STATES ENVIRONMENTAL PROTECTION AGENCY
                      |,5~   OFFICE OF INSPECTOR GENERAL
                                 NORTHERN DIVISION

                           10 W. JACKSON BLVD.. 4TH FLOOR
                              CHICAGO. ILLINOIS 6O6O4
 OFFICE OF AUDIT
 3t2/353-2466
                                   July 7, 1987
                                                     OFFICE OF INVESTIGATION
                                                     312/333-2507
SUBJECT:
*
 FROM:
 TO:
          Audit Report No. P5BG7-05-0537-71483
          Interim Audit of Michigan Department of Natural  Resources'
          Administration of Its Superfund Cooperative Agreements with
          EPA Under the Comprehensive Environmental  Response, Compensation,
          and Liability Act of 1980
          For The Period July 30, 1982 through February 28,  1986
          Anthony C. Carrollo
          Divisional Inspect
          Northern Division
                                   era! for Audits
          Ivars Antens, Chief
          Grants and Financial Management Branch
          Region 5

                              SCOPE AND OBJECTIVES

An interim audit of the Michigan Department of Natural  Resources'  (MDNR)
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 incurred and claimed under thp referenced cooperative agreement
from the inception dates through February 28, 1986.   The audit  field  work  and
draft report were completed on August 1, 1986 by Tichenor,  Resler  & 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 MDNR  in administering its
     cooperative agreements with EPA.                                  !

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

  0  the State'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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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

In our opinion, subject to the resolution of the questioned and set-aside
costs summarized below and presented in Exhibit A 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
Accepted    Questioned   Set-Aside
Total   $3,910,320   $3,637,217    $63.480

                                   $63,480
        Federal Share   $3,450,819
                          $209.623

                          $209,020
This report questions and sets aside costs of $63,480 and $209,623, respec-
tively.  The questioned costs represent (1) drawdown of $11,332 in excess of
allowable project costs for remedial measures not approved under the Remedial
Investigation/Feasibility Study (RI/FS) activity phase and (2) expenditures of
$52,148 which were ineligible because the contract did not include all the
necessary provisions.  The set-aside costs represent (1) an incomplete remedial
investigation costing $203,597 and (2) "shut-down" expenses totalling $6,026
pertaining to a period'of inactivity caused by a scheduling conflict.

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.  Recover the questioned Federal share of $63,480 from the MDNR.

  2.  Determine the allowability of the set-aside costs of $203,597 for an
      incomplete Remedial Investigation.

  3.  Ensure that the $6,026,(Federal share $5,423) claimed for "shut-down"
      expenses are properly credited on the final SF-269 or otherwise
      recovered by EPA.

  4.  Monitor submission of Federal Cash Transactions Reports to determine
      they are properly completed.
                                      -2-

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  5.  Require the MDNR to:

      a.  Submit a copy of Its revised bid package and/or other documentation
          to ensure that all required EPA subagreement clauses are contained
          1n future contracts.

      b.  Provide documentation on the transfer of computer equipment to State
          inventory records.

A draft report was sent to the MDNR for comments.  In its response dated
March 18, 1987, MDNR agreed with $6,026 cost set aside for shut-down, $11,332
for the remedial expenditure not approved for the RI/FS phase, and the $52,148
disallowed for the fence contract.  MDNR did not agree with $203,597 set aside
for an inadequate Remedial Investigation, but claims that portions of the
Remedial Investigation were adequate and these costs should be allowed.

To provide a balanced understanding of the issues,  we have presented MDNR's
position and the auditor's 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 a
final determination on the costs questioned and set aside and any other recom-
mendations 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 MDNR.   A copy  of the
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)
                                      -3-

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ooj
                   REPORT OF INTERIM AUDIT OF
            MICHIGAN DEPARTMENT OF NATURAL RESOURCES'
     ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
    WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
             COMPENSATION,  AND LIABILITY ACT OF 1980
     FOR THE PERIOD JULY 30,  1982 THROUGH FEBRUARY 28, 1986

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                                                          - as-0537- 7/y S3
                                                           2
                         TABLE OF CONTENTS
SCOPE AND OBJECTIVES

SUMMARY OF FINDINGS

BACKGROUND

AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V005784,
V005785, V005787, V005786, V005775, V005776,  V005777,
V005793, V005836, V005843 AND V005851 AWARDED TO THE
MICHIGAN DEPARTMENT OF NATURAL RESOURCES

AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND
COMPLIANCE

FINDINGS AND RECOMMENDATIONS

1 -  STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IM-
     PROVEMENT

2 -  LACK OF FIXED FEE MONITORING SYSTEM

3 -  NONEXPENDABLE PERSONAL PROPERTY OMITTED  FROM
     PROPERTY LIST

4 -  FEDERAL CASH TRANSACTIONS REPORTS IMPROPERLY
     COMPLETED

5 -  MINOR FINDINGS - CORRECTIVE ACTION TAKEN AFTER AUDIT

6 -  MINOR FINDINGS - CORRECTIVE ACTION TAKEN DURING AUDIT
EXHIBIT A -
EXHIBIT B -
COOPERATIVE AGREEMENTS AWARDED TO THE
MICHIGAN DEPARTMENT OF NATURAL RESOUR-
CES SUMMARY OF COSTS CLAIMED,  ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE PERIOD
JULY 30, 1982 THROUGH FEBRUARY 28, 1986

BERLIN AND FARRO INDUSTRIAL INCINERA-
TOR COOPERATIVE AGREEMENT (V005784)
AWARDED TO THE MICHIGAN DEPARTMENT OF
NATURAL RESOURCES SCHEDULE OF COSTS CLAIM-
ED, ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIOD JULY 30, 1982 THROUGH
FEBRUARY 28, 1986
                                              Page

                                                1

                                                2

                                                5
                                                7


                                                9
                                               11

                                               12


                                               13


                                               14

                                               16

                                               17
                                                              19
                                                              20

