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| UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
MAY 14 •-;. OFFICEOF
TMi INSPECTOR GENERAL
' MEMORANDUM
•5 -
"° SUBJECT: Audit Report No. 05EH6-11-0036-60964
c^> Audit of Superfund Management
^} U.S. Army Corps of Engineers
^ Washington, O.C.
FROM: Kenneth D. Hockman
Divisional Inspector General
for Audit
Internal Audit Division (A-109)
TO: Jack W. McGraw
Deputy Assistant Administrator
for Solid Waste and Emergency Response (WH-562A)
Attached are two copies of the subject audit report we received from
the Offic* of the Auditor General, Department of the Army.
SCOPE AND OBJECTIVES
We requested the Auditor General, Department of the Army to perform
a review of the S'jperfund interagency agreements entered into between the
Environmental Protection Agency and the U.S. Army Corps of Engineers.
The purpose of the audit was to evaluate the internal control framework
established to manage Superfund operations in support of the Environmental
Protection Agency. Specific audit objectives were to determine whether:
- Policies and procedures were established to effectively carry out
and monitor interagency agreements with the Environmental Protection
Agency.
- Costs claimed for Superfund work were reasonable and properly
supported.
KMQUAOTERS UBRARY
flMHONMENTAl PROTECTION AGUVi. *
WASHINGTON, D.C.204UJ
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- Contract administration procedures were appropriate and were
followed to ensure the proper performance of hazardous waste
cleanup actions by contractors.
- Reimbursement procedures were appropriate and were followed on a
consistent basis by Corps finance and accounting offices.
The audit was performed from July 1985 through January 1986., Audit
work was performed at the Headquarters, U.S. Army Corps of Engineers in
Washington, D.C.; three Corps division offices; and three Corps district
offices. In addition, discussions were held with and information was
received from personnel at Headquarters, U.S. Environmental Protection
Agency in Washington, D.C.; two Environmental Protection Agency regional
offices; and one Environmental Protection Agency field office. The audit
covered transactions which were representative of operations current at
the time of the audit.
SUMMARY OF FINDINGS
The audit showed that the internal control framework established
by the Crops to manage Superfund operations in support of the Environmental
Protection Agency was essentially sound. The Corps made full use of its
existing civil works management structure and contracting experience to
ensure that the Environmental Protection Agency received prompt and
proper support for its ongoing efforts to correct hazardous waste sites
in the United States. However, improvements were needed to better control
the unique aspects of Superfund requirements and to reduce the cost to
the U.S. Treasury.
The Department of Army's official position on the audit report has
not, as yet, been established and therefore the conclusions in the report
should be considered tentative. We will advise you of the Army's final
position on the audit. Also, we request that you not release the report
or its contents outside the U.S. Environmental Protection Agency. Any
requests that you may receive for the report, including those under the
Freedom of Information Act, should be referred to the Office of the
Auditor General for processing.
A brief summary of the Auditor General's major findings follows.
1. FINANCING SUPERFUND WORK
The current reimbursement method of financing contracted
Superfund work caused the U.S. Treasury to incur about $108,000 in
avoidable interest cost during the first 10 months of FY 85. The
interest was unnecessarily incurred because the Corps used appropri-
ated funds to pay contractors for work performed and the U.S. Treasury
must borrow money to cover the outlay of cash. A direct use of
Superfund monies by the Corps to pay for contracted costs as they
are incurred could result in the avoidance of about $3.4 million in
interest during FY 86 and as much as $50.5 million in interest over
the projected life of the Superfund program.
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2. PROGRAM AUTHORITY
About $62 million of the program authority for Superfund projects
had not been adequately reviewed by project managers to identify and
return unneeded amounts to the Environmental Protection Agency.
Estimated costs on construction projects were not reviewed and
adjusted when contracts were awarded, and program authority was
retained unnecessarily. Also, expired interagency agreements for
technical assistance and design work were not reviewed and either
promptly closed to return unneeded program authority or extended if
warranted. As a result, on 31 July 1985, the Corps retained about
$6.6 million in Superfund program authority that should have been
returned to the Environmental Protection Agency.
3. SUPERFUND AUTOMATED MANAGEMENT SYSTEM
The Superfund Automated Management System was not complete or
accurate. Also, the Management System was not used by the Corps to
monitor the status of Superfund projects. Information on estimated
Superfund project costs, projected monthly expenditures, and current
project status was not kept up to date or was not entered into the
Management System's data base. Errors on projected expenditures had
an adverse impact on the Environmental Protection Agency's efforts
to manage the Superfund trust fund since the expenditure data was
used by the Agency to forecast cash requirements. In addition, the
content of the Management System was not examined periodically to
identify Superfund projects requiring management attention.
4. SOURCE DOCUMENTATION
Procedures had not been established to ensure that all costs
billed to the Environmental Protection Agency were supported in
accordance with the terms of the interagency agreements. Labor
charges were not supported by timesheets, cost transfers and credits
were not fully explained or documented, and documents supporting
work performed by other Corps activities on a reimbursable basis
were not retained. Overall, about 31 percent of the Corps' in-house
costs for Superfund billings reviewed were not adequately documented.
Thorough and complete Superfund cost documentation is needed to
support future actions to recover costs from parties responsible for
creating the hazardous waste sites now being corrected by the Corps.
5. MAINTENANCE OF COST DOCUMENTATION
The existing procedures for the maintenance of Superfund project
cost documentation did not ensure the documentation would be readily
available when needed. Cost documentation should have been filed on
an interagency agreement basis at a central location; instead,
documentation was filed by type of document at several locations.
Also, documentation may need to be retained longer than the retention
periods prescribed by Agency guidelines. As a result, documentation
of costs incurred for Superfund work may not be available for future
litigation efforts against parties responsible for creating hazardous
waste sites.
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6. ACCOUNTS RECEIVABLE
About $1.6 million of accounts receivable from the Environmental
Protection Agency were not promptly collected because prescribed
collection procedures were not followed. Collection letters were
not sent at required intervals, local procedures did not exit
designating responsible personnel and appropriate actions, and
billings were processed after interagency agreements expired. As a
result, the U.S. Treasury unnecessarily incurred about $52,000 in
interest costs on the delinquent accounts.
RECOMMENDATIONS
We recommend that a member of your staff coordinate with EPA's
Office of the Comptroller and the Grants Administration Division to
resolve the findings contained in this report. Specifically, we would
like your written response to discuss the actions taken or planned to:
1. Arrange for an alternative method of financing the Corps of
Engineers Superfund work.
2. Deobligate the $6.6 million in unneeded program authority.
3. Ensure that EPA project officers:
0 monitor the interagency agreements in order to extend
or close expired agreements;
0 deobligate excess funds when agreements are terminated;
0 require a written justification from the Corps of Engineers'
project officer when project cost categories exceed the
guidelines issued by EPA; and
0 review and approve Crops of Engineers invoices within the
prescribed timeframe.
4. Ensure that all interagency agreements contain appropriate
provisions on the need for and the retention of source documentation,
5. Arrange for the retention of documentation after the Corps of
Engineers normal retention period {e.g., transfer to E?A).
6. Ensure payment of the Corps of Engineers invoices within the
prescribed 30 day timeframe.
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ACTION REQUIRED
In accordance with EPA Directive 2750, the action official is required
to provide this office with a written response to the audit report within
90 days of the date of this memorandum.
Should your staff have any questions, please have them contact
Elissa R. Karpf or me on 382-4930.
Attachments
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DISTRIBUTION
Copies
Divisional Inspectors General for Audit (1) 5
Director, Audit Operations Staff 3
Agency Followup Official (PM-225) 1
Attn: Resources Management Division
Comptroller (PM-225) 1
Director, Financial Management Division (PM-26) 1
Chief, Superfund Accounting Branch (PM-226) 1
Financial Management Officer - Cincinnati 1
Accounting Operations Office
Director, Grants Administration Division (PM-216) 1
Chief, Grants Information and
Analysis Branch (PM-216) 1
Director, Office of Emergency and
Remedial Response (WH-548) 1
Director, Office of Waste Programs
Enforcement (WH-527) 1
Assistant Administrator for Enforcement
and Compliance Monitoring (LE-133) 1
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U. S. ARMY AODFT AGENCY
AUDIT REPORT; MW 86-605
24 APRIL 1986
REPORT OF AUDIT
SUPERFUND MANAGEMENT
U. & ARMY CORPS OF ENGINEERS
WASHINGTON, D. C.
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DEPARTMENT OF THE ARMY
OFFICE OF THE AUDITOR GENERAL
3101 PARK CENTER DRIVE
ALEXANDRIA. VIRGINIA 223O2-1596
DAAA-ZA
SUBJECT: Audit of Super fund Management
U. S. Army Corps of Engineers
Washington, D. C.
