               By The Audit Team Fo r The 2007 Campaign Transactions That
               Are Identified In The 8.2. Spreadsheet Attached To The Draft Report

               (2007 Campa ign Spreadsheet, rows 23, 32, 50, 51 and 62)

Attached at Exh ibits B.2.(I) through 8.2.(5) is additiona l documentation for the 5 travel
expense transactions requested by the audit learn. On the first page of each offhe
attached exhibits, Globa l Impact has identified the particular transaction to which thc
rcquested supporting documentation relates by Campaign year and spread sheet row
number.

        b. 	   The Expenses Challenged By The Audit Team Are Reasonable And
               Allowab le

Fo llowing are explanations as to the al10wability and reasonableness of the 2007 -2009
Campaign travel and other staff expenses challenged by the aud it team. Globa l Impact
has categorized and grouped the transactions, which ind ividually are ident ified in the
parentheticals by the row number of the Campaign spreadsheet, underneath the numbered
headi ng for each category. At the attached spreadsheets created by the aud it team, G lobal
Impact has added a column and annotated the spreadsheets to identify by transaction its
categorical response or responses to each expense challenged by the audit team. See
Exhibit B.2.(6).
The first two categories below respond to the aud it team ' s cha llenge to meal expenses
related to Campaign events. In its "Proven Practices and New Innovat ions"
Memorandum, which is part of the LFCC Campa ign Manua l, aPM spec ifi cally states
that " (a) meal served in conju nction with a campaign event is an allowable expense
that may be paid from campaign receipts. The cost would be included in campaign
expenses. The LFCC Chair makes decisions about the appropriateness of CFC­
sponsored dinners and lun cheons." See hup:l/w\\ \\' .opm.!.!Ov/cfc /LFC C­
On li nc/Provcn- Practiccs.asp (here inafter, "OPM Proven Practices Memorandum").
These expenses are allowable.

       1.      LFCC/LAC Meals Are Reasonable And Allowable

               (2007 Campa ign spreadsheet at row numbers 9-14 and 16-18 ~ 2008
               Campaign spreadsheet at row numbers 9- 14, 17, 20, 24, 33 and 35; 2009
               Campaign spreadsheet at row numbers 11-22 , 3 1 and 35).

The audit team argues that there was no benefit to the CFC in providing breakfasts and
lunches to the Local Federal Coordinating Committee (" LFCe") or it s subcommittee, the
Local Application Review Committee (" LAC"). These meals were provided during
official CFCNA meetings at which CFCNCA business was transacted, so that work
performed by LFCe and LAC members, who are volunteers, could be cond ucted more
efficiently. This benefits the Campaigns.

During the LAC meet in gs at issue (2007 Campaign spreadsheet rows 9~ 13 and 17-18;
2008 Campaign spread sheet rows 9- 14, 20, 33 and 35; 2009 Campaign spread sheet rows
 J 1-22 and 35), LAC members reviewed 1,653 applicat ions of federations and charities
fo r incl usion in the 2007 CFCNCA, 1,732 app lications fo r inclusion in the 2008
CFCNCA and 1,776 applications fo r inclusion in the 2009 CFCNCA. Pursuant to 5
C.F.R. §950.204(e), eligibility determinations must be completed according to a
timetable set by OPM.

Meals were provided to promote efficiency of the LAC in comp leting their time sensitive
work and to provide a minor benefit to these Campaign workers, who furnish their time
and services without compensation. The LAC consists of25 members. During the 2007­
9 Campaigns, the per person average cost of breakfast provided to LAC members ranged
from $7 .47 ~ $8.60 and the per person average cost of lunch was $12 . 52~$14 . 50.

Also, lunch was prov ided at LFee board meetings (2007 Campaign spreadsheet row 16;
2008 Campaign spreadsheet rows 24 and 3 I; 2009 Campaign spreadsheet row 31). For
the 2007 and 2008 lunches at issue, the per person average for the cost of lunch was $ 11
and $13.50 respectively. The 2009 Campaign luncheon cost was similar. Lunch was
provided so that volunteer LFCC members co uld attend the meetings during the work day
at a time that minimizes absence from their govemmentjob duties .




                                            2

These Campaign expenses benefit the Campaign by promoting efficient Campaign
operations. See also Global Impact 's B.2.1B.3. Response, providing other support for
ways in which meals benefit the Campaigns.

       2. 	    Meetings And Events Involving Loaned Executives, CFCNCA Staff and
               LFCC Members At Which Food Was Served Are Allowable

               (2007 Campaign spreadsheet, rows part 0[25, 28, 29, 33, 40, 41,43. 45 ­
               49, 52; 2008 Campaign spreadsheet, rows 25-29, 32 and 34; 2009
               Campai gn spreadsheet, rows part of24, 25-32)

The audit team also challenges other CFCNCA meetings and events at which Loaned
Executives (LEs) and others in attendance rece ived meals. At these meetings, LEs
received trainin g, exchanged information with each other, CFCNCA staff and othcr CFC
vol unteers about the progress of the Campaigns, or were thanked and honored at the end
of each Campaign for their service on behalf of the CFCNCA . With respect to one
breakfast meeting involv in g mostly CFCNCA staff (2007 Campaign spreadsheet, row
47), CFCNCA staff reviewed impactful practices from the previous Campa ign and set
strategy for the upcoming Campaign.

The costs of these meals are al1owable. because CFCNCA business was conducted,
thereby benefitting the CFCNCA. With the exception of the end of Campaign thank you
events. the average per person cost of lunch was less than $20 per person. some average
per person lunch costs were far less.