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                  TABLE OF CONTENTS (Continued)
EXHIBIT C -
EXHIBIT D -
EXHIBIT E -
EXHIBIT F -
EXHIBIT G -
EXHIBIT H -
LIQUID DISPOSAL, INCORPORATED INDUS-
TRIAL INCINERATOR COOPERATIVE AGREE-
MENT (V005785) AWARDED TO THE MICHIGAN
DEPARTMENT OF NATURAL RESOURCES SCHEDULE
OF COSTS CLAIMED, ACCEPTED AND SET-ASIDE
FOR THE PERIOD MAY 1, 1983 THROUGH
FEBRUARY 28, 1986                              23

ROSE TOWNSHIP INDUSTRIAL WASTE DUMP
COOPERATIVE AGREEMENT (V005787) AWARDED
TO THE MICHIGAN DEPARTMENT OF NATURAL
RESOURCES SCHEDULE OF COSTS CLAIMED AND
ACCEPTED FOR THE PERIOD SEPTEMBER 1,
1983 THROUGH FEBRUARY 28, 1986                 26

NORTHERNAIRE PLATING, INCORPORATED
INDUSTRIAL WASTE DISPOSAL COOPERATIVE
AGREEMENT (V005786) AWARDED TO THE MICHI-
GAN DEPARTMENT OF NATURAL RESOURCES
SCHEDULE OF COSTS CLAIMED AND ACCEPTED
FOR THE PERIOD NOVEMBER 1, 1983 THROUGH
FEBRUARY 28, 1986                              27

CEMETERY INDUSTRIAL WASTE DUMP COOPERA-
TIVE AGREEMENT (V005775) AWARDED TO THE
MICHIGAN DEPARTMENT OF NATURAL RESOURCES
SCHEDULE OF COSTS CLAIMED AND ACCEPTED
FOR THE PERIOD MAY 21, 1984 THROUGH FEB-
RUARY 28, 1986                                 28

SPRINGFIELD TOWNSHIP INDUSTRIAL WASTE DUMP
COOPERATIVE AGREEMENT (V005776) AWARDED
TO THE MICHIGAN DEPARTMENT OF NATURAL RE-
SOURCES SCHEDULE OF COSTS CLAIMED AND AC-
CEPTED FOR THE PERIOD MAY 21, 1984 THROUGH
FEBRUARY 28, 1986                              29

SPIEGELBERG/RASMUSSEN LANDFILL COOP-
ERATIVE AGREEMENT (V005777) AWARDED TO
THE MICHIGAN DEPARTMENT OF NATURAL RE-
SOURCES SCHEDULE OF COSTS CLAIMED, AC-
CEPTED AND QUESTIONED FOR THE PERIOD
MAY 21, 1984 THROUGH FEBRUARY 28, 1986         30

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                             TABLE OF CONTENTS (Continued)
           EXHIBIT I -
           EXHIBIT J -
           EXHIBIT K -
           EXHIBIT L -
           EXHIBIT M -
           EXHIBIT N -
VERONA WELL FIELD COOPERATIVE AGREE-
MENT (V005793) AWARDED TO THE MICHIGAN
DEPARTMENT OF NATURAL RESOURCES SCHEDULE
OF COSTS CLAIMED AND ACCEPTED FOR THE
PERIOD OCTOBER 1, 1984 THROUGH FEBRUARY
28, 1986                                       32

METAMORA LANDFILL COOPERATIVE AGREEMENT
(V005836) AWARDED TO THE/MICHIGAN DEPART-
MENT OF NATURAL RESOURCES SCHEDULE OF COSTS
CLAIMED AND ACCEPTED FOR THE PERIOD MARCH
10, 1985 THROUGH FEBRUARY 28, 1986             33

MULTI-SITE COOPERATIVE AGREEMENT (V005843)
AWARDED TO THE MICHIGAN DEPARTMENT OF
NATURAL RESOURCES SCHEDULE OF COSTS CLAIM-
ED AND ACCEPTED FOR THE PERIOD APRIL 15,
1985 THROUGH FEBRUARY 28, 1986                 34

MULTI-SITE COOPERATIVE AGREEMENT (V005851)
AWARDED TO THE MICHIGAN DEPARTMENT OF
NATURAL RESOURCES SCHEDULE OF COSTS CLAIM-
ED AND ACCEPTED FOR THE PERIOD JUNE 15,
1985 THROUGH FEBRUARY 28, 1986                 35

COOPERATIVE AGREEMENTS AWARDED TO THE
MICHIGAN DEPARTMENT OF NATURAL RESOURCES
SCHEDULE OF MODEL SUBAGREEMENT CLAUSES
OMITTED OR NOT EQUIVALENT FOR THE SUB-
AGREEMENTS                                     36

DESCRIPTION OF HAZARDOUS WASTE SITES UNDER
THE COOPERATIVE AGREEMENTS AWARDED TO THE
MICHIGAN DEPARTMENT OF NATURAL RESOURCES       37
           APPENDIX 1  -
MICHIGAN DEPARTMENT OF NATURAL RESOURCES'
RESPONSE TO DRAFT AUDIT REPORT
                                                                         47
.

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                   REPORT OF INTERIM AUDIT OF
            MICHIGAN DEPARTMENT OF NATURAL RESOURCES'
     ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
    WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
             COMPENSATION. AND LIABILITY ACT OF 1980
     FOR THE PERIOD JULY 30, 1982 THROUGH FEBRUARY 28, 1986

SCOPE AND OBJECTIVES

We performed an interim audit of the Michigan Department of Natu-
ral  Resources'  (MDNR) administration  of its  cooperative agree-
ments with  the U.S. Environmental Protection  Agency (EPA) under
the  Comprehensive  Environmental  Response,  Compensation,  and Lia-
bility Act of 1980.  The primary objectives of our audit were to:

1.   Determine  the adequacy,  effectiveness,  and  reliability of
     procurement,  accounting,  and management  controls exercised
     by the MDNR 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 (LOC-TFCS).!

