u.s. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS Final Audit Report Subject: AUDIT OF THE 2007 THROUGH 2010 COMBINED FEDERAL CAMPAIGNS OF THE NATIONAL CAPITAL AREA ALEXANDRIA, VIRGINIA Report No. 3A-CF-OO-IO-034 Date: March 14, 2012 --CAUTIONThis a udit rtport has bttn distri buted to Ftdtrlll officials who art responsible for the administration ortht audited program. This audit report may con tain proprietary data which is protected by .'edtra llaw (18 U.S.c. )?OS). Thertfore, while Ihis audit report is 1I\'aila blt under Ihe Frttdom of Information AcllRd madt IIvailllblt to tht pu blic on the OIG ..·tbpagt. Clulion necds to bt tnrci~td btfore rtltasing Iht report to tht genera l public 115 it may co ntain propridary information thlt was redaCltd from tht pubtidy d istributed cop~·. UN ITED STATES OFFICE OF PERSONNEL MANAGEM ENT Washington , DC 20415 Office of the inspector General AUDIT REPORT AUDIT OF THE 2007 THROUGH 2010 COMBINED FEDERAL CAMPAIGNS OF THE NATIONAL CAPITAL AREA ALEXANDRIA, VIRGINIA Date:March 14, 2012 Report No. 3A-CF-OO-IO-034 ~t?~ Michael R. Esser Assistant Inspector General for Audits --CAUTIONThis l udi t report hlU bten di stri buted to Ftdcral officials ""bo arc respo nsi ble for Iht ad ministration of lhe au dited progf'll m. This lI udil report mA y contain proprietary data which is protected by Fcdrnllllaw (18 U.S.c. 19(15). Therefore. while this a udi t report is ava ila ble under the Frttdom of Informa tion "eland mad e ava ilable to th e public on Ih e OIG wcbpage. notio n news to be ucrciscd be fore rt ltasin g Iht report to the gcnuI I public n it mil)' co ntlin proprietary information tb a' was red ac led from Iht publicly distrib uted copy. www.opm.co¥ www.uuJobs ·cov UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington. DC 2041 5 Office of the IlIspeclor Gcncml EXECUTIVE SUMMARY AUDIT OF THE 2007 THROUGH 2010 COMBINED FEDERAL CAMPAIGNS OF THE NATIONAL CAPITAL AREA ALEXANDRIA, VIRGINIA Report No. 3A-CF-OO-IO-034 Date: March 14, 20 1 2 The Office of the inspector General has completed an audit of the 2007 through 20 10 Combined Federal Campaigns (CFC) of the National Capital Area (NCA). Global Impact, located in Alexandria, Virginia, served as the Principal Combined Fund Organization (PCFO) during these campaigns. Our main obj ective was to determine if the CFCNCA was in compliance with Title 5, Code of Federal Regulations, Part 950 (5 eFR 950). including the responsibilities of both the PCFO and the Local Federal Coordinating Committee (LFCC). The audit identified seven instances of non-compliance with the regulations governing the eFe. and questions $308,820 in expenses charged to the campai gns. In addition, we identified $764,069 in expenses that could have been put to better use for the campaigns. The following findin gs represent the results of our audit work as of the date of this report. AUDIT GUIDE REVIEW Our review of the Independent Public Accountant's completion of the agreed-upon procedures for the 2007 campaign showed that it complied with applicable provisions of the CFC Audit Guide For Campaigns with Pledges $1 Million and Greater (CFC Audit Guide). www.opm· C o~ www.useJo bl.Cov BUDGET AND CAMPAIGN EXPENSES • Untimely PCFO Reimbursement for 2007 and 2008 Expenses Procedural The PCFO reimbursed itself for CFC campaign expenses after the date set by the Office of Personnel Management’s (OPM) Office of the Combined Federal Campaign (OCFC) for final campaign disbursements in campaign years 2007 and 2008. • PCFO Overcharged for Travel Expenses $40,081 It should be noted that although the PCFO labeled this expense category as travel expenses, they also included other types of expenses such as meals and appreciation luncheons in this category, which are included in the questioned amounts below. We noted the following from our review of these expenses: 1. The PCFO was reimbursed for unreasonable, unallowable, or unsupported travel expenses in the amounts of $15,318 in 2007, $12,733 in 2008, and $12,030 in 2009. 2. Additionally, the PCFO charged expenses to the wrong campaign in the amounts of $8,411 in 2007, $2,164 in 2008, and $5,228 in 2009. We are not requiring that these amounts be reallocated to the appropriate campaign since the campaign years in question are already closed. • PCFO Overcharged for Campaign Expenses $268,739 We noted the following from our review of campaign expenses: 1. The PCFO was reimbursed for unreasonable, unallowable, or unsupported expenses in the amounts of $81,640 in 2007, $80,958 in 2008, and $106,141 in 2009. 2. Additionally, the PCFO charged expenses to the wrong campaign in the amounts of $39,605 in 2007, $49,076 in 2008, and $22,366 in 2009. We are not requiring that these amounts be reallocated to the appropriate campaign since the campaign years in question are already closed. 3. Finally, we identified $764,069 related to training events, CFCNCA conferences, design and marketing services, software applications and licensing fees, appreciation luncheons, and finale events that could have been put to better use by the PCFO. • Improper Accounting for Campaign Expenses by PCFO Procedural The PCFO's accounting policies and procedures allowed for the reimbursement of accrued costs as well as actual costs, which could potentially result in overcharges to the campaign and limit the amounts disbursed to the participating charities. ii CAMPAIGN RECEIPTS AND DISBURSEMENTS • PCFO was Reimbursed for Estimated Expenses Procedural The PCFO was incorrectly reimbursed $2,129 for estimated expenses related to a special distribution of funds. • Unearned Interest in the CFCNCA Bank Accounts Procedural The PCFO did not obtain approval from the OCFC for earning a credit, instead of interest, on campaign funds in the CFCNCA Account. ELIGIBILITY • Untimely Notice of Eligibility Decisions by LFCC Procedural The LFCC did not issue its eligibility decisions within 15 business days of the closing date for receipt of applications, for charities wishing to participate in the 2008 campaign. iii CONTENTS PAGE EXECUTIVE SUMMARY ............................................................................................. i I. INTRODUCTION AND BACKGROUND ................................................................... 1 II. OBJECTIVES, SCOPE AND METHODOLOGY .......................................................... 3 III. AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 8 A. AUDIT GUIDE REVIEW ..................................................................................... 8 B. BUDGET AND CAMPAIGN EXPENSES ........................................................... 8 1. 2. 3. 4. C. Untimely PCFO Reimbursement for 2007 and 2008 Expenses ...................... 8 PCFO Overcharged for Travel Expenses ........................................................ 10 PCFO Overcharged for Campaign Expenses .................................................. 21 Improper Accounting for Campaign Expenses by PCFO ............................... 32 CAMPAIGN RECEIPTS AND DISBURSEMENTS .......................................... 35 1. PCFO was Reimbursed for Estimated Expenses ............................................ 35 2. Unearned Interest in the CFCNCA Bank Accounts ....................................... 36 D. ELIGIBILITY ....................................................................................................... 37 1. Untimely Notice of Eligibility Decisions by LFCC ....................................... 37 IV. MAJOR CONTRIBUTORS TO THIS REPORT .......................................................... 39 APPENDIX A (The PCFO response, dated June 23, 2011, to the draft audit report) APPENDIX B (The PCFO response, dated July 11, 2011, to the draft audit report) APPENDIX C (The PCFO response, dated July 18, 2011, to the draft audit report) APPENDIX D (The PCFO response, dated July 29, 2011, to the draft audit report) I. INTRODUCTION AND BACKGROUND INTRODUCTION This report details the findings and conclusions resulting from our audit of the Combined Federal Campaigns of the National Capital Area (CFCNCA) for 2007 through 2010. The audit was performed by the Office of Personnel Management’s (OPM) Office of the Inspector General (OIG), as authorized by the Inspector General Act of 1978, as amended. BACKGROUND The CFC is the sole authorized fund-raising drive conducted in Federal installations throughout the world. In 2009, it consisted of 226 separate local campaign organizations located throughout the United States, including Puerto Rico and the Virgin Islands, as well as overseas locations. The Office of the Combined Federal Campaign (OCFC) at OPM has the responsibility for management of the CFC. This includes publishing regulations, memoranda, and other forms of guidance to Federal offices and private organizations to ensure that all campaign objectives are achieved. Each CFC is conducted by a Local Federal Coordinating Committee (LFCC) and administered by a Principal Combined Fund Organization (PCFO). The LFCC is responsible for organizing the local CFC; determining the eligibility of local voluntary organizations; selecting and supervising the activities of the PCFO; encouraging Federal agencies to appoint Loaned Executives to assist in the campaign; ensuring that employees are not coerced in any way in participating in the campaign; and acting upon any problems relating to a voluntary agency’s noncompliance with the policies and procedures of the CFC. Loaned Executives are Federal employees who are temporarily assigned to work directly on the CFC. The primary goal of the PCFO is to administer an effective and efficient campaign in a fair and even-handed manner aimed at collecting the greatest amount of charitable contributions possible. Its responsibilities include training loaned executives, coordinators, employee keyworkers and volunteers; maintaining a detailed schedule of its actual CFC administrative expenses; preparing pledge cards and brochures; distributing campaign receipts; submitting to an audit of its CFC operations by an Independent Certified Public Accountant (IPA) in accordance with generally accepted auditing standards; cooperating fully with the OIG audit staff during audits and evaluations; responding in a timely and appropriate manner to all inquiries from participating organizations, the LFCC, and the Director of OPM; and, consulting with federated groups on the operation of the local campaign. Executive Orders No. 12353 and No. 12404 established a system for administering an annual charitable solicitation drive among Federal civilian and military employees. Title 5 Code of Federal Regulations Part 950 (5 CFR 950), the regulations governing CFC operations, sets forth ground rules under which charitable organizations receive Federal employee donations. Compliance with these regulations is the responsibility of the PCFO and the LFCC. The PCFO is also responsible for establishing and maintaining a system of internal controls. 1 All findings from our previous audit of the CFCNCA (Report Number 3A-CF-00-03-011, dated May 9, 2005), covering the 2001 campaign, have been satisfactorily resolved. The initial results of our audit were discussed with PCFO officials during the exit conference held on December 8, 2010. The LFCC did not attend the exit conference. A draft report was provided to the PCFO and the LFCC on May 31, 2011, for review and comment. The PCFO’s responses to the draft report were considered in the preparation of this final report and are included as Appendices. The draft responses are not included in their entirety because of their size. Instead, we only included portions of the responses that directly addressed the PCFO’s comments to our audit issues. No formal comments were provided by the LFCC to the draft report. 