r £*> »** "' -^UNITED STATES ENVIRONMENTAL PROTEC
* ^BK % °lV-> lJ30 S OFFICE OF INSPECTOR GENERAL
iff ^BM^^BB v* s\ - tA fi v-^-^ » i .
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
S> OFFICE OF INSPECTOR GEN
' * \y NORTHERN DIVISION
1O W. JACKSON BLVD., 4TH FLOOR
^PRO*°
|1^
^fM ^^^X^ CHICAGO. ILLINOIS 6O6O4
W ^V-rtf^
OFFICE OF AUDIT OFFICE OF INVESTIGATION
312/333-2406 312/333-2507
December 24, 1986
SUBJECT: Audit Report No. E5BH7-05-0210-70459
Interim Audit of Minnesota Pollution Control Agency's
^ Administration of Its Superfund Cooperative Agreements
V With EPA Under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980
-------
-------
He have no objection to the release of this report at your discretion,
Should you have any questions, please contact Lee Stevens.
Enclosures
cc: Kenneth Hockman
-2-
-------
-------
'» * r
o a
REPORT OF INTERIM AUDIT OF
MINNESOTA POLLUTION CONTROL AGENCY'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD DECEMBER 20, 1982 THROUGH SEPTEMBER 30, 1985
TICHENOR. RESLER. & EICHE
CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT. SUITE 200
43» BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40207
(302) 893-0700
-------
-------
E5BH7-05-0210-70459
12/24/86
TABLE OF CONTENTS
Page
SCOPE AND OBJECTIVES 1
SUMMARY OF FINDINGS 2
BACKGROUND 4
AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V-005788,
V-005789, V-005794 AND V-005848 AWARDED TO THE
MINNESOTA POLLUTION CONTROL AGENCY 10
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
AND COMPLIANCE 12
FINDINGS AND RECOMMENDATIONS
1 - STATE'S SUPERFUND PROCUREMENT SYSTEM
HEEDS IMPROVEMENT 14
2 - NONEXPENDABLE PERSONAL PROPERTY OMITTED FROM
PROPERTY LISTING 16
3 - NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS 17
EXHIBIT A -
EXHIBIT B -
COOPERATIVE AGREEMENTS AWARDED TO THE
MINNESOTA POLLUTION CONTROL AGENCY
SUMMARY OF COSTS CLAIMED, ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE PERIOD
DECEMBER 20, 1982 THROUGH SEPTEMBER 30,
1985
REILLY TAR COOPERATIVE AGREEMENT AWARDED
TO THE MINNESOTA POLLUTION CONTROL AGENCY
SCHEDULE OF COSTS CLAIMED, ACCEPTED, QUES-
TIONED AND SET-ASIDE FOR THE PERIOD DECEMBER
20, 1982 THROUGH SEPTEMBER 30, 1985
19
20
EXHIBIT C -
NEW BRIGHTON COOPERATIVE AGREEMENT AWARDED
TO THE MINNESOTA POLLUTION CONTROL AGENCY
SCHEDULE OF COSTS CLAIMED, ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE PERIOD
JUNE 17, 1983 THROUGH SEPTEMBER 30, 1985...
30
-------
TABLE OF CONTENTS (Continued)
EXHIBIT D -
EXHIBIT E -
EXHIBIT F -
EXHIBIT G -
MULTISITE COOPERATIVE AGREEMENT
AWARDED TO THE MINNESOTA POLLU-
TION CONTROL AGENCY SCHEDULE OF
COSTS CLAIMED AND ACCEPTED FOR
THE PERIOD SEPTEMBER 29, 1984
THROUGH SEPTEMBER 30, 1985
34
PRELIMINARY ASSESSMENT/SITE
INSPECTION COOPERATIVE AGREEMENT
AWARDED TO THE MINNESOTA POLLUTION
CONTROL AGENCY SCHEDULE OF COSTS CLAIMED
AND ACCEPTED FOR THE PERIOD APRIL 1,
1985 THROUGH SEPTEMBER 30, 1985
39
REILLY TAR COOPERATIVE AGREEMENT
AWARDED TO THE MINNESOTA POLLUTION
CONTROL AGENCY SCHEDULE OF COMPLIANCE
WITH FEDERAL PROCUREMENT REGULATIONS
BY CONTRACT
40
NEW BRIGHTON COOPERATIVE AGREEMENT
AWARDED TO THE MINNESOTA POLLUTION
CONTROL AGENCY SCHEDULE OF COMPLIANCE
WITH FEDERAL PROCUREMENT REGULATIONS
BY CONTRACT.
ATTACHMENT A - MINNESOTA POLLUTION CONTROL AGENCY'S
RESPONSE TO THE DRAFT AUDIT REPORT..,
41
42
-------
REPORT OF INTERIM AUDIT OF
MINNESOTA POLLUTION CONTROL AGENCY'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD DECEMBER 20, 1982 THROUGH SEPTEMBER 30, 1985
SCOPE AND OBJECTIVES
We have performed an interim audit of the State of Minnesota's
Pollution Control Agency (MPCA) administration of its cooperative
agreements with EPA under the Comprehensive Environmental Re-
sponse, Compensation, and Liability Act of 1980. The primary
objectives of our audit were to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised
by the State in administering its cooperative agreements
with EPA.
2. Ascertain the State's compliance with provisions of the
cooperative agreements and applicable EPA regulations and
instructions.
3. Ascertain the State's compliance with provisions of the
Letter of Credit - Treasury Financial Communications
System Recipients' Manual.
4. Determine the reasonableness, allocability, and allowability
of the costs claimed under the cooperative agreements with
EPA.
Specifically, our audit covered the cooperative agreements award-
ed for the removal of hazardous wastes from the Reilly Tar, New
Brighton, Multi-Site (Arrowhead, LeHillier, South Andover, Rummer,
Long Prairie, Whittaker Corporation, and Oak Grove), and Minne-
sota Preliminary Assessment sites. The audit included an exami-
nation of costs incurred and claimed under the referenced cooper-
ative agreements from inception through September 30, 1985.
Our audit was performed in accordance with generally accepted
auditing standards and the Standards for Audit of Governmental
Organizations. Programs, Activities and Functions (1981 revision)
promulgatedbytheComptrollerGeneralof the United States.
Accordingly, the examination included such tests of the
accounting records and such other auditing procedures as we con-
sidered necessary in the circumstances.
-------
-------
SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT
Subject to the effects on Exhibit A of EPA's ultimate resolution
of the questionable expenditures referred to in the auditors'
report, Exhibit A (summarized below) presents the financial in-
formation and financial provisions of the grants.
Cooperative AMOUNT
Agreement
Reilly Tar
New Brighton
Multi-Site
Preliminary
Assessment/Site
Inspection
CLAIMED
$1,019,984
1,095,383
52,785
ACCEPTED
$452,853
286,064
52,785
QUESTIONED
$30,770
5,787
-
SET-ASIDE
$ 536,361
803,532
_
Totals $2,168.152
Questioned costs are costs claimed or incurred that we have con-
cluded should not be reimbursed by the Government or incurred as
part of project eligible costs because they are not allowable
under the provisions of applicable laws, regulations, policies,
cost principles, or terms of the grant or contract. Set-aside
costs are costs which cannot be accepted without additional
information or evaluations and approvals by responsible Agency
program officials.
! STATE'S SUPERFUHD PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by MPCA to procure contract services un-
der Superfund cooperative agreements were inadequate and not in
compliance with all requirements of Federal regulations (40 CFR
Part 33). Cooperative agreement recipients- are required to
comply with 40 CFR Part 33 as a condition of obtaining EPA fund-
ing. The lack of a written procurement manual which addressed
Federal requirements and the misunderstanding by MPCA employees
that the State's procurement system met all Federal requirements
caused the noncompliance and inadequacies in the current procure-
ment system utilized by MPCA. The procurement procedures
utilized by MPCA prohibited assurance to EPA that the best
offerer was awarded the contract.
-2-
-------
SUMMARY OF FINDINGS (Continued)
2. NONEXPENDABLE PERSONAL PROPERTY OMITTED FROM
pROpfiRTY LISTING
Lab equipment, amounting to $42,000, was claimed as a contractual
rather than an equipment cost and was not included on MPCA's
property listing. In accordance with 40 CFR Part 30, cooperative
agreement recipients are required to maintain property records
and assure that the interest of the United States in the property
is adequately reflected and protected. An agreement between the
Minnesota Department of Health (MDH) and MPCA which called for
the above equipment to be purchased by MDH resulted in MPCA los-
ing control over the equipment which could lead to the possible
loss of EPA interest in the property upon completion of the
project.
3. NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
MPCA did not submit to EPA the required quarterly progress
reports for the Reilly Tar and New Brighton cooperative
agreements within the required timeframes. . Additionally,
quarterly progress reports required by the special conditions
section of the Multi-Site cooperative agreement were not
submitted by MPCA to EPA although MPCA was aware of this
requirement (MPCA gave no reason for their noncompliance). As a
result, EPA did not have written documentation detailing
expenditures, estimates of work completed, cost and time
variances, and dates of completion.
MPCA'S COMMENTS ON FINDINGS AND OUR EVALUATION
An exit conference was held with MPCA officials on January 16,
1986 and with Region 5 officials on January 17, 1986. The pur-
pose of the exit conferences was to present our findings and rec-
ommendations and to ensure a clear understanding of our report by
MPCA and Region 5 management. At the conferences and during the
course of the audit, MPCA and Region 5 officials discussed their
position relative to our findings and recommendations. Itj. addi-
tion, MPCA .provided us with formal written comments on our draft
report in 6» memorandum dated July 17, 1986. The Executive Direc-
tor, MPCM*jNmerally concurred with our findings and recommenda-
tions, ejjjmt as noted in the Findings and Recommendations and
Notes to toe Exhibits sections of this report, and indicated cor-
rective actions were taken or were planned to resolve the issues
cited in the report. We concluded that MPCA's comments were
generally responsive to our findings and recommendations, except
as noted in the Findings and Recommendations and Notes to the
Exhibits sections of this report. To provide a balanced under-
standing of the issues, we summarized MPCA's position at appro-
priate locations in the report and included the complete response
as Attachment A.
