United States
Environmental Protection Agency
Washington DC 20460
350R86101
305
>cPA Office of
Inspector General
Report to Congress
Fiscal 1986
Environmental Protection Agency.
on V, Library
230 South Dearborn Stratf &&"'
Chicago^ IWnolt 060$ "
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The Inspector General Act of 1978 (P.L. 95-452) crea
the Office of Inspector General to consolidate existin
investigative and audit resources in independent
organizations headed by Inspectors General
The OIG's role is to review EPA's financial transac
program, and administrative activities; investigate
allegations or evidence of possible criminal and civil
violations; and promote economic, efficient, and effe
operations within the Agency.
The EPA Inspector General reports directly to the
Administrator and the Congress and has the authority
Initiate and carry out independent and objective au
and investigations,
Issue subpoenas for evidence and information,
Obtain access to any materials in the Agency,
Report serious or flagrant problems to Congress,
Select and appoint OIG employees, and
Enter into contracts
The Inspector General is appointed by, and can be
removed only by, the President. This independence
protects the OIG from interference and allows it to
function as the Agency's fiscal and operational watch
Office of Inspector General - Headquarters
Inspector General
John C Martin
Deputy Inspector General
Donald E Kirkendall
Office of Audit
Ernest E Bradley III
Assistant Inspector General
Kenneth A Konz
Deputy
Office of Management
and Technical Assessment
Anna M Virbick
Assistant Inspector General
Office of Investigatio
John E Barden
Assistant Inspector Ge
Daniel S Sweeney
Deputy
I Operations Staff
Steven A McNamara
Director
Technical Services Staff
James 0 Rauch
Director
I Technical Assessment and
Fraud Prevention Division
John C Jones
Director
Administrative and Man-
agement Services Division
Edwin N Canady
Divisional Inspectors General
Headquarters
Kenneth Hockman
Internal Audit
(FTS or 202) 382-4930
Regions 1 and 2
Paul McKechme
Audit
(FTS or 617) 223-0940
Robert M Byrnes
Investigations
(FTS or 212) 264-0399
Region 3
Paul R Gandolfo
Audit
(FTS or 215) 597-0497
William N Crane
Investigations
(FTS or 202) 382-4934
Regions 4, 6, 7, & 8
(Investigations)
Kathyrn M Kuhl-lnclan
Audit
(FTS) 257-3623
(404) 347-3623
James F Johnson
Investigations
(FTS) 257-3623 (404) 347-3623
Region 5
Anthony C Carrollo
Audit IFTS or 312) 353-2486
Deirdre M Tanaka
Investigations
(FTS or 312) 353-2507
Regions 8 (Audit), 9 &
Truman R Beeler
Audit
(FTS) 454-7084
(415)974-7084
J Richard Wagner
Investigations
(FTS or 415) 454-8151
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Environmental Protection Agency
Office of Inspector General
Audit Operations Amount
Total Fiscal 1986
Questioned Costs* - Total $1101 Million
(expenditures which are not allowed)
Set-Aside Costs* - Total $208.5 Million
(expenditures which are insufficiently supported
to determine their allowability)
Sustained Costs for Recovery and Savings - $70 Million
Federal Share
(costs which EPA management agrees are
ineligible and are committed to recover or offset
against future payments)
Cost Efficiencies or Deobligations $25 7 Million
(funds made available by management's
commitments to implement recommendations in
OIG internal and management audits)
Recoveries from Audit Resolutions of Current $25 5 Million
and Prior Periods
(cash collections or offsets to future grants)
EPA Audits Performed by the OIG 155
EPA Audits Performed by Another Federal 1,420
Agency, State Auditors, or Independent Public
Accountants and Attachment P Audits
Audit Reports Resolved 1,617
(agreement by Agency officials to take
satisfactory corrective action)
Investigative Operations
Fines and Recoveries $2 8 Million
Investigations Opened 336
Investigations Closed 420
Indictments of Persons or Firms 41
Convictions of Persons or Firms 39
Administrative Actions Taken Against EPA 71
Employees
Fraud Detection and Prevention Operations
Debarments, Suspensions, Voluntary 144
Exclusions, and Settlement Agreements (actions
to deny persons or firms from participating in
EPA programs or operations because of
misconduct or poor performance)
Hotline Complaints Received 57
Hotline Complaints Processed and Closed 54
Proposed Legislative and Regulatory Items 189
Reviewed
Personnel Security Investigations Ad|udicated 934
"Questioned and set-aside costs are subject to reduction pending further
review in the audit resolution process
**Information on recoveries from audit resolution is provided from the EPA
Financial Management Division and is unaudited
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Questioned and Set Aside Costs by Type of Audit
K@:&:$:-1 Set-Aside Costs
^^^^^1 Questioned Costs
Construction
Other grants
81 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.
