National Oceanic and 

Atmospheric Administration

Audit of NOAA Cooperative Agreements 

to the 

Pacific States Marine Fisheries Commission 

Portland, Oregon 

Final Report No. OIG-11-026-A 

June 10, 2011 

FOR PUBLIC RELEASE

Office of Audit and Evaluation

U.S. DEPARTMENT OF COMMERCE

Office of Inspector General
June 10,2011

UNITED STATES DEPARTMENT OF COMMERCE

Office of Inspector General

Washington, D.C. 20230

MEMORANDUM FOR:

FROM:

SUBJECT:

Mitchell J. Ross, Director

:::i~::Sitionr:~ts(L

Principal Assist~ector General

for Audit and Evaluation

Audit ofNOAA Cooperative Agreements to the

Pacific States Marine Fisheries Commission

Portland, Oregon

Final Report No. OIG-11-026-A

We are attaching a copy ofthe audit report on two cooperative agreements awarded to the Pacific

States Marine Fisheries Commission for your action in accordance with DAO 213-5, "Audit

Resolution and Follow-up." This is the second ofthree related reports we completed on the

Commission. The first, Audit ofIndirect Cost Plans and Rates, was issued on May 19, 2011. We

are issuing the third report in final form, presenting the results ofthe audit ofthree task orders

under a NOAA contract, to the NOAA Contracting Officer concurrently with this report.

The original ofthis cooperative agreement report has been sent to the Commission. The

Commission has 30 days from the date ofthe transmittal to submit comments and supporting

documentation to you (we have attached a copy of our transmittal letter for your records). We

have also notified the Commission that we intend to post the final report on the Office of

Inspector General (OIG) website and requested that the Commission and an associated

commercial contractor confirm whether data contained in this report is considered to be business

proprietary. Depending upon the resulting responses, either a full or a redacted version ofthis

report may be made available to the public.

Under DAO 213-5, you have 75 calendar days from the date ofthis memorandum to reach a

decision on the actions you propose to take on each audit finding and recommendation and to

submit an audit resolution proposal to this office. Because the three reports share indirect cost

issues, we have recommended that you, the NOAA Contracting Officer, and the Department's

Indirect Cost Coordinator consider all ofthe reports together and collaborate to ensure uniform

and consistent resolution proposals and action plans. Therefore, the 75-day deadline for this

cooperative agreement report applies to all three reports.

As applicable, the written proposals must include the rationale and/or legal basis for reinstating

any questioned cost in the report and should reference any supporting documentation relied on.

Your comments should also address any funds to be put to better use cited in the reports. Under
the DAO, OIG must concur with your proposal before it may be issued as a final determination

and implemented. The DAO prescribes procedures for handling any disagreements we may have

with the audit resolution proposal. Please also copy us when the audit determination letter is sent

to the auditee and when you issue your accounting notice.

Any information or inquiry regarding this final report should be directed to Jerry McMahan,

Assistant Regional Inspector General, at (404) 730-2065, and should reference the report title.

Attachment

cc: Barry Berkowitz, Senior Acquisition Executive and Director, Office of

Acquisition Management

Arlene Simpson-Porter, Director, NOAA Grants Management Division

John Stein, Ph.D., Acting Science Director, NOAAlNWFSC

Susan Sherrell, Director, NOAA Western Acquisition Division

William Stelle, Jr., Regional Administrator, NOAAlNMFS NWR

Mack Cato, Director, NOAA Audit and Information Management Office
UNITED STATES DEPARTMENT OF COMMERCE

Office of Inspector General

Washington. D.C. 20230

June 10,2011

Mr. Randy Fisher, Executive Director

Pacific States Marine Fisheries Commission

205 SE Spokane Street, Suite 100

Portland, OR 97202

Dear Mr. Fisher:

Enclosed is a copy of our final audit report concerning two NOAA cooperative agreements

awarded to the Commission. We evaluated and considered your April 13,2011, response to the

draft audit report in preparation ofthis final report. Your response, excluding the 19 attachments,

appears in the report as appendix E; a synopsis of your response and our comments is also

included as appendix F. The attachments to your response are on file at our office and will be

made available for review upon request. Depending upon your response to the accompanying

letter from our Counsel, we will make either a full copy or a redacted copy ofthe final audit

report available to the public at OIG's website.

This letter is notice of your opportunity and responsibility to review the report and to develop a

complete response that addresses each audit finding and recommendation. If you believe the final

report is in error in any respect, or if you disagree with any ofthe findings and recommendations,

it is important that you explain the error or your reasons for disagreement and submit to the.

Department evidence that supports your position. You should also explain how each

documentary submission supports the position you are taking; otherwise, we may be unable to

evaluate the information.

Your complete response will be considered by the Department in arriving at a decision on what

action to take with respect to the findings and recommendations in the audit report. Enclosure I

is an explanation of applicable administrative dispute procedures.

Your response to this report must be postmarked no later than 30 days from the date ofthis letter.

There will be no extensions to this deadline. If you do not submit a response within the required

time frame you will have no other opportunity to submit comments, arguments or documentation

before the Department makes a decision on the audit report. Please send your response

(including documentary evidence) to:
Arlene Simpson-Porter, Director

NOAA Grants Management Division

Silver Spring Metro Center Building 2 (SSMC2)

9th Floor

1325 East-West Highway

Silver Spring, MD 20940-3280

Please send a copy of your response to:

Jerry McMahan, Assistant Regional Inspector General for Audits

United States Department ofCommerce

Office of Inspector General

401 W. Peachtree Street NW, Suite 2742

Atlanta, GA 30308

If you have any questions about the final report or the audit process, please call Jerry McMahan

at (404) 730-2065 and refer to this report's title.

SJ: L'£;l~ Ann C. Eilers

Principal Assistant Inspector General for

Audit and Evaluation

Enclosures

cc: Barry Berkowitz, Senior Acquisition Executive and Director, Office of

Acquisition Management

Mitchell J. Ross, Director, NOAA Acquisition and Grants Office

John Stein, Ph.D., Acting Science Director, NOAAlNWFSC

Susan Sherrell, Director, NOAA Western Acquisition Division

William Stelle, Jr.,.Regionai Administrator, NOAAlNMFS NWR

Mack Cato, Director, NOAA Audit and Information Management Office
Enclosure 1

NOTICE TO AUDITEE

Financial Assistance Audits

1. Audit requirements applicable to a particular financial assistance award may be established

by law, regulation, policy, or the terms ofthe recipient's financial assistance agreement with

the Department ofCommerce.

2. The results of any audit will be reported to the bureau or office administering the financial

assistance award and to the recipient/auditee, unless the Inspector General ofthe Department

determines that it is in the Government's interest to withhold release ofthe audit report.

3. The results of an audit may lead to adverse consequences for the auditee, including but not

limited to the following actions (which are subject to applicable laws and regulations):

• suspension and/or termination of current awards;

• referral ofidentified problems to other federal funding agencies and entities as deemed

necessary for remedial action;

• denial of eligibility for future awards;

• canceling the authorization for advance payment and substituting reiinbursement by

check;

• establishment ofspecial conditions in current or future awards; and,

• disallowance of costs, which could result in a reduction in the amount offederal

payments, the withholding of payments, the offsetting of amounts due the Government

against amounts due the auditee, or the establishment of a debt and appropriate debt

collection follow-up (including referrals to collection agencies).

Because ofthese and other possible consequences, an auditee should take seriously its

responsibility to respond to audit findings and recommendations with explanations and

evidence whenever audit results are disputed and the auditee has the opportunity to comment.

4. To ensure that audit reports are accurate and reliable, an auditee may have the following

opportunities to point out errors (offact or law) that the auditee believes were made in the

audit, to explain other disagreements with audit findings and recommendations, to present

evidence that supports the auditee's positions, and to dispute final recommendations:

• During the audit, the auditee may bring to the attention ofthe auditors at any time

evidence which the auditee believes affects the auditors' work.
• At the completion ofthe audit on-site, as a matter of courtesy, the auditee is given the

opportunity to have an exit conference to discuss the preliminary audit findings and to

present a clear statement ofthe auditee's position on the significant preliminary findings,

including possible cost disallowances.

• Upon issuance ofthe draft audit report, the auditee may be given the opportunity to

comment and submit evidence during the 30-day period after the transmittal ofthe report.

(There are no extensions to this deadline.)

• Upon issuance ofthe final audit report, the auditee is given the opportunity to comment

and to present evidence during the 30-day period after the transmittal ofthe report.

(There are no extensions to this deadline.)

• Upon issuance ofthe Department's decision (the "Audit Resolution Determination"), on

the audit report's findings and recommendations, the auditee has the right to appeal for

reconsideration within 30 calendar days after receipt ofthe Determination letter ifmonies

are due the government. (There are no extensions to this deadline.) The Determination

letter will explain the specific appeal procedures to be followed.

• After an appeal is filed, or after the opportunity for an appeal has expired, the Department

will not accept any further submissions of evidence concerning an auditee's dispute ofthe

Department's decisions on the resolution ofthe financial assistance audit. Ifit is

determined that the auditee owes money or property to the Department, the Department

will take appropriate collection action but will not thereafter reconsider the merits ofthe

debts.

