Intragovernmental Revolving Funds: NIST's Interagency Agreements and Workload Require Management Attention
Published: 2010-10-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO previously found that a significant portion of the National Institute of Standards and Technology's (NIST) working capital fund contained a growing carryover balance. Almost all of the fund's resources come from appropriations advanced from federal clients for NIST's technical services through interagency agreements. Monitoring and tracking key information about agreements and the funds advanced for them is critical for both NIST and its clients to make well-informed budget decisions, comply with applicable fiscal laws and internal controls, and ensure the proper use of federal funds. GAO was asked to review (1) the factors contributing to the working capital fund's carryover balance and (2) NIST's processes for managing its interagency agreements and workload. To do so, GAO reviewed laws and fiscal requirements, analyzed NIST budget data and policies related to its interagency agreements, analyzed a random sample of agreements, and interviewed NIST officials.
section_title: What GAO Found
paragraphs: NIST's working capital fund carryover balance is largely driven by appropriations advanced from federal clients to support interagency agreements. Most agreements cross fiscal years and because more than half were accepted in the second half of the fiscal year, some carryover of funds and work is expected. NIST's processes for managing agreements are insufficient to help ensure compliance with applicable fiscal laws. 1) NIST does not monitor the period of availability of appropriations advanced from client agencies and therefore cannot be sure that funds are legally available when it bills against them. If NIST were to use funds after an account closes, its clients could be exposed to possible Antideficiency Act violations. GAO found two reasons for this. First, NIST treats these funds as being available without fiscal year limitation. Second, NIST does not manage agreements in a way that would allow it to monitor the availability of client advances. 2) NIST does not ensure that it starts work on its agreements within a reasonable amount of time after client agencies advance funds to NIST. Long delays in starting work may lead to the improper use of appropriated funds. There is no governmentwide standard for a reasonable time in which to begin work. NIST has not considered such a standard for itself, but some agencies use 90 days as a general guide. NIST took, on average, an estimated 125 days to start work. Further, GAO estimates that NIST began work about 7 months after receiving funds advanced from clients for about half of its agreements. In some cases the delay was 1-2 years. There were several reasons for this, including that NIST does not record or monitor the date it begins work on agreements, and does not consider whether it has the appropriate resources agencywide before accepting new work. NIST lacks a high-level, senior management focus on managing its interagency agreement workload. Strategic workforce planning requires the effective deployment of staff to achieve agency goals. NIST places a high priority on its interagency agreements; however, senior managers play no role in determining whether appropriate resources are available agencywide to support its workload. Further, although NIST shares responsibility with its federal clients for ensuring the proper use of appropriated funds, it does not sufficiently communicate important information to clients--such as when work is expected to begin on agreements--that would better inform client decisions about how to best use their funds. Absent strategic workload management and improved client communications, NIST cannot meet the needs of this high-priority area. As a result of our review, NIST began revising its interagency agreement process. Because NIST did not provide this information to GAO until after the review was complete, GAO was unable to determine the effect of those changes.
section_title: What GAO Recommends
paragraphs: GAO is making 5 recommendations to improve NIST's management of its interagency agreements, including holding senior managers responsible for strategic workload management, improving internal monitoring and reporting, ensuring compliance with applicable fiscal laws, and communicating key information to clients on its agreement status. NIST agreed with all 5 recommendations and is taking action to implement them by the end of this fiscal year.

section_title: Letter
paragraphs: As the leading scientific research agency of the federal government, the  National Institute of Standards and Technology (NIST) plays a key role in  supporting new technologies that will shape life in the 21st century. In line  with the President’s recent emphasis on scientific discovery, technological  breakthroughs, and innovation, NIST enhances the nation’s capacity for  strengthening cybersecurity, developing clean energy technologies,  revitalizing the manufacturing base, as well as helping to ensure air and  water quality. Additionally, NIST’s staff—almost 3,000 scientists, including  three Nobel Laureates—perform technical work for other federal agencies,  as well as state and local governments and the private sector.
