WASHINGTON - The Pension Benefit Guaranty Corp.'s inspector general found the agency improperly hired an auditing firm to conduct premium audits on a contingency basis and the inspector general recommended at least three times the contract be terminated before it expired late last month.
PBGC Inspector General Wayne Poll said in his report the contract with the auditing firm Carter & Associates of Silver Spring, Md., violated the Debt Collection Act, which stipulates a federal official - not a contracted employee - must determine a debt is owed to the government. The inspector general had recommended in a memo and draft reports at least three times since July 17 that the agency terminate the contract.
Last year, the PBGC hired Carter to make sure certain plan sponsors were accurately counting participants when calculating premium payments due the agency. Carter would collect additional premiums, interest and penalties as a result of its findings. The PBGC agreed to pay Carter 30% of whatever it recovered. According to the inspector general, Carter was paid $410,139 as of Sept. 18.
"At the inception of each audit there is no debt," the inspector general's report says. "Only after Carter completes an audit is it possible to know whether any additional premium is due. Then, in accordance with the regulations, for that identified amount to become a debt owed the United States, a PBGC official must 'determine' that the amount is correct."
In a Sept. 26 memo to the inspector general, PBGC Deputy Executive Director and Chief Financial Officer Anthony Calhoun said the contract ended Sept. 24 and would not be extended.
A spokeswoman from the agency issued a statement to Pensions & Investments saying the agency acted upon the advice from its Office of General Counsel and the Office of Management and Budget - both of which agreed the contract fee was appropriate.
"We proceeded on that advice and the contractor was paid from the additional collections. After about 10 months into the contract, the PBGC's inspector general raised questions about the arrangement. While the issue is not clear, we thought that the prudent act at that point was to defer to the inspector general's opinion and pay all the contractor's expenses from annual operating funds," the spokeswoman said.
Mr. Calhoun in his memo said the agency is looking for other funding options for the program.
The premium compliance review program recovered $3 million since Oct. 1, 1995, the agency spokeswoman said, adding the majority of the funds had been collected by Carter. According to the PBGC's latest annual report, it collected $860 million from premium collections in 1995.
Being in violation of the Debt Collection Act caused a Catch-22 for the agency. The act allows contractors to be compensated directly from what is collected, but because the inspector general found Carter was hired improperly, the firm could not be paid under the act. The report added that even if a contingency fee were permitted, the agency erred in determining the fee.
The agency spokeswoman said federal hiring regulations were followed and Carter - a minority firm hired by the PBGC through the Small Business Administration - "satisfactorily completed all assigned tasks."
But the report found Carter did not follow specific contract requirements, and compliance with the requirements was not enforced.
Patrick L. Carter, president of the auditing firm, said he didn't want to comment on the inspector general's findings until he had a chance to see the report. n