oversight

Audit of the 2005 through 2012 Combined Federal Campaigns Administered by the Metropolitan Arts Partnership Sacramento, California

Published by the Office of Personnel Management, Office of Inspector General on 2014-07-10.

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 2005 THROUGH 2012
              COMBINED FEDERAL CAMPAIGNS
                  ADMINISTERED BY THE
             METROPOLITAN ARTS PARTNERSHIP
                SACRAMENTO, CALIFORNIA

                                           Report No. 3A-CF-00-13-051


                                           Date: July 10, 2014




                                                            --CAUTION--
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT


                               AUDIT OF THE 2005 THROUGH 2012
                               COMBINED FEDERAL CAMPAIGNS
                                   ADMINISTERED BY THE
                              METROPOLITAN ARTS PARTNERSHIP
                                 SACRAMENTO, CALIFORNIA



           Report No. 3A-CF-00-13-051                                             Date: July 10, 2014




                                                                                   ____________________________
                                                                                   Michael R. Esser
                                                                                   Assistant Inspector General
                                                                                     for Audits




                                                            --CAUTION--
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                 EXECUTIVE SUMMARY




                       AUDIT OF THE 2005 THROUGH 2012
                       COMBINED FEDERAL CAMPAIGNS
                           ADMINISTERED BY THE
                      METROPOLITAN ARTS PARTNERSHIP
                         SACRAMENTO, CALIFORNIA


        Report No. 3A-CF-00-13-051                          Date: July 10, 2014

The Office of the Inspector General has completed an audit of the Combined Federal Campaigns
(CFC), as administered by the Metropolitan Arts Partnership (MAP) from 2005 through 2012.
The following CFCs represent those administered by MAP during that time frame:
    2005 through 2007 – Sacramento Area CFCs,
    2008 – Bay Area CFC,
    2008 – Sacramento/Northern California CFC, and
    2009 through 2012 – Norcal CFCs.

MAP, located in Sacramento, California, served as the Principal Combined Fund Organization
(PCFO) for each of the above campaigns. The main objective of the audit was to determine if
the CFCs administered by MAP were in compliance with Title 5, Code of Federal Regulations,
Part 950 (5 CFR 950), including the responsibilities of both the PCFO and the Local Federal
Coordinating Committee (LFCC). The audit identified five instances of non-compliance with
the regulations (5 CFR 950) governing the CFC and it questions $2,011,529.

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




                                                  i
                           BUDGET AND CAMPAIGN EXPENSES

   Administrative Expense Overcharges                                                  $1,899,465

    MAP charged the 2005 through 2012 CFCs $1,899,465 in administrative expenses that
    exceeded expense amounts reported in its general ledger. Of this amount, $770,216 is
    comprised of unallowable costs that exceeded 110 percent of the approved campaign
    budgets.

   2011 Campaign Expenses                                                                $101,811

    MAP charged the 2011 campaign $101,811 in expenses that were either unsupported,
    unallowable, or improperly allocated.

                     CAMPAIGN RECEIPTS AND DISBURSEMENTS

   Outstanding Check Procedures                                                            $7,653

    MAP’s policies and procedures for outstanding checks do not adhere to the OCFC’s
    requirements. In addition, MAP has not reissued or redistributed $7,653 in outstanding
    checks related to prior campaigns.

   Pledge Form Errors                                                                      $2,600

    Our review identified 12 pledge forms with a total of 7 types of errors, 1 of which resulted in
    a charity not receiving a disbursement of $2,600.

   CFC Funds Not Maintained in Interest-Bearing Accounts                              Procedural

    MAP did not maintain CFC funds in an interest-bearing account during its administration of
    the 2005 through 2012 campaigns.

                                         ELIGIBILITY

Our review of the LFCC membership determined that all those serving were Federal employees.

                                     FRAUD AND ABUSE

While our review of MAP’s policies and procedures for fraud and abuse indicated that they were
sufficient to detect and deter potential fraud and abuse activities, the nature of the deficiencies
identified during this audit, as explained in the Audit Findings and Recommendations section of
this report, weakened the effect that these policies and procedures were meant to have in
protecting CFC funds from instances of fraud and abuse.




                                                 ii
                                                   CONTENTS
                                                                                                                         PAGE
       EXECUTIVE SUMMARY ............................................................................................i
  I.   INTRODUCTION AND BACKGROUND .................................................................. 1
 II.   OBJECTIVES, SCOPE, AND METHODOLOGY ...................................................... 3
III.   AUDIT FINDINGS AND RECOMMENDATIONS .................................................... 7
       A. BUDGET AND CAMPAIGN EXPENSES ........................................................... 9
            1. Administrative Expense Overcharges ................................................................ 9
            2. 2011 Campaign Expenses ................................................................................. 25
       B. CAMPAIGN RECEIPTS AND DISBURSEMENTS ........................................... 34
            1. Outstanding Check Procedures ......................................................................... 34
            2. Pledge Form Errors ........................................................................................... 36
            3. CFC Funds Not Maintained in Interest-Bearing Accounts ............................... 38
       C. ELIGIBILITY ........................................................................................................ 38
       D. FRAUD AND ABUSE .......................................................................................... 38
IV.    MAJOR CONTRIBUTORS TO THIS REPORT ........................................................ 39
       APPENDIX A               (MAP’s initial response to the draft report, dated January 6, 2014)
       APPENDIX B               (MAP’s follow-up response to the draft report, dated
                                February 14, 2014)
       APPENDIX C               (The LFCC’s response to the draft report, dated January 13, 2014)
                    I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the findings and conclusions resulting from our audit of the Combined Federal
Campaigns (CFC) administered by the Metropolitan Arts Partnership (MAP) from 2005 through
2012. The audit was performed by the U.S. 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 2012, it consisted of 184 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 (Federal employees who are temporarily assigned to work directly on the CFC) to
assist in the campaign; ensuring that employees are not coerced to participate in the campaign;
and acting upon any problems relating to noncompliance with the policies and procedures of 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 forms and charity lists; 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; consulting with federated groups on the
operation of the local campaign; and for establishing and maintaining a system of internal
controls.

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.




                                                1
This report represents the first audit of MAP as a PCFO.

The initial results of our current audit were discussed with MAP and LFCC officials during our
onsite visit, which occurred from June 17 through 27, 2013. Due to the shutdown of the Federal
Government in October 2013, and the unavailability of MAP personnel at the end of September
2013 (prior to the shutdown), an official exit conference was not held. However a summary of
findings was provided to MAP and the LFCC on September 26, 2013. A draft report was
provided to MAP and the LFCC for review and comment on September 27, 2013. Their
responses to the draft report were considered in preparation of this final report and are included
as Appendices.




                                                2
               II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary purpose of our audit was to determine if the CFCs administered by MAP were in
compliance with 5 CFR 950, including the activities of both the PCFO and the LFCC.

Our specific audit objective for the 2005 through 2012 campaigns as administered by MAP was:

   Campaign Receipts and Disbursements
    To determine the amounts received and disbursed by MAP for each campaign and if any
     amounts were inappropriately reimbursed to MAP or if any amounts remain undisbursed
     to charities.

Additionally, our audit objectives for the 2011 campaign were as follows:

   Budget and Campaign Expenses
    To determine if MAP charged the campaign for interest expenses and if the appropriate
      commercial loan was used.
    To determine if expenses charged to the campaign were actual, reasonable, did not
      exceed 110 percent of the approved budget, and were properly allocated.

   Campaign Receipts and Disbursements
    To determine if incoming pledge monies (receipts) were allocated to the proper campaign
     and if the net funds (less expenses) were properly distributed to member agencies and
     federations.

   Eligibility
    To determine if any non-Federal employees or retirees were members of the LFCC.

   Fraud and Abuse
    To determine what policies and procedures MAP has in place related to detecting and
      preventing fraud and abuse and if they are adequate.

SCOPE AND METHODOLOGY

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

The audit covered campaign years 2005 through 2012. MAP, located in Sacramento, California,
served as the PCFO during each of the campaigns. The audit fieldwork was conducted at MAP’s
office from June 17 through 27, 2013. Additional audit work was completed at our Washington,
D.C. and Cranberry Township, Pennsylvania offices.


                                               3
MAP received campaign pledges, collected campaign receipts, and incurred campaign
administrative expenses for the 2005 through 2012 campaigns as shown below.

    Campaign              Total                      Total               Administrative
      Year               Pledges                    Receipts               Expenses
       2005              $796,155                  $702,139                 $109,704
       2006              $778,268                  $740,335                 $211,065
       2007              $775,746                  $723,491                 $263,197
       2008             $4,699,821                 $4,137,050               $603,816
       2009             $4,364,310                 $3,802,231               $679,153
       2010             $4,262,925                 $3,898,425               $847,903
       2011             $4,095,204                 $3,730,015               $633,997
                                               Unknown at time
       2012             $4,093,113                                          $624,216
                                                  of report

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 form entries, and the
distributions of campaign contributions and related bank statements, showed 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 CFC
Memoranda issued by the OCFC.

To accomplish our objective concerning CFC receipts and disbursements related to the 2005
through 2012 campaigns, we performed the following procedures:

      Reviewed all CFC banking and letter of credit statements to determine the total amount
       of CFC funds actually received and disbursed by MAP.

      Reviewed the MAP general ledger to determine the amount of expense charged to the
       CFC through direct and indirect cost methods.

      Compared the CFC expense as reported in the general ledger to the expenses reimbursed
       directly from CFC funds.

      Compared the total expenses reimbursed directly from CFC funds to the maximum
       allowable expense per the regulations (110 percent of budget).


                                               4
In regard to our objectives concerning the 2011 campaign’s budget and campaign expenses, we
performed the following procedures:

   Traced and reconciled amounts on MAP’s Schedule of Actual Expenses to its general
    ledger.

   Reviewed MAP’s budgeted expenses, the LFCC’s approval of the budget, and matched a
    sample of actual expenses to supporting documentation. We judgmentally selected a sample
    of 93 expense transactions (totaling $250,746) from a universe of 428 expense transactions
    (totaling $439,148). The transactions were selected based on high dollar amounts and
    amounts exceeding a set threshold. We reviewed the sample to ensure that it included at
    least five allocated expenses.

   Reviewed the LFCC meeting minutes and verified that the LFCC authorized MAP’s
    reimbursement of campaign expenses.

   Compared the budgeted expenses to the actual expenses to determine if the actual expenses
    exceeded 110 percent of the approved budget.

To determine if the 2011 campaign’s receipts and disbursements were handled in accordance
with CFC regulations, we reviewed the following:

   A judgmental sample of the 75 highest dollar pledge forms (totaling $331,342) out of a
    universe of 14,307 pledge forms (totaling $4,095,820) from MAP’s 2011 campaign pledge
    form detail schedule and compared the pledge information from the schedule to the actual
    pledge forms. We verified that our sample included all types of donations (i.e., cash,
    designated funds, and undesignated funds) and at least five pledge forms where the donor
    chose to release their personal information. Additionally, we also randomly sampled 51
    electronic pledges from the same pledge universe and traced them back to the PCFO’s
    pledge form tracking system to make sure the information was properly input into the
    system. We sampled the first two individuals from each letter of the alphabet, except for the
    letter x, plus one individual who complained that her pledge had not been disbursed to the
    designated charity.

   A judgmental sample of 10 distribution checks (totaling $1,500,369 ) for all agencies and
    federations with total disbursements greater than $100,000, including MAP, out of a
    universe of 364 federations and organizations, totaling $3,376,638, to verify that the
    appropriate amount was disbursed in a timely manner.

   One-time disbursements to verify that MAP properly calculated pledge loss (difference
    between amounts pledged and actually received) and disbursed funds in accordance with the
    ceiling amount established by the LFCC.

   MAP’s most recent listing of outstanding checks to verify that it was following the guidance
    issued by the OCFC.



                                               5
To determine if the LFCC and MAP were in compliance with CFC regulations regarding
eligibility for the 2011 campaign, we reviewed the LFCC member listings to verify that all
members were active Federal employees.

Finally, to determine if the policies and procedures related to the detection and prevention of
fraud and abuse were adequate, we reviewed MAP’s responses to our fraud and abuse
questionnaire.

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.




                                                 6
               III. AUDIT FINDINGS AND RECOMMENDATIONS
As a result of the extreme carelessness demonstrated by MAP in its handling of its finances, as
made clear in the following findings related to the CFC during its administration of various
campaigns from 2005 through 2012, we strongly suggest to OPM’s OCFC that it not be
considered as the PCFO for any campaigns in the future.

MAP was not selected to continue as the PCFO following the conclusion of the 2012 campaign.
Therefore, we have only included recommendations to MAP for those areas for which it has the
responsibility to address in its former role as the PCFO.

In its response to the draft report, MAP made comments regarding itself and complications
related to the audit that were not directed at any particular finding or recommendation that we
feel are important and should be included and addressed. Therefore, those comments and our
response will follow immediately and precede the findings.

PCFO Comments:

MAP acknowledges in its response that it made a number of procedural errors. Specifically, it
acknowledges the following:

   That it was not fully familiar with the regulations as they relate to the CFC;

   That it was and is a small organization and the actions and activities of its accounting
    personnel “indicate a lack of business and accounting sophistication”;

   That it did not keep formal records of actions or approvals of CFC matters. This includes
    “approval of budget overruns though there is strong indication that such approvals were
    granted”;

   That one of its prior accountants failed to apply Generally Accepted Accounting Principles’
    (GAAP) cost accounting allocation methods to allocate cost incurred for the CFC and to its
    other charitable activities; and,

   That “accounting entries regarding distributions from and repayment of a certain letter of
    credit obtained to support Campaign expenses were erroneously made.”

MAP states that the “procedural breaches did not cause damage to the Campaigns or their
charitable recipients nor did they lead to inappropriate Campaign expenditures, and they were
remedied after they were identified by the OIG during its audit.”

MAP also noted that it has a small net worth remaining to support its charitable activities in the
Sacramento area and that any financial penalties would deprive other charitable recipients from
receiving valuable services and could cause it to go out of business. Specifically, MAP indicated
that its principal asset is the building housing its office space.



                                                  7
MAP additionally stated that there were many complications that led the OIG to make a series of
mistaken assumptions and erroneous recommendations.

Specifically, the mistakes were related to the following:

   A simultaneous audit of eight years of CFC campaigns is outside of the CFC regulations (5
    CFR 950.604) which state that the PCFO and other participants in the CFC “shall retain
    documents pertinent to the campaign for at least three completed campaign periods.”

   That MAP “used at least six different accountants during the eight audited years and its
    books and records reflect varying skill levels and understanding of CFC rules, as well as
    varying agendas. In some cases, very substantial amounts were left unallocated by an
    accountant who apparently did not understand the division between MAP’s non-CFC and
    CFC activities, and this failure to allocate caused your staff to disallow all such amounts in
    the Draft Report until appropriate allocations to the CFC could be undertaken. As explained
    below, such allocations now have been made.”

   That MAP’s co-founder and Executive Director, who was the most intimately involved in the
    operations of the CFC and MAP’s interaction with the LFCC and could have answered many
    of the questions raised in our audit, died in January of 2013. As a result of this untimely
    death, MAP stated that it has very little institutional memory to draw upon to determine why
    certain steps were taken and where relevant records may be stored.

   That the calculations of MAP’s unsupported and unallowable expenses rely primarily on
    bank statements, which only show when revenue and expenses were credited or debited to
    the CFC account, instead of detailed accounting records categorizing the expenses into
    allowable classes. As a result, the OIG disallowed a significant amount of expenses merely
    because of the inadequacy of MAP books and records and not because such expenses were
    inappropriately incurred.

