UNITED STATES ENVIRONMENTAL PROTECTION AGENCY   <^° *" ~?
                             WASHINGTON. D.C, 20490
                                  DEC 3 I  P'':b                       OFFICE OF
                                                                THE INSPECTOR GENERAL
      MEMORANDUM

*
      SUBJECT:   Audit  Report  No.  P5EH5-11-0021-70474
                Report on  Financial  and  Compliance  Audit
                Obligations and Disbursements  Under the
                Comprehensive Environmental  Response,
                Compensation, and Liability  Act  of  1980,
                Fiscal Years  Ended September 30, 1984  and  1983
      FROM:      Kenneth  D.  Hockman
                Divisional  Inspector General  for Audit
                Internal  Audit  Division  (A-109)

      TO:        James  M.  Seif
                Regional  Administrator,  Region 3


      Attached are two copies of the above referenced report.

      SCOPE  AND OBJECTIVES

      A certified public  accounting (CPA)  firm performed  a  financial  and
      compliance audit of the portion of the  Hazardous  Substance  Response  Trust
      Fund (Superfund) reported by  Region  3 Philadelphia, Pennsylvania  (Allowance
      Holder 03), for  the fiscal  years ended  September  30,  1984 and  1983.   The
      Comprehensive Environmental Response, Compensation, and  Liability Act of
      1980 (CERCLA) [{section lll{k)] states  that  the Inspector General shall
      audit  as appropriate  all  payments, obligations, reimbursements, or other
      uses of Superfund  to  assure that Superfund  is  being properly administered
      and  that claims  are being appropriately and  expeditiously considered.
      Audit  procedures were performed to determine if the costs to administer
      Superfund were "necessary for" and "incidental to"  the  implementation of
      CERCLA [(section 111  (a)].  As part  of  the  audit, the CPA made a  study
      and  evaluation of  the system  of internal accounting control as well  as an
      audit  of costs obligated  and  disbursed  under the  Superfund  appropriation
      for  the fiscal years  ended September 30, 1984  and 1983.  Additionally,
      the  CPA reviewed the  status of findings and  recommendations included in
      the  prior audit  report.


                                      U.S. Environmental  Protection
                                      Library, Room  2404  FM-211-A
                                      401 M Stroet,  S.W.
                                      Washington.  00   20460

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As part of the audit, transactions obligated and disbursed for Superfund
activities were selectively tested.   The audit objectives were to determine
if:

     a.  The Statements of Obligations and the Statements of Disbursements
         present fairly the results of financial operations in accordance
         with applicable laws, regulations, and guidelines;

     b.  EPA management complied with laws and regulations which, if not
         followed, might have a material effect upon the Statements of
         Obligations and the Statement of Disbursements; and

     c.  EPA established an adequate system of internal  accounting control
         to ensure the reliability of accounting and management records.

SUMMARY OF FINDINGS

EPA, Region 3 {Allowance Holder 03), obligated $7,650,471 and disbursed
$3,906,583 during the fiscal year ended September 30, 1984.  During the
fiscal year ended September 30, 1983, $2,502,122 was obligated and
$1,738,221 was disbursed.

The CPA set-aside $2,305,591 in obligations and $2,333,222 in disbursements
for fiscal 1984 and $880 in obligations and $20,405 in disbursements for
fiscal 1983.  Also, the CPA questioned costs of $4,113 and $3,301 for
fiscal 1984 and 1983, respectively.  The majority of obligations and
disbursements set-aside in fiscal 1984 were Personnel Compensation and
Benefits (PC&B) amounting to $2,300,711 and $2,296,607,  respectively.
PC&B costs were set-aside because the statistical analysis indicated a
potential error rate of 17 percent, which was considered excessive.  In
addition, PC&B costs totaling $4,113 in fiscal 1984 and $3,301 in fiscal
1983 were questioned because of discrepancies within the system used to
charge PC&B to the Superfund appropriation.

The audit also disclosed weaknesses in three internal and management control
areas.  First, timekeeping for Superfund Personnel  Compensation and Benefits
needs improvement.  Second, control and accountability over non-expendable
personal property should be improved.  Third, support for aggregate
centra! support services costs allocated to Superfund must be maintained.

Similar findings were also reported in the prior audit for fiscal 1982.
Because of problems in these areas, the CPA's scope of work was not
sufficient to enable them to express, and they did not express, an opinion
on the Region's financial statements.

1.  TIMEKEEPING FOR SUPERFUND PERSONNEL COMPENSATION AND BENEFITS
    NEEDS IMPROVEMENT

    The CPA set-aside fiscal 1984 PC&B obligations of $2,300,711 and
    disbursements of $2,296,607.  These costs were set-aside because the
    statistical analysis indicated a potential error rate of 17 percent,
    which was considered excessive.  Also payroll obligations and disburse-

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    ments in the amounts of $3,694 and $2,982 were questioned for fiscal
    years 1984 and 1983, respectively.  In addition,  the CPA questioned
    related personnel benefit costs of $419 and $319  in fiscal  years 1984
    and 1983, respectively.  These costs were questioned because:  time-
    sheets and T&A cards were missing; timesheets and T&A cards did not
    agree with each other; or timesheets and T&A cards did not  agree with
    the Region's automated payroll system.  Finally,  the CPA determined
    that four internal control weaknesses associated  with timekeeping
    existed.  Two of the four weaknesses were significant internal  accounting
    control weaknesses attributable to improper separation of timekeeping
    duties and two were significant internal administrative control  system
    weaknesses where Region 3 employees often estimated their time when
    recording Superfund activity rather than identify their actual  time.
    All of these conditions were caused by the Region not adequately
    implementing or complying with the June and November 1982 EPA
    Superfund Charging Policies Memorandums.

2.  CONTROL OVER NON-EXPENDABLE PERSONAL PROPERTY SHOULD BE IMPROVED

    The CPA found that 24 of 27 equipment purchases (costing $204,698)
    were not recorded on the Region's Personal Property Accountability
    System (PPAS), and 3 of the 27 units (costing $1,595) could not be
    located.  These problems appeared to be attributable to a failure in
    sending equipment receiving reports to the Property Accountability
    Officer and a failure to perform annual physical  inventories.  An
    annual physical inventory of non-expendable personal property was
    not performed by Region 3 for fiscal 1983 and a physical inventory
    was started, but not completed for fiscal 1984.  This was a result of
    not following the relevant Environmental Protection Agency  Property
    Management Regulations (PMR), formerly EPPMR.  The failure to conduct
    annual physical inventories could lead to the inability to  detect
    excess stock and idle non-expendable property ,in  a timely manner.  It
    also could impair the Region's ability to identify missing  and misused
    property.  Finally, custodial officers for the various property
    accountable areas were not appointed in fiscal years 1983 and 1984.
    This occurred because a complete inventory had not been taken and, as
    a result of various reorganizations within the Region in fiscal  years
    1984 and 1983, property was not transferred to the proper accountable
    area.  When such appointments are not made, control over property can
    be lost and responsibility cannot be easily fixed.

3.  SUPPORT FOR THE AGGREGATE CENTRAL SUPPORT SERVICES COSTS ALLOCATED
    TO SUPERFUND MUST BE MAINTAINED

    The Region did not utilize a system that provided a clear trail to
    readily determine the aggregate central support services costs
    allocated to Superfund during fiscal years 1983 and 1984.  For fiscal
    years 1983 and 1984, the CPA attempted to identify aggregate costs
    allocated to major object classes within the Superfund appropriation
    to determine the materiality, of these support service allocations.
    The CPA was advised that, after the third quarter of fiscal 1983,
    allocations other than common support services charges were made to

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    the Superfund based on personnel  full-time equivalent (FTE) ratios on
    an individual transactions basis.  The ratio was developed by dividing
    the total Superfund actual FTEs by total  Regional FTEs on a cumulative
    basis.  Common support service charges were to be charged on a quarterly
    basis for the first three quarters and on a monthly basis for the fourth
    quarter using the same ratio.  Region 3 had not accumulated, and did
    not have the personnel resources available during the CPA's audit
    fieldwork to reconstruct the aggregate costs allocated to Superfund
    for fiscal years 1983 and 1984.  Without  this information, a determina-
    tion of the costs allocated to Superfund  could not be made, and the
    Agency will have difficulty adequately supporting these costs in cost
    recovery actions.

REGION 3'S COMMENTS ON FINDINGS AND THE CPA'S EVALUATION

An exit conference was held on April 30, 1985, with the following officials
of Region 3:  Deputy Assistant Regional Administrator for Policy and
Management; Chief, Administrative Management  Branch; Chief, Budget and
Accounting Section, Office of Comptroller; Operating Accountant, Office of
Comptroller; Property Officer; and Audit Follow-up Coordinators (2),
Office of Comptroller.  The purpose of the exit conference was to present
the findings and recommendations and to ensure a clear understanding of
our report by Region 3 management.  At this conference and during the
course of the audit, Region 3 officials discussed their position relative
to the findings and recommendations.  In addition. Region 3 provided us
with formal written comments on the draft report in a memorandum dated
August 8, 1986.  The Assistant Regional Administrator for Policy and
Management concurred with three of our five findings and recommendations
and indicated corrective actions were taken or were planned to resolve
the related issues cited in the report.  Region 3 indicated partial
agreement with the remaining two findings and recommendations.  We reviewed
additional documentation provided by Region 3 and resolved one of the
draft report findings and deleted all references from this report.  To
provide a balanced understanding of the issues, we summarized Region 3's
position at appropriate locations in the report and included the complete
response as Appendix 1.

RECOMMENDATIONS

We recommend that the Regional Administrator, Region 3:

     0 Perform a feasibility study to determine whether the fiscal 1984
       payroll adjustments can be made cost effectively; and provide a
       copy of the study and final decision.

     0 Direct the Comptroller to ensure that the Regional payroll clerk
       does not perform incompatible duties,  such as receiving and
       distributing paychecks or acting as the designated agent.

     0 Direct the Comptroller to reconstruct aggregate costs allocated to
       Superfund along with supporting documentation and retain for follow-
       up during the next audit.

