UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Report of Final and Interim Audits of
Florida Department of Environmental
Regulation's Administration of Its
vj Superfund Cooperative Agreements
Audit Report No. P5BG6-11-0031-70772
FROM: Kenneth D. Hockman
Divisional Inspector General
for Audit
Internal Audit Division (A-109)
TO: Jack E. Ravan
Regional Administrator, Region 4
SCOPE AND OBJECTIVES
We performed final and interim audits of the Florida Department of
Environmental Regulation's (FDER) administration of its cooperative
agreements with the United States Environmental Protection Agency (EPA)
under the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980. The audit was performed for the Office of Inspector General
by the contract auditors Tichenor, Resler, and Eiche, CPAs. The primary
objectives of our review were to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised
by the State in administering its cooperative agreements
with EPA.
2. Ascertain the State's compliance with provisions of the cooperative
agreements and applicable EPA regulations and instructions.
3. Ascertain the State's compliance with provisions of the Letter-
of Credit - Treasury Financial Communications System Recipients'
Manual.
4. Determine the reasonableness, allocability, and allowability of
the costs claimed under the cooperative agreements with EPA.
tt.S. Environmental Protection
Library, Room 2404 F1&-211-A -
*01 M Street, S.ff.
DO 100480
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Specifically, our audits covered the following cooperative agreements:
Miami Drum Services and Whitahouse Oil Pits which were final audits; and
Sapp Battery, Cabot /Koppers, Pioneer Sand Company, 62nd Street Dump and
Kassouf/Kimerling, and Hazardous Waste Site Inventory which rfers interim
audits.
SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT
Cooperative
Agreement
CLAIMED
AMOUNT
ACCEPTED QUESTIONED
SET-ASIDE
Miami Drum
Services
Whitehouse Oil
Pits
Sapp Battery
Cabot/Koppers
Pioneer Sand Co.
52nd Street Dump
and Kassouf/
Kimerling
Hazardous Waste
Site Inventory
Totals
$1,543,376 $1,543,376 $
412,998
460,539
282,658
379,791
132,598
748.129
209,776
160,101
23,433
369,995
9,945
128.620
203,222
95,844
244,841
22,044
1.892
$3,960,089 $2,445,246 $567,843
$ -
204,594
14,384
9,796
100,609
617,617
$947,000
Questioned costs are costs claimed that we have concluded should not be
reimbursed by the Government as part of project eligible costs because
they are not allowabl-e under the provisions of applicable laws, regulations,
policies, cost principles, or terms of the grant or contract. Set-aside
costs are costs which cannot be accepted without additional information
or evaluations and approvals by responsible Agency program officials.
NONCOMPLIANCE WITH PROCUREMENT REQUIREMENTS
The procedures utilized by FDER to procure contractual services under its
cooperative agreements with EPA were not in compliance with all the
requirements of Federal regulations (40 CFR Part 33). These conditions
were primarily attributable to FDER's lack of understanding of the
applicable Federal regulations, or their belief that Federal regulations
were being complied with. FDER was required to comply with 40 CFR Part
33 as a condition of obtaining EPA funding. We examined prime contracts
awarded by FDER under cooperative agreements on a non-statistical basis
and noted the following:
A. FDER awarded prohibited cost-plus-percentage-of-cost (CPPC) type
of contracts.
8. Cost analyses were not documented for procured contracts.
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3
C. The noncompetitive negotiation method used to procure two
contracts.did not comply with Federal regulations.
0. FDER did not document affirmative steps taken to assure that
small, minority, and women's businesses were used when possible.
E. The notice for request for proposal (RFP) did not state how to
obtain associated documents, including 40 CFR 33.295, Subparts F
and G, and the basis for subagreement award.
F. Procurement files did not document written justification for
selection of procurement method, type of subagreement, basis for
award cost or price, or contain documentation of negotiations.
G. All required EPA subagreement clauses were not incorporated in
the contracts awarded.
H. FDER did not obtain copies of subagreements awarded by contractors.
We could not determine if 40 CFR 33.295 had been complied with.
COST RECOVERY NOT CREDITED TO COOPERATIVE AGREEMENT
We questioned $22,044 of cost recovery payments which were not credited
to the 62nd Street Dump and Kassouf/Kimerling cooperative agreement.
FDER did not follow the proper procedures when cost reimbursement payments
were received. In effect, FOER was reimbursed twice for the same
expenditures due to its handling of recovered costs.
FRINGE BENEFIT AND INDIRECT COST RATES HAVE NOT BEEN FINALIZED
The fringe benefit and indirect costs incurred and claimed, from July 1,
1984 tnrough March 31, 1986, were based upon provisional rates approved by
EPA for FDER. FDER is currently negotiating with the Cost Policy and
Rate Negotiation Section of the Planning and Cost Advisory Branch of EPA
to establish final fringe benefit and indirect cost rates in accordance
with OMB Circular A-87. Allowable costs under the agreements may increase
or decrease based upon the final negotiated rate.
FDER'S COMMENTS ON FINDINGS AND EVALUATION *
An exit conference was held with FDER officials on July 31, 1986 and with
Region 4 officials on August 1, 1986. The purpose of the exit conferences
was to present the findings and recommendations and to ensure a clear under-
standing of the report by FDER and Region 4 management. At the conferences
and during the course of the audit, FDER and Region 4 officials discussed
their position relative to the findings and recommendations. In addition,
FDER provided formal written comments on the draft report in a letter,
dated October 27, 1986. The Secretary of FDER generally concurred with
the findings and recommendations, except as noted in the.Findings and
Recommendations and Notes to the Exhibits sections of the attached report,
and indicated corrective actions were taken or were planned to resolve the
issues cited in the report. Our CPA contractor concluded that FDER's
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comments were generally responsive to the findings and recommendations,
except as noted in the Findings and Recommendations and Notes to the
Exhibits sections of this report. To provide a balanced understanding of
the issues, FDER's position is summarized at appropriate locations in the
report and included as Appendix 1.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 4:
A. Instruct FDER;
1. Not to use any element of cost-pius-percentage-of-cost (CPPC)
method in contracts awarded in the future;
2. To recover value of services rendered under the E and
E, OHM, and E S and E contracts;
3. To renegotiate the contract with IT Corp. to exclude the
CPPC provision;
4. To provide cost analyses for the E and E, IT Corp, M S
and E, and Jordan contracts;
5. To use noncompetitive negotiation only in accordance with
Federal regulations; and
6. To provide sufficient documentation to establish the
reasonableness or fair value of services under the E
and E and Jordan contracts that were awarded on a
noncompetitive negotiation basis.
B. Recover the excess payments resulting from FDER's analysis and
recovery in A.2. above.
C. Participate in only the calculated amount that presents the fair
and reasonable value of services under the IT Corp. contract,
prior to FDER's renegotiation resulting from A.3. above.
D. Participate only in those costs that are fair and reasonable
based on the cost analyses provided as a result of A.4. above.
E. Participate only in those costs that are fair and reasonable
based on documentation provided as a result of A.6. above.
F. Instruct FDER to apply the $22,044 recovered costs to the costs
claimed under the 62nd Street Dump and Kassouf/Kimberling
cooperative agreement.
G. Instruct FDER to provide the necessary information to establish
final fringe benefits and indirect cost rates for the cooperative
agreements as soon as the information is available.
H. Not close out the cooperative agreements until the final fringe
benefits and indirect cost rates are established and approved by
EPA's Planning and Cost Advisory Branch of the Procurement and
Contract Management Division.
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DISTRIBUTION
Copies
A. Office of Inspector General 5
Director, Audit Operations Staff (3)
Chief, Program Analysis Unit (1)
Divisional Inspector General
for Audit, Southern Division (1)
B. Headquarters Offices
Director, Grants Administration
Division (PM-216) 1
Chief, Grants Policy and Procedures
Branch (PM-216) I
Chief, Superfund Accounting Branch (PM-226) 1
Director, Resources Management Staff (WH-562A) 2
Chief, Planning and Cost Advisory Branch (PM-214F) 1
Chief, State and Regional Coordination
Branch (WH-548E) 1
C. Regional Office
Regional Administrator, Region 4 2
Audit Follow-up Coordinator, Region 4 1
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HU)
REPORT OF FINAL AND INTERIM AUDITS OF
FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD DECEMBER 11, 1981 THROUGH MARCH 31, 1986
TG
TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS
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REPORT OF FINAL AND INTERIM AUDITS OF
FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD DECEMBER 11, 1981 THROUGH MARCH 31, 1986
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TABLE OF CONTENTS
SCOPE AND OBJECTIVES
SUMMARY OF FINDINGS
BACKGROUND 5
AUDITORS' REPORT ON COOPERATIVE AGREEMENTS
CX810030-01, V004472-01, V004473-01,
V004474-01, V004475-01, V004476-01
AND VO04481-85 AWARDED TO THE FLORIDA
DEPARTMENT OF ENVIRONMENTAL REGULATION 11
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
AND COMPLIANCE 12
FINDINGS AND RECOMMENDATIONS
1 - NONCOMPLIANCE WITH PROCUREMENT REQUIREMENTS 14
2 - COST RECOVERY NOT CREDITED TO COOPERATIVE AGREEMENT 26
3 - FRINGE BENEFIT AND INDIRECT COST RATES HAD NOT
BEEN FINALIZED 27
4 - MINOR FINDINGS - CORRECTIVE ACTION TAKEN 29
EXHIBIT A - COOPERATIVE AGREEMENTS AWARDED TO THE
FLORIDA DEPARTMENT OF ENVIRONMENTAL
REGULATION SUMMARY OF COSTS CLAIMED,
ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIOD DECEMBER 11, 1981
THROUGH MARCH 31, 1986 31
EXHIBIT B - MIAMI DRUM SERVICES COOPERATIVE
AGREEMENT (CX810030-01) AWARDED
TO THE FLORIDA DEPARTMENT OF ENVIR-
ONMENTAL REGULATION SCHEDULE OF COSTS
CLAIMED AND ACCEPTED FOR THE PERIOD
DECEMBER 11, 1981 THROUGH MARCH 15, 1984 32
EXHIBIT C - WHITEHOUSE OIL PITS COOPERATIVE
AGREEMENT (VO04472-01) AWARDED TO
THE FLORIDA DEPARTMENT OF ENVIRON-
MENTAL REGULALATION SCHEDULE OF
COSTS CLAIMED ACCEPTED AND QUES-
TIONED FOR THE PERIOD JUNE 29, 1982
THROUGH JUNE 30, 1985 33
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TABLE OF CONTENTS (Continued)
EXHIBIT D -
EXHIBIT E -
EXHIBIT F -
EXHIBIT G -
EXHIBIT H -
EXHIBIT I -
EXHIBIT J -
APPENDIX 1 -
SAPP BATTERY COOPERATIVE AGREEMENT
(VO04473-01) AWARDED TO THE FLORIDA
DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED, ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE PERIOD
SEPTEMBER 1, 1982 THROUGH MARCH 31, 1986
CABOT/KOPPERS COOPERATIVE AGREEMENT
(VO04474-01) AWARDED TO THE FLORIDA
DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED, ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE PERIOD
FEBRUARY 15, 1984 THROUGH MARCH 31, 1986
PIONEER SAND COMPANY COOPERATIVE
AGREEMENT (VO04475-01) AWARDED TO THE
FLORIDA DEPARTMENT OF ENVIRONMENTAL
REGULATION SCHEDULE OF COSTS CLAIMED,
ACCEPTED AND SET-ASIDE FOR THE PERIOD
APRIL 30, 1984 THROUGH MARCH 31, 1986
62ND STREET DUMP AND KASSOUF/KIMERLING
COOPERATIVE AGREEMENT (V004476-01)
AWARDED TO THE FLORIDA DEPARTMENT OF
ENVIRONMENTAL REGULATION SCHEDULE OF
COSTS CLAIMED, ACCEPTED, QUESTIONED
AND SET-ASIDE FOR THE PERIOD MAY 15,
1984 THROUGH MARCH 31, 1986
HAZARDOUS WASTE SITE INVENTORY
COOPERATIVE AGREEMENT (V004481-85)
AWARDED TO THE FLORIDA DEPARTMENT OF
ENVIRONMENTAL REGULATION SCHEDULE OF
COSTS CLAIMED, ACCEPTED, QUESTIONED
AND SET-ASIDE
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REPORT OF FINAL AND INTERIM AUDITS OF
FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD DECEMBER 11, 1981 THROUGH MARCH 31, 1986
SCOPE AND OBJECTIVES
We performed final and interim audits of the Florida Department
of Environmental Regulation's (FDER) administration of its coop-
erative agreements with the United States Environmental Protec-
tion Agency (EPA) under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980. The primary objectives
of our review were to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised
by the State in administering its cooperative agreements
with EPA.
