oversight

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)

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