Needed In House Food Services
Management Response To The Draft Report
Report No. 98-CAO-07
July 20, 1998
RESULTS IN BRIEF
Improvements are needed in the administration of the Office of Food
Services to ensure (1) timely deposits of fees and commissions; (2) contractor
compliance with the terms of the contracts; (3) vending agreements are
adequately controlled; and (4) segregation of duties for the in-house vending
operation. Also, deposits from the in-house vending operation had not been
posted to the House of Representatives Restaurant account.
These improvements are needed because the Contracting Officer’s Representative
(COR) in the Office of Food Services has not provided adequate oversight
of the House Restaurant System. As a result, (1) fees and commissions were
placed at risk of loss, misplacement, or theft; (2) House employees were
exposed to increased health and security risks; (3) contractors did not
remit payments to the House within the contract required time frame; (4)
prices charged and commissions received may not reflect current market
trends; (5) the House did not receive all the commissions owed to it; and
(6) inventory and funds for the in-house vending operation could be misdirected
without detection. In addition, the balance in the House of Representatives
Restaurant account, as stated in the Monthly Financial Statement produced
by Finance, does not accurately reflect the true balance of the account.
RECOMMENDATIONS
We recommend that the Chief Administrative Officer (1) issue a formal
policy requiring that all funds collected be deposited daily; (2) ensure
that the COR conducts regular inspections of all House food service facilities
for compliance with specific contract requirements and adequately documents
and follows up on the inspection results; (3) reassign duties within Office
of Food Services to ensure that the COR has sufficient support to oversee
the food service contracts; (4) develop policies and procedures for monitoring,
periodic reviewing and renegotiating of contracts associated with vending
operations; (5) implement the appropriate option, depending on the outcome
of the food service request for proposal, by either (a) reassigning the
vending manager to assist with food service contract oversight, or (b)
developing policies and procedures and establishing adequate segregation
of duties or compensating controls for the in-house vending operation.
In addition, we recommend that the Chief Administrative Officer modify
the Restaurant account financial statement presentation so the true balance
of the account is reflected and deposits are correctly identified.
MANAGEMENT RESPONSE
On May 8, 1998, the Chief Administrative Officer formally concurred
with the findings and recommendations in this report. According to the
response, the CAO: (1) issued a policy requiring all cash receipts to be
deposited within one business day of receipt; (2) developed a COR Food
Service Manual to regulate inspections; (3) made additional resources
available to monitor contractor compliance with all contractual requirements;
(4) took an alternative action by contracting out all vending operations;
and (5) reassigned the vending manager within the Office of Food Services
to assist with food service contract oversight. Also, the CAO agreed to
modify accounting procedures and financial statement presentation of the
Restaurant account.
OFFICE OF INSPECTOR GENERAL COMMENTS
The CAO’s corrective actions are appropriate and satisfy the intent
of our recommendations.
Background
The House Restaurant System (HRS) is composed of various food services
operated in the Capitol and the House office buildings. These operations,
which are administered and monitored by the Office of Food Services (OFS),
include the Members’ Dining Room, cafeterias, carry-out facilities, catering
functions, and vending operations. During the 103rd Congress,
the House contracted with several vendors to provide food services that
were previously provided by House employees. With the exception of the
internal candy and snack vending operation, all House food services were
contracted out.
The House contracted with the Skenteris Family, Inc. (Skenteris) and
a partnership of Marriott Management Services, Inc., and Thompson Hospitality,
Limited (Marriott/Thompson) for food services. Vending services were provided
to the House through agreements with Coca-Cola Enterprises North; Pepsi-Cola
of Washington, D.C., L.P.; Lance, Inc.; and C & K Sales. As part of
their agreements, the vendors and contractors were required to pay either
a commission or fee to the House in lieu of rent payments. To monitor the
food service contractors, a Contracting Officer’s Representative (COR)
from OFS was appointed to ensure that contractors complied with the terms
of their contracts.
Skenteris Contract
The Skenteris contract began on September 16, 1994, and continues through
September 15, 1999. The facilities covered by the contract include the
cafeteria, carry-out, and in-house catering operations located in the Ford
House Office Building. Pursuant to the contract, Skenteris pays monthly
fees to the House that were determined as a percentage of gross revenues
from operations. These payments totaled approximately $152,000 as of May
30, 1997.
