L-
                      UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                   OFFICE Or INSPECTOR GENERAL
                                        NORTMERN DIVISION


                                  TO W. JACKSON BLVD.. 4TH FLOOR
                                     CHICAGO. ILLINOIS 6O«O4
         OFFICE OF AUDIT
         312/353-2486
                                                     OFFICE OF INVESTIGATION
                                                     312/3S3-2SO7
                                          May 26, 1987
         SUBJECT:
rv
         FROM:
        TO:
          Audit Report No. P5BG7-05-0536-71225
          Interim Audit of Illinois Environmental Protection Agency's
          Administration of Its Superfund Cooperative Agreements
          with EPA Under the Comprehensive Environmental Response,
          Compensation, and Liability Act of 1980
          For The Period April 28, 1983 through March 31, 1986
          Anthony C. Carrol lo
          Divisional Inspect
          Northern Division
                                               for Audits
u
          Ivars Antens, Chief
          Grants and Financial Management Branch
          Region 5

                              SCOPE AND OBJECTIVES

An interim audit of the Illinois Environmental Protection Agency's (IEPA)
administration of its cooperative agreements with the U.S. Environmental
Protection Agency under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 has been completed.  The audit included an examina-
tion of costs claimed or reported under the referenced cooperative agreement
from the inception dates through March 31, 1986.  The audit field work and
draft report were completed on July 17, 1986 by Tichenor & Eiche, Certified
Public Accountants.  The purpose of the audit was to determine:

  0  the .adequacy, effectiveness,'and reliability of procurement, accounting,
     and management controls exercised by the IEPA in administering its
     cooperative agreements with EPA.

  0  the lEPA's compliance with provisions of the cooperative agreements and
     applicable EPA regulations.

  0  the lEPA's compliance with provisions of the Letter of Credit - Treasury
     Financial Communications System Recipients' Manual.

  0  the reasonableness, allocability, and allowability of costs claimed under
     the cooperative agreements with EPA.

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 IEPA  received provisional indirect cost rates from the EPA Planning and  Cost
 Advisory Branch, to be applied to its cooperative agreements.   IEPA revised
 the provisional Indirect cost rates and used the revised indirect  cost  rates
 in reporting Us indirect costs of $315,588.  The rates were not audited.

 The audit was performed in accordance with generally accepted auditing
 standards and the Standards for Audit of Governmental Organizations, Programs,
 Activities, and Functions (1981 revision) promulgated by the Comptroller
 General of the United States.  Accordingly, the examination included such tests
 of the accounting records and such other auditing procedures as we considered
 necessary in the circumstances.

                              SUMMARY OF FINDINGS

 EPA waived the cost-sharing requirements for remedial planning activities to
 be conducted under its cooperative agreements with IEPA.  However, IEPA has
 chosen to contribute ten percent of the costs of the approved remedial  planning
 activities.  EPA has agreed to apply lEPA's allowable expenditures toward any
 future state cost-sharing responsibilities for remedial actions.

 In our opinion, subject to the resolution of the questioned and set-aside costs
 summarized below and presented in Exhibits A-l and A-2 of the attached report
 the accepted amounts fairly present the reasonable, allocable, and allowable
 costs in accordance with the provisions of the cooperative agreement.
                          Claimed
                Total

        Federal Share

     Amount Available
     For Future Cost-
     Sharing
            Accepted

            $218,756
$290.511    	

$263.180   $198.600
 $ 27,331   $ 20,156     $  102
Set-Aside

 $70.731

 $63,658



 $ 7,073
In addition to lEPA's claimed costs, IEPA reported expenditures that were not
yet claimed on its Financial Status Reports, for the period April 29, 1983
through March 31, 1986.
                Total

        Federal Share

     Amount Available
     For Future Cost-
     Sharing
 Reported'   Accepted   Questioned   Set-Aside

11.422.852   $913.393     $1.024     $508.435

$1.329.662   $862.581     $  922     $466.159
$  93,190    $50,812     $  102     $ 42,276
This report questions claimed  and  reported  Federal  costs  of  $922  and  $922,
respectively.  The questioned  costs  represent  equipment purchased by  IEPA
that did not have prior approval.
                                       -2-

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 This  report  sets  aside  claimed and reported Federal costs of $63,658 and
 $466,159,  respectively.  The  set aside costs represent contract costs where
 procurement  procedures  used by the IEPA did not provide assurance that the
 best  offerers  were  awarded contracts or that awarded contracts were fair and
 reasonable.  The  procedures used in awarding 12 of the 13 contracts under the
 cooperative  agreements  were not in compliance with all requirements of Federal
 regulations  contained in 40 CFR Part 33.

 Audited  costs  are defined as  the total project costs claimed by the state.
 Questioned costs  are costs claimed or incurred that we have concluded should
 not be reimbursed by EPA or incurred as part of project eligible costs because
 they  are not allowable  under  the provisions of applicable laws, regulations,
 policies, cost  principles, or terms of the cooperative agreement or contract.
 Set-aside costs are costs which cannot be accepted without additional informa-
 tion  or  evaluations and approvals by responsible Agency program officials.

 Recommendation

 We recommend that Region 5:

  1.  Reduce the  amount available to IEPA for future remedial actions by $922
      for claimed costs and by $922 if reported costs are claimed.

  2.  Determine the allowability of the Federal share set aside of $63,658  in
      claimed costs and $466,159 in reported costs if those costs are claimed.

  3.  Review and  approve Federal procurement actions initiated by IEPA until
      the IEPA procurement system is fully in compliance with 40 CFR Part 33.

  4.  Require the IEPA to submit a copy of its new Division of Land Pollution
      Control procedures manual to ensure that the manual incorporates all
      Federal requirements.

 IEPA provided formal written  comments on the draft report in a letter dated
March 19, 1987.   In Its response, IEPA disagreed with the equipment costs
questioned because the  items  purchased, four filter stands, were essential  for
 remedial  investigations.  IEPA also disagreed with the set-aside amounts of
$63,658  and $466,159 for poor procurement practices because it claims in all
 instances that IEPA procured  professional services with adequate competition
and evaluation from the lowest qualified proposer.

To provide a balanced understanding of the issues, we have presented MDNR's
position and our  comments at  the appropriate sections in the report.
Additionally, a copy of the entire response has been previously provided.

                                ACTION REQUIRED

 In accordance with EPA Order  2750, the action official  is  required  to issue
 recommendations in this report within 150 days of the audit report  date.  Where
 the action official considers a position on the audit findings that differs
 from our recommendations, we  would appreciate the opportunity to discuss manage-
ment's position before  the determination is issued to IEPA.  A copy of  the
                                       -3-

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final determination should be provided to our  office  when  issued.  We have no
objection to the release of this report at your discretion.   Should  you  have
any questions, please contact Kay Hudson.

Enclosures

Distribution:

 Chief, Grants and Financial  Management Branch (5)
  (Responsible for distribution to auditee)
 Director, Grants Administration Division (PM-216)
 Chief, Superfund Accounting Branch,
   Financial Management Division (PM-226)
 Chief, State and Regional Coordination Branch,
   Headquarters Hazardous Site Control Division (WH-548E)
 Chief, Grants Policy and Procedures Branch,
   Grants Administration Division (PM-216)

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0100
                       REPORT OF  INTERIM AUDIT OF
               ILLINOIS ENVIRONMENTAL  PROTECTION AGENCY'S
              ADMINISTRATION OF ITS SUPERFUND  COOPERATIVE
              AGREEMENTS  WITH EPA UNDER THE COMPREHENSIVE
                 ENVIRONMENTAL RESPONSE, COMPENSATION,
                       AND  LIABILITY ACT OF 1980
         FOR THE  PERIOD APRIL  28,  1983 THROUGH MARCH 31,  1986
                               HEADQUARTERS UBRART
                               ENVIRONMENTAL PROTECTION AGENCY
                               WASHINGTON, D.C. 20460
   ac.