Audit Report: MW 86-605
24 April 1986
Commander
U. S. Army Corps of Engineers
Washington, D. C. 20314-1000
1. This is our report on the audit of Superfund management within the
U. S. Army Corps of Engineers. The audit was made from July 1985 through
January 1986 to evaluate the internal control framework established to manage
Superfund operations performed in support of the U. S. Environmental Protection
Agency. Emphasis was placed on reviewing the controls over accounting for costs
incurred, the measures taken to ensure that costs incurred were reasonable, and
the appropriateness of procedures used to obtain reimbursement for costs incurred.
The public law establishing the Superfund requires the Inspector General, Environ*
mental Protection Agency to audit Superfund as appropriate and requires Federal
agencies to cooperate with the Inspector General's efforts. This audit was made in
response to a request from the Inspector General of the Environmental Protection
Agency.
2. The audit showed that the internal control framework established to manage
Superfund operations in support of the Environmental Protection Agency was
essentially sound. The Corps made full use of its existing civil works management
structure and contracting experience to ensure that the Environmental Protection
Agency received prompt and proper support for its ongoing efforts to correct
hazardous waste sites in the United States. However, improvements were needed
to better control the unique aspects of Superfund requirements and to reduce the
cost to the U. S. Treasury. Controls over accounting for costs incurred did not
ensure that all cost elements were fully documented. Thorough and complete cost
records were needed to support actions by the Environmental Protection Agency to
recover Superfund expenditures from the parties responsible. Costs incurred on
individual Superfund projects were reasonable; over 90 percent of the costs were
directly related to contractor invoices. The invoices were for contracts consist-
ently awarded to the qualified low bidder on a firm fixed-price basis, and the
contractor's performance was closely monitored and controlled by Corps personnel.
But total project cost estimates were not periodically reviewed and adjusted to
release unneeded program authority, and overstated expenditure estimates caused
cash management problems for the Superfund trust fund. The reimbursable method
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DAAA-ZA 24 April 1986
SUBJECT: Audit of Super fund Management
U. S. Army Corps of Engineers
Washington, D. C.
Audit Report: MW 86-605
used to fund contractual costs for Superfund projects was the least desirable
method available because the Corps had to use its funds to pay contractors. This
outlay of appropriated funds caused the U. S. Treasury to incur unnecessary
interest expense that could have been avoided if the Corps had made direct use of
the Superfund trust fund to pay contractors. Also, the procedures used to obtain
reimbursement for costs incurred needed strengthening. Delinquent accounts
receivable from the Environmental Protection Agency were not intensively
managed, and specific collection responsibilities were not fully delineated within
the finance and accounting offices. The delinquent accounts receivable further
increased the interest cost to the U. S. Treasury.
3. We recommended the preparation of detailed cost records for in-house
expenses, changes in the method used to file and retain cost documentation, closer
reviews and prompt adjustment of program authority and expenditure projections,
seeking an alternative method of financing contractor costs, and closer adherence
to regulatory requirements on the collection of delinquent accounts receivable.
This report includes potential monetary benefits that should accrue from
implementing the audit recommendations and that could be reasonably estimated
at the time of audit considering variable factors and assumptions. The results of
audit are summarized in Part I of this report and the details are in Part Q. The
Annex to the report shows the activities covered by the audit.
4. Your command agreed with the findings, recommendations, and monetary
benefits. However, final target dates for implementing some recommendations
will have to be included in the official command reply. Detailed command
comments are presented after each recommendation in Part II of this report. The
Army's official position on the findings, recommendations, and monetary benefits
will be established when the official command-reply process is completed. The
auditors' conclusions and command's position should be considered tentative until
the Army's official position on the report is established at the conclusion of the
official command-reply process. This process is being initiated through separate
correspondence. Army Regulation 36-2 provides that the official command reply
be submitted to Headquarters, Department of the Army within 60 calendar days.
This report is not to be released outside the Department of the Army until this
60-day period has elapsed. However, the results of audit will be furnished to the
Inspector General, Environmental Protection Agency, who requested this audit.
HAROLD L. STUGART
The Auditor General
ii
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DAAA-ZA 24 April 1986
SUBJECT: Audit of Superfund Management
U. S. Army Corps of Engineers
Washington, D. C.
Audit Report: MW 86-605
COPIES FURNISHED:
ASSISTANT SECRETARY OF THE ARMY (FINANCIAL MANAGEMENT)
ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS)
CHIEF OF -PUBLIC AFFAIRS
DIRECTOR OF THE ARMY STAFF
THE INSPECTOR GENERAL
COMPTROLLER OF THE ARMY
DEPUTY CHIEF OF STAFF FOR PERSONNEL
DEPUTY CHIEF OF STAFF FOR LOGISTICS
COMMANDERS
U. S. ARMY CRIMINAL INVESTIGATION COMMAND
WASHINGTON DISTRICT, U. S. ARMY CRIMINAL INVESTIGATION COMMAND
HEADQUARTERS, DEPARTMENT OF THE ARMY MEMORANDUM 36-1
PRESCRIBES THE PROCEDURES FOR RELEASE OF THIS REPORT OUTSIDE
THE DEPARTMENT OF THE ARMY.
iii
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AUDIT OF SUPERFUND MANAGEMENT
U. S. ARMY CORPS OF ENGINEERS
WASHINGTON, D. C.
CONTENTS
i
Page
Letter of Transmittal i
PART I - SUMMARY
Preface 1
Objectives and Scope 2
Observations and Conclusions 2
Responsibilities and Resources 4
PART Q - FINDINGS, RECOMMENDATIONS, AND
COMMAND COMMENTS
A * Financing Superfund Work 5
B - Program Authority 8
C * Superfund Automated Management System 12
D - Source Documentation IS
E - Maintenance of Cost Documentation 19
F - Accounts Receivable 22
ANNEX - ACTIVITIES INCLUDED IN THE AUDIT 2?
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U. S. ARMY AUDIT AGENCY
ALEXANDRIA, VIRGINIA 22302-1596
AUDIT OF SUPERFUND MANAGEMENT
U. & ARMY CORPS OF ENGINEERS
WASHINGTON, D. C.
AUDIT REPORT: MW 86-605
24 APRIL 1986
PARTI
SUMMARY
PREFACE
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (Public Law 96-510) mandated the establishment of the Hazardous
Substance Response Trust Fund, which is commonly known as "Superfund." The
Superfund, managed by the U. S. Environmental Protection Agency, was established
to respond to emergency hazardous conditions and to fund the cleanup efforts
required to remove or control hazardous waste substances. The Superfund trust
fund was initially established at $1.6 billion. About $220 million was appropriated
from general tax revenues and the balance was collected from taxes imposed on
the manufacturers, producers, and importers of petroleum, petroleum products, and
certain chemicals.
The Environmental Protection Agency identifies hazardous waste sites and
attempts to have the responsible parties perform the needed cleanup. If the
responsible parties cannot be identified or will not perform the cleanup, the
Environmental Protection Agency requests the State where the hazardous waste
site is located to assume cleanup responsibilities. When neither the responsible
party nor the State will assume cleanup responsibilities, the Federal government
assumes the responsibility. In February 1982, the Environmental Protection
Agency and the U. S. Army Corps of Engineers reached an agreement for the Corps
to provide technical assistance, contract for the design and construction work, and
perform contract administration functions when the Federal government assumes
cleanup responsibility for hazardous waste sites. The actual hazardous waste site
cleanup is accomplished by contracting with private firms. Contract costs are paid
by the Corps and then reimbursed by the Environmental Protection Agency. In
order to assist the Environmental Protection Agency in cost recovery actions
against parties responsible for creating hazardous waste sites, the Corps is required
to maintain detailed site-specific accounts that fully document all costs incurred.
The public law establishing the Superfund requires the Inspector General,
Environmental Protection Agency to audit Superfund as appropriate and requires
Federal Agencies to cooperate with the Inspector General's efforts. The Inspector
General requested audit assistance from The Auditor General of the Army in
evaluating the Corps' management of Superfund work. At a meeting in June 1985,
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representatives of the Army Audit Agency and the Inspector General determined
that this initial audit of the Corps' involvement with Superfund would be designed
to evaluate the appropriateness of the procedures and policies forming the internal
control framework of the Corps' management of Superfund efforts. Accordingly,
detailed analyses and examinations were limited to those transactions and
observations necessary to test the overall procedures. The economy and efficiency
with which the Corps carries out individual hazardous waste site cleanup projects
was audited only to the extent necessary to reach conclusions on the overall
management process.