In our review of the President’s fiscal year 2009 budget request for NIST,  we identified a generally increasing carryover balance in its working  capital fund. Carryover is the reported dollar value of work that has been  ordered and funded (obligated) by clients but not completed by the end of  the fiscal year. Carryover consists of both the unfinished portion of work  started but not completed, as well as accepted work that has not yet  begun. The working capital fund largely comprises appropriations  advanced from other federal agencies to reimburse NIST for its technical  services. The payment terms for these services are generally documented  in interagency agreements between NIST and its federal clients. Managing  and monitoring key information associated with interagency agreements  between federal agencies and the funds advanced to support these  agreements is critical for both NIST and client agencies. This information  supports NIST’s ability to make well-informed budget decisions as well as  helps to ensure its compliance with applicable fiscal laws and federal  internal controls. You asked us to provide information on (1) what factors  have contributed to the carryover balance in NIST’s working capital fund  and (2) the processes by which NIST manages its interagency agreements  and workload.
For the first objective, we reviewed relevant legislation and statutory  authorities that govern the working capital fund, as well as analyzed  budget, financial, and workload data. We examined NIST data on  interagency agreements, documents, guidance, and policies related to its  working capital fund, as well as relevant budget documents from fiscal  years 2000 to 2010. We also referred to our prior work on  intragovernmental revolving funds and to related Department of  Commerce (Commerce) Inspector General reports.
To evaluate NIST’s processes for managing interagency agreements, we  identified and reviewed NIST’s responsibilities as the performing agency  entrusted with the client agency’s appropriated funds as described in  relevant fiscal laws as well as U.S. Comptroller General decisions and  opinions. We also reviewed aspects of the financial management system  that NIST uses to track and manage these agreements. In August 2010,  NIST officials told us that they began changing the processes for managing  interagency agreements. The processes we discuss in this letter were in  effect for the agreements in our review time frames. See appendix I for a  description of draft changes to NIST’s processes.
To assess NIST’s processes for managing its workload, we analyzed NIST’s  interagency agreement data and identified 354 interagency agreements  with performance periods of 1 or more fiscal years that began after  October 1, 2004 and ended on or before September 30, 2009. Because the  NIST financial system does not include when NIST started work on its  agreements, we drew a random sample of 76 agreements from the  population of 354 agreements to determine when NIST began work. To do  so, we reviewed and verified all transactions associated with 76  agreements to identify the time and amount of NIST’s first charge— reflecting the beginning of NIST work—in support of each of these  agreements. We also conducted case-file reviews for a nongeneralizable  sample of 11 out of the 76 agreements. See appendix II for more  information on the design and analysis of the random sample.
We interviewed senior staff from NIST’s budget and finance divisions as  well as those from selected NIST laboratories, including Operating Unit  Directors, Administrative Officers, and Senior Management Advisors.  Finally, to assess the reliability of interagency agreement data from NIST’s  financial system, we (1) performed electronic testing of data elements,   (2) reviewed existing information about the data and the system that  produced them, and (3) interviewed agency officials knowledgeable about  the data. We determined that the data were sufficiently reliable for the  purposes of this report.
We conducted our review between July 2009 and October 2010 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.
subsections: section_title: Background
subsections: section_title: NIST’s Mission, Organization, and Working Capital Fund
paragraphs: NIST serves as the focal point for conducting scientific research and  developing measurements, standards, and related technologies in the  federal government. NIST carries out its mission through 12 research and  development laboratories (also known as Operating Units). See figure 1  for NIST’s organizational chart. In 1950, Congress established NIST’s  working capital fund, giving it broad statutory authority to use the fund to  support any activities NIST is authorized to undertake as an agency.
NIST’s working capital fund is a type of intragovernmental revolving fund.  These funds—which include franchise, supply, and working capital  funds—finance business-like operations. An intragovernmental revolving  fund charges for the sale of products or services it provides and uses the  proceeds to finance its operations. See table 1 for the NIST working  capital fund’s four purposes and the funding sources that support those  uses.
In fiscal year 2009, nearly 70 percent of NIST’s working capital fund was  related to interagency agreements (see fig. 2). Almost all of NIST’s federal  clients advanced funds to NIST for those agreements. Client agency  advances to the working capital fund cannot be earned until NIST begins  work on the agreement and retain the period of availability from the  original appropriation. Once NIST earns those amounts, receipts and  collections are available to NIST without fiscal year limitation.
