United States 350R851 01
)05 invironmental Protection Agency
Washington DC 20460
v°/EPA Office of
Inspector General
Report to Congress
Fiscal 1985
U.S. Environmental Protection
Region V, Librrvy
230 South Dearborn Street
Chicago, Illinois 60604
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Adding Up
the
Savings
for EPA
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Office c
Ernest I
Assistant ll
Kenneti
Deputy
HeadquJ
KennetJ
Internal \
Regions
Paul Ml
Audit 22l
Robert
Investiga
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nvironmental Protection Agency
)ffice of Inspector General
iudit Operations Amount
Total Fiscal 1985
Questioned Costs* - Total $162 5 Million
expenditures which are not allowed)
Set-Aside Costs* - Total $343 3 Million
sxpenditures which are insufficiently supported
D determine their allowability)
Sustained Costs for Recovery and Savings - $ 62 9 Million
ederal Share
:osts which EPA management agrees are
lehgible and are committed to recover or offset
gainst future payments)
Cost Efficiencies or Deobhgations $ 2 8 Million
unds made available by management's
ommitments to implement recommendations in
)IG internal and management audits)
Recoveries from Audit Resolutions of Current $ 27 1 Million
nd Prior Periods
:ash collections or offsets to future grants)
i EPA Audits Performed by the OIG 207
' EPA Audits Performed by Another Federal 1,389
agency. State Auditors, or Independent Public
accountants and Attachment P Audits
' Audit Reports Resolved 1,543
agreement by Agency officials to take
atisfactory corrective action)
nvestigative Operations
> Fines and Recoveries $956,708
Investigations Opened 445
> Investigations Closed 447
> 'ndictments of Persons or Firms 22
> Convictions of Persons or Firms 10
> Administrative Actions Taken Against EPA 43
imployees
:raud Detection and Prevention Operations
> Debarments, Suspensions, Voluntary 66
Exclusions, and Settlement Agreements (actions ,
o deny persons or firms from participating in
EPA programs or operations because of
nisconduct or poor performance)
» Hotline Complaints Received 83
» Hotline Complaints Processed and Closed 119
» Proposed Legislative and Regulatory Items 291
Reviewed
Personnel Security Investigations Adjudicated 618
Questions,-: aet-aside costs are subject to reduction pending further
review in the a^idit resolution process
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Audit Activities
Distribution of Audit Reports
Issued by Type
Total Audits Issued = 1.596
Superfund
66 Reports
4%
Internal &
Management
47 Reports
3%
Other Grants &
Contract
1,019 Reports
63%
Construction
464 Reports
30%
Questioned & Set-Aside Costs by Type of Audit
300
250
200
-150
50
Set-Aside Costs
Questioned Cos
Construction
Other grants
& contracts
Superfund
Examples of Significant Audits
The following represents examples of some of our most
significant types of findings They should not be
considered representative of the overall adequacy of EPA
management.
Sampling Methods May Not Have Been Adequate for
Finding Asbestos in Schools
Regional EPA asbestos officials did not emphasize the
importance of following recommended sampling methods
for identifying asbestos in schools of Regions 1, 5, and 10.
By not following the EPA recommended methods for
sampling and quality assurance, there is limited assurance
that asbestos has been properly identified and described in
schools in these Regions
We recommended that the Regional Administrators notify
all schools within their jurisdiction of the importance of
using random sampling techniques and ensure that
advance notice of press releases are given to schools and
that these releases refer to EPA's willingness to provide
technical assistance
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Improvements Needed in Clean Water Act Grants
Management
Ten State agencies received $88 million of Clean Water
Act grant funds without EPA adequately ensuring that
grant financial requirements were met. EPA grant
administration procedures need to be strengthened to
ensure that sections 106 and 205(g) grants are awarded
only to States that maintain the required level- of-effort
Procedures also need to be improved to ensure that work
commitments required by the section 106 grants are
attained
Similar deficiencies at three regional offices were
reported in fiscal 1984
We recommended that the Assistant Administrator for
Water and the Assistant Administrator for Administration
and Resources Management develop national policies and
procedures to establish the necessary controls to ensure
that sections 106 and 205(g) level-of-effort requirements
are met, monitor State agency progress on its grant award
objectives; and impose regulatory sanctions when State
agencies do not work to correct significant shortfalls in
their performance
We also recommended that Headquarters conduct more
comprehensive annual evaluations of the regions
On January 29, 1985, the Assistant Administrator for
Water issued a national policy requiring regional offices to
correct level-of-effort deficiencies by working with States
that did not earn their grant award to increase their
expenditures. Other actions were also taken to improve
the monitoring of State performance.