• There are no other administrative appeals available in the Department.
Report In Brief eport In Brief

U.S. Department of Commerce Offi ce of Inspector General

June 10, 2011

National Oceanic and Atmospheric Administration

Audit of NOAA Cooperative Agreements to the 

Pacific States Marine Fisheries Commission

Portland, Oregon (OIG-11-026-A)

 

Background

Why We Did This Review

The Pacific States Marine 

Fisheries Commission is a quasigovernmental organization operating under an interstate compact 

authorized by federal statute. 

It is composed of five member 

states (Alaska, California, Idaho, 

Oregon, and Washington) that 

work together to better utilize 

and protect the resources of fisheries under their jurisdictions. 

Most of the Commission’s funding comes from the administration of federal contracts and 

financial assistance agreements 

related to fisheries resource 

management. Federal funds are 

directed to the Commission because of the unique and pivotal 

position it occupies between its 

member states and the federal 

entities that manage Pacific fisheries, as well as the integral role 

the Commission plays in support 

of research on, and stewardship 

of, these fisheries. Since 2003 

the Department of Commerce, as 

the Commission’s cognizant federal agency, has provided most 

of the Commission’s federal 

funding. 

What We Found

What We Recommended

We audited two multi-year 

cooperative agreements awarded 

by NOAA to the Commission to 

fund programs for monitoring 

and observational data. During 

the audit period, the Commission claimed total costs of 

$22,632,429 for these agreements. 

Our audit objectives were to 

determine whether the costs 

claimed were reasonable, allowable, and allocable to the sponsored project; award objectives 

were achieved; and the Commission’s practices and controls 

complied with award requirements, assured efficient project 

administration, and resulted in 

an acceptable final product.

We found that a significant portion of the Commission’s claimed costs were not 

reasonable, allowable, and allocable to the awards. We also found that, while 

the Commission’s performance under the two agreements met the award goals 

and objectives by gathering information for inclusion in databases maintained 

by NOAA to assist with the management of West Coast fisheries, the Commission did not comply with numerous federal requirements and cost principles. 

Additionally, the Commission’s financial management and procurement systems did not perform adequately, project scope revisions had not been properly 

approved, and performance and financial reporting was incomplete and inaccurate.

For these reasons and others detailed in this report and in our May 19, 2011, 

report titled Audit of Indirect Cost Plans and Rates, Pacific States Marine Fisheries Commission, Portland, Oregon (report no. OIG-11-025-A), we questioned 

$2,420,489 in federal funds claimed as costs by the Commision. 

Because the Department acts as the Commission’s cognizant federal agency, we 

recommended that NOAA’s Director, Acquisitions and Grants disallow and recover $2,420,489 in questioned project costs. We also recommended the Director take a more aggressive role in monitoring the Commission’s grants by 

1. Requiring the Commission to provide evidence of improving its policies and 

internal controls to comply with minimum federal financial, administrative, 

and procurement management standards before awarding any new agreements or contracts to the Commission. 

2. Requiring the Commission’s board of commissioners to enhance oversight 

of Commission financial and administrative operations by ensuring that all 

levels of the organization receive adequate supervision consistent with the 

Commission’s policies. 

3. Requiring the Commission to provide performance reports that are complete 

and consistent with approved project scope and budgets, and that fully and 

accurately identify the resources applied. 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

Contents

Introduction ......................................................................................................................................1

Findings and Recommendations ......................................................................................................3

I. A Total of $2,420,489 Is Due the Government ...................................................................3

II. Conclusion ...........................................................................................................................9

III. Recommendations ..............................................................................................................10

Appendix A: Objectives, Scope, and Methodology.......................................................................11

Appendix B: Summaries of Source and Application of Funds .....................................................13

Appendix C: Summary of Financial/Compliance Audit (PacFIN) ...............................................14

Appendix D: Summary of Financial/Compliance Audit (WCGOP) ............................................16

Appendix E: Commission Response .............................................................................................20

Appendix F: Synopses of Recipient Comments and OIG Responses ...........................................40
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

Introduction

This report presents the results of our audit of National Oceanic and Atmospheric Administration 

(NOAA) cooperative agreement numbers NA17FN2284 and NA17FN2536 awarded to the 

Pacific States Marine Fisheries Commission of Portland, Oregon. Our audit objectives were to 

determine whether (1) costs claimed, including indirect costs, were reasonable, allowable, and 

allocable to the sponsored project; (2) award objectives were achieved; and (3) the 

Commission’s accounting, procurement, and project management practices and controls 

complied with award requirements, assured efficient project administration, and resulted in an 

acceptable final product. See appendix A for details regarding our audit objectives, scope, and 

methodology.1

We found that a significant portion of the Commission’s claimed costs were not reasonable, 

allowable, and allocable to the awards; also, while the Commission’s performance under the two 

agreements met the award goals and objectives by gathering information for inclusion in 

databases maintained by NOAA to assist with the management of West Coast fisheries, the 

Commission did not comply with numerous federal requirements and cost principles related to 

financial management, procurement, and project revisions, nor did it provide sufficient 

performance and financial information to NOAA. For these reasons and others detailed in this 

report and in our report titled Audit of Indirect Cost Plans and Rates, Pacific States Marine 

Fisheries Commission, Portland, Oregon, we questioned and recommended recovery of 

$2,420,489 in federal funds. We also recommended numerous improvements to the 

Commission’s policies, controls, and procedures. 

Background 

The Commission is a quasi-governmental organization operating under an interstate compact 

authorized by federal statute in 1947. It is composed of five member states (Alaska, California, 

Idaho, Oregon, and Washington) that work together through the Commission “to promote the 

better utilization of fisheries, marine, shell, and anadromous, which are of mutual concern, and to 

develop a joint program of protection and prevention of physical waste of such fisheries in all of 

those areas of the Pacific Ocean over which the compacting states jointly or separately now have 

or may hereafter acquire jurisdiction.”2

 Its principal offices are in Portland, Oregon. 

The Commission has a long history as a federal financial assistance recipient and contractor. 

Outside of nominal state membership dues and funds received under agreements with states, 

most of the Commission’s funding comes from the administration of federal contracts and 

financial assistance agreements related to fisheries resources management. For example, from 

2002 through 2009, approximately 89 percent of the Commission’s total revenue ($504 million) 

came from federal financial assistance and contracts, with 65 percent of its total revenue 

 

1

 Our audit also included a review of the indirect cost rate proposals and rate computations for indirect cost and 

administrative assessments for the Commission’s fiscal years ending June 30, 2002, through 2008. The results of the 

indirect cost audit are included in our May 19, 2011, report titled Audit of Indirect Cost Plans and Rates, Pacific 

States Marine Fisheries Commission, Portland, Oregon (OIG-11-025-A). 2 Pacific States Marine Fisheries Commission Compact, Article I. 

1 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

($367.6 million) from the Department of Commerce.3 Since 2003 the Department has provided 

the majority of the Commission’s federal funding and is the Commission’s cognizant federal 

agency for both indirect cost and single audits. Federal funds are directed to the Commission 

because of the unique and pivotal position it occupies between its member states and the federal 

entities that manage Pacific fisheries, as well as the integral role the Commission plays in 

support of research on, and stewardship of, these fisheries. Of the many financial assistance 

awards and contracts the Department has awarded to the Commission over the years, we selected 

two cooperative agreements for audit. Each is part of a series of multiple-year awards NOAA 

made to the Commission to fund the Pacific Fisheries Information Network (PacFIN) and the 

West Coast Groundfish Observer Program (WCGOP). Table 1 provides details about the 

agreements, and appendix B provides statements of source and application of funds for the two 

awards. The results of our audit are detailed in appendixes C and D. 

Table 1. Details of Cooperative Agreements 

Included in This Report

Award Name 

and Number 

Award 

Period 

Total 

Estimated 

Project Cost 

Federal 

Share Purpose 

Pacific Fisheries 

Information 

Network 

(PacFIN) 

(NA17FN2284) 

2/1/02 – 

6/30/06 $ 9,503,605 100% 

PacFIN is the major commercial fisheries 

monitoring system used for West Coast 

fisheries. Funds are provided for the purpose 

of working with the states of Washington, 

Oregon, and California to organize state fish 

tickets (tags used to record the weight of fish), 

port sampling data, and other activities into a 

coast-wide database. 

West Coast 

Groundfish 

Observer 

Program 

(WCGOP) 

(NA17FN2536) 

6/1/02 – 

8/31/07 $ 13,128,825 100% 

WCGOP provides coast-wide, year-round 

data on groundfish fleet activity by gear, area 

and season using a timely and efficient 

system for data collection, storage, analysis, 

and communication. Collected data will be 

linked to the Northwest Fisheries Science 

Center and PacFIN databases and used for 

stock assessment and management of west 

coast groundfish fisheries. 