2 II. OBJECTIVES, SCOPE, AND METHODOLOGY OBJECTIVES The primary purpose of our audit was to determine if the CFCNCA was in compliance with 5 CFR 950, including the activities of both the PCFO and the LFCC. One of our audit objectives for the 2007 campaign was: Audit Guide Review • To determine if the IPA completed the Agreed-Upon Procedures (AUPs) as outlined in the CFC Audit Guide For Campaigns with Pledges $1 Million and Greater (CFC Audit Guide). Additionally, our audit objectives for the 2007 through 2009 campaigns were as follows (for the 2010 campaign, the review was limited to the area specifically indicated below): Budget and Campaign Expenses • To determine if the PCFO solicitation, application, campaign plan, and budget were in accordance with regulations. (These areas were also reviewed for the 2010 campaign) • To determine if the expenses charged to the campaign were actual, reasonable, allocated properly, approved by the LFCC, and did not exceed 110 percent of the approved budget. Campaign Receipts and Disbursements • To determine if the pledge card format was correct and if the pledge card report agreed with the actual pledge cards. • To determine if incoming pledge monies were allocated to the proper campaign year and that the net funds (less expenses) were properly distributed to member agencies 1 and federations. • To determine if the member agencies and federations were properly notified of the amounts pledged to them and that donor personal information was only released for those who requested the release of information. Eligibility • To determine if the charity list (CFC brochure) was properly formatted and contained the required information; if the charitable organization application process was open for the required 30-day period; if the applications were appropriately reviewed, evaluated, and approved; if the applicants were notified of the eligibility decisions in a timely manner; and if the appeals process for denied applications was followed. SCOPE AND METHODOLOGY We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain 1 The terms ‘member agencies’ and ‘agencies’, used throughout this report, refer to charitable organizations that participate in the CFC. 3 sufficient and appropriate evidence to provide a reasonable basis for our findings and conclusions based on the audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on the audit objectives. The audit covered the 2007 through 2010 campaigns. Global Impact, located in Alexandria, Virginia, served as the PCFO during these campaigns. The audit fieldwork was conducted at the offices of the PCFO from July 12 through July 23, 2010. Additional audit work was completed at our Washington, D.C. office. The significant amount of time from the end of our audit to the issuance of this report is due largely to the voluminous response by the PCFO to the draft report, and the extensive review and analysis that was necessary to finalize the report. The CFCNCA received campaign pledges, collected campaign receipts, and incurred campaign administrative expenses for the 2007 through 2009 campaigns as shown below: Campaign Year Total Pledges Total Receipts Administrative Expenses 2007 $60,799,023 $57,895,815 $5,381,784 2008 $62,733,353 $59,728,858 $5,054,516 2009 $66,535,844 $64,768,634 $5,009,496 At the time of this report, 2010 information was not available since the campaign was still open. In conducting the audit, we relied to varying degrees on computer-generated data. Our review of a sample of campaign expenses and supporting data, a sample of pledge card entries, and the distribution of campaign contributions and related bank statements, verified that the computergenerated data used in conducting the audit was reliable. Nothing came to our attention during our review of the data to cause us to doubt its reliability. We considered the campaign’s internal control structure in planning the audit procedures. We gained an understanding of the management procedures and controls to the extent necessary to achieve our audit objectives. We relied primarily on substantive testing rather than tests of internal controls. The audit included tests of accounting records and such other auditing procedures as we considered necessary to determine compliance with 5 CFR 950 and the CFC Memoranda issued by the OCFC. To accomplish our objective for the Audit Guide Review, we reviewed the CFC Audit Guide and completed the AUP checklist to verify that the IPA completed and documented the AUP steps. In regard to our objectives concerning the campaign’s budget and campaign expenses, we accomplished the following: • For the 2007 through the 2010 campaigns, we reviewed the PCFO’s applications to verify if they were complete. 4 • For the 2007 through the 2010 campaigns, we reviewed a copy of the public notice to prospective PCFOs, and the LFCC meeting minutes to verify that the PCFO was selected in a timely manner. • For the 2007 through the 2009 campaigns, we traced and reconciled the amounts on the PCFO’s Schedule of Actual Expenses to the PCFO’s general ledger. • For the 2007 through 2009 campaigns, we reviewed the PCFO’s budgeted expenses, the LFCC’s approval of the budget, and matched a sample of actual expenses to supporting documentation. We examined the following campaign expense items for campaign years 2007 through 2009: 1. We judgmentally selected 61 travel and meals transactions (totaling $37,301 from a universe of 196 transactions totaling $46,952) for 2007; 30 travel and meals transactions (totaling $20,446 from a universe of 189 transactions totaling $32,819) for 2008; and 31 travel and meals transactions (totaling $40,212 from a universe of 233 transactions totaling $60,597) for 2009. 2. We judgmentally selected 228 campaign expense transactions, excluding travel expenses, (totaling $2,273,185 out of a universe of 621 transactions totaling $2,570,431) for 2007; 245 campaign expense transactions (totaling $2,541,549 from a universe of 839 transactions totaling $2,320,468) for 2008 2; and 191 campaign expense transactions (totaling $2,190,970 from a universe of 565 transactions totaling $2,514,154) for 2009. The sample and universe transaction amounts were derived by netting total expense debits and total expense credits. 3. We judgmentally selected, based on a nomenclature review, whether the expense appeared to be unusual, and whether the expense benefitted the campaign: 59 indirect expense transactions (totaling $509,690 from a universe of 930 transactions totaling $1,150,198) for 2007; 32 indirect expense transactions (totaling $175,902 from a universe of 575 transactions totaling $656,927) for 2008; and 21 indirect expense transactions (totaling $96,171 from a universe of 190 transactions totaling $329,922) for 2009. 4. We judgmentally selected a sample of all PCFO employees (i.e., CFCNCA staff members) who were 100 percent dedicated to the CFCNCA, or whose salary was allocated between CFC and non-CFC work. We had concerns about how the salaries were allocated so we tested the amount of the salaries that were charged to the campaign. Specifically, we selected 28 out of 132 employees in 2007, 21 out of 132 employees in 2008, and 28 out of 132 employees in 2009. • For the 2007 and 2008 campaigns, we reviewed the LFCC meeting minutes and verified that the LFCC authorized the PCFO’s reimbursement of campaign expenses. 2 Because sample and universe transaction amounts were derived by netting total expense debits and total expense credits, for 2008, the sampled transaction amount was greater than the universe transaction amount. 5 • For the 2007 through the 2009 campaigns, we compared the budgeted expenses to actual expenses and determined if actual expenses exceeded 110 percent of the approved budget. To determine if the campaign’s receipts and disbursements were handled in accordance with CFC regulations, we reviewed the following: • A judgmental sample of 75 pledge cards totaling $19,316, and 12 electronic pledges totaling $8,559 (from a universe of 139,404 pledge cards, totaling $62.7 million) from the 2008 PCFO’s Pledge Card Report and compared the pledge information from the report to the actual pledge cards. Specifically, we judgmentally selected the first 25 pledge cards on each of 3 tabs in the Pledge Card Detail Schedule and the first 3 donors on each of 4 tabs in the Electronic Pledges File for review; • Cancelled distribution checks for the 2008 campaign to verify that the appropriate amount was distributed in a timely manner; • One-time disbursements, for the 2007 and 2008 campaigns, to verify that the PCFO properly calculated pledge loss and disbursed the funds in accordance with the ceiling amount established by the LFCC; • The PCFO’s most recent listing of outstanding checks to verify that the PCFO was following its policy for such checks; • The Pledge Notification Letters for the 2008 campaign to verify that the PCFO notified the CFC agencies of the designated and undesignated amounts due them by the date required in the regulations; • The donor list letters for the 2008 campaign sent by the PCFO to organizations to verify the letters properly notified the organizations of the donors who wished to be recognized; • CFC receipts and distributions from the PCFO’s campaign bank statements, campaign receipts and agency disbursements, and campaign expense support to verify whether the PCFO accurately recorded and disbursed all 2007 and 2008 campaign receipts and disbursements; • All bank statements used by the PCFO for the 2008 campaign to verify that the PCFO was properly accounting for and distributing funds; and • The PCFO’s cutoff procedures and bank statements for the 2008 campaign to verify that funds were allocated to the appropriate campaign year. To determine if the LFCC and PCFO were in compliance with CFC regulations regarding eligibility we reviewed the following: 6 • For the 2007 through 2009 campaigns, the public notice to prospective charitable organizations to determine if the LFCC accepted applications from organizations for at least 30 days; • For the 2008 campaign, the process and procedures for the application evaluation process; • For the 2008 campaign, a sample of eligibility letters to verify they were properly sent by the LFCC; and • For the 2008 campaign, the LFCC’s processes and procedures for responding to appeals from organizations. The samples mentioned above, that were selected and reviewed in performing the audit, were not statistically based. Consequently, the results could not be projected to the universe since it is unlikely that the results are representative of the universe taken as a whole. 7 III. AUDIT FINDINGS AND RECOMMENDATIONS A. AUDIT GUIDE REVIEW Our review of the IPA’s completion of the AUPs for the 2007 campaign showed that it complied with the applicable provisions of the CFC Audit Guide. B. BUDGET AND CAMPAIGN EXPENSES 1. Untimely PCFO Reimbursement for 2007 and 2008 Expenses Procedural The PCFO reimbursed itself for campaign expenses after the date set by OPM’s OCFC for final campaign disbursements to be made in campaign years 2007 and 2008. The CFC Calendar of Events, issued by OPM’s OCFC, required the PCFO to make the final distributions to close out the campaigns by March 31, 2009, for the 2007 campaign and March 31, 2010, for the 2008 campaign. We reviewed all of the PCFO’s CFC disbursements to determine if they were timely in accordance with the CFC Calendar of Events. During our review, we found that the PCFO's final expense reimbursements, for both the 2007 and 2008 campaigns, were made past the deadline set by the CFC Calendar of Events. Specifically, we found the following: • For the 2007 campaign, the PCFO's final CFC expense reimbursement, totaling $11,025, was made in April 2010. This reimbursement was made over one year past the deadline (March 31, 2009) set in the CFC Calendar of Events. • For the 2008 campaign, the PCFO's final two CFC expense reimbursements, totaling $10,568 and $33,170, were made in April and June 2010, respectively. Both payments were made past the March 31, 2010, deadline set in the CFC Calendar of Events. Additionally, 5 CFR 950.105(c)(2)(iii) states that in applying for the position of PCFO, the applying organization pledges to “abide by the directions, decisions, and supervision of the LFCC and/or Director” (OPM). It is our opinion that the CFC Calendar of Events as issued by the OCFC are directions received from OPM. As a result of misinterpreting the intent of the guidance provided in OPM's CFC Calendar of Events as to final campaign disbursements, the PCFO reimbursed itself in an untimely manner for both the 2007 and 2008 campaigns. 8 PCFO Comments: The PCFO contends that the OIG mistakenly alleges that all campaign expense disbursements must be made on or before the second March 31 following the commencement of the campaign. It interprets the deadlines for final campaign disbursement that are included in OPM's CFC Calendar of Events to apply only to distributions to charities, because final expense reimbursement cannot be completed until all third party expense invoices or other demands for payment related to a campaign are received by the PCFO. In some cases, third party expenses are incurred right up to the Calendar's deadline and invoices are received by the PCFO after the deadline has passed. If the OIG's interpretation is correct, those invoices would not be able to be paid. OIG Response: We disagree with the PCFO's contention that the deadlines for final campaign expense disbursement included in OPM's CFC Calendar of Events only apply to the distributions to charities. The Calendar of Events clearly directs the PCFO to make the final disbursement of “campaign funds” by its specified deadlines. There is nothing that would indicate that “campaign funds” refers only to funds that are to be disbursed to charities, as opposed to all remaining campaign funds that need to be disbursed, including the PCFO's campaign expense reimbursement. The only amounts that are excluded from the final disbursement are those costs that are accrued to cover expenses that will be incurred after the close of the campaign. Additionally, we would question whether the third party expenses mentioned by the PCFO are being charged to the correct campaign. Typically, by the second February following the commencement of the campaign, campaigns are not incurring expenses for the current campaign, but for subsequent campaigns. For example, expenses related to the solicitation of a PCFO are typically incurred at this time, and these expenses should be charged to the upcoming campaign instead of the current campaign. However, if the PCFO knows they are going to be incurring legitimate campaign costs close to the March 31st deadline, then they should follow the guidance contained in CFC Memorandum 2008-09, which directs the PCFO to accrue costs that will be incurred after the close of the campaign and withhold funds for the expense from the final campaign distribution. Once the actual expense is incurred, the PCFO should compare the actual expense to the accrued amount. If the amounts are equal, then the PCFO should request authorization from the LFCC to be reimbursed for the actual expense amount. If the amounts are different, the memorandum dictates that the difference should be handled in one of the following ways: • If the cost is less than the amount withheld and the difference is less than one percent of the campaign's gross pledges, the amount remaining after paying the invoice should be distributed to the currently active campaign. 