-3-
-------
BACKGROUND
On December 11, 1980, Public Law 96-510, the Comprehensive En-
vironmental Response, Compensation, and Liability Act (CERCLA)
was enacted by Congress. CERCLA, commonly known as the "Super-
fund", was passed to provide the needed general authority and to
establish a Trust Fund for Federal and state governments to
respond directly to any problems at uncontrolled hazardous waste
disposal sites, not only in emergency situations, but also at
sites where longer term permanent remedies are required. CERCLA
was established to fill the gap in the national system to protect
public health and the environment from hazardous substances by
authorizing Federal action to respond to the release, or
threatened release, from any source, including abandoned hazard-
ous waste sites, into any part of the environment.
The blueprint for the Super fund program under CERCLA is the Na-
tional Contingency Plan (NCP), first published in 1968 as part of
the Federal Water Pollution Control Plan. The NCP lays out three
types of responses for incidents involving hazardous wastes: im-
mediate removal, planned removal, and remedial, response. The
first two types of responses were modifications .of the earlier
program under the Clean Water Act. However, remedial response is
a new type of response intended to deal with the longer term
problem of abandoned or uncontrolled sites.
CERCLA calls for compiling a National Priority List
-------
BACKGROUND (Continued)
Rellly Tar and Chemical Remedial Project Cooperative Agreement
Between 1913 and 1972 Reilly Tar and Chemical Corporation operat-
ed a coal tar distillation and wood preserving plant in St. Louis
Park. Reilly disposed of wastes from the operation in a network
of ditches that discharged to a wetland adjacent to the opera-
tion. The wastes consisted of a mixture of many compounds, in-
cluding a class of organic compounds known as Polynuclear
Aromatic Hydrocarbons, or simply PAH. Some PAH compounds are
carcinogenic and therefore pose a health risk upon chronic expo-
sure. In the mid 1970's, MDH and MPCA became concerned about PAH
compounds which were found in coal tar. In May 1978, an inves-
tigation identified PAH present at four wells located in St.
Louis Park. These wells were closed in 1978. Since that time
MDH has plugged or reconstructed 27 wells in the vicinity of the
site.
Cooperative agreement number V-005788 was awarded to MPCA under
CERCLA. The cooperative agreement was awarded on December 21,
1982, and provided for 100 percent Federal participation in the
remedial action to reconstruct/abandon wells, temedial inves-
tigation/feasibility study (RI/FS) of heavily contaminated soils
and ground water control systems, design of a granular activated
carbon treatment system for the Reilly Tar and Chemical remedial
project with a maximum Federal share of $1,993,287.
A tentative pollution clean up agreement and settlement with the
Reilly Tar and Chemical Corporation was announced on April 11,
1986 between State, Federal, City of St. Louis Park and company
negotiators. If the agreement is approved by all parties, Reilly
will pay to clean up the contaminated ground water and will pay
the United States Hazardous Substance Response Trust Fund $1.72
million and the Environmental Response, Compensation and Compli-
ance Fund of the Treasury of the State of Minnesota the sum of $1
million. Reilly also will establish a $1 million contingency
fund for the City of St. Louis Park for capital expenditures nec-
essary to implement an approved measure under the Remedial Action
Plan agreed upon in the Consent Decree.
r.'lV* '
New Brightjjfltt Cooperative Agreement
Ground wat«r was found to be contaminated with trichloroethylene
(TCE); l.l-dichloroethylenej 1,1,1-trichloroethanes 1,1-dichloro-
ethane; and several other volatile chlorinated compounds over
approximately an 18 square mile area of northern Ramsey and
Hennepin counties. Contamination was first detected in June of
1981. Thus far contamination has been detected in seven of seven
New Brighton municipal wells, two of three St. Anthony municipal
wells, two of two Arden Manor Trailer Park wells, 31 private res-
idential or commercial wells, a public golf course well, and six
of six wells supplying the Twin Cities Army Ammunition Plant
(TCAAP). The population found to have actually been consuming
-5-
-------
BACKGROUND (Continued)
contaminated water is approximately 48,000. The most likely
source of the area's contamination is TCAAP. TCAAF is a govern-
ment owned, contractor (Federal Cartridge Corporation) operated
installation. Waste disposal is known to have occurred at TCAAF
for 40 years.
Cooperative agreement number V-005789 was awarded to MPCA under
CERCLA. The cooperative agreement was awarded on June 17, 1983
and provided for 100 percent Federal participation to determine
the sources of area-wide contamination, and to identify possible
remedies to that contamination; and, 90 percent Federal
participation to provide initial remedial measures in the New
Brighton area with a maximum Federal share of $2,475,169.
Multi-Site Cooperative Agreement
1. Arrowhead
The Arrowhead Refining Company was located at the northwest
corner of Highway 53 and Ugstad Road in Herman town,
Minnesota. The Company operated as a re-refiner of waste
oil from 1945 through 1977. The operations generated
approximately 7,000 cubic yards of a highly acidic (ph less
than 1), metal-laden sludge, which was disposed of in a
two-acre lagoon on Company property. Sludge disposal has
resulted in the contamination of soils, surface water, and
ground water around the site. Contaminants include:
polychlorinated biphenyls (PCBs), phenols, cyanide, lead
barium, arsenic, cadium, chromium, and selenium.
2. LeHillier
LeHillier is an unincorporated residential area immediately
west of Mankato, Minnesota, located in Section 14, Township
108 North, Range 27 West, Blue Earth County, Minnesota. In
the Fall of 1981, MFCA discovered that hazardous wastes were
disposed at several previously operated dumps in the
LeHillier area. In October of 1981, MPCA sampled several
residential wells in LeHillier which indicated that the
ground water in the shallow aquifer was contaminated with
TCE concentrations ranging from less than 1.0 mg/1 to as
high as 100 mg/1. Since 1981, numerous samples have been
taken which have confirmed ground water contamination in the
LeHillier area.
3. South Andover Waste Site
The site consists of five adjacent properties in the south
part of Andover, Minnesota, where solvents, paints, glues
and.greases were disposed of or accumulated between 1969 and
1976. The properties were collectively listed as the South
-6-
-------
BACKGROUND (Continued)
Andover Waste Site on both the U.S. EPA NPL and MPCA
Hazardous Waste Site Log (HWSL). The five properties were
grouped Into a single site for the NPL and HWSL since
potential ground water contamination and other effects on
the environment from each property may be difficult to
distinguish due to the close proximity of the properties to
each other. Approximately 300 barrels of various hazardous
wastes and an unknown quantity of contaminated soils
remained at the South Andover site.
4. KviMper Sanitary Landfill
The Kummer Sanitary Landfill located In Northern Township
near Bemidjl, Minnesota, was permitted by MPCA In 1971. The
landfill is located in a predominately sandy area and serves
Beltrami County including the city of Bemidji. During the
13 years of its operation, the landfill violated numerous
solid waste rules which resulted in the filing of a lawsuit
against Charles and John Kummer in 1983.
In 1982 and 1983 MPCA sampled the landfill monitoring wells
and detected elevated concentrations of volatile organic
hydrocarbon (VOH) compounds, As a result, MPCA initiated a
program to sample downgradient residential and commercial
wells during May, June and July 1984. The results of
sampling 36 wells revealed elevated VOH compounds in a ma-
jority of those sampled and resulted in the issuance of let-
ters by MDH advising nine parties not to use their water for
drinking or cooking purposes. Based upon these advisories
and the need to provide bottled water, MPCA Director
issued a Determination of Emergency on July 17, 1984. On
July 25, 1984, additional residential sampling resulted in
the delineation of an affected area in Northern Township.
The landfill appeared to be the major source of the con-
tamination.
5. Long Prairie Ground Water Contamination
The City of Long Prairie is located in central Minnesota
approximately 30 miles southwest of Brainerd, Minnesota.
Routfji* monitoring of the Long Prairie municipal water sup-
plies" in October 1983 by MDH revealed concentrations of sol-
vents which exceeded drinking water criteria. The City of
Long Prairie discontinued use of two of their municipal
wells. At that time MPCA began a domestic well
sampling/monitoring program which identified solvent con-
tamination of ground water in a 15-block area. MPCA, in
conjunction with MDH, issued an advisory for domestic well
water usage in this 15-block area. Also, MPCA Director
issued a Determination of Emergency on November 4, 1983 to
permit the use of State Superfund monies for bottled water.
MPCA had also funded the operation of a granular
-7-
-------
BACKGROUND (Continued)
activated carbon filtration system on contaminated wells.
These wells were being used primarily during peak demand pe-
riods.
6. Whittaker Corporation
The Whittaker site is located at 3134 California Street
Northeast, Minneapolis, and was the site of the manufacture
of industrial coatings consisting of special use paints
manufactured for specific industrial customers by the
Whittaker Corporation. Numerous underground tanks contain-
ing xylene, methyl ethyl ketone, methyl isobutyl ketone, and
other solvents existed on the site. In addition, a plant
still was operated to recover solvents used in the man-
ufacturing process. Finally, disposal of drums, supposedly
empty, was alleged to have occurred on the site.
Medium grained to coarse grain sands existed at the site.
Depth to ground water at the site was approximately 15 feet.
Four monitoring wells were installed and benzene, xylene,
TCE, transl-1, 2-dichloroethylene, cadmium and chromium were
found in the wells.
7. Oak Grove Sanitary Landfill
The Oak Grove Sanitary Landfill located in Oak Grove Town-
ship in northern Anoka County, Minnesota, was permitted by
MPCA in 1971. During the initial six years of operation
by Joseph Egan (permittee), the landfill had been violating
numerous solid waste rules which resulted in a decision by
MPCA to revoke the permit on May 25, 1976. The decision
was stayed by District Court on September 9, 1976 and a
Stipulation Agreement was approved in 1977 allowing North-
west Disposal, Inc. to resume operations. Based upon the
Stipulation Agreement, Northwest Disposal, Inc. operated the
landfill until December 1983 and the company refused to
conduct ground water monitoring.
MPCA'a records indicated significant quantities of hazardous
wastes were disposed at several unknown locations at the
landfill. Joseph Egan, the Egan Family Trust and Northwest
Disposal, Inc. have not agreed to conduct the necessary
remedial investigation/feasibility study (RI/FS) and
remedial actions at the landfill. In addition, MPCA staff
efforts to identify additional responsible parties have not
been successful.