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                            UNITED STATES
                   ENVIRONMENTAL PROTECTION AGENCY
                              REGION 3
                     PHILADELPHIA, PENNSYLVANIA

              REPORT OF FINANCIAL AND COMPLIANCE AUDIT
               OBLIGATIONS AND DISBURSEMENTS UNDER THE
                COMPREHENSIVE ENVIRONMENTAL RESPONSE,
               COMPENSATION, AND LIABILITY ACT OF 1980

                       FOR FISCAL YEARS ENDED
                     SEPTEMBER 30, 1984 AND 1983
'TC
TICHENOR, RESLER  & EICHE
   CERTIFIED PUBLIC ACCOUNTANTS

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              UNITED STATES
     ENVIRONMENTAL PROTECTION AGENCY
                REGION 3
       PHILADELPHIA, PENNSYLVANIA

REPORT OF FINANCIAL AND COMPLIANCE AUDIT
 OBLIGATIONS AND DISBURSEMENTS UNDER THE
  COMPREHENSIVE ENVIRONMENTAL RESPONSE,
 COMPENSATION, AND LIABILITY ACT OF 1980

         FOR FISCAL YEARS ENDED
       SEPTEMBER 30, 1984 AND 1983

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                          UNITED STATES
                 ENVIRONMENTAL PROTECTION AGENCY
                            REGION 3
                   PHILADELPHIA, PENNSYLVANIA

            REPORT OF FINANCIAL AND COMPLIANCE AUDIT
             OBLIGATIONS AND DISBURSEMENTS UNDER THE
              COMPREHENSIVE ENVIRONMENTAL RESPONSE,
             COMPENSATION, AND LIABILITY ACT OF 1980

                     FOR FISCAL YEARS ENDED
                   SEPTEMBER 30, 1984 AND 1983

                        TABLE OF CONTENTS

                                                       Page

SCOPE AND OBJECTIVES                                     1

SUMMARY OF FINDINGS                                      2

BACKGROUND                                               6

AUDITORS' REPORT ON FINANCIAL STATEMENTS                 7

AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
  AND COMPLIANCE9

FINDINGS AND RECOMMENDATIONS

1.   TIMEKEEPING FOR SUPERFUND PERSONNEL
      COMPENSATION AND BENEFITS NEHP5
      IMPROVEMENT13

2.   CONTROL OVER NON-EXPENDABLE PERSONAL
      PROPERTY SHOULD BE IMPROVED17

3.   SUPPORT FOR THE AGGREGATE CENTRAL SUPPORT
     "SERVICES COSTS ALLOCATED TO SUPERFUND^MUST
      BE MAINTAINED21

4.   MINOR FINDINGS - CORRECTIVE ACTION TAKEN BY
     REGION 3 '                                          22
EXHIBITS

  0  EXHIBIT I:  STATEMENT OF OBLIGATIONS, FISCAL
                  YEAR ENDED SEPTEMBER 30, 1984         26

  0  EXHIBIT II: STATEMENT OF DISBURSEMENTS,
                  FISCAL YEAR ENDED SEPTEMBER 30,
                  1984                                  27

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                  TABLE OF CONTENTS (CONTINUED)
     EXHIBIT III: NOTES TO STATEMENTS OF OBLIGATIONS
                   AND DISBURSEMENTS, FISCAL YEAR
                   ENDED SEPTEMBER 30, 1984
     EXHIBIT IV:
     EXHIBIT V:
     EXHIBIT VI:
APPENDIX
     APPENDIX 1
STATEMENT OF OBLIGATIONS, FISCAL
 YEAR ENDED SEPTEMBER 30, 1983

STATEMENT OF DISBURSEMENTS, FISCAL
 YEAR ENDED SEPTEMBER 30, 1983

NOTES TO STATEMENTS OF OBLIGATIONS
 AND DISBURSEMENTS, FISCAL YEAR
 ENDED SEPTEMBER 30, 1983
REGION 3'S RESPONSE TO DRAFT AUDIT
 REPORT
28


30


31



32
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                          UNITED STATES
                 ENVIRONMENTAL PROTECTION AGENCY
                            REGION 3
                   PHILADELPHIA, PENNSYLVANIA
            REPORT OF FINANCIAL AND COMPLIANCE AUDIT
             OBLIGATIONS AND DISBURSEMENTS UNDER THE
              COMPREHENSIVE ENVIRONMENTAL RESPONSE,
             COMPENSATION, AND LIABILITY ACT OF 1980
                     FOR FISCAL YEARS ENDED
                   SEPTEMBER 30, 1984 AND 1983

                      SCOPE AND OBJECTIVES

We have performed a financial and compliance audit of the portion
of  the  Hazardous Substance  Response  Trust Fund  (Superfund)  re-
ported by the U.S.  Environmental  Protection Agency (EPA),  Region
3 (Allowance Holder 03), for the fiscal years ended September 30,
1984 and 1983.  Superfund was established under the Comprehensive
Environmental Response,  Compensation,  and Liability Act  of 1980
(CERCLA).  CERCLA [section lll(k)] states that the Inspector Gen-
eral shall audit as appropriate all payments, obligations, reim-
bursements,  or other  uses of Superfund to  assure that Superfund
is being properly  administered and that  claims  are being appro-
priately and expeditiously  considered.   Audit  procedures  were
performed to determine  if the  costs to administer Superfund were
"necessary for" and "incidental to" the implementation of CERCLA
[section  Lll(a)].   Contract,  grant,  and  interagency  agreement
costs were examined only  to  the extent necessary to determine if
valid obligation and  disbursement transactions were properly re-
corded  and  records  were  properly maintained.   Audits of  con-
tracts , grants,  and interagency agreements performed  at  a later
date may  disclose  questioned  costs.   As part  of the  audit,  we
made a  study and evaluation of internal accounting controls as
well as an audit of costs obligated and  disbursed under  the Su-
perfund appropriation for the  fiscal  years  ended September 30,
1984 and 1983.  Additionally, we  reviewed the status of findings
and recommendations included in the prior audit report.

The  audit  was performed in accordance with  generally accepted
auditing  standards  and  the  Standards  for  Audit  of  Govern-
mental Organizations,  Programs,  Activities,  and  Functions (198T
revision) promulgated by theU.S.Comptroller General.Accord-
ingly, the examination  included such  tests  of the accounting re-
cords and such other  auditing  procedures as we considered neces-
sary  in  the  circumstances.  Audit fieldwork was performed from
February 19,  1985 through April 30, 1985.

As part  of  the audit,  transactions obligated  and disbursed for
Superfund activities  were selectively  tested.   The audit objec-
tives were to determine if:

     (1)  The Statements of  Obligations and the  Statements of
          Disbursements  present fairly the  results  of financial
          operations  in accordance  with applicable laws, regu-
          lations,  and guidelines;
                               -1-

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                     SCOPE AND OBJECTIVES (CONTINUED)
          (2)   EPA  management  complied  with  laws  and  regulations
               which,  if not  followed, might  have a 'material  effect
               upon the Statements  of Obligations and  the  Statements
               of Disbursements;  and

          (3)   EPA established an adequate system of internal account-
               ing control  to  ensure the reliability of accounting and
               management  records.
                            SUMMARY OF FINDINGS

     EPA,  Region .3  (Allowance  Holder 03),  obligated $7,650,471  and
     disbursed $3,906,583 during  the fiscal year  ended  September 30,
     1984.    During   the  fiscal   year   ended  September 30,   1983,
     $2,502,122 was obligated and $1,738,221 was  disbursed.  We  set-
     aside $2,305,591 in obligations and $2,333,222  in  disbursements
     for fiscal 1984 and  $880 in  obligations and $20,405 in  disburse-
     ments for fiscal 1983.  Also,  we questioned  costs  of $4,113 and
     $3,301  in fiscal years  1984 and 1983, respectively.

     The majority of obligations and disbursements set-aside  in fiscal
     1984 were personnel compensation and benefits (PC&B) amounting to
     $2,300,711 and  $2,296,607, respectively.    PC&B  costs were  set-
     aside because our  statistical  analysis   indicated a  potential
     error of  17  percent, which  was considered excessive.   In  addi-
     tion, we questioned PC&B costs totaling $4,113 in fiscal 1984 and
     $3,301  in fiscal 1983 because  of  discrepancies within the  system
     used to  charge PC&B to  the  Superfund appropriation.

     Our audit also disclosed weaknesses in three-internal and manage-
     ment control areas:  timekeeping  for Superfund personnel compen-
     sation  and benefits; control and accountability over non-expenda-
     ble personal property;  and support  for aggregate central support
     services costs allocated to Superfund.


     FINANCIAL RESULTS OF AUDIT

     Questioned and set-aside costs  are  summarized below and detailed
     in the  Exhibits.
                     Obligations
                                     Disbursements
              FY 1984FY 1983Totals
                             FY 1984
           FY 1983
•Totals
Questioned
  costs     $
Set-aside
  costs      2.305,591
4,113  $3,301  $    7,414

          880   2,306,471
    4.113  $ 3,301  $
    7,414
2.333.222   20.405   2.353.627
  Totals    $2.309,704  $4.181  $2.313.885   $2.337,335  $23.706  '$2,361,041
                                    -2-

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                 SUMMARY OF FINDINGS (CONTINUED)


Questioned costs  represent  costs that are  unallowable  under the
provisions of applicable  laws,  regulations, policies,  or program
guidelines.  Set-aside  costs are  costs  that cannot be accepted
without  additional  information  or  evaluations  and  approvals  by
responsible Agency program officials.


FOLLOW-UP ON PRIOR AUDIT FINDINGS

The prior audit report, which  covered  the  period  from  October 1,
1981 through September 30, 1982, identified weaknesses  related to
equipment, supplies and materials,  rent,  communication  and util-
ities, other contractual services, and personnel compensation and
benefit costs.   Our testing disclosed that the prior findings re-
lated to taking discounts offered for  prompt payment of invoices
and deobligating contract costs that were inappropriately charged
to  Superfund were resolved satisfactorily.   The  following prior
audit findings were not satisfactorily resolved and are disclosed
in the Findings and Recommendations section of  this report:  (1)
ensuring  that  the Property  Management  System  was  accurate and
complete;  (2)   preparing  the   Statement of Accountability  and
Statements of  Custodial  Responsibility  as  required by  the EPA
Property Management Regulations  (PMR) 2-20;  (3)  performing annual
inventories as required by PMR 2-26; (4) ensuring that all Super-
fund personnel expenditures  were accurately recorded;  (5) ensur-
ing  that timesheets  showing  Superfund activities  were prepared
and  agreed with time and  attendance reports;  and  (6)  reviewing
labor  distribution reports  to  ensure  the  accuracy of  payroll
charges to Superfund.


TIMEKEEPING  FOR  SUPERFUND  PERSONNEL  COMPENSATION  AND BENEFITS
NEEDS IMPROVEMENT

We  set-aside fiscal  1984  personnel  compensation  and benefits
(PC&B) obligations of $2,300,711 and disbursements of $2,296,607.
These  costs  were set-aside  because  our   statistical  analysis
indicated a  potential  error of  17  percent, which was  considered
excessive.   We  also  questioned  payroll   obligations  and  dis-
bursements in the amounts of  $3,694 and $2,982 for fiscal years
1984 and 1983, respectively.   In addition,  we questioned related
personnel benefit costs of $419 and $319 in  fiscal years 1984 and
1983, respectively.  These costs were  questioned because:   time-
sheets and  time and attendance  (T&A)  cards  were missing;  time-
sheets and T&A cards did not agree with each  other;  or  timesheets
and  T&A  cards  did not agree with the  Region's  automated payroll
system.   Finally,  we  determined  that  four  internal  control
weaknesses associated  with  timekeeping  existed.   We  noted two
significant  internal  accounting  control weaknesses attributable
to improper separation of  timekeeping  duties and two significant
internal administrative control  system weaknesses where Region  3


                               -3-

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                 SUMMARY OF FINDINGS (CONTINUED)
employees  often  estimated  their time  when recording  Superfund
activity rather than identifying their actual time.   All of these
conditions were caused by  the  Region  not adequately implementing
or  complying  with   the  June  and  November 1982  EPA  Superfund
Charging Policies Memorandums.
CONTROL OVER NON-EXPENDABLE PERSONAL PROPERTY SHOULD BE IMPROVED

We  found  that 24  of 27  equipment  purchases  (costing  $204,698)
were  not  recorded  on  the  Region's  Personal Property  Account-
ability System (PPAS)  and  4  of  the  27  units  (costing  $1,595)
could not be located.  These problems appeared to be attributable
to Region 3 personnel not sending equipment  receiving reports to
the  Property  Accountability  Officer  and  not performing  annual
physical inventories.   An  annual  physical inventory  of  Region 3
non-expendable personal property was not  performed for  fiscal
1983 and a physical  inventory  was started, but not completed for
fiscal  1984.   This was  a  result of not following  the  relevant
Environmental*  Protection  Agency Property Management Regulations
(PMR),  formerly  EPPMR.   The  failure to conduct  annual  physical
inventories could  lead  to  Region  3's  inability  to detect  excess
stock and idle non-expendable  property in  a  timely manner.   This
also  could  impair  the  Region's ability to  identify  missing and
misused property.   Finally, custodial  officers  for  the  various
property accountable areas were  not  appointed  in  fiscal  years
1983  and  1984.   This occurred because a complete inventory had
not been taken and, as a result of various reorganizations within
the Region in fiscal years 1983 and 1984, property was not trans-
ferred  to  the proper accountable  area.  When such appointments
are  not made, control  over property  can  be  lost and  responsi-
bility cannot be easily fixed.

