JANUARY 04, 2006

MEMORANDUM FOR	STACIA A. HYLTON FEDERAL DETENTION TRUSTEE
FROM:	GUY K. ZIMMERMAN ASSISTANT INSPECTOR GENERAL     FOR AUDIT
SUBJECT:	Management Information Memorandum - Proposal for Acquisition of Detention Space

We appreciate you and your staff taking the time to brief members of my staff on the Office of the Federal Detention Trustee’s (OFDT) initiative to implement an indexed fixed-price method for obtaining jail beds from state and local governments for the United States Marshals Service’s (USMS) detainees. The initiative includes the development of an econometric statistical model to establish the prices for each facility. We recognize that you are still in the development phase and that all of the details of the process have not yet been fully addressed. However, based upon the presentation you made, we would like to take this opportunity to bring the following matters to your attention. Please keep in mind that these are only our initial thoughts and do not represent a comprehensive review or audit of your proposal.

Effect of Regulations Governing Jail Agreements

The OFDT’s plan for making revisions to the process by which the USMS establishes the amount to pay state and local entities for jail space for the housing of detainees involves the execution of agreements based upon a price for such space. Under the current process for establishing intergovernmental service agreements (IGA) with state and local entities, the amount paid is based upon the cost of jail space and is governed by Office of Management and Budget (OMB) Circular A-87, entitled Cost Principles for State, Local, and Indian Tribal Governments.

According to OFDT officials, their proposal to use an econometric statistical model to estimate a price for jail beds is allowable under the Federal Acquisition Regulation (FAR). Because the agreements would no longer be based upon reimbursement of costs, it would seem that OMB Circular A‑87 would no longer apply. Thus, one major impact of implementing the proposal would be changing the criteria governing the agreements from an OMB Circular to the FAR, which is a broader and more encompassing regulation. The FAR requires the execution of contractual agreements and such contractors must comply with guidelines and laws related to principles such as: (1) equal employment opportunity without regard to race, religion, color, sex, or national origin; (2) privacy; (3) workers with disabilities; (4) energy and water efficiency; (5) age discrimination; and (6) employment opportunities for military veterans.

Our understanding of the history of the Department of Justice’s (DOJ) efforts to obtain detention space for federal detainees is that state and local entities have not been universally willing to be governed by the FAR. This necessitated the DOJ’s 1982 request to utilize intergovernmental service agreements governed by OMB Circular A-87 to reimburse state and local facilities for the costs of providing detention services. Further, DOJ officials believed that the use of IGAs would assist in the acquisition of detention space because officials viewed the award process as more streamlined and less cumbersome than the contracting process. Therefore, we believe that it is important to evaluate the totality of the impact of administering all agreements for jail space under the FAR.

Accuracy of Current IGA Rates

According to the information provided by the OFDT’s statistician, the per diem base rate used in the econometric statistical model was calculated using the current IGA rates. During the briefing that we received, the statistician pointed out that this methodology assumes that these current IGA rates (which are cost‑based agreements executed under the confines of OMB Circular A-87) accurately reflect the costs for each facility.

According to OFDT officials, no tests were performed to establish this assumption of accuracy. However, as noted in our 2004 audit of the OFDT, prior Office of the Inspector General (OIG) audits have resulted in questioned costs because the per diem rates calculated were in error due to a variety of factors, including the inclusion of unallowable or unsupported costs and the use of inaccurate or unsupported population figures.¹

Performance of the Model in Predicting Current IGA Rates

From the documentation provided during the briefing, it appears that the statistical model performed well for only a small number of facilities. According to the statistician, when the model was tested by using it to predict the current IGA rates, the results showed that the model-derived rates for only 41 percent of the facilities [SENSITIVE INFORMATION REDACTED] deemed acceptable by the OFDT. Moreover, the statistician’s report states that the model performed worst for facilities located in large metropolitan areas and in the West and Midwest regions. While we noted that the report states that the differences were not statistically significant, what remains unknown is the percent of the detainee population accounted for in these instances for which the model does not provide reliable results. Without knowing the population, it is impossible to identify the federal dollars associated with these facilities for which the model does not fare well, as well as the severity of the impact on the overall cost of detention space to the taxpayers.

We also recognize that the OFDT has built in an allowance for the use of adjustments and exceptions when the model does not perform well for the specific conditions of a facility or geographic location. However, these adjustments and exceptions (which would be made outside the execution of the statistical model) could be problematic in ensuring consistent application of the new pricing strategy.

Implementation Plan

As noted previously, we understand that you are still in the process of developing the proposal and are working on myriad details and issues that must be addressed before it can be implemented. However, at the time of the briefing, the OFDT had not yet established a schedule for the implementation phase of the endeavor. Obviously, it is important to plan carefully the way in which facilities will be transferred from cost-based jail agreements to the new indexed price-based agreements governed by the FAR. Further, it is important to plan for the various exigent circumstances that might be encountered, such as reluctance on the part of the state and local entities or protracted discussions with involved parties over the rate to be used. Moreover, as the USMS is not the only user of state and local facilities for detainees, the OFDT’s planned changes to the procurement process for such space will have ramifications outside of the USMS.

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Thank you again for the opportunity to hear your proposal during the development stage. If you have any questions or would like to meet again to discuss jail space agreements, please contact me on (202) 616-4633 or Carol S. Taraszka, Regional Audit Manager, Chicago Regional Audit Office, on (312) 353-1203.

cc:	Richard P. Theis DOJ Audit Liaison

1. Office of the Inspector General, Audit of the Department of Justice Office of the Federal Detention Trustee, Report Number 05-04, December 2004.