Marriott/Thompson Contract
The Marriott/Thompson contract was issued on July 5, 1994, for a period
of five years. The contract provided for extensions of one or two five-year
terms not to extend more than 15 years from the beginning of the original
contract. It required Marriott/Thompson to make monthly payments to the
House equal to 2 percent of gross sales. As of May 23, 1997, Marriott/Thompson
remitted nearly $300,000 to the House. Contract provisions also allowed
for its termination by either party, without cause, by giving the other
party 180 days written notice.
On November 25, 1996, Marriott/Thompson notified the House of its intention
to terminate the contract. Marriott/Thompson cited continuing operating
losses as its primary justification for contract termination. The contract
was terminated on May 23, 1997. However, to ensure that House food services
continued, Marriott/Thompson agreed to a contract modification extending
services to August 15, 1997. On August 19, 1997, the House released a request
for proposal for the food service operations covered by the terminated
contract. During the new contract solicitation period, Marriott/Thompson
agreed to a second contract modification to extend its contract to December
19, 1997.
Vending Operations
Vending machines providing beverages and snacks are located throughout
the House office buildings and the Capitol. The beverage vending machines
are operated by Coca-Cola and Pepsi-Cola. Most snack machines are operated
by the House except for the machines operated by C & K Sales and Lance.
Each of the vending agreements requires the vendor to pay the House commissions
based on monthly vending machine sales. The commission percentages paid
to the House are stipulated in each agreement and vary according to vendor
and vending price. During 1996, the House received $92,419 in vending commissions
from Coca-Cola, Pepsi-Cola, and C & K, and $197,160 in gross sales
from the House-run vending operation.
Objective, Scope, And Methodology
Our objective was to determine the effectiveness and adequacy of the
established contract oversight procedures over the House food service operations.
Specifically, we wanted to determine if contract oversight procedures ensured
that the food service contractors were compliant with specific contract
requirements. In addition, we expanded our audit of the House food service
operations to include a review of the internal vending operation’s controls
and procedures.
Our audit was conducted in the Offices of the CAO and Clerk, and we
reviewed the Skenteris and Marriott/Thompson contracts, the vending agreements
with Coca-Cola, Pepsi-Cola, Lance, and C & K Sales, the House-run vending
operation, and the processing of the related House proceeds. The audit
covered the period from October 1995 through August 1997.
We conducted our audit in accordance with Government Auditing Standards
issued by the Comptroller General of the United States. We reviewed the
oversight of the House food service operations by interviewing CAO, Clerk,
and contract food service personnel; reviewing pertinent policies and procedures;
observing operations; reviewing management reports; evaluating the flow
of transactions; inventorying vending machines; and comparing records and
documents.
Internal Controls
We reviewed the internal controls related to oversight activities of
food services, vending operations, and contract requirements. The internal
control weaknesses we identified are described in the "Findings and Recommendations"
section of this report.
Prior Audit Coverage
The OIG previously issued an audit report -- Improvements Are Needed
In The Management And Operations Of The Office Of The Chief Administrative
Officer (Report No. 96-CAO-15, dated December 31, 1996) -- which addressed,
among other issues, contract management policies and procedures. The report
identified areas that needed improvement and made four recommendations
related to contract management. Two of the recommendations have been fully
implemented and the remaining two are expected to be fully implemented
by August 31, 1998. The Exhibit at the end of this report summarizes the
current status of these recommendations.
II. FINDINGS AND RECOMMENDATIONS
Finding A: Better Controls Are Needed For The Handling Of House Restaurant System Receipts
Standard business practices dictate that deposits should be made daily.
In addition, Title 31 U.S. Code § 3302 requires an official or agent
of the U.S. Government having custody or possession of public money to
safeguard the money and deposit the money in the Treasury as soon as practicable.
It further requires that money shall be deposited not later than the third
day after the custodian receives the money. During the period of our audit,
OFS did not handle the funds in compliance with the statutory requirements
for deposit frequency or funds safeguarding.