section_title: NIST’s Interagency Agreement Acceptance Process
paragraphs: NIST’s interagency agreements with federal clients originate in many  ways, including through congressional mandates and client requests. NIST  has established criteria for accepting requests for work from client  agencies, which include: (1) the need for traceability of measurements to  national standards; (2) the need for work that cannot or will not be  addressed by the private sector; (3) work supported by legislation that  authorizes or mandates certain services; and (4) work that would result in  an unavoidable conflict of interest if carried out by the private sector or  regulatory agencies. Operating Unit Directors commit NIST to providing  services to client agencies, while the Deputy Chief Finance Officer accepts  the order. Upon acceptance, the finance division and NIST’s Office of  General Counsel takes steps to process, monitor, and close-out each  agreement.
section_title: Unfinished Interagency Agreements Significantly Contribute to NIST’s Working Capital Fund Carryover Balance
subsections: section_title: The Working Capital Fund’s Carryover Balance Is Largely Driven by Pending and Ongoing Work Associated with Interagency Agreements
paragraphs: The carryover balance in NIST’s working capital fund is largely driven by  pending and ongoing work associated with interagency agreements as well  as work for which NIST has accepted advanced funds but not yet started.  In fiscal year 2009, NIST carried forward $120 million to fiscal year 2010.  This amounts to 41 percent of the working capital fund’s total resources,  down from a high of 51 percent (see table 2). However, because NIST does  not monitor its interagency agreement workload it was unsure what  factors have led to a decline in the last two years.
Specifically, funds from interagency agreements constituted between 71 to  89 percent of the working capital fund’s carryover balance from fiscal  years 2004 to 2009; in fiscal year 2009, it was 71 percent—the lowest over  the 6-year period (see table 3). Again, NIST officials were unsure about the  reasons for the decline in this balance.
NIST’s budget documents refer to the interagency agreement carryover  balance as unobligated because it is for unfinished work that NIST has not  yet earned. However, client agencies are to record an obligation against  their own appropriation when they entered into the agreement with NIST.  Therefore, that balance is only available to NIST for work on that  agreement. See figure 3 for an illustration of how unfinished work on  interagency agreements contributes to the working capital fund carryover  balance.
section_title: Some Carryover Is Expected Because Most Interagency Agreements Cross Fiscal Years
paragraphs: Some carryover in the working capital fund can be expected given the  basic characteristics of NIST’s interagency agreements. Ninety-three  percent of all NIST agreements had a period of performance of more than  1 fiscal year between fiscal years 2004 to 2009. Accordingly, work  associated with those agreements will not be completed within a single  fiscal year. By definition, unearned amounts associated with these  agreements would be carried over to the next fiscal year. As such, 82  percent of the active agreements in fiscal year 2009 generated carryover  balances.
The timing of when NIST accepts new work also affects the carryover  balances in the working capital fund. NIST accepts most of its agreements  in the second half of the fiscal year. Further, since most agreements cross  fiscal years, many are also likely to extend into the next fiscal year. Table 4  shows that 63 percent of all new agreements between fiscal years 2004 to  2009 were accepted during the second half of the fiscal year.
section_title: NIST’s Management Practices Related to Interagency Agreements Do Not Ensure Compliance with Applicable Fiscal Laws
subsections: section_title: NIST Lacks Processes to Ensure It Complies with the Time Limitations of Advanced Funds
paragraphs: Our previous work has established that a high carryover in working capital  funds may indicate poor workload planning, which could lead to  inefficient use of agency resources and missed opportunities to use those  funds for other needs. Significant carryover balances may also reflect a  situation in which the performing agency is using appropriations advanced  in prior years to support an interagency agreement when the funds are no  longer legally available.
NIST does not monitor the period of availability of appropriations  advanced from client agencies; therefore, it cannot ensure that funds are  legally available for obligation when it bills against them. Client advances  to the working capital fund that have not yet been earned retain the period  of availability from the original appropriation. Those advances are  available to NIST for covering costs of performance under the agreement  during the appropriation’s period of availability plus 5 fiscal years,  regardless of the specified period of performance for an agreement. After  this time, those amounts are cancelled by operation of law and are no  longer available to cover NIST’s costs. In other words, NIST cannot  liquidate, or bill against, these funds after the account closes. If NIST  were to use funds after the account closes, the client agency would be  required to transfer currently available funds to NIST. If the client does not  have such funds available, they could be exposed to possible  Antideficiency Act violations.