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                         TABLE OF CONTENTS
SCOPE AND OBJECTIVES

SUMMARY OF FINDINGS

BACKGROUND

AUDITORS' REPORT ON COOPERATIVE AGREEMENTS
 V-005781-01, V-005780-01, V-005782-01, V-005779-01,
 V-005783-01 and V-005792-01 AWARDED TO THE ILLINOIS
 ENVIRONMENTAL PROTECTION AGENCY

AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
 AND COMPLIANCE

FINDINGS AND RECOMMENDATIONS

1 -  STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS
     IMPROVEMENT

2 -  CONTROLS OVER NONEXPENDABLE PERSONAL PROPERTY
     NEED STRENGTHENING

3 -  MINOR FINDINGS - CORRECTIVE ACTION REQUIRED
EXHIBIT A-l -
EXHIBIT A-2 -
EXHIBIT B-l -
COOPERATIVE AGREEMENTS AWARDED TO THE
ILLINOIS ENVIRONMENTAL PROTECTION AGENCY
SUMMARY OF COSTS CLAIMED, ACCEPTED, QUEST-
IONED AND SET-ASIDE FOR THE PERIODS
INDICATED IN NOTE 1

COOPERATIVE AGREEMENTS AWARDED TO THE
ILLINOIS ENVIRONMENTAL PROTECTION AGENCY
SUMMARY OF COSTS REPORTED, ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE PERIODS
INDICATED IN NOTE 1

BYRON SALVAGE YARD, ILLINOIS COOPERATIVE
AGREEMENT AWARDED TO THE ILLINOIS ENVIRON-
MENTAL PROTECTION AGENCY SCHEDULE OF COSTS
CLAIMED, ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIODS INDICATED IN NOTE 1
                                              Page

                                                1

                                                5

                                                6




                                               13


                                               15




                                               17


                                               26

                                               29
                                                              32
                                                              33
                                                              34

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                  TABLE OF CONTENTS (Continued)
EXHIBIT G-2 -
EXHIBIT H -
MULTI-SITE COOPERATIVE AGREEMENT AWARDED TO
THE ILLINOIS ENVIRONMENTAL PROTECTION AGENCY
SCHEDULE OF COSTS REPORTED, ACCEPTED AND
SET-ASIDE FOR THE PERIOD SEPTEMBER 29, 1984
THROUGH MARCH 31, 1986                         44

SCHEDULE OF COMPLIANCE WITH FEDERAL PRO-
CUREMENT REGULATIONS BY COOPERATIVE
AGREEMENT AND CONTRACT FOR THE PERIOD
APRIL 28, 1983 THROUGH MARCH 31, 1986          45
APPENDIX I -
ILLINOIS ENVIRONMENTAL PROTECTION AGENCY
RESPONSE TO DRAFT AUDIT REPORT
                                                              46

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                   REPORT OF INTERIM AUDIT OF
           ILLINOIS  ENVIRONMENTAL  PROTECTION  AGENCY'S
          ADMINISTRATION OF ITS SUPERFUND COOPERATIVE
          AGREEMENTS WITH EPA UNDER THE COMPREHENSIVE
             ENVIRONMENTAL RESPONSE, COMPENSATION,
                   AND LIABILITY ACT OF 1980
      FOR THE  PERIOD APRIL  28,  1983 THROUGH  MARCH  31,  1986
SCOPE AND OBJECTIVES

We  performed an  interim  audit  of  the  Illinois  Environmental
Protection  Agency's  (IEPA)  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   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 allowabil-
    ity of  the  costs  claimed or  reported under the cooperative
    agreements with  EPA.

Specifically,  our   audit   covered  the   following  cooperative
agreements:  Byron  Salvage Yard,  Illinois; Cross Brothers; ACME
Solvent  Reclaiming;  A  &   F  Materials,  Greenup,   Illinois;  La
Salle   Electrical    Utilities;    and   Multi-site   (Belvidere
Municipal    Landfill,  Peterson   Sand   &  Gravel,   Pagel's  Pit,
Sheffield/U.S.  Ecology,  Wauconda  Sand  &  Gravel,  Waukegan/OMC,
Velsicol Chemical Corporation and Preliminary  Assessments/Site
Inspections).   The  audit included   an  examination  of  costs
claimed or  reported under  the. referenced  cooperative agreements
from inception through March  31,  1986.

Our  audit  was performed  in accordance  with  generally  accepted
auditing standards  and the financial  and compliance provisions
of  the  Standards   for  Audit  of Governmental  Organizations,
Programs, Activities,  and  Functions (1981 revision)  promulgated
by  the  Comptroller  General of  the United States.   Accordingly,
the  examination  included  such  tests   of  the  accounting records
and such  other  auditing   procedures  as  we considered  necessary
in  the circumstances.
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FINANCIAL RESULTS OF AUDIT (Continued)
                         	AMOUNT
COOPERATIVE AGREEMENT     CLAIMED  ACCEPTED QUESTIONED SET-ASIDE

Byron Salvage Yard,
 Illinois                $159,512  $ 88,269  $  512    $ 70,731

Cross Brothers             27,619    27,619

ACME Solvent Reclaiming      -

A & F Materials,
 Greenup, Illinois         86,184    85,672     512

La Salle Electrical
 Utilities                   -

Multi-site (Belvidere
 Municipal Landfill,
 Peterson Sand & Gravel,
 Pagel's Pit, Sheffield/
 U.S. Ecology, Wauconda
 Sand & Gravel, waukegan/
 OMC, and Velsicol
 Chemical Corporation)     17,196    17,196    -           -
    Totals               $290,511  $218,756  $1,024    $70,731

Less:
 Federal Share           $263,180  $198,600  $  922    $ 63,658

Amount Available For
 Future State Cost-
 Sharing Responsibili-
 ties For Remedial
 Actions                 $ 27,331  $ 20,156' $  102    $  7,073
Summarized  below   are  the  costs   accepted,   questioned   and
set-aside  for  the  amounts  reported  by  IEPA  on  its  monthly
expenditure  worksheets  that   were   not   yet   claimed  on  the
Financial Status Reports (SF-269)  for the  period from April 28,
1983 through March  31, 1986:

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SUMMARY OF FINDINGS


1.  STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT

    The procedures used  by  the Illinois Environmental Protection
    Agency  (IEPA)  in awarding  twelve  of the  thirteen contracts
    under the  Superfund  cooperative agreements were  not  in com-
    pliance with all  applicable requirements  of  the Federal reg-
    ulations  contained   in  40  CFR  Part  33.   In  addition,  IEPA
    maintained contract  files  that  did  not  contain all the docu-
    mentation  required   by  40  CFR  33.250.   IEPA  certified that
    its  procurement  system  was in compliance  with 40 CFR Part
    33, but State  regulations  cited in  the  certification  did not
    meet  the  intent  of  the   applicable  requirements  of  the
    Federal regulations;  and IEPA  did  not establish written pro-
    cedures which  would   incorporate the requirements of  40 CFR
    Part  33  into its procurement  system.   Thus,  the procurement
    procedures  used  by  IEPA  did  not   provide  assurance  to EPA
    that  the  best offerors  were awarded contracts  or  that con-
    tracts  awarded were  fair  and  reasonable.   We  have,   there-
    fore,  set-aside  contractual costs  claimed  of  $70,731 and
    contractual  costs reported of  $508,435.

2.  CONTROLS OVER  NONEXPENDABLE PERSONAL PROPERTY  NEED
    STRENGTHENING

    IEPA  management  did  not  enforce property control procedures
    issued  by the  State's  Central Management  Services  and  by
    lEPA's  internal  property management personnel.  Federal reg-
    ulation 40 CFR  30.531 requires recipients to maintain  accur-
    ate  property  records,  which  include  the location,  use and
    condition  of the property.  The regulation  also  requires  a
    control  system to be  maintained to  prevent  loss,  damage or
    theft.  Property  records maintained by  IEPA were not  period-
    ically  updated   to   reflect  transfers  of  property.   The
    records also did  not give the specific location of the  prop-
    erty.   Unused  property  was kept in a storeroom to which sev-
    eral  people  had  keys.   Personnel did not always follow  sign-
    out  procedures when  withdrawing property  from the storeroom
    for  use.   Due to the  weaknesses noted  in  the property con-
    trol  system, we  were unable  to locate  $1,311 of Superfund
    property.   The  total cost of  property  acquired  under  the
    Superfund  cooperative  agreements   was  $61,985.   Failure  to
    correct, these weaknesses  exposes  all  property  acquired  to
    the  risk of  loss, misuse or misappropriation.

