OCT. !' --"^DM TPQ HQ LIBRflRY • NO.573 P.2/19
906R89102 t\150&
F°*^% '0/^N.iCu «,~,~ ENVIRONMENTAL PROTECTION AGENCY _ %
—**- I,- . , OFFICE OF INSPECTOR GENERAL J "''
% ««* U ^ FM//£tfU.:.r. SOUTHERN DIVISION, SUITE 278 REGIONAL OFFICE:
A/Ste""'»**TOML Mnir/»Tr/U. 1375 P6ACHTRE6 STREET, N.E. 1448 R038 AVENUE, SUITE 1200
AGCNCY r"VltmON ATLANTA, QEORGIA 30309 DALLAS, TEXAS 76202-8733
~ .^ (404) 347-3623 AUDIT (214) 656^621 AUDIT
;^T (404) 347-2396 INVESTIGATIONS (214) 66S4610 INVESTIGATIONS
7520?
December 13, 1989
MEMORANDUM
SUBJECT: Audit Report No. E5BGL9-06-0134-0100079
Interim Audit Sikes'Disposal 'site No. 22
Superfund Cooperative Agreement V006450-01
Texas Water Commission - Austin, Texas
March l, 1986 through June 30/ 1989
FROM: Jack Carrington
Audit Manager (eiq)
\J
TO: William B, Hathaway
Assistant Regional Administrator (6M)
SCOPE AND OBJECTIVES
We have completed an interim audit of Cooperative Agreement
VQ06450-01 (agreement) awarded June 28, 1982 to the Texas
Department of Water Resources, the predecessor agency to the
Texas Water Commission (TWC), Austin, Texas. The agreement
provided for performing site investigation, feasibility study and
remedial design at the Sikes Disposal site in Crosby, Texas.
The purpose of our audit was to determine whether:
* the costs claimed under the cooperative agreement were
reasonable, allowable and allocable to the sponsored
project;
% the controls exercised by the TWC through its financial
management, accounting, procurement, contract administra-
tion and property management systems were adequate to
provide assurance that .the costs claimed were reasonable,
allowable and allocable to the cooperative agreement.
Our audit was conducted from July 31 to August 18, 1989 for the
period March 1, 1986 to June 30, 1989. The results of audit were
discussed with the grantee's representatives on August 18, 1989.
Field work at the consultant engineer offices was performed
September 11 through 14, 1989. We relied on the work of the
engineer's external auditors for indirect cost rates after making
supplemental tests of the work conducted. Additionally, we
reviewed the external auditors summary working papers and
compared their methodology to that used in prior indirect cost
audits by the Office of Inspector General.
HEADQUARTERS UBRARY
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
-------
-------
OCT. 5.2000 1:14PM EPP HQ LIBRfiRY « NO.573 P.3/19
We performed the audit in accordance with the Ggv^rnment Auditing
Standards (1988 Revision) issued by the Comptroller General of
the United states and included tests of the accounting records
and other audit procedures we considered necessary. In addition,
40 CFR Parts 30 and 33, OMB Circular A-87, EPA "Letter of Credit
Users Manual" and "State Participation In the superfund Remedial
Program" were used as criteria in evaluating the actions taken
under the cooperative agreement.
We did not specifically review TWC's system of internal
accounting controls. However, nothing came to our attention that
indicated the TWC's internal accounting controls were not
adequate for EPA purposes.
The Sikes agreement was audited previously. Audit Report No.
E5b<36-06-0127-6l257 was issued July 30, 1986. The prior audit
reviewed expenditures of $1,000,766 claimed during the period
July 1, 1982 through February 28, 1986. Unresolved recommen-
dations and set aside costs will be identified in the findings of
this report.
SUMMARY OF FINDINGS
In our opinion, the costs summarized below and presented in
Exhibit A present fairly the financial information in accordance
with the financial provisions of the cooperative agreement and
generally accepted accounting principles.
COSTS
Questioned
Project Phase Claimed_ Accepted Ineligible Unaudited
Current Audit:
Remedial Invest./
Feasibility Study* $ 246,073 $ 189,9791 $ (1,608) $ 57,702
Remedial Design* 915,959 783,360 561 132,038
Prior Audit:
Remedial Invest./
Feasibility Study* 1.000.766 776.9S2 7.730 216.054
TOTAL 52.162.798 $1.750.321 36.683 S 405.794
*Federal Share 100%
Accounting System
The TWC accounting and financial management system was adequate
for tracking expenditures as required by 40 CFR 30 and OMB
Circular A-87. Generally, we found that the agency was
accurately reporting allocable and allowable project costs,
supported by backup documentation.
