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entitled 'Internal Controls: Corrective Actions Under Way to Address 
Control Deficiencies at the Morris K. Udall and Stewart L. Udall 
Foundation' which was released on December 6, 2013. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

December 2013: 

Internal Controls: 

Corrective Actions Under Way to Address Control Deficiencies at the 
Morris K. Udall and Stewart L. Udall Foundation: 

GAO-14-95: 

GAO Highlights: 

Highlights of GAO-14-95, a report to congressional requesters. 

Why GAO Did This Study: 

The Foundation was established as an executive branch agency to 
provide educational opportunities related to environmental policy and 
Native American health care and tribal policy, and also to assist in 
resolving environmental disputes that involve federal agencies. In 
December 2012, a DOI OIG audit of the Foundation identified 
significant issues primarily related to the Foundation’s failure to 
appropriately monitor and assess the effectiveness of its internal 
controls as required by FMFIA and the absence of key internal controls 
over its personnel and contracting practices. GAO was asked to review 
whether the Foundation has sufficient internal controls to ensure that 
it is complying with applicable laws and regulations regarding 
financial management and contracting. The objective of this report is 
to describe the Foundation’s actions to improve its internal control 
assessment process and its controls over personnel and contracting, 
and determine the extent to which the design of the Foundation’s 
actions that have been sufficiently documented is consistent with 
internal control standards and applicable laws and regulations. 

To address this objective, GAO reviewed relevant documents, 
interviewed Foundation management, and assessed the Foundation’s 
actions against relevant standards and guidance. 

In commenting on a draft of this report, the Foundation accepted GAO’s 
results in full. The Foundation also provided a summary of the changes 
it has made in its operations and structure since the DOI OIG report. 

What GAO Found: 

What GAO Found
Officials at the Morris K. Udall and Stewart L. Udall Foundation 
(Foundation) developed a Corrective Action Plan to address the 
findings in the Department of the Interior (DOI) Office of Inspector 
General’s (OIG) December 2012 audit report. The Corrective Action Plan 
included steps to address deficiencies in the Foundation’s (1) 
internal control monitoring and assessment process, (2) internal 
control related to personnel issues, and (3) internal control related 
to contracting. For those actions that were sufficiently documented at 
the time of its review, GAO found that their design was consistent 
with internal control standards and applicable laws and regulations. 

To address identified deficiencies in its internal control monitoring 
and assessment processes under 31 U.S.C. § 3512(c), (d), commonly 
known as the Federal Managers’ Financial Integrity Act (FMFIA), and 
implementing guidance, the Foundation contracted with an external 
consultant to perform an internal control review with an overall goal 
of achieving compliance with the Office of Management and Budget (OMB) 
Circular No. A-123, Management’s Responsibility for Internal Control 
and Standards for Internal Control in the Federal Government. GAO 
determined that the design of this action to contract for the 
performance of a thorough internal control review is consistent with 
internal control standards related to monitoring operations and 
internal controls and with FMFIA requirements to monitor and assess 
the effectiveness of internal controls. 

To address deficiencies in its internal control related to personnel 
issues, the Foundation developed policies and procedures to address 
specific DOI OIG findings in the areas of outside employment and 
termination of employees. The procedures were still in draft form, and 
it was too soon for GAO to assess the design of the changes. 

To address the DOI OIG’s findings related to its contracting 
practices, the Foundation entered into a 5-year interagency agreement 
with the DOI Interior Business Center (IBC), under which IBC agreed to 
assist the Foundation on contracts related to the Foundation’s 
environmental conflict resolution activities, including mediation, 
facilitation, and assessment services. GAO determined that the design 
of this action is consistent with internal control standards and 
applicable guidance for federal executive agencies. For example, the 
Foundation’s interagency agreement with IBC for managing environmental 
conflict resolution contracts is generally consistent with OMB’s 
Office of Federal Procurement Policy guidance on management and use of 
interagency acquisitions. For other contracts, the Foundation planned 
to issue a policy and guidance on internal contracting processes, but 
it was not finalized at the time of GAO’s review. 

View [hyperlink, http://www.gao.gov/products/GAO-14-95]. For more 
information, contact J. Lawrence Malenich at (202) 512-9399 or 
malenichj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Scope and Methodology: 

Background: 

The Foundation Is Taking Actions to Improve Its Internal Controls to 
Comply with Internal Control Standards and Laws and Regulations: 

Concluding Observations: 

Agency Comments: 

Appendix I: Comments from the Morris K. Udall and Stewart L. Udall 
Foundation: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Abbreviations: 

ADR: Alternative Dispute Resolution: 

DOI: Department of the Interior: 

COR: contracting officer's representative: 

FAR: Federal Acquisition Regulation: 

FMFIA: Federal Managers' Financial Integrity Act: 

IBC: Interior Business Center: 

OFPP: Office of Federal Procurement Policy: 

OIG: Office of Inspector General: 