SUPPORT FOR THE AGGREGATE CENTRAL SUPPORT SERVICES COSTS ALLOCAT-
ED TO SUPERFUND MUST BE MAINTAINED

The Region did not utilize a  system  that provided a clear trail
to readily determine the aggregate central support services costs
allocated to  Superfund  during  fiscal years  1984  and 1983.   For
fiscal  years  1984  and  1983,  we attempted to  identify  aggregate
costs allocated to major object classes within the Superfund ap-
propriation to determine the materiality of  these  support service
allocations.   Region 3 officials advised us  that,  after the third
quarter of fiscal  1983,  allocations  were made to  Superfund based
on personnel  full-time  equivalents  (FTE) ratios  on an individual
transactions  basis.   The ratios were developed by  dividing the
total Superfund actual  FTEs by total  Regional FTEs  on a cumula-
tive basis.   Common  support service  charges  were calculated on a
quarterly basis  for  the first three  quarters  of  fiscal  1983.
However,  the  Region  was unable  to  show  that  the  3rd  quarter
calculation was  posted  to the  Financial Management System (FMS)
or that any allocations were made for  the -4th quarter of fiscal

                                -4-

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                 SUMMARY OF FINDINGS (CONTINUED)


1983.  Region 3 was unable to provide any documentation of fiscal
1984 cost allocations and indicated that allocations were made on
an individual transactions basis.   Region  3  had not accumulated,
and  did  not have  the personnel  resources available  during  our
audit fieldwork  to  reconstruct the aggregate  costs  allocated to
Superfund for fiscal years 1984  and 1983.   Without this informa-
tion, a  determination  of the costs allocated  to  Superfund could
not  be made  within the scope  of  our audit,  and  the  Agency will
have  difficulty  adequately   supporting   these  costs  in  cost
recovery actions.


REGION 3'S COMMENTS ON FINDINGS AND OUR EVALUATION

An audit exit conference was  held  on  April 30,   1985,  with  the
following  officials  of Region   3:   Deputy  Assistant  Regional
Administrator for  Policy and  Management;  Chief,  Administrative
Management Branch;  Chief,  Budget and Accounting  Section,  Office
of  Comptroller;   Operating   Accountant,  Office of  Comptroller;
Property Officer; and Audit Follow-up Coordinators (2), Office of
Comptroller, to  present  our  findings and  recommendations  and to
ensure a clear  understanding of  our  report  by Region 3 manage-
ment.  At  this   conference and during  the course of  the  audit,
Region 3 officials discussed their position relative to our find-
ings and recommendations.  In addition,  Region 3 provided us with
formal written comments on our draft report in a memorandum dated
August 8, 1986.  The Assistant Regional Administrator for Policy
and Management concurred with three of our five findings and rec-
ommendations and indicated corrective actions  were taken or were
planned  to resolve  the related issues cited in the  report.  Re-
gion 3  indicated partial agreement with the remaining two find-
ings and recommendations.   We reviewed  additional documentation
provided  by Region 3,  and resolved one  of  the draft  report
findings and deleted all references from this report.  To provide
a balanced understanding of  the  issues,  we summarized Region 3's
position at appropriate locations  in.the report and included the
complete response as Appendix 1.
                               -5-

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                           BACKGROUND
On December  11,  1980, --the Comprehensive  Environmental Response,
Compensation, and Liability Act  of  1980 (CERCLA)  was signed into
law (Public Law  96-510).   CERCLA provides  for liability,  compen-
sation, cleanup, and  emergency  response for hazardous substances
released into the environment and uncontrolled and abandoned haz-
ardous waste sites.

CERCLA broadly  defines two types of response actions:   (1)  re-
moval  and  (2)  remedial.   The  former term  represents relatively
short-term  responses, while  the  latter  represents  actions  of
longer duration leading to permanent resolution.

To fund removal and remedial actions, CERCLA  , Title II, Subtitle
B established the Hazardous Substance Response Trust Fund (Super-
fund).  The Superfund is  financed by an imposed  tax on the man-
ufacturers ,  producers,  and   importers  of  petroleum,  petroleum
products, and certain "taxable" chemicals, and from general tax
revenue.

A  National Priorities  List  (NPL)   identifying   hazardous,  waste
sites  for  remedial  responses  is maintained and updated at  least
annually.  Virtually  all remedial  planning is done at proposed
and final  NPL  sites,  and  all  remedial actions are  at final NPL
sites.  The removal program  responds to needs which often  arise
very  quickly,  and  is  not limited by  the  NPL.   States with the
capability  of  performing  remedial  responses  may  enter  into
cooperative agreements with EPA.  At the time of remedial action,
a  State  must  enter  into  either  a  contract  or  cooperative
agreement with EPA to provide  the assurances  required by Section
104(c)(3) of CERCLA:   (1) cost  sharing (10  percent of remedial
action, except  for  50 percent  or more of  all response costs if
the site was publicly owned);  (2) availability of. an acceptable
disposal facility,  if needed; and (3)  provision  for all required
future maintenance  of the remedy.

Section 111(a)  of CERCLA limits the use of the money in Superfund
to response  costs;  claims asserted  and  compensable  but  unsat-
isfied under Section  311 of the Clean Water Act}   claims for inju-
ry to, or destruction or  loss of, natural  resources; and related
costs  described  in  Section   lll(c).   When   cleanup  costs  are
charged to Superfund, EPA  may recover  the  costs  from the respon-
sible  parties through litigation.   Section 111(a) further limits
administrative costs or expenses in that they may not be paid out
of the fund unless such  costs  or expenses  are "reasonably neces-
sary for" and "incidental to" the implementation  of  CERCLA.

On August 14, 1981,  President Reagan,  by  Executive Order 12316,
delegated  to  Federal  agencies   the  authority vested  in him by
CERCLA to use  the money in Superfund,  to  settle  claims asserted
against Superfund,  and to  designate  Agency officials who may ob-
ligate funds.
                               -6-

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      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 Inspector General
Washington, D.C.  20460

            AUDITORS' REPORT ON FINANCIAL  STATEMENTS

We have examined the Statements of Obligations  and the  Statements
of  Disbursements of the  U.S.  Environmental  Protection  Agency
(EPA), Region 3 (Allowance  Holder  03) portion of the  Hazardous
Substance  Response  Trust Fund  (Super fund) for the fiscal  years
ended September  30,  1984 and 1983 as presented in the  Exhibits.
Except as explained  in  the  following paragraphs,  our examination
was  performed  in  accordance  with  generally  accepted  auditing
standards and the  Standards for Audit of Governmental  Organiza-
tions, Programs, Activities,  and Functions (1981  revision),
mulgated by the U.S. Comptroller General.  Additionally,  the  U.S.
Environmental  Protection  Agency  Hazardous   Substance  Response
Trust Fund Audit  Guide  (revised February 22, 1985) was used  as  a
guide  in  our examination.   Accordingly, except  as noted in  the
second  paragraph  below, our examination included such  tests of
the accounting  records  and  such other auditing procedures as we
considered necessary in the  circumstances.

The Statements of Obligations  and  the  Statements  of Disbursements
referred  to above  contained  obligation and  disbursement  costs
related  to contracts,  grants, and  interagency agreements.   Our
audit procedures  were limited to determining  if  valid obligation
and disbursement  costs  were  properly  recorded.   Accordingly, we
did not  apply  audit procedures  to determine if  contract, grant,
and interagency agreement costs were allowable in accordance  with
applicable  Federal  regulations and within  the terms  of  specific
contracts,  grants,  and  interagency agreements.   Audits of  con-
tracts, grants,  and interagency agreements  performed at a  later
date may disclose questioned costs.

As explained in the Findings and Recommendations  section of  this
report,  the Region 3 Financial Management  Office was unable  to
identify the aggregate  support service  costs  that were allocated
to the Superfund  appropriation during  fiscal years 1984 and  1983.
Also, we noted an excessive  number of  errors and missing documen-
tation pertaining to personnel compensation  costs in fiscal  years
1984 and  1983  that were combined  with  four  significant  internal
control  weaknesses  in  the  Region's   timekeeping  system  for
recording Superfund personnel compensation.
                                -7-

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      AUDITORS'  REPORT ON FINANCIAL STATEMENTS (CONTINUED)
As part  of our  examination,  we  determined the allowability  of
obligations and  disbursements  incurred by EPA, Region  3  (Allow-
ance Holder 03),  portion of Superfund in accordance with applica-
ble Federal laws, regulations, policies,  and  program guidelines.
The statements referred to above  are  presented in  the Exhibits
and set forth the costs which  are  questioned  and  set-aside.   The
notes  to  the statements  include  an explanation  of  the  reasons
such costs were questioned and set-aside.

The Statements of Obligations and the Statements of Disbursements
were prepared  for EPA use  by  EPA Financial  Management Division
and are based on Allowance Holder financial information contained
in the Financial Management   System  (Superfund Status Jtepprts,
dated  September  30,  1984  and  1983).   These  statements are  not
intended to present  either the financial position  or the  finan-
cial results of  operations  in  conformity  with generally accepted
accounting principles in that allowable costs and accounting pol-
icies and practices are legislatively established and promulgated
through various Federal and EPA policy and procedural standards.

Because EPA Region 3 was unable to identify the aggregate central
support service costs that were allocated to the Superfund appro-
priation during  fiscal years  1984 and 1983 and, because  of  the
number of  errors and  missing  documents pertaining  to  personnel
compensation costs in combination with the internal control weak-
nesses that  were noted  in the  Region's  timekeeping system  for
recording Superfund personnel compensation, the scope of our work
was not  sufficient  to  enable  us to express,  and  we do not  ex-
press, an opinion on the financial statements referred to above.

This report is intended for use in connection with the statements
to which it refers and should not by used for any other purpose.
TI.CHENOR, RESLER & EICHE
Louisville, Kentucky
April 30, 1985
                                -8-

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      TICHENOR. RESLER & EICHE
        CERTIFIED PUBLIC ACCOUNTANTS
                                                  THE SUMMIT. SUITE 200
                                                  4150 8ROWNSBORO 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 Inspector General
Washington, D.C.  20460

 AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND  COMPLIANCE

We have examined the Statements of Obligations  and  the  Statements
of  Disbursements  of  the  U.S.  Environmental  Protection  Agency
(EPA), Region  3 (Allowance Holder 03), portion of the  Hazardous
Substance  Response  Trust  Fund  (Super fund) for the fiscal  years
ended September  30,  1984 and 1983, and we have issued  our  Audi-
tors'  Report  on Financial  Statements  thereon  dated  April  30,
1985.  As part of our examination, we made a  study  and  evaluation
of  EPA,  Region  3,  portion of  Superfund  system  of internal  ac-
counting control to the  extent we considered necessary  to  evalu-
ate  the  system as required by  generally accepted  auditing  stan-
dards and  the  standards  for  financial and  compliance audits con-
tained in  the  U.S.  General Accounting Office Standards  for  Audit
of  Governmental Organizations,  Programs,   Activities,  and
tions  (1981  revision)"   For the purpose  of this report, we  have
classified the  significant  internal accounting controls  into the
following transaction categories:

          Obligations
          Disbursements
          Payroll
          Purchases
          Property and equipment
          Electronic data processing

Our  study  included all of  the  transaction  categories  listed
above .