Cooperative agreement number V-005794 was awarded to MPCA under
CERCLA on September 29, 1984. The cooperative agreement provided
for 100 percent Federal participation in the management
assistance, community relations, and coordinative lead activities
for EPA lead RI/FSs at three sites and State lead RI/FSs at four
-8-
-------
BACKGROUND (Continued)
sites. Since the initial award there were various amendments,
one of which was for a remedial action. For remedial actions
(construction) Federal participation is limited to 90 percent.
Preliminary Assessment/Site Inspection Cooperative Agreement
The focus of the Preliminary Assessment/Site Inspection coopera-
tive agreement (PA/SI-CA) is to provide MPCA with the ability to
identify the extent of uncontrolled potential hazardous waste
sites, and the magnitude of possible contamination within the
State of Minnesota.
The purpose of the FA/SI-CA is to obtain funding to: 1) conduct
Preliminary Assessments (PAs) on sites listed on the U.S. En-
vironmental Protection Agency Emergency and Remedial Response
Information System list; 2) perform Site Inspections (Sis) for
Hazardous Ranking System (HRS) scoring; 3) perform Site In-
spection Follow-ups (SIFs) on potential NPL sites; and 4) provide
Management Assistance Reviews to .the EPA in the form of review
and coordination of PAs, Sis, SIFs, and HRS efforts.
N
Cooperative agreement number V-005848 was awarded to MPCA under
CERCLA. The cooperative agreement was awarded on June 13, 1985
and provided for 100 percent Federal participation with a maximum
Federal share of $253,330. As of September 30, 1985, no costs
were claimed and no contracts had been awarded, therefore, we'did
not perform any audit testing for this cooperative agreement.
a
-------
TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT, SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40207
(502) 893-0700
Mr. Kenneth D. Hockroan
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
AUDITORS* REPORT ON COOPERATIVE AGREEMENTS V-005788.
V-005789, V-005794 AND V-005848 AWARDED TO
THE MINNESOTA POLLUTION CONTROL AGENCY
We have examined the expenditures incurred and claimed by the
Minnesota Pollution Control Agency (MPCA), related to the uncon-
trolled hazardous waste disposal for the Reilly Tar, New
Brighton, Multi-Site and Preliminary Assessment/Site Inspection
cooperative agreements for December 20, 1982 through September
30, 1985 as detailed in Exhibit A. Our examination was performed
in accordance with generally accepted auditing standards and the
Standards for Auditof Governmental Organizations, Programs, Ac-
tivities and^Functions (1981 revision). AccordinglyV our ex-
amination included such tests of the accounting records and such
other auditing procedures as we considered necessary in the cir-
cumstances.
The Schedule of Costs Claimed (Exhibit A) was prepared on the
basis of regulations and criteria established by the U.S.
Environmental Protection Agency relating to hazardous waste
disposal cooperative agreement projects pursuant to Public Law
96-510. Accordingly, Exhibit A is not intended to present
financial position and results of operations in conformity with
generally accepted accounting principles.
As part of our examination, we determined the allowability of
costs claimed under the project in accordance with the provisions
of the assistant agreements and applicable Federal regulations.
Exhibit A sets forth the costs which we questioned and set-aside
in this regard and includes an explanation of the reasons such
costs were questioned and set aside.
In our opinion, subject to the effect of EPA's ultimate resolu-
tion of the questionable expenditures referred to in the
preceding paragraphs. Exhibit A presents fairly the costs
-10-
-------
Mr. Kenneth D. Hockman
Page 2
claimed by MPCA under the Reilly Tar, New Brighton, Multisite,
and Preliminary Assessment cooperative agreements with EPA on the
basis described above.
This report is intended for use in connection with the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
January 16, 1986
-11-
-------
TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT. SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40207
(502) 893-0700
Mr. Kenneth D. Hockman
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
AUDITORS* REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
We have examined the expenditures incurred and claimed by the
Minnesota Pollution Control Agency (MPCA), related to the uncon-
trolled hazardous waste disposal for the Re illy Tar, Hew
Brighton, Multi-Site and Preliminary Assessment/Site Inspection
cooperative agreements for July 26, 1983 through March 31, 1986,
as detailed in Exhibit A. Our examination was performed in ac-
cordance with generally accepted auditing standards and the fi-
nancial and compliance provisions of the Standards for Audit of
Governmental Organizations. Programs, Activities and- functions
(1981 revision). Solely to assist us in planning and performing
our examination, we made a study and evaluation of the
significant internal accounting controls of MPCA. For the
purpose of this report, we have classified the significant
internal accounting controls into the following categories:
Disbursements
Payroll
Contractor procurement
Contractor performance and billings
Cash management (letter of credit system)
Property and equipment
Our study included all of the control systems listed above.
That study and evaluation was limited to a preliminary review of
the system to obtain an understanding of the control environment
and the flow of transactions through the accounting system. Be-
cause the audit could be performed more efficiently through addi-
tional analysis and substantive audit tests, thus placing very
little reliance on the internal control system, our study and
evaluation of the internal accounting controls did not extend
beyond this preliminary review phase. Accordingly, we do not
express an opinion on the system of internal accounting controls
taken as a whole. Also, our examination, made in accordance with
the standards mentioned above, would not necessarily disclose all
material weaknesses in che system of internal accounting control.
-12-
-------
Mr. Kenneth D. Hockman
Page 2
Our examination did not disclose any conditions, other than those
presented in the Findings and Recommendations* that we believe to
be material weaknesses.
As a part of our examination, we performed certain tests to de-
termine whether or not Federal funds were expended in accordance
with the provisions of the cooperative agreements and applicable
Federal laws, regulations, policies, and cost principles. The
results of our tests indicate that for the items tested, MPCA
complied with the provisions of the cooperative agreements and
applicable Federal laws, regulations, policies, and cost princi-
ples, except for the conditions described in the Notes to the
Exhibits. Further, for the items not tested, based upon our ex-
amination referred to above, nothing came to our attention which
indicated that MPCA had not complied with the provisions of the
cooperative agreements and applicable Federal laws, regulations,
policies, and cost principles, beyond the conditions described in
the Findings and Recommendations.
This report is intended for use in connection with the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
January 16, 1986
-13-
-------
FINDINGS AND RECOMMENDATIONS
1. STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by MPCA to procure contract services un-
der Superfund cooperative agreements were inadequate and not in
compliance with all requirements of Federal regulations (40 CFR
Part 33). Cooperative agreement recipients are required to com-
ply, with 40 CFR Part 33 as a condition of obtaining EPA funding.
The lack of a written procurement manual which addressed Federal
requirements and the misunderstanding by MPCA employees that the
State's procurement system met all Federal requirements caused
the noncompliance and inadequacies in the current procurement
system utilized by MPCA. The procurement procedures utilized by
MPCA prohibited assurance to EPA that the best offerer was award-
ed the contract.
In accordance with 40 CFR 33.110 the applicant and recipient must
evaluate its procurement system to determine if it meets the re-
quirements of 40 CFR Part 33 and either certify that:
(1) Its system will meet the intent of all the requirements in
this Part before any procurement action with EPA assistance
is undertaken, or
(2) Its current system does not meet the intent of the require-
ments of this Part and, therefore, the applicant will follow
the requirements of 40 CFR Part 33 and allow EPA preaward
review of proposed procurement actions that will use EPA
funds.
MPCA elected to certify its procurement system, and referenced
"M.S." chapter 16.028 - 0.95 and bulletin 7-026, the applicable
State regulations as meeting all of the requirements of 40 CFR
Part 33. Our review of the above State regulations indicated
that they were not adequate to ensure compliance with 40 CFR Part
33.
MPCA officials stated that they procured contracts for the Reilly
Tar, New Brighton, and Multi-Site cooperative agreements following
State regulations under the assumption that these regulations met
all of the requirements of 40 CFR Part 33, as indicated in their
statement of self certification. MPCA officials also stated that
they relied upon the State's contract review process to ensure
that all contracts were in compliance with applicable regulations
and upon the fact that EPA gave them no indication of noncompli-
ance even though the State supplied EPA with copies of all con-
tracts. (Note: We did not test for compliance with State reg-
ulations since it was outside the scope of our audit.) See
Exhibits F and G for schedules by contract of MPCA's compliance
with Federal procurement regulations.
-------
FINDINGS AND RECOMMENDATIONS (Continued)
The State's contract review specialist stated that their review
only covered compliance with State and not with Federal regu-
lations or special conditions of the grant. The review special-
ist also stated that it is MPCA's responsibility to review
contracts for all Federal regulations and special grant con-
ditions before being submitted to the State's review process.
EPA Region 5 officials stated that they did not review the con-
tracts submitted by the State for compliance with Federal reg-
ulations since the State had certified that its procurement sys-
tem met all Federal requirements.
The above procurement procedures utilized by MPCA prohibit assur-
ance to EPA that firms submitting qualified proposals were fairly
and uniformly evaluated; and that the best offeror was awarded
the contract.
Set-aside costs for the Reilly Tar and New Brighton cooperative
agreements can be found in Exhibit B, Note 3 and Exhibit C, Note
2, respectively. There were no set-aside costs for the
Multi-Site cooperative agreement because non-interagency
contractual costs were not claimed as of September 30, 1985. See
Exhibit D, Note 2.
MPCA'S COMMENTS ON FINDING
We recommended in our draft report that the Regional
Administrator, Region 5 ensure that MPCA initiate improvements to
its procurement system to meet the requirements of 40 CFR Part
33. These improvements should include, as a minimum:
(a) establish a written procedures manual which incorporates all
40 CFR Part 33 requirements;
(b) initiate a review process to ensure compliance with 40 CFR
Part 33 requirements; and
(c) amend all current contracts to include model subagreement
clauses as stipulated by 40 CFR Part 33.
The Executive Director stated the following in response to the
recommendations in our draft report:
*
* MPCA has had a contract manual since July 1, 1983. We are
incorporating into the manual the March, 1986 State Procure-
ment Under Superfund Remedial Cooperative Agreements guid^
ance issued by EPA.
0 MPCA has begun the process of updating the manual to make it
easier to use and is instituting procedures to ensure that
the revised manual is used for all procurements, state and
Federal.
-15-
-------
FINDINGS AND RECOMMENDATIONS (Continued)
0 The existing contracts are being amended to include the
required Federal clauses. The contracts being amended are
Camp, Dresser, and McKee; and E.H. Renner and Sons under the
New Brighton cooperative agreement; IT Corporation and
Malcolm Pirnie under the Multi-Site cooperative agreement!
