oversight

Audit Of The U.S. Office of Personnel Management's Interagency Agreement Process

Published by the Office of Personnel Management, Office of Inspector General on 2012-03-28.

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

                                                         U.S. OFFICE OF PE RSONNEL MANAGEMENT
                                                               OFFICE OF THE INSPECTOR GENERAL
                                                                                OFFICE OF AUDITS




Final Audit Report
Subject:


                         AUDIT OF THE 

          U.S. OFFICE OF PERSONNEL MANAGEMENT'S 

              INTERAGENCY AGREEMENT PROCESS 



                                              Report No. 4A-CF-OO-09-014


                                                              March 28, 2012
                                               Date:




                                                                 -CAUTION-
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untler Ihe Freedom of Inform a li on AN a nd made a\'lilablr 10 tht public on th e OIG 'Hbpagt. caution needs 10 be utrcistd bdort
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                                   UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                                     Washington. DC 2041 5


   Office of tile
Inspector General



                                                             AUDIT REPORT




                    AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAG EM ENT'S 

                              INTERAG ENCY AGREEMENT PROCESS 





                           Report No. 4A·CF-OO-09-014                                  Date: March 28 , 2012




                                                                                                   Michael R. Esser
                                                                                                   Assistan t Inspector Ge neral
                                                                                                     for Audits


                                                                       ··CAUTION-
      This u dil repor t bu b« n distributed to Federal officia ls who Uf rn ponsihlr for th e . dmini$tr• •ion orthc l udited progn m. This , udit
      report may conlai n proprietary dal. ""'hk h is proltt ltd by Federal I. ... ( 18 U.s.C. 19(5). ThfrdOl"f . whi le thi s IIIdi. , tporl is • •·. il'ble
      undrr the' ~'rrtdom of Inform. lion ,\ (1 and mad e I ." il. blt 10 Iht puhlic o n the OIG \\'f bp.gt. n ution MWS 10 bt ucrciu d btfol'C'
      rflus;", the rt'portlo the , coe n t public u it may (onl. in proprkluy inform.tion Ihl l wu red ac ted rrom the publicly dis tribut ed co py.




         www.opm .• ov
                              UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                                    Washington. DC 20415 



  Office of Ihe
Inspeclor General




                                           EXECUTIVE SUMMARY



                    AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAGEMENT'S 

                              INT ERAGENC Y AGREEMENT PROCESS 





                           Report No. 4A-CF-OO-09-0I4           Date:    March 28 , 2012


      The Office of the Inspector General has completed a performance audit of the U.S. Office of
      Personnel Management' s (O PM) Interagency Agreement Process. OUf main objecti ve was to
      determine if Interagency Agreements CIA) are being properly executed, monitored , and managed.
      in order to make this determination, our audit included the following specific objectives: ( I)
      determine ifOPM has contro ls in place to ensure lAs meets the requirements of applicable laws,
      regulatio ns, procedures, and guidelines and (2) determine ifOPM properl y manages the financial
      aspects of its lAs.

      Our audit was conducted from February 24, 20 11 through November 22, 20 11 at OPM
      headquarters in Washington, D.C. We determined that OPM needs to strengthen controls to
      ensure that lAs are being properly executed, monitored, and managed. Our audit identified five
      areas requiring improvement.

      A.        Financial Management

                    I. 	 Internal Controls Over Financial Aspects of Interagencv                      Procedural
                           Agreements

                           Program offi ces need to improve controls over the financial aspects of
                           lAs when selling goods and services.




         www.o pm .,ov 	                                                                             www.unJobl.,ov
B.   Interagency Agreement Process

     1.   Internal Controls Over the Approval of Interagency Agreements –       Procedural
          Buyer and Seller

          OPM needs to strengthen controls over the process for preparing and
          approving IAs, both when OPM is the buyer and when they are the
          seller.

     2.   Internal Controls Over Interagency Agreements When OPM is             Procedural
          the Buyer

          The office of the Chief Financial Officer needs to strengthen its
          current policies and procedures when OPM is buying goods/services
          through IAs.

     3.   Internal Controls Over Interagency Agreements When OPM is             Procedural
          the Seller

          OPM needs to strengthen controls over IAs when OPM is selling
          goods/services to other federal entities.

     4.   Record-Keeping Over Interagency Agreements – Buyer and Seller         Procedural

          OPM does not have adequate controls in place over the record-
          keeping of IAs, both when OPM is the buyer and when they are the
          seller.




