U.S. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS Final Audit Report AUDIT OF THE U.S. OFFICE OF PERSONNEL MANAGEMENT’S COMMON SERVICES Report Number 4A-CF-00-16-055 March 29, 2018 EXECUTIVE SUMMARY Audit of the U.S. Office of Personnel Management’s Common Services Report No. 4A-CF-00-16-055 March 29, 2018 Why Did We Conduct the Audit? What Did We Find? The objectives of our audit were to (1) We determined that the OCFO’s common services methodology is assess the methodology used by the U.S. valid and reasonable; however, we identified the following three areas Office of Personnel Management’s where OPM can improve its internal controls over common services: (OPM) Office of the Chief Financial Officer (OCFO) to develop the common 1. Data Entry Errors: We identified two data entry errors in the services cost and (2) determine if common services distribution calculation. OPM’s common services cost was accurately computed. 2. Lack of Supporting Documentation: the OCFO could not produce documentation to support (1) that the Director What Did We Audit? approved the fiscal year 2017 common services cost of $105,101,530; (2) a change in Human Resources Solutions’ The Office of the Inspector General has common services January billing; and (3) how they completed a performance audit of determined the amount charged to the Office of the Inspector OPM’s common services methodology General. and calculation. Our audit fieldwork was 3. Common Services Budget Levels Are Not Transparent: the conducted from June 21 through OCFO’s fiscal year 2017 common services bill did not September 28, 2017, at OPM identify the “Unallocated” amount, of $3,277,281, which is headquarters, located in Washington D.C. set aside for emergency purposes. _______________________ Michael R. Esser Assistant Inspector General for Audits i ABBREVIATIONS CIO Chief Information Officer EHRI Enterprise Human Resources Integration FERCCA Federal Erroneous Retirement Coverage Corrections Act FIS Federal Investigative Services FTE Full Time Employees FY Fiscal Year HRLOB Human Resources Line of Business HRTT Human Resources Tools and Technology LTC Long Term Care Insurance NBIB National Background Investigations Bureau OCFO Office of the Chief Financial Officer OIG Office of the Inspector General OPM U.S. Office of Personnel Management PMF Presidential Management Fellows TITLE 5 Title 5 of the United States Code TMA Training and Management Assistance Program ii TABLE OF CONTENTS Page EXECUTIVE SUMMARY ......................................................................................... i ABBREVIATIONS ..................................................................................................... ii I. BACKGROUND ..........................................................................................................1 II. OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................5 III. AUDIT FINDINGS AND RECOMMENDATIONS.................................................7 1. Data Entry Errors ....................................................................................................7 2. Lack of Supporting Documentation .........................................................................9 3. Common Services Budget Levels Are Not Transparent........................................11 APPENDIX The Chief Financial Officer’s response to the draft report, dated January 24, 2018. REPORT FRAUD, WASTE, AND MISMANAGEMENT I. BACKGROUND 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) common services methodology. The audit was performed by OPM’s Office of the Inspector General, as authorized by the Inspector General Act of 1978, as amended. This is the first audit of the common services methodology by the Office of the Inspector General (OIG). OPM’s common services is an internal fund for its administrative and leadership program offices. The Office of the Chief Financial Officer’s (OCFO) Budget and Performance office is responsible for administering OPM’s common services, which includes identifying the common services programs’ budgets, computing the financing distribution, and billing OPM’s four funding sources: OPM Discretionary, OIG, Mandatory Trust Fund, and Revolving Fund. There are 14 program offices that make up common services, which are placed into three categories: x Executive Services, which represents leadership and management functions; x Support Services, which represents ancillary services such as facilities maintenance and administrative functions; and x Information Technology (IT) Services, which are functions related to the delivery and operation of information technology. Each program office plays a significant role in supporting all agency functions, as illustrated in Table 1. Table 1: OPM’s Common Services Organization Structure Executive Services: Function: Office of the Director “Provides guidance, leadership, and direction to the organization.” Office of “Coordinates a comprehensive effort to inform the public of the [Director’s] Communications goals, plans and activities through various media outlets.” Congressional Liaison “Fosters and maintains relationships with Members of Congress and their and staff.” Intragovernmental Affairs Executive Secretariat Reviews the agency’s “correspondence, policy and program proposals, regulations and legislations.” 