Oversight of Intergovernmental Agreements by the United States
Marshals Service and the Office of the Federal Detention Trustee

Audit Report 07-26
March 2007
Office of the Inspector General


Findings and Recommendations

I.       DISPUTE OVER DETENTION SPACE OVERPAYMENTS

The main objectives of the 31 prior IGA audits conducted by the OIG were to determine whether: (1) information contained in the cost sheet for detention services was accurate, complete, and supported by adequate documentation; and (2) the jail-day rate was supported by adequate documentation and was based on actual and allowable costs in accordance with applicable laws, regulations, guidelines, and terms and conditions of the IGA.

For the IGAs reviewed in these 31 audits, the USMS paid over $182 million to state and local officials to house federal detainees. Our audits identified approximately $38 million in either unallowable or unsupported costs, and recommended that about $22 million be put to a better use. Of these amounts, $37 million remains unaddressed by the USMS.33

However, on March 17, 2006, the OFDT advised the USMS to refrain from seeking reimbursement of the overpayments identified in our audits.34 In this section of the audit report, we present the issues involved in the disagreement between OFDT and the OIG. As discussed below, the OFDT believes the audited IGAs were negotiated fixed-price contracts that did not have to be based solely on costs. The OIG believes the audited IGAs were agreements based on actual and allowable costs and that, even if they are considered fixed-price contracts, it may be appropriate to recover the overpayments based on the circumstances of each case.

OFDT Position

According to the OFDT, the USMS negotiated fixed jail-day rates that do not limit the state or local government to the reimbursement of actual costs. The OFDT believes that although cost data provided by a state or local government was used as the basis for price negotiation, once the USMS accepted jail-day rates, even if they exceeded costs or resulted in profits for the state or local government, the fixed rate was established and should not be recovered based on subsequent audits.

The OFDT bases its determination that the USMS IGAs are fixed-price contracts on a legal opinion from the DOJ’s Office of Legal Counsel (OLC). This opinion concluded that Section 119 of Public Law 106-553 (also known as the 2001 Department of Justice Appropriation Act) confers authority on the Attorney General to enter into fixed price detention agreements. Section 119 provides:

Notwithstanding any other provision of law, including section 4(d) of the Service Contract Act of 1965 (41 U.S.C. 353(d)), the Attorney General hereafter may enter into contracts and other agreements, of any reasonable duration, for detention or incarceration space or facilities, including related services, on any reasonable basis.

With OLC clarification of the issue, the OFDT concluded that the IGAs now in place do not limit state or local governments to the reimbursement of costs. The OFDT further stated that because the IGAs we audited typically describe the unit price the federal government will pay as a “fixed rate,” and costs were only one factor considered in determining this rate, the overpayments identified by the OIG audits are not recoverable. As a result, in the May 17, 2006, memorandum the OFDT “advised the USMS to refrain from seeking reimbursement of overpayments.” In a subsequent memorandum to the USMS, dated April 26, 2006, the OFDT reiterated its position that the USMS should refrain from collecting any overpayments unless the detention facility engaged in fraudulent conduct. In addition, the OFDT has “directed the USMS to immediately negotiate with the jails to incorporate core rates which recently have been established as part of an initiative to implement an indexed fixed-price method for obtaining jail beds from state and local governments.”

Recently, in response to a request from the OFDT, the General Counsel for the Justice Management Division (JMD) reviewed the IGAs audited by the OIG and issued a legal opinion stating that the IGAs are “fixed price agreements that do not contain a basis for the Department to seek retroactive price adjustment... ” as a matter of contract law. However, the JMD General Counsel acknowledged that depending on the circumstances of each case, the Department may have a legal remedy for recovering overpayments where a state submitted inaccurate cost information during the IGA formation process. In addition, he noted that nothing in the agreements prohibits the DOJ from seeking a prospective rate adjustment.

OIG Position

The OIG disagrees with the OFDT’s and JMD’s conclusion that the IGAs at issue are fixed-rate agreements based on factors other than cost. We do not dispute that, at least since the passage of Section 119, the USMS has the authority to enter into IGAs based on other factors, and that profit may be included in the calculation of the IGA rate. However, the OIG does not agree that the USMS exercised its authority to do so for past IGAs, including the 31 that were the subject of the OIG audits.35 Indeed, even the OLC opinion on which the OFDT relies describes the IGAs that pre-date passage of Section 119 as having “typically set compensation for these services at the cost actually incurred by the provider.” The OIG believes that the term “fixed rate” described the unit price to be paid in IGAs, but that it was calculated based on the state or local government providing an accurate description of its allowable costs. Moreover, the term was used in the agreements well before passage of Section 119, and its meaning must be considered in light of the entire agreement.36 As we describe below, support for our view is found in: (1) the language of the agreements, (2) a memorandum, dated August 1, 2002, from the prior Detention Trustee, and (3) and the USMS’ own past practice.

Moreover, regardless of whether one considers the agreements we have audited to be fixed-rate vehicles based on factors in addition to cost as asserted by OFDT, or cost-based agreements as we believe, the OIG disagrees that the USMS can seek the recovery of overpayments only if “fraudulent conduct” can be proved, as stated in the OFDT’s April 26, 2006, memo. Not all legal remedies require a showing of fraudulent conduct. For example, the False Claims Act requires no more than a showing of deliberate ignorance or reckless disregard for the truth or falsity of information presented to the government. As a result, if the state or local government presented inaccurate cost information to the USMS that formed the basis for the jail-day rate established, the USMS may be able to recover overpayments even in the absence of “fraudulent conduct” by the state or local government.

In addition, the USMS is not limited to strict legal remedies for recouping overpayments. Rather, it may utilize such methods as offsetting overpayments against future payments for detention services or negotiating reduced rates in subsequent years. Indeed, the USMS IGA Manual section 9, instructs IGA analysts upon receiving an OIG or USMS audit report to determine the revised amount of the over or underpayment, reduce the over or underpayment to a revised jail-day rate, negotiate the adjusted jail-day rate, discuss and agree upon a repayment method, and prepare a modification showing the adjusted jail-day rate, estimated jail days, and an estimated pay-off time or repayment schedule. Moreover, as discussed in more detail below, the USMS has in fact recovered overpayments identified in past OIG audits using just such means.

Language of the Agreements

The cost sheet instructions that were given to state and local governments when they sought the IGAs defined an IGA as a formal written agreement between the USMS and a state or local government to house federal detainees at a jail-day rate based on actual and allowable costs for the same level of service provided to state or local prisoners in a specific facility.37 The cost sheet instructions informed the preparer of the following:

The cost sheet also contained the following certification statement that the Comptroller or Chief Financial Officer of the local government was required to sign attesting to the fact that the cost sheet does not include any costs prohibited by the Circular:

Section VI - Certification Statement

This is to certify that, to the best of my knowledge and belief the date furnished in Schedules B through G are accurate, complete and current, and do not include any unallocable, or unallowable, or unallowable costs prohibited by OMB Circular No. A-87 (Cost Principles for State and Local Governments) or any cost not related to the jail facility as discussed on Form USM-243 (Cost Sheet for Detention Services). The records of this agency area available for review and audit by the authorized representative of the U.S. Government to verify any jail per diem rate negotiated.

Signature ___________________________ Date ________________________
Name ______________________________ Title ________________________

The USMS IGA Manual states that an IGA analyst at USMS headquarters is supposed to review the cost sheet for cost allowability and the accuracy of capacity and average daily population figures.