IEPA'5 COMMENTS  ON FINDINGS  AND EVALUATION

An exit  conference  was  held with IEPA officials on July 17, 1986
and  with Region  5  officials  on July  18,  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
IEPA  and  Region  5 management.   At  the  conferences  and during  the
course of the  audit,   IEPA  and Region  5 officials discussed their


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BACKGROUND (Continued)
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.

IEPA is the designated State Agency  for  identifying  and ranking
sites which pose a  risk  to  the  public  or  the  environment,  and
performance  of  remedial  investigation,  design,  and cleanup  at
hazardous waste  sites.   During  our audit,  IEPA  was actively  in-
volved in six cooperative agreements with EPA.


Byron Salvage Yard, Illinois
                •
The  Byron  Salvage  Company  hazardous  waste  site covers  about 20
acres and  is located  four  miles  southwest of the  Town  of Byron
in  Ogle County,  Illinois.    Pollution  resulted from  waste dis-
posal activities at the salvage yard.   It was found that cyanide-
contaminated  waste was  sprayed  on  the  salvage  yard  roads  and
that waste  materials  were  buried throughout the  site.   Because
of  the  threat to public water-  supplies  and the environment,  EPA
awarded a  cooperative agreement  to complete a  Remedial Investi-
gation  and  Feasibility Study (RI/FS)  at  the site.  Cooperative
Agreement No, V005781-01 was awarded  on  April 28,  198r3  to  the
Illinois  Environmental Protection Agency under CERCLA  providing
for  90  percent  Federal  and 10  percent State cost  sharing  for a
RI/FS with  a maximum Federal share of $271,275.  As of March 31,
1986, the project was  approximately 79  percent complete.


CrossBrothers

The  Cross  Brothers  hazardous  waste  site  is  located  10  miles
southeast  of Kankakee  County,  Illinois.   The  10  acre  site  was
used  for  an operation  in  which barrels  and  pails containing
residual  paints,  ink  solvents  and  adhesives were collected from
the  Chicago area and brought in  for  reclamation.   The method of
operation  was  to  invert  the containers,  allow them  to  drain,
pour waste  solvents  into  and over them  and  then  ignite them in
order to  burn out  any residues.   Because  there was  a threat to
public  water supplies developed  from  the  nearby  private wells
and  the underlying aquifer,  EPA  awarded a  cooperative  agreement
for  a  RI/FS.   Cooperative  Agreement No.  V005780-01  was  awarded
on  May  4,  1983  to the  Illinois  Environmental  Protection  Agency
under  CERCLA providing  for  90  percent  Federal and  10 percent
State cost  sharing for a RI/FS  with  a  maximum   Federal share of
$765,784.   As of March  31,  1986,  the  project  was  approximately
22  percent  complete.


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BACKGROUND (Continued)

Multi-site Cooperative Agreement

1-  Belvidere Municipal Landfill

    The Belvidere Municipal Landfill hazardous waste  site  is lo-
    cated  near  Belvidere in  Boone County,  Illinois.   Operation
    began  in  1939 and  reportedly  received only  municipal  waste
    until 1965.  After  1965,  a  variety  of  industrial  wastes were
    accepted  for  disposal  until  the  site was  closed in  1973.
    Because  of  the  threat  of  possible contamination  to  ground
    water  and  a nearby  river,  EPA awarded  a  cooperative  agree-
    ment to  perform  a Ri/FS at the site.  The Belvidere site  is
    part  of  Multi-site  Cooperative  Agreement  No.   V005792-01
    awarded  on  September 29,  1984  to  the  Illinois Environmental
    Protection  Agency under  CERCLA which  provided for  100 per-
    cent  Federal  participation  for  a  Ri/FS  with  a  maximum
    Federal  share of  $630,889 at  this site.   As of  March 31,
    1986, the project was approximately 22 percent complete.

2.  Peterson Sand & Gravel

    The  Peterson  Sand  & Gravel  site  is  located  near Liberty-
    ville, Illinois  in  Lake  County.  The  site is  a  former sand
    and gravel  pit  that was  used  as  a disposal  area  for   refuse
    and  hazardous waste  including paint, waste paint  and sol-
    vents.   Several  removals  have occurred  at  the   site.   In
    1977,  400 drums  of hazardous  waste  were  removed.  A sub-
    sequent  removal  in  1983  removed  several hundred  more  drums
    from  the site.   Because  the   possibility  exists  that more
    drums and contaminated  soil remain at the  site,  EPA awarded
    a   cooperative   agreement  to  the  Illinois  Environmental
    Protection  Agency  under  CERCLA,   to  provide  for  remedial
    investigation at  this  site.  Peterson Sand  &  Gravel  is part
    of  Multi-site Cooperative Agreement No.V005792-01.awarded on
    September'  29,  1984  which  provided  for  100  percent  Federal
    participation  for   remedial   investigation  with   a  maximum
    Federal  share of  $432,771 at  this site.   As of  March 31,
    1986, the project was approximately nine percent complete.

3.  Pagel's Pit

    The  Pagel's  Pit  facility  is located  near   Morristown  in
    winnebago County, Illinois  approximately five miles south of
    Rockford.   The  site is an  operating  disposal facility which
    has had  applicable  permits issued for operation.    Evaluation
    of  the  ground water  samples  indicates  contamination  of the
    aquifer.  Because of  the  threat to public  water supplies and
    the environment,  EPA awarded  a cooperative  agreement   to the
    Illinois  Environmental  Protection  Agency  under   CERCLA,  to
    provide  for  remedial  investigation  at  this  site.  Pagel's
    Pit   is   part   of   Multi-site  Cooperative   Agreement  No.
    V005792-01  awarded  on September 29,  1984  which provided for
    100 percent Federal participation for remedial investigation

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.
            BACKGROUND  (Continued)


                board  Marine Corporation discharged  a  substantial amount of
                PCB's   into  Waukegan  Harbor  and  the  north  ditch  of  Lake
                Michigan,   EPA has taken the  lead  on this National  Priority
                List  (NPL)  site  and had  a  RI/FS completed  in  the  fall of
                1983.   EPA  awarded  a  cooperative agreement  to the  Illinois
                Environmental  Protection Agency under CERCLA,  to  provide for
                management   assistance    at    this    federal-lead    site.
                waukegan/OMC is  part of Multi-site Cooperative Agreement No.
                V005792-01 awarded on September  29,  1984 which provided for
                100  percent  Federal  participation  with  a  maximum  Federal
                share  of $30,020  for  management  assistance at this  federal-
                lead  site.  As of March 31,  1986,  the  project was  approxi-
                mately  19  percent  complete.

            7.  Velsicol Chemical  Corporation

                Velsicol   Chemical  Corporation  has  operated  a  plant  at
                Marshall,  Illinois since 1983 that has  manufactured  agricul-
                tural  chemicals  and resins.   Chlordane is a major  product at
                this  facility and  currently is the  only product.   Over the
                years/  organic wastes  have been placed in various  lagoons on
                site.   These  lagoons  have  overflowed  into  a nearby stream
                during  periods  of high  rainfall.   The  largest   lagoon  (the
                5/6  pond)  has solidified.   Areas  of concern  include ground-
                water,  soil, sediment, surface water, and  air contamination.
                Velsicol  owns approximately 420 acres  at this site  with the
                plant  portion  of  this  property  occupying  approximately 86
                acres.   Because of  the  threat to  public water supplies and
                the  environment, EPA  awarded  a cooperative agreement to the
                Illinois   Environmental  Protection  Agency under  CERCLA, to
                provide for  remedial  investigation  at  this   site.   Velsicol
                Chemical  Corporation  is part  of  the Multi-site  Cooperative
                Agreement  No.  V005792-01 awarded on September  29,  1984 which
                provided' for 100  percent  Federal  participation  for  remedial
                investigation with  a  maximum  Federal   share  of   $729,887 at
                this  site.  As  of  March 31,  1986,  the project was  approxi-
                mately  11  percent  complete.

