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This responds to your April 9, 1987, letter regarding two audit reports in the Food Safety and Inspection Service (PSIS) that the Office of Inspector General (1C) considers unresolved. If corrective actions are not established immediately, the audits vill appear in the Secretary's Semiannual Report to Congress.

As you know, FSIS has un excellent reputation for responding to OIG's findings and subsequent followup to commitments. Therefore, it is puzzling to find that, although the Agency has responded to CIG's findings in a positive manner and has submitted documentation supporting planned implementation, the matter has been targeted for urgent resolution by the Secretary's office. In support

of FSIS in their efforts to resolve these two outstanding audits, I offer the following information, which I hope will reflect positively on the Agency as they work to meet OIG's recommendations.

Below is a discussion of OIC's points of concern for the audits in question: 1. DOMESTIC MEAT AND POULTRY INSPECTION PROGRAM (38607-1-AR) ISSUED SEPTEMBER 26, 1986

According to OIC, three areas remain unresolved. They are: (1) recalling unsafe products, (2) plant sanitation prior to operation, and (3) controls over pesticide and chemical usage in meat and poultry plants. A discussion of PSIS' action of each of these areas follows.

Product Recall

Class I product recalls were discussed many times with OIC's representative. Class I, by definition, involves all possible serious health hazards. Consequently, the FSIS directive calls for public notification and was carefully patterned after the Food and Drug Administration's longstanding policy on recalls. In the past, the Agency has granted exceptions in very limited circumstances. The March 12, 1987, policy statement provided to 016 formalized these very narrow exceptions.

Peter C. Myers

In (IC's summary, it appears they are calling for a third exception which would call for the company to demonstrate that it has the product in question under control within 48 hours. We do not believe an additional exception would be in the public's best interest, since it implies a company could take up to 48 hours to control their product. In very serious cases, the Agency would not allow that much time to elapse before determining the product is under control.

I am convinced that FSIS' recall provisions are adequate to assure consumer protection and that the personnel involved in conducting the recalls are performing in an exemplary fashion. The Agency has, through repeated efforts, attempted to explain these policies to OIG. It is essential that the Administrator of FSIS make reasoned decisions concerning recalls and public notification within the framework of the existing policy but with the ability to examine each situation on a case by case basis.

Preoperative Sanitation

We believe the OIG auditor misunderstood the depth of our implementation and verification in establishing an adequate system for monitoring preoperative sanitation. I will describe current steps taken to adopt a new system, as was outlined for OIG's auditor by FSIS personnel recently:

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A two member training team (Primary Team) from each region has been trained by the Agency;

The Primary Team has trained the Area Supervisors, the Circuit
Supervisors, and the Inspectors-in-Charge (IICs); and

Implementation of the new preoperational approach is taking place, step-wise, as follows:

(1) One plant with followup by the Primary Team and FSIS trainees; 20 plants (4 in each region) with followup by the FSIS trainers; Nationwide with followup by the Agency's Review and Evaluation Staff.

(2)
(3)

Thus, in each of the above steps, successful implementation will be verified until the system is successfully implemented in all plants nationwide.

Based on the above, I find the Agency's plan of action satisfactory to provide adequate control over preoperative sanitation procedures. OIG's inclusion of this is another example of the auditor attempting to overly influence Agency policy in how it meets their recommendations.

Pesticide and Chemical Usage in Plants

We believe the OIG auditor has confused two planned FSIS directives. directive requiring the plant to provide the IIC with a list of all chemicals

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Peter C. Myers

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used in the plant, accompanied by labels, has been circulated within the Agency for review and is scheduled for publication later this month. A copy of this proposed directive was given to the OIG auditor recently.

A second directive explaining in greater detail the Agency's policy on pesticides is now undergoing staff review and publication is planned for late summer. The OIG representative was not told that either of these directives would not be published. Hence, the conclusion that we would not take this action is erroneous on the part of OIG.

2. INDIRECT COST OF THE WISCONSIN DEPARTMENT OF AGRICULTURE, TRADE AND CONSUMER PROTECTION (WDATCP), (38092-1-Ch) ISSUED AUGUST 20, 1986

In FSIS' response to the audit report, they agreed that legal expenses should be directly charged and not lumped entirely into the indirect cost pool. Starting with Fiscal Year (FY) 1986 proposal, the WDATCP was put on notice to develop a method of directly charging its programs for legal services rendered. For years prior to 1986, there was no mechanism in place at the WDATCP to directly charge such common costs, hence its treatment of the legal expenses as joint costs, and therefore indirect. The WDATCP did not maintain time sheet distribution of such services for those years.

The auditors disallowed ALL legal expenses based on the absence of time distribution data and on certain activities and tasks included in the position descriptions of the legal staff. It should be recognized that there are certain legal services that are necessary and reasonable in the administration of grants, contracts, and cooperative agreements. On this basis, the Agency informed OIG that it would exclude certain legal services from the FY's 1984 and 1985 indirect cost pools, but would not do so for the other legal staff until they determined the degree of their involvement in the administration of grants, contracts, and cooperative agreements. Also, on this basis, the Agency informed OIG that it would exclude certain legal services from the FY's 1984 and 1985 indirect cost pools, but would not do so for the other legal staff until they determined the degree of their involvement in the administration of Federal assistance.

FSIS has scheduled an onsite fiscal review of Wisconsin's Meat and Poultry Inspection Program during the week of May 11. At that time, they will work with the WDATCP staff to determine that portion of the legal expenses allowable as indirect costs. FSIS will include this information in calculating the adjustments to be carried forward. The Agency can not change the negotiated rates for FY's 1984 and 1985 because they are fixed. The legal expenses and the other disallowed costs in this audit report will therefore result in a reduction of the indirect costs allowable for the period(s) covered by our next agreement through the FY 1984 and 1985 over recoveries carried forward.

Peter C. lyers

PSIS expects to complete indirect cost negotiations with the WDATCP within 90 days after the onsite review. They will provide OIG with a copy of the negotiation agreement, which will include the recommended adjustments, in time to close the audit before the next Semiannual Report to Congress.

It is hoped the above actions will give you a better understanding of the
Agency's position in resolving these two audits. Unless you direct otherwise,
I do not plan to have FSIS take any further action in response to OIG, as we
believe these outstanding recommendations have been resolved.

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Resolution of the FSIS Meat and Poultry Inspection Program Audit, #38607-1-At

As we discussed on Friday, May 1, 1987, enclosed are the Agency's planned actions for resolving the subject audit's findings.

If you need additional information, please give me a call.

Enclosure

FSIS 2630-5(12 79.

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