Based on the cost sheet information, the IGA analyst then calculated a jail-day rate using the following formula:

Jail-Day Rate Calculation

256

 

365

 

93,440

 

X

 

=

 

Average Daily Population

 

Days Per Year

 

Jail-Days

$5,088,716

 

93,440

 

$54.46

 

÷

 

=

 

Total Operating Cost

 

Jail Days

 

Jail-Day Rate

Source: USMS IGA Manual

As detailed in the table, a facility with an average daily population of 256 would equate to 93,440 annual jail days. If the facility’s total annual operating costs were $5,088,716, this amount would be divided by the 93,440 annual jail days to arrive at a jail-day rate of $54.46. In this example, the USMS would pay the state or local facility $54.46 to house one of its prisoners for one day.

In addition, the IGAs state that the local governments are responsible for complying with OMB Circular A-87. The agreements inform the local governments that they will be held accountable for any overpayment, audit disallowance, or breach of the agreement that results in a debt owed to the federal government.

Prior Detention Trustee Memorandum

In a memorandum to the Deputy Attorney General dated August 1, 2002, the prior Detention Trustee agreed with the OIG’s position.39 The prior Detention Trustee noted that most if not all IGAs limited reimbursement to actual costs or to the same daily costs that state and local authorities incur to hold their own prisoners. Further, these IGAs did not allow for a payment of profit or fee to state and local governments. Accordingly, he concluded the following:

[T]he issue of whether the Department may or may not pay a profit or fee should not be a contentious item in these audits, since the audits were conducted on IGAs where both the departmental component and the state or local governmental entity agreed to reimbursement of actual costs.

As part of the August 2002 memorandum, the prior Detention Trustee attached a policy that required the USMS to submit written justification to the OFDT seeking prior approval and providing the basis for entering into fixed-price IGAs under Section 119. During our audit of the 31 IGAs, we did not identify any justifications or prior written approvals by the Detention Trustee that fixed-price detention services were acquired. As discussed in Finding II, the OFDT and USMS plan on exercising their Section 119 authority as part of the revamping of the IGA process.

USMS Past Practice

We also noted that from 1997 to 2005 the USMS Program and Review Team (IGA Audit Branch) performed its audits in the same manner as the OIG (i.e., to determine if IGA jail-day rates were based on actual and allowable costs). For example, in a January 1998 audit of the [SENSITVE INFORMATION REDACTED], the USMS IGA Audit Branch determined that a $65 temporary jail-day rate was not supported and that the operating costs only supported a $37.95 rate. The USMS Audit Branch recommended that the USMS “negotiate a revised jail-day rate based on the information contained in this report and actual cost and prisoner population data” and “remedy the $3,883,433 in questioned costs.”40 Similarly, in an October 1999 audit of the [SENSITIVE INFORMATION REDACTED], the USMS IGA Audit Branch reported that the supportable jail-day rate was $4.22 less per prisoner than the rate that was in effect and concluded that the USMS had incurred $127,874 in additional costs during FY 1998. Although no recommendations were developed, the report stated that the information was provided for use in any future rate negotiations and any collection efforts deemed appropriate.

In addition, we noted that the USMS has in fact recovered overpayments identified in previous OIG audit reports. For example, the USMS recovered $156,000 in overpayments from the [SENSITIVE INFORMATION REDACTED] Sheriff’s Office over an extended period – September 2000 through August 2004 – by reducing the jail-day rate of $32.97 by $1.17, until the $156,963 in overpayments was recouped. Similarly, as a result of our audit report on the USMS’s IGA with [SENSITIVE INFORMATION REDACTED], the USMS negotiated a 5-year repayment schedule over which the jail repaid over $1 million, as well as negotiated a reduced future rate.

Conclusion

In the past, the USMS required detention facilities interested in housing federal detainees to submit a cost sheet as part of the application process. The USMS cost sheet requested financial and prisoner population information, and informed the preparer that the jail-day rate would be computed on the basis of actual, allowable, and allocable costs associated with the operation of the facility that benefit federal detainees during the most recent accounting period. Prior OIG audits often noted jail-day rates that exceeded the rate supported by a detention facility’s allowable costs and average daily population.

The OIG recognizes that there are significant pressures on the USMS to obtain detention space. From the USMS perspective, not seeking recovery of overpayments may appear preferable to the operational and logistical costs of negotiating new jail-day rates and repayment plans or the risk of having to use a more distant facility because a facility will not accept a reduced jail-day rate or agree to a repayment plan. However, we believe the jail-day rates the OIG audited were based on an accurate submission of allowable costs, and that the USMS should remedy the questioned costs identified by the OIG by either collecting overpaid funds; providing documentation to support the existing IGA rate; adjusting the IGA rate and offsetting future payments over a reasonable time; or administratively waiving the questioned costs on a case-by-case basis, based on the inability to collect the funds or other exigencies such as a lack of other viable location, security problems, or significantly greater costs that would result from changing facilities. In addition, the USMS should consider whether, based on the audit findings, jail-day rates should be reduced prospectively.

Recommendation

We recommend that the USMS:

  1. Address each open audit recommendation from prior OIG audits of IGAs, which collectively contain dollar-related findings of $37 million.


II.      OFDTíS NEW IGA PRICING PROCESS

Revamping the Process for Procuring Detention Space

In our December 2004 audit of the OFDT, we recommended that the OFDT examine its policies and practices regarding IGAs to develop additional areas in which detention costs could be reduced, and develop a plan for reviewing and verifying the allowability of costs associated with individual IGAs.41

In addition, one of DOJ’s strategies in its strategic plan for improving the management of detention resources relies on more accurate forecasting of detention needs, better coordination with ICE, and strengthened oversight. OMB Circular A-87 provides federal agencies latitude to work with states and localities for testing alternatives to cost reimbursement practices.

In April 2005, the OFDT formed an interagency working group consisting of representatives from the USMS, BOP, and ICE to review the costs associated with the use of state and local detention facilities. According to the OFDT, the working group also sought to standardize the process of entering into IGAs to ensure that the jail-day rates paid by the federal government were “fixed, fair, and reasonable” and would no longer be subject to unscheduled, possibly yearly, adjustments based on updated cost information.42 The OFDT stated that it requested this review because of previous labor and data intensive process for establishing cost-based jail-day rates, disparate jail-day rates for similar detention centers, the difficulty in explaining the causes for disparity in jail-day rates between detention centers, and the concern that jail-day rates based on historical cost data may not reflect the current costs of running the detention center. As a result of the working group’s efforts, the OFDT is developing eIGA.

eIGA

According to the OFDT, eIGA is an attempt to “e-gov” the IGA application process.43 The OFDT believes that eIGA will improve the process of establishing IGAs by providing an automated system that establishes [SENSITIVE INFORMATION REDACTED] standard pricing for detention space and services provided by state and local facilities. Within eIGA is an econometric statistical pricing model for determining a fixed-price range for jail beds. T he model starts with a [SENSITIVE INFORMATION REDACTED] base or core jail-day rate that was calculated using [SENSITIVE INFORMATION REDACTED].44 [SENSITIVE INFORMATION REDACTED].45 According to OFDT, each of these factors had a statistically significant impact on the jail-day rate. A schedule of adjustments was developed assigning values to each factor to aggregate with the [SENSITIVE INFORMATION REDACTED] core rate, as shown in the samples below:

Adjustments for Determining the Applicable Core Per Diem Rate

Characteristic

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

Core Rate

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

Actual Jail-Day Rate

$ 59.00

$ 60.00

$ 52.00

Source: OFDT

The model-generated rate, known as the adjusted core rate or the “should cost” rate, will be provided to the IGA analyst, with [SENSITIVE INFORMATION REDACTED], as shown in the screen shot below:46

Screen Shot of Rate Comparison47
Screen Shot of Rate Comparison shows summary of rates, total capacity and total FTE's. The rate comparison has been redacted.