OIG Response:

MAP’s comments above demonstrate clearly our comment in the opening paragraph of this
section. The fact that it acknowledges that it was not familiar with the regulations which govern
the very program that it was administering and that it has “a lack of business and accounting
sophistication” support our suggestion to not have MAP re-admitted as PCFO. Based on its
acknowledgements, we feel that MAP should never have been selected to run any campaigns.

Later in this report we specifically address how MAP caused quantifiable damages to those
charities that participated in the CFC, particularly those of the 2012 campaign which appear to
have received much less than what was designated to them.

It should also be noted that MAP incorrectly states in its initial response (which it repeats in its
later response of February 14, 2014) that the building which housed its offices is its principal
asset. In its February 14, 2014 response, MAP acknowledges that the building was purchased
with CFC monies. As such, the building is an asset of the CFC and not of MAP.


                                                  8
MAP stated that unique complications led to our audit making a series of mistaken assumptions
and erroneous recommendations. We do not agree. Our specific comments to MAP’s bulleted
complications follow:

   Extended Audit Scope: MAP is correct in stating that our extended audit scope is beyond the
    three campaign retention period for retaining documents pertinent to the campaigns under
    review. However, during our audit MAP provided us with complete general ledger
    information and complete banking information for all years covered by the eight campaigns
    under review. The reliability of the general ledger information is questionable, but it was
    provided. The 2011 campaign expenses reviewed in detail were within the required retention
    period and any that were not properly supported were questioned. As a result, although the
    period covered by this audit was extra-ordinary, we were provided the documentation
    necessary to perform our audit work and draw appropriate conclusions.

   MAP’s Use of Multiple Accountants: MAP has stated that a specific accountant did not
    follow GAAP cost accounting allocation methods to allocate costs to the CFC and non-CFC
    activities and that this and the use of multiple accountants over the audited campaigns led to
    our findings. This is most likely the case. However, it should be noted that in MAP’s
    response it did not indicate that allocations were not done for a certain period of time, but for
    the entire time frame covered by our audit (eight campaigns). This means that absolutely no
    cost was allocated by MAP, ever, or at least until after our draft report was issued. MAP also
    states that allocations have now been made, but as our response later in this report will show,
    it provided no relevant documentation to support its claim.

   MAP’s Staffing Situation: We understand that MAP does not have the resources to be fully
    staffed. However, for CFC purposes one staff member is most likely sufficient to carry out
    whatever CFC duties remain, if any.

   Death of MAP’s Executive Director: It was extremely unfortunate that the only person with
    intimate knowledge of MAP’s CFC operations died. However, this further sheds light upon
    the apparent mismanagement of the campaigns where one individual made every important
    decision and did not maintain records of those decisions.

   Calculations of MAP’s Unsupported and Unallowable Expenses: This is covered in greater
    detail later in the report. However, we relied primarily on the bank statements because in
    MAP’s own words its financial records were “unfortunately incomplete and have been
    incorrectly kept.” As a result, we had to utilize the data that was reliable, the bank
    statements.

A. BUDGET AND CAMPAIGN EXPENSES

    1. Administrative Expense Overcharges                                                $1,899,465

       MAP charged the 2005 through 2012 CFCs $1,899,465 in administrative expenses that
       exceeded expense amounts reported in its general ledger. Of this amount, $770,216 is



                                                  9
comprised of unallowable costs that exceeded 110 percent of the approved campaign
budgets.

Our review of the expense transactions identified the following problems:

   MAP paid CFC expenses directly out of the CFC funds rather than absorbing the
    expenses itself and requesting reimbursements;

   MAP did not properly match expenses to the campaign to which they belong;

   MAP did not submit an approval request for, nor did the LFCC authorize,
    reimbursement;

   The amounts expensed by MAP for 2005 through 2012 exceeded the total CFC
    expenses reported in its general ledger; and,

   The total CFC expenses reimbursed were greater than the maximum allowable cost
    (110 percent of the approved budgets).

CFC Expenses Paid Directly From CFC Funds

From the inception of its administration of the CFC, MAP has handled the payment of
CFC expenses incorrectly and in violation of the regulations.

5 CFR 950.105(d)(8) states that it is the PCFO’s responsibility to keep and maintain CFC
financial records and bank accounts separate from its own internal records and bank
accounts.

Additionally, 5 CFR 950.106(b) clearly states that the PCFO “may absorb the costs
associated with conducting the campaign from its own funds and be reimbursed, or obtain
a commercial loan to pay for costs associated with conducting the campaign.”

Finally, 5 CFR 950.106(b) states that the PCFO may only recover, or be reimbursed for,
campaign expenses from receipts collected for that campaign period and those expenses
cannot be reimbursed from prior or future campaign funds.

To reiterate the CFC regulations above, the PCFO may either pay for all expenses out of
its corporate funds and be reimbursed at a later date, or it may obtain a commercial loan
to pay for the costs and then pay the loan (plus interest) out of CFC funds. However,
over the course of its administration of the CFC, MAP did not adhere to the regulations in
regards to campaign expenses.

From 2005 through July 2010, MAP paid for all CFC-related expenses directly out of its
CFC-dedicated bank account. It did obtain a line of credit (LOC) for the 2005 and 2006
campaigns. However, MAP did not use the LOC to pay for CFC-related expenses.
Instead, it withdrew funds from the LOC and placed them in the CFC-dedicated account


                                        10
(a violation of 5 CFR 950.105(d)(8), as the LOC is a PCFO account and not a CFC
account) to offset the expenses being paid directly out of the account. It then paid off the
LOC from CFC funds. This method of expense payment is incorrect because the only
acceptable transactions within a CFC-dedicated account are: CFC deposit/receipts, CFC
distributions to charities, and reimbursements to the PCFO for CFC expenses (a lump
sum reimbursement).

Beginning in July 2010, MAP changed its process for paying CFC expenses. At this
point it began transferring large amounts from the CFC-dedicated account to its own
accounts and most CFC expenses were paid out of the PCFO’s accounts. However, some
CFC expenses were still paid directly out of the CFC account through July 2013. This
method of payment is, in essence, the same as before with the added transfer of monies to
MAP to fund the expense payments.

Expenses not Matched to the Proper Campaign Period

MAP did not properly match campaign expenses to the gross receipts of the campaign to
which they were related.

5 CFR 950.106(a) states that the PCFO shall only recover its expenses as approved by the
LFCC which reflect the actual costs of administering the campaign and that the
reimbursement should not exceed 110 percent of the approved budget unless approved by
OPM.

Additionally, 5 CFR 950.106(b) states that the PCFO may only recover, or be reimbursed
for, campaign expenses from receipts collected for that campaign period and those
expenses cannot be reimbursed from prior or future campaign funds.

During MAP’s administration of the CFC it did not ensure that expenses were recovered
from the receipts of the campaign to which they belonged. Expenses for CFCs are
typically incurred on the front end of the campaign before any funds are received by the
PCFO. This is why the regulations instruct the PCFO to either absorb the costs or pay the
expenses via a commercial loan. However, MAP paid the CFC expenses as they were
incurred directly from CFC funds for the period 2005 through July 2010. This practice
caused MAP to charge the prior/earlier campaign for future campaign expenses (i.e.,
2005 campaign funds were used to pay 2006 campaign expenses).

When MAP began its process of transferring funds to its own account in July 2010, it
continued to charge prior campaigns for future campaign expenses. However, now the
effect on the campaigns was quantifiable. For example, for the 2011 campaign, MAP
made lump sum withdrawals from the CFC account of $530,000 for CFC expenses, of
which $500,000 (94 percent) was withdrawn between April 12, 2011 and December 22,
2011. During this same time frame, MAP had only received $157,803 in receipts related
to the 2011 campaign. As a result, the 2010 campaign funded $342,197 of the 2011
campaign’s expenses.




                                         11
This same process was used for the 2012 campaign. As part of this process MAP also
clearly reimbursed itself for the budget amount approved by the LFCC and not for actual
campaign expenses, as required by the regulations. When discussed with MAP it seemed
as if it felt that it was due the budgeted amount and did not understand that it should only
be reimbursed for actual expenses incurred.

Approval of Reimbursement

MAP did not request approval for, nor did the LFCC approve, the reimbursement of
campaign expenses throughout MAP’s administration of the CFC.

5 CFR 950.106(a) states that the PCFO shall only recover its expenses as approved by the
LFCC which reflect the actual costs of administering the campaign and that the
reimbursement should not exceed 110 percent of the approved budget unless approved by
OPM.

A review of the LFCC meeting minutes during the scope of our audit and discussions
with both MAP and the LFCC determined that MAP never requested approval for
expense reimbursements from the beginning of its administration of the CFC.
Additionally, our review of the LFCC meeting minutes found that no LFCC meetings
were typically held between January and July. This is of concern because many
important LFCC decisions must be made during this time period (approval of expense
reimbursement, approval of one-time disbursements, and approval of local charity
applications and appeals).

MAP stated that it provided the LFCC with expense summaries at each meeting and
believed that the approval of the budget gave it the authority to reimburse itself for the
entire budgeted amount. The LFCC never sought to approve MAP’s reimbursement
because it did not understand that this was a requirement.

Recommendation 1

We recommend that the OCFC ensures that the LFCC institutes procedures to review and
approve the future PCFO’s reimbursement of actual CFC expenses.

LFCC Comments:

The LFCC disputes portions of the finding, but does concur with the recommendation.

Specifically, the LFCC disputes the statement that MAP “did not request approval for,
nor did the LFCC approve, the PCFO’s reimbursement of campaign expenses throughout
the PCFO’s administration of the CFC.” The LFCC feels that this is inaccurate because
according to it, past “meeting minutes show that MAP as PCFO did submit requests for,
and the LFCC did discuss and authorize many, while not all, campaign-expense
reimbursements.” Furthermore, it stated that “LFCC practice was not to request or
review each reimbursement receipt, but to review the ‘Statement of Revenue &



                                         12
Expenses,’ a summary financial report ... which tracked actual expenses versus approved
budget.”

The LFCC stated that it has selected a new PCFO for the 2013 campaign and that its
meetings include “detailed discussion of expected expenses, as well as review of
provided financial documents including receipts for campaign expenses to be
reimbursed.” The LFCC suggested that specific financial training and written guidance
be provided to all LFCCs (especially those new to their positions) in regards to financial
review and common problem areas.

OIG Response:

We accept the LFCC’s response. However, we must clarify the reasoning for this
recommendation and the need for the LFCC to institute these procedures immediately.

This recommendation was made because we did not identify any mention of the LFCC
authorizing the reimbursement of PCFO expenses in the LFCC meeting minutes provided
to us for review. Furthermore, discussions with both the PCFO and LFCC indicated that
neither party was aware that there was a need for approval. As stated in the finding,
discussions with MAP actually confirmed that it felt approval of the budget gave it the
authority to reimburse itself the full amount. Hence, the necessity to immediately
implement procedures to approve future disbursements of PCFO campaign expenses.

Additionally, it must be pointed out that the LFCC’s response does not state that, going
forward, it would authorize PCFO reimbursements, but rather that there would be
“detailed discussion of expected expenses, as well as review of provided financial
documents including receipts for campaign expenses to be reimbursed.” It is the LFCC’s
responsibility to approve any reimbursements that are received by the PCFO. As part of
this process the PCFO should approach the LFCC with a proposed expense
reimbursement for the campaign that is supported by financial information and
supporting documentation (if necessary). The LFCC should then document its review
(not just receipt) of this information and its vote to approve all or part of the proposed
reimbursement.

Recommendation 2

We recommend that the OCFC ensures that the LFCC understands all of its
responsibilities and that it meets regularly to supervise the PCFO and the progress of the
campaign.

LFCC Comments:

The LFCC again expressed the need for formal training for all LFCC members and
written guidance in regards to its responsibilities. The LFCC states that it did meet
regularly with MAP, and that it was provided regular campaign financial reports of
expenses. It also stated that it was aware of continued contact with MAP to address



                                        13
ongoing activity, such as the Admissions Chair’s involvement with charity applications,
approvals, denials, and appeals.

The LFCC disagrees with MAP’s comments that “neither MAP nor the LFCC kept
formal records of actions or approvals, including approval of budget overruns though
there is strong indication that such approvals were granted.” On the contrary, the LFCC
states that in its meetings with MAP it was provided records which show that they
“brought the campaign in on budget.”

OIG Response:

We do not agree with the LFCC’s response that it met regularly with MAP. Our review
of the LFCC meeting minutes related to the 2011 campaign found that the only meetings
held were from August through December 2011. This does not constitute “regular”
meetings. When questioned regarding this, MAP concurred that there were no meetings
beyond that period.

Based on responses we’ve received from MAP and the LFCC, it appears that both parties
(the MAP Executive Director and LFCC Chair) communicated via phone and/or email
over the period when no meetings were occurring and felt this to be sufficient. This
simply is not the case as decisions related to the CFC are not made by the LFCC Chair
(or any other individual members of the LFCC) and the PCFO in a vacuum. Any
decisions discussed must be approved by the LFCC as a body and these decisions should
be documented in the minutes. Any “decisions” made in conference between the LFCC
Chair (or other LFCC members) and the PCFO are not binding without a vote by the
LFCC as a body no matter if they were considered formal or informal decisions or
approvals at the time by either party.

The LFCC states that there should be more formal training for all LFCC members and
written guidance. It should be noted that OPM’s OCFC holds yearly conferences to
which all LFCCs and PCFOs are encouraged to attend. At those conferences, the OCFC
stresses the responsibilities of both the PCFO and LFCC and is available to them if there
are questions throughout the campaign period.

Unsupported Costs

The amounts reimbursed to MAP for CFC expenses exceeded the CFC expense totals
reported in its general ledger by $1,899,465.

5 CFR 950.106(a) states that the expenses reimbursed to the PCFO should reflect only
the actual costs of administering the campaign and that those costs are limited to 110
percent of the approved budget (unless approved by OPM).

During our review we requested a copy of MAP’s general ledger detailing the actual
expense of its administration of the 2005 through 2012 campaigns. The information
provided by the PCFO proved to be unreliable as the CFC costs reported in the general



                                        14
ledger appeared to be incomplete. Therefore, we requested copies of all CFC banking
statements from the start of the first campaign administered by MAP in 2005 through
July 2013 and identified all expense-related transactions (excluding transfers between
CFC accounts, LOC payments, and charity distributions) by campaign period. We then
compared these amounts to the amounts for each campaign in the approved budgets and
the CFC cost reported in MAP’s general ledgers. This review found that the total
expenses paid out of CFC funds exceeded the CFC costs reported in the PCFO’s general
ledger by $1,899,465.

                              Unsupported Costs
                       Reimbursed       MAP               Unsupported
                        Expenses      GL Cost                Costs
             2005       $109,704       $70,145              $39,559
             2006       $211,065       $98,152             $112,913
             2007       $263,197       $85,907             $177,290
             2008       $603,816      $292,783             $311,033
             2009       $679,153      $203,416             $475,737
             2010       $847,903      $438,247             $409,656
             2011       $633,997      $439,148             $194,849
             2012       $624,216      $445,788             $178,428
             Totals                                       $1,899,465

As a result of these excess reimbursements the CFC’s member charities are due
$1,899,465 from MAP.

Recommendation 3

We recommend that the OCFC and LFCC direct MAP to reimburse the CFC $1,899,465
for unallowable and unsupported CFC costs and to reimburse the charities of the CFC by
that amount.