In our case-file review of 11 agreements, we found instances where NIST  could potentially be billing against closed accounts because it does not  monitor the dates that funds expire and become cancelled. Ten of these  agreements remain open and active in NIST’s financial system. NIST  officials told us that the system prevents an agreement from being closed  and deemed inactive if there are any outstanding transactions. Further,  they said that some of those agreements may have outstanding  undelivered orders that need to be resolved. However, if the funds  advanced in support of these agreements are time-limited, it is possible  that they are legally unavailable to NIST for further billing. We found the  expiration date of funds advanced to NIST in the paper files of   3 agreements and were therefore able to determine their legal availability.  For the other 8 agreements, however, NIST lacked the necessary  information to allow it to determine the legal availability of funds without  requesting specific appropriation information from NIST’s client  agencies—agencies that were not included in the scope of our review.
NIST shares responsibility with its client agencies to ensure the proper use  of federal funds when entering into interagency agreements. NIST finance  officials told us that expiration and account closing dates of  appropriations were not available to them. However, NIST’s policies  require that all interagency agreements state the Treasury Account Symbol  (TAS), from which the period of availability of appropriated funds could  be determined. We found that most of the hard-copy agreement files we  reviewed included such an appropriation code.
We found three reasons why NIST does not electronically record or  monitor the period of availability of appropriations advanced from client  agencies. First, NIST treats all client advances as if they are free from the  original appropriation’s period of availability. Second, NIST manages  agreements by period of performance, which can be different from the  client appropriation’s period of availability. Third, NIST does not manage  at the agreement level—the legal level of control. Rather, it manages at the  project level, which can include multiple agreements.
NIST officials treat funds advanced for agreements accepted under NIST’s  statutory authority as no-year funds; that is, free from the time period of  availability associated with the original appropriation. This policy is  contained in NIST’s Administrative Manual and is based on an  interpretation of Commerce policy described in a 1983 legal memo. When  we sought clarification on this policy in January 2010, Commerce’s Office  of General Counsel clarified the interpretation of the legal memo and  responded that it is revising its policy and working with NIST to revise the  Administrative Manual in response to our inquiry. As we will discuss, NIST  officials provided additional details on these efforts in August 2010.  Further, NIST manages agreements by period of performance, which can  be different from the client appropriation’s period of availability. The  period of performance is defined by the start and end dates of the  agreement. However, appropriations acts determine the period of  availability of appropriations.
Lastly, NIST manages the technical work it performs for client agencies  and bills and records transactions through projects. NIST officials  explained that they manage by project because it allows them to track and  monitor related agreements together. However, client agencies advance  funds to NIST based on the terms and amounts specified in interagency  agreements, which is the legal level of control. Although most projects  relate to a single agreement, some projects comprise multiple agreements  (see fig. 4). For example, related agreements from a client agency are  sometimes grouped together under an umbrella project. Occasionally,  NIST combines several related agreements from different clients under a  consortium project.
As a result of our review, Commerce is working with NIST to review and  revise policies described in the Administrative Manual and processes  related to interagency agreements. In August 2010, NIST officials told us  that they have begun to identify and resolve issues related to the  interagency agreement process, including drafting templates and  checklists for interagency agreements. The Commerce Office of General  Counsel has begun communicating these changes to NIST staff through  training sessions and town hall meetings. However, because we did not  receive this information until after we completed our review, we were  unable to determine what effect the changes may have on NIST’s  interagency agreement process. See appendix I for more information  about these changes.
section_title: NIST Does Not Monitor Interagency Agreements to Ensure that Work Begins within a Reasonable Time
paragraphs: NIST does not record or monitor whether it begins working on agreements  within a reasonable amount of time after it received funds advanced by  client agencies. Performing agencies should begin work within a  reasonable period of time to ensure that the use of a client agency’s funds  fulfill a bona fide need of the client arising during the fund’s period of  availability. That is, appropriations may be obligated only to meet a  legitimate need, arising in—or in some cases, arising prior to but  continuing to exist in—the fiscal years for which the appropriation was  made. Long delays between when an agency accepts funds advanced from  clients and when it begins work on its agreements may lead to the  improper use of appropriated funds. Although client agencies bear  ultimate responsibility for proper use of their funds, performing agencies  share responsibility as well. Because NIST, as the performing agency, does  not record or monitor when work begins on its agreements, it would be  difficult for it to carry out this responsibility.