Source: OFDT

Assessing Model Results

The OFDT assessed the reliability of the model by comparing a sample of the adjusted core rates determined through the application of the model to rates based on actual and allowable costs. The OFDT defined an adjusted core rate as acceptable if it [SENSITIVE INFORMATION REDACTED] of a jail-day rate based on actual and allowable costs.

The OFDT’s assessment revealed that the sampled adjusted core rates [SENSITIVE INFORMATION REDACTED] for 41 percent of the facilities. For 32 percent of the facilities, the adjusted core rates exceeded by more than [SENSITIVE INFORMATION REDACTED] jail-day rates based on actual and allowable costs. For 27 percent of the facilities, the adjusted core rates were [SENSITIVE INFORMATION REDACTED] less than the rates based on actual and allowable costs.

According to the OFDT, departures from the model may be warranted when the schedule of adjustments do not adequately reflect the facility characteristics or specialized services provided by the facility. For example, in some cases a proposed rate may include full medical or transportation services that the adjusted core rate would not cover. The OFDT stated that departures from the model would be made on a case-by-case basis. In addition, the OFDT concluded that departures from the model may also be warranted when discontinuing the use of the facility would substantially disrupt the operations of the USMS, result in added costs for using alternative facilities, or otherwise have a substantial programmatic impact on field operations.

An example of a justified departure from the adjusted core rate is the [SENSITIVE INFORMATION REDACTED]. The adjusted core rate for the [SENSITIVE INFORMATION REDACTED] is $64.22. However, our January 2005 IGA audit of the [SENSITIVE INFORMATION REDACTED] revealed that the jail-day rate of $93.92 was supported by its actual and allowable costs. According to the OFDT, the [SENSITIVE INFORMATION REDACTED] provides a “special mission” that justifies a rate higher than the adjusted core rate. Specifically, the [SENSITIVE INFORMATION REDACTED] housed [SENSITIVE INFORMATION REDACTED]. Accordingly, the [SENSITIVE INFORMATION REDACTED] sometimes incurs extraordinary expenses in security and overtime [SENSITIVE INFORMATION REDACTED].

Establishing IGAs with eIGA

The OFDT procurement division and IT division are working on and testing the automation of the eIGA process. According to the OFDT, the eIGA system is set to be implemented in the first quarter of FY 2007.

Once eIGA is operational, detention facilities will electronically apply for an IGA by completing a short application that captures information on capacity and staffing, jail operating expense information, services provided, oversight and accreditations, health care policies, and a proposed jail-day rate.48 The OFDT has incorporated into eIGA a series of help buttons and said that it will establish a help desk that jails can telephone if they need assistance completing the application.

After completing the application, the jail will transmit it to OFDT for a preliminary review. An OFDT analyst has the option to either forward the application to the USMS for negotiation or reject the application if it is not complete or the jail’s proposed rate is excessive. Although the OFDT believes that very few applications will be rejected upon submission by the jail, a comment box is available for the OFDT to highlight areas of concern for the USMS to address during its negotiations.

Unlike the process historically used to compute jail-day rates, cost data will not be the basis for awarding IGAs. Rather, the award will be determined by “price reasonableness,” which will be calculated by comparing a detention facility’s proposed rate to the adjusted core rate range generated by the eIGA model and the established rates of similar facilities. According to OFDT, cost sheet data was not always reliable and did not address whether a price paid in a geographical area was reasonable compared to other facilities. For example, OFDT notes that some facility administrators may pay salaries to individual employees in excess of the norm for the facility, the county, or salaries generally paid in the correctional field for such positions. Under the process historically used to establish IGAs, the actual cost of the salaries, even if it is unreasonable in comparison to other county or correctional salaries in the regional area, would be allowable on an IGA. According to the OFDT, under the eIGA process, if a jail proposes a rate that far exceeds the adjusted core rate and the rate of similar facilities, a USMS IGA analyst could “drill down” into the jail operating expense information and compare salaries or overtime usage to that of similar local facilities to determine the possible causes for the excessive proposed rate. The OFDT believes that comparing proposed rates to the rates of similar facilities will promote cost efficiencies.

Although the USMS will negotiate jail-day rates with individual jails, OFDT will review and approve each jail-day rate before any rate is finalized. A complete record of the negotiation, including a market comparison of jail rates and life cycle of each IGA, will be documented in eIGA instead of the USMS’s current paper files.

In addition, according to OFDT, jail-day rates established through eIGA will be fixed for 36 months. Historically, jails were allowed to seek increases to the jail-day rate after 1 year. Therefore, under eIGA jails will have an incentive to control costs because they will not be allowed to request a rate increase prior to 36 months unless there were major operational changes with respect the USMS’s use of the jail. After 36 months, a jail seeking a rate increase will have to reapply through eIGA.

OIG Concerns with eIGA

According to the OFDT, eIGA offers a number of benefits for improving how jail-day rates are established and monitored. For example, the eIGA initiative will replace the cumbersome paper-based process historically used by the USMS; collect actual and projected expense information, while the cost sheet only captures actual cost information for a single year; USMS IGA analysts will be able to quickly search the eIGA database and compare jail rate and expense information; control costs because IGA analysts will analyze the market of comparable jail-day rates and lock-in fixed jail-day rates for 3 years; and identify jails that are eligible for rate increases.

The OFDT stated that the primary benefit of using the new process is that an IGA analyst will compare the proposed and adjusted core rates to the rates of similar facilities. According to the OFDT, in determining what is a similar facility, emphasis will be placed on the relationship of a jail’s expense information to that of other jails in the area (or within the state) that have a similar population, security level, size, staffing, and correctional programs offered. Additionally, when appropriate, a comparison to private and federal jail-day rates will be performed.

We received two demonstrations of the OFDT’s plans for how IGAs will be established using eIGA. Based on these demonstrations, we believe that the eIGA concept is a positive step to improving the process historically used to establish jail-day rates. However, as discussed further in Finding III of this report, we identified significant deficiencies with how jail-day rates have been established and monitored in the past. Because eIGA is not yet operational, we were unable to test how jail-day rates will be established using eIGA. In addition, the OFDT has neither issued guidance nor trained IGA analysts on how jail-day rates will be established using eIGA. Therefore, it is difficult to predict how successful eIGA will be once operational.

During the course of this audit, the OIG expressed concern that the OFDT’s initial eIGA plan not to require state and local jails to submit detailed cost information constituted a serious flaw in the OFDT’s revised process. 49 As a result of our concerns, and to adequately address the applicability of the Service Contract Act, the OFDT added the jail operating expense information to eIGA.50 With the addition of the jail operating expense information, eIGA captures many cost sheet categories, including salaries and benefits, consultant and contract services, medical care and treatment, facility and office, safety and sanitation, and insurance. However, eIGA does not capture a jail’s average daily population, indirect costs, or credits from a detention facility’s operations.

We believe that the OFDT can improve eIGA to ensure that USMS negotiations help control rising detention costs by modifying the jail operating expense information to capture a jail’s average daily population, indirect costs, and credits. In turn, this information should be used to calculate a jail-day rate, based on costs, that is presented to the IGA analysts as an additional field in the following summary screen shot:

Summary Screen Shot of Negotiated Rate
Summary Screen Shot of Negotiated Rate shows summary of rates, total capacity and total FTE's. The rate comparison has been redacted. Source: OFDT

The OFDT stated that these will not be cost-based agreements, and that cost and average daily population data change daily. As discussed in Finding I, we recognize that OFDT and USMS may negotiate fixed–price IGAs not based on costs. However, we believe the true measure of eIGA’s success will be to compare the rates negotiated through eIGA to a detention facility’s actual and allowable cost. In our judgment, reducing the information captured in the jail operating expense information portion of eIGA to a single rate will give the USMS more evidence and leverage in its negotiations, and will help ensure fair and reasonable jail-day rates. Presenting this data is not difficult, can assist in reducing the jail-day rate paid by the USMS, and could provide an important check on the price reasonableness model as demonstrated in our review of jail-day rates that were established using the eIGA pilot program.

