Superfund Activities in the Environment and Natural Resources Division for Fiscal Years 2004 and 2005

Audit Report 07-43
September 2007
Office of the Inspector General


Findings and Recommendations

Superfund Costs for FYs 2004 and 2005

We designed the audit to compare costs reported on the contractor-developed accounting schedules and summaries for FYs 2004 and 2005 (see Appendix III and Appendix IV) to the information recorded on DOJ accounting records, and to review the cost distribution system used by ENRD to allocate incurred costs to Superfund and non-Superfund cases. To accomplish this, we performed the following tests:

We performed these steps to ensure that costs distributed to Superfund and non-Superfund cases were based on the total actual costs for FYs 2004 and 2005, that the distribution methodology used and accepted in prior years remained viable, and that selected costs were supported by evidence that documented their allocability to Superfund and non-Superfund cases. These tests helped us determine if ENRD provided an equitable distribution of total labor, other direct costs, and indirect costs to Superfund cases during FYs 2004 and 2005.

Reconciliation of Contractor Accounting Schedules and Summaries to E&A Reports

To ensure that the distribution of costs to Superfund and non-Superfund cases was limited to total costs incurred for each fiscal year, we compared the amounts reported on the E&A Reports to those in the contractor’s Schedule 6, Reconciliation of Total ENRD Expenses. According to the E&A Reports, total ENRD expenses were $104 million in FY 2004 and $108 million in FY 2005 as shown in the following table:

ENRD Expenses
by Fiscal Year

Description 2004 2005
Salaries
Benefits
Travel
Freight
Rent
Printing
Services
Supplies
Equipment
$ 59,855,153
14,318,383
2,391,766
315,211
12,725,851
69,470
13,210,494
713,257
830,135
$ 61,532,266
15,420,948
2,618,572
362,261
15,411,284
124,386
11,287,561
619,548
671,477

Total

$104,429,720

$108,048,303
Source: ENRD E&A Reports for FYs ending 09/30/04 and 09/30/05

We then traced the E&A 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 found that the amounts on these schedules reconciled through Schedule 6 to the E&A Reports.

After reconciling the contractor accounting schedules and summaries to the E&A Reports, we focused on the distribution of costs to Superfund. Our starting point for reviewing the distribution system was to identify and reconcile 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. The Superfund costs in Schedule 2 of the accounting schedules and summaries for FYs 2004 and 2005 reported the following:

Superfund Distributed Costs by Fiscal Year9

Cost Categories 2004 2005
Labor
Other Direct Costs
Indirect Costs
Superfund Program Expenses
Unliquidated Obligations
$ 7,595,887
2,083,287
14,668,225
529,284
3,163,698
$ 7,063,184
1,111,321
13,564,536
349,153
4,874,211
    Totals $28,040,381 $26,962,405
Source: Schedule 2 of the contractor’s accounting schedules and summaries.

Superfund Case Reconciliation

ENRD litigated Superfund and non-Superfund cases. To control the processing of cases, ENRD assigned each case unique identifying numbers and maintained an annual database of Superfund cases. To ensure that the contractor used the appropriate Superfund database, we reconciled the contractor’s Superfund database to ENRD’s original Superfund database. This database identified 1,031 Superfund cases in FY 2004 and 1,081 cases in FY 2005 that incurred costs. We also reviewed the Superfund case designation criteria and case files to establish the method used by ENRD to identify Superfund cases, and to determine if cases were identified in accordance with established criteria.

We randomly selected 39 cases from the FY 2005 Superfund database to test whether ENRD sections adhered to case designation procedures outlined in the December 20, 2001, ENRD memorandum, Determination of Superfund Cases.10 We reviewed the cases against ENRD case documents including case intake worksheets, case opening forms, case transmittals, and e-mails. These documents referenced laws, regulations, or other information that established the cases as either Superfund or non-Superfund for tracking purposes.

We found that all 39 cases reviewed contained proper referencing documentation in the case files to justify the Superfund classification. However, we noted ENRD’s December 20, 2001, memorandum, Determination of Superfund Cases, needs to be updated to appropriately reference the reorganized Natural Resources, Wildlife and Marine Resource, Indian Resource, Law and Policy, and the Executive Office litigation sections in ENRD.

Superfund Cost Distribution

Since we found that ENRD’s case identification method adequately identified Superfund cases, we next reviewed the system used by the contractor to distribute direct labor, indirect costs, and other direct costs charged to Superfund cases. Following are the results of our review of the cost categories.