The end of Campaign thank you lunches held once each Campaign season averaged
around $50 per person. These thank you lunches are important mora le boostcrs to a
critical constituency that has been integral in making the CFCNCA successful. To the
extent that there is any OPM guidance related io these expenses, OPM has stated that
award ceremonies arc appropriate and that costs related thereto are legitimate Ca mpaign
ex pen ses. In CFC Memorandum 2008-09, OPM has mentioned that award ceremony
costs are reimbursab le Campaign expenses. There is no OPM guidance precluding the
amounts spent, and in the judgment of Global Impact, which has long fund raising
experience on beha lf of charities an·d CFCs, and a track record of obtain ing exce llent
fundrai si ng results for charities and the CFC, these amounts spent were reasonable for the
events at issue.

The audit team also challenges the cost of a 2007 Campaign CFCNCA Chri stmas party
held for the LEs. The Chri stmas party provides an opportunity for CFCNCA to thank
LEs for their work and motivate them to work hard on behalf of the CFCNCA through
the end of the Campaign. Again, no gu idance against such an event has been issued by
OPM , and in Globa llmpact's judgment, this event was appropriate and reasonab le.

All of these events involved CFCNCA business, including training of LEs, exchange of
infonnation between LEs, CFCNCA staff and LFCC members, and opportunities to




                                             3

 thank LEs for their service to the CFCNCA . They provided benefits to the CFCNCA and
 are allowable.

          3. 	   Expenses Re lated to Attendance By CFCNCA Staff And LFCC Members
                 At OPM CFC-Related Conferences Are Allowable

                 (2007 Campaign spreadsheet rows 2 1. 22, part of 24. part of25, 2 6. part of
                 57 and 69; 2008 Campaign spreadsheet rows 18, 19. 22 and 38; 2009
                 Campaign spreadsheet rows 9, 10,23,33,3 4 and 39).

The audit team questi ons a variety of expenses, including lodging, transportation, meals,
beverages, and extra baggage fees. incurred by CFCNCA statTand LFCC representatives
related to days immediately before and after their attendance at ann ua l a PM conferences.
At these conferences, attendees are trained on CFC [egulations and the conduct of CFCs
(t he audit team does not challenge the legitimacy of attending the aPM conferences ,
although, as di scussed later in this section, it incorrectl y argues that the expenses were
charged to the wrong Campaign years).

As ex plained herein, these charges are allowable. The staff and LFCC representatives
were invo lved in organ izing and conducting port ions of the conferences, which explains
why they needed to arrive early and/or stay late. I.n a few circumstances, CFCNCA staff
or LFCC representatives not invo lved in organiz ing and plann ing arrived the ni ght before
to attend an evening rcce.pli on held that evening and/or to ensure prompt attendance at the
beginning of the conferences the next morning. The lodging fees were incurred because
these indiv iduals req uired rooms in wh ich to sleep. The tax i and similar expcnses were.
required in order to transport the indiv id ua ls to and from their hotels or conference
events. The excess baggage fees were incurred because these indi viduals were
transporting CFCNCA materials to and from the conferences.

 In the 2007 Campaign
 Orlando, Florida.
_        were invo lved in planning ]                                          er;.~~~;~ed
 to arrive one            and stay one day after the conferences. In one case, C
 staff member                       the evening before the start of a conference that started
 the next day to ensure hi s timely presence at the start of the conference. During the OPM
 conference that occurred in the 2008 Campaign year in Las                      CFCNCA
                                      and
                                execu tionCFF~C:t~:;~~;:~:~
                                           fl          anda:;~u~
                                                            thus were required to arri ve early
                              confe rence. During the OPM conference thaI occurred in
the 2009 Cam paign year in New Orleans, Louisiana~
were involved in planning and execution. LFCC ref,re;5eiirtai1Ye
arrived one day early to participate in an event related to the eOllfererlCe
before.                                     Delet ed by the OIG
                                   Not Relevant to the Final Report




                                               4
CFCNCA staff expenses immediately before and after the conferences are a ll owable
because staff were not merely conference attendees, they were invo lved in planning and
execution, which required their attendance shortly before to set up and after the
conferences were held to wrap up.

The audit team also challenges hotel expenses while at the 2007 OPM conference,
including in-room meal charges for a CFCNCA staff member and the cost of a dinne[
attended by other eFe campaign representati ves at which comparative CFe practices
nation-wide were discussed (2007 Campaign spread sheet row 22). All of these charges
are allowab le as they were incurred in connection with and benefitted th e CFCNCA.

Finally. with respect to each of the OPM conferences, which are held in March or April ,
the audit team asserts that Global Impact incorrectly charged expenses to the wrong
Campa ign year. Following Generally Accepted Accounting Practices (GAAP), Global
Impact charges the active Campaign at the time that the expenses are incurred. No
regulations or guidance from OPM indicates that this practice is incorrect. In any eve nt~
even if Global Impact is found to have been wrong in following GAAP, the appropriate
remedy would be reall ocation of the expense to the appropriate Campaign year, not
disgorgement.

       4. 	    End of the Year Award Events To Thank Volunteers Benefit The
               Cam paign And Are A ll owab le

               (2007 Campaign spreadsheet 55 and 56)

At the end of each Campaign season, Global fmpact hosts award ceremonies to thank
vo lunteers who worked on behalf of the CFCNCA. These ceremonies are appropriate, as
evidenced by the fact that OPM has stated in 5 C.F.R. §950. I05 (d)( II ) that CFCs should
ho ld award ceremonies, in OPM's Proven Practices Memorandum, which states that
';Victory Ce lebrations ... acknow ledgeO the contributions or all people who workJor the
campaign," and that a "'mea l served in conjunction with a campaign event is an allowab le
expense that may be paid from campa ign receipts," and in CFe Memorandum 2008-09
that award ceremony expenses are recoverable. Indeed, OrM holds a similar award
event ror eFCs nation-wide at which food and beverages are served and awards given
out. See Exhibit B.2.1B.3,(4) at II.




