Federal Mediation and Conciliation Service--Propriety of, B-

B-257823 Jan 22, 1998 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights GAO commented on the propriety of charges made by the Financial Management Service (FMS) for technical assistance provided to the Federal Mediation and Conciliation Service in fiscal years 1993 and 1994 under reimbursable agreements entered into pursuant to the Economy Act. GAO noted that: (1) FMS estimated the amount of time its employees spent on administrative and other matters not directly chargeable to any one of its customers using historical data on workloads; and (2) FMS's methodology was not inconsistent with the requirements of the Economy Act. View Decision Matter of: Federal Mediation and Conciliation Service--Propriety of Financial Management Service Charges Under the Economy Act File: B-257823 Date: January 22, 1998   DIGEST The Federal Mediation and Conciliation Service (FMCS) claims that Financial Management Service (FMS) overestimated the amount of time FMS employees spend on administrative and other matters that FMS charges to all customers as an indirect cost for work performed pursuant to the Economy Act, 31 U.S.C. § 1535. As a result, according to FMCS, FMS charges all of its customers for employee time properly chargeable to, and payable by, identifiable customers. GAO's role is not to recompute FMS's standard hourly rate but to assess its general accuracy as a means to recover "actual costs" consistent with the dictates of the Economy Act. FMS estimates the amount of time its employees spend on administrative and other matters not directly chargeable to any one of its customers using historical data on actual levels of work performed, administrative workload, and lead time between customers, as well as estimates of anticipated workload growth. Based on our review of FMS's methodology, we have no basis to conclude that FMS's estimate is inconsistent with the requirements of the Economy Act. DECISION The Director of Budget and Finance, Federal Mediation and Conciliation Service (FMCS), requested our opinion on the propriety of charges made by the Financial Management Service (FMS), Department of the Treasury, for technical assistance provided in fiscal years 1993 and 1994 under reimbursable agreements entered into pursuant to the Economy Act, 31 U.S.C. Sec. 1535. The Economy Act requires agencies to recover the actual cost of goods and services provided. 31 U.S.C. Sec. 1535(b). FMCS questions the methodology used by FMS to calculate its charges. FMCS asserts that FMS charges were in excess of actual cost because FMS charged FMCS (as indirect costs) costs that were properly chargeable to other FMS customers. For the reasons stated below, we do not object to FMS's methodology for calculating costs. Background FMS provides accounting services to agencies and organizations on a reimbursable basis. For this purpose, FMS established the Center for Applied Financial Management (Center). The Center is a separate unit within FMS with its own staff, equipment and space. Its sole purpose is to perform work and provide services to its customers. FMS agreed to help FMCS develop an administrative accounting system and to provide implementation support under a memorandum of understanding (MOU) and three reimbursable agreements entered into in July and August, 1993. The MOU required FMCS to reimburse FMS for the actual costs of Center personnel assigned to the project, and other costs incurred in providing the services. FMS charged FMCS a total of $194,846 under the agreements. FMCS has questioned the methodology used by FMS to calculate its costs in performing under the MOU. While FMS can track direct costs chargeable to any given project, it needs to allocate indirect costs, including overhead, attributable to a project. FMS uses standard hourly rates to capture, and bill, direct and indirect costs associated with personnel assigned to a project. FMS premised its methodology for establishing its standard hourly rates on the presumption that all of the Center's costs of operation are chargeable to the Center's customers. Since FMS established the Center as a separate and self- sufficient unit within FMS for this very reason, FMS charges all of the Center's costs of operation to customers either as direct or indirect costs. To arrive at a standard hourly rate, FMS identifies all of its "billable employees" and categorizes each by grade. FMS calculates a standard hourly rate for each general schedule grade to reflect both direct and indirect costs. It defines direct costs, generally, as the salaries and benefits of its billable employees. Billable employees are those of its staff who work directly on projects and whose time is charged directly to projects, as opposed to management and support staff who do not charge their time to specific projects.