Source: NOAA 

On April 13, 2011, the Commission provided comments and supporting documentation in 

response to our draft audit report, which we have evaluated and considered in preparation of this 

final report. Due to the volume of the Commission’s response we appended only the full text of 

the Commission’s cover letter at appendix E. A copy of the Commission’s complete response, 

including 19 attachments, is available for review at our office. We have included synopses of the 

Commission’s responses and our comments as appendix F. 

 

3

 Other major federal funding sources during our audit period included the Departments of Energy, Defense, and 

Interior. 

2 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

Findings and Recommendations

I. A Total of $2,420,489 Is Due the Government 

The Commission claimed total final project costs of $22,632,429 for the PacFIN and WCGOP 

cooperative agreements. Our review disclosed, however, that the Commission did not ensure that 

its administration of these agreements adhered to award terms and conditions, including federal 

cost principles, Title 15 of the Code of Federal Regulations (15 CFR) Part 24—Uniform 

Administrative Requirements for Grants and Cooperative Agreements to State and Local 

Governments, and special and standard award terms and conditions. We also found that the 

Commission’s financial management and procurement systems did not perform adequately, 

project scope revisions had not been properly approved, and performance and financial reporting 

was incomplete and inaccurate. 

Consequently, we questioned and recommended recovery of $2,420,489 in federal funds (see 

table 2). We also recommend NOAA take immediate actions requiring improvements to the 

Commission’s policies and internal controls to bring it into compliance with minimum federal 

requirements before awarding the Commission any new agreements or contracts. In the 

following sections of this report, we describe some of the factors that contributed to our 

questioning of these costs; the details of our audit of the two agreements are presented in 

appendixes C and D. 

Table 2. Summary of the Financial Results of Our Audit

Federal Funds Disbursed $22,632,429

Total Project Costs Claimed $22,632,429

Less Questioned Costs a 2,420,489

 Accepted Costs $20,211,940

Federal Share (100%) $20,211,940

 Amount Due to the Government $ 2,420,489

Source: OIG. 

a

 Questioned costs consisted of $1,239,658 of indirect cost, $797,454 of contractual expense, 

$328,079 in net labor and fringe benefits expense, and $55,298 in data processing fees. Of the 

$2,420,489 questioned, $2,368,619 was unsupported. 

3 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

A. The Commission’s Financial Management System Needs Improvement 

The Commission’s financial management system was not adequate to accurately report the 

financial results of its awards. In addition to the deficiencies we described in our audit of the 

Commission’s indirect cost plans and rates,4

 the Commission’s implementation of its automated 

accounting and time distribution systems was inadequate. The Commission did not have all 

necessary policies, procedures, and controls in place, nor did it adhere to the ones it had;5

therefore, the Commission’s project cost accounting records and its claims to NOAA included 

unsupported or unallowable costs.6 

Time Distribution System. Personnel activity reports must reflect an after-the-fact distribution of 

the actual activities of each employee. Use of budget estimates or other distribution percentages 

are not allowed.7 In some cases, the Commission disregarded documented time allocations and 

charged staff to projects or activities based on arbitrary, unsupported percentages. In addition, 

the Commission retroactively shifted several months of an employee’s or an entire group’s time 

from one project to another without regard to budgets or timesheets. 

As detailed in appendixes C and D, we questioned a total of $328,079 in labor and related fringe 

benefits because the Commission overrode its time distribution system and charged labor and 

fringe benefit costs to the PacFIN and WCGOP awards. 

Internal Controls. The Commission needs to either establish new controls or update, strengthen, 

and promote adherence to existing policies and procedures in the areas of financial management, 

procurement, reporting, and project revision. 

The weaknesses in the Commission’s policies and procedures increased the risk of potential 

noncompliance with award requirements and were responsible in part for our questioning of 

costs (as described in appendixes C and D). These weaknesses also contributed to our inability to 

accept indirect cost rates and ancillary assessments and fees the Commission claimed for fiscal 

years 2002 through 2008, and for unaudited fiscal year 2009.8

 

B. The Commission’s Procurement System Needs Improvement 

The Commission accomplished much of the work for both cooperative agreements through costreimbursable contracts with state agencies and a commercial contractor (see table 3 on the next 

page). At the time of our review, the Commission’s Fiscal Processes Manual included both a 

written purchasing policy addressing procurements by purchase order and subcontracting 

guidelines that addressed general contract provisions and incorporated guidance for preparing 

justifications for sole source procurements, contract statements of work, and budget proposals for 

contracts and grants. 

 

4

 See OIG’s Audit of Indirect Cost Plans and Rates (OIG-11-025-A). 5

 Uniform Administrative Requirements, 15 CFR 24.20. 

6

 Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and Indian Tribal 

Governments.

7

 OMB Circular A-87 (1995), attachment B.11.h (4) and (5); and (2004) attachment B.8.h. (4) and (5). 

8

 For analyses of the weaknesses in controls related to the Commission’s indirect costs, see our Audit of Indirect 

Cost Plans and Rates. 

4 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

Despite the written policy, our review disclosed that the Commission’s procurement and contract 

administration needed significant improvements to ensure compliance with minimum federal 

procurement standards pertaining to noncompetitive procurements, procurement history and 

cost/price analysis, contract type and terms, contract change orders, and contract administration.9

Deficient procurement practices resulted in our questioning $797,454 in claimed contract cost, as 

described in appendixes C and D. 

The two cooperative agreements ran for several years each via base-year awards and subsequent 

amendments that incrementally added funding and increased the agreements’ performance 

periods. Rather than award single, multiple-year contracts to its contractors, the Commission 

issued a series of yearly contracts to each. All of the contractors were identified in the 

cooperative agreements or amendments. 

Table 3. Schedule of Contracts Awarded by Cooperative Agreement 

NOAA Award 

PacFIN Cooperative Agreement WCGOP Cooperative Agreement 

Total 

Estimated 

Project 

Cost 

Contractor 

Total 

Estimated 

Project 

Cost 

Contractor 

Contract 

Period 

State of 

Oregona

State of 

Washingtona Contract 

State of 

Washingtona

Contractor 

A 

Base Year $2,102,000 

2/1/02 – 

1/31/03 $ 470,680 $ 649,038 $ 3,215,203 1 $ 65,000 $ 2,521,030 

Amendment 1 391,505 

11/1/02 – 

10/31/03 93,869 2,850,205 2 50,000 2,366,434 

Modification 300,366 

Amendment 2 2,093,300 

2/1/03 – 

1/31/04 487,375 644,847 3,476,787 3 50,000 2,762,772 

Amendment 3 190,000 3,586,630 4 50,000 2,812,988 

Amendment 4 2,420,000 

2/1/04 – 

1/31/05 434,197 647,651 

Amendment 5 2,306,800 

2/1/05 – 

1/31/06 502,246 620,568 

Undefined 400 

 Totals $9,504,005 $1,988,367 $ 2,562,104 $13,128,825 $ 215,000 $10,763,590 

Source: OIG a

 States of Oregon and Washington Departments of Fish and Wildlife. 

Noncompetitive Procurement. Minimum federal procurement standards require that all 

procurements be conducted in a manner that provides full and open competition. The 

requirements also stipulate that noncompetitive proposals may only be used when a contract is 

infeasible under small purchase procedures, sealed bids, or competitive proposals, and one of the 

following circumstances applies: 

1) an item is available only from a single source, 

2) an urgent public need for the requirement will not permit potential delays resulting from 

competitive solicitation, 

 

9

 Uniform Administrative Requirements, 15 CFR 24.36. 

5 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

3) the awarding agency authorizes noncompetitive proposals, or 

4) competition is determined inadequate after a number of sources have been solicited.10

The Commission’s proposals for the WCGOP award and subsequent amendments specifically 

identified that it intended to award contracts to Contractor A. However, the nature of the 

procurement was not clear, and our audit disclosed that the associated noncompetitive 

procurements were flawed. Use of a noncompetitive procurement to acquire this contract was 

inconsistent with procurement rules because none of the contracts to Contractor A met the 

specific circumstances necessary to permit a noncompetitive procurement. 

Procurement History, Cost/Price Analysis, and Contract Type. Procurement standards require 

1) independent cost estimates; 

2) verification of proposed cost elements and projections; 

3) evaluation of costs and profits; 

4) retention of records sufficient to detail the significant history of a procurement, including 

at a minimum the rationale for the method of procurement, selection of the contract type, 

contractor selection or rejection, and the basis of the contract price; 

5) a cost or price analysis for every procurement action; and 

6) a cost analysis when procurements, including modifications, are noncompetitive.11

However, the Commission did not maintain the minimum documentation required for 

procurement histories, produce required cost analyses, provide evidence of either its independent 

cost estimates or cost analyses of the contractor’s proposals and contract amendments, or 

demonstrate that profit was separately negotiated and resulted in a fair and reasonable amount. In 

addition, contract terms were not always clear; compensation provisions were ambiguous; there 

was no evidence that the Commission considered using a contract compensation provision other 

than a cost-plus-fixed-fee; and there was no evidence of recipient due diligence to determine 

whether the contractor understood compensation requirements. Finally, the Commission was 

unable to demonstrate that its continued use of the cost-reimbursable compensation method was 

reasonable and warranted. 