There is no governmentwide standard for a reasonable time period for  performing work under an interagency agreement as it relates to a client  agency’s bona fide need. A reasonable time frame depends on the nature  of the work to be performed and any associated requirements such as  hiring a subcontractor or developing a specialized tool or machinery.  Although neither Commerce nor NIST has established such a standard,  other federal agencies have done so. For example, both the General  Services Administration and the Department of Defense consider 90 days  as a reasonable period of time for starting work. Because NIST has not  considered what a reasonable standard for starting its work might be, we  use 90 days as a point of reference for the purposes of this report. We  recognize that if NIST were to consider a standard time frame for starting  work, it may not necessarily select 90 days.
We estimate that NIST took, on average, 125 days to begin work on its  interagency agreements in fiscal years 2004 through 2009. We also  estimate that work began for almost half of all agreements at least 90 days  after NIST received funds advanced from client agencies. For these  agreements, NIST waited an average of 226 days—or over 7 months— before beginning work (see table 5). We also found some agreements that  were delayed for as long as 301, 464, 669, and 707 days.
Failure to begin work in a reasonable period of time raises legitimate  questions about whether the client’s order fulfills a bona fide need of the  client agency. Long gaps between when NIST accepts advanced funds and  when it begins work on agreements may lead to NIST using funds that are  no longer legally available. Further, client agencies may incur opportunity  costs associated with funds advanced to NIST that remain untapped for a  prolonged period of time.
Because determining whether work began within a reasonable period of  time depends on specific facts, we reviewed 11 agreements in more depth  to better understand why work was delayed in some instances. In one  case, NIST did not begin work on an agreement it entered into in  December 2006 until October 2007—over 300 days later. NIST officials  explained that staff who could perform the work could not start earlier  because they were working on other projects. This suggests that NIST did  not assess whether it had appropriate resources available before accepting  the agreement. In another case, NIST said that it took over 260 days to  establish a relationship with the National Cancer Institute and coordinate  work plans with nine NIST divisions before work could begin for an  agreement. Assessing whether it has appropriate resources available  before accepting an agreement is critical, because long gaps between  when NIST accepts advanced funds from clients and when it begins work  raises concerns about whether an agreement reflects a bona fide need of  the client agency, and may lead to an improper use of appropriated funds  and, as such, noncompliance with fiscal law.
We found two reasons why NIST does not know whether it begins work  within a reasonable period of time. First, the start date in NIST’s financial  system—the system NIST uses to track its interagency agreements—does  not reflect when work actually begins on an agreement. According to  finance division officials, NIST tracks the date that it enters into an  agreement with a client agency; however, we found that this is usually not  the date that work actually begins. NIST also does not electronically track  or monitor the date it received funds advanced from client agencies.  Without monitoring the amount of time that elapsed between when funds  were advanced and when work actually began, NIST cannot know whether  it is starting work within a reasonable period of time.
Second, because NIST manages by project instead of by agreement, it does  not record information about agreements that is important for knowing  whether work begins within a reasonable period of time. For example,  billing information is only tracked at the project level and cumulatively by  fiscal year. When we requested the individual charges for each agreement  to analyze when work began, NIST said it does not manage or review  billing information that way and had to create a special report.  Accordingly, NIST could not provide any billing data for umbrella projects  (see fig. 4 above). Each agreement is funded by different appropriations  and may be conducted under unique authorities and circumstances.  Absent information on billed costs at the agreement level, NIST cannot  determine whether it is starting work within a reasonable period of time  given the facts of each particular agreement.
section_title: Some Interagency Agreement Files Were Incomplete or Contained Incorrect Information
paragraphs: In our case file review, we found that some of NIST’s interagency  agreements were incomplete or included incorrect information. Federal  internal control standards require that transactions be properly authorized  and executed, recorded timely, and documented appropriately. Absent  these types of robust internal controls, NIST cannot provide reasonable  assurance that it is efficiently using its resources and complying with  applicable fiscal laws.
Some agreement files we reviewed lacked documentation of information  needed to provide a complete and accurate record of the agreement as  well as transactions between NIST and client agencies. For example, we  found instances where required documents were not included in the  agreement files. One agreement file we reviewed did not include a  statement of work. At the time NIST and the client agency enter into an  interagency agreement, the client incurs an obligation for the costs of the  work to be performed. However, to properly record an obligation, the  client must have documentary evidence of a binding agreement between  the 2 agencies for specific goods and services. In another example, only  one of the agreements we reviewed documented how NIST handled  unused funds that had been advanced in support of an agreement. Federal  internal control standards require clear documentation of all transactions  and significant events. Moreover, NIST’s processes for closing out  completed agreements require it to return unused funds if they are greater  than $1,000 to the client. Absent clear authority, NIST may not write off  any amount of unearned funds to the working capital fund.