The purpose  of  our  study and evaluation was to determine the na-
ture,  timing, and extent of the auditing  procedures necessary for
expressing an  opinion on  the Statements  of Obligations and the
Statements of  Disbursements.   Our  study  and evaluation  was  more
limited than would be necessary to  express an  opinion on the sys-
tem of internal accounting  control taken as a whole  or on  any of
the categories  of controls  identified above.

EPA management  is  responsible for establishing and maintaining a
system of internal accounting  control.   In fulfilling  this re-
sponsibility, estimates  and judgments by  management  are required
to assess the expected benefits and related costs of control pro-
cedures.  The objectives of  internal  accounting control are to
                                -9-

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         AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
                   AND COMPLIANCE (CONTINUED)
provide reasonable, but  not absolute, assurance that  assets  are
safeguarded  against  loss from  unauthorized use or  disposition,
and  that  transactions are  executed  in  accordance with  manage-
ment's authorization and recorded properly  to  permit  preparation
of financial  reports  in  accordance with  applicable Federal  laws
and regulations.  The concept of  reasonable assurance recognizes
that the cost of a system of internal accounting  control should
not  exceed  the  benefits derived  and also  recognizes that  the
evaluation of these factors  necessarily requires estimates  and
judgments by management.

There are inherent limitations  that  should  be  recognized  in  con-
sidering the  potential  effectiveness of any system  of  internal
accounting control.  Because of inherent limitations  in.any  sys-
tem of internal  accounting  control,  errors  or  irregularities  may
nevertheless  occur  and  not be  detected.  In the  performance of
most control  procedures, errors can  result  from misunderstanding
instructions, mistakes of  judgment,  carelessness, or  other  per-
sonal factors.   Control  procedures whose effectiveness depend on
segregation of duties can be circumvented by collusion.  Similar-
ly, control procedures" can  be circumvented  intentionally  by  man-
agement, either  with respect to  the execution and recording of
transactions  or  with  respect  to  the   estimates  and  judgments
required in  the  preparation  of financial  .statements.   Further,
projection of any evaluation of  internal  accounting  control to
future periods  is subject  to the risks   that the  procedures  may
become inadequate because  of  changes in  conditions and that  the
degree of compliance with the procedures may deteriorate.

Our study and evaluation, made  for  the  limited purpose described
in the first  paragraph,  would not necessarily, disclose all mate-
rial weaknesses  in the system.  Accordingly, we do not express an
opinion on the system of internal accounting control  of EPA,  Re-
gion 3, portion  of Superfund taken  as a whole or on  any of  the
categories of control identified  in  the  first  paragraph.   Howev-
er, our study and evaluation disclosed  the following conditions
that we believe  result in more  than  a relatively low  risk of er-
rors or irregularities  in  amounts that  would be  material in re-
lation  to  the Statements  of Obligations and  the  Statements of
Disbursements of EPA,  Region 3,  portion of Superfund may occur
and not be detected within a timely period:

     0    Internal  accounting  and .administrative controls  over
          timekeeping  for   Superfund personnel  compensation  and
          benefits need improvement.

     0    Improved control  is needed over non-expendable personal
          property.

     *    Support  fpr  the  aggregate central   support  services
          costs  allocated to Superfund must be maintained.
                              -10-

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         AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
                   AND COMPLIANCE (CONTINUED!


In addition, our  audit disclosed  the  following weaknesses,  which
were not  considered material  in relation  to the Statements  of
Obligations  and  the  Statements  of  Disbursements,  however,  are
considered minor  findings  that warrant the  attention  of manage-
ment:

     0    A  signature  list  of personnel  authorized  to  approve
          obligations should be used  by  the Financial  Management
          Office.

     0    The  Regional   payroll   clerk   should  maintain   an
          up-to-date list of timekeepers.

     0    Document  control  registers should  be utilized as  in-
          tended.

     0    Support  for all   obligation  and disbursement  trans-
          actions should be retained.

     0    Improved  control  is  needed for  letter of credit pay-
          ments to states with cooperative agreements.

The  above  conditions are further  discussed in  the  Findings  and
Recommendations.   These conditions were considered in determining
the  nature,  timing,  and  extent of the audit  tests to  be applied
in  our examination of  the Statements  of  Obligations and  the
Statements of  Disbursements for  the  fiscal years ended Septem-
ber  30, 1984 and 1983,  and these  conditions do not  modify  our
Auditors'  Report on Financial Statements dated April 30, 1985.

The  U.S.   Environmental   Protection  Agency Hazardous  Substance
Response  Trust Fund  Audit  Guide,  (revised  February   22,  1985)
requires a review and  evaluation of the adequacy of the internal
accounting controls of EPA, Region 3, portion of  the Superfund as
a  basis  for reliance  thereon  and  for  the  determination of  the
resultant extent of the tests to which auditing procedures.are to
be restricted.  The audit guide also requires a review of CERCLA,
other  regulations,   policies,   and guidelines  to  determine  if
Federal funds are being expended in accordance with provisions of
CERCLA, other regulations, policies, and guidelines.

The  results  of our tests  indicate  that for  items  tested, EPA,
Region  3,  complied with  the provisions  of CERCLA, other  regu-
lations, policies,  and guidelines except  for the conditions de-
scribed in  the Findings  and Recommendations.   Further,  for the
items  not  tested, based upon our  examination and the  procedures
referred to  above,  nothing  came  to our attention which  indicated
that  EPA,  Region 3,  had not  complied with the provisions of
CERCLA, other  regulations,  policies, and  guidelines referred to
above,  beyond  the conditions described  in  the Findings and Rec-
ommendations.
                              -11-

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         AUDITORS'  REPORT ON INTERNAL ACCOUNTING CONTROL
                   AND COMPLIANCE (CONTINUED)
This report is intended solely for the use  of  EPA management and
should not be used for any other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
April 30, 1985
                              -12-

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                  FINDINGS AND RECOMMENDATIONS


1.   TIMEKEEPING  FOR SUPERFUND PERSONNEL  COMPENSATION  AND BENE-
     FITS [JEEPS IMPROVEMENT	

We  set-aside  fiscal 1984  personnel  compensation and  benefits
(PC&B) obligations of $2,300,711 and disbursements of $2,296,607.
These  costs  were  set-aside   because  our statistical  analysis
indicated a  potential  error of 17  percent, which was considered
excessive.  We also  questioned payroll obligations and disburse-
ments  in  the  amounts of $3,694 and  $2,982 for  fiscal years 1984
and  1983,  respectively.    In  addition,   we  questioned  related
personnel benefit costs of $419 and $319 in fiscal years 1984 and
1983,  respectively.  These  costs were  questioned because:   time-
sheets and  time  and attendance  (T&A)  cards were  missing;  time-
sheets and T&A cards did not agree with each other; or timesheets
and T&A cards  did not agree with  the  Region's  automated payroll
system.   Finally,  we  determined  that   four  internal  control
weaknesses  associated  with  timekeeping existed.   We noted  two
significant  internal accounting control weaknesses  attributable
to improper separation of  timekeeping  duties  and two significant
internal  administrative  control system  weakness where  Region  3
employees often  estimated  their  time when recording  Superfund
activity rather than identifying their actual time.  All of these
conditions were caused by  the Region not adequately implementing
or  complying  with  the  June  and November 1982  EPA  Superfund
Charging  Policies Memorandums.   The  above  conditions  are dis-
cussed greater detail under the three captions below.

A.   Payroll Costs May be Materially Misstated in Fiscal 1984

Based upon the results of our statistical  analysis of the payroll
transactions sample  for  fiscal  1984,  we  set-aside  PC&B obliga-
tions  and disbursements  amounting to  $2,300,711  and $2,296,607,
respectively.  Our  audit  tests were separated  into  three  areas:
attribute, aggregate pay rate test, and difference  or  ratio  es-
timation.   The costs were  set-aside because our statistical sam-
ple indicated that we can be  95 percent  confident that total Su-
perfund PC&B disbursements  should have fallen  in  a  range  from a
lower  limit of   $2,345,169  to  an  upper   limit  of  $2,694;014.
However,   the   recorded   Superfund   PC&B  disbursements   were
$2,300,711.   Therefore,  the  PC&B  costs recorded could be mis-
stated as much as $393,303, or 17  percent of  total PC&B,  calcu-
lated as  follows:

          Upper limit              $2,694,014
          Recorded amount           2,300,711

          Difference               $  393,303
                              -13-

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B.
            FINDINGS AND RECOMMENDATIONS (CONTINUED)
Timesheets Were  Missing, T&A  Cards Were  Missing,and  Au-
tomated Pay ro IT Records  Were  Missing or Did Not  Agree  with
One Another
During our  examination  of randomly selected  statistical  samples
of Superfund personnel compensation transactions  for  each of the
fiscal years 1984  and  1983,  we noted  instances where timesheets
could not be located, and time recorded on the Region's automated
payroll records did  not  agree with T&A cards  and/or  timesheets.
Additionally,  EPA  personnel  could  not  locate  the  RCB-3A  (a
bi-weekly payroll distribution report) for pay periods 1  through
15 of fiscal 1983.

The  following  errors were  noted  during  our  testing of  the  80
transactions that were selected in fiscal 1984:

     0    Eleven instances where  the employees'  timesheets could
          not be  located and  one instance  where  the employee's
          T&A card could not be located to support the charges to
          the Superfund program.

     0    Seven instances  where  the  T&A cards  and  the  amounts
          recorded in the Region's payroll system did not agree.

     0    Four  instances  where  the  timesheets  and  the  amounts
          recorded in the Region's payroll system did not agree.

     0    One instance where the same entry was recorded twice in
          the Region's payroll system.

The  following  errors were  noted  during  our  testing of  the  79
transactions selected in fiscal 1983:

     0    Thirty  instances  where  copies  of  the original  time-
          sheets could not be located.

     0    Sixteen  instances  where the hours  per the  T&A cards
          and/or timesheets  did  not  agree with  the hours and/or
          account number charged per the payroll records.

     *    EPA personnel  at  Region 3 could not locate the RCB-3A
          for fiscal 1983, pay periods 1  through 15.   Any trans-
          actions falling between pay periods  1 through 15 inclu-
          sive could not be traced to  the RCB-3A.

The  above  conditions resulted from a deficiency in the record
retention system  and management's failure to  effectively recon-
cile the Superfund timesheets and T&A reports with the Region's
automated payroll  system.   Taken as a whole,  these  inadequacies
constitute  evidence  of  significant  lack of   conformance  by the
Region with1the Superfund time charging policies.  Within the
                              -14-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)


scope of  our audit, we were  unable to conclude  with reasonable
assurance that PC&B charges were accurately recorded and support-
ed by proper documentation.

C.   Internal Administrative  Control Procedures  for  Timekeeping
     Need Strengthening

In  addition  to our  tests of  the  randomly  selected  statistical
sample items discussed above, we made inquiries concerning proce-
dures used during fiscal  years  1984  and 1983 at selected respon-
sibility centers  to  process  T&A cards and  timesheets.   As  a re-
sult of our  inquiries, we identified four  internal control weak-
nesses that  individually and  taken  together have  the potential
for creating material errors in the PC&B charges to the Superfund
appropriation.   A fifth  weakness,  which  was  unrelated to  the
weaknesses disclosed below and was considered minor, is discussed
later in this report.