In addition, as shown by the above screen shot, [SENSITIVE INFORMATION REDACTED]. A detention facility potentially could earn at least a [SENSITIVE INFORMATION REDACTED] profit if its costs are [SENSITIVE INFORMATION REDACTED] and the jail-day rate is established at [SENSITIVE INFORMATION REDACTED]. This is possible because detention facilities could [SENSITIVE INFORMATION REDACTED].

Piloting the Model for Establishing IGAs

In September 2005, the OFDT and USMS began using the eIGA model as part of a pilot process for awarding IGAs. However, because the eIGA system is not operational, jails applying for jail-day rates have continued to submit cost sheets, and the USMS requested from OFDT a “should cost” rate for a specific facility based on a manual eIGA process. The OFDT manually calculated the adjusted core rate and provided it to the USMS.

USMS IGA analysts then determined price reasonableness by comparing a requesting jail’s proposed rate to the adjusted core rate provided by OFDT. Although USMS IGA analysts could have used the cost sheets submitted by the jails as part of its analysis in determining price reasonableness, we found that a cost sheet analysis by the USMS was not always performed. Further, unlike the planned process for eIGA, a comparison of proposed rates to similar facilities was not performed. The USMS has also continued to use the standard IGA language it has used for years (that jail-day rates are established based on actual and allowable costs associated with operating the facility).

As of June 2006, the OFDT and USMS had used the model to award approximately 90 IGAs as part of a pilot project. We judgmentally selected 11 of the 90 IGAs awarded and reviewed detailed documentation from OFDT and the USMS to determine how the awarded rates compared to the cost-based rate previously used in awarding IGAs. The following table shows our results on how the awarded rate compared to the cost sheet rate, the adjusted core rate, and the [SENSITIVE INFORMATION REDACTED]:

Sampled IGAs Awarded Using the Model51

Facility Name Requested Rate Cost Sheet Rate52 [SENSITIVE INFORMATION REDACTED] [SENSITIVE INFORMATION REDACTED] [SENSITIVE INFORMATION REDACTED] Awarded Rate

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$64.32

$64.32

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$64.32

[SENSITIVE INFORMATION REDACTED]

$88.25

$85.52

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$85.52

[SENSITIVE INFORMATION REDACTED]

$75.00

$79.67

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$70.00

[SENSITIVE INFORMATION REDACTED]

$78.06

$68.46

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$65.00

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$80.00

$76.68

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$80.00

[SENSITIVE INFORMATION REDACTED]

$61.42

$54.13

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$54.13

[SENSITIVE INFORMATION REDACTED]

$60.46

$56.28

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$51.16

[SENSITIVE INFORMATION REDACTED]

$50.00

$38.22

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$45.00

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$85.00

$102.12

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$82.00

[SENSITIVE INFORMATION REDACTED]

$53.00

$54.28

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$44.97

[SENSITIVE INFORMATION REDACTED]

$77.34

$77.55

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

[SENSITIVE INFORMATION REDACTED]

$86.00

Source: OFDT and USMS

Although eIGA will collect a jail’s expense information that will be used in analyzing the proposed jail-day rate, the OFDT does not plan on presenting this information to the IGA analysts as a single rate for comparison to the proposed rate, adjusted core rate, and the rates of similar facilities. Our review, however, revealed the benefits of presenting the cost information as a rate to help establish a reasonable jail-day rate.

However, it was not clear to us whether the USMS always analyzed cost sheets or considered in negotiations for the jail-day rate both the cost and the model-generated rate, as shown in the following example:

Conclusion

In FY 2006, the DOJ budgeted more than $1 billion on the housing and subsistence of federal detainees, about 75 percent of which is spent on IGAs. At a time of rising detention costs, it is critical that the OFDT and USMS control the amount of profit earned by state and local detention facilities that house federal detainees. The DOJ is moving away from its past policy of reimbursing state and local jails at a rate based on their actual and allowable costs to a system, called eIGA, which will negotiate a fixed jail-day rate based on an adjusted core rate and the jail-day rates of similar facilities.

Because eIGA is not yet operational, we were unable to test how jail-day rates will be established using the new system. In addition, the OFDT has not issued guidance on how jail-day rates will be established using eIGA. As a result, it is difficult to predict how successful eIGA will be once operational.

We believe that the eIGA concept is a positive step to improving the process previously used to establish jail-day rates. However, in our judgment, the OFDT can improve eIGA to ensure that USMS negotiations help control rising detention costs. The OFDT stated that the primary benefit of using the new process is that an IGA analyst will compare the proposed and adjusted core rates to the rates of similar facilities. Although eIGA will capture many of the cost sheet categories, it will not capture a jail’s average daily population, indirect costs, or credits, which are needed to compute a detention facilities costs. We believe that the OFDT should modify eIGA to capture this information, and present this information to the IGA analysts as a cost-based rate because the true measure of eIGA’s success will be to compare the rates negotiated through eIGA to a detention facility’s actual and allowable costs. Presenting the cost information as a single rate will give the USMS more evidence and leverage in its negotiations, and will help IGA analysts establish fair and reasonable jail-day rates. Presenting this data is not difficult, can assist in reducing the jail-day rate paid by the USMS, and could provide an important check on the price reasonableness model as demonstrated in our review of jail-day rates that were established using the eIGA model.

Recommendations

We recommend that the OFDT:

  1. Modify eIGA so that it captures average daily population, indirect costs, and credits as part of its Jail Operating Expense Information.

  2. Modify eIGA so that it presents a jail-day rate to the IGA analysts based on the actual and allowable costs of the jail.

  3. Develop procedures for re-examining the [SENSITIVE INFORMATION REDACTED] core rate to ensure that it accurately reflects the [SENSITIVE INFORMATION REDACTED] based on actual and allowable costs.


III.    IMPROVEMENTS NEEDED IN IGA OVERSIGHT

Unsupported Jail-Day Rates

In the sample of 34 IGAs that we reviewed in connection with this audit, we found that USMS IGA analysts generally reviewed cost sheets and documented their analysis of the costs in establishing jail-day rates. Additionally, the USMS IGA Audit Branch sometimes performed detailed pre-award reviews of the detention center’s costs that were used by the USMS IGA analysts to establish jail-day rates based on actual and allowable costs. For example, the [SENSITIVE INFORMATION REDACTED] submitted a cost sheet to the USMS on March 1, 2000, based on FY 1999 costs, requesting a jail-day rate of $103.27. The USMS conducted an audit of the cost sheet and developed an audited rate of $84.39, which the USMS used in the IGA awarded to [SENSITIVE INFORMATION REDACTED] in September 2000.

The USMS pre-award audits allowed the USMS to identify unallowable costs and establish jail-day rates based on actual and allowable costs. However, in the absence of pre-award audits we often found during OIG audits unallowable costs such as transportation salaries and interest; cost sheets that contained cost and average daily population that did not support the requested rate; and understated average daily population numbers. According to the USMS, pre-award audits of new IGAs or rate changes to existing IGAs are declining due to staffing and budget constraints.53

Our review of 34 IGAs also revealed jail-day rates that lacked adequate supporting documentation, as described below, and that were set at rates far above actual costs.54 According to a USMS official, detention facilities fight for every penny they request, and sometimes jail-day rates that exceed allowable costs are established to appease them.

[SENSITIVE INFORMATION REDACTED]

In a letter to the USMS dated July 31, 1992, the [SENSITIVE INFORMATION REDACTED] Superintendent expressed an interest in entering into an IGA at a rate of $65 per jail day. The Superintendent submitted a preliminary jail budget since the jail had only been operating during that month and did not have actual cost data to evaluate.