CH2M Hill under the Reilly Tar cooperative agreement will
not be amended due to the current termination of work under
this contract when Reilly Tar entered into a Consent Decree
which resulted in a Stop Work Order being issued.
OUR EVALUATION OF MPCA'S COMMENTS
The Executive Director stated that improvements and corrections
have been enacted in response to our draft audit findings and
recommendations. The procurement manual is being updated and
contracts amended to include required Federal clauses. The
discussed action and proposed action is responsive to the intent
of the recommendations and should help to ensure that firms
submitting qualified proposals are fairly and uniformly evaluated
and that the best offeror is awarded the prime contract in the
future. However, we have not examined the results of the
proposed action to determine it is functioning as stated.
The proposed action was not responsive to the intent of the
recommendation as it related to subcontractors of MFCA's prime
contractors. MFCA did not address this matter in their response
to the draft report.
RECOMMENDATION
We recommend that the Regional Administrator, Region 5 instruct
MPCA to initiate improvements to its procurement system which
will ensure that subcontractor agreements entered into by MFCA's
prime contractors also meet the requirements of 40 CFR Part 33.
2. NONEXPENDABLE PERSONAL PROPERTY OMITTED FROM
PROPERTY LISTING
Lab equipment, amounting to $42,000, was claimed as a contractual
rather than an equipment cost and was not included on MPCA's pro-
perty listing. In accordance with 40 CFR Part 30, cooperative
agreement recipients are required to maintain property records
and assure that the interest of the United States in the property
is adequately reflected and protected. An agreement between the
Minnesota Department of Health (MDH) and MPCA which called for
the above equipment to be purchased by MDH resulted in MPCA los-
ing control over the equipment which could lead to the possible
loss of EPA interest in the property upon completion of the
project.
MDH purchased laboratory equipment consisting of a gas
chromatograph and related accessories pursuant to a contractual
agreement between MPCA and MDH. MDH officials stated that title
-16-
-------
FINDINGS AND RECOMMENDATIONS (Continued)
Co the above equipment was vested in MDH and that the equipment
was recorded on their inventory listing. We were also informed
that they were not aware of any continued Federal interest in the
property.
In accordance with 40 CFR 30.810-4 title to all property whose
acquisition cost is a direct cost under a grant project shall
vest in the grantee. Additionally, the grantee must assure that
the interest of the United States in the property is adequately
reflected and protected. Also, 40 CFR 30.810-7 provides guidance
on the disposition of nonexpendable personal property acquired
with Federal funds. Should MFCA no longer need the lab equipment
in any of its Federal grant programs, then property disposition
must conform with 40 CFR 30.810-7 with Region 5 being involved.
The effect of MDH purchasing this equipment in lieu of MFCA is
that it was claimed as a contractual rather than an equipment
payment. Additionally, MPCA has lost control of the above equip-
ment and therefore cannot assure that the interest of the United
States in the property is adequately reflected and protected.
CORRECTIVE ACTION TAKEN BY MFCA
The Executive Director of MFCA, in response to the recommenda-
tions in our draft report, stated that the laboratory equipment
is in the process of being transferred to MPCA inventory. In
order to prevent this type of error in the future, we are
including OMB Circular A-87 in the contract manual.
The proposed action was responsive to the intent of the
recommendation in so far as the title of the laboratory equipment
shall now vest in the recipient. We make no further
recommendations however, we have not examined the results of the
proposed action to determine it is functioning as stated.
3. NONCOMFLIANCE WITH SPECIAL GRANT CONDITIONS
MFCA did not submit to EPA the required quarterly progress re-
ports for the Reilly Tar and New Brighton cooperative agreements
within the,,required timeframes. Additionally, quarterly progress
reports inquired by the special conditions section of the
Multi-Sit«|..cooperative agreement were not submitted by MFCA to
EPA although MPCA was aware of this requirement (MPCA gave no
reason for their noncompliance). As a result, EPA did not have
written documentation detailing expenditures, estimates of work
completed, cost and time variances, and dates of completion.
MPCA'S COMMENTS ON FINDING
We recommended in our draft audit report that the Regional Admin-
istrator, Region 5 enforce the requirement to submit quarterly
progress reports. The Executive Director of MPCA stated the
following in response to the recommendation in our draft report:
-17-
-------
FINDINGS AND RECOMMENDATIONS (Continued)
(a) Multi-Site progress reports for quarters prior to January 1,
1986 have now been submitted. For the quarter ended
March 31, 1986 progress reports for nine state-lead sites
were submitted on April 28, 1986. Progress reports for
three Federal-lead sites were submitted on May 12, 1986.
(b) Reilly Tar progress reports for quarters prior to July 1,
1985 have been submitted. The remaining progress reports
will be submitted by August 15, 1986.
(c) New Brighton progress reports for quarters prior to April 1,
1986 have been submitted and there is no delinquency.
OUR EVALUATION OF MPCA'S COMMENTS
The response provided indicated that MPCA had submitted all
required quarterly progress reports for quarters prior to
April 1, 1986 by August 15, 1986. Further review of the
cooperative agreements indicated that there was no specified
timeframe within which the quarterly progress reports must be
submitted. MPCA submitted their New Brighton quarterly progress
reports within sixty days of the quarter ended one time, more
than sixty days six times and two of the reports were undated,
and therefore, we were unable to determine the date submitted.
The State Participation in the Superfund Remedial Program, Volume
1, Appendix P suggests I sample provision used in Superfund
cooperative agreements that requires quarterly progress reports
be submitted to the EPA Project Manager within thirty days of the
end of each Federal fiscal quarter.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 5:
A. Amend all outstanding cooperative agreements to include a
special condition addressing submission requirements of
quarterly progress reports as suggested in the State
Participation in the Superfund Remedial Program, Volume 1,
Appendix F; and
B. Enforce the submission of quarterly progress reports as
required.
-18-
-------
-------
EXHIBIT A
COOPERATIVE AGREEMENTS AWARDED TO THE
MINNESOTA POLLUTION CONTROL AGENCY
SUMMARY OF COSTS CLAIMED, ACCEPTED,QUESTIONE5~AND SET-ASIDE
FOR THE PERIOD DECEMBER 20, 1982 THROUGH SEPTEMBER 30. 1985
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and
Supplies
Contractual Services
Other Direct Costs
Indirect Costs
Totals
CLAIMED
(Note 1)
$ 357,748
63,526
15,418
37,834
7,409
1,449,638
61,083
175,496
$2,168,152
ACCEPTED
(Note 2)
$357,748
63,526
15,418
22,356
7,409
106,038
61,083
158,124
$791.702
QUESTIONED
(Note 2)
$ -
-
-
15,478
-
3.707
-
17,372
$36.557
SET-ASIDE
(Note 2)
$
-
-
-
-
1,339,893
-
-
$1^,339,893
NOTES
3
4, 5
6
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report (SF-269) through September
30, 1985.
Note 2 See Exhibits B, C, D and E for schedules of costs
claimed, accepted, questioned and set-aside.
Note 3 See Exhibit B for details of the $15,478 questioned.
Note 4 See Exhibit B for details of the $3,707 questioned.
Note 5 The $1,339,893 set aside consists of $536,361 (Exhibit
B) and $803,532 (Exhibit C).
Note 6 The $17,372 questioned consists of $11,585 (Exhibit B)
and $5,787 (Exhibit C).
-19-
-------
-------
EXHIBIT B
REILLY TAR COOPERATIVE AGREEMENT
AWARDED TO" THE MINNESOTA POLLUTION CONTROL AGENCY
SCHEDUIE""OF COSTS CLAIMED. ACCEPTED. QUESTIONED AND SET-ASIDE
FOR THE PERIOD DECEMBER 20. 1982 THROUGH SEPTEMBER 30. 1985~
AMOUNT
COST CATEGORY CUtMEDACCEPTED QUESTIONED SET-AslDl NOTES
(Note 1) .
Personnel $ 213,139 $213,139
Fringe Benefits 37,920 37,920
Travel 6,763 6,763
Equipment 25,478 10,000
Materials and
Supplies
Contractual
Services
Other Direct
Costs
25,478
2,671
2,671
584,977 44,909
39,072 39,072
Indirect Costs 109.964 98.379
Totals
15,478
$
3,707 536,361
11.585
$1.019.984 $452.853 $30.770 $536,361
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report (SF-269) through September
30, 1985.
Note 2 Equipment totaling $67,478 was purchased with EPA fund-
ing by MPCA and MDH while only $48,500 was approved by
EPA. In accordance with OMB Circular A-87 cooperative
agreement recipients are required to obtain specific
prior approval before capital assets may be purchased.
This condition was primarily attributable to MPCA per-
sonnel's belief that they had approval from EPA. The
procedures utilized by MPCA to acquire the above equip-
ment resulted in Federal funds being spent without EPA
approval. Property purchases in this manner may not be
fair, reasonable, or allocable to the project.
We have questioned $15,478 of equipment costs and
$3,500 of contractual costs (for the purchase of
-20-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TQ EXHIBIT B
Note 2 (Continued)
equipment) claimed in excess
termined as follows:
of approved amounts de-
Item
Equipment Purchased by MPCA:
Desk Lamp
Photo Copy Stand
File Cabinet
Storage Cabinet
Office Furniture Subtotal
Word Processor
Modem
Basic 80 Software
Computer and Other Related
Equipment
Fortran 80 Software
Data
Computer Hardware and Soft-
ware Subtotal
Total Equipment Purchased
by MPCA
Gas Chromatograph purchased
by MDH
Total Equipment Purchased
with EPA Funding
Purchase
Price
i 78
149
427
135
789
13.324
850
350
9,295
427
443
11,365
25.478
42.000
$67,478
Approved
Amount
10,000
10.000
38.500
$48,500
Questioned
Amount
$ 78
149
427
135
789
3.324
850
350
9,295
427
443
(A) Thisflaount was questioned under contractual services and
not equipment because it was claimed as a contractual cost
on the Financial Status Report (See Note 3).
OMB Circular A-87, Attachment B, section C.I, states that
the cost of data processing equipment is allowable only upon
specific prior approval of the Federal grantor agency as
provided under the selected items for capital expenditures.
-21-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT B:
Note 2 (Continued)
Paragraph C3, Capital Expenditures, states in part that
the cost of equipment and other capital assets is al-
lowable when such procurement is specifically approved
by the Federal grantor agency.