            8.  Preliminary Assessment/Site  Inspection

                An  amendment  to  the  Multi-site  cooperative  agreement  was
                awarded by EPA   to  the  Illinois  Environmental  Protection
                Agency  under  CERCLA  to  perform  Preliminary  Assessments and
                Site  Inspections on approximately 400 sites  remaining on the
                inventory   of  reported  sites.   The  purpose   of  preliminary
                assessments  is  to  gather  site   information   concerning  the
                nature  and  quantity  of hazardous  materials, determine  the
                possibility of  exposure  and  determine  the   affected  target
                population  and  environment.   Site inspections are performed
                on  all  hazardous  waste sites  that are determined  through
                preliminary assessments  to  require  an   inspection.   The  site
                inspection phase entails  interviewing   employees  and owners;


                                          -11-

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  _t    TICHENOR & EICHE	
   ,   CERTIFIED PUBLIC ACCOUNTANTS            ~~~                   	—
  J                                                THE SUMMIT, SUITE 200
                                                   4350 BROWNSBORO ROAD
                                                   LOUISVILLE. KENTUCKY 40207
                                                   (502) 89J-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 COOPERATIVE AGREEMENTS V005781-Q1.
       V005780-01, VOOS782-01, V005779-01, V005783-01 AND
               V005792-01 AWARDED TO THE ILLINOIS
                ENVIRONMENTAL PROTECTION  AGENCY
We  have examined  the expenditures  claimed or  reported by  the
Illinois- Environmental Protection Agency  (IEPA)  related to  the
Byron  Salvage Yard,  Cross  Brothers,  ACME Solvent  Reclaiming,  A
&  P Materials,  La  Salle  Electrical Utilities  and  Multi-site
cpoperative  agreements  for April  28,  1983  through  March  31,
1986,   as  detailed  in  Exhibit  A-l  and  Exhibit   A-2.    Our
examination  was  performed in accordance with  generally  accepted
auditing standards and the  Standards for Audit  of Governmental
Qrganizajbijging^   Programs,   Activities   and   Functions'   (1981
Revision).Accordingly,  our examination included  such  tests of
the accounting  records and such other auditing procedures  as we
considered necessary  in  the circumstances.

The Summaries of Costs  Claimed/Reported  (Exhibits A-l  and A-2)
were   prepared   on   the   basis  of   regulations   and  criteria
established   by   the  U.S.   Environmental   Protection   Agency
relating  to hazardous   waste   disposal   cooperative  agreement
projects pursuant  to  Public  Law 96-510.   Accordingly,  Exhibits
A-l and A-2  are not  intended  to present financial position  and
results of  operations  in  conformity with  generally  accepted
accounting principles.

IEPA   received  provisional  indirect  cost  rates  from  the  EPA
Planning and Cost  Advisory  Branch,  the cognizant  agency,  to be
applied to  its EPA   cooperative  agreements.   The  provisional
rates,  which were  not audited  by  us, were established  to  allow
the  obligation  and   payment   of  funds  to  IEPA  until  actual
indirect costs  are determined  and a final rate  is  negotiated.
As  of  the  date  of  our audit, the EPA Planning and Cost  Advisory
Branch  had   not  approved  the  revised   indirect  cost  rates
submitted  by IEPA.   IEPA  used  the  revised  indirect  cost rates,
which  were  not  audited by  us,  in reporting its  indirect costs.
Total  indirect   costs claimed or reported by IEPA  was  $315,588.


                              -13-

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       TICHENOR & EICHE
                                                   THE SUMMIT, SUITE 200
                                                   4350 BROWNSBORO ROAD
                                                   LOUISVILLE. KENTUCKY 40207
                                                   (502) 89J-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  or   reported   by
Illinois  Environmental   Protection  Agency  (IEPA),  for  pre-
remedial and  remedial  .work under  the  Byron Salvage Yard,  Cross
Brothers, ACME  Solvent  Reclaiming, A  &  F Materials,  La  Salle
Electrical Utilities,  and Multi-site cooperative agreements  for
April 28,  1983  through  March  31,   1986,  as detailed in  Exhibit
A-l  and   Exhibit  A-2.    Our   examination  was  performed   in
accordance with  generally  accepted auditing  standards  and  the
financial and  compliance provisions of the Standards for  Audit
of   Governmental   Organizations,   Programs,   Activities,    and
Functions (1981  revision).   Solely to  assist us in  planning  and
performing our  examination, we  made a study  and evaluation  of
the  significant  internal accounting controls  of  IEPA.   For  the
purpose  of  this  report,  we  have  classified  the  significant
internal accounting controls into  the  following categories:

          o Disbursements
          o Payroll
          o Contractor procurement
          o Contractor performance and  billings
          o Cash management (letter of  credit  system)
          o 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  envi-
ronment  and  the  flow  of  transactions through  the accounting
system.  Because  the audit could  be performed more  efficiently
through  additional  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   accordance with  the standards
mentioned above,  would  not necessarily  disclose  all   material


                              -15-

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FINDINGS AND RECOMMENDATIONS
1.  STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT

    The procedures  used by  the Illinois  Environmental  Protec-
    tion Agency  (IEPA)  in  awarding twelve of the  thirteen con-
    tracts under  the  Superfund cooperative agreements  were  not
    in compliance with  all applicable requirements of  the Fed-
    eral regulations contained  in  40  CFR  Part  33.   In addition,
    IEPA maintained contract files  that did not  contain all  the
    documentation required by  40  CFR  33.250.   IEPA  certified
    that its  procurement  system was  in  compliance with  40  CFR
    Part 33,  but State  regulations cited in  the  certification
    did not  meet  the  applicable   requirements  of the  Federal
    regulations;  and  IEPA  did  not  establish  written  procedures
    which would  incorporate  the requirements  of 40 CFR Part 33
    into its  procurement system.  Thus,  the  procurement proce-
    dures used  by IEPA  did  not provide  assurance to  EPA that
    the best  offerers  were awarded contracts or that contracts
    awarded were  fair and  reasonable.  We have,  therefore, set-
    aside contractual  costs  claimed of $70,731  and contractual
    costs reported of $508,435.


    We  reviewed  all  thirteen  contracts  procured  under  the
    Superfund cooperative  agreements.   As of  March  31,  1986,
    contract  obligations  totaled  $2,849,551  and  payments made
    on the contracts totaled $609,113.  The deficiencies in  the
    procurement system are detailed below.


    A. Cost Analysis

       A cost analysis  was required for  eleven contracts  repre-
       senting  obligations totaling  $2,633,351.   IEPA  did  not
       perform a  cost  analysis for any of  the  eleven contracts
       or for any negotiated change orders.   Federal regulation
       40 CFR 33.290  requires  recipients to conduct  a cost  an-
       alysis on  all  negotiated  change  orders  and  all negoti-
       ated subagreements  in excess of $10,000.   Cost analysis
       is defined in 40  CFR  33.005(b)  as  "the review and  evalu-
       ation of  each  element of  subagreement  cost to determine
       reasonableness,   allocability,   and allowability".   IEPA
       management  stated  that   it  evaluated   proposals on  the
       basis of  technical  criteria  alone because  so  few  firms
       were willing  to  agree   to  the indemnity  clause of  its
       contracts.  However,  the  importance of  a  properly con-
       ducted  cost  analysis   is   heightened,  not  diminished,
       under  the  conditions  of  decreased competition  resulting
       from fewer interested  contractors.  Since  a  cost  anal-
       ysis was not performed  on the  contracts  awarded, we were
       unable  to determine  whether  negotiated contract  costs
       were reasonable,  allowable,  or allocable.