OMB: Office of Management and Budget: 

OPM: Office of Personnel Management: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

December 6, 2013: 

Congressional Requesters: 

The Morris K. Udall and Stewart L. Udall Foundation (Foundation) was 
established as an executive branch agency to provide educational 
opportunities related to environmental policy and Native American 
health care and tribal policy, and also to assist in resolving 
environmental disputes that involve federal agencies.[Footnote 1] In 
December 2012,[Footnote 2] a Department of the Interior (DOI) Office 
of Inspector General (OIG) audit of the Foundation identified 
significant issues primarily related to the Foundation's failure to 
appropriately monitor and assess the effectiveness of its internal 
controls as required,[Footnote 3] and the absence of key internal 
controls over its personnel and contracting practices. The DOI OIG 
audit was performed after the Foundation's Board of Trustees (Board) 
became aware of some questionable actions by Foundation employees 
relating to these areas. Since the Foundation does not have an 
internal audit function, at the suggestion of the Deputy Secretary of 
the Interior--who serves as a Board trustee--the Board's Chair and 
Vice Chair requested a review by the DOI OIG under an Economy Act 
agreement.[Footnote 4]

Since the release of the DOI OIG audit report, the Foundation's 
controls have been in a significant state of transition and continued 
to be so during the time of our audit because of new management's 
efforts to develop and implement changes to improve internal controls 
over financial management, including personnel and contracting. 
[Footnote 5] You asked us to review whether the Foundation has 
sufficient internal controls to ensure that it is complying with 
applicable laws and regulations regarding financial management and 
contracting. Our objective is to describe the Foundation's actions to 
improve its internal control assessment process and its controls over 
personnel and contracting, and determine the extent to which the 
design of the Foundation's actions that have been sufficiently 
documented is consistent with internal control standards and 
applicable laws and regulations.

Scope and Methodology: 

To address our objective, we (1) obtained and reviewed the DOI OIG 
audit report and supporting workpapers; (2) interviewed Foundation 
management and selected staff members to determine the extent to which 
its actions to improve internal controls and the Federal Managers' 
Financial Integrity Act (FMFIA) assessment process have been 
sufficiently documented (i.e., whether such changes have been issued 
in final form or whether draft policies of planned changes have been 
reviewed by senior management and the in-house General Counsel); (3) 
obtained and reviewed documentation related to the Foundation's 
actions to improve internal controls and its FMFIA assessment process; 
and (4) assessed the Foundation's actions against the criteria 
established under Standards for Internal Control in the Federal 
Government,[Footnote 6] Office of Management and Budget (OMB) Circular 
No. A-123, Management's Responsibility for Internal Control (December 
21, 2004) (OMB Circular No. A-123),[Footnote 7] other OMB guidance 
concerning contracting, and the Federal Acquisition Regulation (FAR). 
The scope of our work did not include performing procedures to 
validate the findings included in the DOI OIG audit report. We 
discussed with DOI OIG officials responsible for conducting the audit 
at the Foundation the audit procedures they performed and reviewed 
supporting DOI OIG workpapers. We also met with Foundation management 
responsible for responding to the DOI OIG audit report and developing 
corrective action plans. These procedures allowed us to gain an 
understanding of the DOI OIG's work performed, the conclusions drawn, 
and management's response to the DOI OIG audit report.

We conducted this performance audit from May 2013 to December 2013 in 
accordance with generally accepted government auditing standards. 
Those standards required that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.

Background: 

The Foundation was established as an independent executive branch 
agency in 1992 to honor Morris K. Udall's 30 years of service in the 
U.S. House of Representatives as a leader on issues related to the 
environment and Native Americans. In 2009, its authorizing legislation 
was amended to also honor Stewart L. Udall's public service legacy. 
The Foundation is committed to educating a new generation of Americans 
to preserve and protect their national heritage through scholarship, 
fellowship, and internship programs focused on environmental and 
Native American issues. The Foundation consists of the Morris K. Udall 
and Stewart L. Udall Trust Fund, which is used to operate the 
Foundation's education programs, and the Environmental Dispute 
Resolution Fund. The latter fund is available to the Foundation to 
operate the U.S. Institute for Environmental Conflict Resolution, 
which was established by the Environmental Policy and Conflict 
Resolution Act of 1998 to promote the principles and practices of 
environmental conflict resolution and to assist in resolving conflict 
over environmental issues involving federal agencies. The Foundation 
depends on federal appropriations for the majority of its operations 
and received no-year appropriations of roughly $6.0 million in fiscal 
years 2012 and 2013.