MPCA personnel informed us that they thought EPA had
approved the above equipment. The EPA Region 5 project
officer informed us that she was not aware of any ap-
proval for the above equipment.
Property purchases without prior EPA approval may not
be fair, reasonable or allocable to the project, there-
fore we have questioned $15,478 under equipment for the
items purchased by MPCA and $3,500 under contractual
services for the laboratory equipment purchased by MDH.
MPCA'S COMMENTS ON FINDING
We recommended in our draft audit report that the Re-
gional Administrator, Region 5:
(a) Disallow equipment purchases of $18,978 which were
not approved or that were in excess of the ap-
proved amount; and
(b) Instruct MPCA to comply with OMB Circular A-87 for
future equipment purchases.
The Executive Director of MPCA stated the following ?in
response to the findings and recommendations in our
draft report:
The $10,000 approved amount shown in the report for
word processing and computer equipment is in error.
The $10,000 amount authorized was clearly intended for
and used for word processing equipment. The remaining
computer equipment was approved by Mr. Paul Bitter of
EPA, Region 5. The approval could not be located due
to the reorganization of boxes to prepare for
litigation. The auditors did not contact Mr. Bitter to
confirm the approval. The $11,365 in computer costs
should be moved from questioned to set-aside based on
inadequate documentation.
-22-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT B
Note 2 (Continued)
OUR EVALUATION OF MPCA'S COMMENTS
The response provided indicated that MPCA did not agree
with our finding to question $11,365 of computer
equipment. MPCA believed the computer approval was
separate from the word processing approval and the
approval" for the computer equipment was misplaced.
We concur with MPCA's assessment that the $10,000
amount was intended for word processing equipment and
have revised the finding accordingly. However, MPCA's
comment was not responsive to the intent of the finding
and recommendation. Mr. Paul Bitter, former EPA
Regional Project Manager, could not recall approving or
disapproving the computer equipment when contacted by
the current EPA Region 5 Project Officer. Our review
of MPCA and Region 5 project files, grant documents and
discussion with the EPA Region 5 Project Officer could
not confirm approval of the computer equipment.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 5:
A. Disallow equipment purchases of $18,978 which were
not approved or that were in excess of the ap-
proved amount; and
B. Instruct MPCA to comply with OMB Circular A-87 and
Appendix T of Volume 1 of the State Participation
in the Superfund Remedial Program^forfuture
equipment purchases.
Note 3 We have questioned $3,707 and set aside $536,361 of
Contractual Services determined as follows:
1*^ .:. Questioned Set-Aside
W^ (a) $ 207
(b) 3,500
Totals
(a) The contract between MPCA and CH2M Hill included a
provision which allowed CH2M Hill to charge a 52
fee on Barr Engineering's invoices (a
subcontractor of CH2M Hill) In addition to CH2M
Hill's fixed fee. This type of contract provision,
(cost-plus-percentage-of-cost (CPPC)) is prohi-
-23-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT B
Note 3 (Continued)
bited by 40 CFR 33.285. This condition was
primarily due to MPCA personnel being unaware of
applicable Federal regulations and relying on the
State's procurement system as meeting all Federal
requirements. This has resulted in $207 of
unallowable costs to date. It should be noted
that the $207 questioned above would otherwise
have been set-aside for the reasons and criteria
stated in Note 3c below. Additionally, the
balance of the CH2M Hill cost claimed would be
set-aside due to the CPPC provision.
(b) Laboratory equipment which cost $42,000 was
purchased with EPA funds while only $38,500 was
approved. We have therefore questioned the
difference of $3,500. See Note 2 for further
development of this finding.
(c) The procedures utilized by MPCA to procure
non-interagency contractual services under the
Reilly Tar cooperative agreement were inadequate
and not in compliance with Federal regulations.
The specific violations applicable to our interim
audit related to small, minority, and womens*
businesses; documentation; bonding and insurance;
cost and price considerations; prohibited types of
contracts; competitive negotiation; small
purchases; none competitive negotiation and model
subagreement clauses. In accordance with 40 CFR
Part 33, cooperative agreement recipients are
required to comply with the above requirements.
These conditions were primarily attributable to
the lack of a written procurement manual which
addressed Federal regulations and reliance upon
the State's procurement system by MPCA employees
as meeting all Federal requirements. The
procurement procedures utilized by MPCA prohibited
assurance to EPA that the best offerer was awarded
the contract, therefore, we have set-aside
$536,361 on non-interagency contractual costs.
See Exhibit F, which details by contract the
specific regulations of 40 CFR Part 33 which were
not followed. Also see Finding Number 1, State's
Superfund Procurement System Needs Improvement,
located in the Findings and Recommendations
section for further development of this finding.
It should be noted that $330,543 of the amount
set-aside would otherwise have been set-aside for
the additional reasons and criteria stated below.
-24-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT B
Note 3 (Continued)
The invoices received by MPCA from Eugene A. Hickok and
Associates did not contain sufficient information for
us to determine if the contractor billed in accordance
with the terms of the contract. Specifically, the in- *
voices did not identify the tasks performed in rela-
tionship to the hours and rates billed. Additionally,
we noted hourly rates on the invoices which were not
identified in the contract. In accordance with 40 CFR
33.210(b) the recipient shall maintain a subagreement
administration system to assure that contractors per-
form in accordance with the terms, conditions and spec-
ifications of their subagreement. The above condition
was due to MFCA project leader not requiring the
contractor to include specific tasks performed on the
invoice, as the contract required, because he was aware
of the work performed and saw no need to have this in-
formation documented. The effect of the above is that
amounts billed to MPCA may not be fair, reasonable, or
allowable to the project costs claimed for reimburse-
ment from EPA.
MPCA*S -COMMENTS ON FINDINGS
We recommended in our draft audit report that the Re-
gional Administrator, Region 5 instruct MPCA to:
1. Renegotiate the CPPC contract with CH2M Hill;
2. Perform a cost analysis to ensure costs incurred
and estimated are fair and reasonable before en-
tering a new contract; and
3. Offset future MPCA claims for the questioned costs
of $3,707.
The Executive Director of MPCA stated the following in
Response to the findings and recommendations in our
xlraft report:
(a) We believe that the CH2M Hill contract is clearly
a cost-plus-fixed-fee contract (CPFF) and not a
cost-plus-percentage-of-cost contract (CPPC). The
contract is CPFF because, per 40 CFR 33.235(b),
profit has been negotiated aa a separate element
of price. Profit in the CH2M Hill contract was
fixed prior to any work being performed under the
contract. Profit does not fluctuate. It is our
understanding that a contract is CPPC if it in-
cludes a multiplier which includes profit (40 CFR
33.285). This is not the case in the CH2M Hill
-25-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT"!
Note 3 (Continued)
contract. The $207 should be moved from ques-
tioned to accepted since this type of contract is
legal.
(b) The Executive Director of MPCA made no reference
to the $3,500 of questioned laboratory equipment
cost in the response to our draft report.
(c) MPCA has had a contract manual since July 1, 1983.
We are incorporating into the manual the March
1986 State Procurement Under Superfund Remedial
Cooperative Agreements guidance issued by EPA.
We have begun the process of updating the manual
to make it easier to use and are instituting pro-
cedures to ensure that the revised manual is used
for all procurement, state and Federal.
The existing contract with CH2M Hill under the
Reilly Tar cooperative agreement will not be
amended to include the required Federal clauses
due to the termination of work under this contract
when Reilly Tar entered into a Consent Decree
which resulted in a Stop Work Order being issued.
OUR EVALUATION OF MPCA'S COMMENTS
(a) The response provided indicated that MPCA did not
agree with our finding to question $207 of
contractual services. MPCA contends that the
contract is not a CPPC contract but rather a
CPFF contract.
MPCA's comment is not responsive to the finding
and recommendation. MPCA does not agree that the
contract needs to be amended from the prohibited
CPPC contract to comply with Federal regulations.
The contract provision which allows CH2M Hill to
charge a SZ fee to subcontractor invoices in
addition to the fixed fee stated in the contract
is unallowable.
(b) The Executive Director of MPCA made no reference
to the $3,500 of questioned laboratory equipment
cost in the response to our draft report.
(c) The Executive Director of MPCA stated that
improvements have been made to the procurement
manual. The CH2M Hill contract will not be
amended to include the required Federal clauses
due Co a Stop Work Order being issued.
-26-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT B
Note 3
(Continued)
The discussed actions and proposed actions were
not responsive to the intent of the recommenda-
tions except item (c). However, we have not ex-
amined the results of the proposed actions to de-
termine they are functioning as stated. The pro-
posed action for item (c) was not responsive to
the finding as it related to subcontractors of
MPCA prime contractors. MPCA did not address the
recommendation as it related to subcontractors in
their response to the draft report.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 5:
A. Determine if the procurement method employed by
MPCA resulted in the award of the subagreement to
the offerer most advantageous to MPCA.
Determination should be based upon'price and other
evaluating criteria set forth in the request for
proposal prior to accepting any contractual
amounts submitted by MPCA as allowable for Federal
participation under the CH2M Hill contract;
B. Instruct MPCA to renegotiate the CPPC contract
with CH2M Hill and perform a cost analysis to
ensure costs claimed were fair and reasonable
prior to accepting any contractual amounts
submitted by MPCA as allowable for Federal
participation under the CH2M Hill contract;
C. Offset future MPCA claims for the questioned costs
of $3,500; and
D. Instruct MPCA -to initiate improvements to its
procurement system which will ensure that
subcontract agreements entered into by MPCA prime
L contractors meet the requirements of 40 CFR Fart
.'.',; 33. Amend subcontract agreements to include model
subagreement clauses.
Note 4 MPCA did not conform to Federal regulations when re-
porting indirect costs on its Financial Status Report
(SF-269). The fiscal year 1983 Federally negotiated
indirect cost rate was used when funds were reported to
EPA. Assistance amendments reflect the "then current"
indirect cost rate when determining the amount of
indirect costs available. The method used by MPCA in
reporting does not meet the requirements as defined by
OMB Circular A-87. MPCA officials indicated the proce-
-27-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES T0 EXHIBIT B
Note 4
Period
Ended
6/30/83
6/30/84
6/30/85
9/30/85
Totals
(Continued)
dures followed were in accordance with directives re-
ceived from Region 5. Indirect costs reported do not
properly reflect indirect costs incurred.