In November 1992, the USMS established a temporary jail-day rate with the [SENSITIVE INFORMATION REDACTED] to house federal detainees at $65.55 However, the [SENSITIVE INFORMATION REDACTED] budgeted cost data only supported a jail-day rate of $49. According to the USMS, it established a rate of $65 based on anticipated savings in transportation and personnel costs due to the close proximity of the [SENSITIVE INFORMATION REDACTED] to the federal courthouse, a need to alleviate a critical shortage of jail space in [SENSITIVE INFORMATION REDACTED], and a comparison of jail-day rates to house detainees in the SENSITIVE INFORMATION REDACTED]. The USMS documented that it was paying jail-day rates to house detainees ranging from $23 to $85 at the 20 jails located in [SENSITIVE INFORMATION REDACTED]. However, only two of [SENSITIVE INFORMATION REDACTED] 20 jails had jail-day rates of $85, and those two jails were located in the high-cost areas of [SENSITIVE INFORMATION REDACTED]. The jail-day rate charged by two other detention facilities in the [SENSITIVE INFORMATION REDACTED] area, where [SENSITIVE INFORMATION REDACTED] is located, averaged $47.

In October 1998, the [SENSITIVE INFORMATION REDACTED] submitted a cost sheet requesting a jail-day rate of $55. Our review of the costs and inmate population listed on the cost sheet only supported a $52.26 jail-day rate. Despite the revised cost sheet, the USMS continued to pay the [SENSITIVE INFORMATION REDACTED] $65 per jail day, resulting in overpayments totaling almost $2.9 million for FYs 2004 and 2005.

[SENSITIVE INFORMATION REDACTED]

In April 2003, the [SENSITIVE INFORMATION REDACTED] submitted a cost sheet based on FY 2002 costs and requested a jail-day rate of $59. Based on its desk review, the PAB determined that the cost sheet only supported a rate of $43.92, and established a temporary IGA rate of $44 for 4 months beginning June 1, 2003.

As a result of a limited cost review by the USMS audit team, the PAB issued a modification to increase the temporary jail-day rate to $45.61, with an expiration date of November 30, 2003. This temporary agreement was extended twice through February 29, 2004, and subsequently lapsed. On June 1, 2004, the temporary rate was reinstated and increased to $51.35. The increase was made retroactive to June 1, 2003 (the effective date of the temporary IGA increase). As of February 2006, the temporary rate was still in effect.

As discussed later in this report, the USMS’s policies are contradictory with the respect to the retroactive application of rate increases. The USMS IGA Manual states that retroactive jail-day rates can be approved, but only under extraordinary circumstances (such as a rate increase request being delayed due to USMS headquarters backlog or as a result of an audit). However, USMS Directive 9.26 simply states that rate increases will not be applied retroactively. In any case, there was no documentation to support the temporary jail-day rate increase to $51.35, or the retroactive application of the increase. USMS officials could not provide us with any justification for the rate increase or for its retroactive application. Additionally, this temporary rate exceeded the 12–month limit established in the IGA Manual. Based on the USMS’s use of this jail since the effective date of this rate increase, we estimate that the USMS may have overpaid $304,668 for prisoner bed space for FYs 2003 through 2005.

[SENSITIVE INFORMATION REDACTED]

The [SENSITIVE INFORMATION REDACTED] submitted a cost sheet on June 22, 2004, requesting a rate increase to $60. However, the costs identified on the cost sheet only supported a rate of $35.23. The USMS made the temporary rate of $45 permanent on September 1, 2004, even though the costs identified on the cost sheet did not support the $45 rate.

Our review of the cost sheet also revealed the following deficiencies:

Despite the cost sheet deficiencies, the USMS IGA analyst recommended a permanent rate of $45. According to PAB officials [SENSITIVE INFORMATION REDACTED] is an example of a case where the USMS set the temporary rate too high and the detention center refused to accept a lower rate. Additionally, upon closer review of the cost sheet and the corresponding support, we noted interest expense and depreciation costs were included in allowable costs twice, as both direct and indirect costs on the cost sheet. We determined that the cost sheet only supported a $32.50 jail-day rate, rather than $45. Based on the USMS’s use of this jail since the effective date of the rate increase, we estimate that the USMS may have paid an additional $264,350 for prisoner bed space for FYs 2004 and 2005.

[SENSITIVE INFORMATION REDACTED]

The USMS provided a temporary rate increase to the [SENSITIVE INFORMATION REDACTED] from $42 to $49.39, effective February 1, 2003, pending the results of a planned USMS audit. On May 23, 2003, the USMS issued an audit report that supported a lower rate of $40.49. Although the lower rate was recommended, a modification to lower the rate was not implemented until May 2, 2005. According to the IGA Manual, temporary rates can be in effect for up to 12 months pending receipt and review of actual cost data. However, this temporary rate was in effect for 27 months.

PAB officials told us that the lower rate was not immediately implemented because of a backlog of IGA actions, which is discussed later in this report. 56 Further, an IGA analyst told us that the modification was not immediately implemented because the USM in this district did not want the lower rate implemented. Based on the USMS’s use of this jail since the effective date of the rate increase, we estimate that the USMS may have paid an additional $590,892 for bed space for FYs 2003 through 2005.

[SENSITIVE INFORMATION REDACTED]

The USMS provided a temporary rate increase from $75 to $80 on September 1, 2002, to the [SENSITIVE INFORMATION REDACTED]. The temporary rate was provided pending the results of a planned USMS audit. On November 5, 2002, the USMS issued an audit report that supported a lower IGA rate of $73.11. However, rather than reduce the IGA rate, the $80 rate was extended five times through January 31, 2004 (17 months), to allow the locality to submit new cost data. A new cost sheet was subsequently submitted and the PAB analysis of this cost sheet supported a jail-day rate of $78.48. Despite this analysis, the temporary rate of $80 was made permanent on February 1, 2004.

The Acting PAB Chief said that [SENSITIVE INFORMATION REDACTED] was “fighting for every penny,” and the sheriff would not sign the IGA agreement for less than the rate he requested; therefore, the temporary rate was extended even though the USMS audit identified a lower supported rate. [SENSITIVE INFORMATION REDACTED] was allowed to submit more current cost data to try to support the higher requested rate. The Acting Chief also told us that the USMS had “leverage” over this facility to provide bed space at the lower rate because [SENSITIVE INFORMATION REDACTED] received funds under the Cooperative Agreement Program (CAP), but the USMS did not exercise this leverage.57 Based on the USMS’s use of this jail since the effective date of this rate increase, we estimate that the USMS may have overpaid $461,127 for bed space for FYs 2003 and 2004.

Policies and Procedures

The guidance available to the IGA analysts and district personnel for reviewing IGAs include the IGA Manual, the USMS Directives, the instructions that are provided with the cost sheet, OMB Circular A-87, and an OFDT memorandum to the Deputy Attorney General on implementing Section 119, dated August 1, 2002. The OFDT’s and USMS’s policies and procedures must be an integral part of their financial and business practices for awarding and monitoring IGAs. They must contain measures for: (1) protecting resources against waste, fraud, and inefficiency; (2) ensuring accuracy and reliability in financial and operating data; (3) securing compliance with policies; and (4) evaluating performance.

