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B-201408 L/M, APR 19, 1982

B-201408 L/M Apr 19, 1982
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PLAN WILL SHIFT STAFF EFFORT TO LARGER COST TYPE CONTRACTS WHERE GREATER SAVINGS MAY BE ACHIEVED. 2. FUNCTION OF CERTIFYING OFFICER IS TO DETERMINE THAT VOUCHERS ARE LEGALLY AND ARITHMETICALLY CORRECT. THAT PAYMENT IS A VALID OBLIGATION OF THE APPROPRIATION TO BE CHARGED. PERSONAL LIABILITY IS STATUTORILY IMPOSED ON CERTIFYING OFFICERS WHO MAY THEREFORE QUESTION INFORMATION PROVIDED BY CONTRACTING OFFICERS AND REFUSE TO CERTIFY DOUBTFUL PAYMENTS OR WHO MAY SUBMIT THEM FOR ADVANCE DECISION BY COMPTROLLER GENERAL. OUR ENDORSEMENT OF THE AUDIT RESOURCES UTILIZATION PLAN IS LIMITED TO THE PLAN CONCEPTS SYNOPSIZED IN THE DISCUSSION PAPER ATTACHED TO THE LETTER AND SHOULD NOT BE INTERPRETED AS APPROVAL OF THE PLAN AS IT MAY BE FINALLY APPROVED AND IMPLEMENTED BY HHS.

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B-201408 L/M, APR 19, 1982

DIGEST: 1. AUDIT RESOURCES UTILIZATION PLAN, EMPHASIZING DESK RATHER THAN FIELD AUDITS AND SYSTEMS RATHER THAN CONTRACT AUDITS MAY BE IMPLEMENTED, PROVIDED HIGH RISK CONTRACTORS REMAIN SUBJECT TO MORE RIGOROUS PROCEDURES. PLAN WILL SHIFT STAFF EFFORT TO LARGER COST TYPE CONTRACTS WHERE GREATER SAVINGS MAY BE ACHIEVED. 2. FUNCTION OF CERTIFYING OFFICER IS TO DETERMINE THAT VOUCHERS ARE LEGALLY AND ARITHMETICALLY CORRECT, AND THAT PAYMENT IS A VALID OBLIGATION OF THE APPROPRIATION TO BE CHARGED. CERTIFICATION MAY NOT BE REDUCED TO A MATTER OF FORM. PERSONAL LIABILITY IS STATUTORILY IMPOSED ON CERTIFYING OFFICERS WHO MAY THEREFORE QUESTION INFORMATION PROVIDED BY CONTRACTING OFFICERS AND REFUSE TO CERTIFY DOUBTFUL PAYMENTS OR WHO MAY SUBMIT THEM FOR ADVANCE DECISION BY COMPTROLLER GENERAL. SEE COMPTROLLER GENERAL DECISIONS AND COURT CASE CITED.

DALE W. SOPPER, DEPARTMENT OF HEALTH AND HUMAN SERVICES:

THE FORMER ASSISTANT SECRETARY FOR MANAGEMENT AND BUDGET, COMPTROLLER GENERAL'S ENDORSEMENT OF A PROPOSED AUDIT RESOURCES DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS), REQUESTED THE UTILIZATION PLAN AND CONCURRENCE IN THE DEPARTMENT'S INTERPRETATION OF THE ROLE OF CERTIFYING OFFICERS IN THE CERTIFICATION OF CONTRACT PAYMENTS. WE FIND NO CONCEPTUAL OBJECTION TO THE PROPOSED AUDIT PROCEDURES, AS DESCRIBED. AS RECOGNIZED IN THE ASSISTANT SECRETARY'S LETTER, OUR ENDORSEMENT OF THE AUDIT RESOURCES UTILIZATION PLAN IS LIMITED TO THE PLAN CONCEPTS SYNOPSIZED IN THE DISCUSSION PAPER ATTACHED TO THE LETTER AND SHOULD NOT BE INTERPRETED AS APPROVAL OF THE PLAN AS IT MAY BE FINALLY APPROVED AND IMPLEMENTED BY HHS. WE DISAGREE, HOWEVER, ON THE MATTER OF THE CERTIFYING OFFICER'S ROLE.