Under its authorizing legislation, the Foundation is subject to the 
supervision and direction of the Board, which is to consist of 13 
trustees, 11 of whom are to be voting members of the Board.[Footnote 
8] The authorizing legislation charges the Board with appointing the 
Executive Director and setting his or her compensation. Further, the 
Foundation's operating procedures provide that it is the Board's role 
and duty to appoint senior management staff members and set their 
compensation; approve the organizational structure for the staff of 
the Foundation; approve the Foundation's budget and arrange for an 
annual financial audit; set policies, including internal controls, for 
the conduct and management of the agency's finances, personnel, and 
programs to be implemented by its staff; and approve the strategic 
direction and priorities for the Foundation.

DOI OIG Audit Report: 

The DOI OIG's December 2012 audit report of the Foundation concluded 
that--despite signed statements of assurance by the former Executive 
Director claiming otherwise--the Foundation had not appropriately 
assessed the effectiveness of its internal controls for at least 6 
fiscal years from 2006 through 2011 and was thus not in compliance 
with FMFIA. Under FMFIA and implementing guidance, federal executive 
agencies must establish internal control and financial systems that 
provide reasonable assurance of achieving the following three 
objectives of internal control: effectiveness and efficiency of 
operations, compliance with regulations and applicable laws, and 
reliability of financial reporting. FMFIA also requires the agency 
head to provide an annual statement of assurance on whether the agency 
has met these requirements. OMB Circular No. A-123 defines 
management's responsibility for internal control in federal executive 
agencies, including maintaining the appropriate level of documentation 
and continuously monitoring the effectiveness of internal control 
during the normal course of business. In relation to internal control 
over financial reporting, this includes documenting both the controls 
in place and the assessment process and methodology that management 
used to support its assertion as to the effectiveness of internal 
control, and performing monitoring activities that include direct 
testing of the controls as part of the assessment process.[Footnote 9] 
The DOI OIG's audit report also found that the Foundation was missing 
key internal controls over its personnel and contracting practices. 
The DOI OIG December 2012 audit report stated that the office does not 
have the authority to make formal recommendations to the Foundation to 
improve its internal controls. However, the DOI OIG audit report did 
include several suggestions for corrective actions for the 
Foundation's consideration.

The Foundation Is Taking Actions to Improve Its Internal Controls to 
Comply with Internal Control Standards and Laws and Regulations: 

The Foundation developed a Corrective Action Plan during fiscal year 
2013 to address the findings identified in the DOI OIG audit report 
and related financial management weaknesses to improve internal 
controls over its key financial management processes. Major elements 
of the Corrective Action Plan include performing a complete assessment 
of the Foundation's current internal control structure to identify 
adequate, inadequate, and missing controls, and developing (or 
contracting to have developed) policies and procedures to implement 
appropriate internal controls in all areas where inadequate or missing 
controls are identified.[Footnote 10] The Corrective Action Plan 
included steps to address deficiencies in the Foundation's (1) FMFIA 
internal control monitoring and assessment process, (2) internal 
control related to its personnel processes, and (3) internal control 
related to its contracting processes. For those actions that were 
sufficiently documented at the time of our review, we found that their 
design was consistent with internal control standards and applicable 
laws and regulations, as discussed in the following sections.

Foundation Actions to Improve FMFIA Internal Control Monitoring and 
the Assessment Process: 

Since the release of the DOI OIG audit report, the Foundation has 
experienced significant turnover in its senior management ranks, and 
new management has acknowledged that the Foundation did not (1) 
maintain adequate documentation of the controls in place, (2) perform 
monitoring activities that included direct testing of the controls as 
part of the internal control assessment process required under FMFIA, 
(3) document the assessment process and methodology that management 
used to support its assertion as to the effectiveness of internal 
control over financial reporting, and (4) include appropriate 
representations from officials and personnel responsible for 
monitoring, improving, and assessing internal controls. In addition, 
new management at the Foundation acknowledged that the Foundation's 
failure to comply with FMFIA requirements and implementing OMB 
Circular No. A-123 guidance contributed to the financial management 
weaknesses identified in the DOI OIG audit report.

The Foundation has taken action to comprehensively assess its internal 
controls and plans to make changes based on the results of that 
assessment. Specifically, the Foundation contracted with an external 
consultant to perform an internal control review with an overall goal 
of achieving compliance with OMB Circular No. A-123 and Standards for 
Internal Control in the Federal Government. We determined that the 
design of this action to contract for the performance of a thorough 
internal control review is consistent with internal control standards 
related to monitoring operations and internal controls and with FMFIA 
requirements to monitor and assess the effectiveness of its internal 
controls.

The scope of work for this review included performing an assessment of 
the Foundation's current internal control structure to identify 
adequate, inadequate, and missing controls; recommending improvements 
to controls and the control environment;[Footnote 11] recommending 
procedures for annual monitoring and testing of controls; recommending 
a format for the annual statement of assurance; and reviewing and 
recommending improvements for communication of control 
responsibilities to its staff. The Foundation exercised its option to 
order additional services from the external consultant to perform an 
assessment of the implementation of the recommendations in its report, 
which was issued in late September 2013.[Footnote 12] This assessment 
is expected to be performed from December 2013 to February 2014.