-------
OCT. 5.2000 1:15PM EPfl HQ LIBRRRY • NO.573 P.4/19
Contract Administration
Prior audit reports of cooperative agreements identified
contractor labor cost documentation as a problem area. We
recommended TWC require the contractor to include the employee's
name, salary, title and dates worked on the project to assure
costs were supportable by the books and records of the
contractor.
In response to the recommendation TWC notified the contractors to
include the information on their invoices, our review of
consultant engineer invoices found the problem had been
corrected. Contractors were providing the requiredi information
and billing in accordance with contract terms.
Procurement
Prior audit reports of cooperative agreements (E5bG7-06-0031-
71311 BioEcology, June 9, 1987, and E5bG7-06-0033-713l2 Triangle
Chemical, June 9, 1987) identified Record of Negotiation as a
problem area. TWC was provided a draft of these reports for
review and comments on March 3r 1987. We recommended that EPA
require TWC to prepare a summary record of negotiation. This
record was to contain sufficient detail to reflect the
significant considerations controlling the establishment of price
and other terms of the contract. On May 20, 1987, TWC provided
comments to our reports which included as Attachment 2, A
"Summary Record of Negotiations". Our review determined the
prior audit recommendation had not been implemented.
40 CPR 33.250 states in part that:
a) procurement records and files for procurement in excess
of $10,000 shall include the following: - - -; and (5)
Basis for award cost or price, including a copy of the
cost or price analysis made under 33.290 and
documentation of negotiations.
Review of the project files for the Sikes Disposal Pits and the
BioEcology Site (both of which had prior audits) showed that TWC
had generally maintained documentation as required by 40 CPR
33.250. However, we found that a summary record of negotiations
had not been prepared. The files contained memorandums relating
to the negotiations. However, these memorandums had not been
pulled together to provide a summary of the results of
negotiation.
As stated in the prior audit reports, a summary record of
negotiations would improve existing documentation and provide a
readily assessable means of demonstrating that a fair and
reasonable price was obtained.
-------
OCT. 5.2000 irlSPM EPfl HQ LIBRPRY • NO.573 P.5/19 .
Recommendation
We again recommend that EPA require TWC to prepare a summary
record of negotiations setting forth the principal elements of
negotiations. This record should contain sufficient detail to
reflect the significant considerations controlling the
establishment of price and other terms of the contract.
Agency Comment
The TWC submitted attachments outlining a Summary Record of
Negotiations. This record is comprised of: Record of Selection,
Cost and Price Consideration, Record of Negotiation, and
Negotiation Summary. TWC indicated that the summary record will
be made a part of the contract files.
Audit Comment
As recommended in prior reports, TWC was requested to provide a
summary record of negotiations for procurements. EPA should
ensure that TWC completes and includes the record of negotiation
forms in appropriate contract files.
Property Management
The TWC's property management system was in compliance with the
requirements of 40 CFR 30.531. We found that the agency records
provided the required information. Property purchased with
Federal funds was accounted for in the FY 1988 inventory.
Indirect Coats
The prior audit recommendation to include a contract provision
for downward adjustments to ceiling rates when actual audited
rates were determined to be less had been implemented.
Our review found contract amendments to include the recommended
provision.
Better of Qredit Drawdowns
TWC's letter of credit drawdowns complied with the Letter of
Credit Users Manual. Drawdowns were timed closely to the actual
financial needs of the agency and withdrawals did not exceed the
amount of funds needed.
Questioned Equipment cost
The prior audit of the Sikes Cooperative Agreement included
unresolved equipment costs, our review determined the purchase
-------
OCT. 5.2000 1:16PM EPfi HQ LIBRRRY - NO. 573 P.6/19
$9,999 micro film reader/printer was ineligible for EPA
participation under the Sikes Cooperative Agreement. See Exhibit
A, Note 2.
fr
ACTION REQUIRED
In accordance with EPA Order 2750f the action official is
required to provide this office with a copy of the prpposed
determination on the findings within 150 days of the audit report
date.
BACKGROUND
The "Superfund" program was established by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(CERCLA), Public Law 96-510, enacted on December 11, 1980. The
Superfund program was created to protect public health and the
environment from the release or threat of release, of hazardous
substances from abandoned hazardous waste sites and other sources
where response was not required by other Federal laws. A Trust
Fund was established by CERCLA to provide funding for responses
ranging from control of emergency situations to provision of
permanent remedies at uncontrolled sites. CERCLA authorized a
$1.6 billion program financed by a five-year environmental tax on
industry and some general revenues. CERCLA requires that
response, or payment for response, be sought from those
responsible for the problem, including property owners,
generators and transporters.