Construction Delays, Poor Performance, and
Unauthorized Change Orders Result in EPA's $9.8
Million Disallowance of Grantee's Claim
The Middlesex County Utilities Authority in Sayreville, New
Jersey, received three construction grants totalling $80 3
million to improve and upgrade its sewage facilities We
questioned $3 8 million due to construction delays,
unauthorized change orders, the submission of insufficient
cost documentation, and expense claims that were not
within the scope of the grant
Cost overruns, construction delays, uncertainty of
performance, and change orders also accounted for about
$13 million in set-aside costs
As a result of our recommendation that questionable costs
be disallowed and that the eligibility of set-aside costs be
evaluated, Region 2 sustained $9,784,252 of the amount we
questioned or set aside
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Inadequate Documentation Creates Disallowances for
Charleston, West Virginia, Grantee
Despite receiving a $16 8 million sewage treatment grant,
the Elk Pinch Public Service District's recordkeeping and
accounting practices did not comply with EPA and Fetfefa
regulations. Insufficient support, duplicate entries, incorre<
participation formulas, and the claiming of unrelated
expenses led to $926,870 in questioned costs. We also
set aside $1.7 million, primarily associated with
architectural and engineering fees, until further
documentation could be provided
The regional officials sustained $1,275,221 of questioned
and set-aside costs as a result of this audit.
EPA Needs to Improve Timeliness of Hazardous Wasti
Site Cleanup
Operational constraints such as lack of timely review of
contractor workplans by EPA are significantly delaying EP/
contractors hired to conduct remedial planning/field
investigation team activities in preparing to clean up the
nation's worst hazardous waste sites.
We recommended that the Acting Assistant Administratoi
for Solid Waste and Emergency Response develop,
implement, and enforce additional criteria for workplan
review and establish mobile labs for field screening
analysis.
$2.4 Million Disallowed on Merced, California, Sewage
Grant
The city's finance department customarily processed
construction and engineering claims without first
determining if they were eligible project costs. As a resul
the City of Merced claimed $1,586,059 of unallowable
costs.
We also set aside $831,491 of interest that the grantee
earned on a duplicate claim for ineligible construction cos
and $136,650 in claims relating to the plant's landscaping
to determine its eligibility
We recommended that the Regional Administrator: (1)
disallow and recover Federal share reimbursements made
to the grantee, (2) evaluate the set-aside costs, and (3)
ensure that the Public Works Department review claims
for grant reimbursement before submission to the State
Board and EPA.
The Regional Administrator sustained $2,463,793 of the
questioned and set-aside costs.
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Audit Resolution
EPA management continues to focus its attention on
reducing the number of unresolved audits. The number of
'Overdue items decreased from 125 a year ago, to 80 six
months ago and to 20 at the close of this fiscal year.
During this year, EPA management resolved 1,534 audits
and sustained $65.7 million of questioned costs including
$62.9 million for recovery and $2 8 million of cost
reductions. Also, EPA recovered $27.1 million from
resolution of audits from current and prior years including
$10 million in cash collections and $17 1 million of offsets
against billings.
Unresolved Audits Over Six Months Old
as of the End of the Four Prior Periods
300
250
200
150
100
50
3/84
9/84
3/85
9/85
Although the Agency has made substantial progress in
improving its audit resolution effort, more needs to be
done to improve the quality of the audit resolution effort
while maintaining or improving timeliness Agency action
official decisions frequently are reversed or modified after
the audit is closed indicating a need to improve the quality
of the audit resolution process.
The Agency's administrative review process for handling
assistance agreement disputes is overburdened with cases
which are not resolved in a timely manner Disputed
receivables remain uncollected and do not accrue interest
during the lengthy resolution process
We determined that the disputed receivable account
balance grew from $7 million in September 1983, when
the Agency stopped accruing interest on disputed
receivables, to the present $27 million We have worked
with the Agency in recommending improvements in the
audit resolution process which may save the Agency as
much as $1 million annually in the reduced time value of
money eventually collected.