OBJECTIVES AND SCOPE
By agreement with the Environmental Protection Agency, the mission of the
Corps includes providing technical assistance for the cleanup of hazardous waste
sites, contracting for the design and construction work at hazardous waste sites,
and performing the associated contract administration functions. The overall
purpose of the audit was to evaluate the internal control framework established to
carry out Superfund operations in support of the Environmental Protection Agency.
Specific audit objectives were to determine whether:
-Policies and procedures were established to effectively carry out and monitor
interagency agreements with the Environmental Protection Agency.
-Costs claimed for Superfund work were reasonable and properly supported.
-Contract administration procedures were appropriate and were followed to
ensure the proper performance of hazardous waste cleanup actions by
contractors.
-Reimbursement procedures were appropriate and were followed on a
consistent basis by Corps finance and accounting offices.
The audit, performed from July 1985 through January 1986, was made in
accordance with generally accepted government auditing standards and,
accordingly, included such tests of internal controls as we considered necessary in
the circumstances. Audit work was performed at the Headquarters, U. S. Army
Corps of Engineers in Washington, D. C.; three Corps division offices; and three
Corps district offices. In addition, discussions were held with and information was
received from personnel at Headquarters, U. S. Environmental Protection Agency
in Washington, D. C.; two Environmental Protection Agency regional offices; and
one Environmental Protection Agency field office. The Annex shows the specific
activities included in our review. The audit covered transactions which were
representative of operations current at the time of the audit.
OBSERVATIONS AND CONCLUSIONS
The overall internal control framework used by the Corps to manage
Superfund operations in support of the Environmental Protection Agency was
appropriate and generally effective. Essentially, the'Corps made full use of the
existing civil works decentralized management structure aa the mechanism to
manage Superfund efforts. But some aspects of this existing internal control
structure needed to be changed or improved to properly manage the unique aspects
of the Superfund program.
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Effective policies and procedures were established to execute the work
requirements of interagency agreements with the Environmental Protection
Agency. Formal written guidelines, which detailed the procedures to be followed
in executing interagency agreements, were circulated throughout the Corps. But
procedures were not established to effectively monitor the status of interagency
agreements. Superfund Automated Management System reports were not reviewed
to ensure that the reports were complete and contained current information.
Unneeded project spending authority was not promptly returned to the Environ-
mental Protection Agency, and interagency agreements expired before all costs
were billed and were not closed promptly when completed. Establishing procedures
for a management review of project manager's worksheets would ensure that
complete and accurate information on Superfund projects is provided to the
Environmental Protection Agency and that project managers effectively manage
each agreement. Also, the method used to finance Superfund efforts within the
Corps was not cost-effective since the U. S. Treasury had to borrow to cover cash
outlays until a subsequent reimbursement was obtained from the Superfund trust
fund. The U. S. Treasury incurred $108,000 in interest charges in the first
10 months of FY 85 and could incur about $50.5 million in interest charges over the
projected life of the Superfund program if the present reimbursable method of
financing continues. U. S. Treasury interest costs would be reduced if the Corps
made direct use of the Superfund trust fund to pay contractors*
Costs claimed by the Corps for Superfund work were reasonable considering
the scope and the complexity of the Superfund program, but formal supporting cost
documentation was not always prepared and retained in accordance with the terms
of the interagency agreements. Costs charged for contractual work were
thoroughly supported. However, about 31 percent of the in-house charges reviewed
were not properly supported. Timesheets were often destroyed after the informa-
tion was entered into the automated system. Documentation supporting work
performed on reimbursable orders within the Corps was not provided to the Corps
activity responsible for the interagency agreement. Cost transfers and billing
credits were made without sufficient documented justification. According to the
interagency agreements, cost documentation must be provided to the Environ-
mental Protection Agency within 3 weeks of a request for the documentation.
Records supporting the costs charged may not be readily available when the
Environmental Protection Agency requests them because accounting records were
filed by type of document rather than by interagency agreement. Also, the length
of time for document retention needed adjustment because cost documentation
must be available to support future litigation actions against parties responsible for
creating hazardous waste sites and current Army document retention requirements
were not adequate.
Contract administration procedures for hazardous waste cleanup efforts were
appropriate and were followed. Firm fixed-price contracts were consistently
awarded to the qualified low bidder. The contractor's performance was closely
administered. For example, project managers were required to complete daily and
weekly progress reports for each contract. Corps inspectors were located at the
hazardous waste sites to ensure work was being performed in accordance with the
terms of the contract. Control logs were maintained showing the quantity of
contaminated materials removed from a site and shipped to an appropriate disposal
location. Manifest shipping documents were signed by the sender and receiver to
verify proper disposition of hazardous materials.
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Reimbursement procedures were not appropriate or were not followed on a
consistent basis by Corps finance and accounting offices. Policies prescribed by
regulation were not being followed to collect delinquent accounts receivable. Also,
none of the finance and accounting offices we reviewed had local procedures
designating personnel responsible for collection actions. As a result of not
collecting delinquent accounts receivable, the U. S. Treasury incurred about
$52,000 in interest costs during FY 85 on the delinquent accounts. Following the
procedures outlined in AR 27-40 and AR 37-108, combined with establishing local
procedures designating personnel responsible for collection actions, would decrease
the amount of delinquent accounts receivable.
RESPONSIBILITIES AND RESOURCES ^
The Corps of Engineers is responsible for managing the design and construc-
tion of Federal cleanup sites paid for by the Environmental Protection Agency with
money from the Superfund trust fund. Design work is managed within the Corps'
Missouri River Division and construction is managed by the Corps' district with
jurisdiction over the geographic location of the cleanup site. Since 1982, the Corps
has accepted 259 interagency agreements from the Environmental Protection
Agency valued at about $62 million. In addition, the Corps received about
$1.3 million in FY 85 for management of the Superfund program. The Corps
estimated that the overall personnel effort committed to the Superfund program
was equivalent to about 100 full-time personnel during FY 85. However, the —
Superfund program is still in its early stages. According to current estimates, the
Corps could receive as much as $335 million in FY 86 for Superfund work and as
much as $5 billion over the projected life of the program.
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PARTn
FINDINGS. RECOMMENDATIONS, AND COMMAND COMMENTS
FOR THE COMMANDER, U. S. ARM7 CORPS OF ENGINEERS
A - FINANCING SUPERFUND WORK
FINDING
i
The current reimbursement method of financing contracted Superfund work
caused the U. S. Treasury to incur about $108,000 in avoidable interest cost during
the first 10 months of FY 85. The interest was unnecessarily incurred because the
Corps used appropriated funds to pay contractors for work performed! and the
U. S. Treasury must borrow money to cover the outlay of cash. A direct use of
Superfund monies by the Corps to pay for contracted costs as they are incurred
could result in the avoidance of about $3.4 million in interest during FY 86 and as
much as $50.5 million in interest over the projected life of the Superfund program.
DISCUSSION
1. Background. The Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (Public Law 96-510), commonly known as Superfund,
provides for the cleanup of hazardous wastes from uncontrolled or abandoned waste
sites. The Superfund is a trust fund which provides the operating capital to
accomplish cleanup actions. On 30 June 1985, the Superfund had a balance of over
$600 million. The monies were derived primarily from taxes levied on oil and
chemical companies and from settlements made by parties responsible for creating
hazardous waste sites. To accomplish cleanup actions, the U. S. Environmental
Protection Agency enters into interagency agreements with the U. S. Army Corps
of Engineers. The Corps provides technical expertise, issues contracts for design
and construction work, and performs contract administration functions. Environ-
mental Protection Agency procedures provide three payment methods for financing
cleanup efforts with the Superfund. Superfund work can be financed on a
reimbursement, advance, or transfer of allocation basis. To date, all Environ-
mental Protection Agency interagency agreements with the Corps have specified
the reimbursement method of financing. That is, the Corps paid for the cleanup of
hazardous waste sites and was later reimbursed by the Environmental Protection
Agency from the Superfund.
2. Reimbursable Financing. Interest costs were incurred by the U. S,. Treasury
because the reimbursement method was used to finance Superfund work within the
Corps. Under the reimbursable method of financing, the Corps used funds from the
Civil Works Construction, General Appropriation to pay contractors for Superfund
work. The Corps wrote checks against this appropriation to pay contractors as
costs were incurred. Monthly, the Corps billed the Environmental Protection
Agency for reimbursement of the costs incurred during the month. The reimburse-
ment process took a minimum of 45 days to complete. The 45'days consisted of the
15-day average time that the costs were incurred before billing and a minimum of
30 additional days for the Environmental Protection Agency to certify the billings
and issue a reimbursement check against the Superfund. Because the Corps paid
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for incurred costs with appropriated funds, the U. S. Treasury had to borrow funds
and incur interest until reimbursement was received from the Superfund. There-
fore, interest costs were incurred for about 45 days on checks written against
appropriated funds.