Foundation Actions to Address Internal Control Deficiencies Related to 
Personnel: 

The Foundation acknowledged that it did not have internal controls 
related to personnel in the areas of outside employment and 
termination of employees. Potential violations of applicable laws and 
regulations were detected by the DOI OIG as a result of these 
deficiencies. The Foundation's Corrective Action Plan contained 
planned changes to address the two key areas that were cited in the 
DOI OIG's audit report.

* Outside employment. The DOI OIG concluded that the Foundation did 
not comply with the Dual Compensation Act when approving outside 
employment activities for employees.[Footnote 13] As of November 2013, 
the Foundation was taking steps to improve its internal controls 
related to employees' outside employment. Specifically, the Foundation 
prepared a draft Outside Employment Policy, which requires Foundation 
employees to obtain management approval prior to engaging in any 
outside employment. As of November 2013, the draft Outside Employment 
Policy was in the process of being reviewed by the Foundation's 
General Counsel for compliance with applicable law and implementing 
Office of Personnel Management (OPM) regulations and guidance. 
According to Foundation officials, the policy is expected to be 
finalized in early 2014.

* Termination of employees. The DOI OIG audit report cited a lack of 
internal controls as the basis for questionable actions that were 
taken by Foundation management to encourage employees to either 
voluntarily, or involuntarily, leave their Foundation employment. The 
Foundation was taking steps to improve its internal controls relating 
to termination of staff members' employment. Specifically, as of 
November 2013, the Foundation was updating its personnel policies to 
direct that all personnel actions taken must comply with applicable 
law and implementing OPM regulations and guidance, and that any 
deviation from such regulations and guidance must be documented and 
justified in writing. According to Foundation officials, the policy is 
expected to be finalized in early 2014.

Because the Foundation's planned actions to improve its internal 
controls related to employees' outside employment and termination of 
employment were not finalized, it was too soon for us to assess the 
design of these actions and whether they are consistent with internal 
control standards and applicable laws, regulations, and guidance. The 
draft Outside Employment Policy and the personnel policies relating to 
termination of employees will not be finalized until the Foundation's 
General Counsel and Executive Director and the Board have reviewed and 
approved the proposed changes. Once approved, the extent to which the 
new personnel-related internal controls and their implementation will 
help the Foundation to successfully improve its internal controls and 
comply with applicable laws and regulations will require the continued 
involvement and vigorous oversight of Foundation management and the 
Board.

Foundation Actions to Address Internal Control Deficiencies Related to 
Contracting: 

The Foundation acknowledged the need for improvement in its internal 
controls related to contracting and was taking some steps to address 
these issues. The Foundation's Corrective Action Plan contained 
planned changes to address the findings from the DOI OIG audit report 
that are listed below. According to the report, the Foundation: 

* potentially violated the Antideficiency Act,[Footnote 14] which 
provides that an employee of the U.S. government may not make or 
authorize an expenditure or obligation exceeding an amount available 
in an appropriation or fund;

* may have billed agencies in violation of the bona fide needs rule, 
[Footnote 15] which provides that an appropriation made for a definite 
period of time may be used only to fulfill a genuine, legitimate, and 
otherwise bona fide need arising during the period of availability of 
that appropriation;

* had conflict-of-interest issues that potentially violated the Ethics 
in Government Act of 1978,[Footnote 16] as amended, and implementing 
regulations, including (1) a contract awarded to a company owned by a 
Foundation employee's relative, (2) hiring a contractor as a 
Foundation employee prior to the expiration of an existing contract 
with that person, and (3) improperly awarding a contract to a former 
Foundation employee;

* was not in compliance with the FAR when awarding sole source 
contracts.[Footnote 17] Most of the sole source contracts were 
justified using the Alternative Dispute Resolution (ADR) exception to 
full and open competition;[Footnote 18] but the DOI OIG determined 
that the work being contracted did not meet the essential elements 
required for an ADR exception under FAR 6.302-3 ("acquire services of 
an expert or neutral person for any current or anticipated litigation 
or dispute"). Further, not all contracts had approved sole source 
justifications as required by the FAR, and some justifications 
contained inaccurate information;

* inappropriately modified some contracts to add additional funding, 
add work outside the scope of the contract, extend the period of 
performance beyond the original dates, or a combination of these; and: 

* awarded what appear to be personal service contracts, which the FAR 
defines as contracts characterized by the employer-employee 
relationship it creates between the government and the contractor's 
personnel. Obtaining personal services by contract, rather than by 
direct hire, circumvents the civil service laws unless Congress has 
specifically authorized acquisition of the services by contract.