                                          ii
                          TABLE OF CONTENTS

                                                                          Page

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

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

II. OBJECTIVE, SCOPE, AND METHODOLOGY ................................    3

III. AUDIT FINDINGS AND RECOMMENDATIONS ...........................       5

     A. Financial Management
        1. Internal Controls Over Financial Aspects of Interagency
            Agreements ……………………………………………….…                               5

     B. Interagency Agreement Process
        1. Internal Controls Over the Approval of Interagency
            Agreements-Buyer and Seller …………………………..…..                   7
        2. Internal Controls over Interagency Agreements When OPM
            is the Buyer ………………………………………………….                             9
        3. Internal Controls over Interagency Agreements When OPM
            is the Seller ………………………………………………….                            10
        4. Record-Keeping Over Interagency Agreements-Buyer and
            Seller …………………………………………………….…..                               12

IV. MAJOR CONTRIBUTORS TO THIS REPORT .................................   15


     APPENDIX
        OPM’s consolidated response dated March 15, 2012
                     I. INTRODUCTION AND BACKGROUND
Introduction

This final audit report details the findings, conclusions, and recommendations resulting from our
performance audit of the U.S. Office of Personnel Management’s (OPM) Interagency Agreement
Process. The audit was performed by OPM's Office of the Inspector General (OIG), as
authorized by the Inspector General Act of 1978, as amended.

Background

An interagency agreement (IA) is a written agreement between federal agencies in which one
agency provides goods or services to another agency on a reimbursable basis. In addition, there
are agreements that exist between OPM entities, which are called intra-agency agreements. Both
types of IAs establish the general terms and conditions that govern the relationship between the
requesting (buyer) and servicing (seller) agencies. The IA provides information that is required
to demonstrate a bona fide need and authorizes the transfer and obligation of funds. Each IA
must contain certain information, such as a description of the goods/services ordered; approval
by the appropriate authority; funds citation; and payment provisions. The IA becomes effective
when it is signed by authorizing officials of both entities (the buyer and seller).

The OPM Financial Management Manual (FMM) contains a Guide to Preparing Reimbursable
Agreements, which provides guidance on how to prepare an external agreement when OPM is
selling to another agency under the Economy Act (i.e., Advances and Reimbursements). OPM’s
Revolving Fund (RF) programs have statutory authority to sell specific goods and services to
other Federal agencies; however, the FMM does not cover those agreements. The FMM also
contains guidance on how to prepare an internal agreement where one part of OPM is buying
services from another part of OPM and how to prepare external agreements when OPM is buying
goods or services from another agency.

When program offices purchase goods and services through an IA they follow polices and
procedures issued by the Office of the Chief Financial Officer’s (OCFO) Financial Services (FS)
office. As part of FS’ responsibilities they issued the following guidance: (1) RF Work
Instructions for Processing Interagency/Intra-Agency agreements – OPM is Buyer, and (2) RF
Supplemental Work Instructions for Processing Interagency/Intra-Agency Agreements Valued at
$2,500 or Less – OPM Buyer. FS also issued RF Work Instructions for Processing Advances
and Reimbursement (A&R) Agreements – OPM as the Seller. A&R agreements are used when
OPM is selling unique special services, such as when RF programs are conducting business
outside their normal scope of operations. In addition, any OPM program office may be a party to
an A&R agreement depending upon their need, or in situations where their resources are needed
by another entity.

Facilities, Securities and Contracting (FSC) and FS are responsible for tracking all IAs where
OPM is the buyer of services. Both of these program offices use excel spreadsheets to track the
agreements. Therefore, any OPM program office that enters into an IA as a buyer of goods or
services should appear on both of their logs.
                                                1
In addition to FS and FSC, we also reviewed IAs for the following program offices, hereafter
referred to as the program offices. They each also internally track their IAs when they are the
buyer or seller of services:
         o Human Resource Services (HRS)
         o Federal Investigative Services (FIS)
         o Office of the Chief Information Officer (CIO)




                                                2
                II. OBJECTIVE, SCOPE, AND METHODOLOGY
Objectives

The objective of our audit was to determine if OPM’s IAs are being properly executed,
monitored, and managed.

In order to achieve our primary objective, we determined if OPM:

   o has controls in place to ensure IAs meet the requirements of applicable laws, regulations,
     procedures, and guidance, and

   o properly manages the financial aspects of its IAs.

The recommendations included in this final report address these objectives.

Scope and Methodology

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

The scope of our audit covered fiscal year (FY) 2010 IAs, both where OPM was the buyer and
when they were the seller. Our scope covered the following program offices: CIO, FIS, HRS,
FSC and OCFO.

We performed our audit fieldwork from February 24, 2011 through November 22, 2011 at OPM
headquarters located in Washington D.C.

To accomplish the audit objective noted above, we:

   o Sampled and tested IAs to see if program offices are executing IAs according to laws and
     regulations, and their policies and procedures;
   o Reviewed and tested OPM and program office’s policies regarding the execution,
     monitoring, and management of IAs;
   o Traced IAs to tracking logs and data entered into OPM’s financial system; and
   o Interviewed OPM program office representatives, as necessary.

In planning our work and gaining an understanding of the internal controls over OPM’s IA
process, we considered, but did not rely on, the internal control structure to the extent necessary
to develop our audit procedures. These procedures were mainly substantive in nature, although
we did gain an understanding of management procedures and controls to the extent necessary to
develop our audit objectives. The purpose of our audit was not to provide an opinion on internal
                                                 3
controls, but merely to evaluate controls over the processes that were included in the scope of
our audit. Our audit included such tests of IA records and other procedures as we considered
necessary under the circumstances. The results of our tests indicate that with respect to the items
tested, OPM needs to strengthen controls to ensure that IAs are being properly executed,
monitored, and managed.