CERCLA was revised and expanded by the Superfund Amendments and
Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted on
October 17, 1986. SARA reinstituted the environmental tax and
expanded the taxing mechanisms available for a five-year period.
It authorized an $8.5 billion program for the 1987-1991 period.
The Trust Fund was renamed the Hazardous Substance Superfund.
The basic regulatory blueprint for the Superfund Program is the
National Oil and Hazardous Substances Contingency Plan (NCP), 40
CFR Part 300. The NCP is composed primarily of sites which have
been ranked on the basis of a standard scoring system which
evaluates their potential threat to public health. In addition,
each state was allowed to name its highest priority site without
regard to the ranking system.
CERCLA section 104(c)(3) provides that no remedial actions shall
be taken unless the state in which the release occurs enters into
a contract or cooperative agrement with EPA to provide certain
-------
OCT. 5.2000 1:17FM EPfl HQ LIBRRRY • NO.573 P.7/19
pay ten percent of the costs of remedial action. Pre-rewedial
activities (preliminary assessments, site inspections) remedial
planning (remedial investigations, feasibility studies, remedial
designs) and'removals may be funded 100 percent by EPA.
For facilities operated by a state or political subdivision at
the time of disposal of hazardous substances, the state must pay
at least 50 percent of all response costs, including removals and
remedial planning previously conducted.
The cooperative agreement was entered into by EPA, Region 6 and
the Texas Department of Water Resources, the predecessor agency
of the Texas Water commission. The agreement provided for
remedial investigation/feasibility study, and remedial design at
the sikes Disposal Pits site located 4 miles southwest of Crosby,
Harris County, Texas. The initial cooperative agreement of
$476,000 was awarded on June 28, 1982 and provided funds for the
remedial investigation at the site. Fourteen amendments were
made to the initial agreement. These amendments primarily
provided for:
• supplemental sampling
• funds for design of the remedial action for the site
• total project costs of $33,457,110 with a state share of
$3,120,000.
The Sikes Disposal Pits site is located on a 185 acre site,
approximately 2 miles southwest of Crosby, Texas. It is bordered
by the San Jacinto River on the west, Jackson Bayou on the north,
and U.S. Highway 90 on the south. The area immediately
surrounding the site is largely undeveloped with numerous active
and abandoned sand pits and low-lying swampy areas.
Some commercial timber operations and mineral exploration have
been conducted in the past. The area plays host to sport
fishermen as well as water sport enthusiasts on nearby San
Jacinto River and Jackson Bayou.
One family lives on site. The Riverdale Subdivision, 500 feet
southwest of the site, is the only residential development in
close proximity of the site.
The site completely lies in the 100 year flood plain of the San
Jacinto River, while portions lie within the 10 year and 50 year
flood plains. The site has been flooded four times since 1969.
Alluvial sand deposits, ranging from 0,7 to 34 feet thick,
underlie the site and form a shallow aquifer. Many of the local
inhabitants rely on this aquifer for drinking water. The Sikes
Disposal Pits site began operation as a waste depository in the
early 1960's and closed in 1967. During this period, a variety
6
-------
OCT. 5.2000 1:17PM EPfl HQ LIBRfiRY • NO. 573 P.8/19
of chemical wastes from area petrochemical industries were
deposited on. site in several old sand pits. Numerous drums of
wastes were also left on the property.
f
The dike around the unlined main waste pit was not adequate to
withstandthe periodic flooding of the site, rioodwaters have
breached the dike and transported wastes across a large, low
lying area east of the main waste pit.
Preliminary sampling at the site in 1982 indicated the presence
of phenolic compounds, xylene, benzene, creosote, toluene and
other organics. Approximately 440 cubic yards of phenolic tars
were removed from a partially buried pit in June 1983.
Following completion of the original RI activities and prior to
submission of the final RI document, work began on the
Feasibility Study (FS) (October 1984). Several data gaps were
identified in the RI that were essential for the development of
the FS. The decision was to finalize the RI Report and conduct a
supplemental sampling program. Field work for the supplemental
sampling activities began in July 1985. The final Addendum RI
Report for these field activities was submitted in June 1986.
The FS was received in June 1986.
Several waste areas have been identified as being sources of
contamination. The contamination is broken down as waste or
sludges and underlying contaminated soils.
Sludges on site are composed of the wide variety of organics.