First,  we  determined  that  T&A  cards  were  returned  to  the
timekeepers  for  forwarding to  the Regional payroll  clerk  after
approval by  supervisors.   This  procedure  was  weak from an  in-
ternal control standpoint because  the  T&A  cards could be altered
by  the timekeepers  after  they were  approved by the supervisors.
In  accordance  with  paragraph 3.c,   Chapter  1,  of  the  EPA
Timekeep ing  Manua 1,  T&A  cards must   not   be  returned  to  the
timekeepers after they have been approved by the supervisors.

Second,  the  Regional payroll clerk  performed  duties  that should
have been  divided between two or  more  personnel.   The clerk re-
ceived blank  timecards,  processed timecards out  for  the Region,
received and processed corrections  for payroll  edit  lists,  and
received and distributed paychecks  as the  designated agent for
the Region.  The  lack  of  proper checks and balances could result
in a loss of Government funds.   Paragraph  3.e,  Chapter 1, of the
SPA Timekeeping Manual specifies  the duties of designated agents
that are essentially those listed  above.   By following the manu-
al,  the  Regional  payroll clerk violated  good  internal control
practices.

Third, we  determined that some employees were  not keeping their
timesheets   on   a  daily  basis,   instead,   they  filled  their
timesheets out  at the end  of  the pay period.   This  was not in
accordance with the Superfund Charging Policies Memorandum, dated
June 17, 1982.  Fourth, our  inquiries  showed that many employees
estimated Superfund time  for Thursday and Friday,  the  last 2 days
of the pay period, because they had to turn the timesheets in to
the  timekeepers  by 3:00  p.m.  on  the  last Wednesday  of the pay
period.   Again, this was  not  in accord with the Superfund charg-
ing policies,  because  approximately 20 percent of the Superfund
time charges by these individuals  was estimated.
                              -15-

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            FINDINGS AND RECOMMENDATIONS  (CONTINUED)
EPA's  Superfund  Charging  Policies  Memorandum,  dated  June  17,
1982,  states  in part:

     The  information on  these  daily timesheets must  be used to
     fill  out the bi-weekly T&A  reports  and must reconcile with
     the hours recorded on  the  T&A reports.

The memorandum further states that:

     At  a  minimum, the Superfund daily timesheets must  include:
     ...total hours  spent on Superfund and non-Superfund work on
     each  day,...and either the employee's or immediate  supervi-
     sor's  signature, depending on their bargaining unit  status.

These  weaknesses  were  identified in  the prior  Superfund audit
report covering  fiscal  1982.  We provided Regional personnel two
"Point Sheets"  and  corresponded  by letter  concerning the above
findings.   We communicated  the  finding  concerning  the  possibility
of material misstatement of 198A PC&B  to the Assistant  Regional
Administrator for Policy and Management by letter and provided a
copy to  the Region  3 Comptroller.   We  contacted  the  Comptroller
and  asked  if he would  like  to meet to  further  discuss  the
finding.   He  responded  that he wanted  to  see the finding in the
draft  report and,  after that,  he  may request a meeting.   The
response   to  the  point  sheets  was  that  new procedures  were
developed  and implemented to eliminate  the'discrepancies  noted.

We understand that for fiscal 1985,  EPA eliminated the  dual sys-
tem  of recording  payroll information  from timesheets to the T&A'
cards  to  distribute Superfund  payroll costs.   Distribution of
payroll  will be  input  directly  from the  timesheet which should
eliminate   the  errors  caused  by   transferring   data  from  the
timesheets  to the T&A cards.

CORRECTIVE ACTION TAKEN BY  REGION 3

In  response  to  our  recommendation  that   Region  3 implement the
reconciliation  of" the  RCB-3A  report  with   the  timesheets,  the
rAssistant  Regional Administrator  for Policy  and Management stated
that the RCB-3A  will be reconciled with timesheets to ensure all
time is  recorded  in  the system  as shown on the original  document.
The  Region's response  to the  recommendation that EPA  employees
charge actual  Superfund time  on  their   timesheets  rather  than
estimates   stated   that:    "Procedures   have  always   required
employees   to  report  actual  time  rather   than estimated  on
timesheets.  Current processing  procedures  have  eliminated the
potential   errors  associated with  estimating  time."   The above
actions,  coupled  with  the  Agency's fiscal  1985  revised, payroll
distribution  system,  should alleviate  these  problems.
                               -16-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)


REGION 3's COMMENTS ON FINDINGS

In response  to  our recommendation that Region  3  assess the fea-
sibility  of examining  fiscal  1984  payroll  costs  to  establish
whether adjustments  can  be made cost  effectively,  the Assistant
Regional Administrator for  Policy  and  Management  stated:   "...we
will consider  the feasibility of  making  retroactive adjustments
to the FY 1984 payroll."

In response to  our recommendation,  that Region 3  coordinate with
EPA Headquarters'  the advisability  of clarifying  the  EPA Time-
keeping  Manual  to  eliminate  the  internal  control  weaknesses
specified therein,  Region  3 stated:   "The recommendation regard-
ing the Timekeeping Manual  should be directed to Headquarters."

OUR EVALUATION OF REGION 3'S RESPONSE

The Region's response  did not establish  a  timeframe or indicate
the type  of feasibility assessment  to be made regarding retro-
active adjustments to the  FY 1984 payroll.  Also,  the Region's
response did not  address  the internal  control weaknesses identi-
fied  in  the  finding  and   the  need for  corrective  action.   We
understand  that changes in the EPA  Timekeeping  Manua 1  must  be
processed by EPA  Headquarters.    Nevertheless,  Region 3  should
correct specific deficiencies at the Regional level.

RECOMMENDATIONS

We recommend that the Regional Administrator, Region 3:

0    Perform a  feasibility  study  to  determine whether the fiscal
     1984 payroll  adjustments can be  made  cost effectively;  and
     provide a copy of the  study and final decision.

0    Direct the  Comptroller to ensure  that  the Regional payroll
     clerk  does   not  perform  incompatible   duties,   such  as
     receiving  and  distributing  paychecks  or  acting  as  the
     designated agent.

2.   CONTROL OVER  NON-EXPENDABLE PERSONAL PROPERTY SHOULD BE IM-
     PROVED

We found  that   24  of  27  equipment purchases  (costing $204,698)
were not recorded  on  the  Region's  Personal Property Accountabil-
ity System  (PPAS)  and that 4 of these 27 units (costing $1,595)
could not be located.  These problems  appeared to be attributable
to Region 3 personnel  not  sending  equipment receiving reports to
the Property Accountability Officer  and not  performing annual
physical inventories.   An  annual physical  inventory of Region 3
non-expendable  personal  property  was  not  performed  for fiscal
1983 and a physical  inventory was  started,  but not completed for


                               -17-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)
fiscal 1984.  This was a result of not following the relevant En-
vironmental  Protection  Agency Property  Management  Regulations
(PMR) formerly  ,  EPPMR.   The  failure to  conduct  annual physical
inventories could  lead  to  Region 3's "inability to  detect  excess
stock and  idle non-expendable  property  in a timely manner.   This
also could impair the Region's  ability to  identify missing and
misused property.   Finally, custodial  officers for the  various
property  accountable  areas were  not appointed in fiscal  years
1983 and  1984.   This occurred because  a complete  inventory had
not been taken and, as a result of various reorganizations within
the  Region  in  fiscal  years  1983  and  1984,  property was  not
transferred to  the proper  accountable area.  When  such appoint-
ments are not made, control over property can be lost and respon-
sibility cannot be easily fixed.

The property management requirements that must be observed by the
Region  were contained  in  the PMR.   The  identified  weaknesses
generally  were  caused by  the  Region's  failure to  observe  these
regulations as  required.   A discussion of  these  weaknesses fol-
lows below under captions that summarize the problems we noted.

A.   Annual Physical Inventories Were Not Performed

Region  3   did   not  conduct  annual   physical  inventories  of
expendable  and  non-expendable  supplies and  equipment  for fiscal
years 1983 and  1984.  EPA regulations,  PMR  2-26,  requires that
annual  physical  inventories of  personal property  be  performed. >
The  failure to  conduct  annual physical inventories can  lead to
the inability to detect excess stock and idle non-expendable pro-
perty in  a  timely manner.  This  also  can impair the Region's
ability to  identify missing and misused property in a timely man-
ner.  This  condition  was caused by  the  Deputy  Regional Adminis-
trator for  Policy  and Management not ensuring that annual .physi-
cal  inventories were  taken.  This  weakness was  identified in the
prior Superfund audit report covering fiscal 1982.

We provided a "Point Sheet" on this  condition  to.the  Deputy As-
sistant  Regional  Administrator  for  Policy and  Management.   No
explanation was offered to  indicate why an  inventory was not tak-
en for  fiscal 1983.   For fiscal 1984,  however, the response in-
dicated that the  inventory was not completed because of resource
shifts to prepare  for the move to the new building.  The response
pointed out that inventories were performed  at  the Wheeling Field
Office,  the Central Regional Lab, and the Chesapeake Bay Program,
and  that  the Regional  Office inventory was  80  percent completed.
There was  no indication  as to  when the inventories would be com-
pleted.

B.   Custodial Officers Were Not Appointed

Custodial  officers for  the various property  accountable  areas
                              -18-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)


were  not appointed  in  fiscal  years  1983  and  1984.   The  PMR
requires  that  custodial officers  be appointed  for each of  the
property  accountable   areas,   and  that  their   acceptance   of
custodial responsibilities be in writing.  The appointment should
be  made using  an Accountable  Officer's  Statement of  Account-
ability as required by  PMR 2-20.  When  appointments are not  made,
control  over  property can  be  lost and  responsibility  cannot  be
easily  fixed.   This  weakness   was  identified  in  the  prior
Superfund audit report covering fiscal 1982.

We provided the Deputy Assistant Regional Administrator for Poli-
cy and Management a "Point  Sheet"  on this  finding.  His response
was as follows:

     Custodial officers cannot be appointed until a complete 100Z
     inventory is done  in  order  to account for all equipment and
     supplies located within an accountable area.  As a result of
     the various reorganizations  within  the  Regional Office dur-
     ing FY83 and FY84 property was not transferred to the proper
     accountable area  because no  one  was  assigned  the property
     management function  for about 9 months.   After property  is
     100Z, then  proper accountable  area and  Custodial Officers
     can be appointed.  We eKpect to complete a 100Z inventory of
     the Philadelphia Office  this  year (1985)  but inventories  of
     Annapolis, Chesapeake  Bay,  and Wheeling Field offices  may
     not  be  accomplished  this  year  due  to  travel money  con-
     straints and the possibility that the existing Property Man-
     agement Officer may be transferred  to other duties (the re-
    . suit of an Administrative Judge's order)  and no  other per-
     sonnel  are  available  to assume  these duties  or  have  the
     proper training.

C.   Discrepancies Were  Found in the  Region's Inventory Listing
     and Purchased Property Could Not Be Located

We selected a sample of 10  items of equipment for  fiscal 1983 and
17 items of equipment for fiscal 1984.for tracing  to the Personal
Property Accountability System  (PPAS)  and  for physical verifica-
tion.  All these items were from major object class 3100 and were
shown  in the obligations  SPUR printout furnished to  us by the
Region for the applicable year.

From the sample of  10  items of equipment purchased during fiscal
1983,  8 items  costing $8,225  were not  recorded in  the  PPAS.
Three of the items costing $1,289 could not be located and phys-
ically  verified.   We  set-aside  the cost  of the  items  that the
Region was unable to find  (Exhibit VI, Note  8).

From the sample of 17  items of equipment purchased during fiscal
1984, 16 items costing  $196,473  were physically verified, howev-
er,  they  were  not recorded  in  the PPAS.  One  item costing $306


                              -19-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)
could not  be located  and the cost  was set-aside  (Exhibit  III,
Note 6).