We sampled IA documentation for review and testing on a random basis. Using the buyer
tracking logs provided we selected:

   o   5 out of 5 IAs for CIO (includes Enterprise Human Resource Integration (EHRI));
   o   9 out of 9 IAs for FIS;
   o   7 out of 39 IAs for FSC;
   o   16 out of 80 IAs for FS;
   o   4 out of 35 IAs for HRS; and
   o   32 out of 160 IAs that appeared on both FS and FSC logs.

Using the seller tracking logs provided, we selected:

   o 24 out of 120 IAs for FIS;
   o 33 out of 164 IAs for CIO; and
   o 120 out of 6,976 IAs for HRS.

The results from our samples were not projected to the population.




                                                 4
          III. AUDIT FINDINGS AND RECOMMENDATIONS
A.      Financial Management

     1. Internal Controls Over Financial Aspects of Interagency Agreements

        Program offices, when acting as the seller of goods and services, need to improve
        controls over the financial aspects of IAs. During our review of IAs and supporting
        documentation we noted the following:

           o Financial information related to the IA in OPM’s financial system is incomplete
             and/or inaccurate. Data in the system did not always agree to the supporting
             documentation.

           o Program offices do not effectively monitor funds. They do not record and
             monitor the period of availability of appropriations advanced from agencies and
             the dates that funds expire.

           o Program offices do not consistently record or monitor the date they begin work on
             the agreements.

           o OPM does not effectively monitor IAs to ensure timely close-out so that unneeded
             funds can be deobligated and used for other projects.

        OPM provides minimal guidance when program offices are selling goods/services, as the
        procedures are limited to approval of an IA. There is no standard guidance that covers
        the proper recording and fiscal management of agreements.

        OMB Circular A-123 (Introduction) states that “Management has a fundamental
        responsibility to develop and maintain effective internal control. The proper stewardship
        of Federal resources is an essential responsibility of agency managers and staff. Federal
        employees must ensure that Federal programs operate and Federal resources are used
        efficiently and effectively to achieve desired objectives.”

        The Government Accountability Office’s (GAO) Standards for Internal Control in the
        Federal Government states that, “Internal control and all transactions and other
        significant events need to be clearly documented, and the documentation should be
        readily available for examination. The documentation should appear in management
        directives, administrative policies, or operating manuals and may be in paper or
        electronic form. All documentation and records should be properly managed and
        maintained.”

        GAO’s Standards for Internal Control in the Federal Government also states that
        management is responsible for developing control activities, which are the policies,
        procedures, techniques and mechanisms that enforce management’s directives. “Control
        activities occur at all levels and functions of an entity and include a wide range of



                                                5
activities, such as approvals, authorizations, verifications, reconciliations, performance
review, maintenance of security, and the creation and maintenance of related records
which provide evidence of execution of these activities, as well as appropriate
documentation.” Some examples of control activities are: reviews by management at the
functional or activity level, controls over information processing, proper execution of
transactions and events, access restrictions to and accountability for resources and
records, and appropriate documentation. In addition, internal controls should be designed
to assure that ongoing monitoring occurs in the course of normal operations. It should be
performed continually and ingrained in the agency’s operations.

By not entering the appropriate IA financial data into the Consolidated Business
Information System (CBIS), OPM is not capturing important financial details related to
executing IAs. This increases the risk of receiving improper payments and using expired
funds.

Recommendation 1:

We recommend that OPM develop a reference tool which contains all information
necessary regarding how an IA should be created, managed, monitored and closed out.

OPM’s Response:

“We concur with Recommendation 1. As noted in the OIG draft and earlier in this
response, OPM is developing two FMM chapters and associated work instructions
(procedures) to provide guidance on how IAAs will be created, managed, monitored, and
closed-out.”

Recommendation 2:

To help guard against the use of cancelled appropriations, we recommend that OPM
electronically record and monitor key information about the period of availability of
appropriations advanced to OPM from client agencies. IAs should include the Treasury
Account Symbol (TAS) code which indicates the period of availability of appropriations.
The expiration date should be included in OPM’s financial management system for
tracking purposes.

OPM’s Response:

“We concur with Recommendation 2. As noted previously OPM is working toward
adoption of the Treasury standard IAA form, which included the TAS, and issuing
guidance on its use. … As noted in the draft report, OPM is exploring the best way to
maintain this data electronically in CBIS. … OPM will continue to work internally with
its partners and with Treasury to ensure it secures and maintains the buying and selling
agency TAS/[Business Event Type Code] BETC.”




                                        6
B.      Interagency Agreement Process

     1. Internal Controls Over the Approval of Interagency Agreements – Buyer and Seller

        OPM needs to improve the process for preparing and approving IAs, both when OPM is
        the buyer and when they are the seller.