9 • If the cost is less than the amount withheld and the difference is greater than one percent of the campaign's gross pledges, the campaign should be reopened and a distribution made to all organizations (except for those that received one-time disbursements). • If the cost is greater than the amount withheld and the overage is less than one percent of the campaign's gross pledges, the PCFO should provide the LFCC with an explanation for the overage and request authorization from the LFCC to use funds from the currently active campaign to pay for the overage. • If the cost is greater than the amount withheld and the overage is greater than one percent of the campaign's gross pledges, the LFCC should meet with the PCFO to determine the reasons for the overage. If the reasons were due to issues within the PCFO's control, then the LFCC may either authorize payment from the currently active campaign or require the PCFO to pay the overage. If the reasons were due to issues outside of the PCFO's control, the LFCC should authorize payment of the overage from funds of the currently active campaign. Consequently, as we mentioned in the finding above, we conclude that the PCFO misinterpreted the intent of the deadlines set in OPM's CFC Calendar of Events. Because of this misinterpretation, the PCFO reimbursed itself in an untimely manner for both the 2007 and 2008 campaigns. Additionally, by reimbursing itself after the deadline set for final distributions, the PCFO runs the risk of potentially including expenses that belong to other campaigns in its final expense reimbursement. Recommendation 1 We recommend the OCFC and the LFCC ensure that the PCFO follows its internal procedures to ensure that all CFC funds, except for those campaign expenses that are accrued for reimbursement after the close of a campaign, are disbursed by the date required by the CFC Calendar of Events. Recommendation 2 We recommend that, for those expenses that are accrued for reimbursement after the close of the campaign, that the PCFO follow the guidance included in CFC Memorandum 2008-09 as to how those amounts are to be disbursed once the actual invoice for them is received. 2. PCFO Overcharged for Travel Expenses $40,081 The PCFO was reimbursed for unreasonable, unallowable, or unsupported travel expenses in the amounts of $15,318 in 2007, $12,733 in 2008, and $12,030 in 2009. It should be noted that although this expense category is called travel expenses, the PCFO also included other types of expenses such as meals and appreciation luncheons in this category, and we have included them in the questioned amounts above. Additionally, the PCFO charged expenses to the wrong campaign in the 10 amounts of $8,411 in 2007, $2,164 in 2008, and $5,228 in 2009. We are not requiring that these amounts be reallocated to the appropriate campaign since the campaign years in question are already closed. According to 5 CFR 950.105(b), the PCFO is responsible for conducting an effective and efficient campaign in a fair and even-handed manner aimed at collecting the greatest amount of charitable contributions possible. Additionally, 5 CFR 950.106(a) states that the PCFO shall recover from the gross receipts of the campaign its expenses reflecting the actual costs of administering the local campaign. Finally, 5 CFR 950.106(b) states that the PCFO may only recover campaign expenses from receipts collected for that campaign. In other words, the PCFO may only be reimbursed for its 2009 campaign expenses from the funds received for the 2009 campaign. During our review, we examined travel expenses totaling $37,301 in 2007, $20,446 in 2008, and $40,212 in 2009. Consequently, for the 2007 through 2009 campaigns, we sampled expenses totaling $97,959 out of a universe of $140,368. We judgmentally selected this sample by choosing all transactions over $500, transactions which included a description referencing the LFCC, and transactions posted several months after the incurred date. During our review of these travel expenses, we found numerous transactions which we determined were unallowable or unreasonable and have cited the following as examples: • Documentation to support the expense was not provided; • Expenses were charged for events or items that did not directly benefit the campaign. For example: 1. $1,095 was charged for Christmas party costs for Loaned Executives; 2. $77 was charged for flower arrangements for employees; and 3. $400 was charged for chair massages provided by an outside contractor at a Loaned Executive meeting; and, • Expenses of $3,766 were charged for lodging and meals for extra days when employees arrived early for a CFC conference or extended their stay after the conference. Additionally, we found numerous transactions, totaling $18,161, for the cost of breakfasts and lunches for the Local Application Review Committee (LAC), the LFCC sub-committee that reviews the applications of organizations wishing to participate in the CFC; the cost of lunches for the entire LFCC Board; and the cost of 11 meals during the Loaned Executive meetings. In fact, our review showed that the PCFO and LFCC frequently provided meals as part of their regular meetings, and charged the costs of these meals to the campaign. Additionally, our review of other meal expenses revealed a culture within the LFCC and the PCFO where the charging of meals as part of the normal course of business was considered to be an acceptable expense to the campaign. However, we believe these costs are unreasonable because they did not provide a direct benefit to the campaign. Furthermore, providing meals during CFC meetings is counterproductive to the CFC goal of collecting the greatest amount of charitable contributions possible. We determined that the PCFO overcharged $15,318 in 2007, $12,733 in 2008, and $12,030 in 2009, for unreasonable, unallowable, or unsupported travel expenses. As a result of overcharging these expenses during the 2007 through 2009 campaigns, a total of $40,081 was not properly distributed to charities participating in the CFC for these years. The total amounts questioned in each year by expense category are summarized in the table below. Questioned Expenses Expense Category 2007 2008 Campaign Campaign Meals Provided During Routine $4,317 $6,193 CFC Business Activities Unallowable Travel Expenses $3,232 $1,568 Loaned Executive Christmas Party $1,095 Appreciation Luncheons for $1,872 $1,880 Loaned Executives Chair Massages $400 Other Costs not Beneficial to $4,802 $2,692 Campaign Totals $15,318 $12,733 2009 Campaign $7,650 $495 $3,015 $870 $12,030 In its response to our draft report, the PCFO separated its comments into several categories based on the nature of the items questioned in the audit finding. In order to enhance readability, our final report incorporates the PCFO’s comments on a category-by-category basis. Our responses immediately follow each separate PCFO comment. PCFO Comments – Meals at LAC and LFCC Meetings: The PCFO contends that LFCC/LAC meals are reasonable and allowable campaign expenses. According to the “Proven Practices and New Innovations” Memorandum, which is part of the LFCC Campaign Manual, OPM specifically states that “[a] meal served in conjunction with a campaign event is an allowable expense that may be paid from campaign receipts. The cost would be included in campaign expenses. The LFCC Chair makes decisions about the appropriateness of CFC-sponsored dinners and luncheons.” The PCFO states that the meals in question were provided 12 during official campaign meetings at which campaign business was transacted, so that work performed by the LFCC and the LAC members, who are volunteers, could be conducted more efficiently, which, in turn, benefits the campaign. For example, during the LAC meetings at issue, LAC members reviewed numerous applications of federations and charities for inclusion in the 2007 through 2009 CFCNCA. Pursuant to 5 CFR 950.204(e), eligibility determinations must be completed according to a timetable set by OPM. Consequently, the PCFO contends that meals were provided to the LAC in order to allow them to complete their time sensitive work and to provide a minor benefit to these workers, who furnish their time and services without compensation. The per-person average cost of the breakfasts provided to LAC members ranged from $7.47 to $8.60, and the average cost of lunches provided ranged from $12.52 to $14.50. Additionally, lunches provided at the 2007 through 2009 LFCC board meetings were also minimal and ranged from $11 to $13.50 per person. OIG Response: The PCFO’s comments demonstrate that it has taken the position that any event where campaign business is conducted or where campaign staff is involved constitutes a “campaign event”, the expenses of which are chargeable to the campaign. The OIG finds this approach to the administration of a campaign extremely disturbing and suspects that most donors would as well. We cannot agree with such a broad interpretation given that the purpose of the campaign is to raise the maximum amount of contributions for participating charities. Under the PCFO’s definition of “campaign event”, Federal employees’ charitable contributions can be used to finance an array of expenses that are clearly not contemplated as being appropriate by the establishing Executive Orders or OPM regulations. Consequently, we do not agree that meals provided in the course of conducting routine campaign business are allowable campaign expenses. The PCFO contends that because the meals were provided during official campaign meetings and allowed the LFCC and the LAC members to conduct their work in a more efficient manner, that these expenses also benefitted the campaign, making the meals allowable as part of “campaign events.” To further address the PCFO's comments, we asked OPM's OCFC for a definition of what constitutes a “campaign event.” According to the OCFC, a “campaign event” is an event that is a special and out-of-the-ordinary occurrence (in other words something outside of the normal operating functions of the campaign). Such events should also be geared toward the raising of monies for the campaign. On this basis, we maintain our position that these meetings do not constitute “campaign events” and the meals included as part of these routine meetings should not be paid for with campaign dollars. 13 In addition, the PCFO states that “meals were provided to the LAC…to provide a minor benefit to these Campaign workers, who furnish their time and services without compensation.” On the contrary, the LAC members continue to receive their full Federal salary and benefits. They are acting in their official capacity as Federal employees, and this work is considered to be part of their official duties. Even if one accepted the argument that these expenses were appropriate, the PCFO did not provide sufficient details to justify an operational need to provide meals to the LAC members while completing their application reviews. The simple fact that the CFCNCA, as the largest campaign in the program, has more applications to review than other campaigns does not provide sufficient justification for the expense. PCFO Comments – Expenses of Certain Events: The PCFO maintains that meetings and events involving Loaned Executives, CFCNCA staff, and LFCC members at which food was served are allowable campaign expenses. The OIG challenges other campaign meetings and events at which Loaned Executives and others in attendance received meals. At these meetings, the Loaned Executives received training, exchanged information with campaign staff and volunteers about the progress of the campaigns, or were thanked and honored for their service on behalf of the CFCNCA. The PCFO contends that the cost of these meals is allowable because campaign business was conducted at these events, which benefits the CFC. With the exception of the end of campaign thankyou events, the average cost per person of the lunches was less than $20, in some cases, far less. The end of campaign thank-you lunches held once each season averaged around $50 per person. The PCFO states that the lunches are important morale boosters to a critical constituency that has been integral in making the CFCNCA successful. OPM has stated that award ceremonies are appropriate and that costs related to them are legitimate campaign expenses. In fact, in CFC Memorandum 2008-09, OPM has mentioned that award ceremony costs are reimbursable campaign expenses. As there is no OPM guidance precluding the amounts spent, in the judgment of the PCFO, these amounts were reasonable. Additionally, the OIG challenged the cost of a 2007 campaign Christmas party held for the Loaned Executives. The PCFO stated that this party provided an opportunity for the campaign to thank the Loaned Executives for their work and motivate them to continue their work through the end of the campaign. Again, as no guidance against such an event has been issued by OPM, in the PCFO's judgment, this event was appropriate and reasonable. OIG Response: Again, we do not agree that meals provided in the course of conducting routine campaign business, at end of the year campaign thank-you luncheons, and at a 14 Christmas party for the Loaned Executives are allowable campaign expenses for the reasons expressed above. The appreciation luncheon in question occurred during the 2007 campaign and totaled $3,560, which amounted to an average cost per person of approximately $51. This cost is both unreasonable and excessive, in addition to being redundant since the campaign also held a finale event, where campaign workers were again recognized and rewarded. According to the OCFC, one thank-you lunch is an acceptable campaign expense, but it does not see a need for or the benefit of multiple thank-you lunches, unless the lunches were to thank different groups of