                                     Deleted by the OIG 

                               Not Relevant to tbe F inal Report 





                                            5

       5.     Minor Expenses To Boost CFCNCA Morale Are Allowable

              (2007 Campaign spread sheet row numbers part of 24, and 57; 2008
              Campaign spread sheet row part of23)

The expenses identified by the audit team include
           Deleted by OIG
  Not Relevant to the Final Report          $76.94 for flowers provided to a departing
CFCNCA employee (2007 Campaign spread sheet row 57) and $5 1.26 in "graduation
items" related to a Loaned Executive training. These expenses were incurred in
connection with CFCNCA business, are within the discretion of CFCNCA management
to promote good will among staff and other CFCNCA workers, the,reby benefitting the
CFCNCA, and thus are all owable. The OPM Proven Practices Memorandum states that
CFCs should "celebrate the[ir] achievement[s] through appropriate PR, including through
use of trinkets "to acknowledge the accomplishment."

       6.     CFCNCA Campaign Fundraising Research Expenses Are Allowable




                                   Deleted by OIG 

                           Not Relevant to the F inal Report 





                                          6

                                      Deleted by the OIG 

                              ~ot   Relevant to the Final Report 





The OIG further questioned $657.92 in travel and meeting expenses for receipts that were
not itemized or did not have supporting documentation. aPM regulations do not require
itemized receipts for all expenses regardless of amount. Sec 5 C.F.R. §950. 105(d)(7)(
(Requiring itemized receipts "to the extent possible"). The expense description was
included on the credit card bill and reviewed by the CFC~CA staffs supervisor. The
expenses were related to cost associated with the aPM conference and are the refore, a
direct benefit to the campaign.




                                   Deleted by the OI G 

                             Not Relevant to the Final Report 





                                           7

        8. 	     Charges Questioned By The Audit Team As Havi ng Been Booked In The
                 Wrong Year Were In Fact Charged To The Appropriate Cam pai gn Year

                 (2007 Campai gn spreadsheet, rows 44, 53, part of 54,59,65, 69; 2008
                 Cam pai gn spreadsheet, rows part of 33, part of35 , 36, 37, 38; 2009
                 Campaign spreadsheet, rows 33-35, 38 and 39)

OPM's Office of CFC Operations has provided no guidance regarding the year for which
an eX,pense not clearly re lating to a particular Campaign must be charged. G lobal Impact
fo ll owed Generally Accepted Accouniing Princip les (GAAP) in book ing expenses to the
Campaign year in wh ich they were incurred.

Even if the audit team was correct that one or more expenses were charged to the wrong
Campa ign year, the appropriate remedy would be to reallocate the expense to th e
appropriate Campaign year, not to require Global Impact to repay the expense. Each
expense legitimately was incurred on beha lf of the Campaign, and, even if OIG was to
disagree with Global Impact's adherence to GAAP, the consequence of such
disagreement should be reallocation, not di sgorgement.

        c. 	     Globa l Impact Is Not Required To Maintain Primary Documentation For
                 De Minimis Transactions

                 (2007 Campa ign spreadsheet, rows 2 1, 24· 26, 38-40, 45 , 49, 52, 55, 56,
                 58; 2008 Campaign spreadsheet, rows 16,25·27, 34, 35; 2009 Campai gn
                 spreadsheet, rows 10, 24, 33, 34 )

In many places within the spreadsheet, the audit learn challenges as inadequate the
primary documentation receipts for certain expenses mostly involving mea ls,

No CFe regulation or OPM guidance requires receipts for de minimis travel
expenditures. 5 C.F.R. §950.105(d)(7) states that PCFOs must "maintain[] a detailed
schedule of its actual CFC administrative expenses with, to the extent possible, itemized
receipts for the expenses," (emphasis added). The regulati on thus contemp lates that
PCFOs need not requ ire receipts in all circumstances.

In accordance with Internal Revenue Service guidelines, Global Impact does not require
CFCNCA staff to file such receipts if their charges are less than the amount of IRS
guideli nes for which receipts are not required. During some of the audit years, thi s
amount was $25. Currently, the amount is $75 . Internal Revenue Service, "Travel,
Entertainm ent, Gift, and Car Expenses," (pub. 463) (2010) ("Documentary evidence is
not needed if any of the following conditions apply ... . Your expense, other than
lodging, is less than $75) available at hll p:II\,.. " w .i r 5.!.!O\ Ipub[ications/p463Ic h05.h tml.

At other places, OIG acknowledges that receipts were provided but challenges them as
inadequate. The documentation prov ided to the audit team is sufficient to establish that




                                                  8

the meal s were incurred during the conduct of CFCNCA business and therefore the
expenses are all owab le.

De minimis travel expenses for which rece ipts we re not kept or are incomplete are
nevertheless allowab le .

       d. 	    The Transactions Identified In Th is Paragraph Were Not Reasonabl y
               Incurred On Behalf of The CFCNCA Or Are Othenvise Unallowable

Global Impact has identified the foll owing transactions from the sprcadsheets included
with the Draft Report and agrees that these charges did not provide a sufficient benefir to
the CFCNCA to justify thei r leg itimacy as a Campaign expense:

   • 	 2007 Campai gn spreadsheet, row 22 - a CFCNCA staff member incorrectl y
       charged certain expenses such as dry cleaning, movie rental s and gift shop
       purchases, to the Campaign ($69.15).