These conditions were  caused by  EPA Region 3 not:   (1)  sending
receiving reports  to  the Property Accountability  Officer  (PAO)j
and  (2)  performing annual physical  inventories,  as  required  by
the  relevant property  management guidelines,  PMR  2-26,   As  a
result,   the  asset account   for  equipment  was  understated  by
$204,698 and equipment costing $1,595 apparently was lost.

We provided the Deputy Assistant Regional Administrator for Poli-
cy and Management a "Point Sheet" on this  finding.   The response
was as follows:

     In the past, receiving of equipment was  problematic  in that
     equipment sent to the Regional Office was delivered directly
     to  the program  office   that  ordered  it  and  not thru  the
     Administrative Management Branch  (AMB) for proper receiving
     report preparation and tagging  for inclusion  into the prop-
     erty management system.   We have recently begun to implement
     procedures  to  ensure that  all  equipment  and  supplies  are
     delivered to AMB directly.

In addition, we noted  that there  were no Agency policies  or pro-
cedures  to  require the  reconciliation of purchases  of property
and equipment entered  into the  Financial Management System (FMS)
with the  input  into the PPAS.  The  omission  of the  24 items  of
equipment,  valued  at  $204,698,  might  have been discovered  on a
timely  basis by management   had  this  been  a  requirement.   The
reconciliation  (at  least annually)  would help  ensure that  all
items purchased are included as  accountable property in the PPAS.
We will be  making a recommendation  in the  Superfund consolidated
audit  report   that  EPA's   Financial  Management   Division,   in
conjunction  with  the   Facilities  and Support Services Division,
establish policies  and procedures  to  require  reconciliation  of
property and equipment purchases from the FMS with accountable
property recorded in the PPAS on a periodic basis.

CORRECTIVE ACTION TAKEN BY REGION 3

We  recommended  in our  draft  audit  report  that   the  Regional
Administrator,  Region  3, ensure  that  physical inventories  are
performed  annually for  all   expendable supplies,   materials  and
non-expendable  property  and  equipment,  and  that  records  be
adjusted  accordingly.    We   also   recommended   that  custodial
officers be appointed;  that  equipment  receiving reports  be sent
to the  property accountability  officers;  and  that accountability
and  custodial  officers  comply  with  PMR  1-02.    The  Assistant
Regional Administrator for  Policy and Management  stated  in his
response  that he  concurs  with the  recommendations. •  He  stated
that an inventory of the Region's property should be completed by
                              -20-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)


October 1, 1986,  and that an annual inventory will be conducted
each year after that, and that  records  will  be  updated.   He also
stated  that   custodial   officers   had   been  appointed  and  that
receiving reports are being  properly distributed.   These actions
are  responsive to  the  recommendations.   Consequently,  we  are
making no further recommendations.

3.   SUPPORT  FOR  THE AGGREGATE  CENTRAL  SUPPORT SERVICES  COSTS
     ALLOCATED TO SUPERFUND MUST BE MAINTAINED

The Region did not  utilize a system that provided  a clear trail
to readily determine the aggregate central support services costs
allocated to  Superfund  during  fiscal years  1984 and  1983.   For
fiscal years  1984 and 1983,  we attempted to  identify aggregate
costs allocated to major  object classes within  the  Superfund ap-
propriation to determine the materiality of these support service
allocations.   Region 3 officials advised us that, after the third
quarter of fiscal 1983,  allocations  were  made to Superfund based
on personnel  full-time  equivalent (FTE) ratios  on  an individual
transactions  basis.   The ratios  were  developed by dividing the
total Superfund actual  FTEs  by total Regional FTEs on a cumula-
tive basis.   Common  support  service  charges  were calculated on a
quarterly basis  for  the first  three  quarters  of   fiscal  1983.
However,  the   Region  was  unable   to  show that  the  3rd  quarter
calculation was posted  to the  Financial  Management System (FMS)
or that any allocations  were made for  the 4th  quarter of fiscal
1983.  Region 3 was unable to provide any documentation of fiscal
1984 cost allocations and indicated that allocations were made on
an individual  transactions basis.  Region 3  had not accumulated,
and  did  not  have  the personnel  resources available  during our
audit fieldwork to  reconstruct the  aggregate costs allocated to
Superfund for  fiscal years  1984 and  1983.  Without  this informa-
tion, a determination of the costs  allocated to Superfund could
not be made within the  scope of  our audit, and the Agency will
have  difficulty  adequately  supporting   these   costs  in  cost
recovery actions.

The October 3, 1983, memo signed  by  the Director, Financial Man-
agement Division,  Headquarters, approving the Regional allocation
plan states that:

     ...adherence to these charging policies will provide unifor-
     mity and  consistency among the  Regions  and Headquarters Of-
     fices.   Also,  the  use of  your  allocation  plan will provide
     the necessary documentation  to  support  the costs charged to
     Superfund and subsequent audits and reviews of the Superfund
     program.

During discussions  with  members  of  the  Comptroller's staff, we
asked about the feasibility  of  reconstructing the aggregate costs
allocated  to  Superfund  during fiscal  years 1984  and 1983.  We


                              -21-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)
were advised that it would require an unrealistic amount of staff
time to  develop  the information and that the  staff  was not then
available.

REGION 3'S COMMENTS ON FINDING

We  recommended  in  our  draft report  that  the  Regional Adminis-
trator direct the Comptroller to maintain documentation necessary
to  support  the costs  charged to Superfund.  We also recommended
that costs  allocated  .to the Superfund for fiscal  years 1984 and
1983 be identified.  In his response to our report, the Assistant
Regional Administrator  for Policy and Management  stated that he
concurred with the recommendations.  He also stated that documen-
tation to  support costs allocated to  Superfund for  fiscal years
1984 and 1983 is available for review.

OUR EVALUATION OF REGION 3'S RESPONSE

We  reviewed the  documentation  made  available by  Region  3  and
revised our finding accordingly.   However, we  concluded that the
available documentation was  not adequate to identify the aggre-
gate cost allocations made to  Superfund  in fiscal years 1984 and
1983.

RECOMMENDATIONS

We recommend that the Regional Administrator, Region 3:

     0    Direct  the  Comptroller to  reconstruct  aggregate costs
          allocated to Superfund along with supporting documenta-
          tion and retain for follow-up during  the next audit.

     0    Revise  the  Region's  cost  allocation  method so  that
          aggregate cost allocations can be readily identified.

4.   MINOR FINDINGS - CORRECTIVE ACTION TAKEN BY REGION 3

A.   A List of  Officials  Authorized To  Approve Obligating Docu-
     ments Should Be Used By the Financial Management Office

The  Financial Management  Office did  not maintain or.use  a list
containing  the signatures  and titles  of officials authorized to
approve  and/or  certify  obligating documents.   EPA  Voucher Ex-
amination  Manua1  requires  that "the  accounting office  must Be
furnished with a list of persons by title to whom...authority I to
authorize documents] has been delegated."   The list would assist
accounting clerks in assuring that only valid documents are input
and  processed.  .This  is  especially  important  where there  is a
high turnover rate or frequent reorganization.
                              -22-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)


CORRECTIVE ACTION TAKEN BY REGION 3

We recommended in our  draft  report  that the Regional Administra-
tor,  Region  3,  direct  the Comptroller  to  ensure that a  list  of
officials authorized  to approve or  certify obligations  be  pre-
pared and distributed  to appropriate personnel  and  that  the  list
be updated  periodically.   The  Assistant  Regional  Administrator
for Policy and  Management  concurred with  the  recommendation and
stated:  "We will request, in writing,  a list  of approving offi-
cials  from  the  operating divisions  and periodically update the
information  as  recommended."  This action is  responsive  to the
recommendation,  and we make no further recommendation.

B.   The  Regional  Payroll Clerk Should  Maintain  an  Up-to-Date
     List of Timekeepers

The person performing  the duties  of  Regional payroll clerk did
not maintain an up-to-date  list of  divisional  timekeepers and
their signatures.  Also, there was  no  listing  of supervisors au-
thorized to certify T&A cards for each  division and there was  no
listing of those authorized  in fiscal years 1984 and  1983.   The
Regional payroll clerk had been in the position for about 5 years
and did not  think  that such a listing  was necessary.   Reviewing
time card signatures usually was  left up to the divisions.  With-
out proper review,  erroneous timecards could  have  been  inserted
into the payroll system, resulting in erroneous payments.

CORRECTIVE ACTION TAKEN BY REGION 3

The Assistant  Regional Administrator  for  Policy and  Management
concurred with our  recommendation to verify the  current list  of
timekeepers  and  update the  files,  develop a  list  of  certifying
supervisors'  names  and signatures,  and  update both   lists  as
changes occur.   He stated that:  "We will  request a current  list
of timekeeper's and certifying supervisor's names and signatures
from all organizations within the Region.  We  will maintain the
list on a  current basis."   This  action  is  responsive  to the
recommendation and we make no further recommendation.

C.   Document Control Registers Should Be  Utilized As Required

The three  document control  registers  (OCRs)  maintained  at EPA
Region 3 did not fulfill the requirements  in the EPA Fund Control
Manual.  The DCRs  did  not:   (1)  provide  the responsibility cen-
ters(RCs) information on the  available balance; (2) provide as-
surance that all commitment and obligation documents initiated by
the RCs were properly recorded  in  the  Financial Management Sys-
tem;  and  (3) provide  a link between the phases of  a transaction
(in the  OCRs).   The cause of  these conditions was Region 3 not
following the procedures  outlined  in  Chapter  4 of  the  EPA Fund
Control Manual.  Consequently.,  the DCRs did not  provide the in-
formation intended for the users.

                              -23-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)
REGION 3'S COMMENTS ON FINDING

The recommendation  in our draft  report  suggested that  Region  3
OCRs provide information on  available  fund  balances  and that the
Region  implement  procedures  to  ensure   that   commitment  and
obligation  documents  are properly recorded.   The Assistant Re-
gional Administrator for Policy and Management did not agree with
this recommendation, stating that:

     The Region maintains a  centralized OCR which  is used to en-
     sure all  spending  documents are accounted  for.   We provide
     fund balances through the use of  other local Software Pack-
     age  for  Unique  Reports [SPUR]  designed  reports.   The DCR
     entries are  reconciled to  the  financial management system
     periodically  during  the year.   We anticipate  implementing
     the  automated DCR  system but  to date  this has not  been
     available for our use.

OUR EVALUATION OF REGION 3'S RESPONSE

Although  the  response indicates  that  the  Region  does  not agree
with the recommendation, the actions taken  indicate  that a suit-
able alternative to the recommendation was adopted.  Accordingly,
we make no further recommendation.

D.   Support  For  All  Obligation  and  Disbursement  Transactions
     Must Be Retained

Our testing showed  that,  for fiscal  1983,  support was not avail-
able  for  seven disbursement transactions  amounting  to  $19,116
(see  Exhibit  VI,  Notes 4,  5,  6, and  7)  and for  six obligation
transactions amounting  to $880  (see Exhibit VI,  Note  2).   The
testing showed  that,  for fiscal  1984, support was not available
for an obligation transaction amounting to  $4,880  and for 3 dis-
bursement  transactions  amounting  to  $36,309  (see  Exhibit III,
Notes  4,  5,  and  6).   Consequently,  the  recorded  amounts were
set-aside.  The EPA Accounting  Systems Design Manual and the EPA
Records Retention Schedule specify that  support  for  these trans-
actions should have been retained for audit.