people. It is for this reason that we also disallowed the appreciation lunch of $1,880 charged to the 2008 campaign and the lunch of $3,015 charged to the 2009 campaign. The PCFO contends that the Christmas Party for the Loaned Executives provided an opportunity to thank the Loaned Executives for their work and to motivate them to continue their work through the end of the campaign. While we agree that CFC regulations and guidance from OPM are silent as to these types of events, we do not see how this type of event addresses the campaign's primary aim of collecting the greatest amount of charitable contributions possible. Furthermore, as we noted above, the Loaned Executives are not campaign “volunteers”. In fact, they are not volunteers at all. They are Federal employees who are temporarily assigned, on a full time basis, to the CFCNCA and continue to receive their regular salary and benefits from their employing Federal agencies during this time. Work related to the CFCNCA is simply part of their official duties. Consequently, the argument that these Federal employees need “morale boosters” because they serve without compensation is without merit. PCFO Comments - Travel and Conference Expenses: The PCFO claims that expenses related to attendance by CFCNCA staff and LFCC members at OPM CFC-related conferences are allowable campaign expenses. The OIG questioned a variety of expenses incurred by the CFCNCA staff and LFCC representatives related to days immediately before and after their attendance at annual OPM conferences. The PCFO contends that these charges are allowable, as the CFCNCA staff and LFCC representatives were involved in organizing and conducting portions of the conferences, which explains why they needed to arrive early or stay late. In a few instances, CFCNCA staff and LFCC representatives not involved in conference organizing and planning arrived early to attend an evening reception and/or to ensure prompt attendance at the beginning of the conference. As such, the questioned lodging fees, taxi expenses, and excess baggage costs connected with this travel were also allowable expenses. Furthermore, the OIG challenged hotel expenses associated with the 2007 CFC conference that included in-room hotel charges for a CFCNCA staff member and the cost of a dinner attended by other CFC campaign representatives at which 15 comparative campaign practices nation-wide were discussed. Again, these charges should be allowable as they were incurred in connection with and benefitted the campaign. Finally, the OIG asserted that the PCFO incorrectly charged some of the 2007 through 2009 conference expenses to the wrong campaign. Following generally accepted accounting principles (GAAP), the PCFO charged the active campaign at the time that the expenses were incurred, and no regulations or guidance from OPM indicates that this practice is incorrect. In any event, even if the PCFO is found to have been incorrect in its practices, the appropriate remedy would be a reallocation of the expense to the correct campaign and not disallowing the expense in total. OIG Response: With one exception, we disagree with the PCFO's position that travel expenses related to days immediately before and after attendance at annual OPM conferences are allowable campaign expenses. The CFC workshops held during the 2007 through 2009 campaigns did not kick off until the early afternoon of the first day, which should give most attendees plenty of time to arrive for the start of the conference without having to arrive the day before, even if they are first day presenters. We did allow the travel expenses related to one employee’s early arrival charged to each campaign after confirming the legitimate need to arrive early. As to the expenses charged to the campaign for days following the conferences, we do not understand the justification that would warrant this type of expenditure. Additionally, we disagree with the PCFO's position that certain expenses associated with in-room hotel charges for a CFCNCA staff member and the cost of a dinner attended by other CFC campaign representatives at which comparative campaign practices nation-wide were discussed should be allowable costs. The in-room meals were questioned because they were incurred before the start date of the conference. The cost of the dinner was questioned because it was a large amount, and, as the PCFO admitted in its response, was attended by other CFC campaign representatives. The costs related to the other campaign representatives’ meals should have been absorbed by their respective campaigns. Again, we do not believe that the excessively broad definition used by the PCFO regarding reimbursable expenses (i.e., those that relate in any way to campaign business or which involve a CFCNCA staff member, Loaned Executive, or LFCC member) transforms these expenses into allowable or reasonable costs to be charged to the campaign. Finally, the PCFO contends that expenses that we identified as being charged to an incorrect campaign should be reallocated to the correct campaign instead of being disallowed in total. It states in its response to the draft report that it followed GAAP and, thus, charged the active campaign at the time that the expenses were incurred, and no regulations or guidance from OPM indicates that this practice is incorrect. We completely disagree with this statement. 5 CFR 950.106(b) states that the PCFO may only recover campaign expenses from receipts collected for that campaign. In other 16 words, the PCFO may only be reimbursed for its 2009 campaign expenses from the funds received for the 2009 campaign. As a campaign period extends over almost two years, expenses should be charged to the campaign to which they relate and not to the campaign active at the time the expense was incurred, because multiple campaigns can be open at various points in time during each campaign period. That being said, since the campaigns in question are now closed, we are not recommending that the amounts charged to an incorrect campaign be returned to the appropriate campaign. PCFO Comments – Minor Expenses to Boost Morale: The PCFO contends that minor expenses to boost CFCNCA morale are allowable campaign expenses. The OIG identified expenses related to flowers provided to a departing CFCNCA staff member and “graduation items” related to a Loaned Executive training event that were disallowed in the draft report. However, these expenses were incurred in connection with campaign business and are within the discretion of CFCNCA management to promote good will among staff and volunteers, which, thereby, benefits the campaign and makes them legitimate campaign expenses. Additionally, the OPM Proven Practices Memorandum states that CFCs should “celebrate the[ir] achievement[s] through appropriate PR, including the use of trinkets “to acknowledge the accomplishment.” OIG Response: With one exception, we disagree with the PCFO's position that minor expenses to boost morale are allowable campaign expenses. The PCFO identified $77 for flowers provided to a departing CFCNCA employee and $51 in “graduation items” related to a Loaned Executive training event as allowable expenses under this category. While we concur that the $51 is an allowable campaign expense and have removed it from our questioned costs, we do not agree that the $77 paid for flowers is an expense that benefits the campaign and assists in collecting the greatest amount of charitable contributions possible, which, as mentioned previously, is the primary aim of the CFC. Additionally, we again have concerns regarding the PCFO’s stance that it is appropriate to use CFC charitable contributions to pay for any expense related either to campaign business, in the broadest sense of the term, or to any work in which a CFCNCA employee or Loaned Executive is involved. Furthermore, we repeat our belief that the argument regarding the need for additional motivation for Loaned Executives is without merit. One could also question whether these types of perks plus the meals and gifts provided to these individuals violate the ethics rules in place at their represented Federal agencies. It should be noted that the OCFC recently issued CFC Memorandum 2011-07 that addresses this issue. While the Memorandum does not 17 apply to campaign years under this audit, its guidance should be followed for current and future campaigns. PCFO Comments – Itemization of Expenses: The OIG questioned $658 in travel and meeting expenses for receipts that were not itemized or did not have supporting documentation. However, OPM regulations do not require itemized receipts for expenses regardless of amount per 5 CFR 950.105(d)(7), which requires itemized receipts “to the extent possible”. The expense description was included on the credit card bill and reviewed by appropriate supervisors. Furthermore, the expenses were related to costs associated with an OPM conference and are, therefore, a direct benefit to the campaign. OIG Response: We do not agree with the PCFO's contention that $658 in travel and meeting expenses that were not itemized or did not have supporting documentation should be allowable campaign expenses. The PCFO cites 5 CFR 950.105(d)(7), which requires that they maintain a detailed schedule of its actual CFC administrative expenses with, to the extent possible, itemized receipts for the expenses. However, 5 CFR 950.106(a) states that the PCFO shall recover from the gross receipts of the campaign its expenses reflecting the actual costs of administering the local campaign. An expense description on a credit card statement is not sufficient for us to determine whether or not the cost is a valid campaign cost, especially since the PCFO participates in other campaigns, and the amount in question is of a sufficient level to warrant documentation supporting its cost. This is an example of the PCFO’s disturbing tendency to interpret the OPM CFC regulations in a manner that minimizes accountability on the part of the PCFO. It frequently emphasizes the phrase “to the extent possible” rather than the substance of the regulation, which calls for the PCFO to maintain a detailed schedule of CFC expenses. The PCFO is in a position of trust vis-à-vis the campaign. This responsibility warrants that it be held accountable for complying with the spirit and intent of the regulations. PCFO Comments – Allocation of Expenses to Campaigns: The PCFO claims that charges questioned by the OIG as having been booked to the wrong campaign were, in fact, charged to the appropriate campaign. They state that OPM's OCFC has provided no guidance regarding the year for which an expense not clearly relating to a particular campaign must be charged. The PCFO followed GAAP in booking expenses to the campaign year in which they were incurred. Even if the OIG was correct that one or more expenses were charged to the wrong campaign, the appropriate remedy would be to reallocate the expense to the appropriate campaign, not to require the PCFO to repay the expense. 18 OIG Response: We disagree with the PCFO's position. As mentioned above, 5 CFR 950.106(b) states that the PCFO may only recover campaign expenses from receipts collected for that campaign. In other words, the PCFO may only be reimbursed for its 2009 campaign expenses from the funds received for the 2009 campaign. As a campaign period extends over almost two years, expenses should be charged to the campaign to which they relate and not to the campaign active at the time the expense was incurred, because multiple campaigns can be open at various points in time during each campaign period. That being said, since the campaigns in question are now closed, we are not recommending that the amounts charged to an incorrect campaign be returned to the appropriate campaign. PCFO’s Comments – Documentation of De Minimis Transactions: The PCFO contends that it is not required to maintain primary documentation for de minimis transactions. In many instances, the OIG challenged the primary documentation receipts for certain expenses, mostly involving meals. The PCFO contends that no CFC regulation or OPM guidance requires receipts for de minimis travel expenditures. 5 CFR 950.105(d)(7) states that PCFOs must “maintain[] a detailed schedule of its actual CFC administrative expenses with, to the extent possible, itemized receipts for the expenses.” Consequently, the regulation contemplates that PCFOs need not require receipts in all circumstances. For example, under the Internal Revenue Service (IRS) guidelines, the PCFO need not require CFCNCA staff to file such receipts if their charges are less than the amount threshold set by the IRS. In other instances, the OIG states that, while receipts were provided for expenses, they were insufficient to allow the related cost. The PCFO contends that the documentation provided to the OIG to support these expenses is sufficient to establish that the meals were incurred during the conduct of the campaign and are, therefore, allowable campaign expenses. OIG Response: We do not agree that the PCFO does not need to maintain documentation to support expense amounts that fall below the IRS threshold. As mentioned previously, 5 CFR 950.106(a) states that the PCFO shall recover from the gross receipts of the campaign its expenses reflecting the actual costs of administering the local campaign. Without documentation supporting the purpose of the expense, we cannot verify whether the expense is a valid campaign expense. This becomes especially important when the PCFO participates in multiple campaigns and we need to ensure that the campaign being audited is only charged its fair share of the cost. Furthermore, we repeat our concern regarding the PCFO’s interpretation of this regulation, which fails to focus on the purpose of the regulation – requiring transparency on the part of the PCFO with regard to its expenses. 