1 Report No. 4A-CF-00-16-055 Support Services: Function: Office of the Chief “Manages and oversees OPM[’s] accounting, billing, vendor payments, Financial budgeting, strategic planning, performance, [program evaluation,] financial Officer systems, … internal control and financial policy functions, which enable[s] the agency to achieve its mission.” Facilities, Security and Administers “the agency’s personal and real property, building operations, Emergency space design and layout, … realty, [and] safety … and occupational health Management programs.” Office of the General “Provides legal advice and representation to the Director and OPM Counsel managers and leaders.” Equal Employment “Provides a fair, legally-correct, and expeditious [equal employment] Opportunity complaints process.” Office of Procurement Provides centralized contract management that supports the operations and Operations Government-wide mission of OPM. Office of Small and “Manages the development and implementation of appropriate outreach Disadvantaged programs aimed at heightening the awareness of the small business Business Utilization community to the contracting opportunities available within OPM.” Merit Systems “Ensures through rigorous oversight that Federal agency human resources Accountability and programs are effective and meet merit system principles and related civil Compliance service requirements.” Employee Services “Provides technical support to agencies regarding the full range of human resources management policies and practices.” Unallocated Reserve funds account for unanticipated needs within common services. Information Technology Services: Function: Office of the Chief “Develops the Information Resource Management Plan and defines the Information information technology vision and strategy to include [IT] policy and Officer security for OPM.” The common services process consists of three steps: (1) identifying the common services’ budget; (2) computing the financing distribution; and (3) billing for common services. Identifying the Common Services Programs’ Budget For fiscal year (FY) 2017, the common services distribution process started with the common services budget approved by OPM’s Acting Director for the 14 program offices. The Budget and Performance office then assigns one of three cost drivers, also called a funding basis, to each program office. The three cost drivers are Full Time Employees (FTE), Revenue, and Tax. The FTE funding basis proportionally distributes the common services budget amounts based on the prior years’ work hours. The Revenue funding basis proportionally distributes the amount based 2 Report No. 4A-CF-00-16-055 on revenue sources from OPM’s funding adjusted by Object Class 251 usage from the prior year. The Tax funding basis is for leadership organizations that do not fall into either the Full Time Employees or Revenue basis. Calculating the Financing Distribution The next step is distributing the common services budget amount proportionally among the following three funding sources: (1) Revolving Fund, (2) OPM Discretionary, and (3) Mandatory Trust Fund. There is not an allocation methodology to determine the amount charged to the OIG; rather, it is a set amount and not allocated proportionally. The four funding sources are outlined in table 2 below. Table 2: OPM’s Funding Sources Structure Funding Sources Funding Sources Composition x Salaries and Expenses OPM Discretionary x Trust Fund Limitation x OIG Trust Fund OIG x OIG Salaries and Expenses x Federal Erroneous Retirement Coverage Corrections Act (FERCCA) Mandatory Trust Fund x Long Term Care Insurance (LTC) x Dental/Vision x Title 5 of the United States Code (Title 5) x National Background Investigations Bureau x Human Resources Solutions a. Consulting and Innovation b. Training c. Vendor Revolving Funds d. Presidential Management Fellows (PMF) x Chief Information Officer (CIO) a. USAJOBS b. Enterprise Human Resources Integration (EHRI) c. Human Resources Line of Business (HRLOB) d. Human Resources Tools and Technology (HRTT) 1 Object class 25 items are defined as other contractual services which include: advisory and assistance services, other services from non-Federal sources, other goods and services from Federal sources, operation and maintenance of facilities, research and development contracts, medical care, operation and maintenance of equipment, and subsistence and support of persons. 