2. Ascertain the State's compliance with provisions of the co-
operative agreements and applicable EPA regulations and in-
structions.
3. Ascertain the State's compliance with provisions of the Let-
ter of Credit - Treasury Financial Communications System
Recipients' Manual^
4. Determine the reasonableness, allocability, and allowability
of the costs claimed under the cooperative agreements with
EPA.
Specifically, our audits covered the following cooperative agree-
ments: Miami Drum Services and Whitehouse Oil Pits which were fi-
nal audits; and Sapp Battery, Cabot/Koppers, Pioneer Sand Compa-
ny, 62nd Street Dump and Kassouf/Kimerling, and Hazardous Waste
Site Inventory which were interim audits.
f
The audits included an examination of costs claimed under the
referenced cooperative agreements for the periods:
Cooperative Agreement
1. Miami Drum Services
2. Whitehouse Oil Pits
3. Sapp Battery
4. Cabot/Koppers
5. Pioneer Sand Co.
6. 62nd Street Dump and
Kassouf/Kimerling
7. Hazardous Waste
Site Inventory
From
December 11, 1981
June 29, 1982
September 1, 1982
February 15, 1984
April 30, 1984
May 15, 1984
January 1, 1985
To
March 15, 1984
June 30, 1985
March 31, 1986
March 31, 1986
March 31. 1986
March 31, 1986
March 31. 1986
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SCOPE AND OBJECTIVES (Continued)
Our audits were performed in accordance with generally accepted
auditing standards and the Standards for Audit of Governmental
Organizations, Programs, Activities, and Functions(1981re-
vision)promulgated bytheComptrollerGeneraloJT the United
States. Accordingly, the examination included such tests of the
accounting records and such other auditing procedures as we con-
sidered necessary in the circumstances.
SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT
Subject to the effects on Exhibit A of EPA's ultimate resolution
of the questioned and set aside costs referred to in the Audit-
ors' Report, Exhibit A (summarized below) presents the financial
information and financial provisions of the grant.
Cooperative
Agreement
Miami Drum
Services
Whitehouse Oil
Pits
Sapp Battery
Cabot/Koppers
Pioneer Sand Co.
62nd Street Dump
and Kassouf/
Kimerling
Hazardous Waste
Site Inventory
Totals
AMOUNT
CLAIMED
ACCEPTED QUESTIONED SET-ASIDE
$1,543,376 $1,543,376 $
412,998
460,539
282,658
379,791
132,598
748,129
209,776
160,101
23,433
369,995
9,945
128,620
203,222
95,844
244,841
22,044
1,892
$3,960,089 $2,445,246 $567.843
204,594
14,384
9,796
100,609
617,617
$947.000
Questioned costs are costs claimed that we have concluded should
not be reimbursed by the Government as part of project eligible
costs because they are not allowable under the provisions of
applicable laws, regulations, policies, cost principles, or terms
of the grant or contract. Set-aside costs are costs which cannot
be accepted without additional information or evaluations and
approvals by responsible Agency program officials.
NONCOMPLIANCE WITH PROCUREMENT REQUIREMENTS
The procedures utilized by FDER to procure contractual services
under its cooperative agreements with EPA were not in compliance
with all the requirements of Federal regulations (40 CFR Part
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SUMMARY OF FINDINGS (Continued)
33). These conditions were primarily attributable to FDER's lack
of understanding of the applicable Federal regulations, or their
belief that Federal regulations were being complied with. FDER
was required to comply with 40 CFR Part 33 as a condition of
obtaining EPA funding. We examined prime contracts awarded by
FDER under cooperative agreements on a non-statistical basis and
noted the following:
A. FDER awarded prohibited cost-plus-percentage-of-cost
(CPPC) type of contracts.
B. Cost analyses were not documented for procured con-
tracts.
C. The noncompetitive negotiation method used to procure
two contracts did not comply with Federal regulations.
D. FDER did not document affirmative steps taken to assure
that small, minority, and women's businesses were used
when possible.
E. The notice for request for proposal (RFP) did not state
how to obtain associated documents, including 40 CFR
33.295, Subparts F and G, and the basis for subagree-
ment award.
F. Procurement files did not document written justifi-
cation for selection of procurement method, type of
subagreement, basis for award cost or price, or contain
documentation of negotiations.
G. All required EPA subagreement clauses were not incor-
porated in the contracts awarded.
H. FDER did not obtain copies of subagreements awarded by
contractors. We crould not determine if 40 CFR 33.295
had been complied with.
COST RECOVERY NOT CREDITED TO COOPERATIVE AGREEMENT
We questioned $22,044 of cost recovery payments which were not
credited to the 62nd Street Dump and Kassouf/Kimerling
cooperative agreement. FDER did not follow the proper procedures
when cost reimbursement payments were received. In effect, FDER
was reimbursed twice for the same expenditures due to its
handling of recovered costs.
FRINGE BENEFIT AND INDIRECT COST RATES HAVE NOT BEEN FINALIZED
The fringe benefit and indirect costs incurred and claimed from
July 1, 1984 through March 31, 1986 were based upon provisional
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SUMMARY OF FINDINGS (Continued)
rates approved by EPA for FDER. FDER is currently negotiating
with the Cost Policy and Rate Negotiation Section of the Planning
and Cost Advisory Branch of EPA to establish final fringe benefit
and indirect cost rates in accordance with OMB Circular A-87.
Allowable costs under the agreements may increase or decrease
based upon the final negotiated rate.
FDER'S COMMENTS ON FINDINGS AND EVALUATION
An exit conference was held with FDER officials on July 31, 1986
and with Region 4 officials on August 1, 1986. The purpose of
the exit conferences was to present our findings and recommen-
dations and to ensure a clear understanding of our report by FDER
and Region 4 management. At the conferences and during the
course of the audit, FDER and Region 4 officials discussed their
position relative to our findings and recommendations. In
addition, FDER provided us with formal written comments on our
draft report in a letter dated October 27, 1986. The Secretary
of FDER generally concurred with our findings and recommenda-
tions, except as noted in the Findings and Recommendations and
Notes to the Exhibits sections of this report, and indicated
corrective actions were taken or were planned to resolve the
issues cited in the report. We concluded that FDER's comments,
were generally responsive to our findings and recommendations,
except as noted in the Findings and Recommendations and Notes to
the Exhibits sections of this report. To provide a balanced
understanding of the issues, we summarized FDER's position at
appropriate locations in the report and included the complete
response as Appendix 1.
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BACKGROUND
On December 11, 1980, Public Law 96-510, the Comprehensive En-
vironmental Response, Compensation, and Liability Act (CERCLA)
was enacted by Congress. CERCLA, commonly known as "Superfund",
was passed to protect public health and the environment from
hazardous substances by authorizing Federal action to respond to
the release, or threatened release, from any source, including
abandoned hazardous waste sites, into any part of the
environment. A Trust Fund was established for Federal and State
governments to respond directly to any problems at uncontrolled
hazardous waste disposal sites, not only in emergency situations,
but also at sites where longer term permanent remedies are
required.
The blueprint for the Superfund program under CERCLA is the Na-
tional Contingency Plan (NCP), first published in 1968, as part
of the Federal Water Pollution Control Plan. The NCP laid out
three types of responses for incidents involving hazardous wastes
which are: immediate removal, planned removal, and remedial re-
sponse. The first two types of responses were modifications of
an earlier program under the Clean Water Act. Remedial response
was intended to deal with the longer term problem of abandoned or
uncontrolled sites. NCP changes effective February 18, 1986,
established one broad category of removals, thus eliminating the
distinction between immediate and planned removals.
CERCLA provides for compiling a National Priority List (NPL) of
hazardous waste sites for remedial action. In October 1981, EPA
compiled an interim priorities list of 115 hazardous waste sites.
The sites were nominated by the EPA Regional Offices and the
States, primarily on the basis of potential threat to the public
health. Also, the threat to the environment was considered. In
September 1983, EPA published the first NPL, which consisted of
406 sites.
CERCLA Section 104(c)(3) provides that no remedial actions shall
be taken unless the State in which the release occurs first en-
ters into a contract or cooperative agreement with EPA, with as-
surance of payment of 10 or 50 percent of remedial costs. The
State must agree to a cost-share of 10 percent if the site was
privately owned. At publicly owned sites (one owned by the State
or a political subdivision thereof), the State is required to pay
50 percent of all remedial action costs. Cooperative agreements
for remedial investigations, feasibility studies, and remedial
designs can be funded up to 100 percent by EPA.
FDER had the responsibility of identifying and ranking sites
which posed a risk to the public or the environment, and perfor-
mance of remedial investigation, design, and cleanup at hazardous
waste sites. During our audit, FDER was actively involved in
seven cooperative agreements with EPA for remedial activities.
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BACKGROUND (Continued)
Miami Drum Services (CX810030-01)
The Miami Drum Services site was located at 7040 Northwest 70th
Street, Miami, Florida. The site, approximately one acre in
size, was an inactive drum recycling facility located, in a pre-
dominately industrial area. As many as 5,000 drums of various
chemical waste materials were observed on the site while the com-
pany was operating. Drums were washed with a caustic cleaning
solution; and this solution, along with drum residues containing
industrial solvents, acids and heavy metals, was disposed of
on-site which eventually saturated the surface soils.
Results from five shallow monitoring wells in the vicinity of the
Miami Drum Services side indicated that ground water contaminants
include polychlorinated biphenyl (PCB), trichloroethylene,
dichloroethene and other halogenated organic compounds as well as
heavy metals, oil, and grease. Studies of the area indicated a
subsurface ground water contaminant plume was moving southwest
toward Hialeah-Miami Springs wellfield which is Dade County's
primary drinking water source.
The facility ceased operations in April, 1981 as a result of a
court order obtained by Dade County. The County obtained the
Miami Drum Services site through eminent domain proceedings to
use the property for construction of a maintenance yard for the
county's rapid rail transit system. The County's schedule for
the rapid rail necessitated that the Miami Drum Services property
be available for construction early in January 1982. In
November 1981, the County initiated actions to obtain a cleanup
contractor for the site. During this time, FDER and EPA began
negotiations for a cooperative agreement for the contaminated
soil cleanup at the site and a ground water feasibility study.
