In 1992, DOD was the first federal agency authorized to offer buyouts to its employees, and it has been using buyouts since January 1993 to reduce the size of its workforce. On March 30, 1994, the FWRA authorized buyouts for other executive agencies and amended DOD’s authority. For both DOD and other executive agencies, employees generally were offered a buyout payment that was the lesser of $25,000 or their severance pay entitlement. According to OPM, in fiscal year 1996, $24,833 was the average buyout amount for regular optional retirements; $24,949 was the average for early retirements; and $14,499 was the average for resignations. The legislation granting DOD its initial buyout authority in 1992 did not impose any buyout-related conditions or repayment provision on buyout recipients who were reemployed by the federal government. However, DOD’s policy was that it would not rehire DOD buyout recipients within 1 year of their separation, unless an exception was approved by a high-level DOD official. In 1994, the FWRA required buyout recipients from federal agencies that were under the act’s authority, including DOD, to repay their buyouts if they returned to federal employment within 5 years of their separation. DOD buyout recipients had to repay their buyouts if they were reemployed as civil servants, but not if they were reemployed under personal services contracts. Non-DOD buyout recipients had to repay their buyouts if they returned directly to federal employment or if they were employed under a contract that was expressly identified or administered as a personal services contract. Also, under the FWRA, buyout recipients who were obligated to repay their buyouts could do so after an agency hired them. However, the agency rehiring the buyout recipient could seek a repayment provision waiver for the employee from OPM, in certain situations. Under new buyout authority enacted in 1996, the repayment provision was changed. Among other things, employees who accept buyouts under the 1996 authority must repay the entire buyout before their first day of federal reemployment, and there is no authority for waivers. Congress also passed other laws providing specific statutory authority for repaying buyouts for employees in selected agencies. The agency-specific buyout authorizations generally require that recipients repay their buyouts if they rejoin the federal workforce. In addition, under the time frames of the current buyout laws, agencies will need to verify buyout recipients’ compliance with repayment provisions through 2006. (See app. I for additional information on selected buyout laws enacted from 1992 to 1997.) “(1) performance on site; (2) the principal tools and equipment are furnished by the government; (3) the services are applied directly to the integral effort of agencies or agency components to further their assigned function or mission; (4) the performance of comparable services and the meeting of comparable needs in the same or similar agencies using civil service personnel; (5) the need for the type of service provided can reasonably be expected to last beyond 1 year; (6) the requirement of government direction or supervision of contractor employees because of the inherent nature of the service, or the manner in which it is provided, in order to adequately protect the government’s interest, retain control of the function involved, or retain full personal responsibility for the function supported in a duly authorized federal officer or employee.” The FAR also states that the key question to consider in determining whether a personal services contract exists is the following: Will the government exercise relatively continuous supervision and control over the contract personnel performing the contract? From January 1993 to June 1995, OPM’s CPDF data showed that 87,743 federal employees took buyouts and that federal agencies reemployed 394 of the buyout recipients as civil servants. However, according to CPDF data as of September 1996, the number of employees who had accepted buyouts grew to 128,467, or an additional 40,724 employees. The number of buyout recipients who are working as contractors to federal agencies or as contractor employees is unknown because no governmentwide data are available. To gather information concerning the 23 buyout recipients who were discussed in our October 1996 letter, we sent letters on November 8, 1996, to the OIGs of the 9 federal agencies identified in OPM’s CPDF data as employing these individuals. We asked the OIGs whether the buyout recipients had returned to federal employment and, if so, whether they had repaid the buyout or met DOD’s reemployment policy. We limited the scope of our work to the buyout recipients who were reemployed as federal employees between January 1993 and June 1995. Among other things, our letters to the OIGs identified the buyout recipients by name and social security number and asked specific questions concerning their reemployment. We asked the OIGs to review the 23 buyout recipient cases, provide us with information concerning the clarification of conflicting data and apparent violations, and take any needed action, as appropriate. In cooperation with the OIG offices, we contacted selected federal agencies’ personnel officials about the status of some cases. We also followed up with the OIGs and agency personnel officials by providing them with additional information, such as detailed case information and OPM documentation. To determine if the 9 federal agencies that were identified in the CPDF data as employing the 23 buyout recipients had internal control procedures in place to provide a reasonable assurance of compliance with buyout reemployment requirements, we asked the agencies to provide us with copies of these procedures. Specifically, we asked the agencies for copies of their internal control procedures on the reemployment of buyout recipients either as members of the civil service or as personal services contract employees. To determine whether other selected agencies had internal control procedures for the reemployment of buyout recipients under personal services contracts, we first had to decide which agencies to select for the review. To do so, we reviewed OPM’s August 1996 interim report to Congress on the reemployment of buyout recipients. In that report, OPM said that none of the agencies in its review reported cases involving buyout recipients’ returning to work under personal services contracts, but that several agencies reported having completed or having begun reviews and follow-ups of their contracting arrangements. In its report, OPM identified DOD and DOT as having conducted reviews of their contracting arrangements and GSA as having a review under way. DOD reported to OPM that it had not reemployed any buyout recipients under personal services contracts. However, OPM asked DOD to provide an updated report because DOD had looked only at DOD buyout recipients and not recipients from other agencies. As a result, we excluded DOD from our review of this matter. We decided to review the OIG audit reports of DOTand GSA to (1) gain an understanding of the experiences agencies have had with buyout recipients’ being hired under personal services contracts and (2) learn what kind of internal control procedures may be applicable. Because governmentwide data on buyout recipients hired under personal services contracts do not exist and because of time constraints, we limited the part of our review concerning internal controls for personal services contracts to the agencies that had the two OIG audits. We also obtained OPM’s 1994 and 1996 written guidance as well as OPM’s list of possible options that agencies could take to help ensure compliance with the buyout repayment provision, and we discussed this guidance with OPM officials. We did our review in Washington, D.C., from October 1996 to October 1997 in accordance with generally accepted government auditing standards. We provided a draft of this report to the Director of OPM and to the heads of the 9 agencies identified as employing the 23 buyout recipients in our review and requested their comments. These comments are discussed at the end of this report. Of the 23 cases that we asked the OIGs to examine, the agencies confirmed that 9 cases violated FWRA’s repayment provision and that 2 cases violated DOD’s reemployment policy. The remaining 12 cases were not violations, but they were identified in the CPDF because of inaccurate data. Also, one additional case of reemployment of a buyout recipient without repayment was found by the U.S. Department of Agriculture’s (USDA) OIG while researching the case about which we asked. In addition, OPM found FWRA repayment provision violations in two other research efforts it undertook, but it is unclear whether these violations are in addition to the violations that we found. The 9 federal agencies identified in the CPDF data as employing the 23 buyout recipients provided information showing that a violation of FWRA’s repayment provision or DOD’s policy had occurred in 11 of the 23 cases. (See app. II for the employment status of the 23 buyout recipient cases, by federal agency.) The agencies reported that in 9 of the 11 cases, FWRA’s repayment provision was violated. These agencies also reported that they hired the nine buyout recipients without seeking repayment of the buyout. The remaining two cases were violations of DOD’s reemployment policy, which did not require buyout repayment. After determining that a violation had occurred, the agencies varied in how they responded. In general, they based their actions on whether they still employed the buyout recipient. For example, of the nine cases with violations of FWRA’s repayment provision, six cases involved individuals who were still employed, and the hiring agencies arranged for the buyout recipients to make repayments.