CORRECTIVE ACTION TAKEN BY REGION 3

The Assistant  Regional Administrator  for  Policy  and Management
stated in the response:

     We have  reviewed available documentation for the set  aside
     transactions  and  believe  all  are   adequately  supported.
     Documentation  for  obligations  and  disbursements   must  be
     retained as required by the record retention schedules.  As
     previously stated  we had  moved  twice within  a  short time
     period and had not completed unpacking when the audit began.
                              -24-

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            FINDINGS AND RECOMMENDATIONS (CONTINUED)


We recommended that the Region determine whether the transactions
are  valid and  can be  supported,  and that  support  for  future
obligations  and disbursements  be  retained in  the files.   The
actions  taken indicate  that the  recommendations  were  adopted.
The Region should retain all supporting documentation correspond-
ing with  these  set-aside costs  for examination  during  the  next
Superfund audit.

E.   Improved Control Is Needed  For Letter of Credit Payments to
     States With Cooperative Agreements

Our  testing  showed that  funds  for cooperative  agreements  dis-
bursed through letters of credit sometimes were released by Trea-
sury to State accounts  in excess of the balance  of funds avail-
able for  the specified agreements.   This  could  result  in funds
designated for Superfund being  spent on other programs.   We were
advised  that Treasury was  supposed  to check  fund availability
before releasing the  funds.   Region 3  became aware that Treasury
was not  performing these  checks when  a  copy  of  the  letter of
credit arrived  and the  financial file was pulled and  the  dis-
bursement was posted.  When  funds  were released  for  a  specific
agreement in  excess of funds  available, funds for another agree-
ment were reduced by  the Region  and transferred to the overdrawn
agreement.   Region 3  personnel  indicated that  the  approximate
7-day delay between Treasury approval of the disbursement and EPA
receipt of the payment voucher  contributed to the problem.  Part
IV, Chapter 7, of the Accounting System Design Manual,  as well as
the EPA Letter of Credit Users'"Manual, outline the procedures to
be followed when processing assistance agreements.

CORRECTIVE ACTION TAKEN BY REGION 3

The recommendation  in our draft  audit  report was  that  Region 3
coordinate with Treasury  to  ensure that the  release of funds in
excess  of available  balances  does  not  recur.    The  Assistant
Regional  Administrator  for Policy  and  Management  stated  in his
response  that the condition  was permanently rectified  with the
implementation  of  the new  Letter  of  Credit—Treasury Financial
Communications System (LOC-TFCS).   This action  is responsive to
the  recommendation;  consequently,  we  make no  further recommen-
dation.
                              -25-

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EXHIBITS

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                                                            EXHIBIT I

                               UNITED STATES
                      ENVIRONMENTAL PROTECTION AGENCY
                                 REGION 3
                        PHILADELPHIA, PENNSYLVANIA
            HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
                     STATEMENT OF OBLIGATIONS (Note 1)
                   FISCAL YEAR ENDED SEPTEMBER 30, 1984

Description               Total     Accepted    Set-Aside  Questioned  Notes

Personnel Compensation $2,070,754  $      -    $2,067,060    $3,694      3
Personnel Benefits        234,070  	-       233.651       419      3

 Total Personnel
  Compensation and
  Benefits              2.304.824  	-     2,300.711     4.113

Travel and Transpor-
 tation of Persons        201,947     201,947
Transportation of
 Things                     5.174       5.174
 Total Travel and
  Transportation          207.121     207.121
Rent, Communicat ions,
 and Utilities             58,566      53,686       4,880

Printing and Repro-
 duction                      800         800

Other Contractual
 Services               4,478,131   4,478,131

Supplies and Materials    112,684     112,684
Equipment                 251,345     251.345
 Total Supplies,
  Materials, and
  Equipment               364,029     364.029

Land and Structures         5,000       5,000

Grants, Subsidies,
 and Contributions        232,000     232,000

Insurance Claims and
 Indemnities
Grand Total            $7.650.471  $5,340.767  $2,305.591    $4.113
     The Notes to the  Statements  of Obligations and Disbursements are
     an integral part of this statement.


                                   -26-

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                                                            EXHIBIT II
                               UNITED STATES
                      ENVIRONMENTAL PROTECTION AGENCY
                              '   REGION 3
                        PHILADELPHIA, PENNSYLVANIA
            HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
                    STATEMENT OF DISBURSEMENTS (Note 1)
                   FISCAL YEAR ENDED SEPTEMBER 30, 1984.
Description
   Total
Accepted
Set-Aside  Questioned  Notes
Personnel Benefits

 Total Personnel
  Compensation and
  Benefits

Travel and Transpor-
 tation of Persons
Transportation of
 Things

 Total Travel and
  Transportation

Rent,  Communications,
 and Utilities

Printing and Repro-
 duction

Other Contractual
 Services

Supplies and Materials
Equipment

 Total Supplies,
  Materials, and
  Equipment

Land and Structures

Grants, Subsidies,
 and Contributions

Insurance Claims and
 Indemnities

Grand Total
$2,066,630
234,090
2,300,720
177,471
4,191
181,662
56,443
619
508,798
93,374
175,730
269,104
$ - $2,062,936
233,671
2,296,607
177,471
4,191
181,662
28,443 28,000
619
506,659 • 2,139
93,374
169,254 6,476
262,628 6,476
$3,694 3
419 3
4,113
_
_

4
-
•_ e;
^
6

   589,237
  589,237
$3.906.583  $1,569.248  $2.333.222    $4,113
     The Notes to the  Statements  of Obligations and Disbursements are
     an integral part of this statement.
                                   -27-

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                                                       EXHIBIT III

                          UNITED STATES
                 ENVIRONMENTAL PROTECTION AGENCY
                            REGION 3
       HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
      NOTES TO STATEMENTS OF OBLIGATIONS AND DISBURSEMENTS
              FISCAL YEAR ENDED SEPTEMBER 30t 1984

Note 1. Accounting Practices

The Statement of  Obligations and the  Statement  of Disbursements
were prepared for EPA use  by EPA Financial  Management  Division
and are based on Allowance Holder financial information contained
in  the Financial  Management System  (Superfund  Status  Reports,
dated September 30, 1984 and 1983).

Obligations as presented  in the Statement  of Obligations repre-
sent funds  obligated against  that  fiscal  year's appropriation.
Disbursements as presented in the Statement of Disbursements rep-
resent  funds  disbursed during  that  fiscal year  against either
prior years' or current year's obligations.

Note 2. Support of Obligation Transactions

Our testing  showed that support  (such as a  standard  level user
charge billing document or  an allocation or adjustment document)
for an obligation of $4,880  to Account Number 4TFA03RAOO for Ob-
ject Class  2300 was not  available,  as more fully  described in
Finding Number 4.D., "Support For All Obligation and Disbursement
Transactions  Must  Be  Retained";   therefore,   the  amount  was
set-aside.

Note 3. Personnel Compensation and Benefits

Personnel  compensation  in  the  amount  of $3,694  was  questioned
because of discrepancies within the system used to charge person-
nel compensation  and  benefits to  the  Superfund appropriation.
These   discrepancies   are   discussed   in   Finding   Number  1,
"Timekeeping For  Superfund  Personnel Compensation  and  Benefits
Needs  Improvement."  Related personnel benefits in the amount of
$419 also were questioned.

Based upon the results of our statistical analysis of  the payroll
transactions sample for fiscal 1984,  we set-aside the balance of
personnel  compensation  and  personnel  benefits  disbursements,
amounting to $2,062,936  and $233,671,  respectively.   A  detailed
discussion is presented in Finding Number 1.

Note 4. Rent, Communications, and Utilities

Our testing  showed that  support  (such as  a  standard level user
charge billing document or  an allocation or  adjustment document)
for a  disbursement of $28,000  to Account  Number 4TEU03RAOO for
Object  Class Number  2300  was  not  available.    Therefore,  the
amount was set-aside as more fully described  in  Finding Number


                              -28-

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                                              EXHIBIT III (CONTINUED)
 4.D., "Support  For All Obligation  and Disbursement Transactions
 Must Be Retained."

 Note 5. Other Contractual Services

 Our testing  showed that  support  (such as a purchase order or in-
 voice) for a disbursement of $2,139 to Account Number 3TEU03RAOO,
 Document Number CB0755 for  Object Class 2500, was not available.
 Therefore,  the  amount was  set-aside  as more  fully described in
 Finding Number  4.D.,  "Support For  All Obligations  and Disburse-
 ments Must Be Retained."

 Note 6. Equipment

 We selected  a sample  of  17  items of equipment for tracing to the
 Property  Management  System and  for   physical  verification.   We
 could not locate one  item costing $306 and set-aside this amount,
 as more  fully described in the Finding Number  2,  "Control Over
 Non-Expendable Personal Property Should  Be Improved."

 Our testing  also  showed  that support   (such as a receiving report
 or duplicate purchase order) for a  disbursement of -§6,170 on Doc-
 ument Number NH3260  to Account Number HSFA03RAOO, was not avail-
 able.   Therefore, the  amount was  set-aside  as  more  fully  de-
 scribed in  Finding Number  4.D.,  "Support For All Obligations, and
 Disbursements Transactions  Must Be  Retained."

 Note 7. Documents  Not Available for Audit Tests

 As  explained in  Finding Number  3,,  "Support for  the Aggregate
 Central  Support Services  Costs Allocated  to Superfund  Must Be
 Maintained", EPA  Region 3  was unable  to  identify  the aggregate
 support services  costs allocated  to  the Superfund appropriation
 in fiscal 1984.

 The scope of our  examination did not  allow us to test any alter-
 nate  documentation  the  Region  may  have  to  satisfy  our  audit
 objectives.  We consequently express  no  opinion on  the accompany-
l ing Statements of  Obligations  and Disbursements.
                                -29-

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                                                            EXHIBIT IV

                               UNITED STATES
                      ENVIRONMENTAL PROTECTION AGENCY
                                 REGION 3
                        PHILADELPHIA, PENNSYLVANIA,
            HAZARDOUS SUBSTANCE RESPONSE TRUST FUND  (SUPERFUND)
                     STATEMENT OF OBLIGATIONS (Note  1)
                   FISCAL YEAR ENDED SEPTEMBER 30, 1983

Description               Total     Accepted    Set-Aside  Questioned  Notes

Personnel Compensation $1,241,358  $1,238,376      $  -      $2,982      3
Personnel Benefits        131,395     131.076         -         319      3

 Total Personnel
  Compensation and
  Benefits              1.372.753   1.369.452         -       3.301

Travel and Transpor-
 tation of Persons        121,731     120,851         880       -        2
Transportation of
 Things                     2.991       2,991         -      	-
 Total Travel and
  Transportation          124,722     123,842         880

Rent, Communications,
 and Utilities             20,492      20,492

Printing and Repro-
 duction                    1,474       1,474

Other Contractual
 Services                  95,826      95,826

Supplies and Materials     74,171      74,171
Equipment                 176.083     176,083
 Total Supplies,
  Materials, and
  Equipment               250.254     250.254

Land and Structures           601         601

Grants, Subsidies,
 and Contributions        636,000     636,000

Insurance Claims and
 Indemnities
Grand Total            $2.502,122  $2,497.941      $  880    $3.301
     The Notes to the  Statements  of Obligations and Disbursements are
     an integral part of this statement.