Whitehouse Oil Pits (V004472-01)
The Whitehouse Oil Pits are located in the community of
Whitehouse in Duval County, west of Jacksonville, Florida. The
oil pits were owned and operated between 1958 .and 1968 by Allied
Petro-Products, Inc., a waste oil refining company which used a
sulfuric acid process to recycle used petroleum products. Waste
from this operation was dumped into the pits and included acid
and clay sludges as well as oil containing PCB. These oil pits
were abandoned in 1969 when the company went bankrupt.
The Whitehouse Oil Pits site was given national attention when it
was identified on ABC's television presentation, "The Killing
Ground" (shown March, 1979). On several occasions the pit levees
have ruptured and spilled contaminants onto adjacent private
property and into McGirts Creek. Chemical analyses of soil,
ground water and surface water samples from the site have
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BACKGROUND (Continued)
revealed the presence of 35 elements, high concentrations of PCB
and other halogenated organic compounds which posed an immediate
threat to the water supply.
Subsequent monitoring of site conditions indicated additional
efforts would be needed to achieve a stable site condition. The
dike walls continued to erode and a major site rehabilitation was
attempted during the summer of 1980. This was a joint effort by
the FDER and the City of Jacksonville.
Sapp Battery (V004473-01)
The Sapp Battery Salvage site is located in Jackson County,
Florida. Prior to the closing of the facility in January 1980,
Sapp Battery Salvage was engaged in recovering lead from spent
battery casings. During its period of operation wastewater
containing lead, zinc and sulfuric acid was discharged into
cement-lined settling pits which overflowed into a small, unlined
pond. The spent battery casings were disposed of in several
on-site landfill areas. The treatment pond, along with runoff
from the Sapp property, discharged into Steele City Bay.
Drainage from Steele City Bay flowed into Little Dry Creek, which
drained into Dry Creek Bay, the Chipola River and finally to the
Apalachicola River.
Surface water quality studies documented high levels of heavy
metals and low pH in drainage culverts, Little Dry Creek and
Steele City Bay. A biological evaluation showed an almost total
destruction of benthic organisms for a distance of 2.5 miles be-
low the site and a 50% destruction for 16 miles beyond that,
EPA's Environmental Emergency Branch (EEB) conducted a partial
clean up of the site in August, 1980. EEB's efforts were geared
towards raising the extremely low pH at the site and burning
certain areas to prevent contaminated runoff.
Cabot/Koppers (V004474-01)
The Cabot Carbon Corporation (CCC) site is located in
Gainesville, Florida, near 23rd Boulevard and North Main Street.
A facility for the destructive distillation of pine stumps was
originally built on the 34 acre site by the Retort Chemical
Company. In 1945 this company was purchased by CCC, which
operated the plant until 1966. The products from this process
were turpentine solvents, pine tar, and charcoal. A wastewater
stream containing residual pine tar was accumulated in three
surface impoundments near the northwest corner of the property.
As the wastewater cooled, residual tar precipitated to the bottom
of the ponds. The ponds were periodically emptied, the tar was
scraped from the bottom and was returned to process and sold.
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BACKGROUND (Continued)
In 1967 CCC sold the real property to Raymond and Anita
Tassinari, who caused the dike walls to be breached and allowed
the contents of two of the ponds to drain Into Hog town Creek.
Hogtown Creek emptied into Haile Sink which recharged the
Floridan aquifer. Tassinari was convicted and fined by the City
of Gainesville for causing this discharge.
In 1977 following several transfers, the property was acquired by
Harry S. Hamilton, who developed the site into Hamilton Park, a
shopping complex which covered a significant portion of the orig-
inal CCC site. During the construction of a stormwater retention
pond over the former impoundments, the remaining pine tar sludges
were disturbed and hazardous substances began to appear in
stormwater runoff.
The Koppers Company site is located on NW 23rd Boulevard in
Gainesville, Florida, and abutted the former CCC site. Koppers
and its predecessor, American Lumber & Treating Company, operated
a wood treating business on their 13 acre site. The drainage
ditch which ran along North Main Street received a dark-stained
phenolic leachate. The contribution to this waste from each of
these two sites had not been determined.
Pioneer Sand Company (V004475-01)
The Pioneer Sand Company is located on Saufley Field Road, five
.miles west of Fensacola, Florida, and began operations in 1972.
The site, approximately 20 acres in size, consisted of two small
surface impoundments and an adjacent landfill area. The landfill
area was used for the disposal of construction debris, shredded
automobile strippings, and various industrial sludges and
resins. This landfill also received metal plating sludge from
the Pensicola Naval Base as well as phenols and resin compounds
from the Reichold Chemical Company. A number of partially buried
and exposed empty 55 gallon drums were located near the surface
impoundments. The drums were unmarked and in varying degrees of
damage and decay. Several.feachate streams existed at the base
of the fill area. The surface impoundments, which were adjacent
to the fill area, were being contaminated by the leachate stream.
Previous sampling investigations by FDER and EPA revealed
elevated levels of chromium, lead, and nickel as well as several
other priority pollutants. On-site sampling indicated the
presence of organic gas vapors in several different areas. High
levels of various volatile organics (i.e. benzene, ethol benzene,
toluene, carbon tetrachloride and xylene), also were detected. A
well field which supplies drinking water for area residents is
located approximately three miles from the site.
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BACKGROUND (Continued)
62nd Street Dump and Kassouf/Kimerling (V004476-01)
The 62nd Street Dump site is an abandoned waste disposal dump
located in Tampa, Florida. The area had been used for the
disposal of different types of industrial wastes which included
shredded battery casings from Chloride Metals Company and Gulf
Coast Lead; waste cement, kiln dust and kiln liners from General
Portland, Inc.; and shredded car parts from David Joseph Company.
Mr. Lee Pichler purchased the land in 1981. Prior to 1981 the
property was owned and operated by Adrian Collins.
Previous sampling investigations by FDER, Hillsborough County,
and Seaburn and Robertson have shown contamination of shallow
monitoring wells in the vicinity of the site. Sampling results
from on-site wells showed concentrations of lead, chromium and
phenols above Primary Drinking Water Standards. However,
analysis of drinking water samples from wells upgradient and
downgradient of the site did not show any levels of lead, zinc,
iron, chromium or cadmium above standards.
The Kassouf/Kimerling site is located north of Columbus Drive in
Tampa, Florida. The site consisted of a marshy area which con-
tained approximately four feet of battery casings and miscellane-
ous debris.
There have been several water quality and waste assessments con-
ducted at the Kassouf/Kimerling site. FDER made a site in-
spection in June 1980. Surface water samples were collected
which indicated levels of dissolved lead greater than allowable
standards. The owners of the property hired Geraghty and Miller,
Inc. in August 1981, to perform an assessment of ground water and
surface water conditions at the site. The results of that study
indicated no substantial degradation of the surface or ground
water.
Geraghty and Miller, Inc. 'conducted another sampling program
between November 1982 and February 1983. Preliminary review of
the data indicated elevated levels of lead at several sampling
locations.
Hazardous Waste Site Inventory (V004481-85)
In October 1983, Congress appropriated ten million dollars in a
one-time, non-recurring appropriation to assist each state in
establishing a hazardous waste site inventory. Money was
allotted to states in proportion to the number of sites each
state had on EPA's Emergency and Remedial Response Information
System (ERRIS) list of sites. During calendar year 1984, FDER
received $289,000 to complete 110 preliminary assessments and 40
site inspections. This amount included $120,000 for sample
analysis to be performed by a private lab. To date, Florida has
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BACKGROUND (Continued)
completed all 110 preliminary assessments and submitted them to
EPA, and completed all site inspection work. During 1984,
Florida also established a discovery program for adding new sites
to the ERRIS list.
As of January 1, 1985, monies for this inventory were funded
under CERCLA. This cooperative agreement will assist FDER in
conducting its hazardous waste functions under CERCLA which re-
quires investigation, assessment and inspection of hazardous
waste disposal sites. The information generated will be vital to
both FDER's and EPA's roles in improving their programs for re-
sponse to releases or threats of releases of hazardous substances
from facilities or other sources.
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TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS THE SUMM|T, SUITE 200
,. ., , - „ . 4350 BROWNSBORO ROAD
Mr. Kenneth D. Hockman LOUISVILLE, KENTUCKY 4020?
U.S. Environmental Protection Agency (502)893-0700
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
AUDITORS' REPORT ON COOPERATIVE AGREEMENTS
0(810030-01, VOQ4472-01, V004473-01, V0044"7?::01,
V004475-01, V004476-OI AND V004481-85 AWARDED TO
THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
We have examined the costs incurred and claimed by the Florida
Department of Environmental Regulation (FDER), related to the
Miami Drum Services, Whitehouse Oil Pits, Sapp Battery, Cabot/
Koppers, Pioneer Sand Company, 62nd Street Dump and Kassouf/
Kimerling, and Hazardous Waste Site Inventory (HWSI) cooperative
agreements from December 11, 1981 through March 31, 1986, as
detailed in Exhibit A. Our examination was performed in accor-
dance with generally accepted auditing standards and the Stan-
dards for Audit of Governmental Organizations, Programs, Activ-
ities, and Functions (1981 revision). Ac cord.Ingly, our examina-
tion amination included such tests of the accounting records and
such other auditing procedures as we considered necessary in the
circumstances.
As part of our examination, we determined the allowability of
costs claimed under the project in accordance with the provisions
of the cooperative agreements and applicable Federal regulations.
Exhibit A sets forth the costs which we questioned and set aside
in this regard and includes an explanation of the reasons such
costs were questioned and set aside.
The Summary of Costs Claimed, Accepted, Questioned and Set-Aside
(Exhibit A) was prepared on the basis of regulations and criteria
established by the U.S. Environmental Protection Agency relating
to Superfund Cooperative Agreements pursuant to Public Law
96-510. Accordingly, Exhibit A is not intended to present finan-
cial position and results , of operations in conformity with
generally accepted accounting principles.
In our opinion, subject to the effects of EPA's ultimate resolu-
tion of the questioned and set aside costs referred to in the
preceding paragraphs, Exhibit A presents fairly the costs claimed
by the Florida Department of Environmental Regulation under the
cooperative agreements with EPA on the basis described above.
This report is intended for use in connection with the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
August 1, 1986
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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 the Inspector General
Washington, D.C.
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
We have examined the expenditures claimed by the Florida
Department of Environmental Regulation (FDER), related to the
Miami Drum Services, Whitehouse Oil Pits, Sapp Battery, Cabot/
Koppers, Pioneer Sand Company, 62nd Street Dump and Kassouf/
Kimerling, and Hazardous Waste Site Inventory cooperative
agreements from December 11, 1981 through March 31, 1986, as
detailed in Exhibit A. Our examination was performed in accor-
dance with generally accepted auditing standards and the finan-
cial and compliance provisions of the Standards for Audit of
GovernmentalOrganizations, Programs, Activities, and Functions
(1981 revision).Solely to assist usin planning and performing
our examination, we made a study and evaluation of the
significant internal accounting controls of FDER. For the
purpose of this report, we have classified the significant
internal accounting controls into the following categories;
0 Disbursements
0 Payroll
0 Contractor procurement
0 Contractor performance arid billings
0 Cash management (letter of credit system)
0 Property and equipment
Our study included all of the control systems listed above.
That study and evaluation was limited to a preliminary review of
the system to obtain an understanding of the control environment
and the flow of transactions through the accounting system. Be- •-••
cause the audit could be performed more efficiently through addi-
tional analysis and substantive audit tests, thus placing very
little reliance on the internal accounting control system, our
study and evaluation of the internal accounting controls did
not extend beyond this preliminary review phase. Accordingly, we
do not express an opinion on the system of internal accounting
controls taken as a whole. Also, our examination, made in accor-
dance with the standards mentioned above, would not necessarily
disclose all material weaknesses in the system of internal ac-
counting control. Our examination did not disclose any con-
ditions, other than those presented in the Findings and Recommen-
dations, that we believe to be material weaknesses.