                             -17-

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_
           FINDINGS  AND  RECOMMENDATIONS  (Continued)
                   ron  Salvage  and  Western,   Inc.   for  Belvidere)   were
                   awarded  based upon both  technical  and pricing criteria.
                   Proposals   received   were  ranked   based   upon  technical
                   evaluation  scores.   Then the total award proposed by  the
                   offerers were compared.   If  two proposals received sim-
                   ilar   technical  scores  and  one  proposal  had  a   lower
                   price,  the proposal  with the  lower  price would  be sel-
                   ected,   even   if   the  proposal  had   a  lower  technical
                   score.   Meaningful  negotiations were  not  held with  the
                   best  qualified offerers,  best  and final offers were  not
                   obtained,  and no  further  pricing  negotiations were per-
                   formed.   Additionally,  the request for proposals did  not
                   state  that  the  award   may  be  based  on  initial  offers
                   alone,  as required by  40  CFR 33.520  (a).  Without  mean-
                   ingful negotiation  with the best  qualified offerers  or
                   performance of further pricing  negotiations,  IEPA  cannot
                   assure EPA that  the  best offer or  was awarded the con-
                   tracts.
                C.  Requests for Proposals

                   Requests for proposal  documents  did not contain  all  the
                   required information as specified  in  the  Federal  regula-
                   tions.  We noted  the following deficiencies  in  the  docu-
                   ments:

                   1.  None of  the  public notices of  requests  for  proposals
                      stated how  to obtain associated documents,  including
                      a copy  of 40  CFR 33.295,  Subparts  F and  G  and  the
                      basis for  subagreement  award  as  required  by 40  CFR
                      33.510{b).

                   2.  None  of  the  requests  for proposals  identified  the
                      relative importance  attached  to each  evaluation  cri-
                      teria [40 CFR 33.510(c) ].

                   The  State's procurement   regulations  detailed  require-
                   ments  for  requests  for  bids.  These  requirements  were:
                   an  advertisement  for  bid  must  be  published  at  least
                   three times  in  the official  newspaper of the  state,  so-
                   licitation for bids  must  be in conformance  with accepted
                   business practices and the method of  that solicitation
                   must be set out  in detail.   No further requirements were
                   included for requests  for  proposals which  met  the intent
                   of the Federal regulations.

                   Without  the required  information  detailed above,  IEPA
                   cannot assure EPA  that all  offerers were  fairly and uni-
                   formly  evaluated  with  established   criteria   or  assure
                   that the most qualified and best offerer was selected.


                                          -19-

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FINDINGS AND RECOMMENDATIONS (Continued)
       fair share  of  contracts were awarded  to  small,  minority
       and  women's  businesses.   IEPA  personnel  stated  that
       requests  for  proposals were sent  to  the  State's  Office
       of Minority  Businesses, and provided  us  with copies  of
       letters to  support  their action on  one  procurement.   No
       documentation was provided for any other procurements.

    E. Contract File Documentation

       Contract  files  maintained  by  IEPA  did  not  contain  all
       the  documentation  required by  40  CFR 33.250.   In addi-
       tion/  the  files  did  not  include  documentation  of  the
       contract  procurement  procedures.   Due  to  the  lack  of
       documentation,  we  are  unable  to  determine  whether  the
       contract  procurement process  was  properly  conducted  or
       .that contracts were  awarded fairly.

       Our  review  indicated that  none  of  the contract files in-
       cluded:

       1.  Written  justification  for  the   procurement  method
            used.

       2.  Written  justification  for the type  of contract exe-
            cuted.

       3.   Details  of  contract negotiations, including cost ne-
            gotiations with  architectural  firms.

       4.   Basis for award  cost or price.

       Without   the  documentation   listed   above,   IEPA  cannot
       assure  EPA  that  the  most effective  procurement method
       was  used,  that  the  type of  contract executed was proper
       in  the circumstances,  or  that  the  contract awarded was
       fair and  reasonable.

       We  also determined  that  certain  contract  files did not
       contain:

       1.   Evaluations  of  proposals  r^^eived,  which  would in-
            clude  the   evaluator's   scc.e  sheets.  - (Donohue   &
            Associates  for   Byron  Salvage  and  D'Appolonia for
            both  Byron  Salvage and Cross Brothers.)

       2.   Copies  of public notices  for  request  for  proposals
            or    request   for   statements   of   qualifications.
            (D'Appolonia  for Cross Brothers;  and Black &  Veatch
            for La  Salle Electric.)

       These  two  items  are not  specified  in 40 CFR  33.250  as
       required  documentation for  contract files.    Yet  without


                               -21-

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FINDINGS AND RECOMMENDATIONS (Continued)
           Superfund  cooperative  agreements.   After the  clause
           was  adapted,  however,   it  was  not  equivalent  to  the
           specified  clause.   The  adapted  clause  limits  the
           right  of  access  to  financial  records  for  change
           orders or  contract amendments  in excess  of  $10,000,
           instead of  the  right of  access to  financial  records
           for all change orders or contract amendments;  and

       4.  All  of  the subcontracts  executed by Superfund  coop-
           erative agreement  contractors  were  lacking in  one  or
           more of the required subagreement clauses required  bv
           40 CFR Part 33.                                       *
       Without  the  inclusion  of all  the  required  subagreement
       clauses  in  both contracts  and subcontracts,  IEPA  cannot
       assure EPA that the best  interests  of  the Government were
       protected.
    Since  lEPA's  contract  procurement  system did  not meet  all
    the requirements  of  40 CFR  Part  33,  and contract  files  did
    not contain all the  required  documentation,  we  are unable to
    determine  whether  contracts  procured  under  Superfund  co-
    operative agreements were fair  and  reasonable,   we have set-
    aside  $70,731  of  contractual  costs  claimed  and  $508,435 of
    contractual costs reported  relating  to the contracts  which
    were not  procured in accordance  with  40  CFR Part  33.    (See
    Exhibit H  for  a-  summary  of the  contracts,  deficiencies  and
    costs set-aside.)
    IEPA'5 COMMENTS ON FINDINGS

    We recommended in our draft  report  that  the Regional Admini-
    strator, Region 5:

    1. Require  that   IEPA  provide  data  demonstrating   that  the
       costs  set-aside  were   reasonable   in  relation  to  the
       services rendered;
    2. Require that all procurement  actions  initiated by
       reviewed  and approved  by  EPA  officials  until  t
                                                   IEPA be
                                                  the  IEPA
procurement  system is  fully  in  compliance  with  40  CFR
Part 33; and
    3. Direct  IEPA  to  initiate  improvements to  its procurement
       system to meet the  requirements  of  40 CFR Part 33.  These
       improvements should include, as a minimum, that IEPA:
                              -23-

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FINDINGS AND RECOMMENDATIONS (Continued)
           All  the  Multi-Site Contracts have  been amended
           to  include  the model  sub-agreement  language or
           equivalent  language  as  required  by 40  CPR  33.
           DLPC  is  in  the  process  of  amending  all  other
           federal  contracts to   include   these clauses.
           These  remaining  contracts will be  completed by
           April 1,  1987.

           Since  July  1986,  the DLPC  has  performed  cost
           and/or price analyses  on all  cost proposals  and
           change orders  of $10,000 or  more.  In addition,
           the  person  who  performs these  cost  and  price
           analyses attended  a  "Cost  and Price  Analysis"
           course in Denver,  Colorado  taught by Management
           Concepts,   Incorporated.   The  IEPA  has  also
           requested Region 5, USEPA to  develop a cost  and
           price  analysis    course  addressing  hazardous
           waste • site- contract pricing.   USEPA has agreed
           to  sponsor  such  a  course   for  all  Region  5
           States  in   the near  future.    Appropriate  DLPC
           personnel   concerned   with   cost   and   price
           analysis  will  attend  the  course   once  it  is
           offered.

           In addition to the cost  and  price analysis,  the
           Agency has  amended all its  Multi-Site Contracts
           to    include   clauses   which    require   that
           Multi-Site   Contractors   have  their   indirect
           expense   multiplier    audited    and   verified
           annually.   These  audits will  be  performed  in
           accordance   with    the    Federal   Acquisition
           Regulations, Part  31,  and will also ensure  the
           expenses  are   allowable  and   they  are  allocated
           c6rrectly.

