Superfund Activities in the Environment and Natural Resources Division for Fiscal Years 2002 and 2003
Report No. 04-38
Office of the Inspector General
We designed the audit to compare reported costs on the contractor developed Accounting Schedules and Summaries for FY 2002 and FY 2003 (see Appendix III and Appendix IV) to that recorded on Department of Justice accounting records, and to review the cost distribution system used by the ENRD to allocate incurred costs to Superfund and non-Superfund cases. To accomplish this we performed the following steps:
We examined these items to ensure that costs distributed to Superfund and non-Superfund cases were based on the total of actual costs for each fiscal year, that the distribution methodology used and accepted in prior years remained viable, and that selected costs were supported by documentation that evidenced their allocability to Superfund and non-Superfund cases. This would permit us to determine if the ENRD provided an equitable distribution of total labor, other direct costs, and indirect costs to Superfund cases during FY 2002 and FY 2003. Following are the results of our review.
Reconciliation of Contractor Accounting Schedules and Summaries to E&A Reports
The E&A Reports for FY 2002 and FY 2003 provided the following amounts paid for total ENRD expenses:
ENRD Payments By Fiscal Year
For each fiscal year, we compared these E&A amounts to those in Schedule 6, Reconciliation of Total ENRD Expenses, of the contractor Accounting Schedules and Summaries to ensure that the distribution of costs to Superfund and non-Superfund cases was limited to total costs incurred. We found that the Schedule 6 amounts reconciled to the ENRD E&A Reports. We then traced these amounts to the distributions on Schedule 5, Superfund Costs by Object Classification, and Schedule 2, Superfund Obligation and Payment Activity…By Fiscal Year of Obligation. We also found that the amounts on these schedules reconciled through Schedule 6 to the E&A Reports. Our review then focused on determining that the summary amounts on Schedule 2 represented an equitable distribution of costs to Superfund. The Superfund costs in Schedule 2 of the Accounting Schedules and Summaries for FY 2002 and FY 2003 reported the following:
Superfund Distributed Costs by Fiscal Year
Our starting point for reviewing the distribution system was to identify and reconcile the ENRD cases as Superfund or non-Superfund. This enabled us to extract only Superfund data from the ENRD data to compare to the Accounting Schedules and Summaries.
Superfund Case Reconciliation
The ENRD litigates non-Superfund and Superfund cases. In order to control the processing of cases, ENRD assigns each case unique identifying numbers. The ENRD maintains an annual database of Superfund cases; this database identified 1,275 cases in FY 2002 and 1,147 in FY 2003 that incurred costs. We reviewed the database to establish the method used by the ENRD to identify Superfund cases, and case files to determine if cases were identified in accordance with established ENRD criteria for case identification.
We randomly selected 30 cases from the FY 2002 Superfund database and 47 cases from the FY 2003 Superfund database (see Appendix II) to test if the ENRD sections adhered to the procedures and identified the cases properly.5 We reviewed the cases against the ENRD case data, including case intake worksheets, case opening forms, case transmittals, and e-mails. The ENRD used the case data entering forms to record summary information from the case. The information referred to laws, regulations, or other language that established the cases as either Superfund or non-Superfund for tracking purposes.
For FY 2002, we found that 29 of the 30 cases reviewed contained proper referencing documentation in the case files to justify the Superfund classification. The ENRD could not locate one case file we selected for review. The ENRD provided a printout of the missing case file's index sheet indicating the file contained a Case Opening Form. Also, the ENRD provided a printout of the Case Management System Detailed sheet indicating the case was designated Superfund. However, due to the missing case folder, the actual Case Opening Form and the court documents verifying the Superfund status could not be cited. The missing case file is an isolated incident; therefore, no exception is noted.
For FY 2003, we found that the 22 cases reviewed contained proper referencing documentation in the case files to justify the Superfund classification. However, we noted that one case folder, White River Fishkill (Matter ID 198-26S-00292), contained documentation stating that the case was closed as a Superfund case on June 18, 2001. The electronic data provided by ENRD indicated that there was time charged to this case during FY 2003. Therefore, we expanded our sample size to include 25 additional cases. We found that the 25 cases reviewed contained proper referencing documentation in the case files to justify the Superfund classification.
Following our review of the additional cases, the case manager confirmed with the attorney assigned to the White River Fishkill case that the time charged to the closed case was accurate based on work performed subsequent to June 18, 2001. Therefore, no exception is noted. In our judgment, the ENRD identified Superfund cases based on appropriate criteria.
Superfund Cost Distribution
Since we found that the ENRD's case identification method adequately identified Superfund cases, we next reviewed: 1) the system used by the contractor to distribute direct labor and indirect costs, and 2) other direct costs charged to Superfund. Following are the results of our review of the cost categories.
The contractor continued using the labor distribution system from prior years, which we reviewed and accepted in prior audits. The ENRD provided the contractor with electronic files that included employee time reporting information and biweekly salary information downloaded from the National Finance Center, which processes biweekly salaries for the ENRD employees. The contractor uses the following formula to distribute labor costs monthly:
For purposes of our review, we:
Since the E&A and Accounting Schedules and Summaries amounts matched, this assured us that the distribution method, which parallels a management information system and not an accounting system, was limited to allocating just the total of costs paid for each fiscal year.
