Audit of the Asset Seizure and Forfeiture Program Contract

 

September 2004

 

Reference Number: 2004-10-174

 

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

 

September 21, 2004

 

 

MEMORANDUM FOR CHIEF, AGENCY-WIDE SHARED SERVICES

 

FROM:     Gordon C. Milbourn III /s/ Gordon C. Milbourn III

                 Acting Deputy Inspector General for Audit

 

SUBJECT:     Final Audit Report - Audit of the Asset Seizure and Forfeiture Program Contract (Audit # 200410009)

 

This report presents the results of our review of the Asset Seizure and Forfeiture Contract.  The overall objective of this review was to determine whether the contractor billed the Internal Revenue Service (IRS) accurately and according to the contract’s terms and conditions. 

Contract expenditures represent a significant outlay of IRS funds.  The Treasury Inspector General for Tax Administration has made a commitment to perform audits of these expenditures.  As a result, we initiated this audit to review the contractor’s invoices and determine whether the IRS was billed accurately and according to the contract’s terms and conditions.

In summary, the contractor’s documentation was not adequate to support all of the costs invoiced to the IRS.  Specifically, we identified $99,613.40 of the $4.5 million in direct invoiced costs included in our sample for which either the contractor was unable to provide any supporting documentation, or the documentation was not adequate to support the costs.  We did not identify any unallowable expenses. 

We recommended the Director, Procurement, seek recovery of the unsupported costs of $99,613.40 unless the contractor provides acceptable support for those costs. 

Management’s Response:  IRS management agreed with the recommendation presented in our report and initiated corrective action.  Specifically, the contracting officer (CO) held further discussions with the contractor and received additional documentation to support $88,767.42 of the questioned labor and travel expenses.  The CO will initiate action to recover the remaining unsupported amount of $10,845.99. 

Office of Audit Comment: We reviewed the additional documentation provided by the contractor to the IRS.  We were able to verify $85,781.30 of our original $99,613.40 of questioned costs. However, we do not believe the contractor provided sufficient additional documentation to support some of the travel expenses.  The CO should consider this when seeking recovery of all unsupported costs, totaling $13,832.10.

Please contact me at (202) 622-6510 if you have any questions or Daniel R. Devlin, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs), at (202) 622-8500.

 

Table of Contents

Background

Documentation Was Not Adequate to Support All of the Invoiced Costs

Recommendation 1:

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Outcome Measures

Appendix V – Management’s Response to the Draft Report

 

Background

In September 1999, the Internal Revenue Service (IRS) awarded a time and materials contract for the Criminal Investigation (CI) function’s asset seizure and forfeiture program.  The contractor provides support services to the asset forfeiture program, including personnel, supervision, and other related services, and incidental items necessary for the management of seized and forfeited assets. 

The contract was awarded for a 1-year base period, with 4 option years.  According to the IRS Request Tracking System, as of December 2003, the IRS had approved for payment approximately $10 million. 

Because contract expenditures represent a significant outlay of IRS funds, the Treasury Inspector General for Tax Administration (TIGTA) has made a commitment to perform audits of these expenditures.  We initiated this audit to review the contractor’s invoices and determine whether the IRS was billed accurately and according to the contract’s terms and conditions.

The review was performed in the Procurement directorate within the Office of Agency-Wide Shared Services in Oxon Hill, Maryland, and in the CI function in Washington, D.C., during the period November 2003 through June 2004.  In addition, we interviewed accounting personnel and reviewed records in the contractor’s office located in Fairfax, Virginia.

The audit was conducted in accordance with Government Auditing Standards.  Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.

Documentation Was Not Adequate to Support All of the Invoiced Costs

The contractor’s documentation was not adequate to support all of the costs invoiced to the IRS. Using a judgmental sample of 21 invoices, totaling approximately $4.5 million, we examined the contractor’s supporting documentation to verify charges for employee labor hours, as well as travel expenses.  We identified $99,613.40 (2.2 percent) of the $4.5 million in direct invoiced costs included in our sample for which either the contractor was unable to provide any supporting documentation or the documentation was not adequate to support the cost.  We did not identify any unallowable expenses.

Table 1 summarizes the questioned costs identified during our review.

Table 1: Schedule of Questioned Costs

Source: TIGTA analysis of 21 invoices submitted to the IRS.

The Federal Acquisition Regulation (FAR) stipulates that a contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred.  The FAR also provides that costs shall be allowed to the extent they are reasonable, allocable, and allowable under the FAR. 

The IRS has a process in place to verify the charges included on the invoices.  While the contracting officer (CO) is the ultimate authority on administering the contract, the contracting officer’s technical representative (COTR) is the designated official for verifying the accuracy of the labor and travel expenses reported on the contractor’s invoices. The COTR relies on the CI function’s asset forfeiture coordinators (AFC) to verify the contractor’s labor hours. The AFCs are responsible for reviewing contractor employee timecards to ensure labor hours are being reported accurately.  Additionally, an assistant COTR is responsible for evaluating travel expenses. This consists of a spot check for accuracy and proper authorization.  However, the assistant COTR does not routinely review receipts for the travel vouchers.