We also found agreement files that incorrectly recorded the dates of when  funds were advanced to NIST from client agencies. One file showed that  NIST accepted advanced funds before a formal interagency agreement  with the agency was in place. Federal agencies are prohibited from  transferring funds for an interagency transaction like orders placed with  NIST without a binding legal agreement. When we asked NIST finance  officials to explain this, they said that the date was recorded in error and  should be 1 year after the date indicated in the file. The corrected date  would indicate that NIST accepted advanced funds after a binding  agreement was in place; however, the error reflects an inaccurate record  of this transaction. Federal internal control standards require an accurate  recording of transactions to maintain their relevance to managers in  controlling operations and making decisions. In another example, the file  incorrectly recorded an advance as having been made 10 months later than  the actual transaction date.
NIST’s Deputy Chief Financial Officer told us that NIST does not maintain  a single consolidated file of all pertinent documents related to each  agreement, and that such information is generally spread among files  maintained by other Operating Units across the agency. Finance division  officials explained that legal and financial documents are kept separately  from program files, which are managed by scientists in the Operating Unit  that accepted the agreement. While we recognize that program managers  may also have a need to maintain separate files for their own purposes,  absent complete, easily accessible agreement files, NIST will have  difficulty monitoring and managing agreements in a manner consistent  with applicable fiscal laws and federal internal control standards.
section_title: NIST Lacks Strategic Workload Management and Client Focus for Its Interagency Agreements
paragraphs: NIST lacks a high-level, senior management focus on managing its  interagency agreement workload. Effective workforce planning strategies  help address an agency’s mission and goals by making the best use of the  government’s most important resource—its people. A key principle of  strategic workforce planning is the effective deployment of staff to achieve  the agency’s mission and goals. NIST places a high priority on its  interagency agreements. However, NIST senior managers play no role in  determining whether the appropriate resources are available agencywide  to support its interagency agreement workload.
NIST’s decentralized workload acceptance process may contribute to  NIST’s having more work than it has the resources to handle. Division  Chiefs—the officials generally responsible for accepting new work—do  not fully consider resource constraints agencywide or include an  assessment of whether NIST has the resources available to begin work  within a reasonable period of time. Even though more than one division  contributes staff or resources to over half of all agreements, Division  Chiefs do not consult with other parts of NIST before accepting work.  Therefore, even if the accepting division or Operating Unit has adequate  resources to begin work within a reasonable time frame, NIST lacks  assurance that the necessary resources are available agencywide. As  previously mentioned, we found several instances where NIST delayed  starting work on agreements because it did not have the available staff or  resources to do the work. Poor use of NIST’s staff and resources may also  have potential legal implications for NIST and its clients, as previously  discussed. Without strategically managing its workload, NIST cannot be  sure that it is effectively managing this high-priority area.
Although NIST shares responsibility with its federal clients for ensuring  the proper use of appropriated funds, it does not sufficiently communicate  to clients important information about the status of work and the use of  these funds—information that would help its clients know whether their  funds are being properly used. For example, it does not provide its clients  with estimated work start dates for each agreement. Agencies strive to  become high-performing service organizations by focusing on client  satisfaction through sustaining high-quality and timely service. Although  NIST’s Administrative Manual discusses the need for a coordinator to  serve as the principal contact with each client agency, officials told us this  position does not exist nor does anyone currently perform those duties.  Such a coordinator could communicate important information—including  when NIST expects to begin work on agreements—that would better  inform client decisions about how best to use their appropriated funds.
section_title: Conclusions
paragraphs: Funds advanced in support of interagency agreements are the biggest  driver of the carryover balance in NIST’s working capital fund. Although  some carryover is to be expected, insufficient management of interagency  agreements can lead to inefficient use of federal resources. NIST does not  monitor the period of availability of appropriations advanced from client  agencies and therefore cannot ensure that funds are legally available when  it bills against them. If NIST were to use funds after the account closes, the  client agency would be required to transfer currently available funds to  NIST. Additionally, NIST does not track or monitor when it actually begins  work on agreements, nor does it have a standard for what it considers a  reasonable time frame for starting work. NIST’s decentralized approach to  accepting agreements results in no consideration given to whether the  necessary resources exist agencywide to start work within a reasonable  time frame. Further, our case-file review found agreements that were  incomplete or included incorrect information. As such, NIST will have  difficulty ensuring that it has entered into binding legal agreements and is  managing them in a manner consistent with applicable fiscal laws and  federal internal control standards. NIST and its client agencies have joint  responsibility for ensuring that amounts advanced to NIST in support of  NIST’s technical service to federal clients are used in accordance with  fiscal requirements; however, we found weaknesses in NIST’s processes in  these areas. For example, NIST lacks an identified legal basis for NIST’s  policy of writing off unearned funds less than $1,000. Absent  improvements in how NIST tracks and monitors its interagency  agreements, client agencies and the Congress will lack assurance that  these requirements are being met.
