Program Identification
Finding Reference Number:
F-2024-001
Assistance Listing Number: 97.091
Federal Program Titles: Homeland Security Biowatch Program (Significant Deficiency)
Awarding Agency / Pass-Through Entity: Department of Homeland Security
Award Number: 06OHBIO00002 (Formerly: 2006-ST-091-000002)
Compliance Requirement:
Activities Allowed or Unallowed and Allowable Costs/Cost Principles
Criteria
The criteria for the findings and questioned costs were based on 2 CFR § 200.459, Professional Service Costs, and Bay Area Air Quality Management District’s ("the District”) Professional Services Contract No. 2023.122.
2 CFR § 200.459, paragraph (b)(8), Professional Service Costs, requires:
(a) Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the recipient or subrecipient are allowable, subject to paragraphs (b) and (c) of this section when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government. In addition, legal and related services are limited under § 200.435.
(b) In determining the allowability of costs in a particular case, no single factor or any combination of factors is necessarily determinative. However, the following factors are relevant:
(1) The nature and scope of the service rendered in relation to the service required.
(2) The necessity of contracting for the service, considering the recipient's or subrecipient's capability in the particular area.
(3) The past pattern of such costs, particularly in the years prior to receiving a Federal award(s).
(4) The impact of Federal awards on the recipient's or subrecipient's business (meaning, what new problems have arisen).
(5) Whether the proportion of Federal work to the recipient's or subrecipient's total business influences the recipient or subrecipient in favor of incurring the cost, particularly where the services rendered are not of a continuing nature and have little relationship to work under Federal awards.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
Criteria (continued)
(6) Whether the service can be performed more economically by direct employment rather than contracting.
(7) The qualifications of the individual or entity providing the service and the customary fees charged, especially on non-federally funded activities.
(8) Adequacy of the contractual agreement for the service (for example, description of the service, estimate of the time required, rate of compensation, and termination provisions).
(c) To be allowable, retainer fees must be supported by evidence of bona fide services available or rendered in addition to the factors in paragraph (b) of this section.
In addition, the District’s Professional Services Contract No. 2023.122, paragraph (8)(a) and (b), require:
8. Payment
a. District shall pay Contractor for services in accordance with the terms set forth in the Cost Schedule, which is attached hereto as Attachment B and incorporated herein by this reference.
b. Contractor shall submit invoice(s) to District for services performed. Each invoice shall specify the total cost of the services for which the invoice is submitted, shall reference tasks shown in the Scope of Work, the hours associated with same, or percentage completion thereof, and the amount of charge claimed, and, as appropriate, shall list any charges for equipment, material, supplies, travel, and subcontractors’ services.
Furthermore, paragraph (12)(c) and (d) require:
12. Employees of Contractor
a. Contractor shall be responsible for the cost of regular pay to its employees, as well as cost of vacation leave, vacation replacements, sick leave, severance pay, and pay for legal holidays.
b. Contractor, its officers, employees, agents, or representatives shall not be considered employees or agents of District, nor shall Contractor, its officers, employees, agents, or representatives be entitled to or eligible to participate in any benefits, privileges, or plans, given or extended by District to its employees.
c. Contractor shall assign those employees listed in the Cost Schedule to perform work under this Contract. Contractor shall not assign different employees to perform this work without the express written permission of District, which District will not unreasonably withhold.
d. District reserves the right to review the credentials to perform the work of any of Contractor’s employees assigned herein and to disapprove Contractor’s assignments. Contractor warrants that it will not employ any subcontractor(s) without prior written approval from District, which District will not unreasonably withhold.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
Criteria (continued)
Regarding direct costs and expenses, Attachment B (“Cost Schedule”) of the District’s professional services contract, further requires:
District will also reimburse Contractor for reasonable and necessary expenses incurred in conjunction with the work performed under this Contract (e.g., hardware parts and supplies), including reasonable travel expenses in accordance with the District’s travel reimbursement policy attached hereto as Attachment C, and any administrative costs and expenses (e.g., rent and utility costs for office space). Reimbursable expenses such as project specific supplies and materials will be charged at cost. Contractor’s invoices shall include a line item reflecting all direct costs and expenses.
Condition
As part of our compliance review over program expenditures, we selected a sample of expenditures to determine whether costs were allowable under program regulations, accurately charged, and appropriately supported in accordance with 2 CFR § 200.459, paragraph (b)(8), and the District’s Professional Services Contract No. 2023.122, Attachment B (“Cost Schedule”).