Our review of the available guidance found that significant improvements in the guidance provided to IGA analysts are needed as part of the revamping of the IGA award process. The IGA Manual provides a general framework of the responsibilities and actions required for the processing of IGAs. For example, the IGA Manual requires an IGA analyst to review the cost sheet, calculate a potential jail-day rate, and prepare a record of negotiation documenting the discussions and rationale for the established jail-day rate. The USMS Directives provide additional guidance, but only with respect to district level responsibilities. However, neither the IGA Manual nor the USMS Directives incorporate the provisions of Section 119 of the 2001 Department of Justice Appropriation Act nor addresses how non-cost factors, such as a need to alleviate a critical shortage of jail space in a district, should be considered and valued in establishing jail-day rates.

The example Record of Negotiation included in the IGA Manual is for a jail-day rate based only on allowable costs and average daily population and does not give any guidance on how to consider non-cost factors in establishing the jail-day rate. The example identifies unallowable costs and adjustments made to the cost sheet. However, an example for addressing other factors or awarding a jail-day rate that deviates from the cost sheet is not provided.

As stated in 18 U.S.C. § 4013 (a)(4)(C), the jail-day rate charged for housing federal detainees shall not exceed the allowable costs or “other conditions” specified in the contract or cooperative agreement. As previously discussed, the USMS did not always document the basis for its decisions for establishing jail-day rates that exceeded allowable costs identified on the cost sheet. Without adequate documentation of how the jail-day rate was established, we were unable to determine whether the USMS paid a reasonable jail-day rate. If the USMS considers other conditions, it should specify the other conditions either in the IGAs or record of negotiation.

The guidance also does not identify specific types of information USMS IGA analysts should request to verify cost sheet data. Since IGA analysts are responsible for verifying cost data in connection with IGAs, we believe precise instructions should be provided on how to review costs, what constitutes acceptable documentation to support costs, and when to request additional information. Without precise instructions, IGA analysts must rely on their own judgment to determine the types of information to request and the types of expenditures to question.

The IGA Manual also specifies that retroactive jail-day rates can be approved, but only under extraordinary circumstances (such as a rate increase request being delayed due to USMS headquarters backlog or as a result of an audit). However, this portion of the IGA Manual appears to conflict with USMS Directive 9.26, which states that rate increases will not be applied retroactively. In any case, this policy should be clarified. During our audit, we identified a jail-day rate increase that was applied retroactively without a documented reason.58

As previously discussed, the OFDT is revamping the process for procuring detention space with the implementation of eIGA. While we recognize that the law allows the USMS to consider factors other than actual cost, we believe that the USMS should document the factors that were considered, and provide an economic analysis of those factors. In addition, the OFDT should issue guidance that places some reasonable limitation on the amount of profit allowed. In prior OIG audits, we found profit rates of 63 percent for the [SENSITIVE INFORMATION REDACTED] and 74 percent for [SENSITIVE INFORMATION REDACTED]. Additionally, during this audit, we found [SENSITIVE INFORMATION REDACTED] receiving a profit rate of 38 percent.59 Clearly documenting the factors considered in establishing a jail-day rate, including the intended profit rate, is a prudent and necessary practice for establishing the reasonableness of a jail-day rate.

As discussed in Finding II, the OFDT has not yet issued guidance related to its revamping of the IGA process using eIGA. Because the new IGA process involves significant changes from past practices, we believe that the OFDT should expeditiously issue guidance on awarding IGAs through eIGA before it becomes operational. The policies should include clear guidance on the following:

Training

Although IGA analysts collectively commit the USMS to pay detention facilities hundreds of millions of dollars annually, most of the USMS IGA analysts told us that training was not adequate for their level of responsibility. IGA analysts were provided only a 2-day training session by the IGA Audit Branch and took a course on OMB Circular A-87. Further, a USMS procurement official told us that the IGA analysts on the PAB staff are no longer a part of the USMS Procurement Branch. This official stated that the entire process needs improvement because the number of PAB staff is limited, and the staff lacks procurement qualifications and formal training.

The USMS also does not have a formal training program or required training for its auditors. One auditor indicated that he had annual training to comply with his Certified Public Accountant license training requirements, but the other auditors had not received any training. PAB officials told us that they consider the audit staff to be experienced and therefore may not need training. However, district personnel responsible for soliciting and reviewing IGA requests indicated that the bulk of the training they received was on jail inspections and they received no training on what costs are allowable on USMS cost sheets when developing an IGA.

The IGA analysts perform an important function in the acquisition of detention space, and help ensure that IGAs provide the services the government needs at a reasonable rate.60 With the conversion to establishing IGAs through eIGA, the OFDT intends to develop a 16-hour training course and handbook on how to establish fair and reasonable jail-day rates using eIGA. In light of this, we believe the USMS should take additional steps to improve IGA analyst training. The Federal Acquisition Institute (FAI) details a blueprint for training and development of procurement officials, as articulated in Section d(3) of the Office of Federal Procurement Policy Letter No. 97-01.61 The blueprint provides the foundation for all contract specialist training and developmental activities to ensure consistency in acquisition activities across federal agencies and departments. The acquisition career model, as articulated by the FAI, offers advice on how to develop the skills and capabilities necessary for effective performance of acquisition roles, including the contract specialist role.

While all the competencies outlined in the blueprint may not directly relate to IGAs, the information provides a framework for IGA reviews and a better understanding of the important role the USMS IGA analyst has in the procurement process. Further, some of the competencies and training may directly relate to IGA awards, such as: (1) acquisition planning, (2) price analysis and negotiations, (3) applying non-price factors, (4) communications and fact‑finding, and (5) conducting discussions/negotiations.

Defining Responsibilities for Establishing and Monitoring IGA Costs

As discussed in the Introduction to this report, USMS district personnel and the PAB share responsibility for establishing and monitoring IGA costs. We found that the oversight of IGAs by the Districts and USMS Headquarters was deficient.

District Responsibilities

The USMS Directives state that each United States Marshal (USM) will review the cost sheets for completeness and accuracy of information (particularly staffing levels and types of services provided). Since each district is responsible for identifying and coordinating its detention needs and submitting to the Prisoner Service Division (PSD) cost sheets as part of the IGA package, the PAB, a branch of the PSD, believes the districts are in a better position to identify and correct deficient cost sheets.

However, we interviewed personnel from the USMS districts of Eastern Virginia, Northern Georgia, Western Texas, Nevada, and Western North Carolina and determined that four of the five district offices performed no review of the cost sheets. Instead, district level employees only provided the cost sheet and a point of contact at USMS headquarters for assistance in helping with cost sheets. District officials from Northern Georgia told us that they reviewed cost sheets, but qualified their review by saying that they only review the cost sheets for “obvious errors.”

In addition, officials at all five districts told us that they are not involved in the post-award monitoring of detention center costs other than billing reviews and annual jail inspections. Personnel in two districts (Western Texas and Northern Georgia) told us that they monitor IGA expiration dates. In Western Texas, a district representative stated that his district monitors expiration dates on temporary agreements, but most if not all of their IGAs do not include expiration dates and have been in effect for 20 years. However, we found that 12 of the 62 active IGAs in Western Texas had expiration dates, and 5 of the 12 had already expired. Additionally, in the Northern District of Georgia, the Deputy USM told us that the district monitors IGA expiration dates on a regular basis and that recently he noted an agreement was going to expire and started the process to establish a new agreement. However, when we visited the facility with the expiring IGA, the facility had not begun the process to secure a new rate even though the current IGA was set to expire in a month.

From our review of 34 sampled IGAs, we determined that 6 either had expired or lapsed for 3 years before being reinstated.62 According to PAB officials, these IGAs expired because the local governments were not timely in submitting their cost sheets or other data as required, and districts were not monitoring expiration dates.

Based on our review of the 34 IGAs, we queried the USMS’s “Prisoners” database for additional expired IGAs and identified 451 IGAs that had expiration dates.63 As of January 31, 2006, 330 of the 451 IGAs had expired. Of the 330 expired IGAs, we identified 157, 216, and 300 IGAs that were expired as of the end of FY 2003, 2004, and 2005, respectively. We estimate that the USMS paid over $175 million on the expired IGAs during FYs 2003-2005.