Soils underlying the waste areas appear to be significantly
contaminated to depths ranging from 3 to 18 feet beneath the
sludge/water/soil interface. Contaminants found in the
underlying soils are similar to those found in the overlying
sludges.
A summary of the general definitions utilized in our report is:
Cost Audited: The TWC's total claimed cost for the subject
agreement submitted to us for our review. The
auditee's total claimed cost was $1,162,032
for the period covered by this audit.
Questioned Cost: A cost that is questioned because of:
1. Ineligible cost—an alleged violation of a provision
of a law, regulation, contract,
grant, cooperative agreement, or
other agreement or document
governing the expenditure of
funds.
-------
OCT. 5.2000 1:18PM EPS HQ LIBRPRY • NO.573 P.9/19
2, Unaudited cost—a finding that, at the time of the
audit, the cost is not supported
by adequate documentation and/or
has not been approved by responsible
program officials.
3. unnecessary/unreasonable cost—a finding that an
expenditure of funds
resulted in an
expenditure that was
not necessary or was
not reasonable.
8
-------
OCT. 5.2000 1:18PM
EPfl HQ LIBRflRY
NO.573
P.10/19 .
Exhibit A
Summary of Costs Claimed, Accepted and Questioned
*• Superfund Cooperative Agreement V006450-01
Sikes Disposal Pits Site
March 1, 1986 through June 30, 1989
Texas Water Commission
Austin, Texas
COSTS
Personnel
Fringe Benefits
Travel
Supplies
Contractual
Other
Indirect Costs
Total Current $1
Prior Audit $1
Current Review
Total $2
Claimed
$ 88,745
20,147
27,899
246
979,203
756
45f 036
,162,032
,000,766
,162,798
Questioned
Accepted Ineligible
$ 88,745 $
13,829
27,899
246
811,402
756
30.462
$973,339
$691,597
$ 85.385
$1,750.321
(258)
f789)
$(1,047)
$7.730
$6.683
Prior
Unaudited Set Aside
$
6,576
67,801
15.363
$189,740
$309,169
$216.054 f309r!69>
$405.794
100% Federal
Federal Funds
Received
6/30/89
Balance Unpaid
Notes
$2.082.363
$80.435
1. Increase in accepted costs resulted from the use of
audited and/or negotiated fringe and Indirect cost rates
for the periods 1986 through 1988.
2. Questioned costs represent fringe benefits and indirect
cost for TWC's Fiscal Year 1989. These costs of $6,576
and $15,363 are classified as unaudited until an audit
and/or negotiation is completed of TWC's FY 89 fringe and
indirect cost rates.
3. Current audit contractual costs of $167,801 and prior
audit set aside contractual costs of $216,054 were not
audited. These subcontractor costs require audit by the
Defense Contract Audit Agency as the cognizant Federal
agency.
1 & 2
3
1 & 2
1,3&4
-------
OCT. 5.2000 1:19PM EFfl HQ LIBRflRY • NO.573 P.11/19
4, Equipment costs set aside of $9,999 in our prior audit
were questioned as ineligible. The justification for
purchase did not demonstrate a site specific need.
Region 6 did not approve the purchase. This equipment
provided limited site specific benefit.
A micrographic reader/printer was purchased by TWO as
an upgrade to their micrographic capabilities. The
equipment was located in the Central Records Office and
has been there since it was received. Superfund records
made up only ten percent of Central Records files and
microform. A summary of net ineligible costs is:
Questioned equipment cost $9,999
Increase in prior audit fringe, indirect cost (2.269)
Net ineligible cost $7.730
Total TWC costs of $85,385 from the prior audit were
accepted based on our current review.
Agency Comment
The TWC did not provide comments on the questioned cost.
10
-------
OCT. 5.2000 1:19FM EPS HQ LIBRflRY - NQ 5?3 p
TEXAS WATER COMMISSION '"'" *
APPENDIX A
B. J. Wynne, HI, Chairman - ,'~ ; ~^fffit John J. Vay, General Counsel
John E, Birdwell, Commissioner \j'.-ia*r,':j/ Michael E. Field, Chief Hearings
Cliff Johnson, Commissioner "**=*£=*r Brenda W. Foster, Chiel Clerk
Allen Beinke, Executive Director
December 4, 1989
United States Environmental Protection Agency
Mr. Jack Carrington, Audit Manager
Office o£ Inspector General
1445 Ross Avenue, Suite 1200
Dallas, Texas 75202-2733
Re: Reply to Draft Interim Audit
(A) Superfund Cooperative Agreement V-006452-01
Bio Ecology System Site Draft Audit
Report No.'ESBGL-9-06-0133
(B) Superfund Cooperative Agreement v-006450-01
Sikes Disposal Pit Site Draft Audit
Report No. ESBGL-9999-06-0134
Dear Mr. Carrington:
The Superfund section of the Texas Water Commission offers the
following comments in reply to your letter of October 25, 1989,
advising us of the draft reports on the above referenced audits.