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

Specifically,  our  audit covered  the  following cooperative agree-
ments: Berlin  and Farro  Industrial Incinerator; Liquid Disposal,
Incorporated  Industrial  Incinerator;   Rose Township  Industrial
Waste  Dump; Northemaire Plating, Incorporated Industrial Waste
Disposal;  Cemetery Industrial Waste Dump;  Springfield Township
Industrial  Waste  Dump;   Spiegelberg/Rasmussen Landfill;  Verona
Well Field; Metamora Landfill; Multi-Site  I (Burrows Sanitation
and  Sludge  Disposal,  Charlevoix  Municipal Well Field, Clare Mun-
icipal  Well  Field,  Forest  Waste  Disposal,   G   &  H  Landfill,
Petoskey  Municipal Well Field, Tar Lake Disposal and Verona Well
Field);  Multi-Site II  (Butterworth Landfill,  Cliffs  Dow Dump,
Ionia  City Landfill,  K L Avenue  Landfill,  Packaging Corporation
of  America, Novaco  Industries and  Berlin and  Farro Industrial
Incinerator).   The audit  included an  examination of  costs in-
curred  and claimed under  the referenced  cooperative agreements
from the  inception dates through  February 28,  1986.

Our  audit  was  performed in  accordance with  generally accepted
auditing  standards and the Standards  for  Audit  of Governmental
Organizations,  Programs,  Activities,  and  Functions(1981re-
vision)promulgated  by  theComptrollerGeneralof  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.


                               -1-

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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 expenditures referred  to in the
Auditors' Report,  Exhibit A  (summarized below)  presents the fi-
nancial  information  and financial provisions of the cooperative
agreements.

  Cooperat ive       ^_^^™,	      AMOUNT	
   Agreement        CLAIMED    ACCEPTED   QUESTIONED"     SET-AS IDE

Berlin and Farro  $  600,880  $  583,522    $11,332      $  6,026
Liquid Disposal,
 Incorporated        443,299     239,702        -        203,597
Rose Township        658,299     658,299
Northernaire
 Plating, Incor-
 porated             383,536     383,536
Cemetery             346,296     346,296
Springfield
 Township            326,566     326,566
Spiegelberg/Ras-
 mussen              539,960     487,812     52,148
Verona                97,102      97,102
Metamora             401,714     401,714
Multi-Site I          86,615      86,615
Multi-Site II         26,053      26.053        -            -

Totals            $3,910,320  $3,637.217    $63.480     $209.623
Federal Share     $3,450.819  03.100.009    $63.480     $209.020
Questioned costs are costs claimed or  incurred  that  we have con-
cluded should not be reimbursed by  the Government or incurred as
part  of  project eligible  costs because  they  are not allowable
under the  provisions  of applicable  laws,  regulations, policies,
cost  principles,  or terms of  the  cooperative agreement  or con-
tract.  Set-aside costs are  costs which cannot  be accepted with-
out  additional  information or  evaluations  and  approvals  by  re-
sponsible Agency program officials.

STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT

The  procedures  utilized by MDNR to  procure  contractual services
under its Superfund cooperative agreements were  not in compliance
with  all  requirements  of  the  Federal  regulations  (40 CFR Part
33).  MDNR's  procurement procedures,  which  are  shared with  the
Michigan Department of Management and Budget (MDMB),  were not
                               -2-

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SUMMARY OF FINDINGS (Continued)


fully integrated  to conform with  Federal  regulations.  Coopera-
tive agreement recipients are required to comply with  40 CFR Part
33 as a  condition of obtaining  EPA  funding.   MDNR's  procurement
system did not:

     e    Incorporate  all  required  EPA  subagreement  clauses  in
          the contracts awarded for contractual services.

     0    Include  in  their  bid package  distributed  to respon-
          dents, how to obtain a copy  of  40 CFR 33.295, Subparts
          F and G.

LACK OF FIXED FEE MONITORING .SYSTEM

MDNR  paid  $114 of contractual  service  costs  in  excess of  the
specified  contract  fixed  fee  amount.    According   to  40  CFR
33.235(a),  "Recipients must  assure that only  fair  and reasonable
profits are  paid  to contractors awarded subagreements under  EPA
assistance agreements."  The payment of the excess fixed fee  was
a result of MDNR not monitoring the fixed fee portion of the con-
tract.  Consequently, MDNR paid the contractor and  claimed $114
of fixed fee which was  in excess of the fixed fee limitation in
the  cost-plus-fixed-fee  (CPFF)  contract  with CMC  &  Associates
(CMC).

NONEXPENDABLE PERSONAL PROPERTY OMITTED FROM PROPERTY LIST

MDNR did not include computer  equipment, amounting to $4,935,  on
its property list.   In  accordance  with 40  CFR Part  30, coopera-
tive agreement  recipients  are  required to  maintain  property  re-
cords that ensure  that the  interest  of the.United  States is ade-
quately reflected and protected.  The computer equipment was pur-
chased by  NUS  Corporation  (NUS) pursuant  to  a contract between
NUS and MDNR for  contractual services.  MDNR  was waiting to take
physical possession before recording the equipment  on  its' proper-
ty list.   MDNR, by omitting the equipment from its  property.list,
failed to ensure  that  the  interest of  the  Federal  government  was
adequately reflected and protected.

MDNR'S COMMENTS ON FINDINGS AND OUR EVALUATION

An exit conference was held on August 1,  1986, with the following
representatives of the MDNR:

     EPA Project  Officer;  Environmental Manager; Chief, Remedial
     Action  Section;  Federal Aid  Coordinator; Office  of  Budget
     and Federal Aid; Internal Audit;  Environmental  Manager;  De-
     partment  Manager;  Environmental  Manager; Unit  Chief,  En-
     vironmental Hazard Control Unit.

An exit conference was also held on August 1,  1986, with the fol-


                               -3-

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MDNR'S COMMENTS ON FINDINGS AND OUR EVALUATION  (Continued)


lowing representatives of EPA Region 5:

     Audit  Manager,  OIG; Chief,  State Programs  and Information
     Units  Staff,  Michigan  Unit;  Project  Officer;  Accountant;
     Staff, Grants Management;  Chief,  Grants Management Section;
     Acting Chief, Grants and  Financial Management Board; Finan-
     cial Analyst; Staff, Superfund.

The following  significant  items were discussed during  the audit
and communicated  through Notifications of  Significant Findings
and/or at the exit conferences:

     1.   Significant findings and recommendations;
     2.   Exhibits to be presented in the audit report;
     3.   Explanation and  justification for  the  auditors' opin-
          ion;                         .
     4.   The auditee's  response  to the draft  audit  report will
          be incorporated into the final audit report; and
     5.   The  final  audit report  is subject  to the Freedom of
          Information Act.