In its response to our draft report, MAP’s comments to this finding were extensive. In
order to enhance readability, our final report breaks up MAP’s comments to allow our
responses to coincide with its comments. Our responses immediately follow each
separate PCFO comment.

PCFO Comments – Recommendation as a Whole:

MAP stated that the amounts questioned do not reflect the reality of its operations, and
that it was actually under-reimbursed by $79,552. MAP stated that the questioned costs
were in error due to the fact that the OIG merely totaled “all of the distributions from the
CFC bank statements without investigating the specific attributes of or reasons for the
distributions.”




                                         15
OIG Response:

We disagree with MAP’s position. Throughout its response to the finding MAP did not
substantiate its claim that it was “under-reimbursed by $79,552.” As a result, we
continue to contend that MAP took excessive funds as reimbursements for unsupported
and unallowable CFC expenses.

It should be noted that the audit approach of relying upon “all of the distributions from
the CFC bank statements” during the review of MAP as the PCFO was driven by the
quality of the records that MAP maintained. Those records according to MAP’s own
response were “unfortunately incomplete and have been incorrectly kept.” As a result,
we could not place any reliance upon their accuracy and chose to painstakingly recreate
the records from the banking statements.

Additionally, MAPs characterization that our auditors did not investigate the “specific
attributes of or reasons for the distributions” is false. The spreadsheets used to compile
the banking statement information were provided to MAP during the on-site visit with the
express purpose of identifying those items which were unclear. However, MAP never,
prior to its response to the draft report, responded to those inquiries.

PCFO Comments – Mischaracterized Expense Reimbursements:

The differences noted by MAP in its original response of January 6, 2014, indicated that
the OIG reimbursement calculation used to determine the questioned costs was overstated
by $195,920 due to LOC repayments and charity disbursements being counted as
expenses and the fact that CFC expenses paid from a separate account were double
counted. MAP summarized its revised numbers as follows (please note that the amounts
listed are shown net of adjustments made following our review of MAPs response):

                        Reconciled Reimbursements
                  OIG Calculated          Actual
                  Reimbursement      Reimbursements           Difference
                                        Per MAP
      2005           $109,704            $103,785              $5,919
      2006           $211,065            $211,065                  $0
      2007           $263,197            $263,197                  $0
      2008           $603,816            $603,816                  $0
      2009           $679,153            $679,152                  $1
      2010           $847,903            $657,903            $190,000
      2011           $633,997            $633,997                  $0
      2012           $624,216            $624,216                  $0
     Totals:       $3,973,051          $3,777,131            $195,920




                                        16
          Specifically, the differences between the OIG and MAP figures are the result of the
          following adjustments:

                  For 2005, the OIG total must be reduced by a $75,918 letter of credit payment and
                   increased by $66,973 of reimbursements from the US Bank account, for a net
                   reduction of $8,945.

                  For 2010, the OIG total must be reduced by a $190,000 letter of credit payment.

          OIG Response:

          Our review of MAP’s additional information resulted in a partial acceptance of its
          responses related to the differences noted for 2005 through 2009.

          For 2005, we acknowledge that the $66,9741 was not included in our original numbers
          specifically. However, that amount was imbedded as part of the $75,918 LOC repayment
          amount it wishes to have removed from our totals. Therefore, our expense total has been
          reduced by $3,026, and not the $8,945 as requested by MAP, as a result of the following
          amounts now included as expenses in place of the $75,918:

                  $66,974 in expense identified by MAP in the US Bank account;
                  $5,000 in excess LOC monies withdrawn by MAP that never entered a MAP or
                   CFC account. MAP withdrew and deposited $70,000 LOC monies into CFC
                   accounts. However, it repaid $75,000 out of those same accounts; and,
                  $918 in outstanding LOC interest and other related fees.

          As for the $190,000 related to 2010, we could not verify MAP’s claim that this was an
          LOC repayment and requested more information from them, the result of which is
          discussed below.

          PCFO Comments – Building Purchase:

          In a follow-up response, dated February 14, 2014, MAP corrected itself and stated that
          the $190,000 was erroneously identified by it as an LOC repayment. That amount was
          instead substantially used to purchase a building for office space. MAP stated that its
          mistake was due to the fact that its financial records were unfortunately incomplete and
          incorrectly kept.

          MAP stated that it determined in 2010 that purchasing a building to use as office space
          would save substantially on rental expenses and discussed such a potential purchase with
          the LFCC. It stated that the conclusion reached by “MAP and the LFCC was that such a
          purchase would be beneficial to the CFC as it would reduce rental expenses.” According
          to MAP, the building was used primarily for CFC purposes because MAP’s non-PCFO
          duties were minimal.

1
    This amount differs from MAP’s amount above due to rounding.


                                                       17
MAP stated that its decision to purchase the building was “approved informally by the
LFCC” and that it proved “to be a wise investment as the CFC has been the beneficiary
of lower rental expenses between 2010 and 2012, and the building has appreciated
substantially in value. According to the U.S. Department of Housing and Urban
Development Fair Market Rent Documentation System, the monthly fair market rent for
the Sacramento area for a comparable building in 2010 was $1,719; in 2011 it was
$1,737; in 2012 it was $1,689 and in 2013 it was $1,900. The CFC has only been paying
$1,196 per month in rent in these years, saving over $22,000 since the building was
purchased in October of 2010.”

MAP stated that the “purchase of the building is similar to a PCFO purchasing computers
or other hard assets or equipment to be used solely for CFC purposes. If the PCFO is not
extended for subsequent campaigns, the computers purchased with CFC assets are
transferred to the succeeding PCFO. In this instance, MAP would propose to repay the
down payment to the CFC upon the closing of a sale of the building. The building is
currently being offered for sale.”

OIG Response:

We disagree with MAP’s position. MAP’s purchase of the building with the use of CFC
funds was completely unallowable because it was never approved by the LFCC. MAP
contends that it discussed the possibility of purchasing a building and that the LFCC
approved the purchase “informally.” However, MAP does not understand that the LFCC
is the entity in charge of the CFC, not it, and the use of funds should have been approved
by the LFCC formally and that decision documented. Without an official approval of the
LFCC board as a group, the use of the $190,000 (of which $112,563 was used as a down
payment on the building – MAP provided no details as to what the remaining $77,437
was used for) was an unallowable use of CFC funds.

Further research into the building purchase has additionally determined that although
MAP purchased the building with CFC funds and for the primary purpose of the CFC, the
building was purchased in the name of MAP and not the CFC.

Our discussions with the current LFCC found that it had no recollection of approving the
use of CFC monies to purchase the building and that its meeting records do not show a
vote taking place for that purpose. It should also be noted that during our on-site visit to
MAP in June 2013 that the MAP Board of Directors President stated to the OIG that the
building was purchased with MAP monies and not CFC monies.

Additionally, MAP states that the purchase of the building was a “wise investment”
because it saved the CFC “over $22,000 since the building was purchased.” MAP is
correct, in a simple monthly expense comparison of the rent MAP charged to the CFC to
occupy a building that it purchased ($1,196 per month after the purchase, compared to
$1,920 prior to the purchase). However, the CFC had to pay $112,563 to save the
$22,000. Finally, MAP later claims that a 90-10 split of expenses is reasonable, yet it did




                                         18
not pay the CFC rent for its 10 percent of occupancy expense for utilizing space in a
CFC-owned building.

It has come to our attention that the building has been sold during the preparation of this
final report. We are unaware of any agreements between OPM and MAP regarding the
proceeds from the sale. However, the analogy provided by MAP concerning computers
and equipment purchased with CFC assets and used solely for CFC purposes applies
equally to the sale of the building. Therefore, since the building was a CFC asset, all
proceeds from the sale of the building should be provided to the new PCFO for
distribution to charities. Additionally, the proceeds should not be used to offset any costs
to MAP related to this audit that have not been specifically approved by OPM.

PCFO Comments – Unsupported Costs:

In regards to the unsupported costs questioned in the draft report, MAP stated that the
OIG only characterized expenses for 2005-2012 that were classified as CFC and entered
into its general ledger as supported expenses. It contends that this “list is incomplete
because it disregards all of MAP’s CFC expenses that were either listed in the ledger as
unclassified or erroneously omitted from the ledger by MAP’s prior accountants, and it
does not account for any allocations of administrative expenses. The audit team failed to
properly understand or seek explanations for the transactions it cited as unsupported,
which is understandable given the inconsistent and incomplete bookkeeping of the six
different bookkeepers over the past eight years. Consequently, the audit team’s
calculation of 2005-2012 supported costs is substantially understated.”

MAP stated that it has meticulously gone through the ledgers, payroll records, bank
statements, receipts, and all other relevant documentation that was located, has
reasonably allocated administrative expenses, and has investigated and classified
previously uncategorized expenses. Consequently, MAP contends it paid a total of
$3,856,683 in CFC expenses between 2005 and 2012 and that the Draft Report
understates MAP’s CFC expenses by $1,783,097, as depicted in the following chart:

                Draft Report                MAP Actual
               Supported Costs            Supported Costs           Difference
 2005             $70,145                    $272,785                $202,640
 2006             $98,152                    $284,745                $186,593
 2007             $85,907                    $255,632                $169,725
 2008             $292,783                   $460,066                $167,283
 2009             $203,416                   $764,966                $561,550
 2010             $438,247                   $679,608                $241,361
 2011             $439,148                   $606,852                $167,704
 2012             $445,788                   $532,029                 $86,241
 Total:          $2,073,586                 $3,856,683              $1,783,097

MAP stated that it conservatively allocated 90 percent of total expenses to its CFC
activities. However, due to the untimely death of its previous Executive Director, there


                                         19
was very little institutional knowledge to draw upon to determine allocations for eight
years and its “records are incomplete and have been incorrectly kept, and prior
accountants failed to apply consistent accounting allocation methods to MAP’s
activities.” MAP believes the 90-10 allocation to be a reasonable estimate of the
substantial time and resources spent by its staff while administering the campaigns
relative to its other activities. Additionally, MAP stated that it was a tiny organization
prior to being chosen to act as a PCFO, raising approximately $60,000 in revenue each
year.

As a result, MAP stated that it was not over-reimbursed for CFC expenses between 2005
and 2012, “but was actually under-reimbursed by $79,552 during this time period.”

OIG Response:

We disagree with MAP’s position. As stated previously, throughout its response to the
finding MAP did not substantiate its claim that it was “under-reimbursed by $79,552.”
As a result we continue to contend that MAP took excessive funds as reimbursements for
unsupported and unallowable CFC expenses.

MAP is correct that the costs identified as supported costs in the draft report disregard
“expenses that were either listed in the ledger as unclassified or erroneously omitted”
from the general ledger. Our review could not identify costs related to the CFC that
MAP out of its own financial ineffectiveness left unclassified or omitted. Therefore, we
only accepted those costs classified as CFC as per MAP and its financial records. It
should also be noted that our draft report did state that because of this we understood that
our conclusion may not be “100 percent accurate.”

MAP’s belief that a 90-10 split of expenses is reasonable was not supported by any
documentation. An affidavit was provided by the President of the MAP Board of
Directors stating that the “90-10 % allocation to be a reasonable estimate of the
substantial time and resources spent by MAP staff administering the CFC relative to
MAP’s other activities.” However, an affidavit provided by a person who is not a MAP
employee and not involved in the day-to-day activities is not a reasonable source, nor was
it supported by further documentation.

Additionally, we feel that the percentages are flawed for two specific reasons. First, the
accountant employed by MAP at the time of our audit provided much different allocation
percentage estimates during our on-site visit (75-25 percent for 2005 through 2009 and
85-15 percent for the period 2010 and beyond). Second, our review of MAP Annual
reports for 2005 through 2012 showed nearly double the non-CFC revenue as compared
to that stated by MAP in its response. Therefore, we believe that MAP’s percentage of
non-CFC costs is higher than what is being portrayed.

However, if MAP is correct in its assertions and all of its calculations are correct, the
CFC was still charged $770,625 in expenses in excess of 110 percent of budget (using the
figures provided by MAP in its response of January 6, 2014).



                                         20
As a result of the assertions by MAP not being supported and being contradicted by
previous information provided, we will continue to question $1,899,465 as unsupported
costs.

Expenses Charged Above 110 Percent of Budget

Of the $1,899,465 questioned as unsupported costs, $770,216 was in excess of the
maximum allowable expense per the CFC regulations.

Our review found that the expenses paid for the 2006 through 2012 campaigns exceeded
110 percent of the approved budget each year. According to 5 CFR 950.106(a), any
amount over 110 percent is unallowable unless it was approved by OPM. Additionally, 5
CFR 950.105(d)(10) states that the PCFO must absorb campaign costs that exceed 110
percent of the approved budget. To our knowledge, OPM’s approval was never
requested by the PCFO for these excess amounts. This resulted in an unallowable
amount of $770,216.

                              Unallowable Costs
              Reimbursed       Approved     110 Percent        Unallowable
               Expenses         Budget       of Budget         Over 110%
   2005        $109,704        $120,148      $132,163              NA
   2006        $211,065        $120,148      $132,163            $78,902
   2007        $263,197        $128,431      $141,274           $121,923
   2008        $603,816        $520,283      $572,311            $31,505
   2009        $679,153        $518,475      $570,323           $108,830
   2010        $847,903        $508,200      $559,020           $288,883
   2011        $633,997        $508,200      $559,020            $74,977
   2012        $624,216        $508,200      $559,020            $65,196
   Totals                                                       $770,216

As a result of MAP reimbursing itself in excess of 110 percent of the approved budget
without OPM approval, the CFC’s member charities did not receive $770,216 in monies
due to them.

Recommendation 4

We recommend that the OCFC ensure that the LFCC understands that the PCFO is not
permitted to recover expenses in excess of 110 percent of the approved CFC budget
unless approved by OPM.

LFCC Comments:

The LFCC states that it understands the 110 percent rule. It stated that even as MAP was
directed by it to cease spending related to the 2012 campaign, the President of MAP’s
Board of Directors argued with the LFCC that “MAP’s monthly financial reports showed
there was still money left in the 2012 campaign” and “that they had not yet hit 100% of


                                       21
approved budget, let alone surpassed 110%.” The LFCC contends that the problem was
the “availability of skills and resources to guide” the PCFO to setup appropriate financial
systems so that it would be aware it was approaching or surpassing 110 percent of the
approved budget.

OIG Response:

We accept the LFCC’s response. However, we do again repeat that training is available
for the LFCCs and the PCFOs at the yearly CFC conferences held by the OCFC.

PCFO Comments:

MAP acknowledges that it exceeded 110 percent of approved CFC budgets during the
period from 2005 to 2012. However, it states that “all of these expenditures were
reasonable and spent solely on CFC matters; therefore, this procedural breach did not
cause damage to the Campaigns or their charitable recipients.”

MAP stated that there is no “institutional memory” for it to rely upon to determine its
past business dealings between it and the LFCC. MAP stated that it was obvious that the
LFCC was supportive of the campaigns and the PCFO, but it did not record or formalize
its actions. MAP acknowledged that most of the business dealings between the LFCC
and its former Executive Director, now deceased, were conducted via telephone call, but
no record was kept of these calls. Additionally, MAP stated that neither it “nor the LFCC
kept formal records of actions or approvals, including approval of budget overruns
though there is strong indication that such approvals were granted.”