19 PCFO Comments – Expenses Not Benefitting the Campaign: The PCFO does concur that the following expense transactions did not provide a sufficient benefit to the CFCNCA to justify their legitimacy as a valid campaign expense. 1. For the 2007 campaign, charges by a CFCNCA staff member for dry cleaning, movie rentals, and gift shop purchases totaling $69; 2. For the 2007 campaign, charges by a CFCNCA staff member for a Mardi Gras tour while attending a CFC conference totaling $17; 3. For the 2007 campaign, charges by a CFCNCA staff member for attending a non-CFCNCA award ceremony sponsored by a third party organization totaling $521; 4. For the 2007 campaign, charges by a CFCNCA staff member for a movie rental while on travel for the campaign totaling $16; 5. For the 2007 campaign, charges by a CFCNCA staff member for a movie rental for an undetermined amount while on travel for the campaign; 6. For the 2007 campaign, charges by a CFCNCA staff member for driving to a CFC conference in Orlando, Florida rather than flying. The CFCNCA staff member was reimbursed a total of $957, but should only have been reimbursed for the total costs of an airline ticket, baggage fees, and any local transportation charges; 7. For the 2008 campaign, charges by a CFCNCA staff member for neck massages for Loaned Executives, totaling $400, to alleviate stress during a particularly intense time in the campaign. PCFO upper management determined early in 2009 that this type of perk did not portray the appropriate image for a public charity fundraising campaign and should stop; and, 8. For the 2009 campaign, charges by a CFCNCA staff member for a movie rental while on travel for the campaign totaling $31. The PCFO intends to review with the campaign staff the kinds of expenses identified above to ensure that they do not occur in the future. OIG Response: We concur with the PCFO's position on the expense items in this category and agree that $1,054 directly identified as unallowable charges by the PCFO was inappropriately charged to the related campaigns. 20 Recommendation 3 We recommend that the PCFO distribute $40,081 as undesignated funds to the charities participating in the 2010 campaign. Recommendation 4 We recommend that the OCFC provide additional guidance to all LFCCs and PCFOs as to what should be considered unallowable campaign expenses, including but not limited to those items questioned above. Recommendation 5 We recommend that the LFCC establish policies and procedures requiring a more detailed budget and expense review to ensure that it only approves allowable and reasonable campaign expenses. Recommendation 6 We recommend that the OCFC and the LFCC ensure that the PCFO follows CFC regulations and OPM guidance when determining in which campaign period an expense belongs. 3. PCFO Overcharged for Campaign Expenses $268,739 The PCFO was reimbursed for unreasonable, unallowable, or unsupported expenses in the amounts of $81,640 in 2007, $80,958 in 2008, and $106,141 in 2009. Additionally, the PCFO charged expenses to the wrong campaign in the amounts of $39,605 in 2007, $49,076 in 2008, and $22,366 in 2009. We are not requiring that these amounts be reallocated to the appropriate campaign since the campaign years in question are already closed. Finally, we identified $764,069 related to training events, CFCNCA conferences, design and marketing services, software applications and licensing fees, appreciation luncheons, and finale events that could have been put to better use. According to the CFC regulations at 5 CFR 950.105(b), the PCFO is responsible for conducting an effective and efficient campaign in a fair and even-handed manner aimed at collecting the greatest amount of charitable contributions possible. Additionally, 5 CFR 950.106(a) states that the PCFO shall recover from the gross receipts of the campaign its expenses reflecting the actual costs of administering the local campaign. Finally, 5 CFR 950.106(b) states that the PCFO may only recover campaign expenses from receipts collected for that campaign. In other words, the PCFO may only be reimbursed for its 2009 campaign expenses from the funds received for the 2009 campaign. 21 We examined a sample of campaign expenses, not including travel, salary, or indirect expenses, totaling transaction amounts of $2,273,185 in 2007, $2,541,549 in 2008, and $2,190,970 in 2009. Consequently, for the 2007 through 2009 campaigns, we sampled expenses totaling $7,005,704 out of a universe of $7,405,053. We judgmentally selected this sample based on transactions with high dollar amounts, nomenclature, or items which appeared to be unreasonable charges to the campaign, based on the nature of the expense. During our review of these expenses we found numerous transactions which we determined to be unallowable or unreasonable and have cited the following as examples: • Cost was not beneficial to the campaign or could not be supported - $163,949; • Washington by Night Tour for the Loaned Executives - $1,159; • Private Box, mascot visit, and group tickets cost for a Washington Nationals baseball event - $11,315; • Jazz band costs at a leadership conference - $1,500; and • Chair massages provided by an outside contractor during a Wellness Fair - $280. 3 According to the PCFO, these massages were provided to Loaned Executives. Additionally, we found numerous transactions for the cost of meals for the CFCNCA staff and Loaned Executive status report luncheons, and other campaign meetings, totaling $84,343, which appeared to provide no benefit to the campaign. Providing meals during routine CFC meetings does not contribute to achieving the CFC goal of collecting the greatest amount of charitable contributions possible. The total amounts questioned in each year by expense category are summarized in the table below. 3 The chair massages included in this audit issue is an additional transaction to the $400 in chair massages that were questioned previously. 22 Questioned Expenses Expense Category 2007 Campaign Meals Provided During Routine CFC $18,764 Business Activities Loaned Executive Tour of $1,159 Washington Campaign Kick-Off Event $11,315 Jazz Band at CFC Leadership $1,500 Conference Training/Conferences Questionable Allocation Methods $5,439 Chair Massages $280 Other Costs not Beneficial to $43,183 Campaign Totals $81,640 2008 Campaign $36,919 2009 Campaign $28,660 $169 $584 $43,870 $76,897 $80,958 $106,141 As a result of overcharging these expenses during the 2007 through 2009 campaigns, a total of $268,739 was not properly distributed to charities participating in the CFC for these years. Finally, we identified the following expenses that, while the types of expenses are legitimate campaign expense categories, the amounts spent were excessive in nature and could have been more effectively spent so that more campaign dollars raised went to the participating charities that desperately needed these funds. Specifically, we identified the following: • Costs related to training and conferences - $208,169; • Costs related to design and marketing services - $30,250; • Costs related to appreciation luncheons and finale events - $153,150; and • Costs related to software applications and licensing agreements for systems owned by Global Impact when more cost effective systems that produce the needed documentation are available - $372,500 The total amounts questioned in each year by expense category are summarized in the table below. 23 Campaign Year 2007 2008 2009 Totals Questioned as Better Use of Funds Training and Design and Appreciation Conferences Marketing Luncheons for Services Loaned Executives/Finale Events $76,034 $49,892 $4,000 $50,881 $128,135 $30,250 $52,377 $208,169 $30,250 $153,150 Software Applications and Licensing Agreements $247,500 $125,000 $372,500 In total, we identified $764,069 in funds that could have been put to better use by the PCFO, which would have resulted in distributing additional monies to the participating charities. In its response to our draft report, the PCFO broke out its comments into several categories based on the nature of the items questioned in the audit finding. Consequently, our final report incorporates the PCFO’s comments on a category-bycategory basis. Our responses immediately follow each separate PCFO comment. PCFO Comments – Provision of Meals: The PCFO contends that the OIG is wrong as a matter of fact and law in asserting that the expenses identified in this section are unallowable. The draft report challenges meals provided to campaign workers and volunteers while CFCNCA business was conducted. The OIG asserts that the meals provided no direct benefit to the campaign and that such meals are counterproductive to the campaign's goal of collecting the greatest amount of charitable contributions possible. However, OPM instructs CFC's that meals and similar expenses are allowable. In fact, OPM's “Proven Practices and New Innovations” Memorandum states: A meal served in conjunction with a campaign event is an allowable expense that may be paid from campaign receipts. The cost would be included in campaign expenses. The LFCC Chair makes decisions about the appropriateness of CFC-sponsored dinners and luncheons. The OIG also misunderstands how successful fundraising campaigns are conducted. Campaign volunteers donate their time and services to the CFC. Consequently, they should be recognized, honored, thanked, and motivated to continue to put forth their best efforts in soliciting potential donors to make financial contributions to participating charities. Providing meals, entertainment, and other reasonable accoutrements is critically important in conducting a successful campaign. In fact, the PCFO has an excellent record of raising campaign funds while keeping expenses below CFC national averages. For each of the campaign years under audit, the PCFO spent the following: 24 1. Less than 9 percent of campaign revenue on expenses in 2007; 2. Less than 8.1 percent of campaign revenue on expenses in 2008; 3. Less than 7.4 percent of campaign revenue on expenses in 2009; and 4. Less than 7 percent of campaign revenue on expenses in 2010. Consequently, the PCFO contends that the OIG is incorrect in its assertions as to how to raise the most money possible for participating charities. Moreover, its recommendations that the PCFO repay the campaign expenses identified in the draft report are arbitrary, capricious, unreasonable, and contrary to law. OIG Response: As mentioned previously, we do not agree that meals provided to campaign workers and volunteers in meetings where CFCNCA business was conducted are allowable campaign expenses. To support its position, the PCFO cites an OPM Proven Practices Memorandum which states that meals served in conjunction with a campaign event are an allowable expense. To address the PCFO's comments, we looked to the OPM's OCFC for a definition of what constitutes a “campaign event.” According to the OCFC, a “campaign event” is an event that is a special and out-ofthe-ordinary occurrence (in other words something outside of the normal operating functions of the campaign). Such events should also be geared toward the raising of monies for the campaign. Consequently, based on this definition of campaign event, we maintain our position that these meetings do not constitute “campaign events” and the meals included as part of these routine meetings should not be paid for with campaign dollars. The PCFO also asserts that the OIG misunderstands how successful fundraising campaigns are conducted and makes the following statement: “Campaign volunteers donate their time and services. They must be recognized, honored, thanked, and motivated to continue to do so and to solicit potential donors to make financial contributions to beneficiary charities. Providing meals, entertainment and other reasonable accoutrements...is critically important in conducting a successful CFC campaign.” These comments reflect that the PCFO itself misunderstands the nature of the role and status that Federal employees play when working for a campaign. Federal employees serving as LFCC members or Loaned Executives are not “donating” their time and services. To the contrary, their work on the CFC is considered part of their official duties for which they receive their Federal salaries. Consequently, the argument that the additional motivation of which the PCFO speaks is “critically important” is without merit. 25 An additional matter raised by the PCFO is that it has an excellent record of raising campaign funds while keeping expenses below CFC national averages. While the PCFO may have kept expense percentages below CFC national averages, and a campaign of this size would necessarily have more expenses than an average-sized campaign, we believe its costs for its size were higher than they needed to be to successfully perform its required duties. In any case, the PCFO’s overall administrative costs have no bearing on whether a specific expenditure is adequately supported and/or is an allowable expense. PCFO Comments – Training Expenses: The PCFO maintains that campaign staff and volunteer training expenses, including meals and entertainment provided in connection therewith, are allowable campaign costs. 