We questioned $272,301 in contract costs claimed because the contractor claimed costs in excess 

of the amount actually incurred, and exceeded both contract fees and cost ceilings. (See schedule 

2 of appendix D. The total of $572,667 in questioned costs is comprised of $300,366 for 

amendment 1 of the contract, discussed below, and $272,301 for the excess costs claimed.) 

Contract Change Orders. Commission procedures for issuing contract change orders were not 

adequate to ensure that a change order was properly justified and that the costs and fees were 

reasonable and complied with the basic contract.12 In July 2004, the Commission issued 

 

10 Uniform Administrative Requirements, 15 CFR 24. 36(c) and (d) (4) (i). 

11 Uniform Administrative Requirements, 15 CFR 24.36(b) (9), (d) (4) (ii), and (f) (1)-(2). 12 Uniform Administrative Requirements, 15 CFR 24.36(f). 

6 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

amendment 1 to its cost-plus-fixed-fee contract for groundfish observers increasing the contract 

ceiling by $300,366 consisting of $275,809 in additional costs and $24,557 in additional fees. 

The fixed fee associated with the original contract amounted to 7 percent of the original 

proposed costs, but the Commission added a fixed fee for a contract amendment equivalent to 

8.9 percent of the increased cost. Aside from the budget supporting the amendment amount there 

was no cost analysis, nor was there support documenting an increase in the scope of work or 

contract period necessary to justify increasing the fixed fee. Increasing the fee on a cost-plusfixed-fee contract without a documented change of scope converts the contract compensation 

provision to a cost-plus-percentage-of-cost contract, rendering the contract unallowable for 

federal participation; Uniform Administrative Requirements prohibit the use of cost-pluspercentage-of-cost contracts.13 Therefore, we questioned the full $300,366 the Commission 

claimed for amendment 1 as unsupported (see schedule 2 of appendix D, note 3i). 

Contract Administration System. Uniform administrative provisions require recipients to 

maintain a contract administration system to ensure that contractors perform in accordance with 

the terms, conditions, and specifications of their contracts.14 However, the Commission had no 

formal management procedures for cost-reimbursable contracts, and its contract administration 

system was not adequate to ensure that costs claimed were in accordance with contract terms. 

Consequently, the financial results of the contracts were not accurately reported to the 

Commission by contractors and from the Commission to NOAA, and the amounts billed to the 

Commission and subsequently claimed to NOAA were inaccurate. 

The Commission’s monitoring of contractor advances was inadequate. For example, the 

Commission permitted a contractor to draw monthly payroll and contract advances as well as a 

health trust advance, but neither the Commission nor the contractor consistently monitored and 

reconciled the advances or ensured that the advances were cleared when the contracts ended. 

Also, the Commission allowed advances of funds intended to cover future contract performance 

periods to be billed and paid under the contract in place. These improper billing practices led to 

incurred costs being overstated by as much as $219,000 and understated in subsequent years (see 

schedule 2 of appendix D, note F). And finally, the Commission completely overlooked health 

trust advances totaling nearly $173,000 over four contracts, and these advances were not 

reconciled to ensure that the related expenses had been accurately charged to the proper contract 

by either the Commission or the contractor (see schedule 2 of appendix D, note 3g). 

In addition, one contractor billed over $35,400 of fixed fees in excess of the contract limits for 

four contracts (see schedule 2 of appendix D, note 3h). The contractor simply billed fees by 

adding a percentage to the total costs billed without recognizing the fee limits. In the absence of 

the required contract administration system, the excess fee billings went undetected by the 

Commission. 

 

13 Uniform Administrative Requirements, 15 CFR 24.36(f) (4). 14 Uniform Administrative Requirements, 15 CFR 24.36(b) (2). 

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Office of Inspector General June 10, 2011 

C. Revisions to Project Scope Were Not Approved 

Uniform Administrative Requirements state that recipients must obtain prior approval of the 

awarding agency whenever there is a revision of the scope of work or objectives of a project, 

regardless of whether there is an associated budget revision requiring prior approval.15 The 

awarding agency may take remedial actions, as appropriate in these circumstances, including 

disallowance of related costs and wholly or partially suspending or terminating the award. The 

Commission elected to claim the efforts of its age reader staff (personnel who determine the age 

of fish), including a Geospatial Information Systems (GIS) analyst, for 5 months; the 

Commission also claimed nearly 11 months for a full-time fisheries biologist during the closing 

year of the WCGOP award. The budget submitted in the fall of 2006 for a no-cost time extension 

included 903 hours for the biologist, but neither the NOAA program nor the Commission 

initiated an amendment through the NOAA Grants Officer to adjust the scope of the award to 

include age reader activity or the GIS analyst. 

In the absence of an award amendment specifically adding age reader work to the WCGOP 

award, we questioned $157,865 in labor and fringe benefits as outside the approved scope of the 

WCGOP award (see schedule 1 of appendix D, Age Reader line item). 

Based on several factors, we also questioned $66,873 in labor and fringe benefits for the fisheries 

biologist as outside the scope of the award (see schedule 1 of appendix D, Fisheries Biologist 

line item). First, the budget contained an expense amount for the fisheries biologist, but he 

recorded all of his time to a different NOAA cooperative research award. Second, the biologist 

was not identified in the Commission’s observer program performance reports. And finally, 

February 2007 NOAA management correspondence stated that the biologist’s efforts were not 

observer related and should not be charged to WCGOP. 

The Commission’s age reader staff was also included in the PacFIN cooperative agreement prior 

to switching to the WCGOP award. In July and September of 2003, several age readers spent 

time at sea with commercial fishing crews to observe the fishing and sampling process, incurring 

significant amounts of overtime and additional expenses for benefits. Although subsequent 

amendments to the cooperative agreement allowed for this activity, the agreement in place at that 

time did not include the activity within its allowable scope or objectives. Consequently, we 

questioned $14,353 in related personnel and benefits expenses (see appendix C, notes 2 and 3). 

D. Performance and Financial Reporting Was Incomplete and Inaccurate 

Performance reports are intended to provide key information on the technical progress of an 

award. Uniform Administrative Requirements provide for periodic performance reporting and 

prescribe procedures for preparing and submitting accurate financial reports to NOAA.16

NOAA’s special award conditions set the performance reporting interval at 6 months. However, 

NOAA’s ability to properly monitor project progress and ensure effective stewardship of federal 

funds was hindered by the Commission’s failure to accurately report the work that was in 

process or accomplished and to fully and completely disclose the resources being applied. Early 

 

15 Uniform Administrative Requirements, 15 CFR 24.30(d) (1). 16 Uniform Administrative Requirements, 15 CFR 24.40 and 24.41. 

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Office of Inspector General June 10, 2011 

reports for the PacFIN award and later reports for the WCGOP were either incomplete or 

inaccurately reported resources applied to the award. 

PacFIN. For the PacFIN award, three of the first four required semiannual reports did not 

include any discussion of enhanced groundfish monitoring and data processing in Oregon even 

though the budgeted activity for this portion of the cooperative agreement totaled $1,052,739 and 

represented 23 percent of the of $4,586,805 total approved cooperative agreement budget 

through amendment 2. 

WCGOP. For the WCGOP award, observer program performance reports were not consistent 

with the approved award budget or the Commission’s cost claims for the award. The semiannual 

performance report for December 2006 through May 2007 identified an assigned observer crew, 

as well as the GIS analyst, as working on the project. However, at the time the report was 

written, none of the assigned observer crew had actively charged to the award since September 

2006; the GIS analyst, while not specifically included in the approved project budget, had been 

working on the project only since the beginning of April 2007. This report also commented that 

the services of age readers were required but did not disclose that the Commission had actually 

been charging the full age reader staff to the WCGOP award since early April 2007. 

Similarly, the final, comprehensive report for the WCGOP project identified that a standard 

observer crew as well as the GIS analyst worked on the award, but again did not mention that the 

age readers were charged to the award for the final 5 months of the project. Additionally, none of 

the performance reports disclosed that the Commission charged the fisheries biologist, who was 

assigned to and working on another project, to the WCGOP project for the entire final year of the 

award. (For further discussion, see section C on page 8.) 

The Commission provided significant cash advances to Contractor A for payroll, operating 

expenses, and a health trust. The operating and payroll advances generally provided for 30-day 

operations; during the four-contract period, they ranged in amount from $150,000 to $375,000 

for operating advances and from $25,000 to $43,000 for payroll advances. Health advances 

extended over more than 3 years’ worth of contracts, from February 2003 through May 2006, 

with a range of $75,000 to $84,596. However, the NOAA Grants Management Division was 

unaware that the Commission had advanced federal funds to its contractor, and therefore lacked 

the information it needed to effectively manage disbursement of federal funds.17

II. Conclusion 

As an applicant for federal funding, the Commission assured its federal sponsors that it 

possessed the necessary institutional, financial, and managerial capability to ensure proper 

planning, management, and completion of its funded projects. But the conditions we found in our 

audit were inconsistent with those assertions and resulted in our questioning $2,420,489 of costs 

claimed under the PacFIN and WCGOP awards for lack of adherence to the Uniform 

Administrative Requirements and federal cost principles. 