The Foundation recognized that internal controls for contracting were 
deficient and had taken some action and was developing other changes 
to correct control deficiencies in this area. According to the 
Executive Director, after discussion and approval from the Chair and 
Vice Chair of the Board, the Foundation entered into a 5-year 
interagency agreement for assisted acquisitions on March 11, 2013, 
with the DOI Interior Business Center's (IBC) Acquisition Services 
Directorate. IBC provides comprehensive acquisition services to 
federal agencies, managing the entire process from planning, 
soliciting, and evaluating offers to awarding and administering 
contracts through closeout.[Footnote 19] We determined that the design 
of this action is consistent with internal control standards and 
applicable guidance for federal executive agencies. Specifically, the 
Foundation's interagency agreement with IBC for managing environmental 
conflict resolution contracts is generally consistent with OMB's 
Office of Federal Procurement Policy (OFPP) 2008 policy guidance on 
management and use of interagency acquisitions.[Footnote 20] The 
formal agreement generally follows OFPP's model agreement for an 
assisted acquisition, including delineating the roles and 
responsibilities of both the requesting (Foundation) and servicing 
(IBC) agencies throughout the acquisition life cycle. The agreement is 
an appropriate strategy for addressing the findings identified by the 
DOI OIG in this area and meeting internal control standards for proper 
implementation and oversight of agency contracting activities.

Pursuant to the terms of the interagency agreement, IBC has agreed to 
assist the Foundation on contracts related to environmental conflict 
resolution activities, including mediation, facilitation, and 
assessment services. An IBC official serves as the Contracting Officer 
for contracts that IBC awards to private service providers on the 
Foundation's behalf.[Footnote 21] IBC also will provide contracting 
officer's representatives (COR) until such time that Foundation 
Program Managers become qualified to be authorized CORs by completing 
existing training requirements and receiving Federal Acquisition 
Institute certification as CORs.[Footnote 22] Per the agreement, IBC 
will help the Foundation comply with the bona fide needs rule by 
managing funds according to the Foundation's guidance, recording 
transactions in a timely fashion, and implementing and exercising 
controls to ensure compliance with all applicable statutory and 
regulatory fiscal requirements.

Further, per the agreement, the Foundation will provide IBC with 
information on project objectives, deliverables, and schedule 
milestones, and IBC will select an appropriate award type based on the 
nature of the requirement and associated risk. IBC is responsible for 
ensuring that the environmental conflict resolution contracts comply 
with competition requirements, including seeking competition unless an 
exception is justified and approved at the appropriate level; 
requiring the Foundation to furnish supporting rationale and 
appropriate documentation to support an exception to competition; and 
reviewing the sufficiency of the Foundation's justification and 
documentation before approving and proceeding with a noncompetitive 
action. The interagency agreement with IBC also defines the roles and 
responsibilities for evaluating proposed contract modifications. Per 
this agreement, the Foundation is to work with IBC to evaluate 
proposals for changes and, if requested by the IBC Contracting 
Officer, to participate in negotiation of changes, modifications, and 
claims. Further, the Foundation is responsible for ensuring that it is 
not authorizing work (making commitments or promises, issuing 
instructions to start or stop work, or directing changes), changing 
any contractual documents, modifying the scope of work (including the 
period of performance), authorizing accrual of costs, or otherwise 
providing direction to the contractor, except as expressly authorized 
in the COR appointment by IBC's Contracting Officer. IBC is 
responsible for working with the Foundation to evaluate proposals for 
changes and ensuring that any modifications to the requirements or 
price of the award remain within the overall scope of the original 
award. The agreement should help in improving management and oversight 
on those environmental conflict resolution contracts being serviced by 
IBC. The total amount paid on these environmental conflict resolution 
contracts was approximately $2.7 million in fiscal year 2013.

The Foundation has retained responsibility for administrative 
contracts and leasing activities. According to the Foundation, in 
fiscal year 2013, it paid approximately $780,000 for administrative 
contracts managed by the Foundation. Most of the administrative 
contract costs were onetime expenditures to address DOI OIG audit 
findings, such as contracting for organizational development work, the 
internal control review, legal review and assistance, and the cost of 
the DOI OIG audit. Other administrative costs are recurring, such as 
payroll and financial services provided by the General Services 
Administration under memorandums of understanding, and the cost of the 
annual financial statement audit. The Foundation also spent $361,000 
on leased space at two locations.

The Foundation plans to draft guidance on internal contracting 
processes that will be reviewed by the Foundation's General Counsel 
and Executive Director. According to the Foundation, it intends to 
have a policy approved and in place by December 15, 2013. The 
Foundation expects the policy to state that the FAR guidance should be 
followed, including its contract documentation requirements and 
prohibitions related to personal services contracts. Because the 
Foundation's planned actions to improve its internal controls related 
to its management of administrative contracts were not finalized, it 
was too soon for us to assess the design of these actions and whether 
they are consistent with internal control standards and applicable 
laws, regulations, and guidance. However, issuance of a new internal 
contracting policy that reinforces the requirements of the FAR for 
administrative contracts is a good step in emphasizing the need for 
following sound contracting practices.