        The OCFO’s FS office receives the IA package from the program office for review and
        submission to the CFO or his designate for approval. The package consists of the
        Executive Routing (Intra only), Executive Summary (Intra only), signed Memorandum of
        Understanding or Statement of Work, the signed Form 1616, the signed Capital
        Investment Committee approval (for agreements valued at $250,000 or more), and copies
        of the accounting lines and headers tabs of the CBIS requisition. In addition,
        Contracting, within Facilities, Security and Contracting, follows their Interagency and
        Intra-agency Processing Procedures. For all IAs approved by FSC an IA processing
        procedures checklist is completed, signed, and dated to verify that the proper
        documentation and signatures are included before the IA package is sent to CFO for
        payment.

        FS’ work instructions provide minimal guidelines on preparing and approving IAs.
        Many IAs we reviewed were improperly prepared. During our review of IAs and
        supporting documentation we noted the following:

           o IAs did not cite a legal authority or cited the wrong legal authority;
           o IAs did not contain the appropriate supporting documentation to support the need
             for an IA;
           o IAs were not approved and signed by the proper official(s) and/or had not been
             signed by either party to the IA;
           o IAs had incomplete funding information, such as the date when funds expire;
           o IAs had unclear or undefined termination dates or performance periods. We
             found instances where IAs did not specify the performance terms and/or an
             effective date; and
           o IAs were signed/dated after the project start date or period of performance had
             begun.

        OPM provides minimal guidance to program offices when they are buying goods/services
        and they do not provide any official policy or procedures to the RF programs when OPM
        is the seller.

        OMB Circular A-123 (Introduction) states that “Management has a fundamental
        responsibility to develop and maintain effective internal control. The proper stewardship
        of Federal resources is an essential responsibility of agency managers and staff. Federal
        employees must ensure that Federal programs operate and Federal resources are used
        efficiently and effectively to achieve desired objectives.”




                                                7
GAO’s Standards for Internal Control in the Federal Government states that, “Internal
control and all transactions and other significant events need to be clearly documented,
and the documentation should be readily available for examination. The documentation
should appear in management directives, administrative policies, or operating manuals
and may be in paper or electronic form. All documentation and records should be
properly managed and maintained.”

GAO’s Standards for Internal Control in the Federal Government also states that
management is responsible for developing control activities, which are the policies,
procedures, techniques and mechanisms that enforce management’s directives. Control
activities occur at all levels and functions of an entity and include a wide range of
activities, such as approvals, authorizations, verifications, reconciliations, performance
review, maintenance of security, and the creation and maintenance of related records
which provide evidence of execution of these activities, as well as appropriate
documentation. Some examples of control activities are: reviews by management at the
functional or activity level, controls over information processing, proper execution of
transactions and events, access restrictions to and accountability for resources and
records, and appropriate documentation. In addition, internal controls should be designed
to assure that ongoing monitoring occurs in the course of normal operations. It should be
performed continually and ingrained in the agency’s operations.

Errors in preparing and approving IAs may lead to OPM engaging in agreements that are
not legally binding and cause OPM and/or customer agencies to violate the Anti-
deficiency Act.

Recommendation 3:

We recommend that OPM provide adequate guidance and oversight to program offices to
ensure that IAs include appropriate written documentation to prove that the relevant
criteria for a binding legal agreement have been met.

OPM’s Response:

“We concur with Recommendation 3 which applies to IAAs in which OPM is buyer and
seller. As noted previously, OPM will be issuing two new FMM chapters and associated
work instructions to help ensure that relevant guidance and criteria are met on OPM
IAAs. This guidance will also apply to internal agreements in which OPM is both the
buyer and seller of RF services. In addition to policy guidance in the FMM, OCFO has
developed a draft work instruction for IAAs in which OPM is the buyer and seller.”

Recommendation 4:

We recommend that the OCFO strengthen policies and procedures for preparing and
approving IAs to ensure that all IAs are complete, accurate, and constitute binding legal
agreements. This could include providing periodic training to staff working with IAs on




                                        8
   how to appropriately accept, process, review and monitor its IAs and maintaining
   complete, accurate, and easily accessible files for all IAs.

   OPM’s Response:

   “We concur with recommendation 4 which applies to agreements in which OPM is both
   the buyer and seller. As noted previously, OPM will be issuing two new FMM chapters
   and associated work instructions to help ensure that relevant guidance and criteria are met
   on OPM IAAs. This guidance will also apply to internal agreements in which OPM is
   both the buyer and seller of RF services. Additionally, OCFO has been providing
   training and guidance to program offices on how to implement the Treasury standard
   IAA form.”

2. Internal Controls Over Interagency Agreements When OPM is the Buyer

   The OCFO needs to strengthen its current policies and procedures when OPM is buying
   goods/services through IAs. We noted that:

      o FS work instructions only take you through setting up and signing the IA; the
        procedures are incomplete in that there are no standardized steps to guide the
        program offices from the signing of the IA until an IA ends. The offices we
        reviewed (HRS, EHRI, CIO, and FIS) all used the procedures issued by FS;
        however, there may be other program offices that enter into IAs that also use this
        guidance, even though they are labeled for RFs.

      o The FMM that is available to all program offices via THEO is outdated and needs
        to be revised.

