OIG Audit Report DD-10-08

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1603-DR-LA
ApplicantOrleans Parish Sheriff’s Office
Appeal TypeSecond
PA ID#071-UPP9W-00
PW ID#1320 and 15882
Date Signed2014-02-26T00:00:00

Citation:   FEMA-1603-DR-LA, Orleans Parish Sheriff’s Office, Office of Inspector General, Audit Report DD-10-08

Cross-Reference:  Reasonable Cost

Summary:  High winds and flooding during Hurricane Katrina damaged 10 correctional facilities owned and operated by the Orleans Parish Sheriff’s Office (Applicant).  As a result, the Applicant’s kitchen facilities, from which meals were prepared for employees and inmates at all 10 facilities, were rendered inoperable.  FEMA documented the costs for both the inmates’ and employees’ catered meals on PWs 1320 and 15882.  On January 31, 2010, the Department of Homeland Security Office of the Inspector General (OIG) issued the results of an audit of the Applicant’s disaster related expenses.  The OIG recommended FEMA reduce the funding for employee meals by $1,000,249 due to lack of competitive contracting that resulted in unreasonable costs.   In addition, the audit noted that the Applicant received $44 million in 2005 and $39 million in 2006 from outside sources for inmate custody and care, and claimed that meal costs were part of the cost for overall care.  The Regional Administrator determined that the Applicant’s argument, that costs for employee meals were reasonable because they were less than the federal per diem rate, was not an acceptable measure for employee or inmate meals.  Additionally, the Regional Administrator stated that the external payments for inmate per diem were not grants or donations but specific payments for the custody and care of their respective inmates which would include meals.  In its second appeal, the Applicant maintains that FEMA should not de-obligate the funding because if the federal per-diem rate for food was considered reasonable for FEMA’s employees, then any daily food rate for the Applicant’s employees which fell below the federal per-diem at that time would have been reasonable.  The Applicant also claimed that there was no duplication in benefits from the City of New Orleans.

Issues:  1. Has the Applicant demonstrated that its employees’ meal costs were reasonable?

              2. Was there a duplication of benefits from the city of New Orleans for inmate meals?

Findings:  1. No.

                  2. Yes.

Rationale:   44 CFR §13.36 (d)(2); 44 CFR §13.43(a)(2)

 

Appeal Letter

February 26, 2014

Kevin Davis
Director
Governor’s Office of Homeland Security and Emergency Preparedness
7667 Independence Boulevard
Baton Rouge, LA 70806

Re:  Second Appeal–Orleans Parish Sheriff’s Office, PA ID 071-UPP9W-00, OIG Audit Report DD-10-08, FEMA-1603-DR-LA, Project Worksheets (PWs) 1320 and 15882

Dear Mr. Davis:

This is in response to a letter from your office dated September 12, 2012, which transmitted the referenced second appeal on behalf of the Orleans Parish Sheriff’s Office (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) decision to reduce PWs 1320 and 15882 by $1,538,469 and $109,645, respectively, for what were determined to be unreasonable costs for providing employee and inmate meals following Hurricane Katrina.

As explained in the enclosed analysis, I concur with the Regional Administrator’s determination that a daily meal cost of $29.75 per employee was a reasonable cost after mid-January 2006 and that $53,457 was a reasonable cost for the employees’ use of the basecamp.  In addition, the Regional Administrator’s determination that funding from the city of New Orleans constituted a duplication of benefits which resulted in the deobligation of $1,471,804 for inmate meals based on a daily meal rate of $3.82 per inmate (year 2004) was consistent with Public Assistance regulations and policy.  Therefore, the Applicant’s appeal is denied.

Please inform the Applicant of my decision.  This determination constitutes the final decision on this matter pursuant to 44 CFR §206.206, Appeals.