MDNR provided us with formal written comments on pur draft report
in  a  letter dated October  27, 1986.   The Commissioner  of MDNR
generally concurred with our findings and recommendations, except
as  noted  in the  Findings  and  Recommendations  and Notes  to  the
Exhibits  sections  of this report,  and indicated  corrective  ac-
tions were  taken  or  were planned  to resolve the  issue cited in
the report.   We  concluded  that MDNR's  comments were  generally
responsive  to  our  findings  and recommendations, excep.t 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 MDNR's  position at  appropriate loca-
tions in the report and included the response as Appendix 1..  The
attachments  included with and referenced  in the response  were
considered  too voluminous  to  include in Appendix  1.  The:'entire
response,  including these attachments, is available for review in
the Office of  Inspector General,  Internal  Audit Division,  in
Washington, D.C.
                               -4-

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BACKGROUND
The "Superfund" program was  established by the Comprehensive En-
vironmental  Response,  Compensation,  and  Liability  Act  of  1980
(CERCLA), Public  Law 96-510, enacted on  December 11,  1980.   The
Superfund program was  created  to  protect public  health  and the
environment from  the release, or  threat of release,  of hazardous
substances from abandoned hazardous waste sites and other sources
where response was  not required by other  Federal laws.   A Trust
Fund was  established by CERCLA to  provide  funding for responses
ranging from control of emergency situations to provision of per-
manent remedies at  uncontrolled sites. CERCLA  authorized a  $1.6
billion program financed by  a five-year environmental  tax on in-
dustry and some general revenues.   CERCLA requires that response,
or payment for response, be sought from those responsible for the
problem, including property owners, generators arid transporters.

The basic regulatory blueprint  for the Superfund Program is the
National Oil and  Hazardous  Substances  Contingency Plan (NCP),  40
CFR Part 300.  The NCP was first published in 1968 as part of the
Federal Water Pollution Control Plan,  and has been substantially
revised to meet CERCLA requirements.  The  NCP lays out two broad
categories of response: removals and remedial response.  Removals
are relatively short-term  responses,  and modify  an  earlier  pro-
gram under  the  Clean Water Act.  Remedial  response  is long-term
planning  and  action to  provide permanent  remedies  for  serious
abandoned or uncontrolled hazardous waste sites.
                                       *

CERCLA  recognizes that the  Federal government can only assume
responsibility for remedial response at a limited number of sites
representing the  greatest  public  threat.   It  therefore  requires
the maintaining of  a National Priorities List  (NPL),  which  must
be updated at least annually.   The NPL is  composed  primarily  of
sites which have  been  ranked on the basis  of a standard scoring
system which evaluates  their potential threat  to public  health.
In addition, each State was  allowed to  name its highest priority
site without regard to the ranking system.                   '

CERCLA section 104(c)(3) provides  that  no remedial actions shall
be taken unless the State in which the release occurs enters  into
a contract  or  cooperative  agreement with EPA  to  provide  certain
assurances,   including  cost-sharing.   At  most  sites,  the  State
must pay 10 percent of the costs of remedial action.   Preremedial
activities  (preliminary  assessments,  site  inspections)  remedial
planning  (remedial  investigations,  feasibility studies,  remedial
designs)  and  removals may  be  funded  100  percent by EPA.   For
facilities operated by a State or political subdivision  at the
time of disposal  of hazardous  substances, the  State must pay  at
least 50  percent  of all response  costs, including  removals and
remedial planning previously conducted.

MDNR is  the  designated State agency for  identifying  and ranking
sites which pose a risk to the public or the environment,  and


                               -5-

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BACKGROUND (Continued)
performance  of  remedial investigation,  design,  and clean  up at
hazardous waste  sites.   During our audit, MDNR  was  actively in-
volved in eleven  cooperative  agreements  with EPA.   A description
of each site has been provided in Exhibit N.

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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.
               _°N COOPERATIVE AGREEMENTS  V005784.
      V005785, V005787,7005786, V005775. V005776.  V005777,
             y005793. V005836. V005843 AND 7005851~^~
    AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
                                 .    .                           !

We have examined the  expenditures  incurred and claimed  by  the
Michigan Department  of  Natural Resources for remedial  investiga-
tions and  feasibility studies,  community  relations programs  and
assistance,1 operations  and  maintenance,  and technical  management
assistance where  applicable at  the Berlin  and Farro  Industrial
Incinerator;  Liquid  Disposal,  Incorporated  Industrial  Incinera-
tor; Rose  Township  Industrial Waste Dump;  Northemaire Plating,
Incorporated Industrial Waste Disposal; Cemetery  Industrial  Waste
Dump; Springfield Township Industrial Waste Dump;   Spiegelberg/-
Rasmussen  Landfill;  Verona  Well Field;  Metamora  Landfill; Multi-
Site  I  and  Multi-Site II  cooperative, agreements   for July  30,
1982, through  February 28,  1986, as detailed  in Exhibit A.   Our
examination was  performed in accordance with generally accepted
auditing  standards  and the  Standards  for Audit of Governmental
Organizations,  Programs,  Activities,and Functions(1981  revi-
sion) .Accordingly,  our  examinationincluded  such tests of  the
accounting records and  such  other  auditing procedures  as we con-
sidered necessary in the circumstances.

The Summary of  Costs  Claimed (Exhibit  A)  was prepared  on the  ba-
sis of  regulations and criteria established by the Environmental
Protection Agency relating to hazardous waste disposal coopera-
tive agreement  projects pursuant to Public  Law  96-510.  Accord-
ingly,  Exhibit  A is  not  intended  to  present  financial position
and results  of operations in  conformity  with generally accepted
accounting principles.

As  part of  our examination,  we determined  the allowability  of
costs claimed under  the project  in  accordance with  the  provisions
of  the  agreement and applicable Federal  regulations.   Exhibit A
sets forth the costs which we questioned or  set  aside  in this  re-
gard and  includes an explanation of the  reasons such  costs were
questioned or set aside.