Concluding Observations: 

The Foundation's continuing implementation of its Corrective Action 
Plan and the efforts to make changes in internal controls appear to be 
moving the Foundation in the right direction to strengthen its 
internal controls, comply with applicable laws and regulations, and 
improve management's ability to make informed decisions. Many of the 
Foundation's actions to improve its internal controls will be in 
various stages of implementation over the next few months and possibly 
longer. Until implementation is complete, the extent to which these 
changes will help the Foundation monitor and improve the effectiveness 
of its internal controls and comply with applicable laws and 
regulations cannot be fully assessed.

Agency Comments: 

We provided a draft of this report to the Foundation for comment. In 
its written comments, which are reprinted in appendix I, the 
Foundation stated that it accepted the results of our audit in full. 
The Foundation also provided a summary of the changes it has made in 
its operations and structure since the DOI OIG audit report. Further, 
the Foundation recognized that more needs to be done and stated that 
it was committed to ensuring that all internal controls are adequate 
and being followed on a continuous basis.

We are sending copies of this report to the Executive Director of the 
Morris K. Udall and Stewart L. Udall Foundation, the Deputy Inspector 
General of the Department of the Interior, and the appropriate 
congressional committees. In addition, the report is available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov].

If you or your staffs have any questions about this report, please 
contact me at (202) 512-9399 or malenichj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff members who made key 
contributions to this report are listed in appendix II. 

Signed by: 

J. Lawrence Malenich: 
Director: 
Financial Management and Assurance: 

List of Requesters: 

The Honorable Barbara A. Mikulski: 
Chairwoman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Mike Johanns: 
Ranking Member: 
Subcommittee on Financial Services and General Government: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ander Crenshaw: 
Chairman: 
The Honorable José E. Serrano: 
Ranking Member: 
Subcommittee on Financial Services and General Government: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Comments from the Morris K. Udall and Stewart L. Udall 
Foundation: 

Udall Foundation: 
Civility, Integrity, Consensus: 
130 South Scott Avenue: 
Tucson, Arizona 85701: 
Telephone, 520-901-8500: 
Fax: 520-670-5530: 

Board of Trustees: 
Eric D. Eberhard, Chair: 
Dr. Anne J. Udall, Vice Chair; 
R. Lance Boldrey; 
Michael A Butler; 
Dr. Ann Weaver Hart; 
Diane J. Humetewa; 
William Mendoza; 
Dr. Stephen M. Prescott; 
D. Michael Rappoport; 
Nancy Sutley; 
Bradley Udall. 

Trustees Emeriti: 
Terrence L. Bracy, Chair Emeritus; 
Herbert R. Guenther; 
Matt James; 
Dr. Peter W. Likins; 
P. Lynn Scarlett. 

Executive Director: 
Philip J. Lemanski. 

December 3, 2013: 

Mr. J. Lawrence Malenich: 
Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

Dear Mr. Malenich: 

The Board of Trustees of the Udall Foundation is grateful for the work 
of GAO on this audit and accepts its results in full. The Board wishes 
to provide history and context to demonstrate how seriously it has and 
is taking the results of the reviews performed to assess the internal 
controls of the Foundation. 

The work of the DOI OIG was conducted at the unanimous request of the 
Board of Trustees of the Foundation. In the period since April 2012 
when the Board of Trustees first became aware of the Foundation's 
failure to properly monitor key internal controls and the absence or 
inadequacy of other essential internal controls over personnel and
contracting policies, the Board of Trustees has exercised its 
authority under 20 U.S.C. § 5603(b) to closely supervise and direct 
the work of the Foundation in order to institute fundamental changes 
in the operations and structure of the Foundation. The Foundation 
staff, recognizing the seriousness of the problems, has worked 
cooperatively and diligently to implement the changes. A short summary 
of those changes includes: 

* An independent assessment of all internal controls has been 
completed and its recommendations are being implemented. The 
consultant who performed the review of the internal controls will also 
perform an assessment of the implementation of the recommendations 
included in the assessment. The consultant was hired through a full 
and open competition. When he retired from the Bureau of Land 
Management in 2009, he was the Assistant Director for Business and 
Fiscal Resources and the Chief Financial Officer for BLM.

* We conducted a complete review of the organization of the staff of the
Foundation and adopted a new organization plan to ensure improved
accountability and efficiency at all levels of the staff.

* Position descriptions and performance plans have been developed for 
all senior management positions. An Executive Director and a General 
Counsel have been hired. We are currently advertising for a new 
Director for the Environmental Conflict Resolution Program and a new 
Director for Finance and Operations. We have filled the positions for 
the Director of Education Programs and the Director of the DC Office. 
During FY 2014, the position descriptions and performance plans for 
rest of the staff at the Foundation will be reviewed and revised. 

* With input and review by GSA, OGE and OPM, the Board developed, 
adopted and implemented new operating procedures, which include clear 
reporting requirements and time lines for the submission of reports by 
staff to ensure that the Board has the information necessary for the 
proper discharge of its duties to oversee and supervise the work of 
the staff. 