We have questioned $11,585 of indirect costs claimed in
excess of costs incurred, calculated as follows:
Personnel
and Fringe
$ 47,287
129,292
59,592
14,888
Approved
x Rate
*43.8Z
*40.9Z
**33.1Z
**34.0Z
Allowable
Indirect Amount
Costs - Claimed
$20,712
52,880
19,725
5,062
$ 23,218
54,124
26,101
6,521
$98.379 $109.964
Amount
Questioned
$ 2.506
1,244
6,376
1.459
$llf585
*
**
Final approved rate
Provisional rate subject to change
MPCA'S COMMENTS ON FINDING
We recommended in our draft audit report that the
Regional Administrator. Region 5 require MPCA to:
(a) Make an annual adjustment to their reported indi-
rect costs based upon the final approved rate,
when determined, for each fiscal year;
(b) Report indirect costs in accordance with the ap-
proved provisional rate; and
(c) Offset future MPCA claims for the questioned costs
of $11,585.
The Executive Director of MPCA stated the following in
response to the recommendations in our draft report:
MPCA would be willing to report indirect costs as
defined by OMB Circular A-87 with the concurrence
of Region 5. The final indirect rate for the
period ending June 30, 1985 would be 40.OZ.
Therefore, a total of $4,112 should be moved from
questioned to accepted when this rate is final.
-28-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBrfB
Note 4 (Continued)
OUR EVALUATION OF MPCA'S COMMENTS
The response provided indicated MPCA agreed with our
finding and would be willing to report indirect costs
as defined by OMB Circular A-87 with the concurrence of
Region 5. A final approved indirect cost rate for the
period ending June 30, 1985 would justify the accept-
ance of an additional $4,112.
The discussed action and proposed action is responsive
to the intent of the recommendations and should help to
ensure indirect costs reported properly reflect indi-
rect costs incurred. However, MPCA has not indicated
if the proposed action is their current method for re-
porting indirect costs nor have we reviewed any modi-
fication to MPCA's reporting system to determine it is
functioning properly. MPCA did not provide us with
documentation to support 40.OZ as the, final approved
rate for the period ending June 30, 1985 in their re-
sponse to the draft report.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 5
require MPCA to:
A. Make an annual adjustment to MPCA's reported indi-
rect costs based upon the final approved rate,
when determined, for each fiscal year; and
B. Offset future MPCA claims for the questioned costs
of $11,585. This amount should be reduced by
$4,112 if 40.02 is the final approved rate for the
period ended June 30, 1985.
;$£.
-29-
-------
EXHIBIT C
NEW BRIGHTON COOPERATIVE AGREEMENT
AWARDED TO THE MINNESOTA POLLUTION CONTROL AGENCY
SCHEDULE OF COSTS CLAIMED. ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIOD JUNE 17. 1983 THROUGH SEPTEMBER 30. 1985
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and
Supplies
Contractual Services
Other Direct Costs
Indirect Costs
Totals
CLAIMEDACCEPTEDQUESTIONED SET-ASIDE NOTES
(Note 1)
$ 115.287
20,605
6,619
8,093
A, 729
864,621
21,257
54,172
$1.095,383
$115,287
20,605
6,619
8,093
4,729
61,089
21,257
48.385
$ -
5,787
$5,787
803,532
$803,532
2
3
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report (SF-269) through September
30, 1985.
Note 2 The procedures utilized by MPCA to procure non-inter-
agency contractual services under the New Brighton co-
operative agreement were inadequate and not in compli-
ance with Federal regulations. The specific violations
applicable to our interim audit related to small, mi-
nority and womens' businesses; documentation; bonding
and insurance; cost and price considerations; formal
advertising; competitive negotiations and model sub-
agreement clauses. In accordance with 40 CFR Part 33,
cooperative agreement recipients are required to comply
with the above requirements. These conditions were
primarily attributable to the lack of a written pro-
curement manual which addressed Federal regulations and
reliance upon the States' procurement system by MPCA
employees as meeting all Federal requirements. The
procurement procedures utilized by MPCA prohibited as-
surance to EPA that the best offerer was awarded the
contract. Therefore, we have set-aside $803,532 of
non-interagency contractual costs claimed. See Exhibit
F which details by contract the specific regulations of
40 CFR Part 33 which were not followed. Also see Find-
ing Number 1, State's Superfund Procurement System
Needs Improvement, located in the Findings and Rec-
ommendations section, for further development of this
finding.
-30-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT "C
Note 2 (Continued)
MPCA'S COMMENTS ON FINDINGS
The existing contracts are being amended to include the
required Federal clauses. The contracts being amended
are Camp, Dresser, and McKee; and E.H. Renner and Sons
under the New Brighton cooperative agreement.
OUR EVALUATION OF MPCA'S COMMENTS
The Executive Director stated that improvements and
corrections have been enacted in response to our draft
audit findings and recommendations in the form of an
amended procurement manual and amended contracts to
include required Federal clauses.
The discussed action and proposed action is responsive
to the intent of the recommendations and should help to
ensure that firms submitting qualified proposals are
fairly and uniformly evaluated and ' that the best
offerer is awarded the prime contract in the future.
However, we have not examined the results of the
proposed action to determine it is functioning as stat-
ed. The proposed action is not responsive to the
finding as it related to subcontractors of MPCA prime
contractors. MPCA did not address the recommendation
as it related' to subcontractors in their :response to
the draft report.
RECOMMENDATION
We recommend that the Regional Administrator, Region 5:
A. Instruct MPCA to initiate improvements to its pro-
curement system which will ensure that subcontract
agreements entered into by MPCA's prime con-
tractors meet the requirements of 40 CFR Part 33;
.jgtr*- and
>:; Determine if the procurement method employed by
MPCA resulted in the award of subagrcements to the
offerers most advantageous to MPCA* taking into
consideration price and other evaluation criteria
set forth in the request for proposal prior to
accepting any contractual amounts submitted by
MPCA aa allowable for Federal participation under
the Camp, Dresser, and McKee; and E.H. Renner and
Sons contracts.
Note 3 MPCA did not conform to Federal regulations when re-
porting indirect costs on their Financial Status Report
-31-
-------
Note 3
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT C
(Continued)
(SF-269). The fiscal year 1983 Federally negotiated
indirect cost rate was used when funds were reported to
EPA. Assistance amendments reflect the "then current"
indirect cost rate when determining the amount of indi-
rect costs available. The method used by MFC A in re-
porting does not meet the requirements as defined by
OMB Circular A-87. MPCA officials indicated the proce-
dures followed were in accordance with directives re-
ceived from Region 5. Indirect costs reported do not
properly reflect indirect costs incurred.
We have questioned $5,787 of indirect costs claimed in
excess of costs incurred, calculated as follows:
Period Personnel Approved
Ended and Fringe x Rate
6/30/84
6/30/85
9/30/85
Total
$55,795
57,387
18,295
*40.9Z
**33.1Z
**34.0Z
Allowable
Indirect
Costs
$22,820
18,995
6.220
Amount
Claimed
$24,438
19,438
9,946
$48,035 $53.822
Amount
Questioned
$1,618
443
3,726
$5,787
*
**
Final approved rate
Provisional rate subject to change
MPCA'S COMMENTS ON FINDING
We recommended in our draft audit report that the
Regional Administrator, Region 5 require MPCA to:
(a) Make an annual adjustment to their reported indi-
rect costs based upon the final approved rate,
when determined, for each fiscal year;
(b) Report indirect costs in accordance with the ap-
proved provisional rate; and
(c) Offset future MPCA claims for the questioned costs
of $5,787.
The Executive Director of MPCA stated the following in
response to the recommendations in our draft report:
MPCA would be willing to report indirect costs as
defined by OMB Circular A-87 with the concurrence of
-32-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT C
Note 3 (Continued)
Region 5. The final indirect rate for the period end-
ing June 30, 1985 would be 40.OZ. Therefore, a total
of $3,960 should be moved from questioned to accepted
when this rate is final.
OUR EVALUATION OF MPCA'S COMMENTS
The response provided indicated MPCA agreed with our
finding and would be willing to report indirect costs
as defined by OMB Circular A-87 with the concurrence of
Region 5. A final approved indirect cost rate for the
period ending June 30, 1985 justifies the acceptance of
an additional $3,960.
The discussed action and proposed action is responsive
to the intent of the recommendations and should help to
ensure indirect costs reported property reflect, indi-
rect costs incurred. However, MPCA has not indicated
if the proposed action is their current method for re-
porting indirect costs nor have we reviewed any modi-
fication to MPCA1 s reporting system to determine it is
functioning properly. MPCA did not provide us with
documentation to support 40.OZ as the final approved
rate for the period ending June 30, 1985 in their
response to the draft report.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 5
require MPCA to:
A. Make an annual adjustment to MPCA's reported indi-
rect costs based upon the final approved rate,
when determined, for each fiscal year; and
B. Offset future MPCA claims for the questioned costs
of $5,787. This amount should be reduced by
$3,960 if 40.OZ is the final approved rate for the
period ended June 30, 1985.
-33-
-------
EXHIBIT D
MULTISITE COOPERATIVE AGREEMENT
AWARDED TO THE MINNESOTA POLLUTION CONTROL AGENCY
OF gOSTS CLAIMED AND ACCEPTE
FOR THE PERIOD SEPTEMBER 29, 1984 THROUGH SEPTEMBER 30, 1985
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs
Totals
AMOUNT
CLAIMED
(Note 1)
$29,322
5,001
2,036
4,263
9
40
754
11,360
$52,785
ACCEPTED
$29,322
5,001
2,036
4,263
9
40
754
11,360
$52,785
NOTE
Note 1 The amounts claimed represent expenditures reported on
the Federal Financial Status Report '(SF-269) through
September 30, 1985.
Note 2 The procedures utilized by MPCA to procure the Malcolm
Pirnie and IT Corporation contracts under the Multi-Site
cooperative agreement were inadequate and not in com-
pliance with Federal regulations. The specific vio-
lations noted during our interim audit related to cost
and price considerations, competitive negotiation and
model subagreement clauses. In accordance with 40 CFR
Part 33, cooperative agreement recipients are required
to comply with the above requirements. These con-
ditions were primarily attributable to the lack of a
written procurement manual which addressed Federal re-
quirements and reliance upon the State's procurement
system by MPCA employees as meeting all Federal re-
quirements. The procurement procedures utilized by
MPCA prohibited assurance to EPA that the best offeror
was awarded the contract. As of September 30* 1985,
MPCA had not claimed costs for these two contracts.