Although NIST designates interagency agreements as an agency priority, it  lacks a strategic focus and oversight for how its resources are deployed in  support of this important work. Further, NIST shares responsibility with  its client agencies for ensuring the proper use of federal funds advanced to  it. Because NIST does not monitor and communicate clearly and  consistently the status and progress of its interagency agreements, both  parties lack important information that would help ensure compliance  with applicable fiscal requirements.
section_title: Recommendations for Executive Action
paragraphs: To improve the management of NIST interagency agreements and provide  reasonable assurance that NIST is efficiently using its resources and  complying with applicable fiscal laws, we recommend that the Secretary  of Commerce direct the NIST Director to take the following five actions:  (1) To help ensure efficient, effective deployment of NIST’s workforce and  be a responsible steward of federal resources, hold senior management  accountable for strategically managing its interagency agreements. This  includes periodic senior management involvement in reviewing whether  NIST has the appropriate resources to begin and perform new and existing  work.  (2) To meet its responsibilities in ensuring the proper use of federal funds,  (a) develop, implement, and communicate to its clients policies regarding  reasonable time frames for beginning work on interagency agreements; (b)  track and monitor the work start date for each agreement; and (c) monitor  and report internally, and periodically inform federal clients about, the  amount of time elapsed between when funds were advanced to it from  client agencies and when it actually began billing against an agreement.  For example, NIST could provide estimated work start dates for each  agreement based on agencywide resource considerations; devise a  notification system that would indicate when work has not begun within a  certain time frame and provide the date work actually began; or  periodically provide clients with a report detailing the balance of unbilled  funds as the account closing date approaches.  (3) To help guard against the use of cancelled appropriations,  electronically record and monitor key information about the period of  availability of appropriations advanced to NIST from client agencies.  (4) To provide reasonable assurance that its interagency agreements are  complete, accurate, and constitute a binding legal agreement, create,  document, and implement a robust fiscal and legal review process for  interagency agreements. This could include (a) developing and delivering  periodic training to staff involved in accepting, processing, managing, and  overseeing interagency agreements on how to appropriately accept,  process, review, and monitor its interagency agreements and (b)  maintaining complete, accurate, and easily accessible files for all  agreements.  (5) To comply with fiscal law, NIST should review its close-out policies  regarding returning unearned funds to client agencies and adjust its  accounts accordingly.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Director of NIST. The agency  provided us with written comments which are summarized below and  reprinted in appendix III.
NIST concurred with our findings and all five of our recommendations.  For each recommendation NIST described corrective actions it is taking.  NIST expects to fully implement these actions by September 30, 2011.  NIST also provided technical comments which we incorporated in the  report as appropriate.
In its comments, NIST stated that it immediately began revising its  interagency agreement operating procedures and related financial  management policies and practices in response to Commerce’s  clarification of the policy on which these procedures were based. NIST  said that it provided documentation on these policies and procedures for  our review but that we did not examine them as a part of our audit. We  note that Commerce clarified its policy in February 2010 and that NIST  provided us with information about its proposed changes in August 2010 at  the exit conference for this engagement. We responded that we would  include the existence of the new policies in our report (see appendix I for  a summary of these changes) but since NIST chose not to provide this  information until the end of our review, we would be unable to determine  what effect the new policies may have.
NIST also stated that the 1983 legal opinion upon which the operating and  financial policies of its interagency agreement were based has not been  disputed until recently and that the propriety of its treatment of  interagency agreement funding has never been in question. We note that a  2004 Commerce Office of Inspector General review of NIST questioned the  1983 Commerce opinion and raised numerous concerns regarding the  agency’s management of interagency agreements.