Because we were unable to verify all the costs included on the invoices, there is no assurance the contractor billed the IRS accurately.  Although our review identified only 2.2 percent in unsupported costs, it would be good practice for the IRS to randomly select charges at irregular intervals to verify to supporting documentation (e.g., time reports, travel receipts) as part of its invoice review process for all contracts.

Recommendation

1.      The Director, Procurement, should seek recovery of the $99,613.40 in unsupported costs unless the contractor provides acceptable support for those costs.

Management’s Response:  The CO held further discussions with the contractor and received additional documentation to support $88,767.42 of the questioned labor and travel expenses. The CO will initiate action to recover the remaining unsupported amount of $10,845.99.

Office of Audit Comment:  We reviewed the additional documentation provided by the contractor to the IRS.  We were able to verify $85,781.30 of our original $99,613.40 of questioned costs.  However, we do not believe the contractor provided sufficient additional documentation to support $2,986.11 in travel expenses.  The CO should consider this additional amount when seeking recovery of all unsupported costs, totaling $13,832.10.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective for this review was to determine whether the contractor billed the Internal Revenue Service (IRS) accurately and according to the contract’s terms and conditions.  We accomplished this objective by determining whether contractor billings were adequately supported and all costs were allowable.  Specifically, we:

I.                   Determined whether labor hours, labor categories and rates, and travel costs billed were allowable, accurate and supported by appropriate documentation, and consistent with contract terms and conditions.

A.    Reviewed the IRS contract files to identify all applicable contract terms and conditions and determined the minimum contract qualifications required for each labor category and corresponding labor rates.

B.     Interviewed IRS personnel involved in the administration of the contract and payment of the invoices to determine whether concerns exist regarding the contractor, its billing practices, or any specific invoices.

C.     Prepared a sampling plan and judgmentally selected a sample of invoices.  A judgmental sample was used because we did not plan to project the results to the universe.  We analyzed all 33 of the contractor’s invoices submitted from January 2001 through August 2003 to select our sample.  We selected a sample of 21 invoices to verify all direct costs, including labor hours and travel expenses (e.g., airfare, hotel, mileage).  Our sample covered approximately $4.5 million (almost 65 percent) of the nearly $6.9 million in total invoiced expenses.  In addition, the sample included nearly $174,000 (nearly 55 percent) of the approximately $317,000 in invoiced travel expenses.

1.      Traced employee hours billed to supporting timesheets and payroll records to verify accuracy.

2.      Compared the labor rates billed to those established in the contract to verify consistency with the contract terms. 

3.      Determined whether all charges were allowable in accordance with the contract terms and Federal Government regulations.

II.                Identified control deficiencies that allowed the payment of invoices containing inaccurate, unsupported, and/or unallowable labor and travel costs to occur.  We did not review the contractor’s entire systems of internal controls.

 

Appendix II

 

Major Contributors to This Report

 

Daniel R. Devlin, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

John R. Wright, Director

Debra Gregory, Audit Manager

Gary Pressley, Lead Auditor

Robert Beel, Senior Auditor

Chinita Coates, Auditor

Melvin Lindsey, Auditor

Niurka Thomas, Auditor

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Deputy Commissioner for Operations Support  OS

Deputy Commissioner for Services and Enforcement SE

Chief, Criminal Investigation  SE:CI

Director, Procurement  OS:A:P

Chief Counsel  CC

National Taxpayer Advocate  TA

Director, Office of Legislative Affairs  CL:LA

Director, Office of Program Evaluation and Risk Analysis RAS:O

Office of Management Controls  OS:CFO:AR:M

Audit Liaisons:

           Chief, Agency-Wide Shared Services  OS:A:F

           Chief, Criminal Investigation  SE:CI:S:PS

           Director, Procurement  OS:A:P

 

Appendix IV

 

Outcome Measures

 

This appendix presents detailed information on the measurable impact that our recommended corrective action will have on tax administration.  This benefit will be incorporated into our Semiannual Report to the Congress.

Type and Value of Outcome Measure:

·         Cost Savings, Questioned Costs (Unsupported) – Potential, $13,832.10 (see page 1).

Methodology Used to Measure the Reported Benefit:

To determine the questioned costs, we reviewed a judgmental sample of 21 invoices, including the corresponding supporting documentation.  We selected our sample from a total population of 33 invoices the contractor submitted to the Internal Revenue Service (IRS) for services rendered during our review period (January 2001 through August 2003).  We identified $99,613.40 in costs for which the contractor was either unable to provide any supporting documentation or the documentation was not adequate to support the cost.

The IRS’ response to the draft report provided that the contracting officer (CO) received additional documentation from the contractor and determined that $88,767.42 of the questioned costs were supported. Additionally, the IRS stated that the CO will initiate action to recover the remaining unsupported amount of $10,845.99.  

We reviewed this additional documentation and were able to verify $85,781.30 of our original $99,613.40 of questioned costs. However, we do not believe the contractor provided sufficient additional documentation to support $2,986.11 in travel expenses.  The contractor provided documentation that the contractor believed supported $5,013.52 in travel expenses, but we concur with only $2,027.41.  The CO should consider this when seeking recovery of all unsupported costs, totaling $13,832.10.

 

Appendix V

Management’s Response to the Draft Report

 

The response was removed due to its size.  To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.