Programs and Assistance Branch Responsibilities

At the Programs and Assistance Branch (PAB), IGA analysts review cost sheets for cost allowability and accuracy of capacity and average daily population. Despite the increasing need for prisoner bed space, reductions in PAB staff limited the USMS’s ability to follow up on cost sheets and temporary rates and monitor IGAs after rates were established. We reviewed PAB staffing reports from 1999 through 2006 and found that staffing levels dropped by approximately 50 percent since 1999 as shown in the following table:

PAB Authorized Positions
and Vacancies

Fiscal Year

Authorized
Positions

Vacancies

1999

11

2

2000

9

1

2001

9

1

2002

9

1

2003

7

2

2004

6

1

2005

6

1

2006

6

3

Source: PAB Staffing Reports

We found that the reduced staffing resulted in a backlog of IGA actions, such as the establishment of temporary or new jail-day rates, which needed to be reviewed.

The PAB uses a report entitled “Request for Detention Space (RDS)” to track IGA actions.64 We reviewed the June 2005 RDS report and identified 251 backlogged IGA actions, some of which went as far back as FY 2002.

Further, we noted that the number of audits performed by the USMS IGA Audit Branch decreased from 29 audits in 2003, to 16 in 2004, to 1 audit in 2005. The decline in the number of audits put an increasing burden on IGA analysts to identify unallowable costs prior to the establishment of a jail-day rate.

With limited staffing and a backlog of IGA actions, the PAB performed limited post-award IGA monitoring. For example, as previously discussed, the IGA Manual indicates that a temporary rate should only be effective for up to 12 months pending receipt and review of actual cost data. However, the USMS established temporary rates that extended well beyond 12 months for the [SENSITIVE INFORMATION REDACTED].

According to PAB officials, once an IGA is in place it usually remains in effect at the initial jail-day rate until the detention center requests a change. Because we found limited monitoring of IGAs after an award, an IGA could remain in place indefinitely without the USMS knowing if a rate change is warranted. Yet, after an IGA is awarded, conditions may change that require an IGA to be revised and warrant a reduction in a jail-day rate. For example, in our audit of the [SENSITIVE INFORMATION REDACTED], the original FY 1996 cost sheet was based on an average daily population of 244.65 However, in FY 2004 the average daily population was 877, an increase of 260 percent. This resulted in an audited rate that was $17 less than the rate paid by the USMS, for total unallowable and unsupported costs of over $5 million for 2 years.

Although PAB officials indicated that each district is in the best position to monitor IGAs, they also told us that districts may not report issues, especially if they believe the issue could result in the cancellation of an IGA. If a detention center cancels an IGA, the USMS would have to find a new facility to house detainees, which may be less convenient than the detention center being used. PAB officials told us that the USMS districts do not want to “stir up the pot,” especially if they need the bed space.

Monitoring IGAs to ensure that the cost and average daily population continue to reflect an appropriate jail-day rate may no longer be an issue if all future IGAs are awarded under the revamped process discussed in Finding II. However, districts will continue to play an important role in identifying detention facilities that meet USMS standards. We believe district and PAB responsibilities need clarification, even under the new process, especially those pertaining to establishing rates and monitoring expiration.

Conclusion

Consistent with our prior IGA audits, our review of 34 IGAs as part of this audit identified jail-day rates that lacked adequate supporting documentation. Although t he OFDT and USMS are pursuing the implementation of eIGA, as of July 2006 it has remained a pilot program, and the OFDT has not issued any policies and procedures related to the new process.

The IGA Manual currently does not address how non-cost factors should be considered and valued in establishing jail-day rates. Further, the USMS generally did not document its decisions for establishing jail-day rates that exceeded allowable costs identified on the cost sheet. Without adequate documentation of how jail-day rates were established, we were unable to assess the appropriateness of the jail-day rate paid by the USMS. If the USMS considered conditions other than cost, it should be required to specify the conditions either in the IGAs or the record of negotiation.

In addition, although IGA analysts collectively commit the USMS to pay detention facilities hundreds of millions of dollars annually, most of the IGA analysts told us that the training they received was not adequate for their level of responsibility. We believe annual training plans should be developed that will provide them procurement core competencies such as those outlined by FAI.

Finally, despite the increasing need for detention bed space, staff reductions in the USMS’s PAB has significantly limited the USMS’s ability to review and follow up on inadequate cost sheets and USMS audits. We reviewed PAB staffing reports from 1999 through 2006 and found that authorized staff levels dropped from 11 full-time equivalents (FTEs) in 1999 to 6 FTEs in 2005. Further, we noted that the number of audits performed by the USMS IGA Audit Branch decreased from 29 audits in 2003, to 16 in 2004, to 1 in 2005. In our judgment, the decline in the number of audits performed by the Audit Branch put an increasing burden on IGA analysts to identify unallowable costs prior to the establishment of a jail-day rate, and also undermines an important check on rising detention costs.

Recommendations

We recommend that the OFDT:

  1. Develop guidance and training for the USMS on how jail-day rates will be established using eIGA. The guidance and training should include how to negotiate with detention facilities, clearly documenting the basis for negotiated jail-day rates, evaluating cost and non-cost factors, when it is appropriate to deviate from the scheduled adjustments to the core rate, how deviations should be documented, defining what constitutes an appropriate facility to compare jail-day rates, evaluating and documenting the analysis of established jail-day rates of similar facilities in justifying a jail-day rate, documenting the rationale for any retroactive increase or extension of temporary agreements, and ensuring that follow-up on temporary jail-day rates is timely.

  2. Develop guidance that limits the amount of profit a state or local jail can earn for housing federal prisoners.

We recommend that the USMS:

  1. Develop annual training plans for IGA analysts that will provide appropriate procurement core competencies such as those outlined by the Federal Acquisition Institute.

  2. Update policies that clearly describe PAB and USMS responsibilities for establishing and monitoring IGAs.

  3. Review all IGAs to ensure that the agreements are current, and prepare new agreements for those that have expired.

  4. Ensure adequate resources are provided to oversee IGAs. This includes adequate staffing for the review and approval of IGA actions, and for the audit of IGAs.



Footnotes
  1. Appendix IV presents our schedule of our dollar-related findings and highlights the specific audits that remain unaddressed by the USMS. Our presentation of prior audit results is generally limited to the findings and recommendations pertaining to the USMS. In addition to the USMS, our individual audits contained an additional $20 million in dollar-related findings related to the former INS and BOP. Appendix V provides a summary of each IGA report issued by the OIG.

  2. See Appendix VI for a copy of the current Detention Trustee’s memorandum, dated March 17, 2006.

  3. In a memorandum dated June 6, 2006, the OIG discussed its disagreement with the OFDT. See Appendix VII for a copy of the memorandum.

  4. For example, the 1984 IGA with the Orleans Parish, Louisiana, Criminal Sheriff’s Office used the term “fixed rate” to describe the unit price paid.

  5. See Appendix III for an example of a cost sheet form and instructions.

  6. Actual costs refer to costs incurred by a detention facility. According to OMB Circular A-87, for actual IGA costs to be allowable, costs must be: (1) necessary and reasonable; (2) authorized or not prohibited under state or local laws or regulations; (3) in conformity with laws, regulations, and terms and conditions of the award; (4) accorded consistent treatment; (5) in accordance with generally accepted accounting principles; (6) net of all applicable credits; and (7) adequately documented.