I AUDIT RESOURCES UTILIZATION PLAN

BECAUSE OF UNDERSTAFFING, THE HHS AUDIT AGENCY NEEDS TO ADOPT ABBREVIATED AUDIT PROCEDURES TO PROTECT THE INTERESTS OF THE GOVERNMENT WHILE CLOSING OUT CONTRACTS ON A TIMELY BASIS. HHS STATES THAT THE PROPOSED PLAN, SUMMARIZED BELOW, WILL ASSIST IT IN MEETING BOTH GOALS. THE PLAN CALLS FOR PREAWARD SCRUTINY OF OFFERORS' COST ACCOUNTING SYSTEMS BY USE OF A QUESTIONNAIRE. AFTER AWARD, BASED ON THE CONTRACTING OFFICER'S REVIEW OF THE QUESTIONNAIRE, HIGH RISK CONTRACTORS WILL BE IDENTIFIED. COMPLETION OF THE CONTRACT, HIGH RISK CONTRACTORS WILL BE SUBJECTED TO A FIELD AUDIT, WHILE DESK AUDITS WILL APPARENTLY BE CONDUCTED FOR MANY OTHERS. AUTHORITY TO CLOSE OUT LOW RISK CONTRACTS BASED ON DESK AUDITS WILL BE EXTENDED TO CONTRACTS EXCEEDING THE CURRENT CEILING OF $100,000. FINALLY, THE PLAN ENCOURAGES THE USE OF SYSTEMS AUDITS INSTEAD OF INDIVIDUAL FIELD CONTRACT AUDITS WHERE POSSIBLE.

THIS OFFICE HAS NOTED BOTH THE STAFF YEAR SHORTFALL AND THE DISPROPORTIONATE EFFORT THE AUDIT AGENCY IS CURRENTLY PUTTING FORTH CALENDAR YEAR 1980, OUR HUMAN RESOURCES DIVISION ESTIMATES THAT ABOUT ON SMALLER COST TYPE CONTRACTS RELATIVE TO SAVINGS ACHIEVED. IN 40 PERCENT OF HHS' AUDIT RESOURCES WERE DEVOTED TO SMALLER CONTRACTS, PRODUCING ABOUT 15 PERCENT OF THE RECOMMENDED AND 10 PERCENT OF THE ACCEPTED ADJUSTMENTS. IN CONTRAST, MANY MEDICARE CARRIERS OPERATE UNDER COST TYPE CONTRACTS CONSIDERABLY IN EXCESS OF $100,000, AND THOSE AUDITS CONSUMED ABOUT 15 PERCENT OF THE AUDIT AGENCY'S RESOURCES AND RESULTED IN 40 PERCENT OF THE RECOMMENDED AND 60 PERCENT OF THE ACCEPTED ADJUSTMENTS FOR THE YEAR. WOULD THUS APPEAR THAT HHS COULD BENEFIT FROM REALLOCATION OF ITS AUDIT RESOURCES.

WE HAVE TWO RESERVATIONS ABOUT THE PLAN'S IMPLEMENTATION. IN OUR VIEW, HIGH RISK CONTRACTORS SHOULD ALWAYS BE SUBJECT TO CONTRACT AUDITS IN ADDITION TO SYSTEMS AUDITS. ALTHOUGH THIS APPROACH IS SUGGESTED IN THE DISCUSSION PAPER, IT IS NOT CLEAR THAT IT WILL BE REQUIRED IN ALL INSTANCES. ADDITIONALLY, WE STRONGLY RECOMMEND THE CONTINUATION OF FIELD AUDITS FOR THOSE SAME CONTRACTORS.