 

17 Uniform Administrative Requirements, 15 CFR 24.41(c). 

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Office of Inspector General June 10, 2011 

In light of the number of federal funding sources it has and the amount of federal awards it 

receives, the Commission’s board of commissioners, management, and staff must promptly 

revisit and refresh their understanding of the Uniform Administrative Requirements, federal cost 

principles, and the award terms and conditions governing the Commission’s various federal 

awards. These parties must also ensure that the Commission’s underlying operations and controls 

comply with federal requirements, and that they actively provide the oversight crucial to a strong 

control environment as well as the safeguards essential to effective stewardship of the federal 

resources entrusted to the Commission. 

III. Recommendations 

We recommend that the Director, NOAA Acquisition and Grants, take a more aggressive role in 

monitoring the Commission’s grants by 

1) Disallowing and recovering $2,420,489 in questioned project costs. 

2) Requiring the Commission to provide evidence of improving its policies and internal 

controls to comply with minimum federal financial, administrative, and procurement 

management standards consistent with 15 CFR Part 24 and OMB Circular A-87 before 

awarding any new agreements or contracts to the Commission. At a minimum, 

improvements are needed in the following areas: 

a. Accurate recording and distribution of labor cost. 

b. Providing justification for noncompetitive procurements. 

c. Preparing independent cost estimates and conducting cost analysis for contract 

proposals. 

d. Retaining procurement history, including, at a minimum, the rationale for the method 

of procurement, selection of the contract type, contractor selection, and the basis of the 

contract price. 

e. Ensuring that contractor claimed costs are in accordance with contract terms and do 

not exceed allowed limits. 

f. Controlling change orders. 

g. Managing cash advances. 

h. Approving project scope changes. 

3) Requiring the Commission’s board of commissioners to enhance oversight of 

Commission financial and administrative operations by ensuring that all levels of the 

organization receive adequate supervision consistent with the Commission’s policies. 

4) Requiring the Commission to provide performance reports that are complete and 

consistent with approved project scope and budgets, and that fully and accurately identify 

the resources applied. 

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Office of Inspector General June 10, 2011 

Appendix A: Objectives, Scope, and Methodology

Our audit objectives were to determine whether (1) costs claimed, including indirect costs, were 

reasonable, allowable, and allocable to the sponsored project; (2) award objectives were 

achieved; and (3) accounting, procurement, and project management practices and controls 

complied with award requirements, assured efficient project administration, and resulted in an 

acceptable final product. 

Our audit methodology included 

• reviewing award files at the Commission and award and technical files provided by the 

National Oceanic and Atmospheric Administration (NOAA); 

• reviewing contract files at the Commission; 

• performing cost-incurred audits of several cost-reimbursable contracts funded under the 

NOAA awards; 

• examining financial, personnel, and performance records; 

• interviewing NOAA, Commission, and contractor staff; 

• applying relevant analytical procedures using a risk-based approach to select areas for 

audit and non-probability sampling to identify select elements within those areas for 

detailed transaction testing; and 

• reviewing Office of Management and Budget (OMB) Circular A-133 single audit reports 

and related work papers and management letters issued by the Commission’s external 

auditor for the fiscal years ending June 30, 2002, through June 30, 2008. 

We conducted fieldwork in the Commission’s office during the periods of January 20 through 

February 4 and March 30 through April 17, 2009; at the Commission’s independent audit firm; 

and at the offices of three of the Commission’s contractors. 

The audit included an evaluation of the Commission’s internal controls and compliance with 

laws and regulations as they related to financial assistance award provisions—specifically those 

provisions pertaining to financial management, procurement, and reporting. Key criteria we 

considered in conducting the audit included the Commission’s applications and application 

assurances, the NOAA awards and their respective standard and special terms and conditions, 

Department of Commerce Financial Assistance Standard Terms and Conditions, federal cost 

principles set forth in OMB Circular A-87 and 15 CFR Part 24. Our review disclosed that the 

Commission and its contractors did not adhere to applicable award requirements as detailed in 

this report; compliance deficiencies are similarly detailed in finding I and appendixes C and D. 

The Commission used computer-based accounting systems to track and report the financial 

results of the project. To address the objectives of this audit, we obtained the Commission’s 

payroll information in electronic format for the period July 1, 2001, through December 31, 2008. 

As a result of an accounting system conversion, we received general ledger and accounts payable 

11 
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

information electronically for the period of March 15, 2002, through mid-January 2009. For the 

initial portion of the Commission’s fiscal year 2002 excluded from the electronic submission, the 

Commission provided system summary reports. To assess the reliability of the electronic revenue 

and expenditure data, we looked for obvious errors in accuracy and completeness and 

• interviewed Commission employees that were knowledgeable about the data, 

• worked closely with the Commission employees to identify any data problems, 

• agreed general ledger totals from the electronic files to the audited financial statements, 

• traced financial claims and contract invoices to the automated accounting systems and to 

source documents, and 

• traced selected accounts payable documents to the general ledger for costs in the indirect 

cost pool. 

We did not rely solely on the computer-generated data as the basis for our audit conclusions. We 

traced financial claims to the Commission’s automated accounting systems and to source 

documents, and we also relied on source records for our tests and reviews of program results and 

compliance. We believe the revenue and expenditure data are sufficiently reliable for the 

purposes of this report. 

This audit was performed under the authority of the Inspector General Act of 1978, as amended, 

and Department Organization Order 10-13, dated August 31, 2006. 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 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. 

 

12 
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Office of Inspector General June 10, 2011 

Appendix B: Summaries of Source and Application of Funds

Final Audit of NOAA Cooperative Agreement No. NA17FN2284 (PacFIN) and 

Final Audit of NOAA Cooperative Agreement No. NA17FN2536 (WCGOP) 

NA17FN2284 (PacFIN) NA17FN2536 (WCGOP) 

February 1, 2002 - June 30, 2006 June 1, 2002 - August 31, 2007 

Approved Claimed By Approved Claimed By 

Award Budget Recipient Award Budget Recipient 

Source of 

Funds 

Federal Share $9,503,605 $9,503,605 $13,128,825 $13,128,825 

Recipient Share - - - - 

Total $9,503,605 $9,503,605 $13,128,825 $13,128,825 

Application of 

Funds 

Personnel $2,792,520 $2,923,571 $848,106 $1,151,061 

Fringe Benefits 1,170,878 1,265,195 363,852 504,892

Travel 128,439 88,249 98,056 66,749

Equipment - - - - 

Supplies 148,419 113,390 423,156 338,960

Contractual 4,533,949 4,374,116 10,917,333 10,566,588

Indirect 729,800 739,083 478,322 500,575

Total $9,504,005 $9,503,604 $13,128,825 $13,128,825 

 

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Appendix C: Summary of Financial/Compliance Audit (PacFIN)

Final Audit of NOAA Cooperative Agreement No. NA17FN2284 

For the Period of February 1, 2002, through June 30, 2006 

Costs 

Cost Category 

Approved 

Project 

Budget 

Claimed by 

Recipient Accepted Questioned Unsupported 

Ref. 

Notes 

(Note 1) 

Personnel $ 2,792,520 $ 2,923,571 $ 2,999,294 $ (75,723) 

$ 

- 2 

Fringe Benefits 1,170,878 1,265,195 1,297,382 (32,187) 

 

- 3 

Travel 128,439 88,249 88,249 - - 

Equipment - - - - - 

Supplies 148,419 113,390 58,092 55,298 55,298 4 

Contractual 4,533,949 4,374,116 4,149,329 224,787 220,845 5 

Other Direct Cost - - - - - 

Total Direct Cost 8,774,205 8,764,521 $ 8,592,346 172,175 276,143 

Indirect 729,800 739,083 - 739,083 739,083 6 

Fee - - - - - 

Total $ 9,504,005 $ 9,503,604 $ 8,592,346 $ 911,258 

 $ 

1,015,226 

Federal Share 100.0% $ 8,592,346 

Less Federal Disbursements to Date 9,503,604 

Due (Government)/Recipient $ (911,258) 

Reference Notes

Note 1 Unsupported costs are those costs that the recipient could not adequately support at the time of 

audit; unsupported costs are also included in the total of questioned costs. 

Note 2 The offset to questioned costs of $75,723 consisted of the net of $94,585 in PacFIN labor costs 

that were erroneously charged to the WCGOP award and $18,862 in questioned labor costs. 