3. Interest Cost. Superfund costs valued at about $10.7 million were billed in
the first 10 months of FY 85. Using the annual interest rate of 9 percent in effect
at the time of audit, about $119,000 in interest accrued during the 45-day
reimbursement period. The $10.7 million included both contracted and in-house
costs of Corps personnel involved in Superfund work. We excluded interest accrued
for in-house costs because most of the costs were for salaries and it is not feasible
to pay the salaries of Corps personnel with anything other than a Corps appropria-
tion. A sample of billings showed that about 91 percent of the costs were
contracted and 9 percent were in-house. Therefore, about $108,000 in interest was
incurred because contracted costs were paid with appropriated funds and later
reimbursed by the Superfund. Similarly, the interest costs associated with
contracted work would be about $3.4 million for the FY 86 Superfund program
currently projected to be about $335 million. To demonstrate the magnitude of the
potential problem, $50.5 million in interest costs could be incurred for contractual
costs on the $5 billion that is projected for the Corps' participation in Superfund.
Interest costs could be avoided if a method of financing was arranged that would
authorize the Corps to use the funds available in the Superfund to pay for
contracted work.
4. Alternative Methods of Financing. There are several alternative methods of
financing available that would not require the U. S. Treasury to borrow funds and
incur interest for contracted Superfund work. Both the cash advance and transfer
of allocation methods of financing are already provided for by the Environmental
Protection Agency procedures. Both methods would involve the direct use of funds
in the Superfund. Under the cash advance method, the Environmental Protection
Agency could transfer all of the funds needed to complete the requirements of an
interagency agreement to the Corps or only transfer sufficient funding to finance
work for the next month or quarter. An agreement as to how much and when
funding should be transferred would have to be arranged with the Environmental
Protection Agency. With the advance method, the Corps could continue to use the
Civil Works Construction, General Appropriation for contracts and checks to
contractors, but the U. S. Treasury would not have to borrow because the monies
would have already been transferred from the Superfund trust fund. Under the
transfer of allocation method, a portion of the Superfund would be transferred to
the Corps. The Superfund would then be treated like any other appropriation
available to the Corps. The Corps could cite the Superfund on contracts and issue
checks directly against the Superfund. This method would allow funds to remain in
the Superfund until the checks were cashed by the contractor. There are also other
methods of financing that would not require the U. S. Treasury to borrow funds.
One such method is direct citation. This method is very similar to the transfer of
allocation method. Under the direct citation method, the Corps would receive
authority to cite the Superfund on contracts and checks* but primary responsibility
for all Superfund transactions would remain with the Environmental Protection
Agency. The use of any alternative method of financing would have to be
coordinated with the Environmental Protection Agency.
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RECOMMENDATION AND COMMAND COMMENTS
A - Arrange for cm alternative method of financing Superfund work that will not
require the U. S. Treasury to borrow funds and incur interest costs.
Command agreed and stated that a formal request for a change in the method of
financing Superfund work will be forwarded to the Environmental Protection
Agency. Any additional actions as a result of the Environmental Protection
Agency response will be completed as expeditiously as possible. Command also
stated that the Corps has informally suggested use of alternative methods of
financing Superfund work to the Environmental Protection Agency on at least three
occasions since the program began. On each occasion, the Environmental
Protection Agency rejected the Corps' suggestion as unacceptable from an overall
program management perspective. Hence, the Corps has had to continue to use the
reimbursement method to finance Superfund work. Command indicated that the
potential monetary benefits were reasonable.
U. S. Army Audit Agency Evaluation. Final target date for implementation of
Recommendation A will have to be included in the official command reply.
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FOR THE COMMANDER, U. S. ARMY CORPS OF ENGINEERS
B - PROGRAM AUTHORITY
FINDING
About $62 million of the program authority for Superfund projects had not
been adequately reviewed by project managers to identify and return unneeded
amounts to the Environmental Protection Agency. Estimated costs on construction
projects were not reviewed and adjusted when contracts were awarded, and
program authority was retained unnecessarily. Also, expired interagency agree-
ments for technical assistance and design work were not reviewed and either
promptly closed to return unneeded program authority or extended if warranted.
As a result, on 31 July 1985, the Corps retained about $6.6 million in Superfund
program authority that should have been returned to the Environmental Protection
Agency.
DISCUSSION
1. Background
a. Interagency Agreements. The Environmental Protection Agency issues
program authority to the Corps to carry out Superfund work. The work is
authorized within the Corps by an interagency agreement for each phasic within a
Superfund project; normally technical assistance, design, and construction. The
interagency agreements specify the amount of program authority available to
perform the work. In effect, the receipt of program authority from the
Environmental Protection Agency creates an unobligated balance available to the
Corps. The agreements also establish timeframes for the Corps to start and
complete Superfund projects. Once the agreements are accepted by the Corps, the
Environmental Protection Agency reserves monies in the Superfund trust fund to
reimburse the Corps for costs incurred. The funds are reserved until the entire
amount is used or until any unneeded program authority is returned by the Corps.
As of 31 July 1985, the Corps had accepted 259 interagency agreements that
provided program authority totaling about $62 million. Twenty of the agreements,
valued at about $41 million, were for construction work; 239 agreements, valued at
about $21 million, were for technical assistance and design work.
b. Project Manager Worksheets. Project managers at the Corps provide
data on a monthly basis to an automated system that produces management
information to include project manager worksheets for each interagency agree-
ment. The worksheets show available program authority, agreement expiration
date, estimated project cost, percentage of project completed, and project cost
incurred by month. Continuing reviews of unobligated amounts are required by
AR 37-108 to promptly adjust and return amounts that will not be converted to
valid obligations. The worksheets help reviews of program authority (unobligated
balances) by showing how much program authority is required for the major cost
categories within a project phase. Cost categories include contract cost, contract
contingencies, supervision and administration, engineering and design, and
unawarded contingencies. The Environmental Protection Agency issued guidelines
in February 1985 for estimating the major cost categories of a Superfund project.
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If -
The guidelines were stated as a percent of the contract cost. For example, on
contracts over $2 million, contract contingencies normally should not exceed
g percent of the contract cost, supervision and administration normally should not
exceed 6 percent of contract cost, and engineering and design normally should not
exceed 1 percent of contract cost.
2. Status of Interagency Agreements. Project managers were not reviewing and
adjusting the program authority provided by interagency agreements. Returning
unneeded program authority was not emphasized; and, as a result, project managers
either overestimated the amounts needed for the various cost categories on
construction projects or retained excess amounts without explanation. Also,
completed technical assistance and design projects were not promptly closed, and
thus unneeded program authority was retained. As of 31 July 1985, the Corps
retained about $6.6 million of program authority that should have been returned to
the Environmental Protection Agency for use on unfinanced high priority Super-fund
projects.
a. Construction Projects. The Corps unnecessarily retained about
$6.5 million of program authority that will not be converted to obligations for
construction projects. Estimated cost categories were sometimes overstated and
the estimated total required amount for a project was often not compared to the
available program authority.
(1) Estimated Cost Categories. At the time of our review, 20 agree-
ments for construction projects were in process. Estimated costs were overstated
by $5.3 million on 13 projects for which contracts had been awarded and for which
the cost data had been entered on project manager worksheets. Contracts were
awarded for two of the remaining seven construction projects, but the data had not
been entered on the worksheets. (A recommendation covering the need for timely
update of project manager worksheets is addressed in Finding C - Superfund
Automated Management System.) Contracts had not yet been awarded for the
remaining five construction projects. Under the guidelines issued by the Environ-
mental Protection Agency, the project manager worksheets, dated 31 July 1985,
showed that excessive amounts had been estimated on the 13 projects for the cost
categories of (i) contract contingencies, (ii) supervision and administration, and
(iii) engineering and design. The estimates were overstated as follows:
Cost Category
Contract Contingencies
Supervision and Administration
Engineering and Design
Total
Project
Manager
Estimate
$5,800,000
1,300,000
500.000
$7.600.000
Environmental
Protection
Agency
Guideline
Amount
$1,500,000
800,000
200.000
$2.500.000
Difference
$4,300,000
500,000
300.000
$5.100.000
In addition, about $200,000 was shown as reserved for unawarded contingencies on
4 of the 13 project manager worksheets. The cost category of unawarded
contingencies was not covered by the Environmental Protection Agency guidelines.