5 CFR 950.105(d)(3) requires the PCFO to train its loaned executives and other campaign workers in methods of non-solicitation and other aspects of campaign operations, and this training must be separate from training given for other types of campaign drives. To meet this requirement, the PCFO provides two large training events at the beginning of each campaign season. The Campaign Leadership Conferences train the hundreds of Key Workers, campaign managers, and others in performing necessary tasks in an all day session. The PCFO also trains its Loaned Executives in an intensive two full week session. In its draft report, the OIG questions expenses related to the Campaign Leadership Conferences. The questioned expenses relate to the cost of using a local hotel at which over 600 campaign volunteers were trained. Because the conference lasted a full day, the PCFO felt it was appropriate to provide refreshments and after-conference entertainment as a way of thanking the volunteers for their attendance and participation, and to ensure that the volunteers had a positive experience during the training so that they would be motivated to solicit donations on behalf of the CFC. This type of event is also specifically encouraged in OPM's Proven Practices Memorandum. The OIG also questions costs related to the two-week intensive training provided to the Loaned Executives, including the costs for the trainer's fees, food and beverages, mugs provided to the training participants, an evening tour of Washington, D.C., and the cost of the breakout conference rooms in which small groups of trainees met to receive training on particular topics. The CFCNCA depends heavily upon enthusiastic Loaned Executive participation in the campaign, as they are the primary contact between Federal agencies and the CFC. Consequently, the PCFO must find appropriate ways to thank and motivate these individuals. Finally, the OIG challenges expenses related to CFCNCA staff training, which was approved by the LFCC. Staff training benefits the CFC, in that campaign workers perform their job duties more effectively. As such, the expenses related to classes on grammar and proofreading for a CFCNCA employee are allowable. 26 OIG Response: We concur with the PCFO's position that it is required to train its Loaned Executives and other campaign workers, and we are not opposed per se to the training events and conferences it held during the 2007 through 2009 campaign years. However, during the 2007 through 2009 campaigns, the PCFO spent $208,169 on these types of events, most of which were held in rather expensive hotels (e.g., the Grand Hyatt Hotel) or conference centers (e.g., the Marriott Georgetown Conference Center). Consequently, we are concerned with the excessiveness of the costs related to these events and contend that these monies could have been put to better use for campaign purposes, to include the distribution of more funds to participating charities. However, since the CFC regulations and OPM guidance do not require specific locales for training and conference events, we are not recommending that the PCFO reimburse the campaign for these costs. We would, however, encourage the PCFO to look at more cost effective venues for these types of events for future campaigns. We are questioning the $1,500 spent for jazz band entertainment at a Campaign Leadership Conference and $1,159 spent on a tour of Washington for the Loaned Executives provided as after-conference entertainment. The PCFO contends that providing refreshments and entertainment to thank the volunteers for their training attendance and participation, and to ensure they have a positive experience during the training, are appropriate costs. Once again, the OIG believes that the Federal salary and benefits earned by these Federal employees is sufficient motivation for performance of their official duties. The PCFO should not use campaign funds to offer additional incentives. Additionally, one could also question whether these types of perks provided to these individuals violate the ethics rules in place at their represented Federal agencies. It should be noted that the OCFC recently issued CFC Memorandum 2011-07 that addresses this issue. While the Memorandum does not apply to campaign years under this audit, its guidance should be followed for current and future campaigns. Finally, we disagree that expenses related to grammar and proofreading training for a CFCNCA employee are legitimate campaign costs since these types of courses have nothing to do with supporting the core mission of the CFC and should have been paid for out of the PCFO's own funds. PCFO Comments – Campaign Promotional Events: The PCFO claims that expenses related to campaign promotional events are allowable campaign costs. In its draft report, the OIG questions or challenges a wide variety of expenses that OPM itself encourages. The OPM Proven Practices Memorandum states “Campaign kickoffs, progress reports, awards, victory events, and other non-solicitation events to build support for the campaign are strongly encouraged. Most successful campaigns have all or some of these kinds of events.” 27 At issue in the draft report is a 2007 campaign kick-off event, which began with an event at a Washington Nationals baseball game and continued the following day in a conference during which volunteers and workers were briefed on campaign mechanics and proper solicitation methods. This event was held to have been successful and was a key component to the success of the campaign, as evidenced by the awarding of an Innovator Award to the PCFO by OPM. In fact, in explaining why the award was given, OPM stated that the PCFO had “implemented a creative strategy to fuel its $60 million [fundraising] goal.” OPM continues: “[T]he campaign kickoff was held at a Washington Nationals baseball game. Prior to the game, Admiral Thad Allen, Commandant of the U.S. Coast Guard and CFC Honorary Chairman, threw the ceremonial first pitch in honor of the 2007 campaign. The Coast Guard provided the anthem singer, color guard and a Coast Guard rescue helicopter flyover. More than 600 campaign managers, loaned executives, key workers and friends attended the event... The Nationals mascot, Screech, was present at the CFC-NCA Leadership Conference as well as numerous agency kickoffs and rallies. The campaign theme has given Federal agencies and departments great latitude when it came to marketing their fund drives. But just as importantly, it provided them with an excellent opportunity to interject fun and enthusiasm in their campaigns.” The CFC regulations at 5 CFR 950.105(b) specifically mention kick-off events. The event is designed “to thank and motivate key volunteers and staff for the work they will do during this year's campaign [and] ... provide[] a higher profile launch [for the Campaign] with media possibilities.” Additionally, the OIG challenged costs related to a Loaned Executive award ceremony. These ceremonies are specifically authorized at 5 CFR 950.105(d)(11) and in CFC Memorandum 2008-09. Moreover, OPM itself holds an annual CFC awards ceremony, at which food and beverages are provided. Consequently, the PCFO strongly disagrees that the costs related to the awards ceremonies it hosts for CFC participants are unallowable. Similarly, the OIG challenged the expenses associated with a CFC finale event, which is an award ceremony that is held at the conclusion of each campaign year to thank and honor the numerous volunteers, Key Workers, campaign managers, Loaned Executives, and the LFCC members. The PCFO contends that this type of event is authorized by the CFC regulations and OPM guidelines. OIG Response: We acknowledge that campaign kick-off events, when held for the purposes of encouraging campaign participation, are legitimate campaign costs. However, by its own admission, the PCFO states in its response that the event was designed “to thank and motivate key volunteers and staff for the work they will do during this year's 28 campaign...” We do not see how an event designed to thank and motivate key volunteers and staff drives campaign participation. However, if the PCFO had reached out to the Federal agencies and encouraged Federal employees who were potential donors to attend this game to publicize the CFC, then we would have allowed the cost for this event. As such, we are continuing to question the $11,315 for this event, which consists of $2,325 for a private box at the game; $6,620 for 600 tickets; $300 for a visit from the mascot; and $2,070 for food at the event, of which $394 was spent on alcohol. We also acknowledge that costs spent on award ceremonies and campaign finale events are legitimate campaign costs. However, we are concerned about the excessiveness of the costs that the PCFO incurred for these events. Specifically, the PCFO spent the following on finale events cited in its response: 1. $49,892 for a 2007 finale event held at the Ronald Reagan building; 2. $50,881 on a 2008 finale event held at the Grand Hyatt Hotel; and 3. $52,377 on a 2009 finale event held at the Grand Hyatt Hotel. Because award ceremonies and finale events are, in our opinion, categories of acceptable campaign expenses, we are not requiring that the PCFO return these monies to the campaign. However, as the goal of the CFC is to collect the greatest amount of charitable contributions possible, we would strongly encourage the PCFO to look for more cost effective venues for holding these types of events so that more campaign dollars raised go to the participating charities that desperately need these funds. PCFO Comments – Progress Report Meetings: The PCFO contends that expenses related to report luncheon meetings are allowable campaign costs. Throughout each campaign, the PCFO conducts luncheon meetings so that campaign information can be exchanged among Loaned Executives, campaign volunteers, and CFCNCA staff. The OPM Proven Practices Memorandum specifically encourages these types of “progress reports” to help “…build support for the campaign”. It further states that “[m]ost successful campaigns have all or some of these kinds of events”. The OIG appears to seek to apply the General Accountability Office's rulings that meals are not normally provided to Government workers during meetings. However, the CFC is not a Federally financed program. Instead, it relies principally on donated time and services of Federal employees, who do so above and beyond their regular work duties. Because the CFC is not a Federally financed program, appropriated tax dollars are not a substantial source for the CFC's operational budget. Consequently, the expenses incurred in relation to these meetings are necessary to promote meeting attendance as well as the overall success of the campaign. Moreover, it would be arbitrary and capricious if the OIG 29 attempted to recover money for these costs since there has never been any prohibition against such expenditures. Finally, the decision to serve lunch and similar accoutrements at strategy meetings before commencement of the 2007 and 2009 campaigns and at mid-campaign report gatherings during which issues related to the ongoing campaign are discussed is appropriate, because such meetings contribute to the success of the campaign. Moreover, because the LFCC approves the budget items related to these events, the expenses actually incurred are thus allowable. OIG Response: While we do not have concerns with the PCFO conducting luncheon meetings so that campaign information among Loaned Executives, campaign volunteers, and CFCNCA staff can be exchanged, we do not agree that the cost of meals provided at these luncheons is a legitimate campaign expense. To support its position, the PCFO states that because the CFC is not a Government financed program it must rely principally on the donated time and services of Federal employees, who do so above and beyond their regular work duties. As we noted above, this is an incorrect characterization of the status of Federal employees that participate in the administration of the CFC. Attendance at such meetings is part of these Federal employees’ official duties, for which they receive salaries and benefits that are paid for with appropriated funds. In this context we do not believe that use of campaign funds to provide additional “motivation” is either necessary or proper. Consequently, we are continuing to question the costs of these meals, which include the following: 1. $18,169 for a 2007 report luncheon; 2. $33,834 for 2008 report luncheons; and 3. $18,900 for a 2009 report luncheon. PCFO Comments – Campaign Operational Expenses: The PCFO maintains that expenses related to campaign operations are allowable campaign costs. The OIG questioned the cost of CFCNCA break room supplies. The provision of plastic utensils, plates, coffee, and cream and sugar for CFCNCA staff is a reasonable campaign expense. These kinds of supplies exist in virtually all office environments, including non-profit and Government offices. These kinds of items promote efficiency in the office environment, so that the employees do not need to leave the office when they need these supplies. They also promote a positive working environment by offering a common space for staff to socialize during break times. 30 OIG Response: We agree that office break room supplies are reasonable campaign expenses. However, we are still questioning these items because, while they were billed to the PCFO, it appears that they were charged 100 percent to the CFCNCA instead of being allocated between the CFCNCA and the other charitable campaigns conducted by the PCFO. PCFO Comments – Allocation of Accounting Issues: The PCFO contends that it properly accounted for and allocated a questioned CFCNCA expense. The OIG questioned why a March 31, 2008, accrual, totaling $55,871, was allocated to the 2007 campaign. The allocation was made to the 2007 campaign on the last day of the solicitation period for that campaign, to reflect the anticipated amount of costs for the 2007 campaign award ceremony, which was held later in 2008. Only $7,618 was ultimately expended and the difference, $48,254, was later reversed. OIG Response: While we concur that $55,871 was properly accrued and then subsequently reversed, we have concerns with the PCFO’s process of charging the active campaign at the time that the expense is incurred. 