We performed selected database matches to compare the ENRD employee time and case data against the contractor's electronic files used to prepare the Accounting Schedules and Summaries, and to identify Superfund case data. As previously mentioned, we were able to rely on the Superfund case database to match the ENRD case list to the contractor's completed schedules. We compared the electronic files of the ENRD to the contractor's and determined that the total Superfund hours were 177,083.89 for FY 2002 and 180,013.31 for FY 2003. To determine the number of Superfund cases with direct labor costs for each fiscal year, we compared the Superfund billed time data, which included 1,275 transactions in FY 2002 and 1,147 transactions in FY 2003, against the electronic files prepared by the contractor. Through our database matches, we found no reportable differences in the total number of Superfund cases with direct labor costs for each fiscal year.
Next, using the contractor's electronic files, we determined that the Direct Labor for Superfund cases were $7,017,674 for FY 2002 and $7,767,463 for FY 2003. We traced these amounts to the Accounting Schedules and Summaries. Additionally, we selected one month in each fiscal year (January 2002 and January 2003) to review the effective hourly rates by employee calculated by the contractor. We found no reportable differences.
Overall, we were able to verify the accumulation of reported hours, the development and application of hourly rates, and the extraction of labor costs to Superfund cases. Therefore, in our judgment, this process provided for an equitable distribution of direct labor costs to Superfund cases during FY 2002 and FY 2003.
In addition to direct costs incurred against specific cases, the ENRD also incurs indirect costs that it allocates to all cases. These include primarily salaries, benefits, travel, freight, rent, printing, services, supplies, and equipment. The contractor distributes indirect costs to individual cases using an indirect cost rate that is calculated on a fiscal year basis.
According to its indirect cost methodology, the contractor uses actual payments by the ENRD as the basis for the indirect cost base and expense pool for calculation of the indirect cost rate. The contractor calculates indirect costs by subtracting the amount of direct costs from the total costs paid according to the ENRD's E&A report. The contractor divides this amount by total direct labor for the period to calculate the ENRD indirect cost percentage. Additionally, the contractor identifies indirect costs that support only Superfund activities and uses these costs to develop a separate Superfund specific indirect rate, which is calculated by dividing these costs by Superfund direct labor. The rates for FY 2002 and FY 2003 follow.
Indirect Cost Rates By Fiscal Year
Using the ENRD's E&A reports and the contractor's electronic files, we reconciled the total indirect amounts to the contractor's Accounting Schedules and Summaries, Schedule 4 to ensure that the contractor used only paid costs to accumulate the expense pool. We determined that the total amount of indirect costs for FY 2002 were $54,638,972 versus the contractor's calculation of $54,648,841 ($9,869 or .02 percent variance). Furthermore, we determined that the total amount of indirect costs for FY 2003 were $58,973,458 versus the contractor's calculation of $58,973,460 ($2 variance). These variances had negligible impact upon the indirect cost rates and are considered immaterial. In our judgment, the indirect expenses calculated by the contractor are materially accurate. Therefore, this process provided for an equitable distribution of indirect costs to Superfund cases during FY 2002 and FY 2003.
Other Direct Costs
The amounts of other direct costs incurred by the ENRD and distributed to Superfund during FY 2002 and FY 2003 are provided in the following table.
Superfund Other Direct Costs by Fiscal Year
We reviewed selected transactions in the following four subobject codes:
For FY 2002, these four subobject codes comprised 86 percent of the transaction universe and 96 percent of the dollar universe. For FY 2003, these four subobject codes comprised 88 percent of the transaction universe and 99 percent of the dollar universe. We stratified the high dollar transactions within these subobject codes and tested 100 percent of these transactions. We reviewed other transactions based on a statistical sample.
For FY 2002, our sample population contained 1,474 transactions totaling $3.8 million and for FY 2003, 1,546 transactions totaling $3.8 million. We reviewed 185 transactions totaling $1.4 million and 173 transactions totaling $1.2 million for FY 2002 and FY 2003, respectively. We designed our review of the transactions in other direct costs to determine if the selected FY 2002 and FY 2003 transactions included adequate support against the following four attributes:
Our tests resulted in no exceptions in the transactions tested against the four reviewed attributes for Expert Witness Fees (subobject code 1157) and Litigation Support (subobject code 2529). In Travel and Transportation (sub-object code 2100), we noted that the case number appearing on the documents did not match the case number in the Superfund database on three vouchers in FY 2002 and two vouchers in FY 2003.7 Also, one voucher in FY 2002 could not be located.8 In Reporting and Transcripts - Deposition (subobject code 2508), we noted that one voucher in FY 2002 could not be located.9 Based on our statistical sampling methodology and the results of our testing, we are 95 percent confident that exceptions do not exceed 3 percent of the transaction universe for the subobject codes tested. The error rates we identified fell below 3 percent and were not considered material. Accordingly, we did not take exception to the errors or project the results to the total universe of transactions in FY 2002 and FY 2003. In our judgment, adequate internal controls existed over the recording of other direct charges to accounting records and Superfund cases. Therefore, this process provided for an equitable distribution of other direct labor costs to Superfund cases during FY 2002 and FY 2003.
While performing testing we found that of the 167 travel transactions reviewed, 3 authorizations in FY 2002 and 3 authorizations in FY 2003 were approved after the traveler returned from travel.10 We reported this finding in previous audit reports.11 In response to this finding in our report number 96-12, May 1996, the ENRD issued a memorandum dated September 12, 2003 to Section Managers reminding them of their responsibilities under the travel regulations. Since the memorandum was issued near the end of FY 2003, the effect of the ENRD's actions will not be known until our audit of Superfund activities in the ENRD for FY 2004.
In our judgment, the ENRD provided an equitable distribution of total labor costs, other direct costs, and indirect costs to Superfund cases during FY 2002 and FY 2003.