Direct Labor

During the 2 years under review in this audit, the contractor continued using the labor distribution system from prior years, which we had reviewed and accepted in prior audits. ENRD provided the contractor with electronic files that included employee time reporting information and biweekly salary information downloaded from the National Finance Center.11 The contractor used the following formula to distribute labor costs monthly:

Salary Starting Point:     Employee Biweekly Salary
Divided by: Employee Reported Biweekly Work Hours
Equals: Biweekly Hourly Rate
Multiplied by: Employee Reported Monthly Superfund and Non-Superfund Case Hours
Results In: Distributed Individual Monthly Labor Case Cost

For purposes of our review, we:

We performed selected database matches to compare 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 mentioned in the Superfund Case Reconciliation section of this report, we were able to rely on the Superfund case database to match the ENRD case list to the contractor’s completed schedules. We compared ENRD’s electronic files to the contractor’s and determined that the total Superfund hours were 168,825 for FY 2004 and 147,614 for FY 2005. To determine the number of Superfund cases with direct labor costs for each fiscal year, we compared the Superfund billed time data, which included 1,031 cases in FY 2004 and 1,081cases in FY 2005, to 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 costs for Superfund cases were $7,595,887 for FY 2004 and $7,063,184 for FY 2005. We traced these amounts to the accounting schedules and summaries, and selected one month in each fiscal year (May 2004 and January 2005) to review the effective employee hourly rates 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 for Superfund cases. Therefore, in our judgment this process provided an equitable distribution of direct labor costs to Superfund cases during FYs 2004 and 2005.

Indirect Costs

In addition to direct costs incurred for specific cases, ENRD incurred indirect costs that were allocated to all cases. These include salaries, benefits, travel, freight, rent, communication, utilities, supplies, and equipment. The contractor distributes indirect costs to individual cases using an indirect cost rate that is calculated on a fiscal year basis.

The indirect cost rate is comprised of an ENRD indirect rate and a Superfund specific indirect rate. To calculate the ENRD indirect rate, the contractor subtracted the amount of direct costs from the total costs incurred according to ENRD’s E&A report, and divided this amount by total direct labor for the period. To calculate a Superfund specific indirect rate, the contractor identified indirect costs that support only Superfund activities and divided these costs by Superfund direct labor. The rates for FYs 2004 and 2005 are as follows:

Indirect Cost Rates by Fiscal Year

Category 2004 2005
ENRD Indirect Rate
Superfund Specific Indirect Rate
187%
22%
188%
27%
    Combined Indirect Cost Rate 209% 215%
Source: Schedule 4 of accounting schedules and summaries, percentages rounded to nearest whole percent

Using the E&A Reports and the contractor’s electronic files, we reconciled the total indirect amounts to the accounting schedules and summaries, Schedule 4, Indirect Rate Calculation, 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 2004 was $59,505,112 versus the contractor’s calculation of $59,505,111 ($1 variance). Furthermore, we determined that the total amount of indirect costs for FY 2005 was $63,826,319 versus the contractor’s calculation of $63,826,318 ($1 variance). These variances had a 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, we found that this process provided for an equitable distribution of indirect costs to Superfund cases during FYs 2004 and 2005.

Other Direct Costs

The other direct costs incurred by ENRD and distributed to Superfund during FYs 2004 and 2005 are provided in the following table.

Superfund Other Direct Costs by Fiscal Year

Subobject Code and Description 2004 2005
1153-Special Masters Compensation $ 95,417 $ 45,692
1157-Expert Witness Fees 2,287,056 1,015,843
2100-Travel and Transportation 540,555 373,483
2411-Printing and Reproduction, Court Instruments 6,565 18,698
2499-Printing and Reproduction, All Other 1,367 40
2508-Reporting and Transcripts-Deposition 148,439 125,847
2509-Reporting and Transcripts-Grand Jury    
2510-Reporting and Transcripts-Court 9,773 4,478
2529-Litigation Support 1,650,136 1,011,763
2534-Research Services    
2537-Advisory and Assist 141  
2557-Litigation Graphics 892 2,146
2563-Interest Penalties-Government 187 18
2598-Miscellaneous Litigation Expenses 5,486 851
2599-Other Services 45,563  
3129-Non-Capitalized Automated Litigation    
        Support Equipment    
            Totals $4,791,577 $2,598,859
Source: The contractor’s electronic files for FYs 2004 and 2005