5 CFR 950.106(b) states that the PCFO may only recover campaign expenses from receipts collected for that campaign year. In other words, the PCFO may only be reimbursed for its 2007 campaign expenses from the funds received for the 2007 campaign. As a campaign period extends over almost two years, expenses should be charged to the campaign to which they relate and not to the campaign active at the time the expense was incurred, because multiple campaigns can be open at various points in time during each campaign period. PCFO Comments – Agreement Regarding Certain Expenses: The PCFO agreed that the following identified expenses were not reasonably incurred on behalf of the CFCNCA or are otherwise unallowable. 1. A 2007 expense for $280 worth of chair massages to Loaned Executives to reward their hard work. This type of benefit has since been cancelled because it does not portray an appropriate image for a public charity fundraising campaign; 2. A 2007 expense where a CFCNCA staff member accidentally voided a disbursement to a participating charity, thereby incurring a $6 bank charge. Because the error was made by a CFCNCA staff member, it should not have been paid by the campaign; 31 3. A 2008 expense where third party invoices were paid late, causing fees in the amounts of $207, $8, and $10. Because these were errors caused by campaign staff members, the late fees should not have been paid by the campaign; and 4. A 2009 expense where only 50% of the cost should have been charged to the CFCNCA. Therefore, $31 should not have been paid by the campaign. OIG’s Response: We concur with the PCFO's position on the expense items in this category and agree that $542 directly identified as unallowable charges by the PCFO was inappropriately charged to the related campaigns. Recommendation 7 We recommend that the PCFO distribute $268,739 as undesignated funds to the charities participating in the 2010 campaign. Recommendation 8 We recommend that the OCFC provide additional guidance to all LFCCs and PCFOs as to what should be considered unallowable campaign expenses, including but not limited to the types of items questioned above. Recommendation 9 We recommend that the LFCC establish policies and procedures requiring a more detailed budget and expense review to ensure that it only approves allowable and reasonable campaign expenses. Recommendation 10 We recommend that the OCFC and the LFCC ensure that the PCFO follows CFC regulations and OPM guidance when determining to which campaign period an expense belongs. 4. Improper Accounting for Campaign Expenses by PCFO Procedural The PCFO's accounting policies and procedures allowed for the reimbursement of accrued costs as well as actual costs, which could potentially result in overcharges to the campaign and limit the amounts disbursed to the participating charities. 5 CFR 950.106(a) states that the PCFO shall recover from the gross receipts of the campaign its expenses reflecting the actual costs of administering the local campaign. The regulation does not state that accrued or estimated campaign expenses are allowed costs to the campaign. 32 During our review of the PCFO’s campaign expenses for the 2007 through 2009 campaigns, we found that a total debit amount of $35,000 was accrued for audit fees. There were no credits to show an adjustment. The invoice provided by the PCFO showed that the actual cost of the audit fees for the 2007 campaign was $31,154. However, the PCFO was reimbursed for the general ledger’s ending balance as part of its reimbursement for campaign expenses. Therefore, the PCFO was reimbursed for the accrued amount of $35,000 instead of the actual expense. In addition to the audit fees, our review also noted other accruals in each campaign that were likely reimbursed in a similar manner. Ultimately, accruals should not be included as part of the actual expenses because the PCFO is only allowed to be reimbursed for its actual expenses. As a result of the PCFO being reimbursed for accrued expenses, they are not in compliance with 5 CFR 950.106(a). PCFO Comments: The PCFO contends that the OIG reached mistaken conclusions based on its misunderstanding of its accounting system. Because the OIG did not fully understand the PCFO's application of GAAP, it concluded that it “could not determine that the PCFO properly accounted for its campaign expenses for the 2007 through 2009 campaigns. The PCFO utilizes a standard accrual based accounting system. In accounting for CFCNCA expenses, there are generally three types of accruals. • Anticipated expenses for vendor invoices that have not yet been received are accrued and then are corrected to reflect actual expenses when the PCFO receives the invoice, thereby creating a credit in the expense accounts that were charged for the anticipated expenses. The estimated accrued expenses are, consequently, zeroed out and the actual expenses are included. • Major expenses are amortized monthly so that the financial statements early in the year are not misleadingly large. • Audit fees for the campaign; expenses for the processing of campaign receipts and the distribution of money to charities; and other necessary expenses, where payments will be made between the end and the close-out of a campaign, are estimated and accrued. The initial estimates are performed on a department by department, vendor by vendor basis and are as close to accurate as possible, but, ultimately, are adjusted to actual cost prior to the campaign close-out. Each of the above bullet points reflects the application of customary, generally accepted accounting practices that the PCFO's IPA have deemed are fully consistent with GAAP. In addition, the methods noted in the bullet points above are also fully compliant with CFC Memorandum 2008-09. 33 In estimating its audit fees for the audit of the 2007 campaign, the PCFO accrued $35,000 and subsequently received an invoice from the IPA for $31,154. However, before the 2007 campaign close-out, the PCFO was notified that OPM would be conducting an audit of the 2007-2009 work papers. Consequently, instead of adjusting the accrued amount to an actual cost and transferring the difference to the undesignated contributions of the campaign, the PCFO, assuming that there would be additional IPA audit fees due to the OPM audit, left the original accrual in place until it received the IPA's final bill on August 3, 2010. After payment of the IPA's final bill, a difference of $1,785 between the accrued amount and the actual cost remained which was used to offset an expense overage on a subsequent campaign. The PCFO contends that this method of accounting for expenses is fully consistent with CFC Memorandum 2008-09, which stated, “If the cost is less than the amount withheld and the difference is less than one percent of the gross pledges for the campaign audited, the amount should be distributed with funds for the campaign currently being distributed.” OIG Response: Based on the PCFO's response, we concur that the PCFO's financial records comply with GAAP and that it utilizes an accrual based accounting system. However, in following the accounting procedures required under an accrual based system, the PCFO allowed itself to be reimbursed for accrued costs. Specifically, as cited in our draft report, it included the $35,000 accrued for audit fees as part of its general ledger's ending balance, which was subsequently included in its request for reimbursement of its 2007 campaign expenses. Reimbursement of expenses in this manner violates 5 CFR 950.106(a), which states that the PCFO shall recover from the gross receipts of the campaign its expenses reflecting the actual costs of administering the local campaign. It also violates the intent of CFC Memorandum 2008-09, which instructs PCFOs to accrue costs that will be incurred after the close of the campaign and withhold them from the final campaign distribution to campaign members, as well as from the final expense reimbursement to itself. In other words, the PCFO should not be reimbursed for its accrued expenses until it receives an invoice for the actual cost. Once the actual cost is known, the PCFO should then compare the difference between the accrued and actual cost and make whatever adjustments are necessary in accordance with CFC Memorandum 2008-09. It is our opinion that although CFC Memorandum 2008-09 specifically mentions audit expenses, that this type of accounting for CFC expenses should be done for all accruals and not just audit-related accruals. Consequently, we maintain that the PCFO's method of reimbursing itself for its accrued costs does not comply with the CFC regulations, specifically 5 CFR 950.106(a), and that the PCFO should modify its policies and procedures for the reimbursement of these types of expenses so that they do comply with the regulations and the guidance provided in CFC Memorandum 2008-09. 34 Recommendation 11 We recommend that the OCFC and LFCC require the PCFO to modify its accounting policies and procedures related to the reimbursement of accrued expenses so that they comply with the regulations and the guidance provided in CFC Memorandum 2008-09. C. CAMPAIGN RECEIPTS AND DISBURSEMENTS 1. PCFO was Reimbursed for Estimated Expenses Procedural The PCFO was incorrectly reimbursed $2,129 for estimated expenses related to a special distribution of funds. 5 CFR 950.106(a) states that the PCFO shall recover only the actual costs of administering the campaign. During our review of a transfer of funds from the CFCNCA Campaign Account to the CFCNCA Operating Account, we determined that the PCFO was reimbursed $2,129 for estimated expenses related to a special distribution of campaign funds. Specifically, the OCFC determined that the United Way of Central Maryland (UWCMD) had erroneously received $106,436 during the 2002 and 2004 campaigns, and that the money should have been credited to the CFCNCA. To correct the issue, the UWCMD transferred the funds to the CFCNCA and the OCFC determined that the CFCNCA should treat these funds as undesignated funds for the 2008 campaign. The PCFO did distribute these funds as undesignated funds to the 2008 campaign, less estimated expenses of $2,129. The PCFO stated that they estimated their administrative expenses for this special distribution to be 2 percent. The PCFO was not able to provide supporting documentation for any actual expenses related to this special distribution. Therefore, we determined that the PCFO was reimbursed based on estimated and not actual expenses as allowed by the CFC regulations. Because the PCFO based its reimbursement on estimated instead of actual costs, it runs the risk of overcharging the campaign and thereby limiting the amount of funds that are distributed to participating charities. PCFO Comments: The transfer from the CFCNCA Campaign Account to the CFCNCA Operating Account, in the amount of $2,129, is allowable because it was a specially authorized administrative expense related to processing an additional amount creditable to the CFCNCA from earlier campaigns. The UWCMD determined that it had erroneously received $106,436, which should have been credited to the CFCNCA during the 2002 and 2004 campaign years. An OPM Compliance Specialist determined that these funds should be distributed as undesignated funds for the 2008 campaign. The $2,129 was found to be the incremental administrative cost associated with this 35 special distribution of funds. Accordingly, this amount was transferred from the CFCNCA Campaign Account to the Operating Account. OIG Response: While we agree that the PCFO is entitled to a reimbursement of its administrative expenses for this special distribution of funds, we do not agree with the amount charged against the campaign because the amount was based on a good faith estimate instead of actual costs. As stated above, the CFC regulations require that the PCFO recover only its actual costs of administering the campaign. Recommendation 12 We recommend that the LFCC ensure that the PCFO is only reimbursed for its actual costs related to the administration of the campaign pursuant to 5 CFR 950.106. 2. Unearned Interest in the CFCNCA Bank Accounts Procedural The PCFO did not obtain approval from the OCFC for earning a credit instead of interest on campaign funds in the CFCNCA Account, the account used to deposit campaign cash and check collections. 5 CFR 950.105(d)(8) states that it is the responsibility of the PCFO to keep and maintain CFC funds in interest bearing bank accounts, and that all interest earned must be distributed in the same manner as undesignated funds pursuant to §950.501. During our review of interest earned on funds in the CFCNCA Account, we determined that the funds did not earn interest after June 2009. However, we determined that the PCFO negotiated with the bank to provide a credit instead of interest in order to obtain a higher benefit to the campaign. Specifically, after determining that would only offer interest at the rate of the PCFO negotiated with the bank to provide a credit on bank fees equal to up to basis points, which yielded a reduction in bank fees equal to $3,109 from July of 2009 through February of 2010. Had the PCFO accepted the bank's interest rate offer, only $93 in interest would have been earned during this same period. Although the PCFO did provide a net benefit to the campaign of $3,016, they should have obtained approval from the OCFC for earning a credit instead of interest on campaign funds. PCFO Comments The PCFO contends that it was correct in negotiating the credit on the bank fees in lieu of earning interest on campaign funds because it produced a net benefit to the campaign. It did not realize that it needed to obtain OCFC approval before making this type of change. 