In our sample of twelve (12) expenditures, we identified eight (8) discrepancies in the eleven (11) contractor-submitted invoices when compared to the approved cost schedule per the Agreement with the contractor, as follows:
1. Professional service fees were charged for two (2) positions not listed in the cost schedule, and
2. Professional service fees were charged for six (6) positions in excess of the hourly rate established in the cost schedule.
The identified discrepancies resulted in an overstatement of program expenditures, amounting to $9,316 of the $1,387,774 sampled, from a total of $1,424,920 in program expenditures.
Additionally, the contractor received reimbursement for travel and supplies without providing sufficient documentation to the District to demonstrate compliance with 2 CFR § 200.459, paragraph (b)(8), the District’s Professional Services Contract No. 2023.122, Attachment B (“Cost Schedule”), and Attachment C (“Contractor Travel Policy”). The reimbursements lacked adequate support to verify that the expenses were reasonable, necessary, and directly related to the contracted professional services.
As a result of our inquiry, the District obtained documentation supporting all travel and supply reimbursements associated with the submitted invoices by the contractor during Fiscal Year 2024. Based on the submitted documentation, the District concluded that the support was sufficient to demonstrate compliance with the noted requirements.
Our samples were statistically valid and representative of the overall expenditures.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
Cause and Effect
The deviations from the approved cost schedule indicate that the contractor did not adhere to the District’s professional services contract. Charges for professional services did not align with the cost schedule outlined in the professional services contract, resulting in unallowable and excessive costs due to insufficient review of the contractor invoices prior to payment.
Changes to the cost schedule should be pre-approved by the District; however, the required approvals were not obtained before payments were processed.
Further, the District lacked adequate oversight to ensure that contractor reimbursements for travel and supplies were properly supported with documentation and aligned with federal and contractual requirements. Such documentation should be submitted by the contractor along with the invoice in order for the District to review and approve prior to payment.
Without proper documentation, the District cannot verify that reimbursed travel and supplies are reasonable, necessary, and directly related to the contracted professional services.
Questioned Costs
The total costs related to the conditions mentioned above include a $3,486 overstatement for charges related to positions not listed in the cost schedule and a $5,830 overstatement due to hourly rates charged in excess of the cost schedule, totaling $9,316.
Recommendation
We recommend that the District establish and implement a formal approval process for expenditures to ensure all charges are thoroughly reviewed and verified against contract terms before payment. Additionally, the District should conduct a detailed analysis of all payments made against the approved cost schedule to identify and reconcile any variances, determining the total amount of excessive charges.
The District should also coordinate with the contractor to recover any overcharges, either through a credit or refund, to ensure federal funds are properly accounted for and used in accordance with the professional services contract.
To strengthen oversight and compliance, the District should enhance its internal controls by maintaining detailed records that support cost approvals, modifications, and contract adherence. This includes requiring contractors to submit detailed supporting documentation such as itemized receipts, travel justifications, and proof of business necessity before reimbursements are processed.
Furthermore, the District should provide adequate and ongoing training to staff and contractors on proper documentation standards and allowable costs under 2 CFR § 200.459 and the District’s contract terms, to prevent future instances of noncompliance.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
View of Responsible Officials and Corrective Action Plan
Air District Management concurs with the recommendation under Finding Reference Number F-2024-001. Upon review of the supporting travel expense documentation, management has found no discrepancies. Moving forward, the Air District will continue to ensure that all supporting travel documentation agrees with the corresponding invoices to maintain compliance and accuracy.
Regarding the overstatement of program expenditures, the Air District will initiate the recovery of the identified overcharges by deducting the amount from future reimbursement requests submitted to the Department of Homeland Security (DHS). Specifically, the Air District plans on recovering the $9,316 in overcharges from the contractor for fiscal year ending June 30, 2024. Additionally, the Air District is in the process of reviewing Fiscal Year 2025 invoices to identify any potential overcharges and will request reimbursement from the contractor, as necessary.
To strengthen oversight and compliance, the Air District has begun implementing process changes as of February 2025. These changes ensure that consultant invoices align with the terms of the Air District’s contract prior to approval and payment processing.
