[Federal Register Volume 71, Number 88 (Monday, May 8, 2006)]
[Proposed Rules]
[Pages 26723-26726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-6736]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
48 CFR Part 970
RIN 1991-AB67
Acquisition Regulation: Implementation of DOE's Cooperative Audit
Strategy for Its Management and Operating Contracts
AGENCY: Department of Energy.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Department of Energy (DOE) is proposing to amend the
Department of Energy Acquisition Regulation (DEAR) to revise and expand
policy and requirements for contractor internal audits, through the use
of DOE's Cooperative Audit Strategy. The amendments would ensure that
internal contractor audits are conducted in a manner that ensures
reliability.
DATES: Comments should be submitted on or before July 7, 2006.
ADDRESSES: You may submit comments, identified by RIN number 1991-AB67,
by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include RIN number
1991-AB67 in the subject line of the message.
Mail: Helen Oxberger, Mail Code MA-61, U.S. Department of
Energy, 1000 Independence Avenue, SW., Washington, DC 20585.
FOR FURTHER INFORMATION CONTACT: Helen Oxberger, (202) 287-1332.
SUPPLEMENTARY INFORMATION:
I. Background
II. Section-by-Section Analysis
III. Procedural Requirements
A. Review Under Executive Order 12866
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under the Treasury and General Government
Appropriations Act, 2001
J. Review Under Executive Order 13211
K. Approval by the Office of the Secretary
I. Background
The Department contracts for the management and operation of its
Government owned or controlled research, development, special
production, or testing facilities through the use of management and
operating (M&O) contracts. The Department historically expends
approximately 80% of its annual appropriations through these M&O prime
contracts. Thus, it is imperative for the Department to develop
approaches which permit oversight of M&O expenditures in order for the
Department to satisfy its oversight responsibility and to ensure that
DOE funds are expended on allowable and reasonable costs.
The creation and maintenance of rigorous business, financial, and
accounting systems by contractors are crucial to assuring the integrity
and reliability of the cost data used by the DOE's Chief Financial
Officer (CFO), the Inspector General (IG), and contracting
[[Page 26724]]
officers (COs). To ensure the reliability of these systems, DOE
requires some of its contractors to maintain an internal audit
activity, that is, an internal audit organization, which is responsible
for: (i) Performing operational and financial audits including incurred
cost audits, and (ii) assessing the adequacy of management control
systems.
The Cooperative Audit Strategy is a program that the IG, partnering
with contractors' internal audit groups, the CFO, and the Office of DOE
Procurement and Assistance Management, developed and implemented in
October 1992 to maximize the overall audit coverage of M&O contractors'
operations and to fulfill the IG's responsibility for auditing the
costs incurred by major facilities contractors. The Cooperative Audit
Strategy enhances the DOE's efficient use of available audit resources
by allowing the IG to rely on the work of contractors' internal audit
organization. The IG has adopted the Cooperative Audit Strategy at most
major contractor locations.
The success of the Cooperative Audit Strategy depends on the IG and
contractor internal audit groups working closely with DOE. The
contractor internal audit groups are committed to a continuing
evaluation of the process and have established the Steering Committee
for Quality Auditing to address current issues and implement on-going
improvements.
Currently, the Cooperative Audit Strategy is implemented under an
alternative clause in the Accounts, records, and inspection contract
clause at 970.5232-3. The proposed rule would eliminate the alternative
and amend the contract clause to require the use of the Cooperative
Audit Strategy in all M&O contracts.
II. Section-by-Section Analysis
DOE is proposing to amend the DEAR as follows:
1. Section 970.5203-1, Management controls, paragraph (a)(4) would
be amended by adding a sentence which requires the contractor to
annually, or at other times as directed by the contracting officer,
provide copies of reports on the status of audit recommendations.