MAP stated that communications between it and the OCFC in February 2012 regarding a
potential meeting to discuss “certain budget overruns” suggest that OPM was aware of
the overruns and was suggesting a means to get them approved and that the error was
merely procedural in nature.

MAP goes on to state that the “fact that the LFCC reappointed it as the PCFO in each of
the years following the LFCC’s receipt of final campaign reports should clearly indicate
that the LFCC approved of such expenditures” and that OPM did not object to the
expenditures charged.

In regards to the expenses charged by it during the period 2005 through 2012, MAP states
that its campaign expenses (totaling 15.8 percent of campaign pledges) were reasonable.
MAP stated that this percentage compared favorably to other charities, of which data
shows 4 out of 10 charities spend over 25 percent for expenses. MAP also quoted other
sources that indicate that its average of 15.8 percent “is particularly noteworthy”
considering the average wages in its area of operation.

Furthermore, MAP stated that “OPM regulations do not currently require that PCFOs
stay below a specific threshold for expenses (as a percentage of total support or
otherwise).” It pointed out that prior to 2007, the Federal regulations restricted



                                        22
participation in campaigns to charities that kept their fundraising and administrative costs
under 25 percent. This standard was relaxed in 2007 and now charities that exceed 25
percent can participate so long as they publish their expenses in the campaign’s
documents. “Thus, MAP’s expense level of 15.8% is clearly reasonable and in line with
OPM expectations.”

“The fact that MAP did not obtain formal approval for its budget overruns in 2009 and
2010 may be a ground for removal of MAP as PCFO, to replace the LFCC, or to note a
procedural violation of the regulations in the final OIG report, but since all MAP
expenditures were devoted solely to reasonable campaign expenses, no financial penalty
is warranted.”

LFCC Response:

The LFCC stated that it disagrees with MAPs response that “neither MAP nor the LFCC
kept formal records of actions or approvals, including approval of budget overruns
though there is strong indication that such approvals were granted.” In fact, based on the
information provided to it, the LFCC states that it was led to believe that MAP “brought
the campaign in on budget.”

As the LFCC was not aware that MAP exceeded 110 percent of budget, it was “not aware
that OPM’s approval was ever requested to exceed 110% of the approved budget for each
campaign year. Only during the 2011 IPA audit in 2012 did it become apparent that
financial records provided by the PCFO and their accounting systems were inadequate to
identify excessive campaign-year expenses that led to this audit’s multi-year findings.”

OIG Response:

We disagree with MAP’s position and find it astonishing that it believes the charities of
the CFC were not damaged by its exceeding the approved budgets by 10 percent or more
over the periods of time under audit. The charities were adversely affected because
monies due to them were used by MAP for expenses that were expressly unallowable by
regulation unless approved by OPM (which they were not).

In its response MAP seems to think that because “the LFCC was supportive of the
campaigns and the PCFO” that it was agreeable to all actions made by MAP. However,
as MAP has itself stated, its own financial records were “incomplete” and “incorrectly
kept.” As such, it is not hard to believe that the reports of expenditures shown to the
LFCC throughout the time frames of this audit were just as “incomplete” and “incorrectly
kept” and if it had been aware of the actual financial condition of the campaigns, that its
decisions may have been different. In fact, once the problems were brought to light in an
IPA report, the LFCC moved to choose a new entity to serve as the PCFO.

MAP states that its former Executive Director conducted most of her business with the
LFCC via telephone calls with the LFCC chair and that no record was kept of these calls.
This shows MAPs lack of understanding of the regulations. The LFCC chair cannot and



                                         23
does not make decisions for the board and conversations should never have been
considered as marching orders for the CFC by MAP. The only approvals and decisions
relative to the CFC made by the LFCC are those made as a group.

MAP mentions the communications between its former Executive Director and the
OCFC at OPM regarding “certain budget overruns,” and states OPM’s awareness of the
overruns suggested that OPM was working to get the overruns approved. This is simply
not the case. The emails from the OCFC indicate that it was providing MAP with the
procedural framework for it to determine what to do, not that an approval was imminent.
If OPM had approved a budget overrun, it would have provided the approval in writing
and that was not done.

MAP’s insistence that because the LFCC reappointed it as the PCFO each year indicates
approval of expenses is bewildering considering MAPs own acknowledgement that the
reports it provided the LFCC and OPM were based on financial records which were
“incomplete” and “incorrectly kept.”

MAP goes on to compare its expense ratios to those of charities and insists that this
shows that its ratios were acceptable and within OPM expectations. However, MAP is
essentially comparing apples to oranges as in its role as a PCFO, MAP is not a “charity,”
but an administrator of a charity campaign. That being said, when compared to other
PCFOs with pledges over $1 million for the 2011 campaign, MAPs “reasonable” expense
ratio to pledges of 15.8 percent would rank it 64th out of 66 PCFOs with pledges greater
than $1 million, which had expense ratios of 10.2 percent on average.

Lastly, MAP claims that although its overruns might be grounds for removal as the
PCFO, its violations were merely procedural and as the expenses were devoted solely to
“reasonable campaign expenses,” that no financial penalty is warranted. In actuality, the
request to return the funds reimbursed to MAP in excess of 110 percent of the budget is
not a penalty, it is a remuneration of monies taken without approval and in direct
violation of the regulation which states that the “PCFO shall recover from the gross
receipts of the campaign its expenses, approved by the LFCC, reflecting the actual cost of
administering the local campaign. The amount recovered for campaign expenses shall
not exceed 110 percent of the estimated budget submitted pursuant to 950.105(c)(1)
unless approved by the Director.” (Emphasis Added)

To illustrate the effect of MAP’s financial ineffectiveness we reviewed the charity
disbursements made by MAP in closing out its duties as the PCFO for the 2012
campaign, during which it reported $4,093,113 in pledges. Total expenses (excluding
those additional expenses allowed to MAP due to this audit) were $624,216, leaving
$3,468,897 available to disburse (before pledge loss). MAP applied a nine percent
pledge loss to the agencies receiving one-time disbursements for the 2012 campaign,
which is the average of the pledge loss in the previous three campaigns. To be
conservative, we applied a 12 percent pledge loss to the amount available to disburse and
estimated that the amount MAP should have disbursed for the 2012 campaign was
$3,052,629. However, as of the final disbursement issued by MAP on March 31, 2014, it



                                        24
   had disbursed $2,067,077 to the charities of the 2012 campaign, resulting in a
   disbursement shortage of $985,552 from our estimated amount. This clearly shows that
   the charities were harmed by MAP’s ineffective financial practices.

2. 2011 Campaign Expenses                                                            $101,811

   MAP charged the 2011 campaign $101,811 in expenses that were either unsupported,
   unallowable, or improperly allocated.

   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.

   Furthermore, 5 CFR 950.604 requires PCFOs to retain documents pertinent to the
   campaign for at least three completed campaign periods. In other words, documentation
   supporting the 2011 campaign expenses should be maintained until early 2015.

   Finally, CFC Memorandum 2006-5(D) states that allocated expenses must be supported
   by a reasonable allocation methodology.

   We reviewed a sample of expenses from the 2011 campaign to determine if the amounts
   charged to the campaign were CFC-related, actual costs with supporting documentation,
   and charged to the correct campaign. Our review identified $101,811 in expenses that
   were either unsupported, unallowable, or improperly allocated. Specifically, we
   identified:

      $72,974 in charges that were not supported by invoices to show that the costs were
       actual and were legitimate CFC expenses.

      $15,238 in unallowable expenses related to the following:
          1) $11,596 in unallowable accounting expenses to correct errors in MAP’s
              accounting records. MAP claims that these costs were to correct changes
              made to its records by an IPA hired to review the CFC. However, discussion
              with the IPA found that it did not make any changes to the records.
              Ultimately the responsibility for keeping accurate accounting records belongs
              to the PCFO and if errors were made, correcting those errors is the
              responsibility of MAP and not the CFC.
          2) $1,978 in unallowable entertainment charges and overcharges for promotional
              coins. Of the costs questioned, $1,378 is for promotional coins purchased for
             Norcal and other CFCs by the PCFO. The $1,378 relates to the shipping of
             those coins to the other CFCs which was paid by Norcal alone, and not




                                            25
          charged to those other CFCs. The balance of $600 is related to unallowable
          entertainment costs at a kickoff event.
       3) $1,131 in unallowable travel expenses related to airfare upgrades, canceled
          airfare charged to the CFC, per diem overcharges, and personal travel
          expenses for MAP employees. The airfare upgrades, totaling $104, were to
          allow the traveler to gain “extra leg room” and to allow for early boarding
          according to MAP. This type of charge is for personal convenience, and
          although MAP may allow their employees to do it, it has no benefit to the
          CFC. The CFC was also charged $494 for airfare on a trip that was ultimately
          canceled and not refunded to the campaign. Additionally, MAP charged the
          CFC $453 for extra days spent by an employee at a CFC conference which
          were outside of the conference dates. As these days were not related to the
          CFC, they are not allowable costs. Lastly, MAP overcharged the CFC $80
          (for just those items sampled and reviewed) for meals and incidental expenses
          which exceed the IRS rates as set for business travelers.
       4) $533 in other miscellaneous charges related to registration late fees, a flower
          purchase, an insufficient funds charge, expenses belonging to previous
          campaigns, and $95 for meals and incidental expenses which exceed the IRS
          rates as set for business travelers. These costs are unallowable as they are
          either unrelated to the CFC or were the result of ineffective management by
          MAP.

   $13,599 in expenses that were not allocated by MAP. MAP provided appropriate
    allocation percentages and the amount questioned represents the amount charged to
    the CFC that was in excess of the amount we calculated using these percentages.

As a result of charging the CFC for unsupported, unallowable, or improperly allocated
expenses, $101,811 was not disbursed to the charities of the 2011 campaign.

Recommendation 5

We recommend that the OCFC and the LFCC direct MAP to distribute $101,811 in
unsupported, unallowable, or improperly allocated expenses as undesignated funds to the
charities participating in the campaign currently disbursing funds.

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:

MAP contends that the findings are erroneous, as the audit team failed to properly
understand or review explanations for the transactions questioned. The basis for its
position will be explained in more detail on an item-by-item basis below.




                                        26
OIG Response:

We disagree with MAP’s position for the reasons explained in more detail below.

PCFO’s Comments – Documentation:

Citing a lack of documentation, the OIG disallowed $72,974 in charges and asserts that
these expenses were not supported by invoices to show that the costs were actual and
legitimate CFC expenses. MAP’s staff has provided the audit team with e-mail and
calendar documentation, meeting notes, travel itineraries, and photographic proof for
these expenses, whenever possible. However, itemized receipts for each expense could
not be located. The CFC regulations require the PCFO to maintain “a detailed schedule
of its actual CFC administrative expenses with, to the extent possible, itemized receipts
for the expenses.” MAP stated that it would send all such receipts if they could be
located, and contends that the audit team’s requirement of itemized receipts exceeds the
regulatory standard.

OIG Response:

We disagree with MAP’s position and offer the following regulatory citations to support
our position.

5 CFR 950.104 (b)(17) states it is the responsibility of the LFCC to authorize the PCFO’s
expense reimbursement of legitimate CFC costs that are adequately documented. On top
of the fact that, by its own admission, MAP did not maintain documentation to support a
majority of the questioned expenses (emails, calendar documentation, meeting notes, etc.
are not sufficient documentation to support a legitimate expense), no evidence was ever
provided by it to support that any of its expense reimbursements were authorized by the
LFCC in the first place.

Furthermore, 5 CFR 950.105 (d)(7) requires the PCFO to maintain detailed schedules of
its actual CFC administrative expenses, which must be in a format that can be reconciled
to its budget. Not only was this schedule not maintained for the 2011 campaign, we
could not determine whether 98 percent of the expenses that fall into this category were
legitimate CFC costs due to a complete lack of documentation. While the regulation
states that itemized receipts should be maintained to the extent possible, the fact that
almost all of the expenses in this category had no supporting documentation shows that
MAP did not exercise due diligence in meeting this regulation requirement.

PCFO’s Comments – Unallowable CFC Expenses:

The OIG questions $15,238 in charges that are “not legitimate CFC expenses,” including
certain (i) accounting expenses, (ii) entertainment charges, (iii) promotional coins, (iv)
travel expenses, and (v) certain miscellaneous expenses, including registration late fees, a
flower purchase, and an insufficient funds charge. As further detailed below, these
charges should be allowable for the following reasons.



                                         27
i.    Accounting Expenses:

      The OIG disallowed $11,596 in accounting expenses, which was spent to correct
      changes made to the PCFO’s records by its IPA. The IPA made over six million
      dollars of erroneous changes to MAP’s accounting records, including changing over
      40 entries in the PCFO’s books without adequate basis to do so. Because this
      expense was necessary to correct mistakes and fix accounting books and records
      resulting from actions by the IPA, it should be an allowable expense of the CFC.

      OIG Response:

      We disagree with MAP’s position. While it is not within the scope of this audit to
      determine who was responsible for the changes to MAP’s accounting records, we
      have serious concerns with any PCFO who would blindly allow an outside auditor
      access to their books and accounting records to make adjustments and/or changes
      (especially an IPA not contracted by it, but by the LFCC, to only audit records
      related to the CFC). Not only does this display weak internal controls on the part of
      MAP, but it would also be a conflict of interest for the IPA and could potentially
      expose the PCFO’s accounting records to the risk for fraud and abuse of CFC funds.
      Furthermore, we inquired of OPM’s OCFC as to whether these types of expenses
      would qualify as legitimate campaign costs and were told that costs to correct books
      of record caused by a lack of due diligence on the part of any PCFO would not be
      considered allowable campaign expenses. Consequently, we will continue to
      question these amounts.

ii.   Entertainment Charges:

      The OIG “disallowed $600 related to a kickoff event in September of 2011 as an
      excessive cost. While listed as a cost for DJ services, the expense was primarily for
      a sound system, which was necessary to communicate with event attendees. It is not
      unreasonable or excessive to provide music and sound support for such a large
      event.”

      MAP states that OPM guidance provides, with respect to kickoff rallies, a list of
      suggested activities including musical segments and obtaining the services of a local
      personality to emcee the kickoff rally. “Although this guidance was removed
      pursuant to OPM’s Memorandum for LFCCs and PCFOs, “Directive Prohibiting the
      Approval of Costs Incurred for Meals and/or Entertainment” (March 28, 2012), the
      audit staff’s attempt to apply these new rules to the 2011 Norcal CFC would
      retroactively and unlawfully change longstanding campaign practices. Therefore,
      this expense should be allowed.”

      OIG Response:

      MAP states that this type of expense was expressly allowed under OPM guidance
      applicable at the time the cost was incurred. We disagree. Per the cited OPM



                                         28
       directive issued on March 28, 2012, by then Director John Berry, OPM stated that it
       never authorized CFC campaigns to charge for the expenses of entertainment, either
       at special events or on any other occasion. Therefore, this directive did not state any
       new rules, but restated those which were already in effect. As a result, we maintain
       that this cost was not chargeable to the CFC and will continue to question the $600
       for entertainment services.

iii.   Promotional Coins:

       The OIG disputed a $1,378 charge for promotional coins that were used as donor
       recognition gifts. These coins were purchased for several campaigns, including the
       Norcal campaign, with MAP coordinating the purchase and receiving
       reimbursements from the other campaigns. The amount questioned related to
       charges incurred by MAP as the organizer of this effort, including shipping the
       coins to the other campaigns. There was no agreement between the campaigns to
       share the shipping costs. Consequently, it is unlikely that MAP can recoup these
       expenses from the other campaigns. Therefore, this is an expense clearly related to
       the CFC and should be allowed.