Name: Daniel Meer
Title: Manager, Government Outreach & Special Projects
Email: dmeer@baaqmd.gov
Program Identification
Finding Reference Number:
F-2024-001
Assistance Listing Number: 97.091
Federal Program Titles: Homeland Security Biowatch Program (Significant Deficiency)
Awarding Agency / Pass-Through Entity: Department of Homeland Security
Award Number: 06OHBIO00002 (Formerly: 2006-ST-091-000002)
Compliance Requirement:
Activities Allowed or Unallowed and Allowable Costs/Cost Principles
Criteria
The criteria for the findings and questioned costs were based on 2 CFR § 200.459, Professional Service Costs, and Bay Area Air Quality Management District’s ("the District”) Professional Services Contract No. 2023.122.
2 CFR § 200.459, paragraph (b)(8), Professional Service Costs, requires:
(a) Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the recipient or subrecipient are allowable, subject to paragraphs (b) and (c) of this section when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government. In addition, legal and related services are limited under § 200.435.
(b) In determining the allowability of costs in a particular case, no single factor or any combination of factors is necessarily determinative. However, the following factors are relevant:
(1) The nature and scope of the service rendered in relation to the service required.
(2) The necessity of contracting for the service, considering the recipient's or subrecipient's capability in the particular area.
(3) The past pattern of such costs, particularly in the years prior to receiving a Federal award(s).
(4) The impact of Federal awards on the recipient's or subrecipient's business (meaning, what new problems have arisen).
(5) Whether the proportion of Federal work to the recipient's or subrecipient's total business influences the recipient or subrecipient in favor of incurring the cost, particularly where the services rendered are not of a continuing nature and have little relationship to work under Federal awards.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
Criteria (continued)
(6) Whether the service can be performed more economically by direct employment rather than contracting.
(7) The qualifications of the individual or entity providing the service and the customary fees charged, especially on non-federally funded activities.
(8) Adequacy of the contractual agreement for the service (for example, description of the service, estimate of the time required, rate of compensation, and termination provisions).
(c) To be allowable, retainer fees must be supported by evidence of bona fide services available or rendered in addition to the factors in paragraph (b) of this section.
In addition, the District’s Professional Services Contract No. 2023.122, paragraph (8)(a) and (b), require:
8. Payment
a. District shall pay Contractor for services in accordance with the terms set forth in the Cost Schedule, which is attached hereto as Attachment B and incorporated herein by this reference.
b. Contractor shall submit invoice(s) to District for services performed. Each invoice shall specify the total cost of the services for which the invoice is submitted, shall reference tasks shown in the Scope of Work, the hours associated with same, or percentage completion thereof, and the amount of charge claimed, and, as appropriate, shall list any charges for equipment, material, supplies, travel, and subcontractors’ services.
Furthermore, paragraph (12)(c) and (d) require:
12. Employees of Contractor
a. Contractor shall be responsible for the cost of regular pay to its employees, as well as cost of vacation leave, vacation replacements, sick leave, severance pay, and pay for legal holidays.
b. Contractor, its officers, employees, agents, or representatives shall not be considered employees or agents of District, nor shall Contractor, its officers, employees, agents, or representatives be entitled to or eligible to participate in any benefits, privileges, or plans, given or extended by District to its employees.
c. Contractor shall assign those employees listed in the Cost Schedule to perform work under this Contract. Contractor shall not assign different employees to perform this work without the express written permission of District, which District will not unreasonably withhold.
d. District reserves the right to review the credentials to perform the work of any of Contractor’s employees assigned herein and to disapprove Contractor’s assignments. Contractor warrants that it will not employ any subcontractor(s) without prior written approval from District, which District will not unreasonably withhold.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
Criteria (continued)
Regarding direct costs and expenses, Attachment B (“Cost Schedule”) of the District’s professional services contract, further requires:
District will also reimburse Contractor for reasonable and necessary expenses incurred in conjunction with the work performed under this Contract (e.g., hardware parts and supplies), including reasonable travel expenses in accordance with the District’s travel reimbursement policy attached hereto as Attachment C, and any administrative costs and expenses (e.g., rent and utility costs for office space). Reimbursable expenses such as project specific supplies and materials will be charged at cost. Contractor’s invoices shall include a line item reflecting all direct costs and expenses.
Condition
As part of our compliance review over program expenditures, we selected a sample of expenditures to determine whether costs were allowable under program regulations, accurately charged, and appropriately supported in accordance with 2 CFR § 200.459, paragraph (b)(8), and the District’s Professional Services Contract No. 2023.122, Attachment B (“Cost Schedule”).