Had any amounts been claimed we would have identified
them as set-aside costs.
-34-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTE3TO EXHIBIT D
Note 2 (Continued)
We noted the following violations during our interim
audit:
(1) MPCA did not perform a cost analysis for either
the Malcolm Piraie or IT Corporation contracts as
required by 40 CFR 33.290.
(2) MPCA did not include the applicable model
subagreement clauses in either the Malcolm Pirnie
or IT Corporation contracts as required by 40 CFR
33.1030.
(3) MPCA did not strictly follow either of the two
approved competitive negotiation procurement
methods referenced by 40 CFR 33.520 and 33.525 for
both the Malcolm Pirnie and IT Corporation
contracts. Additionally, 40 CFR 33.510(b), which
requires a statement concerning how to obtain
associated documents to be included in the
requests for proposal, was not complied with for
either contract.
MPCA was not in compliance with 40 CFR 33.520 be-
cause (1) they did not conduct negotiations with
the best qualified offerers to obtain best and
final offers; and (2) they did not document what
factors were used to determine the best qualified
offerers and what factors were used to determine
the subagreement award.
MPCA was not in compliance with the alternative
selection method referenced by 40 CFR 33.525
because they did not first select the best
technical proposal and then attempt to negotiate
fair and reasonable compensation with that
,;.. offerer, failing to do so then select the next
-,*. best proposal and attempt to negotiate fair
compensation with that offerer. This process
would have continued until the appropriate
contractor was found.
It should be noted that Malcolm Pirnie submitted
the low bid of the five finalists, however, IT
Corporation's bid was $71,262 and $54,365 higher
than the next two low bidders and only $120 lower
than the high bidder. MPCA files did not contain
sufficient documentation to Justify the selection
of IT over the other two technically qualified
firms submitting lower bids.
-35-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT'S
Note 2 (Continued)
CORRECTIVE ACTION TAKEN
The Executive Director stated in response to the
findings in our draft report:
0 MPCA has had a contract manual since July 1, 1983.
We are incorporating into the manual the March
1986 State Procurement Under Superfund Remedial
Cooperative Agreements guidance issued by EPA.
0 We have begun the process of updating the manual
to make it easier to use and are instituting
procedures to ensure that the revised manual is
used for all procurement, state and Federal.
* The IT Corporation and Malcolm Pirnie contracts
awarded under the Multi-Site cooperative agreement
are being amended to include the required Federal
clauses.
The discussed action and proposed action is responsive
to the intent of the recommendation and should help to
ensure that firms submitting qualified proposals are
fairly and uniformly evaluated and that the best
offeror is awarded the prime contract in the future.
However, we have not examined the results of the
proposed action to determine it is functioning as
stated.
MPCA'S COMMENTS ON FINDINGS
The Executive Director stated the following in response
to the findings in our draft report:
(a) MPCA staff did perform cost analyses of the
Malcolm Pirnie and IT Corporation contracts as
required by 40 CFR 33.290 in response to the EPA
draft audit report. Attachments A, B, and C to
Appendix 1 document the cost analyses performed on
these negotiated subagreements.
(b) MPCA was in compliance with 40 CFR 33.520. Upon
evaluation of proposals, MPCA believed that they
were in a competitive range. Consequently, MPCA
staff were satisfied that the proposals received
were the best and final offers. >
(c) Regarding documentation of factors used to
determine best qualified offerers and what factors
-36-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT"!?
Note 2 (Continued)
determined subagreement award, we offer the
following support for our compliance with 40 CFR
33.520(d):
1. The RFP identified the basis for best *
qualified offerers (see Appendix 2, Section
VIII p.20-21).
2. The proposal evaluation sheet, Appendix 3,
clearly identifies criteria used by MPCA
reviewers to evaluate proposals.
3. Documentation of what factors were used to
determine subagreement award appears on page
5 of Appendix 4.
OUR EVALUATION OF MPCA'S COMMENTS
(a) The response provided indicated that MPCA did
not address our determination that proper cost
analyses were - not.performed for the two contracts
awarded under the Multi-Site cooperative agreement
prior to our completion of audit field work.
However, MPCA indicated that cost analyses had
been performed as of the date of their response to
our draft audit report. Attachments A and B to
Appendix 1, prepared by MPCA in response to the
draft audit report, support the performance of
proper cost analyses for the contracts awarded.
The discussed action and documentation provided
was responsive to the basis of the finding and
indicates that MPCA did perform a review and
evaluation of each cost element to determine the
reasonableness, allocability and allowability of
the cost.
(b) The response provided indicated that MPCA did not
agree with our determination that best and final
offers were not received for the two contracts
awarded under the Multi-Site cooperative agreement.
MPCA accepted the proposals received as best and
final offers. In order to comply with 40 CFR
33.520 MPCA must "..conduct meaningful
negotiations with the best qualified offerors with
acceptable proposals within the competitive range,
and permit revisions to obtain best and final
otters.'1 (Emphasis added.) MPCA allowed no
revisions, therefore, they had not obtained best
and final offers.
-37-
-------
MINNESOTA POLLUTION CONTROL AGENCY
NOTES TO EXHIBIT D
Note 2 (Continued)
MPCA's comment is not responsive to the intent of
the finding and does not indicate that the best
qualified offerers were given the opportunity to
negotiate or revise their proposals.
(c) The response provided indicated that MPCA did not
agree with our determination that MPCA did not
properly document factors used for the evaluation
of proposals pursuant to 40 CFR 33.520(d). MPCA
referred to their RFP for the inclusion of factors
used to determine the best qualified offerers.
MPCA referred to evaluation sheets to identify
criteria used by MPCA reviewers to evaluate
proposals. MPCA indicated that results of a
second evaluation form based upon consultant
interviews for qualified offerers within the
competitive range, support the factors used to
determine the subagreement award.
The discussed action and documentation provided is
not responsive to. the basis of the finding and
does not indicate that the offerers most
advantageous to the recipient were awarded the
contracts. The RFP did not include the same
evaluation criteria which was used by the
consultant selection team to evaluate the
proposals, nor did the RFP indicate the relative
importance attached to each criteria, both of
which are required pursuant to the State
Participation in the Superfund Program Volume II,
Section III B.I.Additionally, MPCA was unable to
provide us with evaluation sheets completed by the
consultant selection team members to support the
selection of IT and Malcolm Pirnie over the other
contractors and support the basis of the
subagreement award during our field work or in
response to our draft report.
RECOMMENDATION
We recommend that the Regional Administrator, Region 5
determine if the procurement method employed by MPCA
resulted in the award of the subagreements to the
offerers most advantageous to MPCA. Determination
should be based upon price and other evaluation
criteria set forth in the request for proposal prior to
accepting any contractual amounts submitted by MPCA as
allowable for Federal participation under the Malcolm
Pirnie and IT Corporation contracts.
-38-
-------
-------
EXHIBIT E
PRELIMINARY ASSESSMENT/SITE INSPECTION COOPERATIVE AGREEMENT
₯1
III
AWARDED TO THE MINNESOTA POLLUTION CONTROL AGENCY
SCHEDULE OF COSTS CLAIMED AND ACCEFfED
FOR THE PERIOD APRIL 1. 1985 THROUGH SEPTEMBER 30, 1985
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs
Total
AMOUNT
CLAIMED
(Note 1)
$ -
$ -
ACCEPTED
$ -
$ -
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report (SF-269) through September
30, 1985.
-39-
-------
-------
«> a *
OM 1 »
* 9
i § g
X O
X
e
> o
s
» « X <»
v e
I » O
«i<-» &O
»«> B x
~ 35
35 Z
< < <
e o
oo
o
» 4* O O
««
j> m u
I
M
O
u
u
to
o u x u u
Z > > >-
o
u
§
w
4>
O
VI
O
H
I
§
>
(J
Z
UI
5 j
u
53
e
A *
O C
B
« C C
OM
c
SI
X
u
O X
> O X O -«.
&
B
O
U
;xss
-" C
e
e
o *J
I 5
w
c
w
o o
&
w S «« -* o -«
§
j
-. * S
3
W)
A ' «
o -* o
-. -, C 41 -< J>
« 3 2 J
T: z -K v- »
V *
i 4 r
4* U
W
o o
M U » 1
4» C ^ '-
e o <-o u
o u b. u e
o a.i>. o
X U
X X
-------
^*
u
SJ
i
s §
M J
O B
< 2
^ £
23
? *
a**
&, <
is
3
Z R
8^
C B
*
^
g
C
<
5
^
&
c
o
u
,.
a
V]
z
3
M
5
3
IM
ft
§
5
k
tf
j
5
i
i
^
il
J
J
k.
§
1.
i
u
X
in
S32:
.S-sSJl
?§
O 4* U
o
tr\
^%^^ B
n N
O
Ik
« 6
-< e
Siu
ss|
c
e o
uu
o
c
*n 9 u
w4
O4>
V4 4»
e
*"* S
"l
*»
"J^J
o e c
# c v
»i S C
d«4-oTl
-£3
9 ^^
2OOOOM O O O OOOO
zzzz z z z zzsez
< < < <
jr**«*» z z z z" Se
zzzz z
z*'"'*'"''* * "* ** z^^z
< < <
x z z zz z
«« <<
zzzz zz z
< < <
zzzzz z z z zz *"
^
- . '
O N
0 «
O rJ
M C **
U *« «
X CM C C K
* e e e -4
4 KM tfl M O
C C X ->
« « -Q TJ u >
». 5*. g g sss:
O » O O
IS C b b ^« '^* OM
we u-*x
e c c 3 VIM -b oe >e c ob*>»«
"«^ HZ O V OJ>4J
(VX b « . -i . . > XX O -<
8Utt>3u«e xzv u«tac x o
u e
^ '""1
1 i- 3
o
« ex e
B 0
u o -
O w u
t* c .
C *3
-i -i 0 o M
-4 U O M
c e *. u u
b«< W b w 4)
O COW
%* ** T> O *J U.
o t. e e u
O -* I <
XX » >
u «i Of- « <
w^ o kj ^^
o z >- a
5
o
u
u
u
J
w
c
o
u
X
o
c
b
o
41
X
"
o
Q.
n.