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Mr. Kenneth D. Hockman
Page 2
As a part of our examination, we performed certain tests to de-
termine whether or not Federal funds were expended in accordance
with provisions of the cooperative agreements and applicable Fed-
eral laws, regulations, policies, and cost principles. The re-
sults of our tests indicate that for the items tested, FDER com-
plied with the provisions of the cooperative agreements and ap-
plicable Federal laws, regulations, policies, and cost princi-
ples, except for the conditions described in the Notes to the
Exhibits. Further, for the items not tested, based upon our ex-
amination referred to above, nothing came to our attention which
indicated that FDER had not complied with the provisions of the
cooperative agreements and applicable Federal laws, regulations,
policies, and cost principles, beyond the conditions described in
the Findings and Recommendations.
This report is intended for use in connection with the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
August 1, 1986
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FINDINGS AND RECOMMENDATIONS
1. NONCOMPLIANCE WITH PROCUREMENT REQUIREMENTS
The procedures utilized by FDER to procure contractual services
under its cooperative agreements with EPA were not in compliance
with all the requirements of Federal regulations (40 CFR Part
33). These conditions were primarily attributable to FDER's lack
of understanding of the applicable Federal regulations, or their
belief that Federal regulations were being complied with. FDER
was required to comply with 40 CFR Part 33 as a condition of
obtaining EPA funding. We examined contracts awarded by FDER
under cooperative agreements on a non-statistical basis and noted
the following:
A. FDER awarded prohibited cost-plus-percentage-of-cost
(CPPC) type of contracts.
B. Cost analyses were not documented for procured con-
tracts.
C. The noncompetitive negotiation method used to procure
two contracts did not comply with Federal regulations.
D. FDER did not document affirmative steps taken to assure
that small, minority, and women's businesses were used
when possible.
E. The notice for request for proposal (RFP) did not state
how to obtain associated documents, including 40 CFR
33.295, Subparts F and G, and the basis for subagree-
ment award.
F. Procurement files did not document written justifica-
tion for selection of procurement method, type of
subagreement, basis for award cost or price, or contain
documentation of negotiations.
G. All required EPA subagreement clauses were not
incorporated in the contract's awarded.
H. FDER did not obtain copies of subagreements awarded by
contractors. We could not determine if 40 CFR 33.295
had been complied with.
A. Cost-Pius-Percentage-Of-Cost Contracts
FDER awarded four contracts that contained elements of
prohibited CPPC contracts. We questioned $543,907 as
detailed below:
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FINDINGS AND RECOMMENDATIONS (Continued)
Cooperative
Agreement Contractor
Whitehouse
Oil Pits
Whitehouse
Oil Pits
Sapp
Battery
Cabot/
Koppers
Ecology
and
Environment
Inc. (E and E)
O.H.
Materials,
Inc. (OHM)
Environmental
Science and
Engineering,
Inc. (E S
and E)
IT Cor-
poration
(IT Corp.)
Amount Reference
Element of CPPC Questioned Exhibit Note
Fixed percent add-on for
fringe (25Z), overhead
(55Z), and general and
administrative (25Z). $178,041* C . 2
Fixed percent add-on to
subcontractor costs and
field purchase (15Z).
Fixed percent add-on for
overhead (133.3Z).
Fixed percent add-on for
overhead (129Z) and gen-
eral and administrative
(15.4Z).
Total
25,181*
95,844*
244.841
$543,907
D
* contract terminated
2(a)
The
CPPC contracts are prohibited by 40 CFR 33.285.c
Comptroller General addresses the issue by stating:
In as much as the amount paid as reimbursement for
overhead will diminish or increase in proportion
to the direct costs incurred rather than the
overhead incurred by the contractor, we are of the
opinion that the contracts violate the express
prohibition against the cost-plus-percentage-of-
cost system of contracting and, therefore, are
illegal. Furthermore, the use of'fixed rates for
overhead__may_ be unfair to either the Government of
the contractors"! Such fixed rates are inconsis-
tentwiththe basic principles of a cost-type
contract in that they will not normally result in
reimbursement of the actual cost. Accordingly,
the practice of paying overhead on the basis of
fixed percentage rates...should be discontinued.
(Emphasis added.) 35 Comp. Gen. 434, 436 (1956).
Accord, 35 Comp. Gen. 590, 591 (1956).
As stated above, the use of a fixed rate may be unfair to
the Government or contractor. Their use will not normally
result in reimbursement of the actual cost.
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FINDINGS AND RECOMMENDATIONS (Continued)
FDER officials indicated they believed the CPPC prohibition
pertained only to profit associated with the contract, and
the use of percentages, in regard to overhead, is not
prohibited. At the exit conference, FDER maintained that
the CPPC prohibition pertained only to the profit associated
with the contract.
B. Cost Analyses
We set aside $1,054,858 because FDER did not document cost
analyses for the following contracts:
Cooperative
Agreement
Whitehouse
Oil Pits
Cabot/
Koppers
62nd St. and
Kassouf/
Kimerling
HWSI
Total
Contractor
Amount
Set-Aside
E and E
IT Corp.
Mayes, Sudderth and
Etheredge, Inc.
(MS & E)
E.C. Jordan
Company
(Jordan)
$ 178,041*q
244,841 q
85,072
546,904 s
$1.054.858
Reference
Exhibit Note
2
H
* contract terminated
q amount previously questioned in Finding Number l.A
s amount also set aside in Finding Number l.C
t
A cost analysis is defined as the review and evaluation of
each cost element to determine the' reasonableness, alloca-
bility and allowability of the cost. This evaluation
includes a comparison of the offerer's current cost
estimates with: costs previously incurred by the offerer,
the offerer's last prior cost estimate for similar items,
current cost estimates, or historical costs from other
contractors for the same or similar items.
According to 40 CFR 33.290(a), a cost analysis is required
for each negotiated subagreement estimated to exceed
$10,000. Additionally, 40 CFR 33.2SO(a)(5) .requires that a
copy of the cost analysis be maintained in the procurement
files.
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FINDINGS AND RECOMMENDATIONS (Continued)
C.
FDER's files did not contain written documentation to
support the performance of cost analyses. FDER officials
stated that they were unaware that cost analyses had to be
documented. Without evidence of cost analyses, the
reasonableness, allocability and allowability of the con-
tractual costs cannot be determined.
Noncompetitive Negotiation
We set aside $751,498 because FDER did not follow proper
procedures in using the noncompetitive negotiation method of
procurement pursuant to 40 CFR 33.605. As a result of
FDER's lack of understanding of the procedures, there was no
assurance that the services could not have been obtained
from an equally qualified contractor at a lesser cost. The
set-aside costs are detailed as follows:
Cooperative
Agreement
Sapp Battery
HWSI
Total
Reference
Contractor
E and E
Jordan
Set-Aside
$204,594
546.904 s
$751,498
s amount also set aside in finding I.E.
Pursuant to 40 CFR 33.605, recipients may use noncompetitive
negotiation only when the other three procurement methods
are inappropriate because:
1) The item is available only from a single source;
2) A public exigency or emergency exists and the urgency
for the requirement* will not permit a delay incident to
competitive procurement;
3) After solicitation from a number of sources,
competition is inadequate; or
4) The EPA award official authorizes noncompetitive
negotiation.
Neither of the contract procurements were in conformity with
Federal regulations due to FDER's lack of understanding of
the requirements. Competition was eliminated from the
procurement process. Consequently,, there was no assurance
that the services could not have been obtained from an
equally qualified contractor at a lesser cost to the Federal
government.
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FINDINGS AND RECOMMENDATIONS (Continued)
D. Affirmative Action
AH six contracts tested were not in compliance with 40 CFR
33.240. The CFR states "The recipient must take affirmative
steps to assure that small, minority, and women's businesses
(MBE's) are used when possible as sources of supplies, con-
struction and services." The regulation further states, in
part, that affirmative steps shall assure: that these
businesses are included on solicitation lists; that these
businesses are solicited whenever they are potential
sources; that the services and assistance of the Small
Business Administration and the Office of Minority Business
Enterprise of the U.S. Department of Commerce are used as
appropriate.
FDER's contract administrator stated that, while steps may
have been taken to award a fair share of subagreements to
MBE's, FDER's procurement files contained no documentation
that MBE's were solicited. The contract administrator fur-
ther stated that the State is currently using an MBE catalog
to identify potential offerers. As a result of FDER's non-
compliance, MBE's may not have been fairly represented in
the procurement process and may not have been given the
opportunity to compete for the Federally funded contracts.
E. Notice Of Request For Proposals
The notice of RFP did not state how to obtain associated
documents, including a copy of 40 CFR 33.295, Subparts F and
G, and the basis for subagreement award. The five contracts
listed below were not in compliance with 40 CFR 33.510 which
requires the items listed above to be included in the RFP.
Cooperative
Agreement ' Contractor
Whitehouse Oil Pits E and E
Sapp Battery E S and E
Cabot/Koppers IT Corporation
Pioneer Sand Woodward-Clyde
Consultants
62nd Street Dump and Mayes, Sudderth and
Kassouf/Kimerling Etheredge, Inc.
Both the previous and current contract administrators stated
that they were unaware that the notice of RFP must state how
to obtain associated documents, including a copy of 40 CFR
33.295, Subparts F and G, and the basis for subagreement
award. As a result, offerers may not be aware of Federal
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FINDINGS AND RECOMMENDATIONS (Continued)
H.
regulations nor have a clear understanding of their respon-
sibilities.
Documentation
Our review of six contracts awarded under the cooperative
agreements disclosed that the procurement records and files
did not contain the documentation required by 40 CFR 33.250
(See Exhibit I). FDER project officers indicated that they
were not aware of the documentation requirements of 40 CFR
33.250. As a result, EPA cannot be assured that the pro-
curement of contractors was done in a reasonable manner and
that the best contractor was awarded the contract.
Subagreement Provisions
Our review of six contracts awarded under the cooperative
agreements disclosed that these agreements omitted several
of the.required subagreement clauses, per 40 CFR 33.1030, in
whole or in part, and did not contain equivalent clauses
(See Exhibit J). The contract administrator stated that the
omission of, or changes in the model subagreement clauses
was due to an oversight or the fact that contracts were not
adequately reviewed for compliance with 40 CFR 33.1030. As
a result, the best interests of the Federal government may
not be adequately protected -if any contractual claims or,
disputes arise between FDER and the contractors retained
under the cooperative agreements.
The subagreements awarded under the cooperative agreements
were not in compliance with 40 CFR 33.1030 which stipulates
that "Recipients must include, when appropriate, the follow-
ing clauses or their equivalent in each subagreement". The
clauses referred to described the minimum assurances, guar-
antees , indemnity and other contractual requirements
necessary to assure fchat the Federal government's best
interests are protected.
*
Subcontractor Agreements
FDER did not obtain copies of all subcontracts awarded by
its prime contractors. Without copies of the subcontracts,
we could not determine if the subcontracts were in
compliance with 40 CFR 33.295 which states: 1) a contractor
must comply with the prohibited type of subagreements
provision in 33.285; 2) the cost and price considerations
provision in 33.290; and 3) include the applicable required
subagreement clauses in Subpart F of 40 CFR Part 33.
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FINDINGS AND RECOMMENDATIONS (Continued)
We could not determine if prohibited contracts were awarded
to the subcontractors or if the best interests of the
Federal government were adequately protected.