2. Section 970.5232-3, Accounts, records, and inspection, would be
amended by removing Alternative II and by adding a new paragraph (i)
which would establish requirements that:
A. Upon contract award, exercise of any contract option, or the
extension of the contract, the contractor shall submit to the
contracting officer an internal audit implementation design. The audit
implementation design would describe (i) the internal audit activity's
placement within the contractor's organization and reporting
requirements; (ii) the size, experience, and educational standards of
the internal audit staff; (iii) the relationship of the internal audit
activity to corporate entities; if any; (iv) the standards to be used
for conducting the audits; (v) the overall internal audit strategy for
the performance period of the contract, considering particularly the
method of auditing costs incurred; (vi) the intended use of external
audit resources; (vii) the plan for internal audits of subcontracts,
both pre- and post-award; and (viii) the schedule for peer reviews.
B. Annually, the contractor shall submit a summary of the previous
fiscal year's internal audits, reflecting the results of those audits,
and actions, proposed or taken to resolve any identified weaknesses.
C. Annually, the contractor shall submit an audit plan for internal
audits for the next fiscal year.
D. All such documents shall be satisfactory to the contracting
officer.
3. Section 970.5232-3 is amended by adding a new paragraph (j)
which states that upon discovery the contractor has claimed unallowable
costs, the contracting officer may (i) direct the contractor to cease
using, in whole or in part, the DOE special financial institution
account, (ii) require a refund, (iii) reduce the contractor's fee, or
(iv) take any other action authorized in law, regulations, or this
contract.
III. Procedural Requirements
A. Review Under Executive Order 12866
This regulatory action has been determined not to be a significant
regulatory action under Executive Order 12866, Regulatory Planning and
Review (58 FR 51735, October 4, 1993). Accordingly, this proposed rule
is not subject to review under the Executive Order by the Office of
Information and Regulatory Affairs (OIRA) within the Office of
Management and Budget.
B. Review Under the Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis for any rule
that by law must be proposed for public comment, unless the agency
certifies that the rule, if promulgated, will not have a significant
economic impact on a substantial number of small entities. As required
by Executive Order 13272, ``Proper Consideration of Small Entities in
Agency Rulemaking'' (67 FR 53461, August 16, 2002), DOE published
procedures and policies to ensure that the potential impacts of its
draft rules on small entities are properly considered during the
rulemaking process (68 FR 7990, February 19, 2003), and has made them
available on the Office of General Counsel's Web site: http://www.gc.doe.gov. DOE has reviewed today's proposed rule under the
provisions of the Regulatory Flexibility Act and the procedures and
policies published on February 19, 2003. The proposed rule would amend
procurement policies that apply only to DOE M&O contracts and would
impact only DOE's M&O contractors none of whom are small entities. This
rule would not have a significant economic impact on small entities. On
the basis of the foregoing, DOE certifies that the proposed rule, if
promulgated, would not have a significant economic impact on a
substantial number of small entities. Accordingly, DOE has not prepared
a regulatory flexibility analysis for this rulemaking.
C. Review Under the Paperwork Reduction Act
Any additional information collection requirements subject to the
Paperwork Reduction Act, 44 U.S.C. 3501 et seq., reflected by today's
regulatory action are insignificant. Existing burdens associated with
the collection of certain contractor compensation data have been
previously cleared under OMB control number 1910-4100 which expires on
April 30, 2008.
D. Review Under the National Environmental Policy Act
DOE has concluded that promulgation of this proposed rule falls
into a class of actions that would not individually or cumulatively
have a significant impact on the human environment, as determined by
DOE's regulations implementing the National Environmental Policy Act of
1969 (42 U.S.C. 4321 et seq.). Specifically, this proposed rule deals
only with agency procedures, and; therefore, is covered under the
Categorical Exclusion in paragraph A6 to subpart D, 10 CFR part 1021.
Accordingly, neither an environmental assessment nor an environmental
impact statement is required.