Questioned labor costs included (1) $9,909 for charges inconsistent with the Commission’s 

time distribution system, and (2) $8,953 in labor costs claimed for activities that were outside 

the scope of the cooperative agreement. (OMB Circular A-87, attachment A, C.1.a. and b. and 

C.4., and attachment B.11.h.[5][e] [1995] and B.8.h.[5][e] [2004]) 

Note 3 We accepted an offset to questioned costs of $32,187 consisting of the net of (1) $41,504 in 

additional benefits applicable to the PacFIN award that were erroneously charged to the 

WCGOP award, (2) $125 in additional benefits that should have been charged to the PacFIN 

award had the fringe benefits rate applied been adjusted to actual, (3) $5,400 in benefits 

expenses questioned as related to the unallowable activities questioned in note 2, and $4,042 in 

benefits questioned as applicable to unsupported personnel expenses.(OMB Circular A-87, 

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Office of Inspector General June 10, 2011 

attachment A, C.1.a. and b. and C.4., and attachment B.11.h. [5][e] [1995] and B.8.h. [5] [e] 

[2004]) 

Note 4 Questioned costs of $55,298 consisted of unsupported data processing fees charged to the 

project. We questioned the data processing fees as unsupported because the expenses were 

based on the annual budgeted data processing expenses for the Commission, similar to a central 

service expense. The Commission did not reconcile budgeted fees claimed to actual data 

processing costs incurred, as required by federal cost principles described in OMB Circular A87, attachment C.G.4. Refer also to our report on indirect cost. 

Note 5 We questioned $224,787 consisting of $220,845 in unsupported personnel, benefits, and 

indirect costs claimed under cost-reimbursable contracts between the Commission and the State 

of Washington and Oregon Departments of Fish and Wildlife (WDFW) and (ODFW) and 

$3,942 in unallowable costs charged to this project in error by ODFW. Of the $220,845 

questioned as unsupported, $207,930 consisted of personnel, fringe benefits, and indirect 

expenses for an employee charged to the project from 2002 through 2005 for whom WDFW 

was not able to provide adequate documentation. (OMB Circular A-87, attachment A, C.1.b. 

and j. and C.3., and attachment B.11.h. [5][e] [1995] and B.8.h. [5][e] [2004]) 

Note 6 We questioned the total of $739,083 claimed, consisting of $86,488 in administrative 

assessments and $652,595 in indirect cost. The $86,488 represents the total of the recipient's 

claim for the 2 percent administrative assessment levied on pass-through funds to cover 

associated expenses such as procurement and accounting. We questioned the administrative 

assessment as both unsupported and duplicative. 

 We were unable to accept the recipient's indirect cost rates. We questioned the entire $652,595 

in indirect cost claims as unallowable and unsupported. Of this amount, $12,998 was also 

questioned because it was in excess of the final approved project budget for indirect cost of 

$639,597. The remainder of the budgeted indirect cost of $729,800 was budgeted as 

administrative assessments. In accordance with the provisions of Department of Commerce 

Financial Assistance Standard Terms and Conditions A.05 4(a) (2001 and 2004) and f (1) 

(2005 and 2007), in no event may the amount of indirect cost allowed exceed the final 

approved project budget line. Refer to our separate audit report on indirect cost for details on 

the administrative assessments and unallowable indirect cost. 

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Office of Inspector General June 10, 2011 

Appendix D: Summary of Financial/Compliance Audit (WCGOP)

Final Audit of NOAA Cooperative Agreement No. NA17FN2536 

For the Period of June 1, 2002, through August 31, 2007 

Costs 

Cost Category 

Approved 

Project 

Budget 

Claimed by 

Recipient Accepted Questioned Unsupported 

Ref. 

Notes 

(Note 1) 

Personnel $848,106 $1,151,061 $849,962 $301,099 $194,305 2 

Fringe Benefits 363,852 504,892 370,002 134,890 85,846 2 

Travel 98,056 66,749 66,749 

Equipment 

Supplies 423,156 338,960 338,960 

Contractual 10,917,333 10,566,588 9,993,921 572,667 572,667 3 

Total Direct Cost 12,650,503 $12,628,250 $11,619,594 $1,008,656 $852,818 

Indirect 478,322 500,575 - 500,575 500,575 4 

Fee - - - - - 

Total $13,128,825 $13,128,825 $11,619,594 $1,509,231 $1,353,393 

Federal Share 100.0% $11,619,594 

Less Federal Disbursements to Date 13,128,825 

Due (Government)/Recipient ($1,509,231) 

Reference Notes

Note 1 Unsupported costs are those costs that the recipient could not adequately support at the time of 

audit; unsupported costs are also included in the total of questioned costs. 

Note 2 We questioned labor and fringe benefits as detailed in schedule 1 (on the next page). 

 

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Schedule 1. Labor and Fringe Benefits Questioned and Unsupported

Note a Note b 

Labor Expense2a Fringe Benefits Expense2b

Questioned Unsupported Questioned Unsupported

California Coordinator $ 90,204 $ 90,204 $ 40,133 $ 40,133 

Oregon Coordinator 32,553 32,553 14,779 14,779 

Commission Project Manager 18,481 18,481 6,745 6,745 

Commission Project Manager 7,579 7,579 2,804 2,804 

Fisheries Biologist 45,488 45,488 21,385 21,385 

Age Readers (including GIS Analyst) 106,794 51,071 

Fringe Benefits Adjustment to Actual (2,027) 

 Totals $ 301,099 $ 194,305 $ 134,890 $ 85,846 

Source: OIG

Notes: 

2a Of the $1,151,061 claimed for labor, we questioned $301,099 consisting of $194,305 in labor that was unsupported 

and $106,794 for labor associated with a function that was outside the scope of this award and funded under 

another NOAA award. While the Commission had an adequate time distribution system, the Commission 

disregarded the labor allocations recorded and attested to by the Oregon and California coordinators and the 

Commission project manager and arbitrarily claimed labor either using established budget ratios or transferring 

costs from another project or from the indirect cost pool to the project under audit. To be allowable under federal 

awards, costs must be adequately documented (OMB Circular A-87, attachment A, C.1.j.). The federal cost 

principles further define the type of support that recipients must use to document labor claims. Specifically, where 

employees work on multiple activities or cost objectives, salary or wage distribution must be based on personnel 

activity reports that include, among other things, an after-the-fact distribution of the actual activity of each employee. 

The principles add that budget estimates or other distribution percentages determined before the services are 

performed do not qualify as support for charges to federal awards. (OMB Circular A-87, attachment B.11.h.[4] and 

5[a] and [e] [1995], and attachment B.8.h.[4] and [5][a] and [e] [2004]) 

The Commission claimed $106,794 consisting of 100 percent of the labor expenses for April through August 2007 of 

its five-member age reading laboratory. The laboratory was funded under another NOAA award, 

NA05NMF4371160, with a project period that eventually extended from June 1, 2005, through December 31, 2008. 

 

2b Of the $504,892 of fringe benefits claimed, we questioned $134,890, of which $85,846 was unsupported. With the 

exception of a $2,027 fringe benefits offset, the costs questioned and unsupported represent fringe benefits related 

to the labor expense questioned and unsupported in Note 2a and are questioned for the same reasons. The $2,027 

offset to questioned fringe benefits costs represents the total the Commission under-billed for staff that were 

budgeted and claimed under the award. The Commission used an array of rates to bill fringe benefits to the award 

but had not adjusted the billing rates to actual. At our request, the Commission developed actual rates and 

computed the adjustment necessary to apply actual fringe benefits to the award. The actual fringe benefits rates 

applicable to labor accepted per audit were greater than the amount claimed. Therefore, we used the Commission's 

under-billed fringe benefits as an offset to the questioned fringe benefits expense.

 

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Office of Inspector General June 10, 2011 

Note 3: We questioned unsupported contract costs and fees of $572,667. The costs were part of 

$10,351,851 claimed for contracted observer services under the Commission’s four cost-plusfixed-fee contracts with Contractor A and consist of the costs in schedule 2. 

 

Schedule 2. Contract Cost Questioned and Unsupported 

<Under (Over) Billed>

Contract Number/Notes 2-85 4-23 5-21 6-27 Notes 

Costs Claimed by Contractors $ 2,348,147 $ 2,666,803 $ 2,761,987 $ 2,574,183 

Personnel Expense 917 7,574 

a 

Fringe Benefits (49,999) (79,640) (47,159) (60,068) 

b 

Insurance Expense 364 16,769 (6,089) (72,565) 

c 

Health Expense (5,697) 3,729 (1,294) (675) 

d 

General and Administrative 

Expense 74,765 28,431 11,955 (5,820) 

e 

Payroll and/or Contract Advances (32,000) 32,000 (219,000) 219,000 

f 

Health Trust Advance 

 (68,843) 68,843 

 (36,843) 36,843 g 

 (15,426) 15,426 

 (51,649) 

Fixed Fees (5,906) (11,096) (11,265) (7,151) 

h 

Costs Plus Fixed Fees Incurred 

Net of Audit Adjustments $ 2,261,747 $ 2,688,996 $ 2,510,551 $ 2,618,255 

Less Amendment 1 Modification 

to Contract 4-23 (300,366) 

i 

Costs Plus Fixed Fees Incurred 

Net of Audit Adjs. and 

Amendment 1 Modification 

(Equals Contract Maximum since 

ceiling is higher) $ 2,261,747 $ 2,388,630 $ 2,510,551 $ 2,618,255 

Less Commission Claims to 

NOAA – Total $10,351,851 2,348,881 2,666,800 2,761,987 2,574,183 

Total Questioned $572,667 $ 87,134 $ 278,170 $ 251,436 $ (44,073) 

Source: OIG 

Notes 

3a The contractor under-invoiced labor costs for contracts 2-85 and 6-27. 