In our  opinion,  subject to the effects on Exhibit  A of EPA's  ul-
timate  resolution of  the  questioned  or  set-aside expenditures
referred to in the preceding paragraphs, Exhibit  A  presents  fair-

-------
Mr. Kenneth D. Hockman
Page 2

ly the  costs claimed by  the  Michigan Department of  Natural Re-
sources under the Berlin and Farro Industrial Incinerator; Liquid
Disposal, Incorporated  Industrial  Incinerator;  Rose Township In-
dustrial  Waste  Dump; Northernaire Plating,  Incorporated Indus-
trial Waste Disposal; Cemetery Industrial Waste Dump; Springfield
Township  Industrial  Waste Dump;  Spiegelberg/Rasmussen  Landfill;
Verona Well Field; Metamora Landfill; Multi-Site I and Multi-Site
II 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
                               -8-

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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  incurred and  claimed by  the
Michigan  Department  of Natural  Resources  (MDNR)  related to  the
uncontrolled  hazardous  waste disposal  for  the  Berlin and  Farro
Industrial Incinerator; Liquid  Disposal,  Incorporated  Industrial
Incinerator;  Rose Township  Industrial Waste  Dump;  Northernaire
Plating,  Incorporated  Industrial  Waste Disposal;  Cemetery  Indus-
trial  Waste  Dump;  Springfield Township  Industrial Waste  Dump;
Spiegelberg/Rasmussen Landfill; Verona Well- Field;  Metamora  Land-
fill; Multi-Site  I and  Multi-Site II cooperative  agreements from
July 30,  1982 through February 28, 1986,  as detailed  in Exhibit
A.   Our  examination was  performed in  accordance with generally
accepted auditing standards and the financial and compliance pro-
visions of the Standardsfor Audit of Governmental Organizations,
Programs, Activities,  and Functiolnis"(1981  revision).  Solely  to.
assist us  in  planning and performing  our examination,  we made a
study and evaluation of the significant internal  accounting con-
trols of MDNR.  For the purpose of this report, we have classifi-
ed the significant internal accounting controls into the  follow-
ing categories:

               0    Disbursements
                    Payroll
               0    Contractor procurement
               0    Contractor performance  and 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 con-
trols  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 condi-
                                -9-

-------
                                                                       V,
Mr. Kenneth D. Hockman
Page 2

tions, other  than those presented in  the  Findings  and Recommen-
dations, that we believe to be material weaknesses.

As part of our  examination,  we  performed certain tests to deter-
mine whether  or not  Federal funds  were expended  in  accordance
with the provisions of  the  cooperative agreements and applicable
Federal laws,  regulations,  policies,  and cost  principles.   The
results of  our  tests indicated  that for the  items  tested,  MDNR
complied with  the provisions of the  cooperative agreements  and
applicable Federal laws, regulations,  policies,  and cost princi-
ples,  except  for the conditions described in  the  Notes  to  the
Exhibits.   Further, for the  items  not  tested,  based upon our ex-
amination referred to above, nothing came  to  our attention which
indicated that MDNR  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
                               •10-

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

The procedures  utilized  by MDNR to  procure contractual services
under its Superfund cooperative agreements were not in compliance
with all  requirements of  the Federal  regulations (40  CFR Part
33).  MDNR's  procurement procedures, which are shared  with the
Michigan  Department  of  Management  and  Budget  (MDMB),  were not
fully integrated  to  conform with Federal  regulations.   Coopera-
tive agreement recipients are required to comply with 40 CFR Part
33  as a condition of obtaining EPA  funding.   MDNR's  procurement
system did not:

     0    Incorporate  all  required  EPA subagreement clauses  in,
          the contracts awarded for contractual services.

     0    Include  in their  bid package  distributed to respon-
          dents, how to  obtain a copy of 40 CFR 33.295, Subparts
          F and G.

A.   Subagreement Provisions

     Our  review disclosed  that subcontracts  awarded  under the
     cooperative  agreements  did  not  contain  several  of  the
     required subagreement clauses required by 40 CFR 33.1030, in
     whole  or  in part,  and did not contain equivalent clauses
     (see  Exhibit M).   The  clauses referred  to described- the
     minimum  assurances, guarantees,  indemnity  and  other, con-
     tractual  requirements  necessary to ensure that  the Federal
     government's best interests are protected.   MDMB's omission
     of the model subagreement clauses  was dtie . to. its ;use of, a
     standard  contract  form which did  not contain the required
     model subagreement clauses.  As a result, "the best.interests
     of the Federal government may not be adequately protected if
     any  contractual claims or disputes arise between; MDNR and
     the  subcontractors  retained  under  its cooperative  agree-
     ments .                                              ' .

B.   Lack of 40 CFR 33.295. Subparts F and G in Bid Packages

     MDNR's procurement  procedures did  not provide adequate pub-
     lic  notice of how  to  obtain a  copy of 40 CFR  33.295, Sub-
     parts  F and  G.   In  addition,  these subparts  were not inclu-
     ded  in the "bid package" distributed  to respondents  of the
     request  for  qualifications.   Federal  regulation  40  CFR
     33.510(b)  states:   "The notice  of a  request for  proposals
     must state how to  obtain associated  documents,  including a
     copy of  §33.295,  Subparts  F and G,  the  basis for subagree-
     ment  award,  and,   if  appropriate,  EPA  Form 5720-4   'Labor
     Standards  Provisions  for Federally   Assisted  Construction
     Contracts'."  The  lack of adequate public notice  of  how to
     obtain 40  CFR 33.295,  Subparts F and G was due to the fact
                              -11-

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FINDINGS AND RECOMMENDATIONS (Continued)
     that MDNR's procurement procedures were not fully integrated
     with applicable Federal regulations.   As  a result,  the best
     interests of MDNR and EPA may not be adequately protected.

     CORRECTIVE ACTION TAKEN BY MDNR

     The Deputy Director of MDNR stated in response to the recom-
     dations in our draft report:

     A.   The auditors are correct.  We have instituted a process
          to insure that all required EPA subagreement clauses
          are contained in future contracts.