3 Report No. 4A-CF-00-16-055 Using the revenue and FTE amounts from the prior year, the budget analyst calculates the proportion used by each funding source in the prior year, applies that proportion to the current year’s budgeted amounts, then prepares a common services schedule, with the final proportional costs, showing the billed amount for each funding source. The total amount of all proportionally allocated charges, including adjustments made by the then Acting Director, are distributed across the three categories - executive services, support services and IT services. A supervisory budget analyst enters the budget information in the Common Services Budget spreadsheet, and the Associate Chief Financial Officer for Budget and Performance reviews the information before sending it to the Office of Financial Systems Management for billing. Billing for Common Services Once Financial Systems Management receives the bill, the Lead Accountant prepares journal entry vouchers, for each funding source, and enters the amounts into the Consolidated Business Information System2 (CBIS). Once the billed amounts are entered into CBIS, an Accountant reviews the journal entries for accuracy and to ensure the correct amounts will be billed to the appropriate funding sources. The Revolving Fund and OIG funding sources are billed monthly and the remaining funding sources are billed quarterly. The total common services charged in FY 2017 was $105,101,530 as shown in Table 3. Table 3: FY 2017 Common Services Distribution IT Services Support Executive Total Common Services Services Services Charge Funding Source OPM Discretionary $ 9,545,912 $ 10,038,172 $ 1,116,673 $ 20,700,756 OIG $ 312,500 $ 312,500 $- $ 625,000 Mandatory Trust Fund $ 3,492,001 $ 4,571, 321 $ 665,878 $ 8,729,200 Revolving Fund $ 27,465,326 $ 40,922,095 $ 6,659,153 $ 75,046,574 Total $ 40,815,739 $ 55,844,088 $ 8,441,704 $ 105,101,530 Source: OCFO’s FY 2017 Common Services Financing Memo issued February 8, 2017, representing the period October 1, 2016 through April 28, 2017. 2 The Consolidated Business Information System is OPM’s financial management system that aids in the management of OPM’s financial resources, including management of the general ledger, accounts payable, and purchasing. 4 Report No. 4A-CF-00-16-055 II. OBJECTIVES, SCOPE, AND METHODOLOGY OBJECTIVES The objectives of our audit were to (1) assess the methodology the OCFO uses to develop the common services cost and (2) determine if OPM’s common services cost was accurately computed. 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. These 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. The scope of our audit covered OPM’s FY 2017 common services amount, for the period October 1, 2016, through April 28, 2017, billed on February 8, 2017, and applicable policies and procedures related to the process. We performed our audit fieldwork from June 21 through September 28, 2017, at OPM headquarters, located in Washington, D.C. To accomplish our audit objectives noted above, we: x Assessed the reasonableness of the methodology used to develop OPM’s common services; x Recalculated OPM’s funding sources’ billing charges to determine the accuracy of the amounts charged to OPM’s funding sources; and x Utilized OPM’s FY 2016 Congressional Budget Justification Performance Budget, and other documentation to ensure the accuracy of the common services financing distribution. In planning our work and gaining an understanding of the internal controls over the OCFO’s common services methodology, we considered, but did not rely on, the OCFO’s internal control structure to the extent necessary to develop our audit procedures. These procedures were analytical and substantive in nature. We gained an understanding of management procedures 5 Report No. 4A-CF-00-16-055 and controls to the extent necessary to achieve our audit objectives. The purpose of our audit was not to provide an opinion on internal controls but merely to evaluate controls over OPM’s common services. Our audit included such tests and analysis of the OCFO’s records; documented policies and procedures; and other applicable information, as we considered necessary under the circumstances. The results of our tests indicate that the methodology used to distribute the common services budget total amount is valid and reasonable, but that the OCFO needs to strengthen controls over the common services process. In conducting the audit, we relied to varying degrees on computer-generated data. Due to the nature of the audit, we did not verify the reliability of the data generated by the systems involved. However, while utilizing the computer-generated data during our audit, nothing came to our attention to cause us to doubt its reliability. We believe that the data was sufficient to achieve our audit objectives. We did not evaluate the effectiveness of the general application controls over computer-processed performance data. We did not utilize any samples during our fieldwork. We tested all common services amounts billed to the four funding sources for the period October 1, 2016, through April 28, 2017. 6 Report No. 4A-CF-00-16-055 III. AUDIT FINDINGS AND RECOMMENDATIONS The sections below detail the results of our audit of OPM’s common services methodology. The audit determined that the methodology used to distribute the common services budget total amount is valid and reasonable. The issues we identified related to data entry errors, lack of supporting documentation, and the transparency of the common services bill are outlined below. 