    OUR EVALUATION OF  IEPA COMMENTS

    lEPA's response regarding  the   reasonableness of  set-aside
    costs and  the review  of  IEPA procurement actions by EPA was
    not adequate to resolve  these   issues and  are further dis-
    cussed under items 1. and 2.  below:

    1.  IEPA  stated in  its  response  that  IEPA  will  cooperate
        with  EPA,  Region  5 to  provide   whatever  additional
        information  is necessary  to assure  that  the  set-aside
        contractual  costs  are  allowed.   However,  we   are  not
        aware  of  any data that has  been provided by IEPA to EPA
        to demonstrate that  the  costs  set-aside were reasonable
        in relation to the  services rendered.

    2.  IEPA  indicated in its response  that EPA  review of IEPA
        procurement  actions   is  not necessary  because of  the
                              -25-

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FINDINGS AND RECOMMENDATIONS (Continued)
    regulation  40  CFR  30.531  requires  recipients  to  maintain
    accurate property  records,  which include the location,  use
    and  condition   of   the  property.   The   regulation   also
    requires a control system to be  maintained  to prevent  loss,
    damage or  theft.   Property  records maintained by  IEPA  were
    not periodically  updated  to reflect transfers of  property.
    The records also  did  not  give the specific  location of  the
    property.   The  total  cost  of property  acquired  under  the
    Superfund  cooperative agreements  was  $61/985.   Failure  to
    correct  these  weaknesses  exposes  all  property acquired  to
    the risk of loss, misuse or misappropriation.
    During  our  review  of  Superfund  property,
    items could not be located.
                           the  following
         Description

        Air Mask
        Air Cylinder
        Air Cylinder

        Total
IEPA Tag
 Number

 16848
 16849
 16850
  Cooperative
   Agreement

A & F Materials
'A & F Materials
A & F Materials
 Cost

$  725
   293
   293

$1,311
    This was  due  to the following weaknesses  noted  in the sys-
    tem:

    1. IEPA  personnel  did  not  follow procedures  which require
       property transfers  to  be  reported to property management
       personnel at the time  of transfer.

    2. Several  persons had  access  to  the  equipment   storeroom
       and did  not  always  follow  sign-out procedures when with-
       drawing property from  the storeroom for use.

    3. Property  listings  did not give  specific  details  as to
       the  location of  property.   The  listings  only   indicated
       the  division  to which  the  cost of  the  equipment  was
       charged.

    Both the  State  of Illinois and  IEPA developed written pro-
    perty management procedures which detail controls  to be im-
    plemented by  the Agency.   IEPA management did not  emphasize
    the  importance of these  procedures to  personnel  nor  did
    they  instruct  new employees  on  the  procedures.   without
    proper  enforcement  of  property  management  controls,  EPA
    cannot  be  assured  that  Superfund  property  is  adequately
    safeguarded and  is used for  Superfund cooperative  agreement
    projects.
                              -27-

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FINDINGS AND RECOMMENDATIONS (Continued)
3.  MINOR FINDINGS - CORRECTIVE ACTION REQUIRED

    A- FINANCIAL STATUS REPORTS   (SF-269'S)   WERE  NOT SUBMITTED
       TIMELY

       IEPA did  not  submit Financial Status  Reports  (SF-269's)
       on an annual  basis.   Reports were only submitted  at  the
       completion  of  a  cooperative  agreement  activity.   EPA
       Comptroller   Policy  Announcement   No.   85-5   requires
       SF-269's  to  be submitted  on  an  annual basis.   However/
       IEPA  submitted  "CERCLA  Quarterly  Reports"  to Region  5
       which detailed the  progress  of the  Superfund cooperative
       agreements.   Information  provided  included  expenditures
       to date by site  compared  to  budgeted  amounts/  as  well as
       the percentage of  work  completed for  each  site and tech-
       nical data.  Region  5  project  management  personnel stat-
       ed that these  reports  were more useful than  the SF-269's
       in monitoring  cooperative agreement  activity.  However,
       the   SF-269's  were   certified,   whereas   the  "CERCLA
       Quarterly Reports" were not.  Furthermore,  the SF-269's
       were intended for  the  financial/grants personnel  of EPA/
       Region  5,  whereas  the "CERCLA  Quarterly Reports"  were
       intended  for  the  program management  personnel  of  EPA,
       Region 5.

    B. COSTS WERE MISCLASSIFIED AS CONTRACTUAL SERVICES

       Costs charged  to the object  class "Contractual Services"
       included   costs   normally  charged   to   the  "Travel/
       Supplies,  or  Other  Direct  Costs"  object  class.   The
       cost?  were  classified  as  such  because  the  chart  of
       accounts  for  the State's  financial  system included costs
       such  as:  petty cash expenditures,  equipment  repairs  and
       maintenance/  equipment  rentals,  and  printing costs as
       part of the  State's "Contractual  Services"  (Object 1200)
       account group.   When IEPA prepared  cooperative agreement
       budgets and  Financial Status Reports/  the  entire amount
       charged to  the "Contractual Services"  account group  was
       included  in  the  "Contractual Services"  object  class.
       Region  5  project management personnel  were  unaware  that
       costs  other   than  amounts   paid   to. contractors  were
       included  in the  "Contractual  Services" object  class.   At
       the exit  conference held  on  July  17,  1986 at the offices
       of  IEPA,  the  EPA  Project Officer  and the  IEPA  Program
       Development Manager/  Land  reached an understanding as to
       the type  of costs  that will  be classified in each object
       class for reporting  purposes.

    lEPA'S COMMENTS ON  FINDINGS

    We recommended  in our draft  audit report that  the Regional
    Administrator/ Region  5:


                              -29-

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           FINDINGS AND RECOMMENDATIONS (Continued)
               that  EPA,  Region  5 personnel  are now  aware of  the  costs
               included  by  IEPA  in  the  "Contractual  Services"  object
               class.   However,   failure  of   EPA,   Region  5  to  ensure
               consistent  reporting  of  financial  data  by  recipients  of
               federal  funds  will  diminish   the  meaningfulness  of  the
               financial data reported.

               RECOMMENDATIONS

               We  recommend  that  the  Regional  Administrator,  Region  5
               require  that  IEPA  exclude  other direct   costs  from  the
               "Contractual  Services"  cost category  when  reporting  to the
               federal  government.   If  this  data   cannot  be  segregated
               through  the  use  of  appropriate  sub-accounts  in  the  IEPA
               classification system,  then proper workpaper support should
               be  maintained by  IEPA for any  account analyses  or  report
               reclassifications   required   to   ensure    consistent   and
               accurate reporting  for  federal financial reports.
.
                                          •31-

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                                                     EXHIBIT  A-l
               COOPERATIVE AGREEMENTS AWARDED TO THE
              ILLINOIS ENVIRONMENTAL  PROTECTION AGENCY
   SUMMARY OF COSTS CLAIMED, ACCEPTED, QUESTIONED AND SET-ASIDE
                FOR THE PERIODS INDICATED IN NOTE 1
                                       AMOUNT
     COST CATEGORY       CLAIMED ACCEPTED QUESTIONED SET-ASIDE  NOTES
                         (NOTE 1)fNOTE 2)
Personnel              $ 74,047 $ 74,047    $ -      $   -
Fringe Benefits          12,337   12,337
Travel                    7,046    7,046
Equipment                 8,913    7,889     1,024
Materials And Supplies    2,813    2,813
Contractual Services    121,698   50,967      -        70,731
Other Direct Costs                  -
Indirect Costs           63,657   63,657      -          -

    Totals             $290,511 $218,756    $1,024   $ 70,731
Less:
 Federal Share         $263,180 $198,600    $  922   $ 63,658
Amount Available For
 Future State Cost-
 Sharing Responsibili-
 ties For Remedial
 Actions                 $  27,331  $  20,156   $   102   $  7,073
Note 1 -  The  amounts claimed represent expenditures reported on
          the  Financial Status Reports  (SF-269)  for the periods
          indicated  on  Exhibits B-l,  C-l,-  E  and G-l.

                                     *
Note 2 -  See  Exhibits  B-l,  C-l,  E  and  G-l  for  schedules of
          costs  claimed,  accepted,  questioned and  set-aside by
          cooperative agreement.