  7. See Appendix VIII for a copy of the memorandum. The OIG’s response to the memorandum is contained in Appendix IX.

  8. As follow-up to the audit, the USMS revised the jail-day rate to $41.65 based on the average daily population for FY 1996. In response to the recommendations for the [SENSITIVE INFORMATION REDACTED], the Eastern District’s Chief Deputy USM signed a Request for Detention Services to reduce the jail-day rate to $41.65. However, the revised jail-day rate was never implemented. PAB officials could not tell us why the questioned costs were not recovered or resolved, or why the jail-day rate was not reduced.

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

  10. According to OMB-87, a cost is reasonable if it does not exceed that which would be incurred by a prudent person, under the circumstances prevailing at the time the decision was made, to incur the cost. In determining reasonableness of a given cost, consideration should be given to: (a) whether the type of cost is necessary for the operation of the governmental unit or the performance of the federal award; (b) the restraints or requirement imposed by such factors as sound business practices; arms length bargaining; federal, state and other laws and regulations; and terms and conditions of the award; (c) market prices for comparable goods or services; (d) whether the individual concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the federal government; (e) significant deviations from the established practices of the governmental unit which may unjustifiably increase the federal award’s cost.

  11. The President’s management agenda includes an initiative to expand Electronic Government (e-gov). The purpose of e-gov is to use internet-based technology to make it easier for citizens and businesses to interact with the government.

  12. As shown in Appendices VII and X, we have expressed concern with the [SENSITIVE INFORMATION REDACTED] core rate because our individual IGA audits often note significant variances between [SENSITIVE INFORMATION REDACTED] and the rates supported by the detention facilities’ allowable costs and average daily populations. According to the OFDT, [SENSITIVE INFORMATION REDACTED]. The OFDT also stated that the core rate will be assessed and adjusted, if necessary, as eIGA is populated with expense information.

  13. According to the OFDT, it uses [SENSITIVE INFORMATION REDACTED] [SENSITIVE INFORMATION REDACTED] for the following reasons: [SENSITIVE INFORMATION REDACTED]. We discuss the concerns with using [SENSITIVE INFORMATION REDACTED] further in the Establishing IGAs with eIGA section of this report.

  14. The [SENSITIVE INFORMATION REDACTED] was derived from regulations formerly included in the Federal Acquisition Regulation [SENSITIVE INFORMATION REDACTED].

  15. In this screen shot, the core rate is presented after adjustments.

  16. The eIGA’s jail operating expense information includes many of the cost categories captured on a cost sheet including a jail’s actual and projected expenses on personnel salaries and benefits, consultant and contract services, medical care and treatment, facility and office, safety and sanitation, and insurance. Unlike the cost sheet, however, the jail operating expense information will not capture average daily population, indirect costs, or revenue generated from a detention facility’s operation (also known as credits). In addition, under eIGA a jail will not have to certify that the expense information provided is accurate as it is currently required to do under the traditional process for establishing jail-day rates. As discussed later in this report, we are concerned about how USMS IGA analysts will use the jail operating expense information.

  17. In prior memoranda, the OIG identified its specific concerns with the OFDT’s proposed plans for revamping the process for establishing jail-day rates. See Appendices VII and X for a copies of the memoranda.

  18. The Service Contract Act requires contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor’s collective bargaining agreement. The Department of Labor issues wage determinations on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are incorporated into the contract.

  19. As a result of OFDT calculating the adjusted core rates incorrectly, the USMS believed it was establishing jail-day rates that [SENSITIVE INFORMATION REDACTED] for the facilities in our sample.

  20. To arrive at a cost sheet rate, we reviewed the cost sheets and records of negotiation that were prepared by the USMS IGA analysts. We further adjusted the total allowable costs as appropriate and divided by the average daily population. In some cases, the information presented did not provide us with enough information to evaluate the allowability of costs contained on the cost sheets. Therefore, our calculation could vary from a jailís actual and allowable costs.

  21. For example, the [SENSITIVE INFORMATION REDACTED] Jail requested a jail-day rate increase from $52 to $94.15 based on its FY 2003 cost sheet. The $52 jail-day rate was a temporary rate based on FY 2001 costs. The USMS initially planned to audit [SENSITIVE INFORMATION REDACTED] request for a rate increase, but after providing a temporary rate increase from $52 to $80, the audit was cancelled. In March 2004, the jail-day rate was increased to $93.30.

  22. In addition to the examples provided, we noted deficiencies with the following IGAs: Floyd County Detention Center, Georgia; Yolo County Jail, California; Orleans Parish Criminal Sheriff’s Office, Louisiana; and the Albany County Correctional Facility in New York.

  23. A temporary rate agreement can be effective for up to 12 months pending receipt and review of actual cost data. It is negotiated when a facility does not have prior cost history. The [SENSITIVE INFORMAITON REDACTED] temporary rate was only effective for 9 months, at which time the [SENSITIVE INFORMATION REDACTED] was to submit a cost sheet.

  24. IGA actions include establishing a new IGA, revising the jail-day rate; and establishing a limited or temporary use IGA.

  25. In locations where detention space is scarce, the USMS provides state and local governments with funds under the CAP to improve local jail facilities and to expand jail capacities. In return, the USMS receives guaranteed detention bed space for its federal detainees. Use of the bed space under a CAP agreement also requires an IGA between the USMS and the facility. When the USMS uses the bed space guaranteed by the CAP, it pays a jail-day rate to the facility for each detainee as established through the IGA. The CAPs state that recipients shall accept a jail-day rate that is supported by actual and allowable jail operating costs.

  26. As stated earlier, the reasons for the IGA rate increases and the retroactive application of the rate increases for the [SENSITIVE INFORMATION REDACTED] were not documented.

  27. Based on our audit of [SENSITIVE INFORMATION REDACTED], we determined the jail-day rate based on actual and allowable cost to be $30.62, while the jail-day rate paid to [SENSITIVE INFORMATION REDACTED] was $50.00 resulting in a profit of $19.38 or 63 percent. In the [SENSITIVE INFORMATION REDACTED] audit, we determined the jail-day rate based on actual and allowable cost to be $37.36, while the jail-day rate paid to [SENSITIVE INFORMATION REDACTED] was $65, resulting in a profit of $27.64 or 74 percent. In our current audit, we performed a review of the [SENSITIVE INFORMATION REDACTED] cost sheet and identified deficiencies. Based on the limited review we determined the jail-day rate based on actual and allowable cost to be $32.50, while the jail day rate paid to [SENSITIVE INFORMATION REDACTED] was $45.00, resulting in a profit of $12.50 or 38 percent.

  28. Although the PAB identifies staff as IGA analysts, the IGA Manual still uses the contract specialist title because IGA analysts were previously considered contract specialists. Whether staff are identified as contract specialists or IGA analysts, both job descriptions have similar roles in the acquisition process.

  29. In 1976, Congress established FAI under the Office of Federal Procurement Policy. The General Services Administration acts as its executive agent, providing funding and support for FAI. The mission of FAI is to foster and promote the development of a professional acquisition workforce into effective business leaders.

  30. The six IGAs that either expired or lapsed were: LaSalle County Regional Jail, Texas; Randolph County Jail, North Carolina; Allegany County Jail, Maryland; Yolo County Jail, California; Connecticut Department of Corrections, Connecticut; and Western Tidewater Regional Jail, Virginia.

  31. Prisoners” is an Access database that the USMS maintains on detention facilities used to house detainees. The database includes IGA agreements, private contracts for prisoner bed space, and federal detention centers.

  32. RDS refers to the USM Form-243, “Request for Detention Space,” which is prepared by the district and submitted to PAB along with the cost sheet and other supporting materials.

  33. Department of Justice, Office of the Inspector General. Audit Report Number GR-60-06-002, The United States Marshals Service Intergovernmental Service Agreement for Detention Services with the [SENSITIVE INFORMATION REDACTED].



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