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To determine if the guidelines issued by the Environmental Protection Agency were
realistic, we reviewed three essentially completed construction projects. We
concluded that the guidelines for estimating costs we%e realistic and provided a
valid means to evaluate the reasonableness of estimated costs. The Environmental
Protection Agency cost guidelines were within 10 percent of the actual cost of the
completed construction projects. To illustrate, for one construction project,
application of the guidelines showed that about $1.06 million of the program
authority was not required. The project manager agreed that this amount was
unneeded. After contract award, the reasonableness of estimates for Superfund
project cost categories should be evaluated using the Environmental Protection
Agency guidelines. A justification or explanation should be prepared when a
project cost category exceeds ,the guidelines.
(2) Total Required Amount. In addition to the apparent over-
estimated cost categories, about $1.2 million of program authority was not planned
for obligation within any of the cost categories shown on the project manager
worksheets and should have been returned to the Environmental Protection Agency.
This program authority had been available since the project contracts were
awarded. The following schedule shows the amounts retained without explanation
and the number of months retained unnecessarily.
Superfund
Project
A
B
C
D
Total
Program
Authority
$3,700,000
500,000
3,200,000
400.000
$7.800.000
Estimated
Total
Project
Cost
$3,300,000
300,000
2,800,000
200.000
$6.600.000
Difference
$ 400,000
200,000
400,000
200.000
$1.200.000
Months
Since
Contract
Award
24
15
27
7
Total construction project cost estimates should be compared to available program
authority when contracts are awarded or when estimated costs are reduced so that
amounts that are not planned for obligation can be returned to the Environmental
Protection Agency.
b. Technical Assistance and Design Projects. As of 31 July 1985, 42 of the
239 interagency agreements accepted by the Corps for technical assistance and
design work on Superfund projects were expired. The Environmental Protection
Agency will not reimburse the Corps for any costs incurred after the expiration of
the agreement unless an extension to the performance period is obtained. Costs
had not been incurred for at least 4 months on 24 expired agreements valued at
about $600,000. About $100,000 of unused program authority remained on the
24 agreements. A detailed review of 5 of these 24 agreements showed no
additional expenditures were planned. The remaining 18 of 42 expired interagency
agreements had unobligated program authority of about $80,000. However, costs
had been recently incurred or costs were estimated in future months. Project
managers need to review the expired interagency agreements and either obtain
extensions to the project performance period or close the agreements, and thus
return" the unused program authority to the Environmental Protection Agency.
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RECOMMENDATIONS AND COMMAND COMMENTS
B-l Require project managers to review the estimated cost categories on project
manager worksheets using the guidelines issued by the Environmental Protection
Agency whenever contracts are awarded. Require the preparation of a justifica-
tion or explanation when a project cost category exceeds the guidelines.
B-2 Ensure that project managers compare the program authority available to the
total estimated cost of a Superfund project, and that they return any excess
amount to the Environmental Protection Agency whenever a contract is awarded or
a cost category is reduced. '
B-3 Ensure that project managers review expired interagency agreements and
either obtain extensions to the project performance period or close the agreements
to return unneeded program authority to the Environmental Protection Agency.
Command agreed with the recommendations and stated that the Missouri River
Division was requested on 11 October 1985 to take prompt remedial actions, as
necessary. Special procedures will be started to correct the conditions found. An
exception report will be generated by the Superfund Automated Management
System listing every project exceeding the major cost category percentages
established by the Environmental Protection Agency. Error messages will be
generated if project manager worksheets are not submitted. Also, reports will be
generated indicating that an agreement is about to expire. These reports will be
generated 30, 60, and 90 days before an agreement expires. Each of the reports
will go to the responsible project manager and to the division coordinator.
Implementation of approved actions is expected during second quarter FY 86.
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FOR THE COMMANDER, U. S. ARMY CORPS OF ENGINEERS
C - SUPERFUND AUTOMATED MANAGEMENT SYSTEM
FINDING
The Superfund Automated Management System was not complete or
accurate. Also, the Management System was not used by the Corps to monitor the
status of Superfund projects. Information on estimated Superfund project costs,
projected monthly expenditures, and current project status was not kept up to date
or was not entered into the Management System's data base. Errors on projected
expenditures had an adverse impact on the Environmental Protection Agency's
efforts to manage the Superfund trust fund since the expenditure data was used by
the Agency to forecast cash requirements. In addition, the content of the
Management System was not examined periodically to identify Superfund projects
requiring management attention.
DISCUSSION
1. Background. A separate interagency agreement is established for each phase
(technical assistance, design, and construction) of a Superfund project. The Corps
designates a project manager to ensure the accomplishment of the work required
by each interagency agreement. The Superfund Automated Management System
was established at the Corps' Omaha District to provide management information
on the status of each interagency agreement. Monthly, the Management System
generates a project manager worksheet for each interagency agreement. The
project manager worksheet shows program authority available, interagency agree-
ment expiration date, estimated project cost, estimated expenditures by month,
project status, and actual costs incurred by month. Except for actual cost data,
which is extracted from an automated financial system, project managers must
provide the data to be entered in the Management System. The project managers
are required to annotate any changes on their worksheets and return the work-
sheets for entry into the data base. The interagency agreements establish monthly
reporting requirements for the Corps. The Management System data base is used
to provide the information required by the Environmental Protection Agency.
2. Management System. Procedures did not exist to ensure that information in
the Management System was complete and accurate. While controls existed to
make certain that a worksheet was returned on each interagency agreement, there
were no procedures to review the information before or after entry in the data
base. Our review showed that information in the data base concerning estimated
costs, estimated expenditures, and project status was not complete or accurate.
a. Estimated Costs and Expenditures. Information in the Management
System showed that on 6 of the IS construction projects reviewed, estimated total
costs of the projects shown in one section of the worksheets were about
$4.2 million less than the monthly estimated expenditures shown in a different
section of the worksheets. The estimated total costs and estimated total
expenditures should always agree. For example, the cost estimate for one project
was about $2.3 million, but the estimated expenditures were about $3.2 million, a
difference of $900,000. The difference in the amounts resulted from the lack of
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emphasis on updating information. Often, updating the information was the
responsibility of clerical assistants and little or no review was made by the project
manager. Also, as discussed in Finding B - Program Authority, the estimated
expenditures often equaled the value of the interagency agreement and were not
revised downward when contracts were awarded for lower amounts. The project
managers and clerical assistants who updated the information did not understand
the importance of accurate expenditure estimates. The information in the data
base on planned expenditures was provided monthly to the Environmental Protec-
tion Agency which used the estimates to forecast cash withdrawal:} from the
Superfund trust fund. If the estimated expenditures were overstated, too much
money would be held as cash for the estimated expenditures. This could cause the
Environmental Protection Agency to lose the opportunity to invest the funds.
b. Status. The Management System did not contain accurate status codes
reflecting the current condition of each interagency agreement. At least 90 of the
191 project manager worksheets for technical assistance and design projects
contained either no status codes or an inaccurate status code. Worksheets for
45 technical assistance and design projects did not have any status codes because
the project managers had not entered the codes into the system. Status codes for
the remaining 45 of 90 technical assistance and design projects indicated that the
projects were physically and fiscally complete. However, the projects were not
complete because all cost adjustments were not made and excess funds were not
returned to the Environmental Protection Agency. Similarly, status codes were
nonexistent or inaccurate for 7 of 15 construction projects. Accurate status codes
were needed so management could intensify actions to ensure that projects nearing
completion were closed in a timely manner.
3. Management Reviews. Procedures did not exist to periodically review
information in the Management System for indications of management problems.
We found at least two problems that could have been readily identified and
remedied with a periodic review of information in the data base. Information in
the Superfund Automated Management System was not used by Corps' management
to identify unneeded Superfund program authority. As discussed in Finding B -
Program Authority, about $6.6 million in unneeded program authority was retained
by project managers. A periodic review of the information in the data base could
have identified this problem. Also as discussed in Finding B, the expiration dates
of interagency agreements were not effectively monitored by project managers to
ensure that needed time extensions were obtained. A periodic review of informa-
tion in the data base would assist in the timely identification of these and other
Superfund project problems.
RECOMMENDATIONS AND COMMAND COMMENTS
C-l Emphasize to the project managers the need for updating project manager
worksheets monthly, with complete and accurate information on all Superfund
interagency agreements. Stress the importance of accurate expenditure estimates
and project status codes.
Command agreed and stated that all Superfund division coordinators were provided
with* copy of the tentative finding and recommendations on 21 January 1986. The
coordinators were directed to take immediate steps to make records complete and
accurate and to notify the Corps headquarters not later than 12 February 1986 of
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actions taken and steps that will be followed to avoid a recurrence of reporting
deficiencies.
C-2 Establish procedures for a periodic review of information in the Superfund
Automated Management System for completeness and accuracy. As a minimum,
the review should ensure that:
•All required data is entered and updated in a timely manner.
-Planned expenditure data agrees with construction work estimates.
-Project status codes are accurate.