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During this fiscal year our investigative efforts resulted in
nearly $1 million of civil recoveries from persons or firms
who defrauded tne Agency Most of these recoveries
involved EPA funds illegally obtained by rigging bids on
competitively awarded contracts Our continuing
investigation of bid rigging has also resulted in 19
convictions, 18 years imprisonment, and over $1 million i
fines to date
Selected Prosecutive and
Administrative Actions
Conspiracy to Rig Election and Bids on Sewer Project
Brian Ingber, Supervisor of the Town of Fallsburg, New
York, three others, and Service Scaffold, Inc , Ingbers'
family business were charged with conspiring to rig bids
so that Service Scaffold, Inc , would have an advantage ir
winning an equipment supply contract on a $24 million
sewer project. The defendants allegedly manipulated the
bidding process by conveying false information to
competing bidders and concealing Brian Ingber's conflict
interest between his business and official position which
included administering the sewer project
The five defendants were also charged with rigging
Ingber's 1983 election as Supervisor by forging the
signatures of registered voters on ballots and fraudulently
obtaining signed absentee ballots
The defendants were indicted on 19 counts of
racketeering, mail fraud, and false statements on August
23, 1985, and Service Scaffold, Inc , was ordered to forfe
$570,000 it received on the sewer contract funded by EP
and New York State
False Claims and Kickback Conspiracy in Superfund
Cleanup
In our first Superfund related prosecution, the
Environmental Management Corporation (EMC), Utica,
Michigan, and three of its owners/officers pled guilty to
conspiring to defraud the Government. EMC allegedly
submitted false manifests and site receipts during the
1982 Superfund cleanup of the Liquid Disposal, Inc , site.
During our investigation haulers admitted driving only
half-full trucks that EMC manifested as full and a waste
disposal firm admitted paying EMC a $25,000 kickback foi
receiving its business Each defendant was fined $5,000
and sentenced to 4 months in prison EMC was fined
$10,000 and placed on five years probation
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Contractor Convicted and Fined for Bid Rigging
The Modern Electric Company (MEC) of Statesville, North
Carolina, and company officer E. Eugene Carson along
with co-conspirators were convicted on January 9, 1985,
of submitting collusive, non-competitive bids to Bcone,
North Carolina, so that one of the conspirators would be
awarded a $247,639 contract for electrical work on an EPA
funded project On February 25, 1985, MEC was fined
$10,000 and Carson was fined $2,500 and sentenced to
120 days in a work release program to perform community
service.
Prosecution for Bid Rigging
The G.E. Moore Co., Inc , of Greenwood, South Carolina,
pleaded guilty on July 25, 1985 to rigging bids in violation
of Section 1 of the Sherman Antitrust Act (15 U S C. 1). In
the April 4, 1985 indictment Moore Co. along with
co-conspirators were charged with submitting collusive
bids so that one of the conspirators would receive an
award of $1,689,820 to work on the EPA funded
Wmnsboro Sewage System Improvement Project. Moore
Co. was fined $50,000. Actions by Reporting Period, Fiscal
1985
EPA Employees Suspended for Conduct Violation
Two EPA employees, a branch chief, and an inspector
were suspended without pay for 30 days for violating the
EPA standards of conduct. During the investigation, both
employees admitted that the inspector obtained bags of
fertilizer from sites that he officially inspected and provided
them to the branch chief, who had requested them for his
personal use. They also admitted using Government
vehicles to transport the fertilizer to the branch chief's
residence In addition, the inspector admitted receiving
meals, home and garden products, and "bike-a-thon"
donations from companies he inspected.
Falsification of Employment to Receive Unemployment
Benefits
In August 1984, a match of unemployment benefit
recipients of the California State Employment
Development Department with EPA employment roles
identified several EPA employees who may have
simultaneously received unemployment benefits while
employed by EPA. A subsequent investigation determined
that May Kei Wong, a former part-time clerk for EPA,
received $1,545 in unemployment benefits by falsifying
her employment status with EPA On September 20,
1985, May Kei Wong admitted falsifying documents to
receive the unemployment benefits agreed to make full
restitution and was formally charged on September 27,
1985
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Suspension and Debarment Activities
EPA's policy is to do business only with contractors,
grantees, and persons who are responsible, honest, and
who comply with applicable rules and regulations EPA
enforces this policy by suspending or debarring any
organization or person for acting improperly, having a
history of substandard work, or willfully failing to perform
on EPA or other Federally funded activities. Suspensions
and debarments deny participation in Agency programs
and activities to those who represent a risk of abuse to
the Government. In fiscal 1985, 66 debarment or
suspension actions were taken. Examples follow:
Joseph D. Krueger and Insulation Specialty Company,
Inc., of Cuyahoga Heights, Ohio, were debarred for three
years on October 4, 1984. An DIG investigation
determined that during improvements to a wastewater
treatment plant, Krueger and his firm had substituted
aluminum pipe jacketing for the more expensive stainless
steel jacketing specified in the contract, and that they had
billed the Northeast Ohio Regional Sewer District at the
higher price. Upon discovery of the substitution, the
materials were replaced at contractor expense The project
was funded by EPA.