36 OIG Response: While we do not object to the PCFO’s efforts to earn a better benefit on campaign funds, we maintain that it should have obtained approval from the OCFC before making this type of change. Recommendation 13 We recommend that the PCFO obtain approval from the OCFC for any changes to procedures which differ from the CFC regulations. D. ELIGIBILITY 1. Untimely Notice of Eligibility Decisions by LFCC Procedural The LFCC did not issue its eligibility decisions within 15 business days of the closing date for receipt of applications, for charities wishing to participate in the 2008 campaign. 5 CFR 950.801(a)(5) states that the LFCC “must issue notice of its eligibility decisions within 15 business days of the closing date for receipt of applications.” We reviewed a sample of eligibility letters that were sent by the LFCC to determine if the LFCC's eligibility decisions were made within 15 business days of the closing date of the applications, which for the 2008 campaign was March 11, 2008. The sampled eligibility notification letters were dated after April 1, 2008 (15 business days after the closing date for receipt of applications). Per the PCFO, “This was due to the bulk of approval letters that had to be written, printed, and submitted in a short period of time, due to the fact that the LFCC didn't approve the applications until the end of April.” As a result of the LFCC issuing notifications after April 1, 2008, agencies and federations were not notified of the LFCC’s eligibility decisions in a timely manner. Furthermore, those organizations accepted could not properly plan and budget for the coming year and those denied could not properly appeal the decision. PCFO Comments: The PCFO contends that at the time it mailed its eligibility decisions, it relied on the OPM Calendar of Events which states that “all local application decisions must be completed by the LFCC no later than May 2….” Consequently, it issued a majority of its 1,732 eligibility decisions by May 2, 2008, with the remaining decisions being mailed out on May 5, 2008. However, the PCFO does not oppose Recommendation 14 below. 37 OIG Response: The OPM Calendar of Event’s May 2, 2008, deadline to issue eligibility decisions was 15 business days following an assumed application closing date of April 14, 2008. However, the CFCNCA did not set an application closing date of April 14th. Instead, its application closing date was March 11, 2008. Therefore, according to 5 CFR 950.801(a)(5), the deadline to issue eligibility decisions would be 15 business days following March 11, or April 1, 2008. That being said, the PCFO does not oppose Recommendation 14, which if implemented should prevent this issue from reoccurring in future campaigns. Recommendation 14 We recommend that the OCFC ensure that the LFCC issues notice of its eligibility decisions within 15 business days of the closing date for receipt of applications in compliance with 5 CFR 950.801(a)(5). Recommendation 15 In the event that the PCFO is consistently unable to meet this deadline due to the size of the CFCNCA campaign, we recommend that the OCFC consider changing the regulations to include a calendar date for completing the local review that is similar to the calendar date deadline for the national/international list. We would also recommend that the modified regulations specify that this change is only applicable to campaigns above a certain size. 38 IV. MAJOR CONTRIBUTORS TO THIS REPORT Special Audits Group , Auditor-In-Charge , Auditor , Auditor , Group Chief, , Senior Team Leader 39 Appendix A SCHANER & LUBITZ, PLLC 6931 Arlington Road, Suite 200 Bethesda, Maryland 208 14 www.schanerlaw.com Kenneth I. Schaner, Esq. ken@schanerlaw,com T: 240-482-2848 F: 202 -470-2241 David M. Lubitz, Esq. david@schanerlaw,com T: 240-482-2849 F: 202-470-2240 June 23, 2011 VIA EMAIL AND U.S. PRIORITY MAIL • Special Audits Group Office of Audits Office of the Inspector General United States Office of Personnel Management 1900 E Street, N,W. Room 6400 Washington, D_C_ 20415-1100 Subject: Responses of Global Impact To Draft Report No. 3A·CF-OO-1O-034 Dear_ Pursuant to you r suggestion, Global Impact will respond separately to each of the 14 sepa rate tentative findings your office made in its Draft Report of May 31, 20 II (the "Report"). This will allow your staff to review OUf responses as they receive them and to meet with Global Impact staff if necessary to ask follow up questions and gather additional information. Our goal wi ll be to provide you with comprehensive responses to all of your tentative findings prior to the July 15, 2011 ex tended response deadline. Our initial review of each finding in the Report demonstrates significant errors by your audit team that render the initial findings materially inaccurate. We welcome this opportunity to correct these inaccuracies and encourage your staff to ask ~ll relevant follow-up questions. We recognize that the CFCNCA is large aDd complicated, involving thousands of entries and transactions. Accordingly, your task of learning how the system works and rendering an accurate report during a finite review period is quite difficult. However, many of your tentative conclusions, if not corrected, make allegations of malfeasance against Global Impact that are not true and are not supported by the facts. The truth is that Global Impact assumed the role of PCFO in historically difficult economic times and managed the CFCNCA to new revenue highs in years that charitable giving in other forums was Shrinking dramatically, while reducing expenses as a percentage of revenues to new lows; and it did so in a highly profess iona l manner. ----- .--- -- - -- - - - - - - - , -- - -- - ----­ For instances involving human error resu lting in mistaken transactions, many of which were not the fault of Global Impact or CFCNCA staff, Globallmpact's in ~ema l system of checks and procedures , and its employees, timely detected and corr~c ted such mistakes. Your draft report suggests a different and inaccurate pictu re. Our responses will correspond to the alphabetical and numerical topics set forth in the "Contents" section of your Draft Report. Enclosed are the first two memoranda bearing the identifiers "C.3 ." and "C.4.". The exhibits associated with eacb topic are, and in future memoranda wiJI be, identified with a number after the alpha-numerical identifier related to each particul ar topic; e.g., the first exhibit in the attached Memorandum relating to topic CA. is identifie d as Exhibit C.4(l ),the second exhibit in the attached Memorandum is identified as Exhibit C.4(2), and so on. As add itional topics are com pleted, we wi ll send them to you. When all of aU f responses are co mpleted, we will assemble them into one document and include an introductory section explaining further how Global lmpacl has managed the CFCNCA to increase contributions to designated cha rities while decreasing operating expenses and holding its expenses below the national average for eFCs. We wi ll also discuss other relevant facts bearing on the highly professional manner in which Global Impact conducts the CFCNCA. We encourage your staff to make contact with Global Impact on eacb topic response as you receive tbem. Global will fully cooperate with any follow-up questions posed by your staff, as il has thro~gho ut this audit process. General Counsel , Global Impact OlG Audit Topic C.3.: DIG Deleted pgs. 1,3 and 4 of this Portion oftbc PCFO's Response Not Relevant to the Fina l Report 1 C. Transfer #3 From The CFCNCA Campaign AccouIlt To The CFCNCA Operating Account, In The Amount Of $2,128.73, Is Allowable Because It Was A Specially Authorized Administrative Expense Relate.d to Processing Of An Additional Amount C reditable To The CFCNCA From Earlier Campaigns On March 31, 2010, a transfer of S2,128.73 was made from the CFCNCA Campaign Account to the CFCNCA Operating Account, after an OPM Compliance Specialist approved such amount as an administrative expense for processing an add itional $106,436.46 received by the CFCNCA from the United Way of Cent ral Maryland (UWCMD). UWCMD determined tbat it had erroneously rece ived such amount, which should have been credited to the CFCNCA during the its 2002 and 2004 campaign years . The OPM Compliance Specialist determined that the portion of funds relating 10 the 2002 campaign should be treated as undesigoated fund s for tbe 2008 campaign year. $2,128.73 was found to be the incremental administrative cost associated with this special distribution of fun ds received from UWCMD from the 2004 campaign. Accordingly such amount was transferred from the CFCNCA Campaign Account to the CFCNCA Operating Account. Attached at Exhibit C.3.(3) is the documentation that supports this allowable transfer. Deleted by the OIG Not Relevant to the Final Report 2 PBC: According to Stan BtI""an. CFO. Global Impact, this Is the PCFO's best good faith esUmate of the expenses it took to distribute the extra funds received from the United Way of Central Maryl,md. The PCFO estimat.d that the eost was about 2% and they created this spreadsh.et to develop a breakdown of their good faith estimate. The costs below are still estimated end not aetualexpenH'. Central Maryland CFC Special Distribution Unit Unit Cost Total Direct Processing 2 xx.xx 2 6 5 I XX.XX XX.XX XX.XX XX.XX total checks check stock envelopes postage paper(reams) total Total Direct Processing Investigation 10 @ $75 Overal Total Distribution % of Cost S S $ $ $ $ 667 S 667 S 667 S 667 S 1.334 $ 0.44 S 0.09 S 0.13 $ 0.44 S 3.40 $ $ $ 10 S 75.00 S S 124.26 88.94 175.92 131.30 120.Q7 640.49 293.48 60.03 86.71 293.48 4.54 738.24 1,378.73 750.00 2,128.73 $ 106,000.00 2% OIG Audit Topic CA.: OIG Deleted pgs. 1 - 3 of this Portion of the PCFO's Response Not Relevant to the Final Report 1 Appendix B S~HANER & LUBITZ, PLLt 6931 Arlington Road, Suite 200 Bethesda, Maryland 20814 www.schanerlaw.coID Kenneth I. Schaner, Esq. ken@schanerlaw.coID T: 240-482-2848 F: 202-470-2241 David M. Lubitz, Esq. david@schaneriaw.com T: 24 0-482 -2 849 F: 202-470-2240 July 11, 2011 VIA EMAlL AND U.s_ PRJORJTY MAlL i Group Office of Ihe Inspector General United Stales Office of Personnel Management 1900 E Street, N.W. Room 6400 Washington, D_C- 20415-1100 Subject: Additional Responses of Global Impact To Draft Report No. 3A-CF-OO-1O-034 Dear _ With Ibe attacbments to this letter, we are providing you with additional responses to the tentative findings of tbe May 31, 2011 Draft Report issued by your office. The attached responses and supporting exhibits address Draft Report sections C.l, C.2, C.S, C.6, C.S and 0 .1. On June 23, 2011 , we provided your office with responses and supporting exhibits 10 sections C.3 and C.4 of the Draft Report. We wi ll follow up with our remaining responses and supporting documents soo n. We continue to encourage your staff to contact Global Impact, jJ your audit team has follow-up questions. As it did during the audit process, Global Impact stands ready to provide full cooperation in answering any of your audit team's questions. Schaner bitz General Counsel, Global Impact --- - - - - - - - - - - - - -- - - - - -- - - - - - - -- -- - - - - - - - - - - C.I.IC.2. OIG Deleted pgs. 1 - 2 of this Portion of the PCFO's Response Not Relevant to tbe Final Report OIG Deleted pgs. 1 - 3 of tbis Portion of tbe PCFO's Response Not Relevant to tbe Final Report C.6. Global Impact Properly Maintained eFF Funds in Interest Beari ng Accounts At All Times In Section C.6. of the Draft Report, OI G conclude s that Global lrn pact improperly fai led to maintain Combined Federal Campaign ("CFe") funds in interest bearing accounts for the period July 2009 through January 2010 and therefore violated 5 C.F.R. § 950.1 05(d)(8). As expla ined herein, this conclusion is incorrect. For the C FCNCA Campaign account, Globa l Impact has entered into an interest bearin g repurchase arrangement whereby the account is swept daily, the money is transferred out of the account each night, the money contained therein is invested, and then returned the fo ll owing morning w ith interest. See Exhibit C.6.( I). Contrary to the aud it team 's all egations, CFCNCA Campaign account funds fo r the Jul y 2009 through January 20 I 0 period earned interest in the amount of $ 2,38 1.64 . ld. at page 8. Such interest is renected in the monthl y statements and in the Interest Income genera l ledger account for the period questioned in the Draft Repon and attached to Exhibit I and pages 1·7 thereof. The _ account arrangement is different. Because the_ accoun t holds CFCNCA Campa ign fund s for only a sha n time period during the year, the cost of entering into a sweeps an'angel11ent would be greater than any interest that ining that wou ld offer interest at the rate negotiated with the hank to provide a credit on bank fees equal to up to yielding a reduction in bank fees equal to $3, I 09.32. Had Global Impact acc:epted interest rate afTer, only $92.69 in inte rest would have been earned during the period questioned by the audit team. Global Impact therefore en tered into an arrangement on behalf of th e CFCNCA that produced a net benefit to the CFCNCA of$3,O I6.63. Attached at Exhibit C.6.(2) is a summary spreadsheet prepared by Global Impact reOecting this net benefit to the CFCNCA's ~ccou nl together with the bank statements supporting the ana lysis. In addition, this : =ge had the