E. Review Under Executive Order 13132
Executive Order 13132, ``Federalism'' (64 FR 43255, August 4, 1999)
imposes certain requirements on agencies formulating and implementing
policies or regulations that preempt State law or that have federalism
implications. Agencies are required to examine the
[[Page 26725]]
constitutional and statutory authority supporting any action that would
limit the policymaking discretion of the States and carefully assess
the necessity for such actions. The Executive Order also requires
agencies to have an accountability process to ensure meaningful and
timely input by State and local officials in the development of
regulatory policies that have federalism implications. On March 14,
2000, DOE published a statement of policy describing the
intergovernmental consultation process it will follow in the
development of such regulations (65 FR 13735). DOE has examined today's
proposed rule and has determined that it does not preempt State law and
does not have a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. No further action is required by Executive Order 13132.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform'' (61 FR 4729, February 7, 1996), imposes on
Federal agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. Section 3(b) of Executive
Order 12988 specifically requires that Executive agencies make every
reasonable effort to ensure that the regulation: (1) Clearly specifies
the preemptive effect, if any; (2) clearly specifies any effect on
existing Federal law or regulation; (3) provides a clear legal standard
for affected conduct while promoting simplification and burden
reduction; (4) specifies the retroactive effect, if any; (5) adequately
defines key terms; and (6) addresses other important issues affecting
clarity and general draftsmanship under any guidelines issued by the
Attorney General. Section 3(c) of Executive Order 12988 requires
Executive agencies to review regulations in light of applicable
standards in section 3(a) and section 3(b) to determine whether they
are met or it is unreasonable to meet one or more of them. DOE has
completed the required review and determined that, to the extent
permitted by law, this proposed rule meets the relevant standards of
Executive Order 12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to assess the effects of a Federal
regulatory action on State, local, and tribal governments, and the
private sector. The Department has determined that today's regulatory
action does not impose a Federal mandate on State, local or tribal
governments or on the private sector.
H. Review Under the Treasury and General Government Appropriations Act,
1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any rule that may affect family well-being.
This proposed rule would not have any impact on the autonomy or
integrity of the family as an institution. Accordingly, DOE has
concluded that it is not necessary to prepare a Family Policymaking
Assessment.
I. Review Under the Treasury and General Government Appropriations Act,
2001
The Treasury and General Government Appropriations Act, 2001 (44
U.S.C. 3516, note) provides for agencies to review most disseminations
of information to the public under guidelines established by each
agency pursuant to general guideline issued by OMB. OMB's guidelines
were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines
were published at 67 FR 62446 (October 7, 2002). DOE has reviewed
today's notice under the OMB and DOE guidelines and has concluded that
it is consistent with applicable policies in those guidelines.
J. Review Under Executive Order 13211
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR
28355, May 22, 2001) requires Federal agencies to prepare and submit to
the Office of Information and Regulatory Affairs (OIRA), Office of
Management and Budget, a Statement of Energy Effects for any proposed
significant energy action. A ``significant energy action'' is defined
as any action by an agency that promulgated or is expected to lead to
promulgation of a final rule, and that: (1) Is a significant regulatory
action under Executive Order 12866, or any successor order; and (2) is
likely to have a significant adverse effect on the supply,
distribution, or use of energy, or (3) is designated by the
Administrator of OIRA as a significant energy action. For any proposed
significant energy action, the agency must give a detailed statement of
any adverse effects on energy supply, distribution, or use should the
proposal be implemented, and of reasonable alternatives to the action
and their expected benefits on energy supply, distribution, and use.
Today's regulatory action is not a significant energy action.
Accordingly, DOE has not prepared a Statement of Energy Effects.
K. Approval by the Office of the Secretary
The Office of the Secretary has approved issuance of this proposed
rule.
List of Subjects in 48 CFR Part 970
Government procurement.
Issued in Washington, DC, on April 27, 2006.
Edward R Simpson,
Director, Office of Procurement and Assistance Management, Department
of Energy.