2
o
c
o
4»1
4J
c
I
u
o
"°
c
II
o
^
3
^
^
*
3
v ^
n e
w O
O 4>
b «
o
c t>
T>-4
^ b
Q)
u
z
0,
^
*
*
u
o o
z o
1
*. x
-------
ATTACHMENT A
-------
-------
Minnesota Pollution Control Agency
July 17, 1986
Mr. Kenneth 0. Hockman
Divisional Inspector General
for Audit
U.S. Environmental Protection Agency
Washington, O.C. 20460
Dear Mr. Hockman:
We have received and reviewed the draft audit report entitled: "Report of
Interim Audit of State of Minnesota Pollution Control Agency's (MPCA)
Administration of its Superfund Cooperative Agreements with U.S. Environmental
Protection Agency (EPA) under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980." I would first like to make some
general comments and then address the six issues raised in your letter as well
as two more specific issues from the report.
First, on the positive side, we found the audit to be very useful in
highlighting potential problems in our procurement process and believe that the
suggested modifications, together with changes we have already made, will
prevent them from becoming actual problems. Additionally, although an audit is
always difficult to deal with while trying to operate the MPCA's programs, we
found the audit team to be courteous and professional.
Somewhat disturbing, however, was the lack of recognition that these contracts
were among the first executed under the Superfund program. EPA guidance on this
procurement process was not to be issued for another four years. We also would
have liked to seft»sone recognition of improvements in procurement and other
administrative MMCts of the MPCA Superfund program during the ensuing years.
General comments%s1de, we will address the specific issues below.
Phone:
1935 West County Road 82. Roseville. Minnesota 551 13-2785
Regional Offices Ouluth/Brainerd/Oetroit Lakes/Marshall/Rochester
Equal Opportunity Employer
-------
Mr. Kenneth 0. Hockman
Page Two
Contract Manual
With regard to the existence of a Contract Manual, MPCA has had a manual since
July 1, 1983. We would be happy to send you a copy if it would be of some
benefit. However, since the manual was developed subsequent to the Reilly and
New Brighton procurement processes its existence is somewhat academic. In any
case, we have begun the process of updating the manual to make it easier to use
and are instituting procedures to ensure that the revised manual is used for all
procurement, state and federal. Finally, we are incorporating into the manual
the March, 1986 State Procurement Under Superfund Remedial Cooperative
Agreements guidance issued by EPA. We believe that these steps will improve the
MPCA procurement process as well as preventing problems in any future audits.
Amend Existing Contracts
The existing contracts are being amended to include the required Federal
clauses. The status of each amendment is as follows:
Camp, Dresser, and McKee. (New Brighton/Arden Hills Site) This contract is
being amended to meet Federal requirements and should be executed in the
next two or three weeks.
E. H. Renner and Sons. (New Brighton/Arden Hills Site) This contract is
currently being amended. A copy of the amendment will be sent to EPA staff
for review.
CH2M Hill. (Reilly Tar and Chemical) When Reilly entered into a Consent
Decree a Stop Work Order was issued, no further work was done and none is
planned under this contract. Therefore this contract will not be amended.
IT Corporation. (Multisite Contract) Amendments to this contract were
reviewed by EPA staff in May, 1986 and should be executed in the next month.
Malcolm Pirnie. (Multisite Contract) Amendments to this contract were
reviewed by EPA staff in May, 1986 and should be executed in the next month.
CH2M Hill Contract
We believe that the CH2M H111 contract is clearly a cost-plus-fixed-fee contract
(CPFF) and not a cost-plus-percentage-of-cost contract (CPPC). The contract is
CPFF because, per 40 CFR 33.235 (b), profit has been negotiated as a separate
element of price. Profit in the CH2M Hill contract was fixed prior to any work
being performed under the contract. Profit does not fluctuate. It is our
understanding that a contract is CPPC if it includes a multiplier which includes
profit ( 40 CFR 33.285). This is not the case in the CH2M Hill contract.
RECOMMENDED ACTION: Move $207 from questioned to accepted since this type of
contract is legal.
-------
Mr. Kenneth D. Hockman
Page Three
Nonexpendable Personal Property
The laboratory equipment which was purchased with federal funds under the Reilly
Tar Cooperative Agreement and was being carried on the Minnesota Department of
Health Inventory Is in the process of being transferred to the MPCA Inventory.
In order to prevent this type of error In the future, we are including OMB
Circular A-87 in the Contract Manual referred to above.
Indirect Costs
As outlined in the audit report, the MPCA submitted the required Financial
Status Reports in accordance with directions received from Region V. The MPCA
would be willing to report indirect costs as defined by OMB Circular A-87 with
the concurrence of Region V. Assuming that Region V concurs with the rates
mentioned in the audit report, questioned costs under the Reilly Tar Cooperative
Agreement for periods ending June 30, 1983 and June 30, 1984 remain $2,506 and
$1,244, respectively. However, using OMB Circular A-87 definitions, the final
indirect rate for the period ending June 30, 1985 is 40.OX. The revised table
is as follows:
Personnel
and Fringe
$59,592
Revised total
Approved
Rate
40.0%
Allowable
Indirect
Costs
$23,837
$102,491
Amount
Claimed
$26,101
$109,964
Amount
Questioned
$2,264
$7,473
For the New Brighton Cooperative Agreement, using the same rationale, the
questioned cost of $1,618 for the period ending June 30, 1984 would not change.
However, with the final indirect rate for the period ending June 30, 1985 at
40.0%, the revised table is as follows:
Personnel
and Fringe
$57,387
Revised total
Approved
Rate
40.OX
Allowable
Indirect
Costs
$22,955
$51,995
Amount
Claimed
$19,438
$53,822
Amount
Questioned
($3,517)
$1,827
RECOMMENDED ACTI Oik Move a total of $4,112 from questioned to accepted under ,
the Reilly Tar Cooperative Agreement and a total of $3,960 from questioned to
accepted under the New Brighton Cooperative Agreement.
Submittal of Progress Reports
Progress reporting on sites in the Multisite Cooperative Agreement is no longer
delinquent. Reports for quarters prior to January 1, 1986 were submitted to EPA
on the following dates:
February 13, 1985 - Three reports submitted
March 11, 1986 - Eighteen Reports submitted
March 14, 1986 - Eight reports submitted
-------
Mr. Kenneth 0. Hockman
Page Four
March 18, 1986 - Four reports submitted
March 21, 1986 - Three reports submitted
March 27, 1986 - Three reports submitted
For the period of January 1, 1986 through March 31, 1986 progress reports for
nine state-lead sites were submitted on April 28, 1986. Progress reports for
three federal-lead sites were submitted on May 12, 1986.
Regarding progress reporting on the Reilly Tar Cooperative Agreement, progress
reports for quarters prior to July 1, 1985 have been submitted. The remaining
progress reports will be submitted by August 15, 1986.
Finally, with regard to progress reporting on the New Brighton Cooperative
Agreement, progress reports for quarters prior to April 1, 1986 have been
submitted and there is no delinquency.
Pages 19-20 Word Processing and Computer Equipment
We believe that this portion of the report is in error. The $10,000 amount
authorized in the Cooperative Agreement was clearly intended for and used for
word processing equipment. Grouping it with the computer equipment just
confuses the issue. The remaining computer equipment was approved by Mr. Paul
Bitter of EPA, Region V. This was told to the auditors as well as the current
EPA Project Officer who was not with the program at the time of the approval and
could not be expected to be aware of it. Given that the Reilly Tar case was
prepared for litigation and hundreds of boxes of files were reorganized, it is
not surprising that some of the older paperwork was not found during the audit.
What is somewhat disturbing, however, is the fact that Mr Bitter was not
contacted to confirm the approval. The problem here is missing documentation,
not the lack of an approval. Therefore, we believe that the correct figures for
the chart on page 19 are as follows:
Purchase Approved Questioned
Item Price Amount Amount
Word Processor 13,324 10,000 3,324
Modem 850 850
Basic 80 Software. 350 350
Computer & other ^
Related Equipment 9,295 9,295
Fortran 80 Software 427 427
Data 443 443
Computer Hardware & $24,689 $21,365 $3,324
Software subtotal
Total Equipment $67,478 $59,865 $7,613
Purchased with EPA
Funding
RECOMMENDED ACTION: Move $11,365 in computer costs from questioned to set aside
based on inadequate documentation.
-------
Mr. Kenneth D. Hockman
Page Five
Multisite
JNJct Cost Analysis
MPCA staff did perfonn what we believed to be an adequate cost analysis of the
Malcolm Pintle and IT Corporation contracts as required by 40 CFR 33.290.
Attachments A, B and C to Appendix 1 document the cost analysis performed on
these negotiated subagreements. Additionally, we feel that MPCA was in
compliance with 40 CFR 33.520. Upon evaluation of proposals, MPCA believed that
they were in a competitive range. Consequently, MPCA staff were satisfied that
the proposals received were the best and final offers.
Regarding documentation of factors used to determine best qualified offerers and
what factors determined subagreement award, we offer the following support for
our compliance with 40 CFR 33.520(d):
1. The RFP identified the basis for best qualified offerers. (See Appendix 2,
Section VIII p.20-21)
2. The proposal evaluation sheet, Appendix 3 clearly identifies criteria used
by MPCA reviewers to evaluate proposals.
3. Documentation of what factors were used to determine subagreement award
appears on page 5 of Appendix 4.
Conclusion
In conclusion, based on the information presented above, we believe that the
total figures should be revised as follows:
Cooperative Amount
Agreement Claimed Accepted
Reilly $1,019,984 $457,172
New
Brighton $1
Multisite
PA/SI
$290,024
152,785
Questioned Set Aside
$15,086 $547,726
$1,827 $803,532
Total
$2,168,152 $799,981 $16,913 $1,351,258
-------
Mr. Kenneth 0. Hocknan
Page Six
We appreciate the opportunity to comment on this draft report and hope that our
comments will be considered In the final report. Please direct any questions or
comments on this matter to Mr. Larry Christens en of my staff (612) 296-7758.
Sincerely,
n^-Thomas J. Kalltowski
\> Executive Director
Enclosure
cc: Tom Ma tee r, EPA, Region V (5 HR)
Tlchenor, Resler & Elche
Ot^-£1/5-OP-05
------- |