   • 	 2007 Campaign spreadsheet, row 25 - A CFCNCA staff member took a Mardi
       Gras tour with staff and members of other CFCs while attending an OPM
       conference ($17).

   • 	 2007 Campaign spreadsheet, row 27 - A CFeNCA staff member attcnded a non­
       CFeNCA award ceremony spon sored by a third party organization and thus is not
       chargeable to the CFCNCA. The amount o f thi s transaction, $52 1.49, should not
       have been charged to the CFCNCA.

   • 	 2007 Campaign spreadsheet, row 35 - A CFCNCA staff member incorrectly
       charged a movie rental during CFCNCA travel ($15.74).

   • 	 2007 Campa ign spreadsheet, row 55 - A CFeNCA staff member incorrectly
       charged a movie rental for an undetermined amount during CFCNCA travel.

   • 	 2007 Campaign spreadsheet, row 6 1 • A CFCNCA staff member drove from
       Washington, D.C. 10 an QPM confe rence in Orlando, Plorida rather than nying
       and was reimbu rsed for $956.90. The CFCNCA staff member only should have
       been reimbursed from CFCNCA Campai gn funds for the equiva lent amount of an
       airplane ticket plus baggage and loca l transportatjon charges.

   • 	 2008 Campaign spreadsheet, row 30 - A CFCNCA staff member authorized neck
       massages for Loaned Executives in the amount of$400. While this was intended
       as a means to allev iate stress during a particularly intense lime in the Campaign
       year, G loba l Impact upper management detennlned early in 2009 that this type of
       perk did not portray the appropriate image for a public charity fundrai sing
       campaign and should cease. This parti cular charge occurred before it came to the
       attention of Global Impact upper management.



                                             9
   • 	 2009 Campaign spreadsheet, row part of24 - A CFCNCA staff member
       incorrect ly charged $3 1.49 for a movie renLaI wh ile on CFCNCA travel.

G lobal Impact intends to review with CFCNCA stafTthe kinds of expenses identified
here so that these kinds of expenses do not occur in the future.




                                    Deleted by the OIG 

                              Not Relevant to the Fin al Report 





                                          10 

                                                B.3.: 

        The Expe nses Cha llenged Bv the Audit Team Arc Allowable And Reasonable 



The audit team asks for additional documentation and explanations relating to a numerou s
Campai gn expenses. II a lso challenges many expenses as unall owable. In section 8. 3. of its
Draft Report, the audit team questions or challenges more than approx imate ly 170 separate
lra nSaCtfons, from as little as $6.

In thi s Response, Global Impact provides the additional documentation and ex planations
requested by the audit team at co lumn R of the spreadsheet included wi thin Exhibit 8.3.( I),
whi ch accompanies thi s Response. Exhibit B,3.( I) is an electronic zip file containi ng the
addit ional documentation requested by the audit team.

T he spreadsheet within Exhi bi t 8 .3.( 1) entit led "Draft Report Expense Samples 2007-09 w
G loba l Impact Responses" is a copy of the spreadsheet that was attached to the Draft Report by
the a~ld il team with two co lumns added by Global Impact: co lumns R and S. Additional
documentation is access ib le through hyperlinks within co lumn R correspond ing to the rows for
which such add itiona l docwnentation was req uested. Co lumn R a lso conta ins responses to issues
ra ised by the audit team in its Column N. At column S of the afore-identified spreadsheet.
G lobal lmpacI directly responds to each questioned expense with a stateme nt as to whether th e
expense is a llowab le . If G loba l Impact has included an exp lanation beyond what is stated in
Co lumn R, it directs OIG to the particular section in thi s Response that corresponds to such
additiona l explanat ion.

The responses in subsection a. of this Response e laborate on why expenses cha llenged by the
audit team are allowab le. There are a very few expenses that Global Impact agrees are not
allowab le; those expenses are identified in subsection b.

        a. 	 The Audit Team Is Wrong As A Matter Of Fact And Law In Asserting ThaI The
             Expenses Identified At B.3. Of The Draft Report Are Unallowable

In section B.3. of its Draft Report, the audit team primariJy compla ins aboul mea ls that were
provided 10 Campaign workers and vo lunteers while CFCNCA business was conducted. The
audit team asserts that th e meals provided no (d irect) benefit to the campa ign, andlor that such
meals " is counterproductive to the CFC goal of col lecti ng the greatest amount of charitable
contributions poss ible." Draft Report at page S.

Contrary 10 the assertions o f the aud it team, the Office of Personne l Management instructs CFCs
that meals and similar ex penses are all owable. OPM's " Proven Practices and New Innovations"
Me morandum , which is published as part of the LFCC Manual states states:

        A meal served in conjunction with a campaign event is an a llowab le expense
        that may be paid from campaign receipts. The cost would be included in
        campaign expenses. The LFCC Chair makes decisions abo ut the
        appropriateness of CFC-sponsored dinners and luncheons.
http://,, wv.. .Opl11.'2.Ull /c tc/LFCC-Onl in e/Provcn-P raclic es .asp (hereinafter, " OPM Proven
Practices Memorandum").

T he audit team also misu nde rstands how successful fundra ising campaigns arc conducted.
Campaign vo lun teers donate their time and serv ices. They must be recognized, bonored, thanked
and motivated to continue to do so and to solicit potential donors to make financ ial contributions
to beneficiary cha riti es. Providing meals, entertainment and other reasonable accoutrements,
such as mugs and similar small but impurumt tukens of appn;ciation, is c ritically important in
conducting a successful CFC Campaign.