       OIG Response:

       We do not agree with MAP’s position and maintain that the $1,378 is an
       unallowable campaign expense. The fact that MAP acted as the organizer of this
       purchasing effort does not absolve them of collecting the appropriate amount from
       the other campaigns for their portion of the coin costs. Additionally, paying
       shipping costs belonging to other campaigns is not an allowable campaign expense
       and should not have been paid out of Norcal campaign funds, regardless of whether
       or not there was an agreement to share these costs. If MAP wanted to cover the
       other campaigns’ costs, it should have covered these costs using its own (non-CFC)
       funds. Consequently, the $1,378 will continue to be questioned.

iv.    Travel Expenses:

       The OIG disputed $1,131 in travel expenses related to airfare upgrades, cancelled
       airfare, “excessive” per diem charges, and other travel expenses for MAP
       employees. These expenses were incurred for attendance of MAP staff at national
       CFC conferences. Therefore, all of these charges are allowable as they were
       incurred in connection with and benefitted the CFC. Specifically, the airfare
       upgrades were used to accommodate a staff member’s physical needs to avoid
       potentially significant pain while flying and the staff member covered half of the
       cost of the upgrade personally.

       Additionally, the cancelled airfare was due to a staff member’s canceling a
       conference attendance at the last minute due to a medical condition. The airfare
       could not be refunded due to the late cancellation. MAP contends that it would have
       been fiscally careless to purchase refundable tickets for all staff members at a cost



                                          29
of two or three times the cost of the regular fare. Furthermore, the $80 in excessive
per diem charges was based on limits under the General Services Administration’s
travel rules that are applicable to Federal employees. However, MAP’s staff
members are not Federal employees, and there is no CFC regulation or guidance
from OPM requiring that this Federal threshold be used, a fact that the audit team
acknowledged. Consequently, since this arbitrary rule is not found in CFC
regulations, the full amount of these expenses should be allowed. Furthermore, if
OPM wishes to impose such a limitation on campaigns, it must do so prospectively,
with notice to all PCFOs.

Finally, the OIG disallowed $453 in hotel charges for extra days spent by an
employee at a CFC conference which were outside of the conference dates. These
costs should be allowable, as early or late arrival is often necessary to ensure prompt
attendance at conferences, and it is common practice to meet with OPM and LFCC
representatives about CFC matters on these extra days. In fact, an e-mail exchange
provided to the audit staff, between OPM’s OCFC and MAP’s Executive Director
shows the OCFC suggesting meeting either before or after the conference to discuss
CFC matters. Therefore, all of these travel costs were reasonable and necessary and
should be allowed.

OIG Response:

We disagree with the MAP’s position for the following reasons. Needing more
legroom on a flight for a member’s physical needs is not sufficient justification to
warrant the charging of the upgrade fees to the CFC, and these types of expenses are
expressly unallowed under Federal Travel Regulations. While we understand that
MAP employees are not Federal employees, when they are traveling for CFC
business, which would be considered Federal business since the CFC is a Federal
program, they should be held to the same limitations that Federal employees are
held to when traveling for Federal business. Consequently, we maintain that these
costs ($104) should continue to be questioned.

Additionally, it is not our expectation that a PCFO purchase refundable airfare
tickets for its staff members when traveling for CFC business. However, when trips
are cancelled, regardless of the circumstances, the costs incurred should either be
refunded to the campaign (less the applicable cancelation fee) or a suitable
replacement be sent to attend in the other person’s stead. Therefore, we will
continue to question the $494 in airfare costs.

Furthermore, when PCFO employees are traveling for CFC business, which, as we
have already stated, would be considered Federal business since the CFC is a
Federal program, they should be held to the same per diem limitations that Federal
employees are held to when traveling for Federal business. That being said, a
portion of this overcharge was incurred by an LFCC member, who is a Federal
employee and is subject to the per diem limits when traveling for business purposes.
Finally, to further support our position we would add that the Internal Revenue



                                   30
     Service’s Publication 1542 establishes per diem rates for all employers, not just the
     Federal Government, who pay a per diem allowance to employees for business
     travel away from home. The per diem rates that are to be used per this publication
     are those established by the General Services Administration. So contrary to
     MAP’s position that we are imposing an arbitrary rule on the campaigns in
     enforcing this requirement, we would counter that these rates are used by all
     employers for business travel under the IRS regulations for tax purposes. Therefore,
     we maintain that the $80 in overcharges should continue to be questioned.

     Finally, we are not questioning the costs associated with the early arrival to the
     conference. That being said, no documentation was provided by MAP, in its
     response to the draft report, other than the cited email, to support that any CFC
     meetings with the OCFC or the LFCC members were held after the end of the
     conference. Furthermore, the cited email does not propose to meet the day after the
     conference. It does propose to meet after the conference sessions, which more than
     likely would have occurred within the conference time frames. Finally, even if we
     agreed that the meeting occurred the day after the conference, it still does not
     explain why an additional two days stay was charged to the CFC. Consequently, we
     maintain that the expenses associated with the extra three days stay following the
     end of the conference are not legitimate CFC expenses and should be reimbursed to
     the campaign by MAP.

v.   Miscellaneous Expenses:

     The OIG disputed $533 in expenses, consisting of registration late fees, a flower
     purchase, and an insufficient funds charge. The $350 in late fees was due to a
     medical emergency in the family of MAP’s Executive Director, which delayed
     registrations for certain conferences. The alternative was to not attend, which would
     have been detrimental to the campaign. The $64 flower purchase was a token of
     sympathy due to a death in a Loaned Executive’s family, which furthered the
     relationship between the Loaned Executive program and the CFC. Finally, the $12
     insufficient funds charge is within a reasonable range of expense needed to
     effectively manage a successful campaign, was within the approved CFC budget,
     and was directly connected to the CFC. Therefore, these expenses should be
     allowed.

     MAP did not comment on the remaining overcharges covered under this category in
     its response to the draft report, specifically, $12 charged for amounts relating to a
     previous campaign, and $95 for meals over the per diem limits.

     OIG Response:

     We disagree with MAP’s position for the following reasons. While we understand
     that there were extenuating circumstances that caused the conference registrations to
     be submitted after the registration deadline, which does not justify MAP’s passing
     the late fees on to the campaign. We would argue that if MAP’s Executive Director



                                        31
     was unable to register the conference participants in a timely manner, then that
     responsibility should have been assigned to other MAP staff who could have
     handled this simple task. Therefore, we maintain that the late fees incurred in this
     case were expenses that should have been borne by MAP, not the campaign.
     Consequently, we will continue to question the late fees related to these
     transactions.

     Additionally, we believe that MAP’s comments related to the flower purchase
     highlight its misunderstanding of the nature of the role Federal employees play
     when working for a campaign. When serving as a Loaned Executive, the work
     performed by the Federal employee is considered part of their official duties, for
     which they receive their full salary and benefits. Consequently, there is no need to
     “further relationships” between the PCFO and the Loaned Executives. Therefore,
     we contend that the amount paid for the flowers is not chargeable to the CFC and
     should be reimbursed to the Program from the PCFO’s non-CFC funds. One could
     also question whether this type of perk violates the ethics rules in place at this
     Federal employee’s represented agency. It should be noted that OPM’s OCFC
     issued CFC Memorandum 2011-07 in November 2011 that affirms that LFCC
     members, Loaned Executives, Campaign Coordinators, Key Workers, and any other
     Federal employees working on the campaign are subject to the Government Ethics
     rules as well as any additional ethics rules required by their specific agencies while
     performing their CFC duties. This memorandum also instructs these campaign
     workers to be familiar with the ethics regulations related to receiving gifts and to
     ensure that any gifts received while working for the CFC are acceptable under the
     Government Ethics regulations.

     Finally, we do not agree that the remaining charges under the miscellaneous
     expense category, specifically the $12 insufficient funds charge, $12 charged for
     amounts relating to a previous campaign, and the $95 for meals over the per diem
     limits are expenses needed to effectively manage a successful Campaign. The
     insufficient funds charge is not a necessary cost of administering the campaign as
     defined in 5 CFR 950.106(a), and should be reimbursed to the Program from MAP’s
     own (non-CFC) funds. Additionally, 5 CFR 950.106(b) expressly prohibits the
     reimbursement of expenses from previous campaigns, which is why we questioned
     $12 that was charged to the 2011 campaign related to the mailing of expense
     reimbursement checks for a 2010 awards ceremony. Finally, as explained
     previously, amounts charged for meals while in a travel status for CFC business
     should not exceed the Federal per diem limits. Consequently, we maintain that the
     $95 charged for meals in this expense category should be returned to the campaign.

PCFO’s Comments – Allocation Percentages:

The Draft Report concludes that $13,599 of MAP’s administrative expenses in 2011 were
incorrectly allocated 100 percent to the CFC and calls for a re-allocation of expenses to
the three campaigns being run concurrently in 2011. The implementation of this
proposed action would cause considerable inconsistencies among the PCFO’s campaigns



                                        32
and would require that the PCFO adopt a completely different allocation methodology
from the one that it has consistently and reasonably applied.

OPM guidance does not require that PCFOs adopt a particular allocation system. Instead,
it requires that an allocation methodology must be reasonable and ensure that the CFC
incurs a fair share of the costs. MAP has allocated 100 percent of its CFC administrative
expenses every year to the particular campaign that was commencing in that year based
on the reasonable assumption that start-up activities for a campaign are substantially
greater than distribution and wind-up activities for the other on-going campaigns. MAP’s
allocation methodology is reasonable and has been consistently applied throughout the
scope of the audit. The proposed changes to the 2011 expense allocations would
necessitate making changes to re-allocate expenses to the other concurrently occurring
campaigns. According to MAP, “This type of undertaking would be substantial, would
involve significant accounting hours, and is not required by OPM regulations.”

OIG Response:

We disagree with MAP’s positions. MAP completely misinterpreted what we were
asking it to do as far as redistributing improperly allocated expenses. The draft report did
not request that it re-allocate expenses to the three campaigns being run concurrently in
2011. Instead, what it recommended is for MAP to distribute these amounts to the
campaign currently disbursing funds, which is the 2012 campaign.

Additionally, MAP states that it had an allocation methodology that was used to
consistently and reasonably allocate expenses and understands that the methodology
employed should ensure that the CFC incurs a fair share of the costs. However, based on
their definition of allocation as explained in their response, it does not appear that it
understands that costs are not only to be allocated between campaigns, but also between
CFC and non-CFC activities. This apparent lack of understanding was evidenced by the
fact that our review of the 2011 campaign expenses showed no evidence of expenses
being allocated to MAP for its share of the costs. Instead, all expenses were charged 100
percent to the CFC. Our concerns were confirmed by MAP’s accountant who informed
us that MAP had never allocated expenses between CFC and non-CFC activities. This
method of allocation is not in accordance with the intent of CFC Memorandum
2006-5(D).

In regards to allocating costs between campaigns, it also appears that MAP was
incorrectly allocating costs on a calendar year basis instead of over the course of the
campaign, which covers a two year period (as stated in CFC Memorandum 2008-9)
instead of the three year period claimed by MAP. This methodology of cost allocation is
in violation of 5 CFR 950.106(b) which states that PCFOs may only recover campaign
expenses from receipts collected for that campaign period. Regardless of the substantial
undertaking on the part of MAP to correct the errors resulting from its use of an improper
allocation methodology, it is still the responsibility of the PCFO to comply with the
requirements of the CFC regulations.




                                         33
     In determining the expense amounts that were chargeable to the CFC, we used allocation
     percentages provided by MAP and questioned the difference between the actual amount
     charged to the CFC and the amount that should have been charged per the allocation
     percentages. Consequently, we maintain that $13,599 was overcharged to the CFC due to
     the use of incorrect allocation percentages and should be returned to the campaign.

     Recommendation 6

     We recommend that the OCFC and LFCC ensure that future PCFOs implement
     procedures to ensure that only those expenses related to the CFC are actually charged to
     it.

     LFCC Comments:

     The LFCC concurs with this recommendation and requests training and written guidance
     for LFCC members. It also requests CFC Memoranda be consolidated into a single
     online source for LFCCs.

     OIG Response:

     We accept the LFCC’s response. However, we would remind the LFCC that training is
     available at the yearly CFC conferences held by the OCFC. We would also remind the
     LFCC that regulations and memoranda can be found on OPM’s CFC website.

B. CAMPAIGN RECEIPTS AND DISBURSEMENTS

  1. Outstanding Check Procedures                                                       $7,653

     MAP’s policies and procedures for outstanding checks do not adhere to the OCFC’s
     requirements. In addition, MAP has not reissued or redistributed $7,653 in outstanding
     checks related to prior campaigns.

     Section C of CFC Memorandum 2006-5 states that the PCFO must develop and follow
     policies and procedures regarding un-cashed checks. The OCFC recommends that this
     policy be documented and implemented after a check has gone un-cashed for six months.
     The procedures should include at least three documented follow-up attempts to reach the
     payee by phone and e-mail. If it’s determined that the payee is no longer active, the
     funds must be disbursed among the remaining organizations for that campaign as
     undesignated funds.

     MAP’s policies and procedures related to outstanding checks do not specify the timing,
     frequency, or number of follow-up attempts to charities that have not cashed their checks.
     Additionally, the procedures do not include what is done with unclaimed CFC monies.

     Additionally, MAP stated that because none of the prior administrators of the campaign
     are present, it is unaware of why the stated procedures of Memorandum 2006-5 were not



                                             34
put in place. The current administrators pointed to the fact that the CFC memorandum
states that the procedures were recommended and that a reasonable response was put in
place. MAP also stated that its Board of Directors passed a general operating policy that
required it to develop a policy related to outstanding checks.

We have (verbally) instructed MAP that it needs to institute the procedures outlined in
CFC Memorandum 2006-5 and that its Board of Directors does not have the authority to
bind the CFC in any way, shape, or form. That authority only resides with the LFCC and
OPM.

As a result of MAP not following the outstanding check guidelines issued by OPM, MAP
has retained funds related to 12 outstanding checks (totaling $7,653) that should either be
resent to the proper charity or redistributed to the current campaign as undesignated
funds.

Recommendation 7

We recommend that the OCFC and LFCC direct MAP to implement the outstanding
checks guidelines stated in CFC Memorandum 2006-5 and follow-up with the charities of
the 12 outstanding checks to determine if they are still active to redistribute the $7,653 in
outstanding checks. If they are not active, the funds should be transferred to the new
PCFO and be distributed by it as undesignated funds to the current campaign.

Recommendation 8

We recommend that the OCFC and LFCC direct MAP to ensure that the guidelines stated
in CFC Memorandum 2006-5 are followed for all remaining distributions made by it.

MAP Response:

MAP concurs with the recommendations and stated that it has followed up with the
charities related to the outstanding checks to determine if they are still active charities. If
the charities are no longer active it will distribute the monies in question as undesignated
funds.

OIG Response:

As MAP will not serve as PCFO for the 2013 campaign, the OCFC should ensure that
MAP quickly follows-up on any outstanding checks (within six months following the
close of the 2012 campaign) to determine if the charities are inactive. All monies related
to outstanding checks for inactive charities should be transferred to the new PCFO to be
distributed as undesignated funds.




                                          35
2. Pledge Form Errors                                                                       $2,600

   Our review identified 12 pledge forms with a total of 7 types of errors, 1 of which
   resulted in a charity not receiving a disbursement of $2,600.