Contractors and vendors sent checks to OFS -- Marriott/Thompson and
Skenteris for restaurant and carryout operations; Coke, Pepsi, and C&K
for vending commissions; and vending suppliers for miscellaneous rebate
checks. During 1996 and the first five months of 1997, OFS deposited fee
checks from the various contract service providers totaling $320,126 and
$96,339, respectively. These checks were deposited with the Treasury at
approximately one-month intervals. In 1996 the checks were held an average
of 17.9 days and during the first five months of 1997, 29.3 days before
being deposited.
Furthermore, OFS did not properly safeguard the fee and commission checks.
After OFS received fee checks, the checks were stored in an unlocked desk
drawer until deposited. The need for proper safeguards becomes even more
important since office access is unrestricted during regular OFS business
hours. This greatly increases the risk that one or more of the checks could
be lost, misplaced, or stolen. For instance, one check received at the
end of December 1995 for $89,249.56 was held in the unlocked desk drawer
for 26 days before it was deposited. This instance illustrates the magnitude
of the risk associated with the inadequate safeguarding of fee and commission
checks.
As a result of our discussions with CAO management regarding deposit
practices, the Acting Associate Administrator for Media and Support Services
issued draft guidelines requiring offices to deposit collections daily.
Since these guidelines were issued, OFS has initiated daily deposits of
fees and commissions.
Recommendation
We recommend that the Chief Administrative Officer issue a formal policy
requiring that all collections be deposited daily.
Management Response
The CAO concurred with the recommendation in this finding. In accordance
with a CAO memorandum dated October 20, 1997, all cash receipts are now
deposited within one business day of receipt.
Office of Inspector General Comments
The action taken is responsive to the issue identified, and satisfies
the intent of our recommendation. Therefore, we consider this recommendation
closed.
Finding B: House Food Service Contractors Are Not In Compliance With Critical Contract Requirements
General contract oversight is the responsibility of the COR. As part
of these duties, the COR is required to conduct regular inspections of
the food service facilities to ensure that contractors are in compliance
with contract terms. However, the COR did not regularly inspect the Marriott/Thompson
or Skenteris facilities. In fact, the only documented COR inspection of
the Marriott/Thompson facilities was one conducted on February 2, 1995.
There were no documented inspections of the Skenteris facilities.
Several factors can be attributed to the COR’s inadequate oversight
of the House food service contracts. These factors include insufficient
COR training, other duties demanding COR time and attention, and poor contract
oversight by the original COR. Since the inception of these contracts,
the COR and OFS responsibilities were expanded to include contract negotiations,
new contract solicitations, and unemployment compensation issues. During
the life of the Marriott/Thompson contract, the COR was required to negotiate
two contract amendments and participate in the solicitation for new food
service providers. The COR and OFS also were faced with time-consuming
tasks pertaining to the HRS unemployment compensation program. With these
new responsibilities, the COR had less time to devote to oversight responsibilities
and did not conduct regular inspections. However, due to the lack of inspections,
the COR could not ensure that all of the terms of the contracts were met.
Health Tests
Both the Skenteris and Marriott/Thompson contracts require that all
of their employees take a tuberculin test and an infectious disease test
to assure that they are free from communicable diseases. These tests are
coordinated through the Office of Environmental Health.1
To determine if employees were being tested as required, we compared
each contractor’s current list of employees to the tuberculin and infectious
disease test records kept by the Office of Environmental Health. We found
that nearly half of the Skenteris employees and a small portion of the
Marriott/Thompson employees had not been tested. Figure 1 illustrates the
results of this comparison.
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Contractor |
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| Skenteris |
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| Marriott/Thompson |
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| Figure 1 |
Although it is the contractors’ responsible to notify the Office of
Environmental Health when new employees need to be scheduled for health
tests, the COR is responsible for ensuring that the health test requirement
is met. However, the COR was unaware that the health tests had not been
done because inspections on health test requirements were never made.
After determining that a significant number of Skenteris employees,
and to a lesser extent, Marriott/Thompson employees had not complied with
the health test requirement, we notified both the COR and the Office of
Environmental Health. Since such a significant number of Skenteris’ employees
had not been tested, we also notified Skenteris management. According to
an Office of Environmental Health official, health tests for all Skenteris
and Marriott/Thompson employees are now current.