   We are unsure as to why the work instructions do not contain procedures for the life cycle
   of an IA. FS stated that the FMM is no longer pertinent and is superseded by the work
   instructions that they issued. Due to the volume of FS’ work load they have not
   updated the FMM nor included the work instructions on THEO.

   A thorough policy on IAs is a necessary resource for program offices utilizing
   agreements by providing such information as when an IA is necessary, the level of
   approval required, ongoing monitoring that should take place, and proper recording of
   funds.

   GAO’s Standards for Internal Control in the Federal Government states that, “Internal
   control and all transactions and other significant events need to be clearly documented,
   and the documentation should be readily available for examination. The documentation
   should appear in management directives, administrative policies, or operating manuals
   and may be in paper or electronic form. All documentation and records should be
   properly managed and maintained.”




                                            9
   GAO’s Standards for Internal Control in the Federal Government also states that
   “management is responsible for developing the detailed policies, procedures, and
   practices to fit their agency’s operations and to ensure that they are built into [agency
   operations] and [are] an integral part of the operations.” Written policies and procedures
   are an effective way for management to communicate the internal controls for program
   transaction cycles and a critical element of a well-defined control environment.

   OMB Circular A-123 (Introduction) states that “Management has a fundamental
   responsibility to develop and maintain effective internal control. The proper stewardship
   of Federal resources is an essential responsibility of agency managers and staff. Federal
   employees must ensure that Federal programs operate and Federal resources are used
   efficiently and effectively to achieve desired objectives.”

   If there is no standard guidance regarding the use, management, and oversight of IAs,
   there is no assurance that the IA complies with legislative and regulatory authority, meets
   legislative criteria, or protects OPM’s interest. In addition, OPM may not be receiving
   the best value for its money and funds may be wasted if due diligence is not exercised.

   Recommendation 5:

   We recommend that the OCFO improve the process for preparing and monitoring IAs by
   developing and implementing uniform policies, procedures, and guidance for the use,
   management, and oversight of IAs. The policy should contain all information necessary
   regarding how IAs should be created, managed, monitored, and closed out to ensure that
   that the IAs achieved their intended results and were completed within the terms of the
   agreements.

   OPM’s Response:

   “We concur with Recommendation 5 which applies to agreements in which OPM is the
   buying agency. OPM is issuing two new FMM chapters on the RF and IAA, as well as
   an associated work instruction for preparing agreements in which OPM is the buying
   agency. OCFO has also issued a work instruction on project close-outs. OCFO will
   continue to provide guidance and training to program offices, and OPM will consider
   amending proposed work instructions or developing new work instructions as the process
   moves forward.”

3. Internal Controls Over Interagency Agreements When OPM is the Seller

   OPM needs to strengthen its internal controls over IAs when OPM is selling
   goods/services to other federal entities. We noted that:

      o OPM has no uniform policies and procedures in place to guide program offices in
        the proper handling of agreements when OPM is the seller. We noted that the
        offices we reviewed - HRS, EHRI, CIO, and FIS - all used the A&R procedures
        issued by FS when selling unique special services; however, they each had their



                                           10
       own individual procedures that they follow when they sell goods/services as part
       of their regular line of business. The procedures, however, were not consistent.
       For example, FIS has procedures dealing with how to de-obligate unused funds
       when requested by customer agencies, whereas other program offices do not have
       procedures to formally closeout projects and resolve remaining funds with the
       customer.

   o The FMM that is available to all program offices via THEO is outdated and needs
     to be revised.

OPM does not get involved in the review of RF agreements and they do not provide any
official policy or procedures to the RF programs; therefore, there is no standard guidance
to follow. FS stated that the FMM is no longer pertinent and is superseded by the work
instructions that they issued for A&R agreements. Due to the volume of FS’ work load
they have not updated the FMM nor included the work instructions on THEO.

A thorough policy on IAs is a necessary resource for programs utilizing agreements as it
would provide such information as when an IA is necessary, the level of approval
required, ongoing monitoring that should take place, and proper recording of funds.

GAO’s Standards for Internal Control in the Federal Government states that, “Internal
control and all transactions and other significant events need to be clearly documented,
and the documentation should be readily available for examination. The documentation
should appear in management directives, administrative policies, or operating manuals
and may be in paper or electronic form. All documentation and records should be
properly managed and maintained.”

GAO’s Standards for Internal Control in the Federal Government also states that
“management is responsible for developing the detailed policies, procedures, and
practices to fit their agency’s operations and to ensure that they are built into [agency
operations] and [are] an integral part of the operations.” Written policies and procedures
are an effective way for management to communicate the internal controls for program
transaction cycles and a critical element of a well-defined control environment.