     B.  ' We are  revising our bid  package to  include all model
          subagreement   clauses   to   comply   with   advertising
          requirements contained in 40 CFR 33.
                                              ^
     The proposed actions are  responsive  to  the intent  of  our
     recommendations  and   consequently,   we   make   no   further
     recommendation.
2.   LACK OF FIXED FEE MONITORING SYSTEM

MDNR paid  $114 of  contractual  service  costs  in  excess of  the
specified  contract  fixed  fee  amount.    According  to  40  GFR
33.235(a),  "Recipients must assure  that  only fair  and reasonable
profits are  paid  to contractors awarded  subagreements  under  EPA
assistance agreements."  The payment of  the excess fixed fee  was
a result of MDNR not monitoring the fixed fee portion of the con-
tract.   Consequently, MDNR paid the contractor  and claimed $114
of fixed fee which  was  in excess of the  fixed  fee limitation in
the cost-plus-fixed-fee (CPFF) contract with CMC.

We noted that MDNR paid CMC $203,597, of which $11,524 related to
the fixed fee.   MDNR's contract with CMC specified a fixed fee of
$11,410.  Therefore, the specified  contract fixed  fee amount  was
exceeded by  $114.   MDNR did  not have procedures  for monitoring
limitations within contracts, although they did monitor the total
contract limit.  As a result, MDNR paid CMC $114 of excess profit
and claimed  it as an eligible  expenditure for EPA participation.
Without proper monitoring,  all  CPFF contracts have the potential
for this type of problem.

CORRECTIVE ACTION TAKEN BY MDNR

We  recommended in  our  draft  report  that  the Regional  Admin -
trator, Region  5  instruct MDNR  to  institute  a  monitoring system
for their various Superfund subagreements,  to prevent fixed fees
                              -12-

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 FINDINGS AND RECOMMENDATIONS (Continued)


 from exceeding  specified contract amounts.   The  Deputy Director
 of HDNR  stated in  response  to the  recommendation in  our draft
 report:

      We have modified the ledger sheets used to document payments
      to  contractors  to   specify  the  fixed  fee   amount   in  the
      contract and the  amounts  paid to date.   No  further actions
      on this item are necessary.

 The proposed action is responsive to  the  intent of our recommen-
 dations and consequently, we make no further recommendation.


 3.   NONEXPENDABLE PERSONAL PROPERTY OMITTED FROM PROPERTY LIST
                                                       'I > ; ~   , , .
 MDNH did not include  computer  equipment,  amounting to $4,935, on
 'its property list.  In accordance with 40 CFR Part  30, coopera-
 tive agreement  recipients are  required to maintain  property re-
 cords that ensure the interest of the United States is adequately
 reflected and protected.   The computer equipment was,purchased by
 NUS pursuant to a contract between NUS and  MDNR  for .contractual
 services.  MDNR was waiting to take physical  possession  before
 recording the equipment on its  property  list.   MDNR,  by omitting
 the equipment from  its property list, failed  to  ensure that the
 interest of  the Federal  government was adequately reflected and
 protected.

 In accordance  with  40 CFR 30.531,  property recipients are  re-
 quired to  maintain  accurate  records to  include  a complete  de-
 scription of the property and. maintain identification of Federal-
 ly owned property.  MDNR  officials  stated at the  exit conference
 .that the equipment was not included  in  its  Federally  funded pro-
 perty  list because  the equipment  was still  in the possession of
 the .contractor.  MDNR had planned to add the computer "to f the --list
" when  it   was transferred at  the  end of   the  projectj  - 'Addi-
 tionally, MDNR stated that the  equipment  was tracked''in the pro-
 ject files, including information listed under 40'CFR 30'.531.

 CORRECTIVE ACTION TAKEN BY MDNR

 We  recommended  that   in  our   draft  report  that  the  Regional
 Administrator,   Region  5   instruct MDNR  to record  all applicable
 Federally  funded equipment  . on  its  Federally  funded  property
 listing  as  soon  as  it  is purchased,   regardless   of  who  has
 possession of the equipment.   The Deputy  Director of MDNR stated
 in response to the recommendations in our draft report:

      All Federally funded equipment purchases, with the exception
      of the noted computer equipment  which was in the possession
      of  the  contractor,   have  been  recorded on  State  inventory
                               -13-

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FINDINGS AND RECOMMENDATIONS (Continued)


     records  in  accordance with  40  CFR 30.531.   Information on
     the  computer equipment,  equivalent  to  40  CFR  30.531  was
     maintained in the project  files.   Neither  the State nor EPA
     Chicago  staff  were  aware  of the  requirements  to maintain
     inventory records for equipment which the State does not yet
     have possession of.  We question the appropriateness of this
     finding.

     Since  the audit,  the computer  equipment has come  into  the
     possession of  the  State  and the  relevant  information  has
     been entered into the State inventory records.

The proposed action is responsive  to  the  intent of our recommen-
dation and consequently, we make no further recommendation.


4.   FEDERAL CASH TRANSACTIONS REPORTS IMPROPERLY COMPLETED

MDNR did  not file properly  completed Federal  Cash  Transactions
Reports (SF-272).  Also, MDNR failed  to file  all of  the required
SF-272s.  Assistance  recipients are  required to  submit SF-272s
quarterly.  EPA uses the  SF-272s  to  monitor  the recipients' fis-
cal activity.  Without  accurate information,  potential problems,
such as excess cash being drawn down, could go undetected.

MDNR  did  not  file  the  SF-272 reports  consistently,  until  the
quarter ended September  30, 1985  (see Minor  Finding  - Corrective
Action Taken, for a further discussion  of this  issue).  When re-
porting on more than one assistance agreement, an addition to the
SF-272 called  the Federal Cash Transactions  Report  Continuation
SF-272A is  required.   The SF-272A reports the  Federal  share of
net disbursements, both  for the current period  and cumulatively,
for each  assistance agreement  covered by the SF-272  for the  re-
porting period.   The  cumulative  net disbursements for  each  as-
sistance  agreement reported by MDNR  on  SF-272As were incorrect.
The cumulative amount  for quarters when no  SF-272 was submitted
was excluded from the  cumulative  column on  SF-272AS submitted,
thereby producing an  understatement  in the  cumulative  net dis-
bursements  to date amounts.