Command agreed and stated that the Corps' Missouri River Division was tasked on
21 January 1986 to develop the recommended procedures not later than
26 February 1986.
C-3 Establish procedures for a periodic review of the information in the data base
for indications of the existence of potential Superfund project problems.
(Examples of Superfund project problems are shown in Finding B - Program
Authority.) Begin corrective actions as required.
Command agreed and stated that the Corps' Missouri River Division was tasked on
21 January 1986 to develop the recommended procedures not later than
26 February 1986.
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FOR THE COMMANDER, U. S. ARMY CORPS OF ENGINEERS
D - SOURCE DOCUMENTATION
FINDING
Procedures had not been established to ensure that all costs billed to the
Environmental Protection Agency were supported in accordance with the terms of
the interagency agreements. Labor charges were not supported by timesheets, cost
transfers and credits were not fully explained or documented, and documents
supporting work performed by other Corps activities on a reimbursable basis were
not retained. Overall, about 31 percent of the Corps' in-house costs for Superfund
billings reviewed were not adequately documented. Thorough and complete
Superfund cost documentation is needed to support future actions to recover costs
from parties responsible for creating the hazardous waste sites now being
corrected by the Corps.
DISCUSSION
1. Background. Corps responsibilities for Superfund projects are established by
interagency agreements with the Environmental Protection Agency. The Inter-
agency agreements require the Corps to keep detailed records of all costs incurred.
The detailed records are required to assist the Environmental Protection Agency in
cost recovery actions against the party responsible for creating the hazardous
waste site. To help ensure a successful recovery of Superfund costs, the
interagency agreements require that the Corps maintain timesheets to document
labor hours, paid vouchers to document travel and per diem expenses, and
documentation to support any other costs. Monthly, the Corps' Management
Information System generates billings to the Environmental Protection Agency.
The bulk of the billed costs is based on contractor invoices, but some of the billed
costs are calculated by an automated system based on information entered into the
system. For example, the cost of direct labor, indirect labor, and overhead is
based on direct labor hours charged to an interagency agreement.
2. Supporting Documentation. Controls over the recording of labor hours, cost
transfers, credit billings, and reimbursable workorders did not ensure that costs
billed were properly documented in accordance with the terms of the interagency
agreements. We reviewed 55 billings, valued at about $3.3 million, for work
performed on 17 interagency agreements. About S3 million was for contracted
work properly supported by contractor invoices. However, about $96,100, or over
31 percent of the remaining $300,000 for Corps in-house costs, was not properly
supported by required cost documentation. Timesheets supporting almost $54,000
of the charges for direct labor, indirect labor, and overhead had either been
destroyed or not prepared; documentation supporting over $12,000 of the cost
transfers and about $2,100 of the billing credits had not been prepared or, when
prepared, did not provide adequate explanation; and timesheets and other support-
ing documentation for almost $28,000 of the work performed for reimbursable
workorders within the Corps had been destroyed or was not available. As a result,
the required documentation did not exist to support these billings. An shown in
Finding A - Financing Superfund Work, about 9 percent of the $10.7 million billed
to the Environmental Protection Agency during the first 10 months of FY 85 was
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for Corps in-house costs. Accordingly, as much as $298,000 of the total amount
billed may not be adequately supported with complete cost documentation..
a. Labor Charges. The labor timesheets used to record direct labor hours
were not always retained as required for cost recovery actions. We reviewed about
$240,000 of the charges for direct labor, indirect labor, and overhead. About
$54,000, or over 22 percent, was not properly supported because labor timesheets
had been destroyed or had not been prepared. At the time of our review, the
Corps' manual time control system was being replaced by an automated system.
Additional controls are needed for both the manual and automated systems to
ensure that labor charges are supportable for litigation to recover Superfund
cleanup costs from the parties "responsible for hazardous waste sites.
(1) Manual Time Control. Charges for direct labor, indirect labor,
and overhead were unsupported because procedures did not exist at all Corps
activities to retain labor timesheets. At one activity timesheets were not always
prepared; when timesheets were prepared, they were discarded after a couple of
months. At this activity, time charged to interagency agreements was usually
written on a sheet of paper and then entered into the automated system. At
another activity, Corps personnel told the timeclerks what charges to make on the
various interagency agreements or wrote time charges on informal memorandums.
The timeclerks then filled out a timesheet. Neither the employee nor the
supervisor signed the timesheets. Labor timesheets, properly signed, should be
retained under the terms of the interagency agreements.
(2) Automated Time ControL The Corps of Engineers' Time, Attend-
ance, and Labor System is currently being implemented throughout the Corps. The
Labor System was designed to combine time and attendance reporting with labor
cost reporting. The Labor System eliminates the need for a manually prepared
timesheet. The Labor System automatically generates a timesheet for each
employee. At activities where the Labor System was implemented, procedures
required the timesheet to be signed by the employee's supervisor. We believe that
the employee should also sign this form to verify the accuracy of the time charges.
During our review we noted that there were numerous cost transfers because labor
hours were erroneously charged to the wrong interagency agreement. While we did
not determine how often erroneous charges occurred, the double signature should
improve the accuracy of labor charges and lend additional credence to the
accuracy of the costs. The Labor System timesheet, properly signed, should be
retained in accordance with the requirements of the interagency agreements.
b. Transfers and Credits. Cost transfers and billing credits were made
without adequate documentation. Cost transfers occur when direct labor hours or
other charges have been made to the wrong interagency agreement. To transfer
the costs, information from a manually prepared accounting transfer/reference
document is entered into the automated system. Billing credits are made when the
computer-generated bills are overstated. To correct the billed amount,, informa-
tion from a manually prepared credit document is entered into the automated
system to reduce the following month's bill. On 3 of the 55 billings reviewed, about
$12,000 had been transferred from one interagency agreement to another. For
example, about $8,800 for labor, overhead, and travel on one construction project
was transferred to two agreements for technical assistance on the same project
when the Environmental Protection Agency rejected the costs. The costs were
rejected because they occurred before the construction phase of the Superfund
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project began. While a memorandum was prepared stating why the costs were
transferred, no timesheets or other supporting documentation was kept to explain
how the amounts transferred were determined. Also, 2 of the 55 billings had
manually generated credits totaling about $2,100. The credits were for motor
vehicle and overhead costs that Corps personnel indicated were overcharged on
prior bills. Documentation was not available to support the need for the credits or
for the amount of the credits. While credits would not result in additional costs
being recouped from the responsible parties, the existence of unexplained billing
credits could have the effect of casting doubt on the remaining charges. Documen-
tation of the reason for and the amount of both transfers and credits is needed and
should be retained to support *ny billing adjustments.
c. Reimbursable Orders. Documentation was not available to support
work performed on a reimbursable basis by other Corps activities. When Superfund
work was performed by a Corps activity other than the one responsible for the
interagency agreement, an Intra-Army Order for Reimbursable Services was issued
to authorize performance of the work. Charges for reimbursable workorders,
totaling about $28,000, were on 4 of the 55 billings reviewed. We asked for
documentation supporting the charges, and found that the performing activity was
responsible for maintaining the appropriate documentation. However, the one
activity visited did not retain supporting timesheets or documentation. For
example, a reimbursable workorder for $15,000 was issued to the activity in June
1984. On the first bill, the activity charged $11,299 for labor and overhead.
A second bill, for $3,701, was generated in June 1985 to bring the total to exactly
$15,000, the amount of the reimbursable workorder. Timesheets and other
documents needed to support the cost of the work performed were not available.
Procedures need to be established requiring performing activities to provide copies
of documentation supporting billed costs on reimbursable orders. The documenta-
tion would then be readily available for litigation efforts, if requested.
RECOMMENDATIONS AND COMMAND COMMENTS
D-l Establish controls to ensure that timesheets are manually prepared! and signed
by all employees performing work on Superfund projects until the automated time
control system is implemented. Also, ensure that supervisors verify the validity of
charges.
Command agreed and stated that action will be taken to ensure that all Corps
activities at which the Corps of Engineers' Time, Attendance, and Labor System
has not been implemented comply with the existing requirement to document labor
costs on Engineering Form 4494, Labor Cost Distribution Sheet. Appropriate
action will also be taken to ensure that Engineering Forms 4494 are signed by all
employees performing work on site-specific Superfund projects and to ensure that
supervisors review the forms to verify the validity of the labor cost distributions
recorded thereon.
D-2 Establish controls to ensure that automated timesheets are signed by the
employee and reviewed by the supervisor for validity once the Labor System is
implemented.
ir
Command agreed and stated that appropriate action will be taken to ensure that
labor cost distribution sheets generated by the Corps of Engineers' Time,
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Attendance, and Labor System are signed by all employees performing work on
site-specific Superfund projects. Appropriate action will also be taken to ensure
that supervisors review the labor cost distribution sheets to verify the validity of
the labor cost distributions shown thereon.