OUR SECOND RESERVATION CONCERNS THE LIFTING OF THE CURRENT $100,000 CEILING FOR DESK AUDITS. THE PLAN WOULD ALLOW DESK AUDIT OF CONTRACTS OVER $100,000 IF IT WAS "UNLIKELY" THAT A FIELD AUDIT WOULD BE CONDUCTED "IN THE FORSEEABLE FUTURE." WE SUGGEST A FIRMER GUIDELINE ON WHEN DESK AUDITS OF LARGE CONTRACTS WILL BE ALLOWED. A BETTER APPROACH, IN OUR VIEW, WOULD BE TO RAISE THE LIMIT ON DESK AUDITS TO $200,000 OR SOME OTHER REASONABLE FIGURE, OR TO REMOVE THE LIMIT ON GRANTS AND CONTRACTS BY THE PUBLIC HEALTH SERVICE OR THE HUMAN SERVICES DIVISION WHERE THE SMALLER COST TYPE CONTRACTS TEND TO BE CONCENTRATED. IN EITHER EVENT, HIGH RISK CONTRACTORS SHOULD STILL BE GIVEN THE SPECIAL ATTENTION DISCUSSED ABOVE.

WE DO NOT THINK THAT THE IMPLEMENTATION OF THE PROPOSED PLAN IS NECESSARILY INCONSISTENT WITH OUR DECISION IN B-180264, MARCH 11, 1974. THERE WE ALLOWED IMMEDIATE CERTIFICATION OF VOUCHERS FOR MONTHLY PROGRESS PAYMENTS UNDER COST TYPE CONTRACTS, PROVIDED THAT A FINAL AUDIT WAS PERFORMED AND ANY NECESSARY ADJUSTMENTS MADE BY DEDUCTION FROM THE FINAL PAYMENT. THAT DECISION DID NOT SPECIFY THAT THE FINAL AUDIT MUST BE A FIELD AUDIT. HOWEVER, IN ORDER FOR A FINAL AUDIT TO MEET THE STANDARD SET IN B-180264 TO ALLOW THE INTERIM OR PROVISIONAL CERTIFICATION METHOD TO BE USED, THE FINAL AUDIT SHOULD BE SUFFICIENT TO DISCLOSE ANY OVERPAYMENTS.

II ROLE OF THE CERTIFYING OFFICER IN CERTIFYING PAYMENTS ON AUDITED CONTRACTS.

THE SECOND MATTER ON WHICH OUR OPINION IS REQUESTED IS HHS' INTERPRETATION OF 31 U.S.C. SEC. 82C AS LIMITING THE AUTHORITY OF CERTIFYING OFFICERS IN THE CERTIFICATION OF VOUCHERS SUBMITTED IN CONNECTION WITH AUDITED CONTRACTS. ACCORDING TO HHS' INTERPRETATION,

"AN ERRONEOUS CONCLUSIONS IS SOMETIMES DRAWN THAT THE STATUTORY REQUIREMENT FOR CERTIFYING OFFICER APPROVAL OF CONTRACT VOUCHERS ENSURES THAT PROPER AMOUNTS ARE BEING REIMBURSED AT THE TIME OF VOUCHER PAYMENT. WE FEEL THAT THE STATUTORY RESPONSIBILITY OF THE CERTIFYING OFFICER IN APPROVING CONTRACT VOUCHERS FOR PAYMENT IS LIMITED TO DETERMINING, IF: PAYMENT IS PURSUANT TO A VALID CONTRACT; THE FUNDS OBLIGATED UNDER THE CONTRACT ARE SUFFICIENT TO COVER VOUCHERED COSTS, AND THE CONTRACTING OFFICER IS ACTING WITHIN HIS/HER AUTHORITY. A SEPARATE PROGRAM AND CONTRACTING OFFICER REVIEW OF APPLICABILITY AND APPROPRIATENESS OF CHARGES IS NEEDED TO BACK UP THE FINALITY OF CONTRACTING OFFICER AUTHORIZATION OF PAYMENTS. (THIS FINALITY OF CONTRACTING OFFICER AUTHORIZATION WAS ADDRESSED IN S & E CONTRACTORS, INC. V. U.S. 406, U.S. 1 (1972))."