EPA grants  management personnel use  the SF-272s  to  monitor  the
financial  activities  of MDNR  cooperative agreements.   Without
these  reports  being  prepared accurately,  grants management per-
sonnel cannot determine whether funds drawn down were expended in
a  timely  manner,  whether there were  long  delays between the  in-
curring of  expenditures and requests for drawdowns,  or whether
excess cash had been drawn down.
                              -14-

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   FINDINGS  AND RECOMMENDATIONS (Continued)


  MDNR'S COMMENTS  ON  FINDING

  We recommended  in our draft report that the Regional Administra-
  tor, Region  5:


       A.   Instruct  MDNR  to  correct  the  SF-272As  to  reflect
            accurate data; and

       B.   Monitor submission of the SF-272s to determine they are
            properly completed in the future.

  The Deputy Director of  MDNR stated in response  to  the  recommen-
  dations in our draft report:


       The  auditors are correct.  Federal Cash Transaction  Reports
       were  never  submitted  to EPA until September 30, 1985.   We
       have  always  assumed these  reports were  only  for  advance
       drawdowns.   Our  method of  billing  is  on  a reimbursement
       basis only.  We  also  received  confirmation from  the  U.S.
       Department  of  Treasury that we  didn't need to  file  this
       report.   This confirmation was submitted  to EPA in 1980? a
       response from them was received.  EPA contacted us late  in
       1985  explaining our non-compliance.

       In our opinion, the  Federal  Cash Transaction Reports we are.
       submitting  are  accurate.   When  the  new  Letter of  Credit
      process was initiated by EPA and the Department of Treasury,
      all of our balances agreed to  their authorization.   We have
      been  using  that  as   our   reconciling  balance.    If  the .
      financial  management section  of  EPA  disagrees  with  our
      reports,  please  let us know.   We would be more than  happy to
      discuss the correct balances.  We are  currently  meeting the
      requirements of  OMB  Circular  A-102.   No  other  corrective
      action will  be taken without  written instructions from EPA.

 OUR EVALUATION OF MDNR'S  COMMENTS

 It  is  our  belief that this issue should be resolved between  MDNR
 and Region  5.   It  appears  that communication on  this matter needs
 to  be  improved.

 RECOMMENDATIONS

We  recommend that the Regional Administrator, Region 5:

A.   Coordinate with MDNR to ensure that the SF-272As reflect ac-
     curate data; and

B.   Monitor submission of the SF-272s to determine they are pro-
     perly completed in the future.
                              -15-

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FINDINGS AND RECOMMENDATIONS (Continued)


5.   MINOR FINDINGS - CORRECTIVE ACTION TAKEN AFTER AUDIT

A.   MDNR did not  submit  the  required quarterly progress reports
     to  the  Region 5 Project  Officers .   The  quarterly reports
     were required by the  special  conditions of each cooperative
     agreement.  As a result,  EPA Region 5  did not have written
     documentation detailing expenditures, estimates of work com-
     pleted, cost and time variances, and dates of completion.

B.   MDNR did not report  the  theft of Federally funded equipment
     (a  steam  generator)  that was purchased under  the Spiegel-
     berg/Rasmussen cooperative  agreement.   In  addition,  MDNR's
     Federally funded equipment  list, submitted to  EPA Region 5
     in March 1986, did not reflect the theft of this item, which
     occurred in January 1986.  Recipients must maintain accurate
     records according  to  40  CFR 30.531(a)  As  a  result,  MDNR's
     Federally funded equipment  list,  submitted to EPA Region 5,
     was not accurate  and EPA was  unaware  of the  theft of this
     item.

C.   Several  items  of  equipment,  on MDNR's  Federally  funded
     equipment list were not  listed at cost.  Recipients are re-
     quired by  40 CFR  30.531  to maintain a property management
     system that  "meets the following minimum  standards:   main-
     tain accurate records reflecting..;unit acquisition date and
     cost..."   MDNR personnel  explained  that  they  entered the
     cost  from purchase  requisitions  which sometimes  differed
     from  acquisition  cost.  MDNR submitted to  EPA Region  5 a
     Federally funded equipment  list  that did not reflect  equip-
     ment acquisition cost in all cases.

CORRECTIVE ACTION TAKEN BY MDNR

The Deputy Director of MDNR stated in response to the recommenda-
tions in our draft report:

     A.   Submittal of  Quarterly Progress Reports  to Region V --
          With the exception of one project, MDNR staff have been
          submitting quarterly reports  in a  timely manner  to the
          EPA  project  officer  since  January of 1986.  The one
          exception  has  now   come  into  compliance  with  the
          requirement and we  will continue  to comply with the
          requirement  for  quarterly  report submittal  for  all
          cooperative  agreements  in  the future.   Reasons  for
          delays   in   quarterly  report   submittals  for   the
          Spiegelburg/Rasumussen  cooperative agreement  included
          extensive, critical  and unanticipated activity  on the
          site  by  PRP's  as  well  as  EPA  and DNR.   Quarterly
          reports,  while  not  being  ignored were  considered as
          lower in priority and  benefit to  the  interests of both
                              -16-

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FINDINGS AND RECOMMENDATIONS (Continued)


          the  Federal  and  State  government  than  other  site
          related activities at the time.

     B.   The theft of  the  steam  jenny has been reported to both
          U.S. EPA and  the  police.   It was an  oversight that it
          had not  been  deleted from  our inventory prior  to the
          audit, but that has now been corrected.

     C.   Two separate  State  inventory systems  existed  at the
          time of  the audit.   The inventory  records  reviewed by
          the auditors contained purchase requisition costs which
          sometimes differed from the  acquisition  cost.   We have
          merged the two  inventory systems and  the State records
          now document  acquisition  costs  for  Federally  funded
          equipment in accordance with 40 CFR 30.531...

The proposed action is  responsive to  the intent of our recommen-
dations and consequently,  we make no further recommendation.