1. Data Entry Errors OPM did not identify the following data entry errors in the common services distribution calculation due to poor internal control review procedures. x The budget analyst transposed the Object Class 25 amounts for the Human Resources Solutions’ Training and Management Assistance Program and the Vendor Management Branch. Specifically, the budget analyst entered $63,516,023 for Object Class 25 in the Training and Management Assistance Program; however, it should have been $80,274,550. The budget analyst also entered $80,274,550 for Object Class 25 in the Vendor Management Branch; however, it should have been $63,516,023. x The budget analyst incorrectly calculated the Prior Year Full Time Equivalency Utilization for the Human Resources Solutions’ Consulting and Innovation Program. The formula included an additional 1.4 Full Time Equivalency hours, which should not have been included. The United States Government Accountability Office’s Standards for Internal Control in the Federal Government states management should establish and perform monitoring activities over their internal control system and evaluate the results. Furthermore, it states management should perform ongoing monitoring activities including regular management and supervisory activities, comparisons, reconciliations, and other routine actions. Because of these errors, the total common services charge of $105,101,530 did not change; however, the data entry errors changed the distribution of common services charges across the funding sources by $128,858, as shown in the following table. 7 Report No. 4A-CF-00-16-055 Table 4: Data Entry Errors3 FundSource TOTALCommon OIGTotal Underpayment Overpayment ServiceCharge, CommonService reportedby Charge,after Budgetand errorcalculation Performance OPMDiscretionaryFund SalariesandExpenses $6,436,359 $6,438,317 ($1,958) TrustFundLimitation $14,264,397 $14,268,065 ($3,668) OIG OIGTrustFunds $500,000 $500,000 OIGSalariesandExpenses $125,000 $125,000 MandatoryTrustFund FERCCA $232,714 $232,734 ($20) LTC $138,408 $138,419 ($11) Dental/Vision $670,375 $670,395 ($20) Title5 $7,687,703 $7,688,701 ($999) RevolvingFund FIS(currentlyNBIB) $60,599,914 $60,611,607 ($11,693) HRSPrograms ConsultingandTraining $5,360,810 $5,341,462 $19,347 TMA(subactivity) $2,937,978 $2,828,468 $109,511 Program2000000 $2,621,940 $2,731,936 ($109,997) PMF $63,530 $63,532 ($2) CIOUSAJOBS $447,590 $447,648 ($58) CIOͲEHRI $766,532 $766,588 ($56) CIOͲHRLOB $38,970 $38,970 CIOͲHRTT $2,209,310 $2,209,688 ($379) Total $105,101,530 $105,101,530 ($128,858) $128,858 3 Some totals do not sum properly due to rounding. 8 Report No. 4A-CF-00-16-055 Recommendation 1 We recommend that the OCFO implement a process to correct identified errors in the same fiscal year. OCFO’s Response (to Draft Recommendation) “The OCFO does not concur with this recommendation because Fiscal Year 2017 has closed, and prior year accounting transactions are not feasible. Further, the value of the error is approximately one tenth of one percent of the common services fund and mostly within one revolving fund organization.” OIG Comment We have revised our recommendation based on the OCFO’s response to our draft report. The OCFO will respond to our revised recommendation during the audit resolution process. Recommendation 2 We recommend that the OCFO strengthen their internal controls to ensure that the distribution basis figures are properly supported, reviewed, and approved prior to billing the funding sources. OCFO’s Response “The OCFO concurs with the recommendation, and will revise its procedures accordingly”. 2. Lack of Supporting Documentation The OCFO was unable to provide supporting documentation for the following: x The OCFO could not produce the support to show that the OPM Director approved the FY 2017 common services cost of $105,101,530. The OCFO informed us that they have supporting documentation from the OPM Director approving the common services cost; however, as of the time that this report was prepared, we have not received the documentation. x The OCFO’s billing spreadsheet for January 2017 does not match the CBIS amounts billed to the Human Resources Solutions’ Vendor and Training programs. Specifically: 9 Report No. 4A-CF-00-16-055 Human Resource OCFO’s January 2017 Billed CBIS Billed Amount Solutions’ Program Amount Vendor $0 $979,322 Training $1,853,302 $873,980 x The OCFO stated that in January 2017, the Human Resource Solutions’ Vendor program did not have sufficient funds in their account for the quarterly common services bill amount. To resolve this issue, the Human Resource Solutions’ Resource Management Officer instructed the OCFO to bill their Training program instead of the Vendor program. The January 2017 billing spreadsheet reflects the discrepancies identified. The OIG requested documentation from the OCFO to support Human Resource Solutions’ instructions; however, the OCFO informed us that the change in billing was a verbal agreement and no written documentation exists. x For FY 2017, the common service amount charged to the Office of the Inspector General (OIG) was a set amount, rather than a proportional