As more fully stated in the 8.2 .18 .3. Response, Global Impact has an excellent track record of
rai sing Campaign funds while keeping expenses below CFC national averages and well wi th in
national fundrai si ng industry standards. It knows how to run effective fundraising campaigns,
that, in a climate of economic challenge, nevertheless has increased campaign contributions each
yea r it has served as PCFO.

The aud it team is manifestly incorrect in its assertions as to how to raise the most money
possible fo r beneficiary charities. Moreover, its after the fact effort to force Globa l Impact to
repay Campaign expenses inc urred in managing the CFC is arbitrary, capricious, unreasonable
and contrary to law.

Be low are exp lanations demonstrating that particu lar expenses questioned or cha llenged by the
audit team are allowable. G lobal lmpact has grouped its explanations into the following seven
categories.

        I . 	 Campa ign Staff and Volunteer Training Expenses, Including Meals And
              Entertainment Provided 1n Connect ion Therewith, Are Allowable

            (2007 Spreadsheet, row 79, 83. 86, 93, 95, 97, 99. 100, 10 I, 102, 114, 11 6; 2008
            Spreadsheet, row 43 , 52, 55, 75 , 76, 78; 2009 Spreadsheet, row 88, 89, 90. 91)

By 5 C.f .R. §950. 105(d)(3), Global Impact is required to train loaned executives and othe r
Campaign workers in methods of non·solicitation and other aspects of CfC Campaign
operations, and this training must be separate from other training given for other types of
campaign drives. Globa l Impact does so lhrough two large trainings at the beginning of each
Campaign season: its Campaign Leadership Conferences train the hundreds of Key Workers,
Campaign Managers, and others who perfoml many solicitati on and operationa l tasks during the
Campaign season in an all day session and it trains Loaned Executives, who are the primary
contact between donors and the CFC, in an intens ive two fu ll week session.

The audit team questi ons expenses related to the Campaign Leadership Conferences (2007
Campaign spreadsheet, rows 83 , 86, 89 and 1 16; 2008 Campaign spreadsheet, rows 43; 2009
Spreadhsheet, rows 90, 91). The expenses relating to the Leadership Conference ident ified by
the a ud it team re late to the cost 'o f using a local hotel at which over 600 CFCNCA volunteers
were trained. The conference lasted a full day and in the judgment of Global Impact it was



                                                     2

appropriate to provide refreshments and after Conference entertainment as a means of thankin g
Campa ign volunteers for their attendance and participation at the training and in the CFCNCA,
and to ensure that they have a positive experience during the training so that they wou ld be
motivated to so licit co*workers on behalf o rthe CFC. This type of non·solicitarion Campaign
event specifically is encouraged by OPM i,n its Proven Practices Memorandum.

The aud it team also questions costs related to the two-week intensive training provided to
Loaned Executives (2007 Campaign spreadsheet, 79, 93 , 95 , 97, 99, 100, 10 1, 102, and 114;
2008 Campaign Spreadsheet, row 55,78; 2009 Campaign spreadsheet rows 88, 89, 9 J),
incl ud ing amounts paid for trainers, food and beverages, furnishing mugs to training participants
and furnishing trainee entertainment in the fann of an evening tour of Wash ington, D. C. during
the training. The audit team also questions the cost of breakout conference rooms in which small
groups of trainees met to receive traini ng on particular topics .

The Campaign depends heavily on enthusiastic Loaned Executive C'LE") participation in the
CFe. LEs are the primary contact between federal agencies and the CFe. The PCFO as
manager of the Campaign must find appropriate ways to thank and mot ivate federal worker
participants, who are critical in making the CFe successful. Th e importance Providing food
and reasonable entertainment (the mugs cost $7 per participant and the tour cost $21 per
participant) are sensicaJ ways of expressing apprec iation and providing mot ivation .


                                        Deleted by tbe OTG 

                                No t Relevant to tb e Final Report 




The audit team also challenges expenses related to CFCNCA staff training, which was approved
by the LFCC through a statTdevelopment line item in the budget. Staff training related to skill
sets lIsed during the Campaign benefits the Campa ign in that Campaign workers perfonn their
job duties more effectively. The Campaign expenses related to gram mar and proofreadin g
training for a CFCNCA employee who worked on Campaign operations (2008 Cam paign
Spreadsheet, rows 75 and 76) is allowable.

       2. Expenses Related To Campaign Promotional Events Are Allowab le

           (2007 Spreadsheet, row 8 1-84, 89~ 91, 92; 2008 Campaign Spreadsheet, row 44, 45 ,
           50; 2009 Campai gn Spreadsheet, row 93)

The audit team q uest ions or challenges a wide variety of the expenses that OPM itse lf
encourages. The OPM Proven Practices Memorandum states: "Campaign kickoffs, progress
reports, awa rd s, victory events, and other Don-solicitation events to build sup port for the
campaign are st'r ongly encour.lged. Most s uccessful campaigns have all or so me of these
kinds of e\'ents. "




                                                3

The audit team takes issue with the 2007 Campaign kick-ofT event, which began with an event at
a Washington Nationa ls baseball game at RFK stadium and continued the following day in a
conference during which Campaign volunteers and workers were briefed on Campa ign
mechanics and how to properly solic it their co-workers under aPM regu lations and gu idelines to
participate in the CFCNCA. In the Draft Report at page 5, expenses related to this event were
singled out.