3b Questioned costs represent contractor claims for fringe benefits that exceeded the actual amount incurred per the 

contractor’s general ledger. 

3c The contractor under-invoiced insurance costs for contracts 2-85 and 4-23 and over-billed insurance costs for 

contracts 5-21 and 6-27. The contractor used fixed rates to bill for insurance but, at the end of the contract, did not 

adjust the rates to the actual expense incurred per the contractor’s general ledger. 

3d The contractor used fixed rates to bill for observer health expense, but did not adjust to actual expense at the end of 

the contract. 

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Office of Inspector General June 10, 2011 

3e The contractor used a fixed rate to bill general and administrative expense to the Commission, but did not adjust the 

rate to actual amount incurred at the end of the contract. 

3f Beginning prior to contract 2-85, the Commission permitted the contractor to draw monthly payroll advances, and 

then during contract 4-23 also allowed the contractor to draw monthly contract advances. Both practices continued 

through contract 6-27 and beyond. The contractor did not properly adjust the invoicing to ensure that the advances 

made at the end of one contract for work to be accomplished under the following contract were properly applied. 

The Commission made some adjustments to the contractor’s invoices in an attempt to properly recognize costs in 

under the appropriate contract. However, the Commission's adjustments were not always accurate or complete, and 

therefore resulted in overbillings and under-billings. 

The contractor included a payroll advance of $32,000 for contract 4-23 in the final invoice for contract 2-85. The 

contractor included $219,000 in payroll and contract advances for contract 6-27 in the final invoice for contract 5-21. 

The adjustments above move advances claimed to the appropriate contracts. 

 

3g Neither the Commission nor the contractor adjusted the amounts of health trust advances to recognize expenses as 

actually incurred under each of the four contracts included in the award period. The offsetting adjustments above 

recognize self-insured health payments actually incurred under the appropriate contract. The follow-on contract to 6-

27, which is for a period subsequent to cooperative agreement NA17FN2536, should have recognized an 

outstanding health trust advance of $51,649 at the start of the follow-on contract period. The $51,649 adjustment 

appropriately moves the advance out of contract 6-27. 

3h The contractor invoiced, and the Commission paid and claimed, fixed fees in excess of the amount authorized for 

each of the four cost-plus-fixed-fee contracts. 

3i We questioned the total of amendment 1 to contract 4-23 as unsupported. The contractor did the work as directed 

by the Commission, incurred the cost, and earned the payment; however, the Commission did not provide 

justification for the $300,366 amendment (see table 3 and Contract Change Orders on page 7).

Note 4 We questioned the total of $500,575 claimed consisting of $211,372 in administrative 

assessments and $289,203 in indirect cost. We questioned $211,372 as unsupported and 

duplicative. The $211,372 represents the total of the recipient's claim for the 2 percent 

administrative assessment levied on pass-through funds to cover associated expenses such as 

procurement and accounting. We questioned the assessment as both unsupported and 

duplicative. 

 We were unable to accept the recipient's indirect cost rates. We questioned the entire $289,203 

in indirect cost claims as unallowable and unsupported. Of this amount, $29,229 was in excess 

of the final approved project budget for indirect cost of $259,974 (the remainder of the total 

budgeted indirect costs of $478,322 was budgeted as administrative assessments). In 

accordance with the provisions of Department of Commerce Financial Assistance Standard 

Terms and Conditions A.05 4(a) (2001 and 2004) and f (1) (2005 and 2007), in no event may 

the amount of indirect cost allowed exceed the final approved project budget line. Refer to our 

audit report on indirect cost for details on the administrative assessments and unallowable 

indirect cost. 

 

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Office of Inspector General June 10, 2011 

Appendix E: Commission Response

20 

PAOAC STATES MARINE ASHERIES COMMISSION

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

21 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

22 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

23 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

24 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

25 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

26 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

27 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

28 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

29 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

30 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

31 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

32 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

33 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

34 

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"
U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

35 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

36 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

37 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

38 

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I
39 

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U.S. Department of Commerce Final Report 

Office of Inspector General June 10, 2011 

Appendix F: Synopses of Recipient Comments and OIG Responses

We received the Commission’s comments and supporting documentation, dated April 13, 2011, 

in response to our draft audit report; we evaluated and considered the Commission’s response in 

preparing this final report. The Commission disagreed with the report and disputed many facts 

but also stated that it subsequently changed many of its practices. We have synopsized its 

responses and provided our comments below. The sections are keyed to the report sections and 

the notes to the appendixes. The full text of the Commission’s letter response is included as 

appendix E. Due to the volume of the 19 attachments to the Commission’s response, we have not 

included them as part of the report but have retained them for review at our office. 

I.A. Financial Management System Needs Improvement 

As detailed on page 4 of this report, the Commission’s financial management system was not 

adequate to accurately report the financial results of its awards. In addition, significant 

deficiencies related to the indirect cost and project cost accounting elements of the 

Commission’s financial management system are detailed in our audit report on the 

Commissions’ indirect cost plans and rates.18 The Commission responded that it had instructed 

staff to accurately record time spent on projects in its time distribution system, but it did not 

provide support for its assertion. However, the manner in which its employees recorded their 

time in the Commission’s time distribution system was not the only issue. A significant problem 

was the Commission’s failure to use the time its staff recorded in the time distribution system as 

the basis for allocating time to projects. Instead, it used arbitrary budget percentages or made 

wholesale transfers of employee time from one project to another. For these reasons, we reaffirm 

our findings. 

If implemented, the changes proposed by the Commission should improve a portion, but not all, 

of the conditions going forward. However, they do not address deficient conditions reported for 

the period under audit. 

The Commission also contended that it had NOAA program officer approval to use WCGOP 

award funding for the age readers rather than another NOAA award, but it did not provide a copy 

of an approving e-mail, and performance reports for the other NOAA award did not report 

changes to the scope of that award or related resources. The work the age readers performed may 

have assisted the WCGOP; however, this work was not included in the original WCGOP project 

scope. Instead, it was included in another NOAA award. Regardless of whether there is an 

associated budget revision, changes to award scope or objectives require the prior written 

approval of the NOAA Grants Officer.19

 

18 Final Report No. OIG-11-025-A: Audit of Indirect Cost Plans and Rates, dated May 19, 2011 

19 Uniform Administrative Requirements, 15 CFR 24.30(d)(1). 

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I.B. Procurement System Needs Improvement 

While the Commission had some written purchasing and contracting procedures to guide its 

procurement process, in practice its procurement of contracts under the PacFIN and WCGOP 

awards did not meet the requirements of 15 CFR 24.36. Therefore, we reaffirm our findings. 

Our response to the Commission’s itemized comments to this section of the report follows: 

1. We did not question the Commission’s noncompetitive procurement of its contracts with 

the state fisheries agencies. We did, however, question its noncompetitive procurement of 

the four successive noncompetitive contracts with its fisheries observer contractor. The 

2001 request for proposals, which the Commission cited as the basis for its procurement 

for observer services, was for a prior observer contract awarded in 2001 and claimed 

under a previous NOAA cooperative agreement for an amended contract period of July 

15, 2001, through July 31, 2002. The NOAA WCGOP cooperative agreement under audit 

began in June 1, 2002. 

The Commission received five proposals in response to the May 2001 request for 

proposals, indicating that there were multiple firms capable of providing the observer 

services required. 

2. We did not question the Commission’s decision to award yearly, standalone contracts. 

Rather, we provided that information as context for our discussion of procurement 

deficiencies. 

3. The Commission concurred with our finding and continues to work with its contractor to 

resolve additional cost issues. 

4. For the reasons detailed in our report, we continue to question the entire $300,366 for 

change order 1.20 The Commission’s response did not address the lack of justification for 

the change order beyond referring to Commission performance reports to NOAA. It also 

did not address the absence of the required cost analysis beyond asserting that its budget 

for the continuation award with NOAA included a contractor fee of 7 percent, which the 

Commission stated is the maximum fee allowed for a for-profit entity. The Commission 

agreed that there was no change in the contract scope of work or performance period 

associated with the change order. Therefore, under a cost-plus-fixed-fee contract, no 

additional fee is allowable. 

Contrary to the Commission’s contention that the fee for change order 1 was 7.3 percent, 

contract documents confirm that the fee constituted 8.9 percent of the estimated 

amendment cost. See schedule 3 on the next page. 

 

20 See page 7 and appendix D, note 3, schedule 2, note 3i. 

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Office of Inspector General June 10, 2011 

Schedule 3. Contract 4-23—Fee as a Percent of Total Estimated 

Costs

Original Contract Amendment 1 

Total Amended 

Contract 

Total Estimated Cost $2,211,621 $275,809 $2,487,430 

Fee 154,813 24,558 179,371 

Cost Plus Fixed Fee Ceiling $2,366,434 $300,367 $2,666,801 

Fee as a Percent of Total Estimated 

Cost 7.00% 8.90% 7.21% 

 

5. We disagree with the Commission’s assertion that its contract administration system is 

adequate to ensure that work is performed in accordance with the terms and conditions of 

its contracts. As detailed in schedule 2, note 3, of appendix D, the Commission’s 

deficient contract administration system (described on page 7) resulted in excess 

payments to contractors totaling $572,667. 