distribution amount. The OCFO did not use an allocation formula to calculate the common services amount billed to the OIG. In addition, we did not receive any documentation to support this agreement. The Government Accountability Office’s Standards for Internal Control in the Federal Government, principle 10, states, “Documentation is a necessary part of an effective internal control system. … Documentation is required for the effective design, implementation, and operating effectiveness of an entity’s internal control system.” In addition, it advises that “Management clearly documents internal control and all transactions and other significant events in a manner that allows the documentation to be readily available for examination.” Because the OCFO did not have the proper documentation to support the common services cost and billing charges, OPM’s funding sources may have been over or under charged for common services. Recommendation 3 We recommend that the OCFO provide documentation to support the Director’s approval of the common services cost. 10 Report No. 4A-CF-00-16-055 OCFO’s Response “The OCFO concurs with the recommendation. However, decisions on the revised FY 2017 common services budget levels during the continuing resolution were provided verbally during huddles and briefings with the Acting Director and senior executive team. We will revise our procedures to document decisions around common services budget levels.” Recommendation 4 We recommend that the OCFO maintain proper documentation to support all common services data, to include but not be limited to verbal agreements, calculations, methodology, distribution, and billing, to ensure completeness and transparency. OCFO’s Response “The OCFO concurs with the recommendation and will revise its policy and procedures to facilitate the maintenance of proper documentation to support all common services data.” 3. Common Services Budget Levels Are Not Transparent The 2017 common services’ budget levels sent to OPM’s Associate Directors and office heads were not transparent. The budget levels do not identify the “Unallocated” amount of $3,277,281, which was set aside for emergency purposes. Instead, the “Unallocated” amount was embedded in the Support Services section of the budget levels, increasing the total amount to $55,844,088. The Support Services section of the budget levels does not itemize the services; therefore, users are unaware that they are paying into an emergency fund. The 2017 OPM Congressional Budget Justification strategic goal number five asks management to put forth a transparent and responsive budget that supports the Director’s and senior officials’ ability to prioritize and adjust resources to align with current and future priorities, ensuring all resources are utilized efficiently. By not providing transparent budget levels, there is a potential risk that senior officials may be paying for services they are not utilizing, which may impede their ability to prioritize and adjust resources to align with current and future priorities, ensuring all resources are utilized efficiently. 11 Report No. 4A-CF-00-16-055 Recommendation 5 We recommend that the OCFO reformat their budget levels to ensure all costs are appropriately itemized and/or contain full disclosure of all costs, to ensure transparency. OCFO’s Response “The OCFO does not concur with the recommendation. The recommendation is based on the fact that the 2017 common services bill [budget levels] did not identify the ‘Unallocated’ amount of $3,277, 281, which was set aside for emergency purposes. However, management reserves the right to reserve funding for emergency purposes that may not be able to be specifically identified at a given point in time. This does not represent a lack of transparency, as it is clear that this amount is an unallocated reserve.” OIG Comment We acknowledge that management reserves the right to reserve funding for emergency purposes; however, we believe that OPM should clearly inform program offices of the "Unallocated" amount in the common services budget levels, instead of embedding it in the budget levels under Support Services. 12 Report No. 4A-CF-00-16-055 APPENDIX Report No. 4A-CF-00-16-055 Report No. 4A-CF-00-16-055 Report Fraud, Waste, and Mismanagement Fraud, waste, and mismanagement in Government concerns everyone: Office of the Inspector General staff, agency employees, and the general public. We actively solicit allegations of any inefficient and wasteful practices, fraud, and mismanagement related to OPM programs and operations. You can report allegations to us in several ways: By Internet: http://www.opm.gov/our-inspector-general/hotline-to-report-fraud-waste- or-abuse By Phone: Toll Free Number: (877) 499-7295 Washington Metro Area: (202) 606-2423 By Mail: Office of the Inspector General U.S. Office of Personnel Management 1900 E Street, NW Room 6400 Washington, DC 20415-1100
Audit of the U.S. Office of Personnel Management's Common Services
Published by the Office of Personnel Management, Office of Inspector General on 2018-03-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)