OMB Circular A-123 (Introduction) states that “Management has a fundamental
responsibility to develop and maintain effective internal control. The proper stewardship
of Federal resources is an essential responsibility of agency managers and staff. Federal
employees must ensure that Federal programs operate and Federal resources are used
efficiently and effectively to achieve desired objectives.”

By not having standard guidance for all program offices to follow when they are selling
goods/services, the risk that OPM cannot provide a reasonable assurance that program
offices are properly recording and managing their agreements from beginning to end is
increased. Program offices may execute IAs incorrectly if they rely on outdated
guidance. The lack of standard guidance also increases the risk that the IA may not
comply with legislative and regulatory authority or protect OPM’s interest.



                                        11
   Recommendation 6:

   We recommend that OPM form an executive steering committee of representatives from
   the various program offices within OPM to develop and implement standard polices and
   procedures for the management and oversight of IAs when OPM is the seller. The
   policies and procedures should contain all information necessary regarding how an IA
   should be created, reviewed, approved, managed, monitored and closed out.

   OPM’s Response:

   “OPM concurs with this recommendation and will consider forming an executive steering
   committee to develop and implement policies for agreements in which OPM is the seller.
   OPM will also consider using other existing groups, such as the Senior Assessment Board
   for Internal Control, for this purpose. Additionally, OPM is improving management and
   oversight of this process by issuing two new FMM chapters on the RF and IAA, as well
   as an associated work instruction for preparing agreements in which OPM is the selling
   agency. OCFO has also issued a work instruction on project close-outs. OCFO will
   continue to provide guidance and training to program offices, and OPM will consider
   amending proposed work instructions or developing new work instructions as the process
   moves forward.”

4. Record-Keeping Over Interagency Agreements – Buyer and Seller

   OPM does not have adequate controls in place over the record-keeping of IAs, both when
   OPM is the buyer and when they are the seller. There is no routine oversight to ensure all
   transactions and documents are accurately recorded and maintained. Based on our
   review we found instances, discussed below, where documentation was incomplete,
   inaccurate, or missing.

      o We determined that FSC, FS, and the program offices we reviewed have
        unreliable tracking logs for IAs when they are the buyer. The logs were
        inaccurate or missing information such as: order numbers, award date, awardee
        or description of service, interagency agreement number, and agreement amount.
        In addition, there are no policies and procedures in place to ensure that differences
        amongst FS, FSC, and program office logs are reconciled.

      o We also noted instances of inaccurate or missing information on the seller logs
        that are maintained by each of the program offices.

      o When the program offices are buying and selling, we found instances where
        documents, such as the Statement of Work; Form 1616/1617; Determination and
        Findings; and receipt of goods/services, were incomplete or missing from the IA
        files.

   OMB Circular A-123 (Introduction) states that “Management has a fundamental
   responsibility to develop and maintain effective internal control. The proper stewardship



                                           12
of Federal resources is an essential responsibility of agency managers and staff. Federal
employees must ensure that Federal programs operate and Federal resources are used
efficiently and effectively to achieve desired objectives.”

GAO’s Standards for Internal Control in the Federal Government states that, “Internal
control and all transactions and other significant events need to be clearly documented,
and the documentation should be readily available for examination. … All documentation
and records should be properly managed and maintained.”

GAO’s Standards for Internal Control in the Federal Government also states,
“Transactions should be promptly recorded to maintain their relevance and value to
management in controlling operations and making decisions. This applies to the entire
process or life cycle of a transaction or event from the initiation and authorization
through its final classification in summary records. In addition, control activities help to
ensure that all transactions are completely and accurately recorded.”

OPM’s Financial Management Manual states, “Furthermore, when appropriate and
required, documents must be prepared and maintained that evidence receipt, inspection,
and acceptance of goods and services provided to OPM.”

If tracking logs are not accurate and reliable, there is the possibility that they can impair
management’s oversight and monitoring capabilities for IAs. In addition, if IA files lack
documentation, OPM cannot provide a complete and accurate record of the agreement
and all transaction relating to the agreement. Federal internal control standards require
that transactions be properly authorized, executed, recorded timely and documented
appropriately. If these internal controls are weak or missing, OPM cannot provide
reasonable assurance that it is efficiently using its resources and complying with
applicable fiscal laws.

Recommendation 7:

We recommend that FS, FSC, and program office management conduct monthly reviews
of their tracking logs to ensure that the information recorded is complete, accurate and
reconciled on a regular basis.

OPM’s Response:

“We concur with Recommendation 7. OCFO, FSC and OPM program offices will work
to ensure that logs on IAAs are kept complete, accurate and reconcilable.”

Recommendation 8:

We recommend that OPM strengthen its controls to ensure that all documentation related
to the IA process is properly stored and maintained.




                                         13
OPM’s Response:

“We concur with Recommendation 8. OCFO, FSC, and OPM program offices will take
necessary actions to ensure recordkeeping on IAAs is improved.”