Sincerely,

/s/

Deborah Ingram
Assistant Administrator
Recovery Directorate

Enclosure

cc:  George A. Robinson
      Regional Administrator
      FEMA Region VI

Appeal Analysis

Background

High winds and flooding associated with Hurricane Katrina damaged 10 correctional facilities owned and operated by the Orleans Parish Sheriff’s Office (Applicant).  As a result of the damage, the Applicant’s kitchen facilities, from which meals were prepared and provided to employees and inmates at all 10 facilities, were rendered inoperable.  During that time, the Applicant was responsible for feeding approximately 6,000 inmates and its employees (as a general practice, meals were provided to employees so that they did not need to leave the jail facilities).  While the Applicant constructed an emergency and temporary kitchen, meals for employees and inmates were obtained from a caterer from September 2005 until August 2006.

Initially, employees’ and inmates’ meal costs were priced at $46.00 per individual per day.  In November 2005, the Applicant renegotiated, but did not re-bid, the employee’s meals to a cost of $40.00 per day.  At approximately the same time, inmate meals were re-bid to a cost of $27.50 per day.  The Applicant did not negotiate lower meal costs for employees between January 2006 and July 2006, nor did the Applicant solicit competitive bids during that time.  FEMA documented on PWs 1320 and 15882, the costs the Applicant incurred for both the inmates’ and employees’ catered meals until the temporary kitchen became partially functional on August 13, 2006 and fully functional on August 31, 2006.

The Applicant paid the following daily employee meal rates:

$46.00 per employee from 9/13/05 to 11/2/05.

$40.00 per employee 11/3/05 to 7/1/06.

$31.00 per employee 7/1/06 to 7/8/06 (first week).

$25.00 per employee 7/9/06 to end.

The Applicant paid the following daily meal rates for inmate meals (meals of a lower quality):

$46.00 per inmate 10/18/05 through 11/2/05.

$27.50 per inmate on 11/3/05 through 1/23/06.

$7.25 per inmate on 1/23/06 through 8/06.

Office of Inspector General Audit DD-10-08

On January 31, 2010, the Department of Homeland Security Office of the Inspector General (OIG) issued OIG Audit Report Number DD-10-08 of the Applicant’s disaster related expenses.  The OIG found that prior to the disaster, employees’ daily meal costs were $2.69 per employee and inmates’ daily meal costs were $3.82 per inmate.

Finding C- Employee meal rate

The OIG concluded that the Applicant paid an excessive amount for employees’ meals because the Applicant did not solicit proposals though full and open competition or conduct a price analysis as required by Title 44 of the Code of Federal Regulations (44 CFR) §13.36 (d)(2) and (3) and §13.36 (f)(1) and (2).  The OIG asserted that the Applicant was able to solicit competitive bids as early as January 2006 and should have solicited proposals from contractors to reduce its employees’ meal costs along with its inmates’ meal costs.  The OIG recommended FEMA reduce the total funding for employee meals of $1,000,249 due to lack of competitive contracting that resulted in unreasonable costs.  The OIG report contended that because employee meal costs ($2.69 per person, per day) and inmate meal costs ($3.82 per person, per day) were similar before the disaster, there was no justification for higher employee meal costs after the disaster.  OIG therefore recommended disallowing the difference between employee and inmate meal rates after November 2, 2005.

Finding D- Duplicate funding for inmate meals

The audit also recommended reducing the costs for inmate meals of $1,471,804 because there was duplicate funding from local, state, and federal agencies.  The audit revealed the Applicant received $44 million in 2005 and $39 million in 2006 from these outside sources for inmate custody and care, and claimed that meal costs were part of the cost for overall care.

In reviewing the Audit Report, FEMA partially agreed with the OIG audit recommendations.  FEMA concluded that employees’ meals included the use of the caterer’s base camp that had other amenities and would account for some of the higher meal costs charged by the caterer.  FEMA also concluded that the higher costs were unavoidable before mid-January 2006, but after that date, the Applicant would reasonably have had the opportunity to competitively bid the meal services.  After surveying similar meal service contracts in the area, FEMA determined that $29.75 per employee per day was a reasonable cost after mid-January and $53,457 was a reasonable cost for the employees’ use of the base camp.  Based on this rationale, FEMA de-obligated $176,310 for employee meals.  In addition, FEMA agreed that there was a duplication of funding from the City of New Orleans and deobligated $1,471,804 for inmate meals based on a daily meal rate of $3.82 per inmate (year 2004).