   5 CFR 950.105(d)(1) states that it is the responsibility of the PCFO to honor employee
   designations.

   Additionally, 5 CFR 950.105(d)(3) states that it is the responsibility of the PCFO to train
   keyworkers to check and ensure the pledge form is legible, to verify arithmetical
   calculations, and to ensure the donor’s release of personal information is filled out
   properly.

   Furthermore, 5 CFR 950.402(d) states that in the event a PCFO receives a pledge form
   that has designations that add up to less than the total amount pledged, the PCFO must
   honor the pledged amount and distribute the excess amount as undesignated funds.

   Finally, 5 CFR 950.601(c) states that it is the PCFO’s responsibility to forward the
   contributor’s information they wish to be released to either the recipient organization
   directly, if the organization is independent, or to the organization’s federation if it is a
   member of a federation.

   We reviewed a sample of 75 paper pledge forms and 51 electronic pledges to determine if
   the pledge form data matched MAP’s pledge form report. Specifically, we verified the
   donor name, charity code and amount donated, total amount donated, and the donor’s
   choice to release their personal information. Our review of MAP’s data entry accuracy
   identified 12 pledge forms containing a total of 7 types of errors between them.
   Specifically, we identified the following errors:

          One electronic pledge that was missing from MAP’s pledge form tracking system
           which resulted in total designations to the charity being reduced by $2,600. MAP
           agreed that this pledge was overlooked and will make sure that funds are available
           to cover the pledge.

          Two paper pledge forms where the pledge form authorized the release of the
           donor’s address and amount pledged. Yet, MAP’s pledge form tracking system
           did not reflect this authorization. MAP stated that it believes this resulted from
           errors entering the data into its pledge form tracking system.

          One paper pledge form where the donor designated to more than five charities.
           MAP indicated that it was unsure why the keyworker did not ask the donor to fill
           out a second pledge form and attach it to the first form. However, it chose to
           work with the data it was provided, as requesting changes from the key worker
           and donor would add an additional burden to them and extend the time needed to
           process the pledge card.




                                             36
      Two paper pledge forms where the total gift amount exceeded the amount of the
       designations, and the designations were altered to make up the difference. Rather
       than altering the amount of the designations, the excess amount should have been
       disbursed as undesignated funds. For one pledge form, MAP stated that the
       keyworker made the clarification. For the other pledge form, MAP indicated that
       the data entry clerk made the correction in order to reconcile the pledge in the
       pledge form tracking system. No one, other than the donor, is permitted to make
       changes to a pledge form. Therefore, both of these actions were violations of the
       regulations.

      Two paper pledge forms where the keyworker altered the pledge form charity
       codes instead of returning it to the donor for correction. MAP stated in both cases
       that it was the keyworker that made the change. By changing the charity codes,
       the keyworker may have altered the intention of the donor and as stated above,
       only the donor is permitted to make changes to a pledge form.

      Three paper pledge forms where MAP’s data entry clerk adjusted the total gift
       amount and/or designation amount to match the amount taken out of the donor’s
       pay each pay period. Based on the regulations, pledges are based on the total gift
       and not the per pay period amount. The amount deducted from the donor’s pay is
       determined by the payroll office based on the total gift.

      One paper pledge form that was missing a page(s). When we asked MAP to
       provide the remaining pages of the pledge form, the additional pages could not be
       located.

As a result of these errors, MAP did not meet its responsibility to honor Federal
employee designations. Additionally, MAP did not disburse $2,600 to a charity.

Recommendation 9

We recommend that the OCFC and LFCC direct MAP to immediately distribute $2,600
to the charity overlooked on the missing electronic pledge.

MAP Response:

MAP agreed that the pledge questioned was overlooked and stated that the funds would
be distributed to the charity.

OIG Response:

MAP did not provide documentation to support that the payment was made to the charity
in question. Therefore, the OCFC and LFCC should follow-up with MAP to ensure that
the payment was made.




                                        37
  3. CFC Funds Not Maintained in Interest-Bearing Accounts                         Procedural

     MAP did not maintain CFC funds in an interest-bearing account during its administration
     of the 2005 through 2012 campaigns.

     5 CFR 950.105(d)(8) requires the PCFO to keep and maintain CFC funds in interest-
     bearing accounts.

     We reviewed the multiple accounts utilized by MAP during its administration of the 2005
     through 2012 campaigns to determine if the accounts were interest-bearing. Our review
     found that MAP never maintained CFC funds in interest-bearing accounts. Further
     discussion with the OCFC found that MAP had never requested or received a waiver
     from this regulation requirement.

     As a result of not maintaining CFC funds in interest-bearing accounts, as required by the
     regulations, MAP may have reduced the amount of monies available to charities
     (resulting from interest earned) during its administration of the CFC.

     Recommendation 10

     We recommend that the OCFC ensure that the LFCC understands the requirement to
     have the new PCFO maintain CFC funds in an interest-bearing account.

     LFCC Response:

     The LFCC concurs with the recommendation and states that the organization serving as
     PCFO for the 2013 campaign is utilizing interest-bearing accounts. The LFCC also
     stated that had “no idea why this was never a practice” in the campaigns administered by
     MAP.

C. ELIGIBILITY

  Our review of the LFCC membership determined that all those serving were Federal
  employees.

D. FRAUD AND ABUSE

  While our review of MAP’s policies and procedures for fraud and abuse indicated that they
  were sufficient to detect and deter potential fraud and abuse activities, the nature of the
  deficiencies identified during this audit, as explained in the Audit Findings and
  Recommendations section of this report, weakened the effect that these policies and
  procedures were meant to have in protecting CFC funds from instances of fraud and abuse.




                                             38
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                  Group Chief,

                , Senior Team Leader




                                       39
                                                                                           APPENDIX A


Schaner & Lubitz, PLLC
6931 Arlington Road; Suite 200                                            Kenneth I. Schaner
Bethesda, MD 20814                                                        Ken@schanerlaw.com
                                                                          T: 240.482.2848 F: 202.470.2241
210 5th Street, N.E.
Washington, D.C. 20002                                                    David M. Lubitz
                                                                          David@schanerlaw.com
                                                                          T: 240.482.2849 F: 202.470.2240
www.schanerlaw.com
                                                                          Larysa M. Kautz
                                                                          Larysa@schanerlaw.com
                                                                          T: 240.482.2854 F: 240.235.8046

                                         January 6, 2014

VIA EMAIL AND COURIER DELIVERY

Office of the Inspector General
United States Office of Personnel Management
1900 E Street NW, Room 6400
Washington, D.C. 20415-1100
Attn:
        Group Chief, Special Audits Group

Subject: Responses of MAP to Draft Report No. 3A-CF-00-13-051

Dear

We are filing this letter on behalf of the Metropolitan Arts Partnership (“MAP”) in response to the
tentative findings of your office in its Draft Report of September 27, 2013 (the “Draft Report”) relating to
your audit of the Combined Federal Campaigns (“CFCs” or “Campaigns”) administered by MAP between
2005 and 2012 as the Principal Combined Fund Organization (“PCFO”).

                                        DELETED BY OIG
                                 NOT RELEVANT TO FINAL REPORT

We acknowledge in this response a number of procedural breaches by MAP. Neither MAP nor the LFCC
were fully familiar with OPM regulations and MAP was, throughout the audit period, a small
organization, the actions and accounting personnel of which indicate a lack of business and accounting
sophistication. For example, neither MAP nor the LFCC kept formal records of actions or approvals,
including approval of budget overruns though there is strong indication that such approvals were granted.
Also, a prior MAP accountant failed to apply GAAP cost accounting allocation methods to allocate costs
incurred for the CFC and to MAP’s other charitable activities, respectively. Finally, accounting entries
regarding distributions from and repayment of a certain letter of credit obtained to support Campaign
expenses were erroneously made.

Nevertheless, these procedural breaches did not cause damage to the Campaigns or their charitable
recipients nor did they lead to inappropriate Campaign expenditures, and they have been remedied after
they were identified by OIG during its audit. We also note that the number of years encompassed by the
2|Page


audit, eight, far exceeds the three-year period for which records are required to be maintained under OPM
rules. Thus, both OIG’s and our investigations to respond to OIG’s preliminary audit report are
encumbered by the limitations of OPM’s own rules.

                                       DELETED BY OIG
                                NOT RELEVANT TO FINAL REPORT

We note also that MAP has only a small net worth remaining to support its charitable activities in the San
Francisco area. 1 Accordingly any penalty recommended by OIG will deprive other charitable recipients
from receiving valuable services and could cause MAP to become insolvent.

I.       UNIQUE COMPLICATIONS OF MAP AUDIT

We believe that your staff worked hard and responsibly to determine whether MAP had fully complied
with the rules applicable to it as PCFO of the CFCs in questions and we commend your staff for its
detailed review. However, while the audit staff made some valuable contributions to raising MAP’s
awareness to the importance of certain individual transactions and procedures, as a general matter we are
forced to observe that most of the conclusions reached in the Draft Report represent a misunderstanding
of the associated accounting entries. It is not surprising that the audit staff could make a series of
mistaken assumptions and erroneous recommendations because an audit encompassing the years 2005-
2012 in the case of MAP is particularly difficult for the following reasons:

        A simultaneous audit of eight years that is well removed from the most remote of the audited
         Campaigns is complicated by OPM regulations, which only require the retention of three years of
         CFC records.2

        MAP used at least six different accountants during the eight audited years and its books and
         records reflect varying skill levels and understanding of CFC rules, as well as varying agendas. In
         some cases, very substantial amounts were left unallocated by an accountant who apparently did
         not understand the division between MAP’s non-CFC and CFC activities and this failure to
         allocate caused your staff to disallow all such amounts in the Draft Report until appropriate
         allocations to the CFC could be undertaken. As explained below, such allocations now have been
         made.

        After 2012, MAP was replaced as the PCFO. Accordingly, virtually all of its employees have
         been terminated. Only one MAP employee remains to close out the most recent CFCs.

        Michelle Walker, who was the co-founder and executive director of MAP and most intimately
         involved in the operations of the CFC and MAP’s interaction with the LFCC, could have
         answered many of the questions raised by your office and provided further support for expenses
         incurred, passed away in January of 2013 before your audit commenced. Because of Ms.
         Walker’s untimely death, there is very little institutional memory to draw upon to determine why
         certain steps were taken and where relevant records may be stored. Thus, your staff had to rely on
         original financial records that were at times incomplete or incorrectly kept, some of which were

1
         MAP’s principal asset is the building housing its office space, which is encumbered by a significant
         mortgage. MAP has very few other assets and virtually no liquid assets.
2
         See 5 CFR 950.604 (“PCFOs and other participants in the CFC shall retain documents pertinent to the
         campaign for at least three completed campaign periods”).
3|Page


          even inappropriately altered during the course of certain audits by 2011 Norcal CFC auditor,


         The Draft Report’s calculations of MAP’s unsupported and unallowable expenses rely primarily
          on bank statements, which only show when revenue and expenses were credited or debited to the
          CFC account, instead of detailed accounting records categorizing the expenses into allowable
          classes. As a result, OIG has disallowed a significant amount of expenses merely because of the
          inadequacy of MAP books and records and not because such expenses were inappropriately
          incurred.

                                           DELETED BY OIG
                                    NOT RELEVANT TO FINAL REPORT

II.       MAP RESPONSES TO DRAFT REPORT

          A.      Procedural Recommendations

                                           DELETED BY OIG
                                    NOT RELEVANT TO FINAL REPORT

          B.      Budget and Campaign Expense Recommendations

                                         DELETED BY OIG
                                  NOT RELEVANT TO FINAL REPORT

There should not be any reimbursement due to the CFC because, as demonstrated herein, (1) for the 2005-
2012 Campaigns, MAP was actually under-reimbursed by a total of $79,552, and (2) substantially all of
MAP’s expenses in 2011 are fully supportable as reimbursable CFC expenses.

                  1.       Administrative Expenses 2005-2012

The Draft Report asserts (i) that MAP was reimbursed for a total of $4,261,140 of expenditures between
2005 and 2012; (ii) that “supported expenses” only make up $2,073,586 of such reimbursements; and,
therefore, (iii) that the remaining $2,187,554 of reimbursements represent unsupported costs that should
be repaid to the CFC. The audit team’s calculations are as follows:




3
          As detailed in Exhibit H,            made over $6 million worth of changes to MAP’s records, virtually
          all of which MAP’s accountant has had to reverse, including changing over 40 entries in MAP’s books
          without adequate basis to do so; and when              could not identify reasons for certain accountant
          entries, he made unfounded allegations to third parties about Ms. Walker. MAP is preparing to file a
          complaint against           with the California Board of Accountancy.
4|Page


                         OIG Calculations of Reimbursements and Expenses
                            Reimbursed           Supported          Unsupported
                             Expenses            Expenses            Expenses

             2005               $112,730                 $70,145                  $42,585
             2006               $256,065                 $98,152                 $157,913
             2007               $283,197                 $85,907                 $197,290
             2008               $610,515                $292,783                 $317,732
             2009               $888,900                $203,416                 $685,484
             2010               $851,520                $438,247                 $413,273
             2011               $633,997                $439,148                 $194,849
             2012               $624,216                $445,788                 $178,428
             Totals:            $4,261,14             $2,073,586               $2,187,554

These numbers do not reflect the reality of MAP’s operations over this period. MAP actually incurred
$3,856,683 of CFC expenses between 2005 and 2012 and was reimbursed for a total of $3,777,132,
resulting in an under-reimbursement of $79,552.

                         a.       Total Reimbursements

The Draft Report’s 2005-2012 reimbursement calculations are overstated by $484,009, as shown below
and in the enclosed Exhibit B.

The audit team inaccurately calculated these reimbursements by merely totaling all of the distributions
from the CFC bank statements without investigating the specific attributes of or reasons for the
distributions. A total of $530,918 of these distributions consist of principal repayments of a letter of credit
that was obtained by MAP, the funds from which were withdrawn, deposited into the CFC account and
used to pay Campaign expenses directly from the CFC account. Your audit team improperly included the
letter of credit principal payback amounts as Campaign expenses. The letter of credit payments out of the
CFC account should not be included in the aggregate total of reimbursements to MAP because such
payments already had been counted at the time that such campaign expenses were paid using the letter of
credit proceeds. OIG’s approach results in double-counting of Campaign expenses, once when the
expense is paid and again when principal repayments are made to the line of credit. In addition, the Draft
Report’s calculation of reimbursements includes $30,364 of disbursements to qualified MAP charities
that were participating in the CFC. These amounts are not reimbursements for MAP expenses and should
not be included in such calculations.

Finally, the audit team overlooked $66,973 of reimbursements in 2005 out of a CFC bank account held by
MAP at US Bank,

                                       DELETED BY OIG
                                NOT RELEVANT TO FINAL REPORT
5|Page


                                  Reconciled Reimbursements
                             OIG Calculated      Actual MAP
                             Reimbursements     Reimbursements               Difference
            2005                    $112,730            $103,785              $8,945
            2006                    $256,065            $211,065             $45,000
            2007                    $283,197            $263,197             $20,000
            2008                    $610,515            $603,816              $6,699
            2009                    $888,900            $679,152            $209,747
            2010                    $851,520            $657,903            $193,617
            2011                    $633,997            $633,997                  $0
            2012                    $624,216            $624,216                  $0
            Totals:               $4,261,140          $3,777,131            $484,009

The annual differences between the OIG and MAP figures are the result of the following adjustments:

       For 2005, the OIG total must be reduced by a $75,918 letter of credit payment and increased by
        $66,973 of reimbursements from the US Bank account, for a net reduction of $8,945.