* We entered into an interagency agreement (lAG) with the Interior 
Business Center under which the IBC serves as the contracting officer 
for all contracting relating to the U.S. Institute for Environmental 
Conflict Resolution, a program of the Udall Foundation. The 
Environmental Conflict Resolution contracts constitute the vast 
majority--in both number and dollar value--of the contracts awarded to 
perform the mission of the Foundation. We are presently amending
the IAG so that IBC will issue the Foundation's internal operating 
contracts as well, thus all contracts governed by the FAR will be 
managed by IBC. In this way, the Foundation is ensuring that proper 
U.S. Government contracting procedures and practices are and will be 
applied to the procurements entered into on its behalf. 

* With the assistance of GSA, we implemented outside employment 
policies. 

* We worked with the Office of General Counsel at GSA to determine if
disciplinary action was warranted based on the audit conducted by the 
DOI OIG and completed appropriate personnel actions. 

* We amended the interagency agreement with GSA to obtain assistance 
in the implementation of the EEO laws. 

* We resolved all of the findings of a January 2012 audit by OGE, 
which found no ethical violations but which identified documentation 
and training gaps.

* We ensured that appropriate annual Ethics Training is provided to 
staff and to the Board of Trustees, and implemented new processes to 
ensure that Foundation employees and Board members have the 
opportunity to identify and mitigate any conflict of interest or 
appearances of a conflict of interest with Foundation programs and 
projects.

* In order to control operating costs and plan for the impact of 
sequestration, we implemented a hiring freeze in the U.S. Institute 
and an across the board freeze on salary increases, and eliminated 
bonuses and merit increases during FYs 2012 and 2013. 

* We suspended the Fellowship Program and reduced the Scholarship 
Program from 80 to 50 awards due to the decline in interest earnings 
on the Education Trust Fund resulting from the historic low interest 
rates over the last several years. 

* We implemented a new methodology for allocating operating costs 
between the Education Trust Fund and the Environmental Dispute 
Resolution Fund based on the recommendations of our consultant as part 
of his review of the internal control policies. 

* We oversaw the development of a new marketing plan for the U.s. 
Institute and are in the process of working with the staff to develop 
a plan to maximize the Institute's earned revenues in the years ahead. 

* We developed a new strategic plan to ensure that the work of the 
Foundation is directed toward meeting its statutory mandates, within 
available funding. 

* We fully cooperated in two investigations conducted by the Office of 
Special Counsel, both of which resulted in no findings against the 
Foundation or any staff. 

The Board of Trustees and senior management of the Foundation 
recognize that there is still work to do to ensure that all internal 
controls are adequate and that they are being followed. We are 
committed to doing so on a continuous basis. 

Sincerely, 

Signed by: 

Eric D. Eberhard: 
Chair, Board of Trustees: 

EDE: eem. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

J. Lawrence Malenich, (202) 512-9399 or malenichj@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, William Boutboul (Assistant 
Director), Lauren S. Fassler, Patrick Frey, Wilfred Holloway, Gail 
Luna, Vivian Ly, Cynthia Ma, Mary Quinlan, and William T. Woods made 
significant contributions to this report.

[End of section] 

Footnotes: 

[1] See the Foundation's authorizing legislation, which is classified, 
as amended, at 20 U.S.C. chapter 66.

[2] The DOI OIG audit report, Stewardship of the Morris K. Udall and 
Stewart L. Udall Foundation, was released in December 2012 to the 
Foundation's Board of Trustees and the Foundation's Acting Executive 
Director. The report was not made available to the public. 

[3] Under 31 U.S.C. 3512 (c), (d), commonly known as the Federal 
Managers' Financial Integrity Act (FMFIA), and implementing guidance, 
federal executive agencies must establish internal control and 
financial systems that provide reasonable assurance of achieving the 
following three objectives of internal control: effectiveness and 
efficiency of operations, compliance with regulations and applicable 
laws, and reliability of financial reporting. FMFIA also requires the 
agency head to provide an annual statement of assurance on whether the 
agency has met these requirements.

[4] The Economy Act, codified, as amended, in part, at 31 U.S.C. § 
1535, authorizes federal agencies to acquire services from other 
federal agencies and to pay for those services. A federal agency may 
make such an acquisition under the Economy Act if these requirements 
are met: (1) amounts to pay for the services are available to the 
acquiring agency, (2) the acquisition is in the best interests of the 
United States, (3) the servicing agency is able to provide them or get 
them by contract, and (4) the services cannot be provided by contract 
as conveniently or as cheaply by a commercial enterprise.

[5] On August 27, 2013, the Board unanimously voted to appoint the 
Acting Executive Director as Executive Director of the Foundation. The 
Executive Director previously served as the Foundation's Deputy 
Executive Director for Finance and Education. In addition, a new 
General Counsel was hired on July 1, 2013.