EPA Pays Excessive Amounts for Emergency Cleanups
of Hazardous Wastes
The urgent need for emergency hazardous waste cleanups
led EPA to award multimillion dollar contracts for
Emergency Response Cleanup Services (ERGS) with
limited competition and without assurances that the
negotiated rates were reasonable. As a result, EPA is
paying excessive amounts for the emergency cleanups.
ERCS contractors were paid an average markup of 40
percent over their labor costs and labor billed to EPA under
the fixed rates ranged from 14 percent to 103 percent
over the contractors' actual costs. Contractors billed labor
at holiday and overtime premium rates, even though they
frequently did not pay these higher rates to their
employees.
Equipment items were billed to EPA with markups over
cost ranging from averages of 143 percent on monthly
rates to 321 percent on hourly rates. Some items billed to
EPA were marked up over 15,000 percent.
EPA management in agreeing with most of our findings,
has initiated improved contract provisions to stop the
excessive payments, assure more competition in
contracting and proper charging, and payment of wage
rates.
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Almost Half a Billion Dollars Wasted on Faulty Projects
In Puerto Rico
After hundreds of millions of Federal dollars were spent
over 21 years, proscrastmation, poor internal controls and
lax enforcement have prevented Puerto Rico's wastewater
management programs from achieving an acceptable level
of water pollution control.
The Puerto Rico Aqueduct and Sewer Authority (PRASA)
has estimated that an additional $800 million will be
needed to complete priority construction projects, achieve
full compliance with EPA regulatory requirements at all
facilities, and eliminate all its current existing liabilities.
PRASA lacked the managerial and technical capability
required to achieve effective operations, maintenance, and
compliance with regulatory provisions and EPA National
Pollutant Discharge Elimination System (NPDES) permit.
We recommend that Region 2 be held directly accountable
for ensuring that PRASA's problems are corrected and be
required to carefully monitor, track, and report on the
progress and success of corrective actions. Responsible
Headquarters officials should track overall regional
accomplishments. If appropriate progress is not made,
EPA should transfer responsibility for managing PRASA's
programs to Headquarters and, if necessary, cut off
additional financial support to PRASA until necessary
improvements have been completed EPA is cautiously
optimistic about progress in Puerto Rico but is ready to
take stronger steps to assure compliance with the Clean
Water Act if necessary.
Chesapeake Bay Program Managed Haphazardly
EPA could not demonstrate how various research efforts,
valued at $10.5 million, contributed to the Bay cleanup.
EPA did not follow its own regulations and procedures
for monitoring grants and contracts awarded during fiscal
years 1978 through 1984. More than 50 percent of the
work products required by the grants and contracts
reviewed were either not completed or could not be
found In a number of instances, EPA was not aware that
the work products were even missing From this, we have
concluded that EPA's planning was deficient because the
work products were evidently not needed However, if
some or all of these work products were needed, then the
technical aspects of the Bay program become suspect.
Work products received months or years after the original
completion dates appear to be of questionable value.