ID Cards and Background Checks
Both the Skenteris and the Marriott/Thompson contracts require that
the contractors’ employees be issued House ID cards and submit to a background
check. The Sergeant at Arms issues House ID cards and coordinates background
checks performed by the Capitol Police. Therefore, to determine if contractor
employees had IDs and background checks, we compared a list from the Sergeant
at Arms with a current list of contractor employees. From our comparison,
we found that most of the Skenteris employees and a small number of Marriott/Thompson
employees did not have House ID cards. Furthermore, no background checks
had been performed on any of the contract employees. Figure 2 shows that
a total of 24 contract employees were without House IDs.
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Contractor |
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| Skenteris |
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| Marriott/Thompson |
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| Figure 2 |
Although the contractors are responsible for ensuring that each employee
is issued an ID card, the COR is responsible for monitoring contract compliance.
However, the COR never verified whether the contract employees had been
issued ID cards. After determining that most of the Skenteris employees
and a small number of Marriott/Thompson employees did not have House ID
cards, we notified the COR. Since such a significant number of Skenteris’
employees needed House IDs, we also notified Skenteris management. Upon
receiving this information, Skenteris management, working with the COR,
began the process to comply with this contract requirement. Marriott/Thompson
management is also obtaining IDs for their employees.
Neither the contractor nor the COR requested the Sergeant at Arms to
obtain background checks for the food service employees. As a result, no
food service employees received the contract required background checks.
We notified the COR of this requirement but, to date, no background checks
have been completed. However, the COR is working on procedures to ensure
future contractor compliance.
Fee Payment
The contractors are required to remit payment to the House each month within the time frame stipulated in their respective contracts.2 Marriott/Thompson must pay "2% of gross sales" within 15 days of the start of the subsequent month. Skenteris must pay "5.5% of gross revenues" by the fifth business day after the end of the month.3
During 1996 and the first five months of 1997, Marriott/Thompson usually paid its fees within the time specified in the contract. However, this was not the case during 1995. During this period, the fee payments were not received within the 15 working day time frame. Instead, Marriott/Thompson deposited its fees into an escrow account while certain contract terms were in dispute. Marriott/Thompson did this without authorization from the House and continued to deposit its fees into the escrow account until the contract dispute was resolved. In December 1995, Marriott/Thompson issued one check to cover the entire period that the fees were escrowed. However, the COR had no reasonable recourse because the contract did not provide any monetary penalties for late payment.
In addition, during 1996 and the first five months of 1997, Skenteris
did not make any payments within five business days after the end of the
month as specified by its contract. Skenteris only remitted its fees when
the COR requested payment. Consequently, Skenteris fee payments were received
17.7 business days late on average during this period.
Recommendations
We recommend that the Chief Administrative Officer:
Management Response
The CAO concurred with the recommendations in this finding. The CAO
has developed a Contracting Officer Representative’s Food Service Manual
which provides procedures for inspections and ensuring contract compliance.
In addition the CAO made additional resources available to monitor contractors
for compliance with all required medical tests, and to ensure they have
House-issued ID cards and appropriate background checks. Also, a financial
analyst position has been proposed for Committee on House Oversight approval.
The duties of this position include monitoring the timely receipt of contractual
fees.
Office of Inspector General Comments
The actions taken are responsive to the issue identified, and satisfy
the intent of our recommendation. Therefore, we consider this recommendation
closed.
Finding C: Controls Over Vending Agreements Are Needed
In order to establish accountability and control over vending machines,
the House assigned responsibility for vending operations to OFS in 1992.
As a result, OFS entered into agreements with Pepsi-Cola, Coca-Cola, C&K
Sales, and Lance to provide vending services to the House. These agreements
currently cover 32 machines that generate approximately $5,000 to $7,000
in monthly commissions.