The Komatz Construction Company, Inc., of St. Peter,
Minnesota, was debarred for three years on September
26, 1985, along with Tom P Komatz, the president of the
firm, and Leonard A. Hansen, the vice president. The
Komatz Corporation, along with Messrs Komatz and
Hansen, had been convicted of (1) combining and
conspiring with others to allocate or divide customers or
markets for the sale of public road paving services and (2)
combining and conspiring with other persons in the letting
of a public contract whereby the price quotation was fixed
or controlled
W.E Boyette and his company, Watson Electric
Company, Wilson, North Carolina, were each debarred for
two years on April 15, 1985. On March 12, 1985, Boyette
and Watson Electric pled guilty to charges that they and
co- conspirators submitted collusive non-competitive bids
on an electrical contract at a wastewater treatment facility
in Orange County, South Carolina. The collusive bids were
submitted so that an artifically high contract award of
$626,300 would be made for an EPA-funded project
Boyette was sentenced to 71/2 months imprisonment.
Watson Electric Company was fined $248,000.
U.S. Environmental Protection Agency
Region V, Library
230 South Dearborn Street
Chicago, Illinois 60604
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Personnel SgemAyMM^im WofMjg ^MUr« the
Integrity of Employee^ nd Contfecf||ra
The personnel security program is one of the Agency's
first line defenses against fraud, using background
mvestigatipr^J^ie^^the integrity of EPA employees
and contractors. During fiscal 1985, 618 investigations
were reviewed resulting in 2 employees being suspended
without pay and 10 employees receiving official
reprimands for falsifying their applications for Federal
employment or failing to disclose previous criminal
convictions.
Committee on tatMmfy and MwtlgMMnt
Improvement Ytoldi Hrst Products
The Committee which coordinates EPA's fraud prevention
activities, completed one project and is continuing action
on several others. In fiscal 1985, the Quality
Assurance/Quality Control work group completed an
evaluation addressing ways the Agency can minimize the
use of fraudulent or unreliable research results and
strengthen technical data that impacts the regulatory
process. The subcommittee on employee awareness
issued its first two Awareness Bulletins to inform EPA
employees of ways to improve the economy and
efficiency and prevent or deter fraud, waste, and
mismanagement in Agency programs. The Awareness
Bulletin entitled Antitrust Activities has been distributed to
all State agencies administering EPA programs and several
other Federal agencies concerned with the detection and
prevention of bid rigging.
Employee Awareness
A major goal of the Office of Inspector General is to make
EPA employees, grantees, firms participating in EPA
operations, and public aware of their responsibility to
prevent, detect, and report instances of fraud, waste, and
mismanagement. To provide this information and
encourage participation in fulfilling the objectives of the
OIG we have used a variety of mediums. Several
examples are discussed below:
EPA Manual 6500 - Functions and Activities of the
Office of Inspector General. This manual discusses the
statutory duties and independent authority of the Office of
Inspector General and the OIG's relationship to EPA and
other Federal agencies.
What To Do Before and After the Auditors Arrive. This
pamphlet was produced for grantees of EPA assisted
projects to explain how auditors conduct their audits, what
information and resources auditors need, and what role
the grantee plays in the development of the audit report.
What an Internal Audit Means to You. As a companion
to the audit pamphlet for EPA grantees, this pamphlet
designed for EPA employees and managers discusses
how the OIG determines what to audit, the major steps or
procedures of the internal audit process, and how audit
findings are resolved.
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Hotline Activities
The OIG Hotline Center received 83 new complaints and
closed 119 cases during fiscal 1985. Of those cases
closed 21 resulted in environmental, prosecutive, or
administrative action. Several examples follow.
The OIG auditors conducted a limited review of a
contractor's travel and living expenses and labor charges
associated with an EPA contract. The OIG determined that
the contractor had overcharged EPA for temporary living
expenses and for labor charges. OIG recommended that
EPA seek a $35,359 reimbursement from the contractor.'
As a result of an investigation by EPA and the New
Hampshire Water Supply and Pollution Control Division, a
landfill which was leaking toxic waste and contaminating
water was scored and ranked for Superfund cleanup
A complainant alleged that an Illinois company was
improperly storing cyanide wastes and that storage drums
were not being properly rinsed after disposing of the
wastes. The Illinois Environmental Protection Agency
(IEPA) found several violations in the handling and
dumping of hazardous waste.
If you are aware of any fraud, waste, or
mismanagement, please contact the EPA Inspector
General Hotline or the appropriate Divisional Inspector
General.
Information is confidential
Caller may be anonymous.
Call can be made from anywhere toll free 800-424-4000
202 (or 8 if FTS) 382-4977
Remember, Act Like Its Your Money - It Is!
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