FDER'S COMMENTS ON FINDINGS
We recommended in our draft audit report that the Regional
Administrator, Region 4:
A. 1. Instruct FDER not to use CPPC contracts in the future;
to recover any payments in excess of the fair and
reasonable value of services rendered under the E and
E, OHM, and ES and C contracts; and to renegotiate the
contract with IT Corp. to exclude the CPPC provision.
2. Participate in only the calculated amount that
represents the fair and reasonable value of services
under the IT Corp. contract.
B. Participate only in those costs which are reasonable based
upon cost analyses prepared for each contract and documented
by FDER in accordance with Federal guidelines.
C. Determine if noncompetitive negotiation was warranted and
establish the reasonableness of the contractual amounts
before accepting costs for the E and E and Jordan contracts.
We also made recommendations concerning affirmative action,
notices of request for proposals, documentation, subagreement
provisions and subcontractor agreements. The Secretary of FDER
stated in response to our recommendations:
A. Cost-Plus-Percentage-of-Cost-Contracts
In contracting under Federal Cooperative Agreements,
FDER does not use CPPC contracts. FDER awarded the
four contracts noted in the audit report on a cost plus
fixed fee basis.
In cost plus fixed fee contracts, the profit is
established as a fixed amount, in addition to the
direct and indirect costs. FDER does use percentages
in their contracts as a method of establishing overhead
and other indirect costs. The use of these percentages
or indirect costs rates is a common contracting
procedure due to the difficulty involved in applying
actual overhead costs to various contracts.
B. Cost Analysis
Section 33.005 of 40 CFR defines costs analysis as the
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FINDINGS AND RECOMMENDATIONS (Continued)
review and evaluation of each element of subagreement
cost to determine reasonableness, allocability and
allowability. Cost analyses, which fit this defini-
tion, were prepared for each contract during the nego-
tiation process.
The development of a government cost estimate, compari-
son of contractor cost proposals with that cost esti-
mate and requesting supplementary cost information when
appropriate, represent a valid and acceptable cost
analysis. All such information is available in the
project files. FDER is modifying procedures such that
cost analysis information will also be placed in the
contract files. If deemed necessary by EPA, FDER will
summarize the cost analysis information for the four
cited contracts and place it under a separate heading
in the contract files.
C. Noncompetitive Negotiation
Sapp Battery
FDER did follow proper procedures for the Sapp Battery
contract. FDER used the original solicitation list to
select a contractor to complete the work under the term-
inated contract. A reprocurement is, technically a
"purchase" for the terminated contractor and not a new
purchase. Therefore, FDER did not have to go through
another public notice and evaluation process.
HWSI
The contracting procedures were not in conformity with
Federal regulations in the noncompetitive negotiation
of the contract with E.G. Jordan Company for the
Hazardous Waste Site Inventory. However, FDER believes
that competition was not eliminated and that every
assurance was made to contract with the best qualified
contractor at the least cost.
The Department initially contracted with E.C. Jordan
Company as a result of a Request for Proposal (RFP).
When EPA required additional work to be done, FDER
decided to amend the contract with Jordan because
specific criteria had been mandated by EPA for the
grant work and E.G. Jordan Company had attended the EPA
training seminars. State of Florida rules and regula-
tions were followed and a Sole Source approval was
obtained from the Florida Department of General
Services.
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FINDINGS AND RECOMMENDATIONS (Continued)
D. Affirmative Action
FDER concurs that FDER did not comply with 40 CFR
33.240 in regard to affirmative action. However, since
July 1, 1985, FDER has taken steps to correct this
problem by soliciting MBE's; including evaluation
criteria in all RFP's for minority responders and those
planning to use minority subcontractors; and sending
copies of solicitations to the appropriate minority
business programs and centers. FDER is now in
compliance and will continue in the future to comply
with the affirmative action requirements of 40 CFR
33.240.
E. Notice of Request For Proposals
FDER was not in compliance with the notification
requirements of 40 CFR 33.295. FDER has since taken
action to correct this omission from the RFP's.
F. Do cumentat ion
FDER's contract files contain all of the documentation
required by 40 CFR 33.245 except, as noted in I.E., the
cost analyses were not summarized in the contract
files. FDER files do contain sufficient documentation
to assure that the procurement of contractors was done
in a reasonable manner and that the best contractor was
awarded the contract. FDER will continue to improve
the documentation maintained in the contract files.
G. Subcontractor Provisions
FDER concurs and will in the future include all
agreement clauses in the contracts in accordance with
40 CFR 33.1030. '
H. Subcontractor Agreements
FDER did obtain subcontracts for some of the
cooperative agreements, however, FDER concurs and will,
In the future, obtain a copy of all subcontracts to be
placed in the contract file, after review and approval.
OUR EVALUATION OF FDER'S COMMENTS
The response regarding CPPC contracts, cost analysis, and
noncompetittve negotiation was not adequate to resolve these
issues and are further discussed under items A.-C. below.
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FINDINGS AND RECOMMENDATIONS (Continued)
A. Cost-Plus-Percentage-Of-Costs Contracts
The response indicated that FDER awarded the four contracts
on a cost plus fixed fee basis, although percentages were
used to establish overhead and other indirect costs.
However, since the mid 1950's, the U.S. Comptroller General
has ruled that predetermined fixed overhead percentages in
federally-funded contracts are illegal. The Comptroller
General, in interpreting the intent of Congress on the issue
of CPPC contracts in 55 Comp. Gen. 554 (B-183705, December
10, 1975), set forth an explanation of four distinguishing
elements of CPPC contracts. These elements are: (1)
payment is on a predetermined percentage rate; (2) the
predetermined percentage rate is applied to actual
performance costs; (3) contractor's entitlement is uncertain
at the time of contracting; and (4) contractor's entitlement
increases with increased performance costs.
In reviewing vouchers for payment under a CPPC subcontract,
the Comptroller General issued a strongly-worded decision
that payment should not be made under a prohibited CPPC
contract. The Comptroller General stated:
Where a subcontract (or contract) violative of the
(CPPC) prohibition is made—in whatever form or
disguise—it is plainly invalid at least insofar
as establishing an obligation of the Government to
make reimbursement of an amount representing the
subcontractor's claimed costs plus a percentage of
such costs.
More recent Comptroller General decisions have not been as
harsh to contractors as the early decisions. Contractors
are now permitted to recover a reasonable value of the goods
or services accepted by the Government based on implied
contracts for quantum > meruit or quantum valebant. The
Comptroller General has stated:
At [one] time, the position was taken that where
the [CPPC] prohibition was violated the contract
was void and no payment could. be made by the
Government for the supplies and services furnished
under it, whether by the prime contractor or by a
subcontractor However, it was
subsequently concluded that . . . under agreements
inadvertently entered into in violation of the
prohibition reasonable payment could be made for
supplies or services actually furnished to and
accepted by officers of the Government having
authority to purchase them.
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FINDINGS AND RECOMMENDATIONS (Continued)
The four contracts each contain the four elements of CPPC
contracts cited above, either percentage add-on for over-
head, fringes, general and administrative, or subcontractor
costs and field purchases. As a result, we have concluded
that these contracts are prohibited by Federal law and EPA
should not participate in reimbursement for costs incurred
under these contracts, except on the basis of fair -and
reasonable value of the services provided.
B. Cost Analyses
FDER's response indicated that acceptable cost analyses had
been prepared for each of the contracts and were maintained
in the project files. However, FDER did not provide
documentation of these analyses during our fieldwork or with
the response to our draft report. Without documentation, we
can not determine if adequate cost analyses were performed
or if the analyses indicated by FDER meet the requirements
of 40 CFR 33.290.
C. . Noncompetitive Negotiation
Sapp Battery
FDER's response indicated that the selection of the
contractor (E and E) was a reprocurement under a terminated
contract and accordingly, did not require another public
notice and evaluation process. The U.S. Comptroller General
decisions on this issue indicate that a reprocurement
following a termination of a contract for default does not
require justificationforuseof noncompetitive negotia-
tion. However, this exception is limited to cases where the
reprocurement does not exceed the scope or quantity of the
defaulted contract.
We received no documentation from FDER to indicate that the
original contract was terminated for default. In fact, E S
and E was paid $95,844 by FDEC under the original contract,
which had been amended in amount to $110,272. FDER provided
no documentation to indicate that a new contract was issued
or that FDER considered or claimed damages against E S and E
for additional costs incurred for completion of this
contract.
In addition, our review of the E and E contract disclosed
that the scope of work was substantially different from the
original contract with E S and E. The E S and E contract
was for a fast track feasibility study (original contract
amount - $95,040) and the E and E contract was for a
remedial action feasibility study (original contract amount
- $396,500). Consequently, we do not accept FDER's position
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FINDINGS AND RECOMMENDATIONS (Continued)
that the award of the E and E contract was justified on a
noncompetitive negotiation basis.
HWSI
FDER concurred that the contracting procedures were not in
conformity with Federal regulations under 40 CFR 33.605.
The remainder of FDER's response .attempted to justify the
award of the contract on a sole source basis. However, FDER
did not adequately demonstrate that the services under the
contract were available from only a single source,
competition was inadequate, or that an emergency or urgent
situation existed. Finally, FDER did not indicate that they
sought EPA award official approval. Since none of the
requirements for noncompetitive negotiation were met, we do
not consider FDER's response sufficient to resolve this
finding..
The response indicated that FDER was in agreement with our
recommendations regarding affirmative action, notices of request
for proposals, documentation, subagreement provisions and subcon-
tractor agreement, identified as items D.-H. in FDER's response
above. These proposed actions are responsive to the intent of
the recommendations and should improve compliance with Federal
regulations and help ensure that contractors submitting proposals
are fairly and uniformly evaluated. Consequently, we make no
further recommendations. However, we have not examined the
results of the proposed actions to determine if they are
functioning as stated.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 4:
A. Instruct FDER:
t
1. Not to use any element of cost-plus-percentage-of-cost
(CPPC) method in contracts awarded in the future;
2. To recover any payments in excess of the fair and
reasonable value of services rendered under the E and
E, OHM, and E S and E contracts;
3. To renegotiate the contract with IT Corp. to exclude
the CPPC provision?
4. To provide cost analyses for the E and E, IT Corp., M S
and E, and Jordan contracts;
5. To use noncompetitive negotiation only in
with Federal regulations; and
6. To provide sufficient documentation to establish the
reasonableness or fair value of services under the E
and E and Jordan contracts that were awarded
noncompetitive negotiation basis.
accordance
on
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FINDINGS AND RECOMMENDATIONS (Continued)
B. Recover the excess payments resulting from FDER's analysis
and recovery in A.2. above.
C. Participate in only the calculated amount that represents
the fair and reasonable value of services under the IT
Corp. contract, prior to FDER's renegotiation resulting from
A.3. above.
D. Participate only in those costs that are fair and reasonable
based on the cost analyses provided as a result of A. 4.
above.
E. Participate only in those costs that are fair and reasonable
based on documentation provided as a result of A.6. above.
2. COST RECOVERY NOT CREDITED TO COOPERATIVE AGREEMENT
We questioned $22,044 of cost recovery payments which were not
credited to the 62nd Street Dump and Kassouf/Kimerling coopera-
tive agreement. FDER did not follow the proper procedures when
cost reimbursement payments were received. In effect, FDER was
reimbursed twice for the same expenditures due to its handling of
recovered costs.