0-3 Establish procedures to ensure that cost transfers and credits are fully
explained and documented.
Command agreed and stated that appropriate action will be taken to ensure
compliance with existing Corps' requirements to fully explain and document cost
transfers and credits. Compliance with established procedures will be added to
quality assurance checklists and will be included in future quality assurance
inspections. In addition, the importance of adequate explanation and documenta-
tion of cost transfers and credits will be reemphasized.
0-4 Require that activities performing work on reimbursable workordera provide
copies of all supporting documentation, with the bills, to the Corps activity
responsible for the interagency agreement.
Command agreed and stated that special procedures governing billings for work
performed on reimbursable workorders in support of site-specific interagency
agreements related to the Superfund program are being developed for immediate
Corps-wide implementation. The special procedures will require that billing
activities attach certified copies of all supporting documents to bills submitted to
the activity responsible for the interagency agreement.
D-5 Establish procedures to ensure that source documentation (timesheets, justi-
fications for cost transfers and credits, and any other appropriate supporting
documentation) is retained in accordance with the terms of the interagency
agreements.
Command agreed and stated that appropriate action is being taken to ensure that
cost documentation is retained in accordance with the terms of the interagency
agreements. In addition, an attempt will be made to negotiate a mutually
agreeable method of transferring source documents which meet the destruction
criteria established in AR 340-18 to the Environmental Protection Agency for
further retention. If an agreement is reached, appropriate changes to existing
interagency agreements will be negotiated with the Environmental Protection
Agency.
Command also stated that existing policies and procedures require that all Corps
activities at which the automated Corps of Engineers' Time, Attendance, and Labor
System has not been implemented document labor costs on Engineer Form 4494,
Labor Cost Distribution Sheet. Existing policies and procedures also require
preparation and retention of adequate documentation to support all costs charged
to Corps projects and/or reimbursable orders. These policies and procedures
extend to cost transfers and/or cost adjustments. In addition, existing policy
dictates that all cost source documents, including labor cost distribution docu-
ments, be retained for the periods specified in AR 340-18.
U. S/Army Audit Agency Evaluation. Final target dates for implementation of
Recommendations D-l through D-5 will have to be included in the official
command reply.
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FOR THE COMMANDER, U. S. ARMY CORPS OF ENGINEER!}
E - MAINTENANCE OF COST DOCUMENTATION
FINDING
The existing procedures for the maintenance of Superfund project cost
documentation did not ensure the documentation would be readily available when
needed. Cost documentation should have been filed on an interagency agreement
basis at a central location; instead, documentation was filed by type of document
at several locations. Also, documentation may need to be retained longer than the
retention periods prescribed by AR 340*18. As a result, documentation of costs
incurred for Superfund work may not be available for future litigation efforts
against parties responsible for creating hazardous waste sites.
DISCUSSION
1. Background. Separate interagency agreements are issued for each phase
within a Superfund project: normally technical assistance, design, and construc-
tion. For each agreement, the Corps is required to maintain accounts and
documentation of (i) contract cost; (ii) employee hours and salary (ttmesheets);
(Hi) employee travel and per diem expenses (travel vouchers); (iv) receipts for
materials, equipment, and supplies; and (v) any other costs not included in the
above categories. Detailed records are required so that the costs can b« recovered
by the Environmental Protection Agency from the party responsible for the
hazardous waste site. The Corps is required to provide the detailed cost records
within 3 weeks of being requested by the Environmental Protection Agency.
2. Document Files. Procedures were not established to ensure that Superfund
cost documentation would be readily available when needed. Cost documents were
filed by type of document at several locations rather than by interagency
agreement at a central location. As a result, documentation supporting costs on a
particular interagency agreement could not be readily retrieved when requested.
Travel vouchers, miscellaneous obligation documents, and receipts were filed in the
finance and accounting office by type of document rather than by interagency
agreement. Generally, after 3 yean these accounting records were sent to records
holding, which made document retrieval even more difficult. Timesheets, which
are not accounting records, were kept by the timekeeper in each Corps office.
Additionally, documents supporting some contract costs were at locations other
than Corps activities and could not be readily retrieved. For example, on one
Superfund construction project the contract was ended due to unforeseen develop-
ments; documents supporting some contract costs were at the hazardous waste site
in Pennsylvania, while other documents were at the Environmental Protection
Agency Region Office in Philadelphia. When we requested these documents, it
took the Corps about 6 weeks to retrieve them. Establishing files by interagency
agreements at a central location would ensure that all cost documents can be
provided to the Environmental Protection Agency within the required 3-week
period.
*
3. Document Retention. Retention procedures for Superfund documentation
needed to be changed. The Corps generally complied with the provisions of
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AR 340-18, which required accounting documents to be kept for 6 years 3 months.
The existing document retention procedures may result in cost documents being
destroyed before litigation is begun by the Environmental Protection Agency. To
date, the length of time that Superfund cost records need to be retained has not
been determined. However, it is apparent that some files may need to be retained
for more than 6 years 3 months. For example, in December 1982 the Corps
received an interagency agreement to provide technical assistance for a Superfund
project in Massachusetts. Technical assistance and design work were completed,
and construction work at the hazardous waste site followed in October 1983. Due
to unforeseen circumstances, the construction contract was ended in June 1985.
New design and construction work will take several more years, and litigation will
probably not take place until after all the construction work is completed.
Therefore* documents for the initial technical assistance and design interagency
agreements could be needed after the 6 years 3 months existing retention period
has ended. Environmental Protection Agency management told us that their policy
was to retain cost records for 20 years. To alleviate some of the problems and
costs associated with storing a large volume of records, the Corps should develop
procedures to transfer supporting cost documentation for each interagency agree-
ment to the Environmental Protection Agency for long-term storage as soon as the
Army's need for the documentation has ended.
RECOMMENDATIONS AND COMMAND COMMENTS
E-l Establish procedures to forward documentation supporting Superfund costs to
the appropriate office. File the documentation by interagency agreement. As a
minimum include contract invoices; timesheets; travel vouchers; miscellaneous
obligation documents; receipts for materials, equipment, and supplies; and docu-
mentation supporting any other costs.
Command agreed and stated that existing procedures will be modified to require
the establishment and maintenance of a file of certified copies of cost documents
(contract invoices; timesheets; travel vouchers; miscellaneous obligation docu-
ments; receipts for materials, equipment, and supplies; etc.) at a central location
for each Superfund site-specific interagency agreement which includes special cost
documentation maintenance and retention requirements.
E-2 Establish files for each interagency agreement already accepted. Perform a
one-time effort to gather and file supporting documentation.
Command agreed and stated that files will be established for each accepted
Superfund site-specific interagency agreement which includes special cost docu-
mentation maintenance and retention requirements. Once the files have been
established, certified copies of all existing cost documents will be placed in the
files.
E-3 Retain the files supporting costs for each interagency agreement until such
time that the documents are requested by or transferred to the Environmental
Protection Agency.
Command agreed and stated that special procedures will be developed to retain the
files until requested by or transferred to the Environmental Protection Agency.
Since retention of these records beyond the normal destruction dates established in
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AR 340-18 will require a waiver, an attempt will be made to negotiate mutually
acceptable procedures for the transfer of these records to the Environmental
Protection Agency prior to expiration of the normal retention period. If an
agreement is reached, appropriate changes to existing interagency agreements will
be negotiated with the Environmental Protection Agency. If an agreement cannot
be reached, a request for waiver of the retention requirements of AR 340-18 will
be initiated and forwarded to the appropriate Department of the Army approval
authority.
Command also stated that the manner in which original accounting documents are
filed is an essential part of the Corps' accounting system. Since original Superfund
cost documents are also the source documents for entries made into the Corps'
standard accounting system, it is essential that these documents be filed in the
same manner as all other accounting documents so that they can be easily located
to support an accounting transaction/entry and/or a disbursement should the need
arise. In addition, certain types of single copy documents, for example, labor cost
distribution sheets, contain data related to more than one project and can not be
filed in a single project file under any circumstance. Through some type of
administrative error, the office of primary responsibility for cost documentation
and retention was never advised of the special cost documentation and retention
requirements peculiar to site-specific interagency agreements with the Environ-
mental Protection Agency in support of the Superfund program and was therefore
unaware of the need to establish special procedures to ensure that cost documenta-
tion would be readily available when needed.
U. 8. Army Audit Agency Evaluation. Final target dates for implementation of
Recommendations E-l through E-3 will have to be included in the official
command reply.