A. Summary of findings/costs;
No Comment
B. Accounting System:
No Comment
C. Contract Administration;
No Comment
D, Procurement;
Enclosed is attachment 1 outlining the Summary Record of
negotiations. This record is comprised of:
1. Record of Selection
2. Cost and Price Consideration
3. Record of Negotiation
4. Negotiation Summary # .
The summary record of negotiations will be made a part of the
contract files.
B. Property Management:
No Comment
11
-------
OCT. 5.2000 l:20PM EPP HQ LIBRRRY • . NO.573 P.13/19
Mr. Jack Carrington
December 4, 1989
Page Two APPENDIX A
F. indirect Costs;
No Comment
G. Letter of Credit drawdowns;
No Comment
H. Questioned Equipment Costs;
No Comment
Thank you for the opportunity to offer our comments to the draft
report on the tentative report material of your audit review dated
October 25, 1989. The Superfund Section feels that the changes
outlined above will effectively address the draft report
concerns regarding the TWC Procurement Process.
Sincerely,
stemes A. Feeley, Chief
Superfund and Emergency Response Section
Hazardous and Solid Waste Division
DE/jf
attachments
cc: James Fowler, Internal Auditor, TWC
12
-------
OCT. 5.2000 l:£0PM EFR HQ LIBRfiRY ' NO.573 P.14/19
APPENDIX A
APPENDIX 1
Page 3 of 7
ATTACHMENT 1
SUMMARY RECORD OF NEGOTIATIONS
13
-------
OCT. 5.2000 l:20PM EPfl HQ LIBRflRY
NO.573 P.15/19
APPENDIX A
APPENDIX 1
Page 4 of 7
RECORD OF SELECTION
Copy of LOED approval
Copy of Affidavit of Publication
List of firms requesting of RFP
Site visit attendance list
List of proposals disqualified; justification for
disqualification
Score sheets from all members of review committee for
all proposals
Firms.on Short List identified
Copy of letter requesting Executive Summary
Copy of Executive Summaries
Copy of Commission agenda request
Copy of Commission meeting agenda
Copy of RFP from firm selected
14
-------
OCT. 5.2000 l:21PM EPA HQ LIBRflRY
COST AND PRICE'CONSIDERATION
HO.573
P.IS/19
APPENDIX A
APPENDIX 1
Page 5 of 7
Project
A/E Firm
Types of Services
Total Contract Amount
Type of Contract.
CPFF
LUMP SUM
OTHER
The following items have been reviewed for administrative
completeness and for reasonableness:
5700-41 Form for prime is provided
5700-41 for subcontractors $10,000
Total manhours
Distribution of manhours
Profit (attach Profit Analysis Forms)
Travel (mileage rates, rooms, meals, etc, are in
conformance with TWC policy
Equipment & supplies
Laboratory fees
Costs identified in 5700-41 forms are consistent with
the contract
Project schedule
15
-------
OCT. 5.2000 l:21FM EPfl HQ LIBRPRV
NO.573 P.17/19
RECORD OF NEGOTIATION
APPENDIX A
APPENDIX 1
Page 6 of 7
Copy of original draft contract
Summary of changes
(Separate attachment each revision)
Copy of final contract
16
-------
OCT. 5.2000 l:21PM EPfl HQ LIBRRRY
NO.573 P.18/19
NEGOTIATION SUMMARY NO.
APPENDIX A
APPENDIX 1
Page 7 of 7
&*•
*„>:=;
*•*»<
Project
A/E Firm
Project Officer
•'.«««
Date revision requested
Date revision received
Copy of changes
Copy of correspondence concerning change
17
-------
OCT. 5.2000 I.'SIPM EPfl HQ LIBRflRY • NO. 573 P. 19/19
APPENDIX B
Distribution
«•
Region
Assistant Administrator for Planning and Management (6M)
Hazardous Waste Managment Division Director
Audit Followup Coordinator
Headquarters
Director, Grants Administration Division (PM-216)
Anditea
SuperFund and Emergency Response Section,
Texas Water Commission
... J
I
IB
------- |