&-/ §' / | 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 ------- - 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. ------- 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. ------- 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. ------- 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 ------- 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 ------- 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. ------- 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 ------- 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 ------- 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 ------- 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? ------- 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, ------- 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. ------- 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. ------- 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. ------- 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 ------- 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. ------- 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. ------- 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. ------- 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. ------- 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. 10 ------- 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. 11 ------- 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 12 ------- 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 13 ------- 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. 14 ------- 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 15 ------- 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 16 ------- 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, 17 ------- 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. 18 ------- 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 19 ------- 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 20 ------- 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. 21 ------- 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 22 ------- 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 23 ------- 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 24 ------- 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. 25 ------- 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 27 ------- |