The event is widely held to have been successful and a key component to the success of the 2007
CFCNCA, as evidenced by the fact that aPM gave an Innovator Award to Global Impact in
large part fo r hosting the event tha1the audit team now critic izes. In exp laining why aPM gave
Global Impact the Award, aPM said that Global Impact had " implemented a creative strategy ..
. to fuel its $60 million [fundraising] goal." Exhibit B.21B. 3(4). aPM continues:

        [T]he campaign kickoff was held at a Washington Nationals baseball game.
       Prior to the game, Admiral Thad Allen, Commandant of the U.S. Coast Guard and
       CFe Honorary Chairman, threw the ceremonial first pitch in honor of the 2007
       campa ign. The Coast Guard provided the anthem singer, color guard and a Coast
       Guard rescue helicopter flyovcr. More than 600 campaign managers, loaned
       executives, key workers and friends attended the event .... The Nationals
       mascot, Screech, was present at the CFC-NCA Leadership Conference as well as
       numerous agency kickoffs and rallies.

       The campa ign theme has given Federal agencies and departments great latitude
       when it came to marketing their fund drives. But just as importantly, it provided
       them with an excellent opportunity to interject fun and enthusiasm in their
       campa igns.



Kick-off events are specifically mentioned at 5 C.F.R. §950. 105(b). Such events, are among the
ones that aare strong ly encouraged" byaPM. OPM Proven Practices Memorandum. The event
is designed "to thank and motivate key volunteers and staff for the work they will do during thi s
year's campaign [and] ... provider] a hi gher profile launch [for the Campaign] with media
possibilities." See "CFCNCA First Pitch," (Document hyperlinked to 2007 Campaign
spreadsheet, rows 8 I. 82, 84, and 9 I), The media value of the event was described as follow s:

       A news release will be developed for distribution to the loca l media, the press
       box , and philanthropic trades. Photographers from CFCNCA and the Coast
       Guard will be a part of the official party. The team will be videotaping the event
       for CFC use on the web site and elsewhere.



The audit team also challenges costs related to an award ceremony held for Loaned Executives
(2008 Campaign spreadsheet, row 45). Award ceremonies spec ificall y authorized 815 C.F.R.
§950.1 05(d)( II), and in CFC Memorandum 2008-09, aPM specifically identifies award



                                                 4

ceremony costs as ones that are CFC ex penses to be recovered. Moreover, OPM itse lf annually
hold a CftC awards ceremony at which food and beverages are provided. Each year since 2003,
Gl obal Impact has received an Innovator' s Award al lhe OPM awards ceremony for its creati ve
management of the CFCNCA and/or CFe Overseas. Global Impact and CFCNCA staff have
attended the OPM awards ceremony. Global Impact thus strongly disagrees that the costs related
to the awards ceremonies it hosts for CFCNCA participants are not allowable.

Similarly, the audit team challenges the expenses re lated to its Finale event, which is an award
ceremony that is be ld at the conclusion of each Cam pai gn year to thank and honorthe around
1,000 people, vo lunteers, Key Worke.rs, Campai gn Managers, Loaned Executives, and LF CC
members, who contribute to the success o f the CFCNCA (2007 Campaign Spreadsheet, row 92 ,
2008 Campaign Spreadsheet, row 44; 2009 Campaign Spreadsheet, row 93). As stated, the
Finale is authorized by the regulat ions and OPM guide lines anticipate that such costs wi ll be
recovered. See aPM Proven Practices Memorandum ("Victory Celebrations . . acknowledgeD
the contributions orall the people who worked on the campaign.").

           3. Expenses Related To Report Luncheon Meetings Are Allowable

               (2007 Campa ign Spreadsheet, rows 70, 87, 92, 133; 2008 Campaign Spreadsheet,
               row 46, 48, 49 , 7 1, 74 , 77; 2009 Campaign Spreadsheet, row 92, 106, 107)

Throughout each Campa ign year, Global Impact conducts luncheon meetings so that Campaign
infonnation among loaned executives, Campaign vo lunteers and CFCNCA staff can be
exchanged. The OPM Proven Practices Memorandum spec ificall y encourages "progess reports"
among other non-solicitation events "to build support for the campai gn." The OPM Pro ven
Practices Memorandum further states that "[mJost successfu l campaigns have all or some of
these kinds of events."

The audit team appears to seek to apply General Accounting Office (GAO) rulings that meals are
not normally provided to govern me-nt workers during meetings. However, the CFe is not a
governm ent financed program. It relies principally on donated time and serv ices of federa l
emp loyees, who do so above and beyond their regu lar work duties . Appropriated tax do llars are
not a substantial sou rce for the CFes ' operational budget. See also Global Impact B.2/B.3 .
Response discussion at subsection f explain ing non-application of GAO ru lings to PCFO
Campa ign expense maners. The expenses incurred in relation to these meetings are necessary to
promote attendance at the meetings and the overall success of the CFCNCA. Moreover, it wou ld
be arb itrary and capricious if OIG attempted to retroactively recover money expended for these
meetings, because there is not noW and has never been any prohibition against such expenditures.
Indeed, the OPM Proven Practices Memorandum specifi cally states that a "meal served in
conjunct ion with a campaign event is an allowable expense that may be paid from campaign
receipts."

The decision to serve lundl and simi lar accoutrements at a strategy meeting shortly before
commencement of the 2007 and 2009 Campaigns (2007 Spreadsheet, row 70; 2009
Spreadsheet, row 106), and at mid·Campaign report gatherings involving several hundred
Campaign volunteers and workers, during which issues related to the ongoing Campaign are



                                                5

discussed (2007 Spreadsheet, row 87; 2008 Spreadsheet, row 46, 71 , 74; 2009 Campaign
Spreadsheet, row 92, 107) is appropriate, because such meetings contribute to the success of the
Campa ign. Moreover, the LFCC approves the budget items related to these events. The
expenses incurred during these luncheon meetings thus are allowab le.