                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT

       For 2010, the OIG total must be reduced by a $190,000 letter of credit payment

                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT

                        b.       Supported Costs

The only expenses characterized in the Draft Report for 2005-2012 as “supported expenses” are those that
were classified and entered into MAP’s general ledger. This list is incomplete because it disregards all of
MAP’s CFC expenses that were either listed in the ledger as unclassified or erroneously omitted from the
ledger by MAP’s prior accountants, and it does not account for any allocations of administrative
expenses. The audit team failed to properly understand or seek explanations for the transactions it cited as
unsupported, which is understandable given the inconsistent and incomplete bookkeeping of the six
different bookkeepers over the past eight years. Consequently, the audit team’s calculation of 2005-2012
supported costs is substantially understated.

MAP staff has (i) meticulously gone through the ledgers, payroll records, bank statements, receipts and all
other relevant documentation that were able to be located, (ii) reasonably allocated administrative
expenses, (iii) and investigated and classified previously uncategorized expenses. Consequently, we have
determined that MAP paid a total of $3,856,683 of CFC expenses between 2005 and 2012 and that the
Draft Report understates MAP’s CFC expenses by $1,783,098, as depicted in the following chart:
6|Page


                      Draft Report Supported             MAP Actual
                               Costs                   Supported Costs             Difference
        2005                     $70,145                   $272,785                $202,640
        2006                     $98,152                   $284,745                $186,593
        2007                     $85,907                   $255,632                $169,725
        2008                   $292,783                    $460,066                $167,283
        2009                   $203,416                    $764,966                $561,550
        2010                   $438,247                    $679,608                $241,361
        2011                   $439,148                    $606,852                $167,704
        2012                   $445,788                    $532,029                  $86,241
        Total:                $2,073,585                 $3,856,683               $1,783,098

                                       DELETED BY OIG
                                NOT RELEVANT TO FINAL REPORT

MAP’s administrative expenses have been conservatively allocated 90% to MAP’s CFC activities. As
described above, there is very little institutional memory to draw upon to determine precise allocations for
the past eight years, MAP’s records are incomplete and have been incorrectly kept, and prior accountants
failed to apply consistent accounting allocation methods to MAP’s activities. Accordingly, we have
questioned MAP’s remaining staff and board to attempt to properly allocate administrative expenses
between MAP and the CFC. We believe the 90-10% allocation to be a reasonable estimate of the
substantial time and resources spent by MAP staff administering the Campaigns relative to MAP’s other
activities. MAP was a tiny organization prior to being chosen to act as a PCFO, raising approximately
$60,000 in revenue each year to run a small art gallery and participate in a summer youth arts program.
After being selected to act as PCFO, MAP’s non-CFC activities were de minimis and primarily consisted
of seeking funding support for its affiliated members through participation in local workplace giving
programs in California. Between 2005 and 2012, MAP collected approximately $518,000 for its non-CFC
activities, as compared to the $23,866,157 of pledges that MAP was able to garner for the CFCs during
this time frame. This represents a relative allocation of 98-2, substantially less than the 90-10 ratio used.
In addition, the majority of MAP employees spent between 90 and 100% of their time on CFC matters.

Thus, based on these adjusted calculations, MAP was not over-reimbursed for CFC expenses by
$2,187,554 between 2005 and 2012, as asserted by the Draft Report, but was actually under-reimbursed
by $79,552 during this time period.

                         c.      Approved Budgets

As mentioned in the Draft Report, reimbursements should not exceed 110% of approved budgets unless
approved by OPM. MAP acknowledges that 110% of the approved budgets for 2005-2012 is $3,256,644,
and that MAP exceeded this threshold by $600,040 (but not by $1,055,279, as alleged by the Draft
Report). However, all of these expenditures were reasonable and spent solely on CFC matters; therefore,
this procedural breach did not cause damage to the Campaigns or their charitable recipients.

As stated previously, because there is no institutional memory to draw upon or other records to assist us
in our investigation and there is, to our knowledge, no record of LFCC proceedings, it is difficult to
reconstruct the regular business dealings between the LFCC and MAP as PCFO. It appears obvious from
the facts that the LFCC was supportive of the campaigns and the PCFO, but it did not record or formalize
its actions. We have learned from conversations with remaining staff that the MAP Executive Director,
who is deceased, conducted most of her business with the LFCC via telephone calls with the LFCC chair,
7 1Page


but no record was kept of these calls. We do not have any records of discussions between the LFCC and
OPM and the LFCC has declined to pruticipate in this response.

As an example of the info1mal method of conducting business between the LFCC and MAP, in each of
the yeru·s between 2009 and 2010, MAP requested a ca.Inpaign budget that was relatively static from yeru·
to yeru·, but in each of these yeru·s actual expenditures exceeded budget. In each of these yeru·s, we believe
such ovenuns were fully repo1ted to the LFCC either during the relevant Ca.Inpaign or in the year end
repo1ts that ru·e used by the LFCC to review campaign results and as a basis for dete1mining whether or
not MAP would be reappointed as PCFO. However, consistent with its info1mal method of conducti ng its
business, the LFCC did no t record its approval of these increases in w1iting or , to our knowledge, seek
approval ofbudget ovenuns in excess of 110% from OPM. It merely reappointed MAP as the PCFO.

We have included, as Exhibit G , an e-mail exchange of Febmruy 1, 2012 between OPM Compliance
Specialist,                and MAP Executive Director, Michelle Walker , in which                 suggests
that -     and Ms. Walker discuss ce1t ain budget ovenuns at an upcoming meeting with the LFCC.
However, there is no indication of the yeru· in question or the outcome of those discussions. The fact that
OPM was awru·e of such ovenuns and was suggesting a means to get them approved indicates that the
failure to receive fo1mal approval from OPM was only procedural.

The fact that the LFCC reappointed MAP as PCFO in each of the yeru·s following the LFCC's receipt of
fmal campaign repo1ts should cleru·ly indicate that the LFCC approved of such expenditures and OPM did
not object, though we expect they were aff11matively approved by eru·lier info1mal action. As
demonstrated herein, such expenditures were wholly devoted to the CFC.

Furthe1more, MAP's 2005-2012 expenses were reasonable in a.Inount.. MAP's total Campaign
reimbursements dUiing this period equaled 15.8% of the Campaigns' pledges.4 This is substantially less
than expenses incUITed by a significant number of other charities. Charity Navigator's data shows that 3
out of 10 chruities that they have evaluated spend more than 25% of their budget on administrative and
fundraising expenses, and 1 out of 10 spends over 35% of their budget on such expenses. 5 The Better
Business Bureau states that in order to meet their Wise Giving Alliance Standru·ds for Chruity
Accmmta bility, an organization must spend no more than 35% of their total expenses on administrative
and fundraising expenses .6 The Amelican Insti tute of Philanthropy's view is tha t 40% or less is a
reasonable percentage for most chru·ities to spend on fimdraising and general administration. 7 MAP's
average of 15.8% is pruticulru·ly no tewo1thy given that a substantial ammmt of MAP's administrative
expenses consisted of employee salruies, and wages in the San Francisco-San Mateo-Redwood City
Metropolitan Area are approximately 44% above the nationwide average. 8




4	
        Campaign pledges between 2005 and 2012 totaled $23,866, 157 and MAP ' s CFC reimbmsements equaled
        $3,777 ,132.

        http: //www. charitvnavigator.or g/index. cfm?bay=content.v iew &cp id=48#. U gr5Y9ko7Dc.

        http: //www. bbb.org/uslstandards-for-charity-accountability.

7	
        http: /Icharitywatch.or g/ratingguide .htrnl.

        Occupational Employment and Wages in San Francisco-San Mateo-Redwood City, Bmeau of Labor
        Statistics, May 1, 20 13.
8|Page


Moreover, OPM regulations do not currently require that PCFOs stay below a specific threshold for
expenses (as a percentage of total support or otherwise). With respect to guidance regarding charities
included in CFCs, OPM regulations prior to 2007 restricted participation in Campaigns to charities that
kept their fundraising and administrative costs under 25%. This was the only standard in place to monitor
the efficiency of the charities. In 2007, however, this eligibility criteria was relaxed, effectively opening
the door for charities with higher percentages of expenses to gain entrance into the program. Now,
charities that exceed 25% can participate so long as they publish their expenses in the campaign's
documents. Thus, MAP’s expense level of 15.8% is clearly reasonable and in line with OPM
expectations.

The fact that MAP did not obtain formal approval for its budget overruns in 2009 and 2010 may be a
ground for removal of MAP as PCFO, to replace the LFCC, or to note a procedural violation of the
regulations in the final OIG report, but since all MAP expenditures were devoted solely to reasonable
campaign expenses, no financial penalty is warranted.

                2.       2011 Campaign Expenses

The Draft Report asserts that $107,426 of the CFC’s expenses in 2011 were unsupported, unallowable, or
improperly allocated. Of this total, the audit team proposes disallowing (a) $77,310 of expenses for lack
of documentation, (b) $16,920 of expenses for lack of legitimate CFC purpose, and (c) $13,196 of
expenses for improper allocations. As outlined in detail below and in Exhibit I, these findings are
erroneous. The audit team failed to properly understand or review explanations for the transactions it cited
as unsupported, improperly allocated, or otherwise unallowable.

                         a.      Documentation

Citing a lack of documentation, the Draft Report disallows $77,310 in charges and asserts that these
expenses were not supported by invoices to show that the costs were actual and legitimate CFC expenses.
MAP’s staff has spent substantial time locating records and substantiating expenses and, as detailed on
Exhibit I and its attachments, has provided the audit team with e-mail and calendar documentation,
meeting notes, travel itineraries, and photographic proof that MAP employees attended conferences, and
relevant receipts, whenever possible. However, they have not located itemized receipts for each expense.

The OPM regulations provide that the responsibilities of a PCFO include maintaining “a detailed
schedule of its actual CFC administrative expenses with, to the extent possible, itemized receipts for the
expenses” (emphasis added).9 While we would send all such receipts if they could be located, we have
already explained the reasons why, in this case, this is not possible. Therefore, the audit team’s
requirement of itemized receipts exceeds the regulatory standard, especially given MAP’s unique
circumstances.

                         b.      Unallowable CFC Expenses

The Draft Report concludes that $16,920 in 2011 charges are “not legitimate CFC expenses,” including
certain (i) accounting expenses, (ii) entertainment charges, (iii) promotional coins, (iv) car rental charges,
(v) travel expenses, and (vi) certain miscellaneous expenses, including registration late fees, a flower
purchase, shipping costs and an insufficient funds charge. As further detailed below and on Exhibit I,
these charges should be allowable for the following reasons. 10


9
        5 CFR 950.105(d) (7).
9|Page


                                 (i)     Accounting Expenses

The audit team has disallowed $11,595 in accounting expenses, which amount was spent to correct
changes make to MAP’s records by Mr.          an accountant hired by the LFCC to audit the 2011
Norcal CFC.

                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT

Because this expense was necessary to correct mistakes and fix books and records resulting from actions
by an auditor working for the LFCC on the 2011 Campaign required pursuant to 5 CFR 950.105(d)(9), it
should be an expense of the CFC.11

                                 (ii)    Entertainment Charges

The audit team has disallowed a $600 expense related to a kickoff event in September of 2011 as an
excessive cost. Listed as a cost for DJ services, this expense was primarily for a sound system, which was
necessary to communicate with the over-500 attendees at the event. It is not unreasonable or excessive to
provide music and sound support for such large event.

Furthermore, OPM guidance provides, with respect to kickoff rallies, the following list of suggested
activities: “tricycle races between different public law enforcement teams, giveaways of donated prizes,
local popular tv or radio personality, and a musical segment (e.g., well-known band/vocalist)” and also
recommends “[s]ecuring the services of a local personality to emcee the kickoff rally (e.g., radio host or
DJ, local news program personality).”

                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT

Although this guidance was removed pursuant to OPM Memorandum for Local Federal Coordinating
Committees and Principal Combined Fund Organizations, “Directive Prohibiting the Approval of Costs
Incurred for Meals and/or Entertainment” (March 28, 2012), the audit staff’s attempt to apply these new
rules to the 2011 Norcal CFC would retroactively and unlawfully change longstanding campaign
practices. Therefore, this expense should be allowed.

                                 (iii)   Promotional Coins

The audit team has disputed a $1,379 charge for promotional coins used as donor recognition gifts. These
coins were purchased for several CFCs, with MAP coordinating the purchase and receiving
reimbursements from the other CFCs. The disputed $1,379 was for charges incurred by MAP as the
organizer of this effort, including shipping the coins to the other CFCs. There was no agreement between
the CFCs to share the shipping costs; therefore, it is unlikely that MAP can recoup these expenses from

10
        We note that the audit was conducted without sensible materiality limitations, thereby forcing MAP to
        research and respond to items that in many instances involved amounts of $20 or less. While MAP has
        responded fully to each item raised by OIG in the enclosed exhibits, no matter how small, we wonder
        whether the OIG staff would have been better served if it had concentrated on material items, thereby
        minimizing audit expenses for the government and for the Campaigns.
11
                   engagement letter was with the LFCC and     has refused to share all of   work product with
        MAP based on the fact that the LFCC was his client.
10 I Page


the other CFCs. However, even with MAP incuning a large p01t ion of these shipping costs, the coins
were still obtained at a substantial discmmt as a result of the bulk purchase and resulted in costs savings to
the 2011 Norcal CFC . Therefore, this is an expense clearly related to the CFC and should be allowed.

                                 (iv)     Car R ent al Ch arges

                                       DELET E D BY OIG
                                NOT RELEVANT T O FINAL REPORT

                                 (v)      Travel Expenses

The audit team has disputed $1,151 in travel expenses related to aiifare upgrades, cancelled aiifare,
"excessive" per diem charges, and other travel expenses for MAP employees. These expenses were
incwTed for MAP staff attendance at national conferences, as detailed on Exh ibit I. All of these charges
are allowable as they were incwTed in connection with and benefitted the CFC . As described below, MAP
exercised fiscal prudence throughout the campaign and these expenses were not excessive.

As previously discussed with the audit team, the aii·fare upgrades were used to accommodate a staff
member's physical needs to avoid potentially significant pain while flying and the staff member covered
half of the cost of the upgrade personally.

The cancelled aiifare was due to a staff member not attending a conference at the last minute due to a
medical condition. The aiifare, previously paid, could not be reftmded due to the late cancellation. It
would have been fiscally careless for MAP to purchase reftmdable tickets for all staff members , which
tickets are generally twice or three times the cost of regular fares.

The Draft Repo1t disallows $100 in per diem charges th at are over the per diem limits in the U.S . General
Se1vices Administration travel rules applicable to federal employees. MAP staff members are not federal
employees and there is no CFC regulation or OPM guidance requii·ing that this Federal threshold be used,
a fact that the audit team acknowledged. It is merely the judgment of the audit team that OIG "would
expect them to not charge the campaign more than the allowable per diem." Because this arbitrary rule is
not found in CFC regulations, the full amount of these expenses should be allowed. If OPM wishes to
iinpose such a liinitation, it must do so prospectively, with notice to all PCFOs.