In addition, project files were haphazardly maintained,
incomplete, and destroyed without proper authority The
project files did not contain justifications for funding
increases totalling $2.8 million. Completed grants and
contracts were not closed, nor was there evidence that
numerous grant conditions were satisfied
The Regional Administrator, Region 3, and his staff agreed
with our recommendations to strengthen administrative
and monitoring procedures.
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EPA Is Not Collecting Millions of Dollars Due from
Polluters
EPA was not always aggressively pursuing recovery of
hazardous waste cleanup costs and failed to recover abou
$88.8 million from responsible parties. The Comprehensivi
Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA) provides that parties responsible for the
hazardous waste conditions should either perform the
cleanup themselves or replenish the Trust Fund for costs
to do so. Once the responsible party is identified, EPA
must attempt to negotiate a settlement and pursue a
recovery for the cost of the cleanup.
As of September 30, 1985, EPA obligated $1.3 billion
from the CERCLA Trust Fund while only recovering $14
million, a ratio of 1.1 percent Unless EPA becomes more
aggressive in pursuing recoveries, its ability to replenish
the Trust Fund and clean up hazardous waste sites will be
severely limited.
EPA has agreed with our recommendations and will revise
its policies and procedures to make timely and definitive
cost recoveries.
The Asbestos in Schools Rule Needs Changes to Bette
Protect Students and Employees
EPA 1982 Asbestos in School Rule required that by May
1983, all local education agencies (1) inspect all school
buildings for friable (easily crumbled) materials and (2)
randomly sample and analyze all friable materials
We found that EPA regional officials were not always
emphasizing the importance of following recommended
sampling techniques, limiting assurance that asbestos was
being properly identified in schools We also identified
several specific conditions not addressed by the current
rule, for example, about 12 4 million students and faculty
in colleges, universities, and government academies were
not included in the current rule Also, periodic remspection
of schools is not currently required although material
containing asbestos and identified as not friable could
become friable. Other high risk conditions were also not
addressed by the rule
In response to our findings, the Agency has initiated
several actions to address weaknesses cited in our report
including: holding a workshop to consider changes to the
rule; issuing simplified instructions on sampling for friable
material to the nation's 45,000 school districts; and
conducting formal training for all inspectors
EPA Regional Administrator Disallows Over $5.5
Million on Philadelphia Grant
The City of Philadelphia claimed about $1.5 million of
construction charges that it withheld from the contractor
pending a settlement on financial damages involving soil
and waste removal We referred for Agency review $7 3
million of costs that were not within the scope of the
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project grant. An additional $1 7 million of costs were also
referred for Agency review pending the submission of
supporting documentation by the grantee
We recommended that the Regional Administrator,
Region 3, not participate in the Federal share of questioned
costs; determine whether EPA should participate in the cost
referred for review; and recover all aplicable amounts due
EPA.
The Regional Administrator, Region 3, sustained $5.53
million the costs questioned and referred for review
Akron's $2.7 Million Insurance Recovery Also Claimed
From EPA
EPA gave the City of Akron, Ohio, a grant to modify its
existing treatment plant and later amended the grant to
fund the reconstruction of the sewer line that was
destroyed by an explosion. The explosion,caused by
vandals, destroyed about 6,600 linear feet of sewer
causing sewage to run into the streets. Akron requested
and received funding from EPA under a special provision
to pay for the eligible portion of the sewer Akron also filed
a claim with its insurance company to recover damages
caused by the explosion Akron did not credit the $2 7
million insurance recovery to the EPA grant. We
recommended that the Regional Administrator, Region 5,
recover the $2 7 million Federal share of the insurance
recovery
The Regional Administrator, Region 5, sustained the full
amount questioned of $2.76 million.
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Audit Resolution
EPA management continues to emphasize both timeliness
and quality of audit resolution As a result of emphasizing
the audit resolution process by both EPA and the Office o
Inspector General, the level of overdue audits hit an all
time low during the fiscal year decreasing from 20 at the
end of fiscal 1985 to 18 on September 30, 1986 During
fiscal 1986, EPA management closed 1617 audits and
sustained $95 7 millions of questioned costs, including $7(
million for cost recovery and $25 7 million in cost
reductions.