                                   14
      IV.       MAJOR CONTRIBUTORS TO TillS REPORT

Internal Audits Group




                                15 

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                    MEMOHANOUM FOH: 	 MICHAEL ESSER
                                      ASSISTANT INSPECTOR GEN t:RAL FOR AUDrrs



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                    DENN IS COLEMAN                                                                NANCY H. KICHAK
                    ACTING CH IEF FINANCIAL OFFICER                                                ASSOCIATE DIRECTOR
                                                                                                   HUMAN RESOURCES
                                                                                                   SOLUTIONS ~ A -                               )."..,


                    TI NA n. MCGUIRE                                                               MERTONM~~~
                    DIRECTOR                                                                       ASSOCIATE DIRECTOR
                    FACILITIES, SECURITY AND                                                       fEDERAL INVESTIGAT IVE
                    CONTRACT/NG                                                                    SERVICES

                    MATTIlEW E. PERRY                                    ,   .! _.'            /
                    CHIEF INFORMATION OFF"ICP.R


                    SUB J IlCT:     OIG DRAFT AUDIT REPORT
                                    Audil or lhe U.S. omce ofPeJ"sollnel Manllgcmenl'li FY 2011 Interagency
                                    Agreement Process
                                    Audi t Report Numbcr - 4A-CF-OO-09 -014, dnted Fcbmnry 1\ 2012

                    Thank you for the opportl1nity to respundlo your review of OPM's Inter AgCI1CY
                    Agrecmcnt PI'OCCSS (IAA), including internal OPM agreements. Improving the control
                    elivirollllll:llt for OPM's Rcvolving Ftilld (RF) programs is an imponlltll pdority for our
                    offices mul we fire firmly committed to this priority.

                    As noted in our detailed resilolise thal rollows, the Office of th~ Chicf liinnncial Oll1 ccr
                    (OCrO) lifts been worki ng closely with. our Revolving Fund (RF) programs to adollt the
                    sUtndnf\1Trc<lsury IAA form rOf nil OPM activity (illcluding illtcmnl agn:emclltli ).
                    Adopting the ISt<lllclanIIA/\ fonn wi ll hclp ensure Ihal vitnl information, includ ing the
                    buying Agency's Treasury Account Symooi (T AS), is obtained and mllintnincd ror all RF
                    activity. Add itiollally, OCFO, in c(}uroi nMiOll , wilh thc program offic.:s, is lidding two
                    Ilew chllplcrs to the OrM financ ial Managcment Mllnual (FMM). ThCllc chapters, 0 11 the
OPM RF and the IAA process, will help ensure that aPM follows relevant legal guidance
011 Rr activity. This guidance will include the most recent 2011 memorandum from
OPM's Office of General Counsel on RF activity. That memorandum included specific
guidance on the appropriate lise of funds received from other Federal agencies and OPM
believes it has been following that guidance since issued.

In addition to ovcrall aPM policy and guidance to be issued in the OPM FMM, the
OCFO is developing specific work instl'Llctions consistent with the draft FMM chapters.
These include instructions on initiating projects and agreements and project close-out
procedures. Additionally, Human Resol1l'ces Services (HRS) Division has developed
work instructions for its Vendor Management Branch program which is one of OPM's
largest RF activities. The Facilities, Security and Contracting (FSC) organization has
developed a checklist to ensure that contract files for IAAs are complete. OPM will
continue to ensure that procedures are kept up-to-date and that new procedures are
adopted as needed.

As you know, issuing policies and procedures is an important first step but
implementation of those policies and procedures requires continued oversight. In that
light, OPM's Internal Oversight and Compliance organization and the cro's Policy and
Internal Control (PIC) group will be conducting a review in FY 2012 of the Vendor
Management Branch program in HRS. This review will include an assessment of the
OCFO and HRS policies and procedures, and the extent to which they have been
implemented.

We also wanted to note that the OeFO ancl Federal Investigative Services (FIS) Division
are flllly engaged in the Treasury pilot project to utilize the Intel'l1et Payment Platform-a
web-based electronic inter-agency agreement solution. This shows OPM is serious about
moving forward with the standardized IAA. However, we caution that the lise of a
standard IAA is not yet mandatory government-wide and therefore full lise of the
standard IAA, which captures important c1ata such as the TAS, may be a few years away.
This includes FIS' largest trading partner, the Department of Defense.
Finally, we recognize that all programs can benefit from external evaluations, ancl
therefore yoUI' audit is an important facet to improving our RF programs. We concur
with all of your recommendations and have begun corrective actions as detailed below.
We look forward to working with your office to resolve these issues.

Responses to the individual recommendations follow:

Recommendation 1

We recommend that OPM develop a reference tool which contains all information
necessary regarding how an IA should be created, managed, monitored, and close-out.


Response to Recommendation 1




                                              2

We concur with Recommendation 1. As noted in the OIG draft and earlier in this
response, OPM is developing two rMM chapters and associated work instructions
(procedures) to provide guidance 011 how IAAs will be created, managed, monitored, and
closed-out.