Note 3 -  See  Exhibits  B-l  and  E   for  details  of  the  $1,024
          questioned costs.


Note 4 -  See  Exhibit  B-l  for details  of  the $70,731  set-aside
          costs.

                               -32-

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                                                     EXHIBIT B-l
       BYRON SALVAGE YARD,  ILLINOIS COOPERATIVE AGREEMENT
     AWARDED TO THE ILLINOIS ENVIRONMENTAL PROTECTION AGENCY
  SCHEDULE OF COSTS CLAIMED, ACCEPTED, QUESTIONED AND SET-ASIDE
               FOR THE PERIODS INDICATED IN NOTE 1
                                     AMOUNT
   COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials And
 Supplies
Contractual Services
Other Direct Costs
Indirect Costs

    Totals

Less:
 Federal Share (90%
  Of Accepted
  Eligible Costs)

Amount Available For
 Future State Cost-
 Sharing Responsi-
 bilities For
 Remedial Actions
 CLAIMED ACCEPTED QUESTIONED SET-ASIDE  NOTES
(NOTE 1)
24,442  $24,442
 4,089    4,089
 3,249    3,249
 5,013    4,501
                      512
     677
 100,511
            677
         29,780
70,731
  21,531   21,531
$159,512  $88,269    $512     $70,731
$143,561  $79,442    $461
                            $63,658
$ 15,951  $ 8,827
                            $ 7,073
Note 1 -  The  amounts  claimed represent expenditures reported on
          the  Financial  Status  Reports  (SF-269)   for  Remedial
          Investigation  activities  from  May  1,   1983  through
          October  31,  1984  and Feasibility Study activities from
          May  1, 1983  through  August 31, 1985.


Note 2 -  Equipment  purchased  under ^Voucher No.  FLC0225,  dated
          August 20,  1984,  did not have prior EPA approval.  The
          total  cost  of  the  equipment  was  $2,048.   We  have
          questioned  $512  that was allocated to this cooperative
          agreement.    No   finding  or  recommendation  will  be
          written  on  lEPA's  internal  controls  over   equipment
          since  this  was an  isolated  incident  and  lEPA's system
          for  obtaining EPA approval  of  equipment  purchases was
          not  deficient.
                              -34-

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  ILLINOIS  ENVIRONMENTAL  PROTECTION AGENCY
      NOTES TO  EXHIBIT  B-l  (CONTINUED)
See Exhibit H, which details  by  contract  the specific
regulations  of   40   CFR  Part  33   which   were  not
             Also   see   Finding   No.   1,   state's
             Procurement   System   Needs   Improvement,
            the  Findings and  Recommendations  section
followed.
Super-fund
located  in
for further development of this finding.
                     -36-

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                                                     EXHIBIT C-l
          CROSS  BROTHERS  COOPERATIVE  AGREEMENT AWARDED
         TO THE ILLINOIS ENVIRONMENTAL PROTECTION AGENCY
             SCHEDULE OF  COSTS  CLAIMED AND ACCEPTED
       FOR THE PERIOD MAY 4, 1983 THROUGH JANUARY 31, 1986
                                               AMOUNT
    COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials And Supplies
Contractual Services
Other Direct Costs
Indirect Costs

    Totals
 CLAIMED
(NOTE 1)

$12,647
  2,212
    669

    599
  1,262

 10,230

$27,619
ACCEPTED


$12,647
  2,212
    669

    599
  1,262

  10,230

1.2.7,619
Less:
 Federal Share (90% Of Accepted
  Eligible Costs)

Amount Available For Future Cost-
 Sharing Responsibilities For
 Remedial Actions
$24,857
$24,857
            $ 2,762
Note 1 -  The  amounts  claimed  represent  expenditures  reported
          on  the  Financial Status  Reports  (SF-269)  for  Initial
          .Remedial Measures through January  31,  1986.
                              -38-

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                                                       EXHIBIT D
            ACME SOLVENT RECLAIMING COOPERATIVE AGREEMENT
       AWARDED TO THE ILLINOIS ENVIRONMENTAL PROTECTION  AGENCY
   SCHEDULE OF COSTS REPORTED, ACCEPTED, QUESTIONED AND SET-ASIDE
         FOR THE PERIOD JUNE 15,  1983 THROUGH MARCH 31,  1986
                                        AMOUNT
     COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials And Supplies
Contractual Services
Other Direct Costs
Indirect Costs

    Totals

Less:
 Federal Share (90%
  Of Accepted Eligible
  Costs)

Amount Available For
 Future State Cost-
 Sharing Responsibili-
 ties For Remedial
 Actions
               REPORTED ACCEPTED QUESTIONED SET-ASIDE NOTES
               (NOTE 1) (NOTE 2)
               $ 38,211 $ 38,211
                  6,750
                  7,523
                 10,133
                  1,625
                263,856
                  9,795
                 32,763
 6,750
 7,523
 9,621
 1,625
 3,928
 9,795
32,763
512        -       3

        259,928    4
               $370,656 $110,216
               $333,590 $ 99,194
          !512    $259,928
                  $233,935
               $ 37,066
                  $ 25,993
Note 1 -
Note 2 -
Note 3 -


Note 4 -
The amounts  shown represent  itemized  expenditures  as
reported  by  IEPA on  its  monthly  expenditure  work-
sheets  and  not   yet  claimed  on a  Financial  Status
Report (SF-269) through March 31, 1986.

The amounts  accepted,  questioned and  set-aside repre-
sent  our  classification of  the  reported expenditures
should  the  items  be  claimed  by the  recipient on  a
Financial Status Report (SF-269).
We  have  questioned  $512  of  equipment  costs
reasons disclosed in Note 2 of Exhibit B-i.
                    for  the
We  have  set-aside  $259,928   of  contractual  service
costs for  the  reasons disclosed in Note  3 of Exhibit
B-l.

                              -40-

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                                                       EXHIBIT P
       LA SALLE ELECTRICAL UTILITIES  COOPERATIVE AGREEMENT
     AWARDED  TO THE ILLINOIS  ENVIRONMENTAL  PROTECTION ACENrv
       SCHEDULE OF COSTS REPORTED, ACCEPTED AND SET-ASIDE	
     FOR THE__PERIOD JANUARY 13, 1984 THROUGH MARCH r^  1 Qflfi
                                            AMOUNT
    COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials And Supplies
Contractual Services
Other Direct Costs
Indirect Costs

    Totals
REPORTED  ACCEPTED  SET-ASIDE  NOTE
(NOTE 1)  {NOTE 2)

$ 82,985  $ 82,985  $
  14,051
  14,093
   2,985
   8,945
  64,395
  68,864
  68,583
14,051
14,093
 2,985
 8,945
 1,691
68,864
68,583
62,704
$324,901  $262,197  $ 62,704
Less:
 Federal Share  (90% of
  Accepted Eligible Costs)

Amount Available For Future
 state Cost-Sharing Respon-
 sibilities For Remedial
 Actions
$292,411  $235,977  $ 56,434
              , 220=  $  j/270
Note 1 - The  amounts  shown  represent  itemized  expenditures as
         reported  by IEPA on its monthly expenditure worksheets
         and  not  yet  claimed  on  a  Financial   status  Report
         (SF-269)  through March  31,  1986.

Note 2 - The   amounts  accepted   and  set-aside   represent  our
         classification  of the reported expenditures should the
         items  be   claimed  by  the  recipient  on  a   Financial
         Status Report (SF-269).