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FOR THE COMMANDER, U. S. ARMY CORPS OF ENGINEERS
F - ACCOUNTS RECEIVABLE
FINDING
About $1.6 million of accounts receivable from the Environmental Protection
Agency were not promptly collected because prescribed collection procedures were
not followed. Collection letters were not sent at required intervals, local
procedures did not exist designating responsible personnel and appropriate actions,
and billings were processed after interagency agreements expired. As a result, the
U. S. Treasury unnecessarily incurred about $52,000 in interest costs on the
delinquent accounts.
DISCUSSION
1. Background. Interagency agreements between the Environmental Protection
Agency and the Corps are established to provide the necessary funding for
Superfund projects managed by the Corps. For each phase of a Superfund project,
an agreement is established providing the Corps with program authority for a
specified timeframe. As costs are incurred, the Corps establishes an account
receivable and bills the Environmental Protection Agency for the amount spent.
The Environmental Protection Agency reimburses the Corps with a check from the
Superfund trust fund for deposit to the U. S. Treasury. According to AR 37*107, an
account receivable is considered delinquent when payment is not received within
30 days of the billing date. Procedures for collecting delinquent accounts
receivable are prescribed in ARs 27-40 and 37-108. Collection letters should be
sent to the debtor if payments are not received within 5 workdays of the due date.
If payment is still not received, two additional letters should be sent at 30-day
intervals. The regulations also encourage aggressive actions, including telephonic
communications at regular intervals, in an effort to collect delinquent accounts.
2. Accounts Receivable. We reviewed the accounts receivable from the
Environmental Protection Agency pertaining to Superfund work at the four Corps
finance and accounting offices that processed the bulk of the Superfund billings.
As of 9 September 1985, 30 of 94 accounts receivable at the four finance offices
were delinquent. The delinquent accounts receivable were valued at about
$1.6 million* The following chart lists four examples of accounts receivable for
which payments had not been received within the prescribed 30-day period.
Billing Date Amount Billed Days Delinquent
18 Jan 84 $ 5,159 565
30 Nov84 212,266 243
22 Feb 85 454,817 163
15 Apr 85 17,183 124
Corps personnel were not following the prescribed delinquent account collection
procedures and were not seeking extensions to the interagency agreements that
authorized the performance of the Superfund work. As a result, until the
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delinquent payments were received from the Environmental Protection Agency, the
U. S. Treasury was incurring unnecessary interest costs on the accounts for
Superfund work.
a. Collection Actions. Corps personnel did not make aggressive attempts
to collect the delinquent accounts receivable. Of the 30 delinquent accounts
reviewed, no collection letters were issued for 22 accounts, a single letter was
issued for 7 accounts, and 2 letters were sent for the remaining account. However,
none of the collection letters were sent within the timeframes provided by
regulation. Telephone calls were not made to collect on any of the accounts. Even
though some collection letters were sent, Corps personnel stated that it was not
local policy to aggressively follow up on delinquent accounts receivable from other
government agencies. Confusion existed as to who should process collection letters
and make telephone calls because local written procedures, designating responsible
personnel or the appropriate required actions, did not exist at any of the finance
and accounting offices.
b. Account Status. In order to determine why payments had not been
made, we contacted the Environmental Protection Agency's finance and accounting
office to ask about three large delinquent accounts. In one case, a bill, valued at
about $454,817, had apparently not been received by the Environmental Protection
Agency. Corps personnel were not aware of this situation because the collection
procedures prescribed by AR 37-108 were not followed. As a result of our inquiry,
a second bill was sent to the Environmental Protection Agency and payment was
subsequently received. We also contacted a regional project manager at the
Environmental Protection Agency on 28 August 1985 about two additional bills
valued at $212,266 and $812,917. As a result of this contact, the project manager
located and certified for payment the bills that were originally sent to the
Environmental Protection Agency on 30 November 1984 and 25 June 1985. Pay-
ments for both bills were received by the Corps in September 1985. If the
appropriate action had been taken by the Corps, payments for these and other
delinquent accounts could have been collected in a more timely manner.
c. Interagency Agreements. An expired Interagency agreement was a
contributing cause for 4 of the 30 delinquent accounts receivable. Four bills,
valued at about $41,000, were sent to the Environmental Protection Agency in
March and April 1985. The Environmental Protection Agency did not pay the bills
because the interagency agreement authorizing the work expired on 31 January
1985. Since the agreement had expired, the Corps no longer had authority to spend
funds and the Environmental Protection Agency did not have a basis for making the
payments. A time extension was obtained by the Corps in June 1985 authorizing
work and payments through 30 September 1985. The Corps resubmitted the bills in
July and August 1985. However, as of 9 September 1985, no payments had been
received nor had any followup collection action been started. (A recommendation
concerning the need to request extensions for the performance periods of inter-
agency agreements with the Environmental Protection Agency is included in
Finding B - Program Authority.)
3. Interest Costs. Aggressive actions were not taken by the Corps to collect
delinquent accounts receivable. The Corps paid contractors for work performed
and incurred costs for the salaries and travel of Corps personnel. The Corps
accumulated these costs and billed the Environmental Protection Agency for
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reimbursement from the Superfund trust fund. Interest costs were incurred
because the U. S. Treasury had to borrow funds to pay the checks written by the
Corps for contractor costs and for the salaries and travel of Corps personnel until
reimbursement was made from the Superfund trust fund by the Environmental
Protection Agency. About $52,000 in interest costs was unnecessarily incurred on
the 30 delinquent accounts because payments from the Environmental Protection
Agency were not made within 30 days of the billings. Improved local procedures
and increased aggressive collection actions by the Corps will reduce unnecessary
interest costs to the U. S. Treasury.
RECOMMENDATIONS AND COMMAND COMMENTS
F-l Follow the procedures prescribed by ARs 27*40 and 37-108 to aggressively
collect delinquent accounts receivable. As a minimum, ensure that:
-Collection letters are sent to the Environmental Protection Agency when
receivables remain unpaid 30 days after billing.
-Two subsequent letters are sent at 30-day intervals if the debt remains
outstanding.
-Telephone calls are made to the Environmental Protection Agency when
written communications are not answered.
Command agreed and stated that the collection procedures prescribed by
ARs 27-40 and 37-108 will be strictly enforced and the current collection policies
of Engineer Regulation 37-2-10 will be reemphasized. Additional guidance on the
collection of accounts receivable from the Environmental Protection Agency will
be issued to all finance and accounting offices.
F-2 Develop local procedures at each Corps finance and accounting office
designating responsible personnel and appropriate actions for collecting delinquent
accounts receivable.
Command agreed and stated that finance and accounting offices will be directed to
develop and follow local procedures for collecting delinquent accounts receivable
based on the guidelines presented in AR 27-40, AR 37-108, and Engineer Regula-
tion 37-2-10. As a minimum, procedures developed will designate responsible
personnel and prescribe specific procedures and actions to be taken to aggressively
collect1 delinquent accounts receivable. Additional guidance will be issued to all
finance and accounting offices reemphasizing the applicability of prescribed
collection procedures to government agencies as well as private parties and
directing use of the automated accounts receivable aging program currently
available within the Corps' Management Information System.
Command also stated that billings sent by Corps activities to the Environmental
Protection Agency's Finance Center in Cincinnati are logged in by the Finance
Center and then mailed to the appropriate Environmental Protection Agency
Regional Office for certification. Once certified, the billings are mailed back to
the Finance Center for processing and payment. As a result of these somewhat
unwieldy procedures, it may be unreasonable to expect payment from the Environ-
mental Protection Agency within the 30-day timeframe allowed by governing
directives. Strict compliance with prescribed collection procedures would probably
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necessitate an initial collection letter for every billing for reimbursable services in
support of the Superfund program. While this command endorses and supports the
current Army policy on collection of delinquent accounts receivable, we believe
that it would be in the best interests of all concerned to obtain a waiver of the
requirement to send collection letters to the Environmental Protection Agency
when receivables remain unpaid 30 days after billing and will actively pursue this
course of action.
U. S. Army Audit Agency Evaluation. Final target dates for implementation of
Recommendations F~l and F-2 will have to be included in the official command
reply.
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ANNEX
f -
ACTTVrnES INCLUDED IN THE AUDIT
U. S. Army Corps of Engineers
Headquarters, U. S. Army Corps of Engineers, Washington, D. C.
Missouri River Division, Omaha, Nebraska
North Atlantic Division, New York, New York
New England Division, Waltham, Massachusetts
Omaha District, Omaha, Nebraska
Kansas City District, Kansas City, Missouri
Baltimore District, Baltimore, Maryland
U. S. Environmental Protection Agency
Headquarters, U. 3. Environmental Protection Agency, Washington, D. C.
Regional Office, Kansas City, Kansas
Regional Office, Philadelphia, Pennsylvania
Field Office, Cincinnati, Ohio
fe
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