As part of our audit, we reviewed selected FY 2005 direct cost transactions in the following four subobject codes:

For FY 2005, these four subobject codes comprised 94 percent of the transaction universe (923 transactions) and 97 percent of the FY 2005 other direct cost expenditures ($1.1 million). We stratified the high dollar transactions within these subobject codes and tested 100 percent of these transactions and selected the remaining transactions based on a statistical sample. In total, we reviewed 274 transactions totaling approximately $551,015 as detailed in the chart below:

Other Direct Cost Tested

Subobject Code Transactions Dollar
1157 27 $305,505
2529 13 42,892
2100 168 148,916
2508 66 53,702
    Totals 274 $551,015
Source: OIG other direct cost sample

We designed our review of the transactions in other direct costs to determine if the selected transactions included adequate support against the following four attributes:

Our tests resulted in no exceptions in the Expert Witness Fees (subobject code 1157) and Litigation Support (subobject code 2529) transactions tested against the four reviewed attributes.

As part of our testing for Travel and Transportation (subobject code 2100), we reviewed 168 travel vouchers and found that 1 travel voucher could not be located and 5 travel vouchers did not have evidence that they were signed by an authorizing official after the ENRD employees completed their travel.12 In addition, we found that 39 authorizations in FY 2005 were not approved prior to the requested travel. We reported this finding in previous audit reports.13 In response to this finding in our September 2003 report, ENRD issued a memorandum, dated September 12, 2003, to Section Managers reminding them of their responsibilities under the travel regulations to document approval of travel prior to the travel being initiated. The prior authorization of travel initiates the obligation of the travel costs and ensures that the traveler is protected by an official authorization during periods of travel. Again in this audit, we recommend that ENRD require that all its employees have a documented authorization prior to incurring any travel expense.

For Reporting and Transcripts – Deposition (subobject code 2508) transactions, we found case numbers appearing on six vouchers that did not match the case numbers in the Superfund database. The error does not impact total Superfund dollars; however, it impacted the dollars allocated to specific Superfund cases. ENRD attributed this to an isolated keying error performed by an ex-employee. A s a result of our audit, ENRD reviewed all subobject code 2508 transactions with the problem Superfund case number to ensure that the case number was accurate. They determined that 14 additional transactions not included in our testing sample also reflected the inaccurate Superfund case number and subsequently corrected the case numbers.

Based on our statistical sampling methodology and the results of our testing, the error rates we identified fell below 3 percent or 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 2005. In our judgment, ENRD maintains adequate internal controls over the recording of other direct charges to accounting records and Superfund cases.

Conclusion

In our judgment, ENRD provided an equitable distribution of total labor costs, other direct costs, and indirect costs to Superfund cases during FY 2004 and FY 2005.

Recommendations

We recommend that ENRD:

  1. Ensure that the ENRD memorandum entitled Determination of Superfund Cases is updated to include all ENRD litigation sections.

  2. Ensure that all travel by ENRD employees is appropriately authorized prior to incurring any travel expense.

  3. Ensure that all FY 2004 and 2005 Superfund subobject code 2508 transactions are allocated to the correct case number within the Superfund database and the Financial Management Information System.



Footnotes
  1. ENRD memorandum dated December 20, 2001, provides guidance on the determination of Superfund cases.

  2. The amounts listed in this table reflect actual reimbursements. The interagency agreements budgeted $28,150,000 and $27,150,000 for FYs 2004 and 2005, respectively.

  3. See Appendix II for the 39 cases we sampled. ENRD Sections included were Environmental Crimes, Environmental Defense, Environmental Enforcement, Land Acquisition, Law and Policy, Executive Office, Appellate, and Natural Resources.

  4. The National Finance Center processes biweekly payroll information for many federal government agencies, including the DOJ.

  5. ENRD officials explained that file copies of travel vouchers are made prior to supervisor approval of the voucher and that is why no signature appeared on the vouchers.

  6. Department of Justice, Office of the Inspector General, Report Number 96‑12, Superfund Activities in the Environmental and Natural Resources Division for Fiscal Year 1994, May 1996; Department of Justice, Office of the Inspector General, Report Number 00-08, Superfund Activities in the Environmental and Natural Resources Division for Fiscal Year 1997, March 2000; and Department of Justice, Office of the Inspector General, Report Number 03-34, Superfund Activities in the Environmental and Natural Resources Division for Fiscal Years 2000 and 2001, September 2003.



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