First Appeal

In its first appeal letter, dated October 3, 2011, the Applicant claims the FEMA surveyed employee daily meal rate of $29.75 does not reflect similar conditions as experienced in New Orleans, and the base camp used by the employees offered more services than FEMA acknowledged.  The Applicant also claims that payments from local, state, and federal agencies in support of a per diem rate for their respective inmates were not a duplication of benefits for the Applicant.  The Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) transmitted the first appeal to FEMA on November 4, 2011, and supported the Applicant’s arguments.  The Grantee stated in its appeal analysis that the Applicant’s meal costs for the employees were reasonable by virtue of being less than the federal per diem rate.  The Grantee also stated that if FEMA concludes there was a duplication of benefits, FEMA should consider a pre-disaster inmate meal cost of $2.61 per day, resulting in a maximum reduction of $0.87 per inmate meal.

The FEMA Region VI Regional Administrator responded to the Applicant’s appeal with a letter dated April 24, 2012.  The Regional Administrator concluded that the Applicant negotiated reductions in meal costs but did not have a competitively bid contract for meals following the disaster.  The Regional Administrator agreed that the methods for determining a value for the use of a base camp by the employees based on the reasonable cost for similar activities used in FEMA’s response to the Audit Report to be acceptable.  The Regional Administrator determined that the Applicant’s use of federal per diem rates as the basis for determining the reasonableness of the employee meal costs was not a valid comparison.

Additionally, the Regional Administrator argued that the payments for inmate per diem were not grants or donations but specific payments for the custody and care of their respective inmates which would include meals.  FEMA stated that if the total cost of catered meals for inmates was $1,850,000, that cost would have included what the Applicant would normally pay for meals during that time.  Thus concluding that the Applicant was paid for meals through per diem from other agencies, the normal cost of meals was being duplicated and the Applicant showed insufficient detail to demonstrate reasonableness and withstand its argument.  However, the FEMA Louisiana Recovery Office (LRO) staff has further refined the number of inmate days from 385,289 to 384,390 which reduces the amount of duplicative benefits to $1,468,369. In the first appeal, FEMA concluded that the higher costs were unavoidable before mid-January 2006, but after that date, the Applicant had the opportunity to competitively bid the meal services.

Second Appeal

The Applicant’s second appeal, submitted on March 16, 2012, reiterates the arguments presented in the first appeal and emphasizes that in comparison the effects of the disaster put the Applicant’s employees on the same footing as FEMA employees relative to food costs.  If the federal per-diem rate for food was considered reasonable for FEMA’s employees, then any daily food rate for the Applicant’s employees which fell below the federal per-diem at that time should be reasonable.  The second appeal also argued that neither OIG’s recommendations nor FEMA’s first appeal determination offered a reasonable basis for the de-obligations to the Applicant’s employee meal costs. In addition, the Applicant argued that cost reasonableness is considered when there is no competitive procurement and that there was no duplication in benefits from the City of New Orleans.  Additionally, the Applicant met with the Assistant Director of Public Assistance on February 21, 2013.  The Applicant presented information that a bid protest by potential meal service contractors delayed securing a lower bid until November 2005. 

Discussion

Pursuant to 44 CFR §13.43(a)(2) Enforcement, Remedies for noncompliance, FEMA can limit the reimbursement of the Applicant’s costs to amounts determined to be reasonable.  For the purposes of responding to the appeal issues, this discussion is presented in two sections:  Employee Meals Cost Reasonable Analysis and Duplicate Funding for Inmate Meals.