6. We disagree with the Commission’s assertion that it properly reconciled contract 

advances. The Commission issued a series of individual, sequential, and occasionally 

overlapping cost-plus-fixed-fee contracts, each with a separate fixed fee and cost ceiling. 

As shown in schedule 2, note 3, of appendix D, the Commission did not ensure that 

advances were reconciled to actual expenditures by individual contract period, which 

permitted the contractor to receive payments in excess of contract ceilings in three of four 

cases. 

7. The Commission responded that the contractor appropriately claimed a 7 percent fee on 

the costs incurred and that our statement that the fee was “fixed” was incorrect. As we 

reported on page 7, we agree that the contractor billed and received reimbursement for a 

fee computed as 7 percent of billed costs. As we reported on page 6, the contract 

reimbursement terms were vague; therefore, we specifically confirmed with both the 

Commission and the contractor that the observer contract was a cost-plus-fixed-fee 

contract, and we audited the contract accordingly. Given the Commission’s response, the 

observer contracts would be cost-plus-percentage-of costs contracts, which are 

unallowable and would thus render the total amount claimed for the observer contracts 

($10,351,851) unallowable. The NOAA Grants Officer should reconfirm the 

Commission’s response regarding the type of compensation method it used for 

Contractor A and, if appropriate, adjust the amount of federal funds to be recovered. 

I.C. Revisions to Project Scope Were Not Approved 

We disagree with the Commission’s claim that the project scope did not change, and reaffirm our 

findings. An increase in the level of effort differs from the addition of staff with completely 

different skill sets. As described on page 8 of the report, we identified several categories of 

personnel included in Commission claims for the WCGOP and PacFIN award that were not 

budgeted for in this project, but were funded under several other NOAA awards to the 

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Office of Inspector General June 10, 2011 

Commission. While their services may have been compatible with PacFIN and WCGOP 

objectives, they were not included in the approved scopes of work or identified in performance 

reports (see page 8). Rather, while these individuals were working on other NOAA awards the 

Commission either directed or retroactively transferred the charges to the WCGOP award to 

ensure that it fully expended all federal funds available under the award. To illustrate, the 

Commission annotated the personnel files of certain individuals directing that the employee’s 

time be applied to the WCGOP award until its funds were exhausted or the award period ended. 

Once the award ended, the employee would then revert to the original project. 

The WCGOP award ended in August 2007. When the Commission prepared the final financial 

status report in November 2007, it also prepared two journal entries. The first entry moved a 

fisheries biologist’s time into the WCGOP award. The second moved just enough of the 

WCGOP staff time and expenses charged to the overlapping follow-on WCGOP award back into 

the expired award to ensure that the Commission recovered all federal funds available under the 

expired award.21

I.D. Performance and Financial Reporting Was Incomplete and Inaccurate 

The Commission may have filed required performance and financial reports; however, as we 

discussed on page 8, those reports did not fully disclose information necessary for NOAA to 

make informed management decisions. In addition, we disagree that the Commission’s 

performance reports and staff interaction with federal program personnel ensured sufficient 

information to manage the awards. As we reported, the performance reports did not always 

clearly identify who was charging time to the projects. We reaffirm our findings. 

The Commission operates many projects on NOAA’s behalf, and many involve similar 

objectives and staff, as well as overlapping time periods. Therefore, it is imperative that the 

Commission clearly report the status of each of its awards to enable NOAA to know exactly 

where and how its funding is applied. If a change in the type of staffing is required or awards or 

award periods overlap, the Commission must work with NOAA program personnel and the 

Grants Officer to ensure that changes are carefully documented in an award amendment and that 

performance reports document the application of those changes. 

Appendix C, Notes 2-5 

Changes asserted by the Commission, if implemented, may improve conditions going forward 

but do not address deficient conditions reported for the period under audit. We therefore reaffirm 

our findings. 

 

21 NOAA awarded the follow-on WCGOP cooperative agreement (NA06NMF4370253) to the Commission on 

September 1, 2006. The follow-on award period overlapped the final 13 months of a no-cost time extension of the 

WCGOP award under audit. The amended scope for the extension stated that there would be no overlap of funding 

or duplication of tasks. 

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Office of Inspector General June 10, 2011 

Appendix C, Note 6 

We reaffirm our findings and recommendations regarding administrative fees and indirect cost. 

We also direct readers to our final report on the Commission’s indirect cost plans and rates.22

That report presents detailed results of our audit of administrative fees and indirect costs, 

questions all indirect cost rate proposals and claims and administrative assessments for the 

period 2002 through 2008, and advises the NOAA Grants Officer not to accept indirect cost 

claims subsequent to 2008 until the Commission corrects the deficiencies described in the report. 

The indirect cost report also includes an appendix with our response to the Commission’s 

comments on that report—many of which it repeats here. 

The PacFIN award period extended from February 1, 2002, through June 30, 2006, a period prior 

to the approval the Commission refers to. The Commission responded that it provided its indirect 

cost rate proposal for its fiscal year ending July 1, 2008, to the Department of Commerce on May 

1, 2008, which is long after the PacFIN award period ended. Contrary to the Commission’s 

assertion, the Department’s letter dated May 8, 2008, did not address approval of either the 

Commission’s indirect cost rate proposal or its administrative fee. The Commission did not 

provide documentation in support of its assertion that NOAA had approved a reprogramming of 

the PacFIN budget and NOAA grants management personnel have not been able to locate either 

the Commission’s request or NOAA’s approval of the request. Changes asserted by the 

Commission, if implemented, may improve conditions going forward but do not address 

deficient conditions reported for the period under audit. 

Appendix D, Note 2 

Changes asserted by the Commission with regard to its time distribution system, if implemented, 

may improve conditions going forward but do not address deficient conditions reported for the 

period under audit. We reaffirm our findings. 

Age reader and spatial analyst efforts, which were not envisioned in the original WCGOP award, 

constitute changes to the WCGOP scope of work. While the Commission stated that it had the 

approval of the federal program officer, it provided no support for its statement. In addition, 

performance reports for the actual NOAA age reader award made no mention of a change in the 

scope or the additional resources applied to the WCGOP award. Furthermore, Uniform 

Administrative Requirements provide that changes to the scope of work must receive prior 

approval, and in the Department such changes may only be authorized by the Grants Officer via 

award amendment. This requirement also applies to changes made for additional observers and 

the addition of a spatial analyst. 

The Commission did not respond to labor and fringe benefits costs questioned for the research 

biologist. 

 

22 Final Report No. OIG-11-025-A: Audit of Indirect Cost Plans and Rates, dated May 19, 2011. 

44 
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Office of Inspector General June 10, 2011 

45 

Appendix D, Note 3 

We had extensive discussions with the Commission’s contractor and the contractor’s private 

accountant and provided copies of our worksheet analysis. Our discussions were intended to 

facilitate an understanding of the amounts the contractor had invoiced and been paid under each 

of its four contracts, as well as the reasons for our questioning costs. Contrary to the 

Commission’s assertions, we did not question the contractor’s observer insurance coverage or 

splits between its business segments. We did obtain explanations from the contractor about the 

insurance for this high-risk business, and we questioned costs that were unsupported, fees that 

were billed in excess of the amount fixed by the Commission’s contracts, and costs and fees that 

were billed in excess of the contract ceilings. We questioned a related change order, not because 

of deficiencies on the contractor’s part, but due to procurement deficiencies on the part of the 

Commission. Again, we reaffirm our findings. 

The contractor’s changed billing practices and insurance splits, if implemented, may improve 

conditions going forward but do not address deficient conditions reported for the period under 

audit. 

Appendix D, Note 4

We reaffirm our findings and recommendations regarding administrative fees and indirect cost in 

this report. For more information, we also direct readers to our final report on the Commission’s 

indirect cost plans and rates. That report presents the detailed results of our audit of 

administrative fees and indirect costs and questions indirect cost rate proposals and claims and 

administrative assessments for the period 2002 through 2008. 

Among other comments, the Commission responded that it provided its indirect cost rate 

proposal for fiscal year ending July 1, 2008, to the Department on May 1, 2008., which is long 

after the WCGOP award period ended. The WCGOP award period extended from June 1, 2002, 

through August 31, 2007. In addition, contrary to the Commission’s assertion, the Department’s 

letter of May 8, 2008, did not address approval of either the Commission’s indirect cost rate 

proposal or its administrative fee. As a result, the Commission’s 2008 and 2009 indirect cost 

rates are not applicable to WCGOP award that is the subject of this audit. 

The Commission did not respond to indirect cost also questioned as exceeding the approved 

WCGOP award budget line for indirect cost. 

(OAE-19467-2)