We are sending copies of this report to the Secretary of Commerce, the  NIST Director, and other interested parties. The report is available at no  charge on the GAO Web site at http://www.gao.gov. If you or your staff  have any questions regarding this report, please contact me at   (202) 512-6806 or by e-mail at fantoned@gao.gov. Contact points for our  Congressional Relations and Public Affairs may be found on the last page  of this report. Major contributors to this report are listed in appendix IV.
section_title: Appendix I: Proposed Changes to NIST’s Interagency Agreement Process
paragraphs: In August 2010, the National Institute of Standards and Technology (NIST)  provided information about the steps it is taking to improve the overall  internal control of interagency agreements and funding it receives, as a  result of our review. From March to May 2010, the Department of  Commerce’s (Commerce) Office of General Counsel, General Law  Division, and NIST’s Office of General Counsel reviewed all of NIST’s  interagency agreements. They conducted a legal review of all agreements,  evaluated existing processes, and created new procedures through the  development of checklists and interagency agreement templates. Further,  NIST began to communicate these changes through town hall meetings  and trainings with Operating Unit staff.
NIST officials told us that Commerce is still reviewing these changes and  they have not yet approved or finalized these processes. Nevertheless, our  review of the interim trainings and draft documents indicate that NIST is  taking steps to help ensure its interagency agreements comply with fiscal  laws. Some changes include the following:    Documenting time limitations on the use of federal funds. NIST  agreements are required to include the Treasury Account Symbol (TAS)  code, which indicates the period of availability of appropriations. Draft  agreement templates include a placeholder for both the TAS code and the  date of expiration. Additionally, the review checklists specifically ask for  the inclusion of this information. The expiration date should also be  included in NIST’s financial management system for tracking purposes.
Documenting NIST criteria for accepting work. NIST agreements are  required to cite the specific authorization or criteria for entering into  interagency agreements, as required by the agency’s Administrative  Manual. The draft review checklist also requires the inclusion of this  justification in agreement files.
Clarifying the bona fide needs rule and its accounting implications.
Commerce’s trainings discuss the bona fide needs rule and how it applies  to the different types of services that NIST provides. The training also  provides information about the accounting implications of the bona fide  needs rule as well as obligation requirements as it relates to this rule.
Clarifying the legal review process. The training materials preview a  legal review process as well as specific roles and responsibilities for  administering interagency agreements. Commerce’s General Law Division  is to document legal clearance for certain agreements through a  concurrence memo that includes such information as the period of  availability of funds advanced to NIST and programmatic authorities.  Finance division and Operating Unit staff are also involved in the legal  review process.
section_title: Appendix II: Simple Random Sample of Interagency Agreements
paragraphs: Because the National Institute of Standards and Technology (NIST) does  not record when it began work on its interagency agreements, we  determined the start date for a sample of its agreements. We drew an  initial simple random sample of 80 agreements from NIST’s 354  interagency agreements with federal clients spanning more than 1 fiscal  year that began after October 1, 2003, and were completed by September  30, 2009. From this initial sample, cost information was not available for  16 records. We drew an additional sample of 15 agreements and achieved a  target sample of 76 agreements. Three of the additional 15 records did not  have cost information associated with them and therefore we did not  include them in our analysis.
We assessed the reliability of NIST’s interagency agreement data by  performing electronic testing of the data for missing data, outliers, and  obvious errors; reviewing documentation from the system, such as screen  shots and training materials; and interviewing knowledgeable agency  officials about how primary users enter data into the system and the  internal control steps taken by NIST to ensure data reliability. Given this  information, we determined that the data were sufficiently reliable for the  purposes of this report.
For in-depth case-file reviews, we selected 11 agreements that did not  begin in the fiscal year in which the agreement was accepted and work  that (1) began more than 268 days after the agreement was signed (which  represents the average time it took for NIST to begin work on agreements  that did not begin in the fiscal year during which NIST accepted them); or  (2) had a carryover balance greater than $1.
section_title: Appendix III: Comments from the National Institute of Standards and Technology
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jacqueline M. Nowicki, Assistant  Director, and Shirley Hwang, Analyst-in-Charge, managed this assignment.  Jeffrey Heit, Travis Hill, Felicia Lopez, Julia Matta, Leah Q. Nash,   Rebecca Rose, and Kan Wang made major contributions. Sheila Rajabiun  provided legal assistance. Susan Baker, Jean McSween, and Dae Park  provided sample design and methodological assistance.