EPA also recovered $7.2 million in cash collections and
$18.3 million in offsets against billings from resolution of
audits from prior and current periods
As a continuing effort to improve the audit resolution
process, four special task force projects from last year's
National Audit Resolution/Assistance Disputes Conference
held in Atlanta have been completed Steps are underway
to implement the recommendations of these task
forcesall of which will further improve the quality of the
Agency's audit resolution functions
A special review disclosed that recoveries are
substantially less than the Agency agreed to recover In
addition, thorough analysis of this situation is prevented
since the Agency Financial Management Division's tracking
reports contain numerous inaccuracies and are ineffective
to control this function. An example of errors include $75 £
of $186 8 million of sustained costs which should have
been tracked on the reports but were not. Therefore,
many millions of dollars of audit benefits were not
identified as Agency accom- plishments The DIG
recommended that the Comptroller provide instructions
emphasizing the importance of accurate reporting Further,
we recommended that reviews periodically evaluate these
activities and procedures be implemented for controlling
receivables and collections Corrective action has already
been taken on several of these issues
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Du; ng thi: .seal year, o^r -ivestigal ve <:florts resulted 80
nd otmem: 'nd cc'ivicticn : and $2 8 rril ion of fines an j
'ec~>ven?s ' om persons -y firms who c efrauded the
age icy. IVo >1 ol these recovares invoked bid rigging and
other fraud on competitive1 y awarded cuiuracts As of
September !!0, 1986, a total of 36 indie ments and 24
corvictionb nave been obtained for bid 'igging
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EPA Empi
Selected Prpsecutive and
Administrative Actions
Conspiracy to Rig Election and Bids on Sewer Project
Brian Ingber, Supervisor of the Town of Fallsburg, New
York, Howard Ingber, Wayne Pirnos, Thomas Peck and
Service Scaffold, Inc , Ingbers' family business were
charged with conspiring to rig bids so that Service
Scaffold, Inc , would have an advantage in 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 of interest between his
business and official position which included administering
the sewer project
The 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
Brian Ingber was convicted on January 16, 1986, of mail
fraud for forging absentee ballots during his 1983 election.
Brian Ingber was convicted again along with Wayne Pirnos
on June 18, 1986, for false statements and Brian Ingber
and Sevice Scaffold, Inc , were found guilty of mail fraud
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Brian Ingber was sentenced to three consecutive one-year
prison terms, fined $12,000 and held personally liable for
any losses to the W.H.O Tn-Area Sewer Project caused
by his illegal activity The other defendants were also given
prison terms and fined.
$750,000 Gained in Settlement From Fraudulent Sewer
Contractor
In a civil action, the United States obtained a settlement
judgment for $750,000 from the Municipal Industrial Pipe
Service (MIPS), and its family member owners. EPA has
also received about $76,000 from related bankruptcy
proceedings The civil action was based on prosecutive
action against MIPS and its owners who pled guilty to
defrauding the Government on sewer projects The
47-count indictment charged the owners with a 10-year
scheme to defraud the Federal Government on $8 million
worth of sewer maintenance projects by failing to perform
tests and repairs that they were paid to perform while
they distorted test results and fabricated progress reports
Electrical Contractors Rig Bids on Chattanooga Project,
Fined $900,000
Commonwealth Electric Company (CEC) and Fischbach
and Moor, Inc. (FMI) were indicted on July 2, 1986, for
unreasonable restraint of trade and commerce in violation
of the Sherman Act The indictment charged that CEC and
FMI agreed that CEC would be the low bidder on the
EPA-funded Moccasin Bend Wastewater Treatment Plant
project in Chattanooga, Tennessee, and in return for FMI's
participation in the conspiracy, CEC would make a payoff
to FMI out of the profits CEC expected to earn from the
contract or CEC would submit a collusive, artifically-high,
and rigged bid for FMI on a future project
FMI was convicted and fined $500,000 and CEC pled
nolo contendere and was fined $400,000 on September
29, 1988. EPA is seeking civil recoveries from FMI and
CEC.