           4. Expenses Related To Campaign Operations Are Allowable

           (2007 Campaign Spreadsheet, row 354; 2008 Campai gn Spreadsheet, row 89, 90, 91,
           92; 2009 Campaign Spreadsheet, row 98, 100, 10 I, 113, 114)

The audit team questions a variety of expenses incurred in relation to operation of the Campaign.
The audit team questions whether the cost o f photographs taken of Loaned Execut ives (2007
Spreadsheet at row 354), which then were posted at the CFCNCA website along with other
infonnation about the LEs, is an allowable cost. This cost is allowable, because it is part of
CFCNCA ' s effort to prov ide infonnat ion to federal emp loyees about their primary agency
contact for the CFe. See also aPM Proven Pract ices Memorandum ("Publicity about CFC is
both desirable and essential in attracting Federal donors' interest and support.").

The audit. team also cha llenges the cost ofCFCNCA offic e break room supp lies (2008
Spreadsheet at row 89, 90, 91 and 92). Provision of plastic utensil s, plates, coffee, cream and
sugar for CFCNCA empl oyees are reasonable Campaign expenses. These kinds of materials
exist in virtually all office environments, including nonMprofit and governmen t offices. They
promote effic iency in the office environment, so that employees do not need to leave the office
when they need these supplies, and they otherwise promote a pos itive working env ironment by
offeri ng a common space for employees to socia lize during break times.




                                          Deleted by th e OIG
                                    Not Relevant to the FinaJ Report
                                     ,                           ,




                                                6

spreadsheet, row 113, 114). Because the employee worked 100% from her home and the
connection was designated for use by Global Impact and the employee only for business
purposes, the entire cost of the internet connection was properly charged to the Campaign.

              5. Expenses Related To Campaign Worker Safety Are Allowable




                                         Deleted by OIG
                                 Not Relevant to th e Final Report




       6. 	     Global lmpact Properly Accounted For And Allocated A Questioned CFCNCA
                Expense

                (2007 Campaign Spreadsheet, row 63)

At row 63 of the 2007 Spreadsheet, the audit team questions why a $55, 87 1.38 March 31, 2008
accrual was allocated to the 2007 Campaign. The all ocation was made to the 2007 Campaign
year on the last day of the solicitation period for that Campaign year, because it was the
anticipated amount of costs for the 2007 Campaign award ceremony. which was held later in
2008. That year, the Campaign expended only $7,617.59 of the estimated amount, and the
difference, $48,253.80, was later reversed. All of this is supported by the documentation that
Global Impact has attached and hyperlinked at row 63 of Exhibit B .3.( I ).



                                               7
           b. 	 The Expen ses Identified In This Subsection Were Not Reasonably Incurred On
                Behalf Of The CFCNCA Or Are Otherwise Unallowable

Globallmpact has identified the following transactions from the spreadsheets jncluded with the
Draft Report for which it agrees that these charges did not provide a suffi cient benefit to the
CFCNCA to justify their legitimacy as a Campaign expense:

   • 	 2007 Campaign spreadsheet, row 36 - a CFCNCA staff member authorized $280 worth
       of chair massages to Loaned Executives to reward their hard work. When Global Impact
       upper management learned of these charges early in 2009, such benefit was cancelled
       because it did not portray the appropriate image for a public charity fundraising
       ca mpaign.

   • 	 2007 Campaign sprca'dshcet, row 202 - a CFCNCA staff member accidentally voided a
       Campaign disbursement to a beneficiary charity, thereby incurring a $6 bank charge.
       Because this was an error by a CFCNCA staff membe r, the bank charge should not have
       been paid by the Campaign.

   • 	 2008 Campaign spreadsheet, rows 14, 194 and 199 - Third party invoices were paid late.
       causing late fees in the amounts of$206.60, $ 7.9land $9.66. Because these were errors
       by one or more CFCNCA staff members, the late fee should not have been paid by the
       Campaign.

   • 	 2009 Campaign spreadsheet, row 120 - As challenged by OIG, the cost of the invoice
       should have been charged only 50% to the CFCNCA; accordingly, $30.94 should oat
       have been charged to the Campaign.




                                                8

                                                B.4.: 

                   Global Impact Properly Accounted For Campaign Expenses 


As in other sect ions of its Draft Report, the aud it team reached mistaken conclusions based on its
m isunderstanding of the Global Impact accounting system. Because the audit team did not fully
understand Globa ll mpacl ' s application ofGene ra1iy Accepted Accounting Principles ("GAAP")
to the CFCNCA accounts, the audit team was left to conclude in the Draft Report that it "could
not dctennine that the P CFO properly accounted for its campaign expenses for the 2007 through
2009 campaigns." Draft Report at page 6.

The specific examples cited by the audit team demonstrate that it was not able to properly
interpret Global Impact 's CFCNCA books and records. Globallmpact made these books and
records avai lable to the audit team during the audit process, but the audit team did not- ask either
the Globa l Impact accounting staff or Global lmpact's [PA , BOO USA (the " IPA"), the proper
questions that would have allowed it to understand the accounting system and avoid its initial
erroneous conclusions. Herein weexplain how GAAP was applied by Global Impact to its work
on behalfofihe CFCNCA. Thereafter, we explain fully how GAAP was applied by Global
Impact staff to the expenses hi ghlighted in the Draft Report.