Each vending agreement requires that the vendor pay the House a commission
based on a percentage of monthly vending machine sales. The commissions
are stipulated in each agreement and vary according to vendor and vending
price. Standard business practices dictate that all agreements should be
reviewed periodically to determine if the terms of the agreements are still
in the entity’s best interest. However, the agreements have not been reviewed,
re-negotiated, or adequately monitored since their inception. Although
the terms of these agreements appear to be favorable to the House, periodic
reviews would ensure that prices charged and commissions received continue
to be favorable to the House and its employees. Figure 3 lists the four
vending companies having agreements with the House and the dates the agreements
were signed.
| Company | Date Signed4 | |
| Pepsi-Cola | April 1, 1992 | |
| Coca-Cola | Not Dated | |
| Lance | December 16, 1993 | |
| C&K Sales | Not Dated |
Figure 3
When we originally requested copies of all the vending agreements, the
COR was not aware of any agreement with Lance. After we learned from the
vending manager that an agreement did exist, OFS contacted Lance to get
a copy of the agreement. However, our review of the agreement disclosed
that Lance had not paid the House any commissions from June 1994 to March
1997. Currently, the Director of Food Services is working with Lance in
an effort to collect the overdue commissions.
In addition, while conducting an inventory of the vending machines,
we found one Pepsi machine in the Ford House Office Building not covered
by any agreement. Subsequently, we were informed that a Coke machine in
the Capitol also was not covered by any agreement.5
As a result, the House was providing space and electricity for machines
without receiving any commissions from their service. The Director of Food
Services is taking action to remove these machines and collect commissions
owed.
Recommendation
We recommend that the Chief Administrative Officer develop policies
and procedures for the monitoring, periodic reviewing and renegotiating
of contracts associated with vending operations.
Management Response
The CAO concurred with the recommendation in this finding; however,
the CAO took an alternative action. As of January 1998, the House no longer
administers vending operations. In accordance with the new contract with
Guest Services, Inc. (GSI), vending operations are now managed by GSI,
which employs a vending subcontractor. The new contract requires GSI and
any of its subcontractors to meet acceptable standards of vending controls.
A Quality Assurance Plan also has been developed to hold GSI and any of
its subcontractors to high standards of vending performance.
Office of Inspector General Comments
The action taken is responsive to the issue identified, and satisfies
the intent of our recommendation. Therefore, we consider this recommendation
closed.
Finding D: Additional Controls Are Needed Over In-house Vending Operations
Controls over in-house vending operations need improvement. This occurred because all custody and record-keeping duties for the vending inventory and funds were performed by a single individual--the vending manager. As a result, vending inventory and funds could be misdirected without detection.
The in-house vending operation consists of 15 House-owned vending machines. One full-time House employee, the vending manager, performs virtually all duties related to custody and record keeping of the vending inventory and funds. The vending manager is responsible for ordering, receiving, and maintaining custody of inventory and filling and servicing the vending machines. He also records the cumulative machine sales readings, collects the cash (approximately $16,000 to $20,000 monthly), counts the cash, bands the bills, and rolls the coins in preparation for deposits twice monthly. The vending manager also keeps the accounting records for sales, cash over/short, and cost of goods sold.
To offset risks associated with inadequate segregation of duties,
compensating controls (such as cumulative machine sales reading verification
or trend analysis of a profit and loss statement) can be used to monitor
operations. However, no compensating controls have been implemented in
the in-house vending operation. At one time, the Director of Food Services
maintained a profit and loss statement for the vending operation, but the
practice was discontinued since deposits are not tracked by the Office
of Finance (see Other Matters for additional information). Only expenditures
charged to the revolving fund are reviewed and verified. These expenditures
include goods and services purchased for the internal vending operation.
Without segregation of duties or adequate compensating controls, inventory
and funds could be misdirected without detection.
On August 19, 1997, the House issued a request for proposal (RFP) for
food services which included the House vending operations. The contracting
out of all House vending operations would eliminate in-house vending operations
and the need for any additional controls.
Recommendation
We recommend that the Chief Administrative Officer, depending on the outcome of the request for proposal, implement the appropriate option:
Option 1: Vending operation contracted out -- reassign the vending manager to assist with food service contract oversight.
Option 2: Vending operation remains in-house -- develop policies
and procedures and establish adequate segregation of duties or compensating
controls for the in-house vending operation.
Management Response
The CAO concurred with the recommendation in this finding and
implemented Option 1. Under the new contract with GSI, all vending operations
have been contracted out, and the vending manager has been reassigned within
the Office of Food Services to assist with food service contract oversight.
In accordance with the contract, the contractor and its vending subcontractor
must use appropriate controls to provide for adequate segregation of duties.
Office of Inspector General Comments
The action taken is responsive to the issue identified, and satisfies
the intent of our recommendation. Therefore, we consider this recommendation
closed.