Former EPA Purchasing Agent Prosecuted for
Self-Dealing
While working as a purchasing agent for the EPA in
Pensacola, Florida, Richard Cosgrove participated in
procurement of materials for EPA from Applied Science
Distributors (ASD), a company he founded, operated and in
which he had financial interest. Mr Cosgrove founded
ASD in the name of his then 14 year old stepdaughter
because "the Government looked more favorably on
minority-owned businesses" and to disguise his
involvement with the company ASD's profit from sales to
EPA, its only customer, was almost $15,000
Mr. Cosgrove pled guilty on June 24, 1986, and received
a suspended prison sentence, 5 years probation, and
assessed $3,050 in fines and penalties He resigned from
EPA when he learned of the investigation
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Project Officials Embezzle Almost $65,000 of Grant
Funds
William H Yeary, a Bell County, Kentucky, official along
with Elmer Cleveland, a former EPA project officer, pled
guilty on July 17, 1986, to charges of embezzling grant
funds and filing fraudulent travel vouchers totalling nearly
$65,000. Shortly after being hired by Bell County to
manage a $410,000 EPA grant, the county official
terminated the bookkeeper, developed a close personal
relationship with the EPA project officer responsible for
monitoring the grant and used a facsimile device to forge
his supervisor's signature on checks assuming complete
control over all grant funds He substantially increased his
salary and converted portions of cash travel advances to
personal use.
To keep the EPA project officer from
"blowing-the-whistle" on the scheme, the county official
used grant funds to pay for the project officer's meals,
drinks, golf fees, and occasional motel rooms The EPA
project officer filed fraudulent travel vouchers for
reimbursement of these same expenses An EPA auditor
worked with the FBI and independent third parties to
uncover records proving the fraud. Mr Yeary and Mr.
Cleveland were each sentenced to 3 years imprisonment
on September 25, 1986 All but 60 days of Mr Cleveland's
sentence was suspended, however, he was also fined
$1,000 and ordered to perform community service while
on probation
Theft and Forgery of Government Checks
Blair J. Lyons, former EPA employee, pled guilty on
August 28, 1986 to the charge of forging endorsements on
U S Treasury checks During the investigation, conducted
jointly by the EPA OIG and the U S Secret Service, Lyons
admitted stealing 19 checks worth over $8,000 from the
EPA Financial Management Division He cashed and
forged at least 14 of them before being apprehended
Lyons was sentenced to five years probation and ordered
to make restitution for $4480
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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 1986, 144 debarment or
suspension actions were taken. Examples follow:
Suspension and Debarment Activity By Fiscal Year
Fiscal 1985
Debarments Resulting from Bid Rigging
The Howard P Foley Company, Inc., of Washington, D C ,
was debarred for 3 years on March 7, 1986. The company
had been convicted of conspiring to fix prices and rig bids
on construction projects in the States of Washington and
Pennsylvania. Three Foley Company officers and
employees also were debarred for 3 years following their
convictions on bid rigging charges These officers and
employees were Bancroft T. Foley, Joseph J Rodgers,
and Herbert C. Geuther. In a different case, Frank P.
Lench, branch manager of the Foley Company office in
Martinez, California, also was debarred for 3 years on
March 7, 1986. Mr. Lench had been convicted of
obstructing justice during an investigation of the Foley
Company by concealing and destroying documents which
had been subpoenaed by a Federal grand jury
Debarments Following False Claims on Oil Spill
Cleanup
Universal Engineering Company, Universal Engineering and
Supply Company, Inc., and Universal Wheels, Inc , Sulfur,
Louisiana, were debarred for 3 ya£rs on March 6, 1986.