FDER received cost recovery payments from the Kassouf/Kimerling
site's responsible parties for reimbursement of costs claimed for
the Kassouf/Kimerling site pursuant to the July 12, 1985, Consent
Order between the State of Florida Department of Environmental
Regulation and the responsible parties. The payments, for
$20,621 and $1,423, were credited to the FDER Hazardous Waste
Fund and the Pollution Recovery Fund, respectively. The Chief of
Accounting and Budgeting stated that, until recently, it was not
determined that the recovery pertained to a Superfund agreement.
t
The December 15, 1982, EPA memorandum regarding "Treatment of
State Recoveries from Responsible Parties" from the Director of
the Office of Emergency and Remedial Response, states in part:
"In order for a site to qualify for Superfund financing, a state
that recovers money from a responsible party must apply the
recovery to the cost of the remedial action".
EPA reimbursed FDER for costs claimed which were subsequently
recovered from the responsible parties in the amount of $22,044.
Consequently, by not crediting the cooperative agreement for the
recovered costs, FDER was reimbursed twice for the same expendi-
tures. For details of questioned costs, see Exhibit G.
FDER'S COMMENTS ON FINDING
We recommended in our draft report that the Regional Administra-
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FINDINGS AND RECOMMENDATIONS (Continued)
tor, Region 4, direct FDER to ensure that EPA shares equitably in
the total cost recovery from responsible parties. The Secretary
of FDER stated in the response:
Special condition 6 of the cooperative agreement states
that neither party, to the Agreement shall attempt to
negotiate for nor collect reimbursement of any response
costs on behalf of the other party, and authority to do
so is negated and denied. Therefore, FDER's handling ,
of the cost recovery monies was appropriate.
OUR EVALUATION OF FDER'S COMMENTS
The general conditions of the cooperative agreement state that
the recipient will complete the work in accordance with all ap-
plicable provisions of 40 CFR Chapter 1, Subpart B. Section
33.275 of 40 CFR states that State and local governments must
comply with OMB Circular A-87 to determine allowable costs. OMB
Circular A-87 C.2. and 3. states:
0 To be allowable under a grant program, costs must
meet the following general criteria...Be net of
all applicable credits.
0 Applicable credits refer to those receipts or re-
duction of expenditure-type transactions which
offset or reduce expense items allocable to grants
as direct or indirect costs. Examples of such
transactions are:...recoveries ...
The special condition cited by FDER in the response does not
preclude EPA from sharing equitably in cost recoveries under the
cooperative agreement. Since the costs .recovered from the
responsible parties were funded 100Z by EPA, it seems only
reasonable that the recovered funds should be returned to EPA or
used to offset claimed costs:
RECOMMENDATIONS
We recommend the Regional Administrator, Region 4, instruct FDER
to apply the recovered costs to the costs claimed under this co-
operative agreement.
3. FRINGE BENEFIT AND INDIRECT COST RATES HAD NOT BEEN FI-
NALIZED
The fringe benefit and indirect costs incurred and claimed from
July 1, 1984 through March 31, 1986 were based upon provisional
rates approved by EPA for FDER. FDER is currently negotiating
with the Cost Policy and Rate Negotiation Section of the Planning
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FINDINGS AND RECOMMENDATIONS (Continued)
and Cost Advisory Branch of EPA to establish final fringe benefit
and indirect cost rates in accordance with OMB Circular A-87.
Allowable costs under the agreements may increase or decrease
based upon the final negotiated rate.
OMB Circular A-87 requires recipients to follow instructions es-
tablished by the Department of Health and Human Services (HHS)
for the preparation of cost allocation plans. Section II, Page
10 of the Cost Principles and Procedures for Establishing Cost
Allocation 7lans and Indirect Cost Rates for Grants and Contracts
with the Federal Government (OASC-10) prepared by HHS states that
theindirect costproposals that are submitted by the recipient
for approval, will be analyzed by the cognizant Federal agency to
determine that the method of cost distribution is reasonable, the
services provided are necessary to the successful conduct of the
Federal programs, the level of costs incurred are reasonable, and
the costs claimed are otherwise allowable in accordance with OMB
Circular A-87.
We set aside all fringe benefits and indirect costs incurred and
claimed from July 1, 1984 through March 31, 1986. The amounts
set aside are detailed below:
Set-Aside Reference
Coopcrative Agreement Fringe Indirect Cost Exhibits Notes
Cabot/Koppers $4,972 $9,412 E 2
Pioneer Sand 3,386 6,410 F 2
62nd Street Dump and
Kassouf/Kimerling 5,371 10,166 G 3
HWSI 24,797 46,938 H 3
Totals $38,526 $72,926
Region 4 and Headquarters sta"ff who comprised a Management Assis-
tance team identified a similar finding and included it in their
report, dated July 18, 1986.
FDER'S COMMENTS ON FINDING
The Secretary of FDER stated in response:
FDER concurs with the audit findings in that fringe
benefit and indirect cost rates have not been final-
ized. However, the cost rates used by FDER were
informally approved by EPA. The finalization of fringe
benefit and indirect cost rates relies on EPA's accept-
ance and approval of the State of Florida, Office of
the Auditor General's report. The Auditor General has
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FINDINGS AND RECOMMENDATIONS (Continued)
not, as of October 20, 1986, released the 1984-85
Statewide Federal Financial Assistance Audit. Dis-
cussions with the Auditor General staff indicate that
the release of this audit is still 30-60 days away.
OUR EVALUATION OF FDER'S COMMENTS
The response indicated that FDER was aware that the final fringe
benefit and indirect cost rates must be approved by EPA. We con-
cur that no further action on this matter can take place until
the Auditor General of the State of Florida releases the neces-
sary information to FDER, which should then be provided to EPA
for negotiation of final rates.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 4:
A. Instruct FDER to provide the necessary information to estab-
lish final fringe benefits and indirect cost rates for the
cooperative agreements as soon as the information is avail-
able.
B. To not close out the cooperative agreements until the final
fringe benefits and indirect cost.rates are established and
approved by EPA's Planning and:Cost Advisory Branch of the
Procurement and Contract Management Division.
4. MINOR FINDINGS - CORRECTIVE ACTION TAKEN
A. Quarterly progress reports were not filed with EPA project
officers as required by a special condition for the follow-
ing cooperative agreements:
1) Miami Drum Services
2) Whitehouse Oil Pits
• 3) Sapp Battery
4} Cabot/Koppers
5) Pioneer Sand Company
6) 62nd Street Dump and Kassouf/Kimerling
All of the aforementioned agreements contained special con-
ditions which required quarterly progress reports to be sub-
mitted to EPA project officers.
FDER project officers indicated that they had frequent tele-
phone conversations with EPA project officers in which the
types of information required by the special 'conditions were
discussed. All parties involved, including FDER and EPA
believed that this was adequate to meet the special con-
ditions .
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FINDINGS AND RECOMMENDATIONS (Continued)
Without the reports there is no assurance that EPA is re-
ceiving sufficient information from which they can properly
evaluate the performance of the State" in administering the
agreements. Bi-monthly progress reports were filed with
EPA's Director, Division of Waste Management from
approximately mid-1985 to present but not with the project
officers who handled day-to-day situations. Further, should
there be a change in either the State or EPA project offi-
cers , the quarterly progress reports would provide a means
by which the successor could quickly gain some history on
the work performed.
B. Drawdowns for the Kassouf/Kimerling and Cabot/Koppers sites
were excessive. As of March 31, 1986, expenditures were
$33,983 and $282,659, respectively; and drawdowns were
$46,011 and $303,454, respectively. The excess drawdowns
occurred when FDER was switching to the Treasury Financial
Communications System (TFCS) method. FDER was required to
estimate its cash requirements in advance since drawdowns
would not be available during the conversion period. The
actual expenditures were less than that estimated and
through an oversight the funds were not promptly reallocat-
ed. Other drawdowns were based on actual expenses already
incurred.
The Letter of Credit-Treasury Financial Communication System
Recipients Manual states in part;
The recipient organization should request funds
based on immediate disbursement requirements
whenever possible and disburse funds as soon as
possible to minimize the Federal cash on hand.
FDER agreed with this finding and indicated they would real-
locate the funds to another site or phase which was in need
of additional cash to meet disbursement requirements.
CORRECTIVE ACTION TAKEN BY FDER
The Secretary of FDER stated in response to our recommendations
that FDER is currently filing quarterly progress reports with EPA
project officers and is monitoring drawdowns to assure that they
are directly related to expenditures and are correctly allocated.
The discussed actions are responsive to the intent of the rec-
ommendations, and consequently, we make no further recommenda-
tions. However, we have not examined the results of the dis-
cussed actions to determine if they are functioning as stated.
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EXHIBITS
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EXHIBIT A
COOPERATIVE AGREEMENTS AWARDED TO THE FLORIDA
SUMMARY OF
FOR THE
DEPARTMENT OF
COSTS CLAIMED
ENVIRONMENTAL REGULATION
, ACCEPTED,
PERIOD DECEMBER 11, 1981
QUESTIONED AND
THROUGH MARCH
SET- AS IDE
31, 1986
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and
Supplies
CLAIMED
(Note 1)
$ 99,988
40,610
55,199
17,928
9,798
Contractual Services 3,656,304
Other Direct Costs
Indirect Costs
Totals
3,159
77,103
$3,960,089
ACCEPTED
(Note 2)
$ 90,819
2,084
53,305
17,928
9,798
2,263,976
3,159
4,177
$2,445,246
QUESTIONED
$ 9,169
353
1,894
-
-
555,758
-
669
$567,843
SET- AS IDE
$
38,173
-
-
-
836,570
-
72,257
$947,000
NOTES
3
, 5
6
7, 8
9, 10
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 269) through March 31,
1986.
Note 2 See Exhibits B, C, D, E, F, G and H for schedules of
costs claimed, accepted, questioned and set-aside by
cooperative agreement.
Note 3 The $9,169 questioned consists of $8,299 (Exhibit G)
and $870 (Exhibit H).
Note 4. See Exhibit H for details of the $353 questioned.
Note 5 The $38,173 set aside consists of $4,972 (Exhibit E),
$3,386 (Exhibit F), $5,371 (Exhibit G) and $24,444 (Ex-
hibit H).
Note 6 See Exhibit G for details of the $1,894 questioned.
Note 7 The $555,758 questioned consists of $203,222 (Exhibit
C), $95,844 (Exhibit D), $244,841 (Exhibit E) and
$11,851 (Exhibit G).
Note 8 The $836,570 set aside consists of $204,594 (Exhibit
D), $85,072 (Exhibit G) and $546,904 (Exhibit H).
Note 9 See Exhibit H for details of the $669 questioned.
Note 10 The $72,257 sec aside consists of $9,412 (Exhibit E) ,
$6,410 (Exhibit: F) , $10,166 (Exhibit G) and $46,269
(Exhibit H).
-31-
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EXHIBIT B
MIAMI DRUM SERVICES COOPERATIVE AGREEMENT (CX810030-01)
AWARDED TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED AND ACCEPTED
FOR THE PERIOD DECEMBER II, 1981 THROUGH MARCH 15, 1984
AMOUNT
COST CATEGORY
Travel
Materials and Supplies
Contractual Services
Other Direct Costs
Totals
CLAIMED
(Note 1)
$ 3,187
772
1,539,350
67
$1,543,376
ACCEPTED
$ 3,187
772
1,539,350
6_7
$1,543.376
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 269) through March 15,
1984.
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EXHIBIT C
WHITEHOUSE OIL PITS COOPERATIVE AGREEMENT (VOQ4472-01)
AWARDED TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED, ACCEPTED AND QUESTIONED
FOR THE PERIOD JUNE 29, 1982 THROUGH JUNE 30, 1985
AMOUNT
COST CATEGORY
Travel
Equipment
Materials and Supplies
Contractual Services
Other Direct Costs
Totals
CLAIMED ACCEPTED QUESTIONED NOTE
(Note 1)
$ 5,908
12,729
4,996
387,303
2,062
$ 5,908
12,729
4,996
184,081
2,062
$412,998 $209.776
203,222
$203,222
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 26?) through June 30,
1985.
