- We reviewed financial activities and procedures used by ENRD to document, compile, and allocate direct and indirect costs charged to Superfund cases. In our judgment, ENRD provided an equitable distribution of total labor costs, other direct costs, and indirect costs to Superfund cases during FYs 2004 and 2005. However, we make three recommendations to improve ENRD operations and ensure compliance with DOJ directives: we recommend that ENRD update its case designation procedures, ensure that travel authorizations are approved prior to the traveler proceeding on the trip, and ensure all subobject code 2508 transactions are allocated to the correct Superfund case number.
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:
Compared Superfund total costs recorded as paid on the E&A Reports to the amounts reported as Total Amounts Paid on the year-end accounting schedules and summaries, and traced the costs to Superfund cases.
Reviewed ENRD’s methodology for identifying Superfund cases by comparing a select number of cases against ENRD case assignment criteria.8
Reviewed direct labor and indirect costs distributed to Superfund cases against the contractor-developed methodology, and compared other direct costs to source documents to validate their allocability to Superfund cases.
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.
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:
by Fiscal Year
|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
Other Direct Costs
Superfund Program Expenses
|Source: Schedule 2 of the contractor’s accounting schedules and summaries.|
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.
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.
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:
Matched the total Superfund and non-Superfund labor costs to costs reported on the E&A Reports for FYs 2004 and 2005.
Reviewed ENRD electronic labor files and selected salary files provided to the contractor and the resultant electronic files prepared by the contractor to summarize costs by employee and case.
Extracted and reconciled Superfund case costs from the contractor files by using validated Superfund case numbers discussed earlier in this report.
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.
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
| ENRD Indirect Rate
Superfund Specific Indirect Rate
|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|
|2537-Advisory and Assist||141|
|2598-Miscellaneous Litigation Expenses||5,486||851|
|3129-Non-Capitalized Automated Litigation|
|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:
1157 – Expert Witness Fees,
2100 – Travel and Transportation,
2508 – Reporting and Transcripts – Deposition, and
2529 – Litigation Support.
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
|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:
Correct subobject code classification – verified that the correct subobject code was used to classify the cost;
Correct Superfund/non-Superfund case classification – verified that the case number appearing on the documents matched the case number in the Superfund database;
Correct dollar amount – verified that the dollar amount listed in the other direct costs database matched the amounts on the supporting documentation; and
Proper approval – verified that the proper approval was obtained on the vouchers paying the other direct costs.
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.
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.
We recommend that ENRD:
Ensure that the ENRD memorandum entitled Determination of Superfund Cases is updated to include all ENRD litigation sections.
Ensure that all travel by ENRD employees is appropriately authorized prior to incurring any travel expense.
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.
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.
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.