Edwin A. Bell, president of all three companies, and
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employees Bobby D. Bell and Tamar D. Dykes were also
debarred for 3 years on March 6, 1986, after they were
convicted of filing false claims for vehicle, labor, and
material charges on the Campeche Bay oil spill cleanup
contract with the U.S. Coast Guard.
Maryland Attorney General Convicts, EPA Debars Bay
Polluters
American Recovery Company, Inc., of Baltimore, Maryland,
and two of its employees were debarred for 3 years. The
corporation and the employees had been convicted of
receiving hazardous substances and dumping them into
Chesapeake Bay. This case is part of a new EPA initiative
to debar firms whose environmental crimes demonstrate
that they are not responsible enough to perform on
government projects.
Personnel Security Program Increases Productivity and
Timeliness of Integrity Reviews
The personnel security program is one of the Agency's
first line defenses against fraud, using background
investigations to review the integrity of EPA employees
and contractors. During fiscal 1986, 934 investigations
were reviewed, a 51 percent increase over fiscal 1985,
resulting in: the resignation of 3 employees and formal
reprimands of 2 other employees with outstanding arrest
information; formal reprimands of 3 employees for falsely
claiming a college degree; the termination of a contractor's
access to confidential information for failing to disclose a
poor credit rating and large outstanding debts; and
correction of applications by 14 employees for omitting
information concerning convictions and/or involuntary
terminations
Employee Awareness
A continuing priority of the Office of Inspector General is
to make EPA employees, grantees, firms participating in
EPA operations, and the public aware of their responsibility
to prevent, detect, and report instances of fraud, waste,
and abuse To provide this information and encourage
participation in fulfilling the objectives of the OIG we have
used a variety of media, including:
Indicators of Fraud in EPA Procurement Booklet. In
conjunction with the EPA Committee on Integrity and
Management Improvement (CIMI), the OIG issued this
publication which describes specific fraud schemes which
can occur in EPA contracts along with their indicators for
detection
Employee Awareness Bulletins. Also in conjunction with
the CIMI, the OIG issued two Awareness Bulletins to all
EPA employees titled "EPA Suggestion Program-Dollars
for Your Thoughts" in November 1985, and "Indicators of
Fraud" in September 1986.
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Videotape on Bid Rigging The EPA Office of Water, The
Antitrust Division of the Department of Justice and the
OIG collaborated in the production of videotape on bid
rigging The presentation designed for EPA program
managers, State agency officials, and local project
directors details the indicators of bid rigging schemes and
how they can be recognized and detected
Development of Fraud Detection and Awareness
Course. The OIG has developed a course for independent
public accountants who perform audits of EPA projects for
the OIG, and, EPA and State project managers to increase
their awareness of and ability to detect and refer indicators
of fraud to the OIG Office of Investigations
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Hotline Activities
The DIG Hotline Center received 57 new complaints and
closed 54 cases during fiscal 1986 Of these, 17 resulted
in environmental, administrative, or prosecutive action We
also received 573 calls in which callers were referred to
the appropriate program office, State agency, or other
Federal agency for assistance.
The following are examples of corrective action taken as
a result of information provided to the hotline center
As a result of a complaint, EPA and GSA investigators
recovered office equipment and other related electronic
parts stolen from EPA by an employee of an EPA
contractor The subject was ordered to pay a fine of
$1,000 and placed on 3 years probation
A complainant alleged that a Texas company was
causing extensive air pollution and was not in compliance
with EPA air quality standards. As a result of an
investigation by EPA and the Texas Air Control Board, the
company agreed to implement control measures that
reduced dust and paniculate emissions from the plant
As the result of a complaint, $1,065 was recovered from
an EPA employee who used frequent traveler airline
credits for personal travel to Europe for himself and his
wife.
If you are aware of any fraud, waste, or mismanagement,
please contact the EPA Inspector General Hotline or the
appropriate Divisional Inspector General listed on the
second panel of this brochure
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 MoneyIt Is
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