III. OTHER MATTERS
Deposits from the in-house vending operation had not been posted to the Restaurant account managed by the Finance Office. The deposits were listed on the Appropriation Table in the Federal Financial System (FFS) but not properly recorded in the Restaurant account.6 Therefore, the balance in the Restaurant account, as stated in the Monthly Financial Statement produced by Finance, does not accurately reflect the true balance of the account.
The Legislative Branch Appropriations Act, 1996 (P.L. 104-53), as amended by P.L. 104-197, provided that the special deposit account established for the House of Representatives Restaurant shall be available only to the extent provided in appropriations acts. The Act further provides that the amounts deposited in the Restaurant account from vending operations of the House Restaurant System shall be available to pay the cost of goods sold.
Pursuant to this Act, revenues from the in-house vending operation were correctly deposited to the special House of Representatives Restaurant fund at Treasury. However, prior to our inquiry, Finance had not transferred the fiscal year 1996 and 1997 vending deposits to the Restaurant account in FFS. As a result, the balance shown on the Monthly Financial Statements for fiscal year 1996 was significantly understated and the fiscal year 1997 balance was incorrectly listed as negative. These balances did not accurately reflect the true balance of the account which had accumulated to over $400,000.
As a result of our inquiry, Finance transferred the deposited amounts to the Restaurant account. However, the account balance still was not accurate since the balances for each fiscal year were presented separately. To determine the actual balance in the account, the fiscal year balances must be manually added.
Furthermore, by law, no appropriations are to be included in this
account. However, when the deposits were transferred to the Restaurant
account, the total amount deposited for each fiscal year was listed as
one lump sum under a column entitled "Appropriation." This presentation
of the deposits is incorrect. Anyone reviewing a Restaurant account statement
would incorrectly conclude that this account was sustained by appropriated
funds since it is not otherwise noted or referenced.
Recommendation
We recommend that the Chief Administrative Officer modify the Restaurant
account financial statement presentation so the true balance of the account
is reflected and deposits are correctly identified.
Management Response
The CAO concurred with our recommendation. The Office of Finance
has moved the deposits for fiscal years 1996 and 1997 to the Restaurant
account at the Organization and Program level. As of October 1997, the
Office of Finance records all revenues from vending machine operations
directly into the Restaurant account in FFS as they are received. In addition,
in January 1998, the Office of Finance consolidated the balances from fiscal
years 1996 and 1997 into the fiscal year 1998 balance except for unexpended
balances for unliquidated obligations against the account. For the Restaurant
account (X4003), the Monthly Financial Statements will be changed to show
the Restaurant account as "Funds Available" in place of "Appropriation"
beginning with the May Statement, which is scheduled to be distributed
on June 12, 1998.
Office of Inspector General Comments
The actions taken, before and subsequent to the CAO’s May 8, 1998 response,
fully addresses the issue identified and satisfies the intent of our recommendation.
Therefore, we consider this recommendation closed.
EXHIBIT
Status Of Implementation Of Prior Audit Report Recommendations
| Audit Report/Recommendations |
Status
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Comments on Corrective Actions Taken And/Or Planned |
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| Audit Report No. 96-CAO-15, entitled Improvements Are Needed In The Management And Operations Of The Office Of The Chief Administrative Officer, dated December 31, 1996: | |||
| T. 1. Develop procedures to ensure that each contract issued is covered with a purchase order in the FFS Purchasing Subsystem. |
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The Office of Procurement and Purchasing (OPP) currently has 197 active contract files, but they are unsure if all active contracts in the House are included. OPP continues to find areas where there are unrecorded contracts. |
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| T. 2. Develop comprehensive management policies and procedures with respect to contracts within the purview of the CAO. |
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OPP is developing the policies and procedures.
The first draft is almost complete.
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| T. 3. Develop and implement a comprehensive tracking system with respect to contracts within the purview of the CAO. |
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This recommendation has been fully implemented.
OPP is continuing to refine the system and is working on the accompanying
documentation.
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| T. 4. Develop and deliver COR training programs. |
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OPP hired a consultant to assist them in developing a COR training program. The first training session was held June 27, 1997. Several other sessions have also been scheduled. Additional training will be provided after the policies and procedures have been finalized. |
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