In each of the years audited by OIG, Global Impact contracted with the LPA to conduct an audit
of the CFCNCA. In each of these years, Global Impact received a clean audit op inion from the.
[PA stat ing that the Global Impact' s accounting systcm was cons istent w ith GAAP. Moreover,
in each of the audited years, the IPA was lavish in its praise for Global [mpact 's accountin g
work, stating numerou s times that its system were an example for other (c)(3)' s to follow ,

Global Impact is proud o f its accounting personne l, led by Me Stanley Berman, who has recemly
been elected as the President of the Greater Washington Socie.ty ofCPAs, and its knowledgeable
staff. Recognizing that the CFCNCA is the world 's largest workplace giving campaign and thus
presents complicated accounting and recordkeeping problems. at the outset of the OIG audit
Global Impact conducted an orientati on for the OIG staff even before OIG ' s formal fi eldwork
began. A copy of the agenda for that orientation is included as Exhibit B.4.(I). In
addition, Global lmpacl told the OIG auditors that they wou ld have fu ll access to the IPA and its
work papers. O IG never availed itself of the opportun ity to ask the IPA to explain OIG 's
questions regard in g Globa l Impact' s CFCNCA accounting system or the specific transactions
cited in the Draft Report.

       a. 	 Globa l Impact Follows GAAP In Estimating Accrued Expenses And Then
            Substituting Actual Expenses Upon Receipt Of Invoices

GJ utilizes uses a standard accrual based accounting system. In the context of the CFCNCA
the re are generally three type s of accruals that occur. They are summarized bel ow:

    • 	 Anticipated ex penses for vendor invoices that have not yet been received are accrued
        using estimated amounts and then are corrected to reflect actual expenses (usually in the
        following month) when the invo ice is received by Global rmpact, thereby creating a
       cred it in the expense accounts that were charged fo r anticipated expenses. The est im ated
       accrued expenses are thereby zeroed out and the actua l expenses are included.

   • 	 Major expenses such as pledge processi ng fees. are amortized monthly so that the 

       finan cial statements early in the year are not misleading ly large. 


   • 	 Audit fees fo r the campaign, ex penses for process ing campa ign receipts and to di stribute
       money to charities, and other necessary ex penses the payments for which will be made
       between the end and the close-out of a campai gn are esti mated and accrued in accordance
       with the estimate; as explained above in the first bu llet poin t, subsequentl y, prior to the
       cl ose-out of the applicable campaign, adjustm ents to the acc ruals are made to correct the
       accrual to actual. The initial estimates are performed on a department by department,
       vendor by' vendor basis and are as close to accurate as possibl e, but in any case are
       subsequentl y adjusted to actual prior to campaign close-out.

Each of the bullet po ints above refl ects the application of cu stomary, genera lly accepted
accountin g practi ces that have been deemed fully consistent with GAAP and were "verifiab le" in
the IPA' s audit opinions for each of2007-09. See Exh ibit 8.4 .(2). In addition, the method s
noted in each of the above bullet points are full y comp liant with OPM Memorandu01 2008-09,
attached hereto as Exhibit 8.4 .(3), in which OPM describes the methods fo r es'timatmg and
correcting to actual certain payments, including audit fees.

        b. 	 Each Of Tile Specific Tran sact ions Cited By The Audit Team As Examples Of Its
             Inability To Determine Whether Global Impact Properl y Accounted For Campaign
             Expenses Are Easil y Explainable

Fo llowing are poi nt by point ex planati ons of the transacti ons cited by the audi t team as examples
of its inability to determine whether Global Impact properly accounted for Campaign expenses.

 t.     Audit Fees. The Draft Report cites Oloballmpact's method of estimating audit expenses
as a violation ofO PM regu lations, which li mit the pe FO reimbursement to actual costs of
admini stering the local campai gn. Following are the fa cts: Global Impact accrued $35,000 for
audit fees fo r the 2007 campaign aud it ; subsequentl y, Global Impact received an invoice from
the I"fA for $3 1, 154 for such fees.

Ordinaril y. as described above, G loba l Impact upon receiving th e invoice, wou ld have adj usted
the accrual to actual in accordance with the third bullet point above and would have transferred
the difference between esti mated and actual to the undesignated contributions for the campaign
year. However, before the 2007 Campaign close-out, Globallmpact was notified that Or M
would be conducting an audit of the 2007-09 work papers. See letters from OPM attached as
Ex hibits B.4.(4).

Global Impact reaso nably concluded that there would be additionallPA audit fees attributable to
DIG's audit. Accordingly, Gl obal Impact left its original accrual of $35,000 in place until it
received the IPA's final bil l on August 3, 20 I0, three days after the audit of the fa ll 2008
Campa ign was submitted to the LFCC in accordance with the Office of CFe Operations

                                                   2

calendar. This invoice charged the IPA an additional $2,061 for the DIG ' s review ofthe lPA's
fall 2007 workpapers ($2,000 for services and $6 1 for out of pocket and internal charges). See
Exhibit BA.(5). After paying the LPA's fees, $1 ,784.60 remained, which, together with an over­
accrual in the amount of $2, 784.65 for audit fees in relation to the fa ll 2008 Cam paign, was used
to reduce the outstanding amount of $4,840.65 for fall 2008 Campa ign expenses, as explained in
our response to 8-1.

The result of such method is fully consistent with aPM Memorandum 2008-09, which stated in
relevant part: " Ifthe cost is less than the amount withheld and the differenced is less than one
percent of lhe gross pledges for the campaign audited, the amount shou ld be distributed with
funds for the campaign currentl y being distributed."




                                       Deleted by tbe DIG 

                                 Not Relevant to tbe Final Report 





                                                 3

The draft findings related to section BA. and Recommendations 9, 10 and 11 should be
withdrawn .




                                           4