Robert C. Braden, Jr.,
Director, Office of Procurement and Assistance Management, National
Nuclear Security Administration.
For the reasons set forth in the preamble, chapter 9 of title 48 of
the Code of Federal Regulations is proposed to be amended as set forth
below:
PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS
1. The authority citation for part 970 continues to read as
follows:
Authority: 42 U.S.C. 2201, 2282a, 2282b, 2282c; 42 U.S.C. 7101
et seq.; 41 U.S.C. 418b; 50 U.S.C. 2401 et seq.
2. Section 970.5203-1 is amended by adding a sentence to the end of
paragraph (a)(4).
970.5203-1 Management controls.
* * * * *
(a) * * *
(4) * * * Annually, or at other intervals directed by the
contracting officer, the contractor shall supply to the contracting
officer copies of the reports reflecting the status of recommendations
resulting from management audits performed by its internal audit
activity and any other audit organization. This requirement may be
satisfied in part by the reports required under paragraph (i) of DEAR
970.5232-3, Accounts, records, and inspection.
* * * * *
3. Section 970.5232-3 is amended by revising the date of the
clause, adding new paragraphs (i) and (j), and removing
[[Page 26726]]
Alternative II, and adding new paragraphs (i) and (j) to read as
follows:
970.5232-3 Accounts, records, and inspection.
* * * Accounts, Records, and Inspection (XX XXXX)
* * * * *
(i) Internal audit. The contractor agrees to design and maintain an
internal audit plan and an internal audit organization.
(1) Upon contract award, the exercise of any contract option, or
the extension of the contract, the contractor must submit to the
contracting officer for approval an Internal Audit Implementation
Design to include the overall strategy for the internal audits. The
Audit Implementation Design must describe:
(i) The internal audit organization's placement within the
contractor's organization and its reporting requirements;
(ii) The audit organization's size and the experience and
educational standards of its staff;
(iii) The audit organization's relationship to the corporate
entities of the contractor;
(iv) The standards to be used in conducting the internal audits;
(v) The overall internal audit strategy of this contract,
considering particularly the method of auditing costs incurred in the
performance of the contract;
(vi) The intended use of external audit resources;
(vii) The plan for audit of subcontracts, both pre-award and post-
award; and
(viii) The schedule for peer review of internal audits by other
contractor internal audit organizations.
(2) By each January 31 of the contract performance period, the
contractor must submit an annual audit report, providing a summary of
the audit activities undertaken during the previous fiscal year. That
report shall reflect the results of the internal audits during the
previous fiscal year and the actions to be taken to resolve weaknesses
identified in the contractor's system of business, financial, or
management controls.
(3) By each June 30 of the contract performance period, the
contractor must submit to the contracting officer an annual audit plan
for the activities to be undertaken by the internal audit organization
during the next fiscal year that is designed to test the costs incurred
and contractor management systems described in the internal audit
design.
(4) The contracting officer may require revisions to documents
submitted under paragraphs (i)(1), (i)(2), and (i)(3) of this clause,
including the design plan for the internal audits, the annual report,
and the annual internal audits.
(j) Remedies. If at any time during contract performance, the
contracting officer determines that unallowable costs were claimed by
the contractor to the extent of making the contractor's management
controls suspect, or the contractor's management systems that validate
the costs incurred and claimed suspect, the contracting officer may, in
his or her sole discretion, require the contractor to cease using the
special financial institution account in whole or with regard to
specified accounts, requiring reimbursable costs to be claimed by
periodic vouchering. In addition, the contracting officer, where he or
she deems it appropriate, may; impose a penalty under DEAR 970.5242-1,
Penalties for unallowable costs; require a refund; reduce the
contractor's otherwise owed fee; and take such other action as
authorized in law, regulation, or this contract.
[FR Doc. E6-6736 Filed 5-5-06; 8:45 am]
BILLING CODE 6450-01-P