Finally, the audit team disallows $453 in hotel char·ges for extra days spent by an employee at a CFC
conference which were outside of the conference dates. These should be allowable CFC costs as eru·ly or
late anival is often necessa1y to ensure prompt attendance at conferences and it is common practice to
meet with OPM and LFCC representatives about CFC matters on these extra days . As evidenced by thee­
mail exchange attached as Exhibit G between OPM Compliance Specialist,                         and MAP
Executive Dii·ector, Michelle Walker, in which                 states, with respect to the San Antonio
conference in February of 2012, that it "looks like eve1yone will be there the day before," and proposes
that -     Ms . Walker and an LFCC representative meet either the day before or the day after the
conference to discuss MAP matters. Therefore, all of these travel costs were reasonable and necessary to
effectively manage a successful Campaign and should, therefore, allowed.

                                 (vi)     Miscella n eou s Exp en ses

The audit team has disputed $ 588 in expenses, consisting of registration late fees, a flower purchase,
shipping costs and an insufficient ftmds char·ge. The $350 in late fees resulted from a medical emergency
in Ms . Walker 's family, which resulted in delayed registrations for ce1t ain conferences. The altemative
would have been to not attend, which would have been detlimental to the Campaign.
11 | P a g e



The $64.15 charge for flowers was a token of expressed sympathy for a Loaned Executive who suffered a
death in the family. It was an expense that furthered the relationship between the Loaned Executive
program and the CFC and was, therefore, directly connected to the CFC.

                                       DELETED BY OIG
                                NOT RELEVANT TO FINAL REPORT

All of these costs, as well as the disputed $12 insufficient funds charge, are within a reasonable range of
expenses needed to effectively manage a successful Campaign within the approved CFC budget and were
all directly connected to the CFC. Therefore, the expenses should be allowed.

                         c.       Allocation Percentages

The Draft Report also concludes that $13,196 of MAP’s administrative expenses in 2011 were incorrectly
allocated 100% to the 2011 CFC and calls for a re-allocation of expenses to the three Campaigns being
run concurrently in 2011. The imposition of this proposed allocation system for 2011 would cause
considerable inconsistencies among MAP’s Campaign years and would require that MAP adopt a
completely different allocation methodology from the one that it has consistently and reasonably applied.

OPM guidance does not require that PCFOs adopt a particular allocation system but merely provides that
an allocation methodology must be reasonable and ensure that the CFC incurs a fair share of the costs. 12
Each CFC typically lasts for three years (including ramp up, donation and distribution periods).
MAP has allocated 100% of its CFC administrative expenses every year to the particular Campaign that
was commencing in such year based on the reasonable assumption that start-up activities for a Campaign
are substantially greater than distribution and wind-up activities for the other on-going Campaigns.
MAP’s allocation methodology is reasonable and has been consistently applied during 2005-2012. The
proposed changes to the 2011 expense allocations would necessitate making changes to all other calendar
years to re-allocate expenses to the concurrently occurring Campaigns. This type of undertaking would be
substantial, would involve significant accounting hours, and is not required by OPM regulations.

                                       DELETED BY OIG
                                NOT RELEVANT TO FINAL REPORT

         C.      Campaign Receipts and Disbursements

Recommendations 7, 8 and 9 of the Draft Report relate to Campaign receipts and disbursements and call
for MAP to distribute outstanding checks, to follow guidance in CFC Memorandum 2006-5, and to
correct a pledge form error. MAP agrees with these Recommendations.

                 1. Outstanding Check Procedures

The Draft Report refers to twelve outstanding checks in the amount of $7,653. MAP has been taking steps
pursuant to the outstanding checks guidelines stated in CFC Memorandum 2006-5 and following up with
the charities of these outstanding checks to determine if they are still active to redistribute this amount. If



12
         CFC Memorandum 2006-5(D) states that allocated expenses must be supported by a reasonable allocation
         methodology.
12 | P a g e


the charities are found to be inactive, MAP will distribute the funds as undesignated funds to the currently
active Campaign. MAP is prepared to follow the guidance in Recommendations 7 and 8.

                  2. Pledge Form Error

Your staff identified an error in MAP’s pledge form tracking system that resulted in a charity not
receiving a disbursement of $2,600. MAP agrees that this pledge was overlooked and will ensure that
funds are distributed to the appropriate charity to cover the pledge.

    III.       CONCLUSIONS AND ADDITIONAL CONSIDERATIONS

We would like to conclude our response by emphasizing a few key factors that should inform your
preparation of the final report:

    A. As demonstrated above and in the Exhibits, all or virtually all of MAP’s expenses during the
       periods in question were dedicated to valid CFC expenditures.

    B. MAP’s aggregate CFC expenditures during the eight audited years exceeded the aggregate
       reimbursements it received by $79,552. MAP expended its own funds to cover this difference.

    C. While MAP and the LFCC did not adequately document several aspects of the operation of the
       CFC, all of MAP’s expenditures were for the CFC and reasonable in amount; and any failure to
       strictly comply with OPM regulations constituted only technical breaches and resulted in no
       damages to the Campaigns.

    D. MAP is a small organization, the non-CFC activities of which are minor. It has very limited non-
       CFC funds with which to pay the proposed reimbursements.

    E. The above conclusions reached by MAP, demonstrate that prior accounting issues identified by
       OIG have now either been corrected or OIG’s initial erroneous interpretation of certain entries
       has now been full explained. Thus the Final report must be corrected and should assess no
       penalties on MAP

We would be happy to, and hereby request, a meeting with you and your staff in advance of issuance of
your final report to ensure that the findings and recommendations therein fairly reflect MAP’s record as
PCFO for the CFCs at issue.
Sincerely,


Schaner & Lubitz, PLLC



                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT
                                                                                      APPENDIX B


Schaner & Lubitz, PLLC
6931 Arlington Road; Suite 200                                         Kenneth I. Schaner
Bethesda, MD 20814                                                     Ken@schanerlaw.com
                                                                       T: 240.482.2848 F: 202.470.2241
210 5th Street, N.E.
Washington, D.C. 20002                                                 David M. Lubitz
                                                                       David@schanerlaw.com
                                                                       T: 240.482.2849 F: 202.470.2240
www.schanerlaw.com
                                                                       Larysa M. Kautz
                                                                       Larysa@schanerlaw.com
                                                                       T: 240.482.2854 F: 240.235.8046

                                       February 14, 2014

VIA EMAIL


Office of the Inspector General
United States Office of Personnel Management
1900 E Street NW, Room 6400
Washington, D.C. 20415-1100
Attn:
        Senior Team Leader, Special Audits Group

RE:     Metropolitan Arts Partnership Response to Draft Report

Dear

We are filing this letter on behalf of the Metropolitan Arts Partnership (“MAP”) in response to the
questions posed in your January 16, 2014 email regarding our January 6, 2014 response (the “Initial
Response”) to the tentative findings of your office in its Draft Report of September 27, 2013. We and
the MAP staff and outside accountants will be available to you to respond to any further questions.

                                        DELETED BY OIG
                                 NOT RELEVANT TO FINAL REPORT

    3. Explanation of $190,000 Withdrawal

You have asked us to provide you with information regarding the $190,000 payment out of the CFC
account on July 6, 2010. In our Initial Response, we stated erroneously that the $190,000 was for a
repayment of a letter of credit. Our initial conclusion was based on the records that were available to
us at the time, which records were incomplete. Upon receipt of your request for further information
2|P age


on January 16, 2014, we inquired further about this expense and discovered that a substantial portion
of this amount was used by MAP to purchase a building for use as office space. 1

Based on our conversations with current and former staff members of MAP, it is our understanding
that MAP determined in 2010 that purchasing a building to use as office space would save
substantially on rental expenses and discussed such a potential purchase with the LFCC. The
conclusion reached by MAP and the LFCC was that such a purchase would be beneficial to the CFC
as it would reduce rental expenses. The building was used primarily for CFC purposes because, as
we discussed in the Initial Request, MAP’s non-PCFO duties were minimal, as illustrated by the fact
that its non-PCFO pledges constituted merely 2% of its overall pledges.

The decision made by MAP (and approved informally by the LFCC) to purchase the building has
proven to be a wise investment as the CFC has been the beneficiary of lower rental expenses between
2010 and 2012, and the building has appreciated substantially in value. According to the U.S.
Department of Housing and Urban Development Fair Market Rent Documentation System, the
monthly fair market rent for the Sacramento area for a comparable building in 2010 was $1,719; in
2011 it was $1,737; in 2012 it was $1,689 and in 2013 it was $1,900. The CFC has only been paying
$1,196 per month in rent in these years (which was principally debt service and taxes). By
purchasing the building, the CFC has saved over $22,000 since the building was purchased in
October of 2010. This constitutes approximately a thirty-three percent (33%) savings over market
rentals.

MAP’s purchase of the building is similar to a PCFO purchasing computers or other hard assets or
equipment to be used solely for CFC purposes. If the PCFO is not extended for subsequent
Campaigns, the computers purchased with CFC assets are transferred to the succeeding PCFO. In
this instance, MAP would propose to repay the down payment to the CFC upon the closing of a sale
of the building. The building is currently being offered for sale.

                                     DELETED BY OIG
                              NOT RELEVANT TO FINAL REPORT


Schaner & Lubitz, PLLC



                                     DELETED BY OIG
                              NOT RELEVANT TO FINAL REPORT




1
       The purchased property is a building zoned for commercial use located at 1911 18th Street, Sacramento, CA
       95811.
                                                                                        APPENDIX C
                                                  Norcal Combined Federal Campaign
                                        Local Federal Coordinating Committee (LFCC)
                                                        c/o San Francisco Bay Area Federal Executive Board
                                                                        Ronald V. Dellums Federal Building
                                                                       1301 Clay Street, Mail Room: 1400 N
                                                                                         Oakland, CA 94612

                                Serving Northern California’s Federal Employees

Office of Personnel Management
Office of the Inspector General
ATTN:                      Group Chief, Special Audits Group
Report No. 3A-CF-00-13-051

January 13, 2014


        On behalf of the Norcal CFC LFCC, we are respectfully submitting the Local Federal Coordinating
Committee response to your draft report detailing the preliminary results of the audit of the CFC
campaigns administered by Metropolitan Arts partnership (MAP) as the Principal Campaign Fund
Organization from 2005 through 2012. You have requested that we indicate in our comments whether
we agree or disagree with the findings and recommendations, and provide any supplementary
information to assist in your preparation of a final audit report. We appreciate the opportunity to
provide this response, and thank you for the extensive review performed by your office and the
guidance provided to our current LFCC for future campaigns.

                                     DELETED BY OIG
                              NOT RELEVANT TO FINAL REPORT

         Overall comments: In general, we agree with the OPM-OIG audit process used to clarify annual
campaign income and allowable expenses, as it involved a thorough review of all MAP bank accounts
and MAP and CFC-related financial documents for each distinct campaign of 2005 through 2012. We
agree with the problems identified in 1. Administrative Expenses Overcharges, but would add these two
clarifications:
     1. “Approval of Reimbursements” The statement “The PCFO did not request approval for, nor did
         the LFCC approve, the PCFO’s reimbursement of campaign expenses throughout the PCFO’s
         administration of the CFC.” seems inaccurate to us. Our LFCC experience and past Cabinet
         meeting minutes show that MAP as PCFO did submit requests for, and the LFCC did discuss and
         authorize many, while not all, campaign-expense reimbursements.

                                     DELETED BY OIG
                              NOT RELEVANT TO FINAL REPORT

        Historically, this LFCC practice was not to request or review each reimbursable receipt, but to
        review the “Statement of Revenue & Expenses,” a summary financial report, and its companion
        “Campaign Actuals” monthly report, which tracked actual expenses versus approved budget.



                                                                                                        1
                                     DELETED BY OIG
                              NOT RELEVANT TO FINAL REPORT

       In the same section, there is a note that there were no LFCC meetings between January and July,
       when many important LFCC decisions must be made. While we cannot speak for the period
       before 2011 when we were LFCC members, we do know contact with the PCFO continued all
       year to address ongoing activity, such as the Admissions Chair’s involvement with charity
       applications, approvals, denials, and appeals.

       Along the same lines, we would disagree with MAP’s attorney’s response that “…neither MAP
       nor the LFCC kept formal records of actions or approvals, including approval of budget overruns
       though there is strong indication that such approvals were granted.” [Scaner & Lubitz Responses
       letter to                 , January 6, 2014. Each year the PCFO’s records and LFCC audit seemed
       to show they “brought the campaign in on budget.” Like you, we are not aware that OPM’s
       approval was ever requested to exceed 110% of the approved budget for each campaign year.
       Only during the 2011 IPA audit in 2012 did it become apparent that financial records provided
       by the PCFO and their accounting systems were inadequate to identify excessive campaign-year
       expenses that led to this audit’s multi-year findings.

The following are our responses to the draft audit report’s recommendations:

      Recommendation 1…that the OCFC ensure that the LFCC institutes procedures to review and
       approve the future PCFO’s reimbursements of actual CFC expenses. The Norcal LFCC selected a
       new PCFO for the 2013 campaigns, and cabinet meetings between the PCFO (FES) and LFCC
       include detailed discussion of expected expenses, as well as review of provided financial
       documents including receipts for campaign expenses to be reimbursed. From this audit
       experience, we’d suggest specific financial oversight training for LFCCs, with written guidance of
       common problem areas, to ensure that LFCCs and PCFOs review receipts of every single expense
       incurred. As new LFCC members at the annual CFC conferences, we often met others similarly
       new to the process who took over mature campaigns and continued existing practices, as we
       did, which may not be sufficient to catch these kinds of problems.

      Recommendation 2…that the OCFC ensures that the LFCC understands all of it responsibilities
       and that it meets regularly to supervise the PCFO and the progress of the campaign. Similar to
       our response above, we’d emphasize more formal training for all LFCC members and written
       guidance: one has no awareness of what one doesn’t know. MAP did meet regularly with the
       LFCC and did provide the LFCC with regular campaign financial reports of expenses, but these
       did not reveal each year’s excesses until the audit in 2012. Since no IPA audit prior to 2012
       raised concern, the same reporting practices continued.

                                     DELETED BY OIG
                              NOT RELEVANT TO FINAL REPORT

      Recommendation 4…that the OCFC ensure the LFCC understands that the PCFO is not
       permitted to recover expenses in excess of 110 percent of the approved CFC budget unless
       approved by OPM. In 2013 as the LFCC finally had to order MAP to cease spending, MAP Board
       President Kamilos argued with the LFCC that MAP’s monthly financial reports showed there was
       still money left in the 2012 campaign, that they had not yet hit 100% of approved budget, let

                                                                                                        2
        alone surpassed 110%. No one was seeing the excess of 100% because MAP’s expense reports
        were unreliable, as found in the audit, and each campaign year’s fiscal integrity was not
        maintained. The LFCC understands the 110% rule. The problem to correct is the availability of
        skills and resources to guide PCFOs to set up correct financial tracking systems, and having well
        trained IPAs who do annual audits and find problems when they occur, as well as providing
        guidance to LFCCs.

                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT


       Recommendation 10…that the OCFC ensure that the LFCC understands the requirement to
        have the PCFO maintain CFC funds in an interest-bearing account. The LFCC has ensured that
        the new PCFO has an interest bearing account, and has received an explanation from OPM-OIG
        on where this requirement is implied. We have no idea why this was never a practice.

                                      DELETED BY OIG
                               NOT RELEVANT TO FINAL REPORT

Please let us know if we can provide additional information.

Respectfully submitted on behalf of the Norcal LFCC Chair, Jan Wright,

Francine Roby
Francine Roby
LFCC Member
Executive Director, San Francisco Federal Executive Board
510-637-1571
francine.roby@gsa.gov




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