OVER MANY YEARS, THIS OFFICE HAS REITERATED ITS INTERPRETATION OF THE STATUTORY REQUIREMENTS FOR CERTIFICATION. WE HAVE CONSISTENTLY OPPOSED ANY INTERPRETATION OF SECTION 82C WHICH WOULD RENDER CERTIFICATION "A MATTER OF FORM." 23 COMP.GEN. 181 (1943). THE CERTIFYING OFFICER IS PERSONALLY RESPONSIBLE FOR DETERMINING THAT THE VOUCHER IS LEGALLY CORRECT AND MATHEMATICALLY ACCURATE (B-138602, JANUARY 18, 1960); THAT SERVICES HAVE BEEN PERFORMED OR GOODS RECEIVED (39 COMP.GEN. 548 (1960)); THAT PAYMENT THEREON IS NOT PROHIBITED BY LAW; AND THAT THE VOUCHER REPRESENTS A VALID OBLIGATION UNDER THE APPROPRIATION TO BE CHARGED (B-193302, DECEMBER 6, 1978). SEE ALSO, GAO POLICY AND PROCEDURES MANUAL, CHAPTER 3, SECTION 54 AND CHAPTER 7, SECTION 29. FURTHER, THE CERTIFYING OFFICER IS PECUNIARILY LIABLE UNDER SECTION 82C FOR ANY ILLEGAL, IMPROPER OR INCORRECT PAYMENT UNLESS RELIEVED BY THE COMPTROLLER GENERAL.

ALTHOUGH THESE CERTIFYING OFFICER RESPONSIBILITIES ARE ORDINARILY CARRIED OUT BY RELIANCE ON INFORMATION PROVIDED CERTIFYING OFFICERS BY OTHERS, THE STATUTORY RESPONSIBILITY FOR ASSURING THE LEGALITY AND CORRECTNESS OF PAYMENTS BY CIVILIAN AGENCIES REMAINS WITH THE CERTIFYING OFFICER. THUS, THE CERTIFYING OFFICER MAY ORDINARILY REFUSE TO CERTIFY PAYMENTS WHERE HE IS NOT SATISFIED AS TO THEIR LEGALITY OR CORRECTNESS, OR HE MAY REQUEST AN ADVANCE DECISION FROM OUR OFFICE UNDER 31 U.S.C. SEC. 82D.

AS THE DISCUSSION PAPER POINTS OUT, THE ROLE OF THE CERTIFYING OFFICER WAS ADDRESSED IN S & E CONTRACTORS, INC. V. UNITED STATES, 406 U.S. 1 (1972). HOWEVER, THAT DECISION WAS LIMITED TO CONSIDERATION OF A CERTIFYING OFFICER'S AUTHORITY TO QUESTION AN AGENCY DETERMINATION FAVORABLE TO A CONTRACTOR MADE PURSUANT TO A CONTRACTUALLY AUTHORIZED DISPUTES PROCEDURE. THE EFFECT OF THAT DECISION WAS THAT A CERTIFYING OFFICER IS ENTITLED TO RELY ON THE LEGALITY AND CORRECTNESS OF HIS AGENCY'S DETERMINATION UNDER A DISPUTES CLAUSE PROCEDURE THAT PAYMENT SHOULD BE MADE AND SUCH MATTERS THEREFORE NEED NOT BE SUBMITTED TO OUR OFFICE FOR RESOLUTION. THE DECISION DOES NOT, HOWEVER, AUTHORIZE THE CONTRACTING OFFICER TO DIRECT THAT PAYMENTS BE MADE BY THE CERTIFYING OFFICER IN SITUATIONS NOT INVOLVING DISPUTES CLAUSE DETERMINATIONS.

THE SUGGESTED PROCEDURE FOR SEPARATION OF DUTIES IN WHICH BOTH PROGRAM AND CONTRACTING OFFICIALS WILL INDEPENDENTLY AUTHORIZE CONTRACT PAYMENTS SHOULD PROVIDE SUFFICIENT EVIDENCE TO THE CERTIFYING OFFICER THAT PAYMENTS ARE APPROPRIATE. THIS PROCEDURE, HOWEVER, IS NOT ENTITLED TO THE FINALITY SUGGESTED BY THE DISCUSSION PAPER.

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