[6] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999).

[7] OMB Circular No. A-123, Management's Responsibility for Internal 
Control, (Dec. 21, 2004). This circular provides guidance to federal 
managers on improving the accountability and effectiveness of federal 
programs and operations by establishing, assessing, correcting, and 
reporting on internal control. The circular provides internal control 
standards and specific requirements for conducting management's 
assessment of the effectiveness of internal control over financial 
reporting.

[8] The President appoints nine members of the Board, with the advice 
and consent of the U.S. Senate. The other four members serve by virtue 
of their positions within government and include the Secretary of the 
Interior or the Secretary's designee, the Secretary of Education or 
the Secretary's designee, the President of the University of Arizona, 
and the chairperson of the President's Council on Environmental 
Quality. 

[9] These internal control activities would be generally consistent 
with the requirements in OMB Circular No. A-123's Appendix A, Internal 
Control Over Financial Reporting, which contains additional guidance 
related to the process for separately assessing and documenting 
internal control over financial reporting. While Appendix A only 
applies directly to the 24 Chief Financial Officers Act agencies, 
which do not include the Foundation, this does not preclude the 
Foundation's management from voluntarily adopting this guidance as a 
best practice. 

[10] The Foundation is also seeking changes to its appropriations 
language that will assign the DOI OIG responsibility for providing 
future oversight for the Foundation. In this regard, the House and 
Senate Committees on Appropriations, Subcommittees on Financial 
Services and General Government, have each approved the Financial 
Services and General Government Appropriations bills for fiscal year 
2014 (H.R. 2786 and S. 1371). S.1371, as noted in its companion Senate 
Report No. 113-80, includes an earmark providing for the DOI OIG to 
conduct annual audits and investigations of the Foundation in order to 
ensure that the Foundation's spending, management, and other 
activities are subject to regular oversight and review. However, the 
Continuing Appropriations Act, 2014, Pub. L. No. 113-46, 127 Stat. 558 
(Oct. 17, 2013), which is effective through January 15, 2014, did not 
include a provision providing funding for Foundation investigations 
and audits by the DOI OIG. 

[11] The control environment sets the tone of an organization, 
influencing the control consciousness of its people. It is the 
foundation for all other components of internal control, providing 
discipline and structure. Control environment factors include the 
integrity, ethical values, and competence of the entity's people; 
management's philosophy and operating style; the way management 
assigns authority and responsibility and organizes and develops its 
people; and the attention and direction provided by the board of 
directors. 

[12] The external consultant's internal control review made 
recommendations to strengthen the control environment in the areas of 
ethical values, management philosophy, authority and responsibility, 
and human resources practices and oversight. 

[13] The Dual Compensation Act, codified, as amended, in part at 5 
U.S.C. § 5533, imposes limitations on dual compensation for most 
federal government employees. The act states that unless an express 
exception applies, an individual is not entitled to receive basic pay 
from more than one position for more than an aggregate of 40 hours of 
work in 1 calendar week (Sunday through Saturday). The act authorizes 
the Office of Personnel Management to prescribe regulations under 
which exceptions to this general prohibition may be made.

[14] Antideficiency Act, codified, as amended, in part at 31 U.S.C. § 
1341(a).

[15] The bona fide needs rule is based on the Time Statute (31 U.S.C. 
§ 1502(a)). 

[16] See the Ethics in Government Act of 1978, which is codified, as 
amended, in 5 U.S.C. appendix §§ 401-408. The Director of the Office 
of Government Ethics has issued implementing regulations, which are 
codified, as amended, in 5 C.F.R. parts 2634-41.

[17] The FAR is the primary regulation for use by all federal 
executive agencies in their acquisition of supplies and services with 
appropriated funds.

[18] Federal agencies conducting procurements generally are required 
to obtain full and open competition through the use of competitive 
procedures unless a specific exception applies. One exception provided 
for in the FAR is when an agency is acquiring the services of a 
neutral person to facilitate an Alternative Dispute Resolution process 
for any current or anticipated litigation or dispute. See FAR, 48 
C.F.R. subpart 6.3, "Other Than Full and Open Competition."

[19] GAO discussed some of the services provided by IBC in GAO, 
Interagency Contracting: Improvements Needed in Setting Fee Rates for 
Selected Programs, [hyperlink, http://www.gao.gov/products/GAO-11-784] 
(Washington, D.C.: Sept. 9, 2011).

[20] Office of Federal Procurement Policy Memorandum, Improving the 
Management and Use of Interagency Acquisitions (June 6, 2008).

[21] A contracting officer is an individual with the authority to 
enter into, administer, and terminate contracts and make related 
determinations and findings. See FAR Parts 1.602 and 2.101.

[22] A COR is an individual designated and authorized in writing by 
the contracting officer to perform specific technical or 
administrative functions. See FAR Part 2.101, "Definitions."

[End of section] 

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