In our sample of twelve (12) expenditures, we identified eight (8) discrepancies in the eleven (11) contractor-submitted invoices when compared to the approved cost schedule per the Agreement with the contractor, as follows:
1. Professional service fees were charged for two (2) positions not listed in the cost schedule, and
2. Professional service fees were charged for six (6) positions in excess of the hourly rate established in the cost schedule.
The identified discrepancies resulted in an overstatement of program expenditures, amounting to $9,316 of the $1,387,774 sampled, from a total of $1,424,920 in program expenditures.
Additionally, the contractor received reimbursement for travel and supplies without providing sufficient documentation to the District to demonstrate compliance with 2 CFR § 200.459, paragraph (b)(8), the District’s Professional Services Contract No. 2023.122, Attachment B (“Cost Schedule”), and Attachment C (“Contractor Travel Policy”). The reimbursements lacked adequate support to verify that the expenses were reasonable, necessary, and directly related to the contracted professional services.
As a result of our inquiry, the District obtained documentation supporting all travel and supply reimbursements associated with the submitted invoices by the contractor during Fiscal Year 2024. Based on the submitted documentation, the District concluded that the support was sufficient to demonstrate compliance with the noted requirements.
Our samples were statistically valid and representative of the overall expenditures.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
Cause and Effect
The deviations from the approved cost schedule indicate that the contractor did not adhere to the District’s professional services contract. Charges for professional services did not align with the cost schedule outlined in the professional services contract, resulting in unallowable and excessive costs due to insufficient review of the contractor invoices prior to payment.
Changes to the cost schedule should be pre-approved by the District; however, the required approvals were not obtained before payments were processed.
Further, the District lacked adequate oversight to ensure that contractor reimbursements for travel and supplies were properly supported with documentation and aligned with federal and contractual requirements. Such documentation should be submitted by the contractor along with the invoice in order for the District to review and approve prior to payment.
Without proper documentation, the District cannot verify that reimbursed travel and supplies are reasonable, necessary, and directly related to the contracted professional services.
Questioned Costs
The total costs related to the conditions mentioned above include a $3,486 overstatement for charges related to positions not listed in the cost schedule and a $5,830 overstatement due to hourly rates charged in excess of the cost schedule, totaling $9,316.
Recommendation
We recommend that the District establish and implement a formal approval process for expenditures to ensure all charges are thoroughly reviewed and verified against contract terms before payment. Additionally, the District should conduct a detailed analysis of all payments made against the approved cost schedule to identify and reconcile any variances, determining the total amount of excessive charges.
The District should also coordinate with the contractor to recover any overcharges, either through a credit or refund, to ensure federal funds are properly accounted for and used in accordance with the professional services contract.
To strengthen oversight and compliance, the District should enhance its internal controls by maintaining detailed records that support cost approvals, modifications, and contract adherence. This includes requiring contractors to submit detailed supporting documentation such as itemized receipts, travel justifications, and proof of business necessity before reimbursements are processed.
Furthermore, the District should provide adequate and ongoing training to staff and contractors on proper documentation standards and allowable costs under 2 CFR § 200.459 and the District’s contract terms, to prevent future instances of noncompliance.
BAY AREA AIR QUALITY MANAGEMENT DISTRICT
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2024
View of Responsible Officials and Corrective Action Plan
Air District Management concurs with the recommendation under Finding Reference Number F-2024-001. Upon review of the supporting travel expense documentation, management has found no discrepancies. Moving forward, the Air District will continue to ensure that all supporting travel documentation agrees with the corresponding invoices to maintain compliance and accuracy.
Regarding the overstatement of program expenditures, the Air District will initiate the recovery of the identified overcharges by deducting the amount from future reimbursement requests submitted to the Department of Homeland Security (DHS). Specifically, the Air District plans on recovering the $9,316 in overcharges from the contractor for fiscal year ending June 30, 2024. Additionally, the Air District is in the process of reviewing Fiscal Year 2025 invoices to identify any potential overcharges and will request reimbursement from the contractor, as necessary.
To strengthen oversight and compliance, the Air District has begun implementing process changes as of February 2025. These changes ensure that consultant invoices align with the terms of the Air District’s contract prior to approval and payment processing.
Name: Daniel Meer
Title: Manager, Government Outreach & Special Projects
Email: dmeer@baaqmd.gov