Note 2 We questioned $203,222 because FDER awarded contracts
which contained CPPC provisions which are prohibited by
40 CFR 33.285, as detailed in Finding Number l.A and
below:
Contractor
E and E
OHM
Element of CPPC
Fixed percent add-on
for fringe benefit
(25%), overhead (55%)
and general and admin-
istrative (25%).
Fixed percent add-on
to subcontractor costs
and field purchases
(15%).
Amount
Total Questioned
$178,041
25.181
$203.222
The contractual service costs related to E and E would also have
been set aside because FDER did not properly perform a cost
analysis. See Finding Number l.B for further details.
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EXHIBIT D
SAPP BATTERY COOPERATIVE AGREEMENT (V004473-01)
AWARDED'TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED, ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIOD SEPTEMBER 1, 1982 THROUGH MARCH 31. 1986
AMOUNT
COST CATEGORY
Travel
Equipment
Materials and
Supplies
Contractual Services
Other Direct Costs
Totals
CLAIMED ACCEPTEDQUESTIONED SET-ASIDE NOTE
(Note 1)
$ 12,826
5,199
3,362
438,426
726
$ 12,826
5,199
3,362
137,988
726
$460,539 $160.101
95,844 204,594 2
$95.844 $204.594
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 269) through March 31,
1986.
Note 2 We questioned $95,844 and set aside $204,594 of
contractual services, as detailed below:
Amount
Reference
(a)
(b)
Total
Questioned
$95,844
$95.844
Set-aside
$
204,594
$204.594
(a) We questioned $95/844 of contractual costs paid and
claimed under a contract awarded to E S and E. The
contract contained a fixed percent add-on for overhead
(133.3Z), which is a CPPC provision. See Finding
Number l.A for further details.
(b) We set aside $204,594 because a noncompetitive
negotiated contract was executed between E and E and
FDER for engineering services under the Sapp Battery
cooperative agreement. The noncompetitive negotiation
method used was not in compliance with Federal regu-
lation 40 CFR 33.605.
The resulting evaluation scores from FDER's RFP, dated
September 15, 1983, for feasibility studies at both the
Whitehouse Oil Pits site and the Sapp Battery site,
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EXHIBIT D
. (CONTINUED)
SAPP BATTERY COOPERATIVE AGREEMENT (VOOA473-01)
, •!
indicated that E and E was the most qualified firm to
perform the feasibility studies for both sites. Since
E and E did not indicate the capacity to perform both
feasibility studies at one time, they were contracted
only for the Whitehouse Oil Pits site. The second
ranked firm, E S and E, was selected as the contractor
for the Sapp Battery site. On May 16, 1985, FDER sent
a'letter to E and E indicating that FDER would not be
renewing the contract with E S and E to complete the
feasibility study for the Sapp Battery site. The
letter also stated that due to E and E's original
ranking on the Sapp Battery procurement and because the
Whitehouse feasibility study was complete, E and E was
selected to complete the Sapp Battery feasibility
study.
FDER did not think it was necessary to repeat the com-
petitive negotiation procurement process because E and
E was still thought to be the most qualified firm for
the Sapp Battery site one year and eight months later.
Competition was eliminated from the procurement pro-
cess. In the time that elapsed between the original
RFP and the solicitation of E and E, there could have
been many changes in the qualifications of other firms
as well as E and E. At the exit conference, FDER offi-
cials maintained that they did not need to repeat the
procurement process. See Finding Number l.C for fur-
ther details.
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EXHIBIT E
CABOT/KOPPERS COOPERATIVE AGREEMENT (V004474-01)
AWARDED~TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED, ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIOD FEBRUARY 15> 1984 THROUGH MARCH 31, 1986
5s
'HI
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials and
Supplies
Contractual Services
Indirect Costs
Totals
CLAIMEDACCEPTEDQUESTIONEDSET-ASIDE NOTES
(Note 1)
$ 15,276
6,215
4,413
10
244,841
11.903
$15,276
1,243
4,413
10
2,491
244,841
4,972
9,412
3
2
$282.658 $23,433 $244,841 $14,384
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 269) through March 31,
1986.
Note 2 We set aside $4,972 of fringe benefits and $9,412 of
indirect costs incurred and claimed .from July 1, 1984
through March 31, 1986. The fringe benefits and
indirect costs were not based upon final approved rates
during this period as required by OMB Circular A-87.
See Finding Number 3 for further details.
Note 3 We questioned $244,841 of contractual service costs
because the contract awarded to IT Corporation
contained a fixed percent add-on for overhead (129%)
and general and administrative expenses (15.4%), which
is a prohibited CPPC provision. See Finding Number l.A
for further detail^. Additionally, we would have oth-
erwise set-aside the amount because a cost analysis was
not properly prepared or documented under a contract.
See Finding Number l.B for further details.
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EXHIBIT F
PIONEER SAND COMPANY COOPERATIVE AGREEMENT (V004475-01)
AWARDED TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED, ACCEPTED AND SET-ASIDE
FOR THE PERIOD APRIL 30, 1984 THROUGH MARCH 31, 1986
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials and Supplies
Contractual Services
Indirect Costs
Totals
CLAIMED
(Note 1)
$ 9,027
3,668
2,087
107
357,928
6,974
$379,791
ACCEPTED
$ 9,027
282
2,087
107
357,928
564
$369,995
SET-ASIDE
3,386
6,410
NOTE
$9,796
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 269) through March 31,
1986.
Note 2 We set aside $3,386 of fringe benefits and $6,410 of
indirect costs incurred and claimed from July 1, 1984
through March 31, 1986. The fringe benefits and
indirect costs were not based upon final approved rates
during this period, as required by OMB Circular A-87.
See Finding Number 3 for further details.
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. EXHIBIT G
62ND STREET DUMP AND KASSOUF/KIMERLING COOPERATIVE AGREEMENT (V004476-01)
AWARDED TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE OF COSTS CLAIMED. ACCEPTED. QUESTIONED AND SET-ASIDE
FOR THE PERIOD MAYJ5^
ED. Ql
THROUC
MARCH 31,
AMOUNT
COST CATEGORY
(Note 1)
Personnel $ 14,594 $ 6,295
Fringe Benefits 5,930 559
Travel 3,774 1,880
Materials and Supplies 89 89
Contractual Services 96,923
Indirect Costs 11,288 1,122
Totals $132,598 $ 9,945
CLAIMEDACCEPTEDQUESTIONEDSET-ASIDE NOTES
$ 8,299
1,894
11,851
5,371
85,072
10.166
$22,044 $100.609
2
3
2
2, 4
3
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report (SF 269) through March 31,
1986.
Note 2 We questioned $22,044 of project costs claimed
consisting of personnel, $8,299; travel, $1,894; and
contractual, $11,851. The amounts represent cost re-
coveries not properly credited to the Superfund
project, as required by EPA memorandum dated December
15, 1982. See Finding Number 2 for further detail.
The contractual amount of $11,851 would also have been
set aside for the reasons and criteria stated in Note
4.
Note 3 We set aside $5,371 of fringe benefits and $10,166 of
indirect costs incurred and claimed from July 1, 1984
through March 31, 1986. The fringe benefits and
indirect costs were not based upon final approved rates
during this period", as required by OMB Circular A-87.
See Finding Number 3 for further details.
Note 4 We set aside $85,072 of contractual service costs
because FDER did not properly perform a cost analysis
for the contract awarded to Mayes, Sudderth and
Etheredge, Inc. See Finding Number l.B for further
details. The amount set-aside represents total pay-
ments to date, less the amount questioned in Note 2.
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EXHIBIT H
HAZARDOUS WASTE SITE INVENTORY COOPERATIVE AGREEMENT (V004481-85),
AWARDED TO THE FLORIDA DEPARTMENT OF ENVIRONMENTAL REGULATION
SCHEDULE Of COSTS CLAIMED. ACCEPTED. QUESTIONED AND SET-ASIDE
FOR THE PERIOD JANUARY 1, 1985 THROUGH MARCH 31, 1986
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials and
Supplies
Contractual Services
Other.Direct Costs
Indirect Costs
Totals
CLAIMEDACCEPTEDQUESTIONED SET-ASIDE NOTES
(Note 1)
$ 61,091
24,797
23,004
462
591,533
304
46.938
$ 60,221
23,004
462
44,629
304
$ 870
353
669
$ - 2
24,444 2, 3
546,904 4
46,269 2, 3
$748.129 $128.620
$1,892 $617,617
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Reports (SF 269) through March 31,
1986.
Note 2 For the month of January 1985, a portion of the salary
of an FDER employee was charged to the Hazardous Waste
Site Inventory cooperative agreement due to a data en-
try error.
The questioned costs are:
Cost Classification
Personnel
Fringe Benefits
Indirect Costs
Total Questioned
Amount
$ 870
353
669
$1,892
The associated costs should be credited to the HWSI
cooperative agreement (V-004481-85) and this action re-
flected in the Financial Status Report (SF 269) under
the categories that they were originally claimed. This
was an isolated instance, and no recommendation is
deemed necessary. The fringe benefit and indirect cost
amounts of $353 and $669, respectively, would also have
been set aside for the reasons and criteria stated in
Note 3.
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EXHIBIT H
(CONTINUED)
HAZARDOUS WASTE SITE INVENTORY COOPERATIVE AGREEMENT (V004481-85) '
Note 3 We set aside $24,444 of fringe benefits and $46,269 of
indirect costs incurred and claimed from July 1, 1984
through March 31, 1986. The fringe benefits and
indirect costs were not based upon final approved rates
during this period, as required by OMB Circular A-87.
The amounts set-aside represent total claims to date
less amount questioned in Note 2 above. See Finding
Number 3 for further details.
Note 4 We set aside $546,904 of contractual -service costs
because FDER did not properly perform a cost analysis
for the contract awarded to Jordan. See Finding" Number
l.B for further details. Additionally, this amount
would otherwise have been set aside because the
contract between Jordan and FDER for preliminary
assessments and site inspections under the Hazardous
Waste Site Inventory cooperative agreement was
improperly procured using noncompetitive negotiation.
FDER indicated that the EPA project officer had given
verbal approval to use noncompetitive negotiation in
procuring the contract with Jordan, but no written
approval was obtained from the award official.
Competition was eliminated from the procurement pro-
cess. Consequently, there was'no' assurance that the
services could not have been obtained from an equally
qualified contractor at a lesser cost to the Federal
government. The EPA project officer did not have the
authority to authorize noncompetitive negotiation. See
Finding Number l.C for further details.
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EXHIBIT I
SCHEDULE OF THE LACK OF ADEQUATE PROCUREMENT DOCUMENTATION
Documentation
Requirements
Written Justifica-
tion for Selection
of the Procurement
Method
Written Justifica-
tion for the type
of subagreement
Basis for Award
cost or price,
including a copy
of the cost or
price analysis
made in accordance
with 40 CFR 33.290
Documentation of
Negotiations
Cabot/ Pioneer 62nd
Whitehouse Sapp Koppers Sand Street HWSI
X
X
X
X
X
X
X
X
X X
X
X - Indicates noncompliance with documentation requirement of 40
CFR 33.250.