Recommendation 2

To help guard against the use of cancelled appropriations, we recommend that OPM
electronically record and monitor key information about the period of availability 0
appropriations advanced to OPM from client agencies, lAs should include the Treasury
Account Symbol erAS) code which indicates the period of availability of appropriations.
The expiration date should be included in OPM's financial management system for
tracking purposes.

Response to Recommendation 2

We concur with Recommendation 2. As noted previously OPM is working toward
adoption of the Treasury standard IAA form, which included the TAS, and issuing
guidance 011 its usc. Implementation of the standard form has begun for OPM RF
programs and ocro has providcd guidance and training on its usc. As noted in the draft
report, OPM is exploring the best way to maintain this data electronically in CBIS.
                                                                      elP
Treasury's current Intra-Governmental Payment and Collection System AC) system
does not require the use of the TAS or Business Event Type Code (SETe). However, the
Government-Wide Accounting Modernization Project (GWAMP) plans to complete
modifications to Treasury systems to require and capture the TAS/BETC at the
transaction level by December 31, 2012. OPM will continue to work internally with its
partners and with Treasury to ensure it secures and maintains the buying and selling
agency TASIBETC.


Recommendation 3

We recommencl that OPM provide adequate guidance and oversight to the programs to
ensure that lAs include appropriate written documentation to prove that the relevant
criteria have been met.

Response to Recollllllendation 3

We concur with Recommendation 3 which applies to IAAs in which OPM is buyer and
seller. As noted previously, OPM will be issuing two new FMM chapters ancl associated
work instructions to help ensure that relevant guidance and criteria are met on OPM
IAAs. This guidance will also apply to internal agreements in which OPM is both the
buyer and seller of Rr services. In addition to policy guidance in the FMM, ocro has
developed a draft work instruction for IAAs in which OPM is the buyer and seller.




                                           3

Recommendation 4

We recommend that the eFO strengthen policies and procedures for preparing and
approving lAs to ensure that all lAs are complete, accurate, and constitute binding legal
agreements. This could include providing periodic training to staff involved in
accepting, processing, managing, and overseeing lAs Oil how to appropriately accept,
process, review, and monitor lAs and maintaining complete, accurate, and easily
accessible files for all lAs.

Response to Recommendation 4

We concur with recommendation 4 which applies to agreements in which OPM is both
the buyer and seller. As noted previollsly, OPM will be issuing two new FMM chapters
and associated work instructions to help ensure that relevant guidance and criteria are met
on OPM IAAs. This guidance will also apply to internal agreements in which OPM is
both the buyer and seller ofRF services. Additionally, OeFO has been providing
training and guidance to program offices on how to implement the Treasury standard
IAA form.

Recommendation 5

We recommend that the office of the eFO improve the process for preparing and
monitoring lAs by developing and implementing uniform policies, procedures and
guidance for the lise, management, and oversight of lAs. The policy should contain all
information necessary regarding how an IA should be created, managed, monitored, and
closed out to ensUI'e that the IA achieved its intended results and were completed within
the terms of the agreement.

Response to Recommendation 5

We concur with Recommendation 5 which applies to agreements in which OPM is the
buying agency. OPM is issuing two new FMM chapters on the RF and IAA, as well as
an associated work instruction for preparing agreements in which OPM is the buying
agency. OeFO has also issued a work instruction on project close-outs. oero will
continue to provide guidance and training to program offices, and OPM will consider
amending proposed work instructions 01' developing new work instructions as the process
moves forward.

Recommendation 6

We recommend that OPM form an executive steering committee of representatives from
the various offices within OPM to develop and implement standard policies and
procedures for the management, and oversight of lAs when OPM is the seller. The
policies and procedures should contain all information necessary regarding how and IA
should be created, reviewed, approved, managed, monitored and closed-out.



                                             4
Response to Recommendation 6

OPM concll\'s with this recommendation and will consider forming an executive steering
committee to develop and implement policies for agreements in which OPM is the seller.
OPM will also consider using other existing groups, such as the Senior Assessment Board
for Internal Control, for this purpose. Additionally, OPM is improving management and
oversight o[this process by issuing two new FMM chapters on the RF and IAA, as well
as an associated work instruction for preparing agreements in which OPM is the selling
agency. OCFO has also issued a work instruction on project close-outs. OCFO will
continue to provide guidance and training to program offices, and OPM will consider
amending proposed work instructions or developing new work instructions as the process
moves forward.

Recommendation 7

We recommend that FS (OCFO's Financial Services organization), FSC, and program
office management conduct monthly reviews of their tracking logs to ensure that the
information recorded in complete, accurate and reconcilable.

Response to Recommendation 7

We concur with Recolllmendation 7. OCFO, FSC and OPM program offices will work to
ensure that logs on IAAs are kept complete, accurate and reconcilable.

Recommendation 8

We recommend that OPM strengthen its controls to ensure that all documentation related
to the IA process is properly stored and maintained.

Response to Recommendation 8

We concur with Recommendation 8. OCFO, FSC, and OPM program offices will take
necessary actions to ensure recordkeeping on IAAs is improved.




                                          5