Note 3 - We  have  set-aside $62,704 of contractual  service  costs
         for  the  reasons disclosed in Note  3  of  Exhibit B-l.
                              -42-

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                                                     EXHIBIT G-2
          MOLTI-SITE COOPERATIVE AGREEMENT AWARDED TO
          THE  ILLINOIS  ENVIRONMENTAL  PROTECTION AGENCY
       SCHEDULE OF  COSTS  REPORTED,  ACCEPTED AND SET-ASIDE
    FOR THE__PgRIQp  SEPTEMBER  29,  1984 THROUGH  MARCH  31.  1986
                                          AMOUNT
    COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials And Supplies
Contractual Services
Other Direct Costs
Indirect Costs

   Totals
                    REPORTED ACCEPTED SET-ASIDE NOTE
                    (NOTE 1) (NOTE 2)

                    $144,753 $144,753 $
                      25,752   25,752
                      14,897   14,897
                      34,778   34,778
                      41,015   41,015
                     107,777   22,114   85,663   3
                       4,582    4,582
                     117,391  117,391     -

                    $490,945 $405,282 $ 85,663
Less:
 Federal Share (100% of
  Accepted Eligible Costs)

Amount Available For Future
 State Cost-Sharing Respon-
 sibilities For Remedial
 Actions
                    $490,945 $405,282 $ 85,663
Note 1 -
Note 2 -
The  amounts  shown  represent  itemized  expenditures as
reported   by   IEPA   on   its   monthly   expenditure
.worksheets and  not yet  claimed  on  a Financial Status
Report  (SF-269) through  March 31, 1986.

The  amounts  accepted   and   set-aside  represent  our
classification  of  the  reported expenditures  should
the  items  be  claimed by  the  recipient  on a Financial
Status  Report (SF-269).
 Note  3  -
We   have
costs  for
B-l.
set^aside  $85,663  of  contractual  service
 the  reasons  disclosed in Note  3  of  Exhibit
                              -44-

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APPENDIX

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Page -2-
March 19, 1987                                               (COOTIHUCD)-
     The establishment of new property control  procedures that will
     assure compliance with 40 CFR 30.

     The filing of Financial Status Reoorts (SF-269) on an annual  basis.

A complete description of these and other actions which have been  taken
is found in Attachment A: "lEPA's Response to Auditor's Recommendations.11

Costs totalling $579,166.00 were "set-aside" because the Auditors  could
not reasonably assure themselves that the lowest possible, best and
final offer(s) had been negotiated with the successful contractor(s).
The IEPA strongly believes the "set-aside" costs should be allowed by
USEPA because the contracts were awarded in an open and competitive
manner to the lowest responsible, responsive bidder in every case.
Although a few provisions of 40 CFR 33 were not expressly followed,
the intent of these regulations was certainly met.  This point is  further
discussed in Attachment A.

We believe that the information which we have provided demonstrates
the lEPA's committment to pursue federally funded procurement pursuant
to 40 CFR Part 33, and we hope that this information will also help
to resolve any outstanding audit issues.  If you have any questions,
or need further information, please contact Bill Radlinski of the  Division
of Land Pollution Control at 217/782-6760.

Sincerely,
     ^"~"")    '''  .     .•'"   ;
             <*f  J  / S-
Richard J. Carlson
Di rector

RJC:JAS:mg/02
Enclosure

cc:  Tichenor, Resler and  Eiche"
     Anthony C. Carrollo,  Div.  Inspector General
      for Audit, Northern  Division
     Ivars P. Antens, Reg.  V. Chief,  Financial Mgt. Branch
     Tom Mateer, Reg. V. Chief, State Programs and
      Information Unit
                                  -47-

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                              -2-
                                                            APPENDIX 1
                                                             (CONTINUED)
    Bills for services performed are closely reviewed  to ensure that
    the correct work was performed in the prescribed manner.

    Billings are closely monitored and audited to ensure that  prices
    charged do not exceed those listed on the awarded  price  schedules.

Given all the above, we believe that USEPA should approve  the  $579,166.00
"set-aside" by the Auditors.

2.  It is not clear whether this recommendation is intended  for all
IEPA procurement practices regarding federal funds or  for  only those
associated with the CERCLA program.  We are assuming the latter.   However,
we do not believe that even the review of the Division of  Land's  CERCLA
procurement actions is necessary, because positive measures  have  been
taken to bring its procurement system fully into line  with 40  CFR 33.
These steps are described in detail in lEPA's responses to recommendation
3 (see below).

3.A.  A new Division of Land Pollution Control (DLPC)  procedures  manual,
complete with checklists, has been written which addresses all procurement
requirements of 40 CFR 33.  This manual has been reviewed  and  commented
on by both staff of IEPA (Divisions of Land Pollution  and  Administration)
and Region V, USEPA program personnel.  Responses to  the comments have
been incorporated into the manual.  These procedures  are now ready to
be implemented at the next federal procurement.

In addition, the DLPC has formed a committee which will expand this
basic manual to include in-depth procedures for all phases of work performed
by the DLPC and to develop standarized language for such documents as
public notices and requests-for-proposals.  The committee  will also
develop standardized forms and letters to be used in  the procurement
process.  This expanded procurement manual and associated  documents
will be completed by June 30, 1987.

Since July 1986, the DLPC has performed cost and/or price  analyses on
all cost proposals and change orders of $10,000.00 or more.   In  addition,
the person who performs these cost and price analyses attended a "Cost
and Price Analysis" course  in Denver, Colorado taught by Management
Concepts, Incorporated.  The IEPA  has also  requested Region V, USEPA
to develop a cost and price analysis course addressing hazardous waste
site contract pricing.  USEPA has  agreed to sponsor such a course for
all Region V States in the  near  future.  Appropriate DLPC  personnel
concerned with cost and price analysis will attend the course once it
is offered.

In addition to the cost and price  analysis, the  Agency has amended all
its Multi-Site Contracts  to include  clauses which  require that Multi-Site
Contractors have their  indirect  expense multiplier audited and verified
annually.  These audits will be  performed  in  accordance with  the Federal
Acquisition Regulations,  Part  31,  and  will  also  ensure the expenses
are allowable and  they  are  allocated correctly.
                                -49-

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                                  -4-
                                  ~ '                          APPENDIX 1
                                                              (CONTINUED)

AUDIT PROPERTY CONTROL RECOMMENDATIONS (Page 25)

We recommend that Regional Administrator, Region V:

1.  Direct IEPA management to emphasize the importance of property control
    procedures; and

2,  Instruct IEPA employees in the procedural improvements required
    in the property management system.  The improvements should  include:

    A.  Updating property records on a timely basis;

    B.  Limiting access to the equipment storeroom;  and

    C.  Amending property records to indicate the specific location
        of property.

lEPA's RESPONSES

1.  lEPA's management does recognize the importance of property management,
and has taken appropriate action to Improve its property control measures.
On September 16, 1986 a person was hired to be solely responsible for
property control.  This person is responsible for inventorying all equipment,
safeguarding all equipment in the storeroom, and for maintaining property
records.  A re-inventory of all equipment and a new Divisional equipment
inventory system has been developed and implemented by this person.

2.  As mentioned above, a new inventory system has been implemented
within the DLPC.  Property control records have been amended to indicate
the piece of equipment, the serial number, IEPA tag number, manufacturer,
and the specific location of the property.  The DLPC has also revamped
its warehouse storage area, at considerable expense, to provide for
better security and more  space.  There are now only two keys to this
storage area.

In addition,' the two air  cylinders which could not be located during
the audit, have been found.
                                 -51-

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                             -6-
                                                             APPENDIX 1
                                                             (CONTINUED)

AUDIT UNAPPROVEO EQUIPMENT PURCHASE RECOMMENDATION (Page 30)

We recommend that the Regional Administrator,  Region V disallow the
equipment purchase that did not have USEPA's prior approval.

lEPA's RESPONSE

The IEPA believes that the "questioned" $2,048.00 in equipment  costs
should be allowed by Region V.  The items in question are four  filter
stands.  One filter stand was used at each of the four sites  noted in
the Audit Report.  We do not contest that USEPA's permission  was not
obtained before the filter stands were purchased.  However, these pieces
of equipment are essential in the collection of groundwater samples,
and therefore, remedial investigations at these sites could not have
been performed without the filter stands.

We are unable to determine why USEPA's permission was not obtained prior
to the purchase.  We can only assume that the equipment was purchased
in haste and getting USEPA's permission was inadvertently overlooked.
However, since this was a purchase of essential and necessary equipment
at these sites, we believe the costs should be allowed.
JAS:mg/003
                                 -53-

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