-41-
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EXHIBIT J
SCHEDULE OF MODEL SUBAGREEMENT CLAUSES OMITTED OR
NOT EQUIVALENT FOR THE SUBAGREEMENTS
Required Subagreement Contractor
Clauses - 40 CFR 33.1030 E&E ES&E IT W.C.
nges X X
ruination X
ledies X X
MS&E ECJ
X
Audit; Access to Records
Covenant Against
Contingent Fees
Price Reduction
for Defective Cost
or Pricing Data
Responsibility of Contractor
X
NO
NO
NO
NO - Subagreement did not contain clause or their equivalent.
X - Subagreeraent clauses not equivalent to those required by 40
CFR 33.1030.
E&E Ecology and Environment, Inc.; Whitehouse Oil Pits coopera-
tive agreement.
ES&E Environmental Science and Engineering, Inc.; Sapp Battery
cooperative agreement.
IT IT Corporation; Cabot/Koppers cooperative agreement.
W.C. Woodward Clyde Consultants; Pioneer Sand Company cooperative
agreement.
MS&E Mayes, Sudderth and Etheredge, Inc.; 62nd Street Dump and
Kassouf/Kimerling cooperative agreement.
r
ECJ E.C. Jordan; HWSI cooperative agreement.
-42-
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APPENDIX
Auditors' Notes
1. The error has been corrected in this report.
2. We reviewed the report to determine which statements attrib-
uted to FDER personnel may have presented negative views or
might have been taken out of context. We removed any state-
ments that were not directly attributable to specific per-
sonnel as documented in our workpapers.
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APPENDIX 1
STATE OF FLORIDA
DEPARTMENT OF ENVIRONMENTAL REGULATION
TWIN TOWERS OFFICE BUILDING
26OO BLAIR STON6 ROAO
TALLAHASSEE. FLORIDA 32301-8241
BOB GRAHAM
GOVERNOR
VICTORIA J. TSCHINKEL
SECRETARY
October 27, 1986
Mr. Kenneth D. Hockman
Divisional Inspector General for Audit
Office of the Inspector General
U.S. Environmental Protection Agency
Washington, D.C. 20460
Dear Mr. Hockman:
We have enclosed our response to your draft audit report entitled: "Report of
Interim Audit of Florida Department of Environmental .Regulation's Administration
of its Superfund Cooperative Agreements With EPA Under the Comprehensive,
Environmental Response, Compensation, and Liability Act of I960."
As requested, our comments address the factual accuracy of the data presented
along with any corrective actions taken or planned.
We appreciate the opportunity to relate our comments. Should you or your staff
have any questions concerning this response, please contact Steve Dana at (904)
488-9831.
Sincerely,
Victoria J. Tschinkel
Secretary
VJT/jh
Enclosure
-43-
frotectlng Florida and Your Quality of Life
./ "
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APPENDIX 1
(CONTINUED)
Response to
Report of Final and Interim Audits of Florida Department of
Environmental Regulation's Administration of its Superfund
Cooperative Agreements with EPA under the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 For the Period December 11, 1981 through March 31, 1986
-44-
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APPENDIX 1
(CONTINUED)
NONCOMPLIAHCE WITH PROCUREMENT REQUIREMENTS
A. Cost-Plus-PercentaRe-of—Coat-Contracts
In contracting under Federal Cooperative Agreements, the Florida
Department of Environmental Regulation (FDER) does not use CPPC
contracts. Section 33.285 of 40 CFR 33, defines the prohibited cost
plus percentage of cost contracts as having a multiplier which includes
profit. In contrast, the FDER awarded the four contracts noted in the
audit report, on a cost plus fixed fee basis.
In the cost plus fixed fee contracts, the profit is established as a
fixed amount, in addition to the direct and indirect costs. This is in
accordance with EPA directives which state that with a cost plus fixed
fee subagreement, both a cost ceiling, made up of direct and indirect
costs...and a fixed contract or fee for the work, are established. The
negotiated fee schedule method used on the O.H. Materials, Inc.
contract, fixed a negotiated amount of profit to each piece of equipment
or service utilized.
As noted in the audit report, the FDER does use percentages in their
contracts as a method of establishing overhead and other indirect costs.
The use of these percentages or indirect costs rates is a common
contracting procedure due to the difficulty involved in applying actual
overhead costs to various contracts. Overhead, as explained by the
Office of Federal Procurement Policy, is a percentage used to assign a
grouping of indirect costs to a proposed contract task. In contracting,
the FDER uses the contractor's indirect cost rates which have been
audited by the federal government. The provisions of the FDER contract
allow for recovery, should these rates prove defective.
The audit report cites E.G. Jordan Company as the contractor for the Note
$25,181 Whitehouse Oil Pits contract, this is incorrect. The contractor
for the initial work was O.H. Materials, Inc.
B. Cost Analysis
As stated in the audit report^ Section 33.005 of 40 CFR 33 defines costs
analysis as the review and evaluation of each element of subagreement
cost to determine reasonableness, allocability and allowability.
Although not summarized under a separate cost analysis heading in the
files, cost analyses, which fit this definition were prepared for each
contract during the negotiation process.
The FDER conducted rigorous cost negotiations for each contract which
included various elements of the cost analysis as follows:
0 Preparation of a detailed cost estimate for site specific work for
each cooperative agreement. After review by EPA and modification
if necessary, this estimate represented the government cost
estimate for the project;
Obtaining a cost proposal, separate from a technical proposal,
from the candidate firms. This cost proposal included the OMB
approved Optional Form 60 (Contract Pricing Proposal);
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APPENDIX 1
(CONTINUED)
Page Two
0 Reviewing the submitted 'cost proposals for reasonableness and
comparing them against the government cost estimate; and
* Requesting additional cost information when necessary and
negotiating cost reduction and modifications to the scope of work.
The development of a government cost estimate, the comparision of
contractor cost proposals with that cost estimate and the requesting of
supplementary cost information when appropriate, represent a valid and
acceptable 'cost analysis. All such information is available in the
project files. The FDER is modifying procedures such that cost
analysis information will also be placed in the contract files. If
deemed necessary by the EPA, the FDER will summarize the cost analysis
information for the four cited contracts and place it under a separate
heading in the contract files.
C. Honcompetitive Negotiation
Sapp Battery
The FDER did follow proper procedures for the Sapp Battery contract as
noted below:
As noted in. EPA's Report on Management Assistance Visit to the
Florida Department of Environmental Regulation, dated July 18, 1986,
FDER used the original solicitation list to select a contractor to
complete the work under the terminated contract. A reprocureraeut is
technically a "purchase" for the terminated contractor and not a new
purchase. Therefore, FDER did not have to go through another public
notice and evaluation process.
HWSI ;
The contracting procedures were not in conformity with Federal
Regulations in the non-competitive negotiation of the contract with
E.G. Jordan Company for the Hazardous Waste Site Inventory. However,
FDER feels that competition was not eliminated and that every assurance
was made to contract with- the best qualified contractor at the least
cost. Extenuating circumstances were encountered during the
contracting period as follows: •
The Department initially contracted with E.G. Jordan Company as a
result of a Request for Proposal (RFP). EPA required additional
work to be done after a major portion of the initial project had
been completed. Specific criteria had been mandated by EPA for the
grant work and EPA had held special training seminars which were
attended by E.G. Jordan Company. For these reasons, along with the
time constraints imposed by EPA, the FDER decided to amend the
contract with Jordan to allow for the additional work. State of
Florida rules and regulations were followed .and a Sole Source
approval was obtained from the Florida Department of General
Services.
-46-
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APPENDIX 1
(CONTINUED}
Page Three
D. Affirmative Action
The FDER concurs with the audit finding in that the FDER did not comply
with 40 CFR 33.240 in regard to affirmative action. However, since July
1, 1985, FDER has taken steps to correct this problem by:
•Soliciting MBE's;
"Including evaluation criteria in all RFP's for minority responder8
and those planning to use minority subcontractors;
•Sending copies of solicitations to the appropriate minority business
programs and centers.
The FDER is now in compliance and will continue in the future to comply
with the affirmative action requirements of 40 CFR 33.240.
E. Notice of Request For Proposals
The FDER concurs with the audit finding in that the FDER was not in
compliance with the notification requirements of 40 CFR 33.295. The
FDER has since taken action to correct this ommissioa from the RFP's.
F. Documentation
The FDER's contract files contain all of the documentation required by
40 CFR 33.245 except, as noted in I.E., the cost analyses were not
summarized in the contract files during the audit period. The FDER
files do contain sufficient documentation, including the selection
committee's rating sheets, to assure that the procurement of contractors
was done in a reasonable manner and that the best contractor was awarded
the contract. The FDER has and will continue to improve the
documentation maintained in the contract files. ,
G. Subagreement Provisions
The FDER concurs with the audit finding and will in the future include
all agreement clauses in the contracts in accordance with 40 CFR
33.1030.
H. Subcontractor Agreements
The FDER did obtain subcontracts for some of the cooperative agreements,
however, the FDER concurs with the audit finding and will, in the
future, obtain a copy of all subcontracts to be placed in the contract
file, after review and approval.
2. COST RECOVERY NOT CREDITED TO COOPERATIVE AGREEMENT
For the treatment of cost recovery payments from responsible parties,
the audit report cites special condition 19 of the cooperative
agreement. However, special condition 3 of the grant award, (April 17,
1984), deleted special condition 19 from the State's grant application,
dated March 20, 1984.
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APPENDIXI
(CONTINUED)
Page Four
Special condition 6 of the cooperative agreement states that neither
party to the Agreement shall attempt to negotiate for nor collect
reimbursement of any response costs on behalf of the other party, and
authority to do so is expressly negated and denied. Therefore, the
FDER's handling of the cost recovery monies was appropriate.
3. FRINGE BENEFIT AND INDIRECT COST RATES HAD NOT BEEN FINALIZED
The FDER concurs with the audit finding in that fringe benefit and
indirect cost rates have not been finalized. However, the cost rates
used by the FDER were informally approved by EPA. The finalization of
fringe benefit and indirect cost rates relies on the EPA's acceptance
and approval of the State of Florida, Office of the Auditor General's
report. The Auditor General has not, as of October 20, 1986, released
the 1984-85 Statewide Federal Financial Assistance Audit. Discussions
with the Auditor General staff indicate that the release of this audit
is still 30-60 days away.
4. MINOR FINDINGS REQUIRING CORRECTIVE ACTION
A. Quarterly Reports
The FDER concurs with the audit finding and is currently filing
quarterly progress reports with EPA project officers as well as Senior
Management in Region 4.
B. Drawdowns
The FDER concurs with the audit finding and has reallocated the funds.
The FDER will continue to monitor the drawdowns to assure that they are
directly related to expenditures and will followup on excess drawdowns
to ensure that they are correctly allocated.
CORRECTIVE ACTION BEING TAKEN BY THE FDER
/
The FDER is taking positive steps toward the correction of many of the
minor audit findings brought out in this .report by developing a' contract
checklist. This checklist will include all contracting requirements at
both the State and Federal levels. The proper use of this checklist
will enable the FDER to comply with these requirements in an efficient
manner.
-48-
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APPENDIX 1
(CONTINUED)
Page Five
STATEMENTS BY THE FDER PERSONNEL
Throughout Che draft audit report, the auditors have used statements attributed Note 2
to the FDER personnel. All of the statements present a negative view of the
FDER's procedures or handling of various contracting requirements. We discussed
these comments with the individuals in the positions cited by the audit report.
In all instances, the FDER personnel disclaim making the statements or indicate
that the statements were taken out of context. The FDER requests that, unless
the auditors have taped or written documentation to verify the statements used
in the audit report, these statements be removed prior to release of the final
report.
-49-
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M Str^.. ,.,
DC ""30480
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