                                   -30-

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                                                            EXHIBIT V
                               UNITED STATES
                      ENVIRONMENTAL PROTECTION AGENCY
                                 REGION 3
                        PHILADELPHIA, PENNSYLVANIA
            HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
                    STATEMENT OF DISBURSEMENTS (Note 1)
                   FISCAL YEAR ENDED SEPTEMBER 30, 1983
Description
   Total
Accepted    Set-Aside  Questioned  Notes
Personnel Benefits

 Total Personnel
  Compensation and
  Benefits

Travel and Transpor-
 tation of Persons
Transportation of
 Things

 Total Travel and
  Transportat ion

Rent, Communications,
 and Utilities

Printing and Repro-
 duction

Other Contractual
 Services

Supplies and Materials
Equipment

 Total Supplies,
  Materials, and
  Equipment

Land and Structures

Grants, Subsidies,
 and Contributions
                   •f
Insurance Claims and
 Indemnities

Grand Total
$1,229,624
131,395
•1,361,019
116,470
3,050
119,520
23,767
1,052
82,676
81,779
68,053
149,832
$1,226,642 $ - $2,982
131,076 - 319
1,357,718 - 3,301
114,807 1,663
1,670 1,380
116,477 3,043
11,094 12,673
1,052
79,276 3,400
81,779
66,764 1.289
148,543 1,289
3
3
4
5
6

7
8
       355
      355
$1.738.221  $1.714.515
              $20.405
$3.301
     The Notes to  the  Statements  of Obligations and Disbursements are
     an integral part of this statement.
                                    -31-

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                                                       EXHIBIT VI

                          UNITED STATES
                 ENVIRONMENTAL PROTECTION AGENCY
                            REGION 3
       HAZARDOUS SUBSTANCE RESPONSE TRUST FUND (SUPERFUND)
      NOTES TO STATEMENTS OF OBLIGATIONS AND DISBURSEMENTS
              FISCAL YEAR ENDED SEPTEMBER 30, 1983

Note 1. Accounting Practices

The Statement of  Obligations and the  Statement  of Disbursements
were prepared for EPA use  by EPA Financial  Management  Division
and are based on Allowance Holder financial information contained
in  the Financial  Management System  (Superfund  Status  Reports.
dated September  30, 1984 and 1983).

Obligations as presented  in the Statement  of Obligations repre-
sents  funds obligated  against that fiscal  year's appropriation.
Disbursements  as presented in the Statement of Disbursements rep-
resent  funds  disbursed during  that fiscal year  against either
prior years' or  current year's obligations.

Note 2. Travel and Transportation of Persons

Our testing showed that support  (such  as  a travel authorization)
for the following obligations was not available and the total was
set-aside,  as more fully described  in the Finding  Number 4.D. ,
"Support For All  Obligations and Disbursements' Transactions Must
Be Retained."

                           Obligation
     Account Number      Document Number     Recorded Amount

       3TFA03RAOO          OTRT798794
       3TFA03RH24          OTRT798802
       3TFA03RH12          OOOT810496
       3TFA03RAOO          OTRT798680
       3TFA03RAOO          OTRT927940
       3TFA03RAOO          OTRT984526

                    Total                          $880


Note 3. Personnel Compensation and Benefits

Personnel  compensation in  the  amount  of  $2,982  was  questioned
because of discrepancies within the system  used to charge person-
nel compensation  and  benefits   to  the Superfund appropriation.
These   discrepancies   are   discussed  in   Finding   Number  1,
"Timekeeping For  Superfund  Personnel  Compensation  and   Benefits
Needs  Improvement."  Related personnel benefits in the amount of
$319  also  were   questioned.   All  details  pertaining  to   these
discrepancies  were furnished to the Comptroller,  Region 3.
                              -32-

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                                             EXHIBIT VI (CONTINUED)
Note 4. Travel and Transportation of Persons

Our tests showed that support (such as a paid travel voucher) for
the following disbursements for Object  Class  2100  was  not avail-
able,  and  the  total  was  set-aside  as more  fully  described  in
Finding Number 4.D., "Support For All Obligation and Disbursement
Transactions Must Be Retained."
     Account Number

       3TJB03RAOO
       3TFA03RAOO
  Obligation
Document Number

    NODCNO
    NB1076
                    Total
Recorded Amount

     $  871
        792

     $1.663
Note 5. Transportation of Things

Our testing  showed that  support (such as  a Government  Bill of
Lading or  an adjustment  document)  for a disbursement  of $1,380
charged to Account  Number HSFA03RAOO was not  available.   There-
fore,   the  amount was  set-aside ,as  described  in  Finding Number
4.D. ,  "Support For All Obligations Must Be Retained."

Note 6. Rent, Communication, and Utilities

Our testing  showed that  support  (such as a standard  level user
charge billing document  or an adjustment document)  for the fol-
lowing  disbursements   was not  available  and   the  amounts  were
set-aside as  described in Finding Number 4.D.,  "Support  For All
Obligation and Disbursement Transactions Must Be Retained."
     Account Number

       HSFA03RAOO
       3TEU03RAOO
  Obligation
Document Number

    NODCNO
    NODCNO
                    Total
Recorded Amount

     $12,526
         147

     $12,673
Note 7.Other Contractual Services

Our testing  showed  that support (such as  a contract document or
an adjustment  document) for the following  disbursements was not
available and  the amounts were set-aside as described in Finding
Number  4.D.,  "Support For   All   Obligation  and  Disbursement
Transactions Must Be Retained."
                              -33-

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                                             EXHIBIT. VI (CONTINUED)
                           Obligation
     Account Number      Document Number     Recorded Amount

       HSFA03RAOO            NODCNO               $1,560
       2TET03RAOO            JA0247                1,840
                    Total    '           ...        $3,400
Note 8. Equipment
We selected a sample of  10  items  of equipment for tracing to the
PPAS and  for  physical verification.   Three of the  items,  total
cost of $1,289,  could not be located and, therefore, we set-aside
this  amount,  as  more  fully  described in  Finding  Number  2,
"Control   Over   Non-Expendable   Personal   Property   Should   Be
Improved."

Note 9. Documents Not Available for Audit Tests

As  explained  in  Finding Number  3, "Support  For  the Aggregate
Central Support  Services Costs  Allocated  to Superfund  Must  Be
Maintained",  the Region  was  unable to  identify  the aggregate
support services  costs allocated to the Superfund appropriation
in fiscal 1983.

The scope of our  examination did  not allow  us to test any alter-
nate  documentation the  Region  may have  to  satisfy our  audit
objectives.  We consequently express no opinion on the accompany-
ing Statements of Obligations and Disbursements.
                              -34-

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                            APPENDIX
Note 1.    We examined  the  documentation provided by  Region  3 in
          response  to  Finding   Number   4   referenced  in  this
          Appendix  and  concluded  that  the  documentation  was
          adequate  to  resolve  the  finding.   Consequently,  we
          deleted  this  finding  and  all references  from  this
          report.

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                                                                          APPENDIX 1
SUBJECT:
FROM:
TO:
            UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                               REGION III
                          641 Chestnut Building
                      Philadelphia. Pennsylvania 19107
Draft Audit. Reoort,Pto.P5lSH5-ll-0021  _
Report on Financial and Compliance Audit
Obligations and Disbursements Under  the
Comprehensive Environmental Response,                    DATE:
Condensation, and Liability Act of 1980,
Fiscal Years Ended September 30, 1984 and 1983
William T. Wisniewski
Assistant Regional Administrator
for Policy & Management  (3PMOO)

Kenneth D. Hockman
Divisional Inspector General for Audit
Internal Audit Division  (A-109)
                                                                           AUG
81986
              Attached is our response to the subject Draft Audit Report.  If you

          have any questions, please contact William Hoffman at 597-8229.


          Attachment
                                         -35-

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                                                                    APPENDIX 1
                                                                    (CONTINUED)
1.  Management Response

    Time sheets are maintained by the Region.  During the early years of
    Superfund, guidance and procedures were sometimes unclear, contradictory,
    and frequently revised.  In 1983 Headquarters required, and we ensured,
    labor distribution entries were compared to the recorded payroll.  On
    more than one occasion the "system" was not available for labor redistri-
    bution and current adjustments could not be made.  When this occurred,
    'labor redistribution was not accomplished timely and the payroll records
    would not reflect superfund hours charged.

    The process for corrections, at that time, required preparation of key
    punch sheets by the Region, transmittal to headquarters, actual key
    punching of time card corrections and eventual entry in the DIPS.
    Corrected entries did not appear in the records for several weeks or
    months after the pay period being corrected.

    The automated process (PARS) began during fiscal year 1984 and cor-
    rections and adjustments are.now processed timely.  We will consider
    the feasibililty of making retroactive adjustments to the FY 1984 payroll.

    Procedures have always required employees to report actual time
    rather than estimates on timesheets.  Current processing procedures
    have eliminated the potential errors associated with estimating time.
    The RGB 3A,will be reconciled with time sheets to ensure all time is
    recorded in the system as shown on the original document.

    The reccmendation regarding the Timekeeping Manual should be directed to
    Headquarters.
2.  Management Response

    Concur with reconmendation.  A physical inventory of the entire Region
    was initiated in March 1986.  By October 1, 1986, we anticipate the
    inventory will be completed at the Regional Office, the Annapolis
    Laboratory, the Chesapeake Bay Program Office, and the Wheeling Field
    Office.  An annual inventory will be conducted each year after that in
    accordance with regulatory requirements.  Once the inventory is complete,
    we will update and maintain the PPAS.

    Custodial Officers were appointed in December 1985.  The Property
    Accountability Officer, located in the Regional Office, does get
    copies of the receiving reports.  The Custodial Officers in the field
    are submitting to the PAO, reports of equipment received by them for
    inclusion in the PPAS.
                                                                                     4
                                  -36-

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                                                                    APPEM3K 1
                                                                    (CONTINUED)
3.  Management Response

    Concur.  Documentation to support costs allocated to Superfund for
    fiscal year 1983 and 1984 is available for review.  Charges were
    accumulated for several documents and consolidated for entry into the
    financial management system.  All documentation is currently maintained
    and available for review.

4.  Management Response

    Concur.  The journal voucher entries were located and copies
    forwarded to Cotton and Company  on December 10, 1985.
    At the time of the audit the Comptroller's office had moved twice
   „ in two years.  Each move required the "boxing" of all records
    including items needed for day to day operations as well as
    historical files.  When the audit began the Comptroller's office
    had not completed unpacking and was unable to properly set up
    files, desks etc.
5.  Management Response

    A.  Concur.  The Planning and Analysis Branch periodically prepares
        organizational charts which serve this need.  We will request,
        in writing, a list of approving officials from the operating
        divisions and periodically update the information as recommended.

    B.  Concur.  We will request a current list of timekeeper's and certifying
        supervisor's names and signatures from all organizations within the
        Region.  We will maintain the list on a current basis.

    C.  We do not agree.  The Region maintains a centralized OCR which is
        used to ensure all spending documents are accounted for.  We
        provide fund balances through the use of other local SPUR designed
        reports.  The OCR entries are reconciled to the financial management
        system periodically during the year.  We anticipate implementing
        the automated OCR system but to date this has not been available
        for our use.
                                   -37-

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                                                                    APPENDIX 1
                                                                    (CONTINUED)
Management Response (continued)

D.  Vie have reviewed available documentation for the set aside
    transactions and believe all are adequately supported.
    Documentation for obligations and disbursements must be
    retained as required by the record retention schedules.
    As previously stated we had moved twice within a short time
    period and had not completed unpacking when the audit began.

E.  This condition has been permanently rectified with the inplemen-
    tation of the new Letter of Credit - Treasury Financial Connunications
    System (LOC-TFCS).  We now have the ability to disapprove payments
    prior to the Treasury release of the drawdowns.  If no funds are
    available on a particular grant, the payment is disapproved irregard-
    less if funds are available on other grants to the same grantee,
    and Treasury does not release the funds.
                                   -38-

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