Employees Meals Cost Reasonableness Analysis

The Applicant argues that the Applicant’s employees’ daily meal rate should be considered reasonable because it fell below the federal per-diem rate at the time of the disaster.  The General Services Administration (GSA) establishes the meals and incidental expenses (MI&E) per diem allowance, and the dollar amount varies by location.  Historically, GSA conducts a survey of meal prices every three years and bases the meals per diem rates on the results of this survey.   As noted in footnote 2 of the OIG Audit Report, the Federal per diem rates computed for a single diner purchasing meals at local restaurants in a travel status include allowances for incidental expenses ($2.00), taxes, and a 15% gratuity on meals.   The employee’s meal rate does not consider such factors.  Moreover,  federal MI&E rates were developed for use to fund federal employees in a travel status.  As both the OIG and Regional Administrator found, the federal per diem rate was not designed to assess the reasonableness of costs associated with recurring, large volume catered meals purchases that were procured without competition.  As such, FEMA does not consider the Applicant’s argument that its rate was lower than the federal MI&E to be a justifiable comparison.

In addition, FEMA concluded that employee meals included the use of the caterer’s base camp and that the higher costs were unavoidable before mid-January 2006.  FEMA determined that $29.75 per employee per day was a reasonable cost after mid-January and $53,457 was a reasonable cost for the employees’ use of the base camp.  In the second appeal, the Applicant claims the FEMA surveyed rate for employee meals does not reflect similar conditions as experienced in New Orleans, and the base camp used by the employees offered more services than FEMA acknowledged.  Specifically the Applicant provided a Cost Market Analysis on a per person per day basis, comparing the initial $46 dollar rate paid by the Applicant contained food, dining services, clean-up, dining location, services, facilities, snacks, ice, generator, fuel, and restrooms.

To determine a reasonable cost for the employee meals, FEMA reviewed the scope and unit costs of similar meal rates listed in the Market Analysis below. 

 

Applicant

Vendor

Meal Cost per person per Day

Included in the cost

# of meals

Source

St. Bernard Parish Sheriff

Dyncorp/Mantilla Catering

$44.63

Bulk food delivered, service, and cleanup

500

PW 39

Plaquemines Parish Sheriff

ART Catering

$25.00

Bulk food delivered

60

PW 40

Jefferson Davis Electrical Co-Op

Service Rental

$60.00

Food, service, and cleanup

642

OIG Report DD-09-08

City of Kenner-Katrina

Messina’s

$18.00

Bulk food delivered

400

Contract

City of Kenner-Rita

Base Logistics

$57.92

Bulk food delivered, service, and cleanup

450

Contract

The Applicant argues that other Applicants may have received better unit rates for meals based on buying a higher quantity of meals.  FEMA agrees that general economy of scale explains some differences in contract rates depending on the quantity.   After review, FEMA has determined that FEMA evaluated each example based on its unique merits and believes that comparing the Applicant’s cost to others is a comparison of different and unequal things.

Duplicate Funding for Inmate Meals

The Applicant claims that payments from local, state, and federal agencies in support of a per diem rate for their respective inmates were not a duplication of benefits.  The Applicant provided FEMA with a letter from the City of New Orleans subsequent to the meeting with Public Assistance at FEMA headquarters.   The letter states that the City of New Orleans, as required by law and by a consent judgment, has paid its per diem to the Orleans Parish Sheriff's Office.  Additionally, in the Applicant’s letter to FEMA forwarding the City of New Orleans’s letter, the Applicant states that they recognize that the City of New Orleans’s letter is “not unambiguously clear”; however, the letter does state that it support the Applicant’s appeal of the denial of reimbursement by FEMA of the cost of the inmate meals incurred prior to the establishment of the temporary kitchen, and further, that the City of New Orleans paid the required per diem.

Grants or donations received for unspecified purposes or ineligible work does not constitute a duplication of benefits.  However, the Applicant was a party to a settlement agreement with the City of New Orleans under which the Applicant received a housing and board per-diem of $22.39 for the inmates.  The payments for inmate per diem are not grants or donations but specific payments for the custody and care of their respective inmates which includes meals.

Conclusion

Based on the daily meal rates for entities with similar contract requirements the rate of $29.75 per employee per day was a reasonable cost in lieu of competitive procurement of the services. Furthermore, the Applicant has not sufficiently demonstrated that funding from the City of New Orleans did not constitute a duplication of benefits.  Therefore, the previous deobligation of $1,471,804 in ineligible costs for inmate meals based on a daily meal rate of $3.82 per inmate (year 2004) is justified.

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