6.   MINOR FINDINGS - CORRECTIVE ACTION TAKEN DURING AUDIT

A.   MDNR did not submit all  Federal Cash Transactions Reports
     (SF-272) to  Region 5 Project Officers, as specified  by OMB
     Circular A-102.   MDNR officials  were aware  of  the  filing
     requirements, but  felt that  they  were exempt  because MDNR's
     drawdowns were based on actual disbursements.   This limits
     the ability  of  EPA Region 5  in monitoring the  State's ef-
     fectiveness  of handling  Federal funds.  OMB  Circular A-102
     requires the  Federal Cash Transactions  Report be submitted
     within  15  working  days following  the end of  each  quarter.
     MDNR officials were  aware of  the  filing  requirement;  how-
     ever, the  MDNR  interpreted OMB Circular A-102 as requiring
     submission of the  SF-272  for advance  drawdowns only.   Since
     the quarter  ended September  1985, MDNR has  submitted the
     SF-272 on a timely basis.

B.   MDNR  erroneously  claimed $11,988  of  contractual  service
     costs which were incurred prior to the cooperative agreement
     approved project  period.   MDNR  paid a  contractor  $11,988.,
     pursuant to  contract number  1525,  for  contractual service
     costs incurred through February  23, 1985.   However, the co-
     operative  agreement  project  period  began March 10,  1985.
     MDNR corrected  this erroneous  charge, which  was due  to  a
     bookkeeping  error, on  the Financial  Status Report  (SF-269)
     dated September 30,  1985.   Consequently,  this cost was not
     claimed  on the  SF-269  dated February 28, 1986  (our audit
     cutoff  date);  however,  MDNR drew down  $9,506   ($11,988  x
     79.3% [the effective Federal reimbursement rate])  for this
     ineligible contractual expenditure.
                              -17-

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FINDINGS AND RECOMMENDATIONS (Continued)
C.
Additionally, MDNR erroneously claimed $9,350 of project
costs for Federal participation which were State advance
match costs.  The SF-269 dated February 28, 1986, properly
stated these project costs as "state advance match only".
MDNR gave no reason for the excess drawdown of $7,415
($9,350 x 79.3Z [the effective Federal reimbursement rate]).
MDNR officials indicated this had been corrected subsequent
to our audit period.

MDNR requested an amendment  to  its  cooperative agreement to
cover additional contractual  services  costs  related to con-
tract number  1525,  described, in ,6.B.  above.   However, when
MDNR amended  the  contract, the amendment  was approximately
$92,000  less  than  the  amount  approved  in  the  cooperative
agreement.  At the exit conference,  MDNR stated that actions
were taken in June 1986, to amend the contract.

                              -18-

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EXHIBITS

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                                                       EXHIBIT A
w
COOPERATIVE AGREEMENTS AWARDED TO THE

MICHIGAN DEPARTMENT OF NATURAL RESOURCES
SUMMARY OF
FOR THE
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and
Supplies
Contractual
Services
Other Direct Costs
Indirect Costs
Totals
Federal Share
COSTS CLAIMED. ACCEPTED, QUESTIONED AND SET- AS IDE
PERIOD JULY 30, 1982 THROUGH FEBRUARY
AMOUNT
CLAIMED ACCEPTED QUESTIONED
(Note 1) (Note 2)
$ 637,943 $ 637,943 $
177,972 177,972
64,660 64,660
50,703 50,703
48,496 48,496
2,725,046 2,451,943 63,480
69,434 69,434
136,066 136,066
$3,910,320 $3,637,217 $63,480


28, 1986

SET-ASIDE
$
209,623
$209.623
$209,020
                                                                 NOTES
                                                                 3, 4
Note 1    The amounts claimed represent  expenditures  reported on
          the Financial  Status  Report (SF-269)  through February
          28, 1986.

Note 2    See Exhibits B  thru  L for schedules of  costs claimed,
          accepted, questioned and set-aside.

Note 3    The $63,480 questioned consists of  $11,332  (Exhibit B)
          and $52,148 (Exhibit H).

Note 4    The $209,623 set-aside consists of  $6,026  (Exhibit B),
          and $203,597 (Exhibit C).
                              -19-

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                                                            EXHIBIT B

     BERLIN AND FARRO INDUSTRIAL INCINERATOR COOPERATIVE AGREEMENT (V005784)
          AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
       SCH|?D"ULE OF COSTS CLAIMED. ACCEPTED. QUESTIONED AND
          TOR THE PERIOD JULY 30. 1982 THROUGHFEBRUARY 28. 1986
                      gUESTj
                      H FEI
                                         AMOUNT
COST CATEGORY
CLAIMEDACCEPTEDQUESTIONEDSET-ASIDE  NOTES
Personnel
Fringe Benefits
Travel
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals


Federal Share
(Note 1)

$ 79,508
  18,942
   5,513
  12,509
 468,669
     950
  14,789
                                 $ 79,508
                                   18,942
                                    5,513
                                   12,509
                                  451,311
                                      950
                                   14.789
                      $600.880   $583.522
                      $572.096
                        11,332
                       $11,332


                       $11,332
                                   $  -
 6,026   2, 3, 4
$6.026
$5^423
     Note 1    The amounts  claimed  represent  expenditures reported on
               the Financial  Status  Report,  (SF-269)  through February
               28, 1986.

     Note 2    We  questioned  $11,332  of  contractual  service  costs.
               MDNR claimed contractual  service costs  for  a remedial
               measure  under the RI/FS  phase.  According  to  40  CFR
               30.510, recipients are required to maintain a financial
               management system  that  includes  "An accurate, current,
               and complete accounting of all  financial transactions
               for the project..."  According to MDNR, this misclassi-
               fication  was  due  to instructions  received  from  EPA.
               Consequently,  MDNR drew down  $11,332  in  excess  of al-
               lowable project costs.

               MDNR claimed $113,318,  for  soil removal work performed
               by  A-l  Disposal,  Incorporated,  under  the RI/FS phase
               (100Z  Federal participation)  of  the  Berlin  and Farro
               cooperative  agreement.   This  expenditure should  have
               been claimed under the remedial measure phase (90% Fed-
               eral participation) of the cooperative agreement.

               MDNR personnel believed that EPA, Region 5, had approv-
               ed  this remedial  measure  contract  expenditure to  be
               charged under  the  RI/FS activity phase.  Our subsequent
                                   -20-

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                                                        EXHIBIT B
                                                       (CONTINUED)

BERLIN AND FARRO INDUSTRIAL INCINERATOR COOPERATIVE AGREEMENT (V005784)
     AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
  SCHEDULE OF COSTS CLAIMED. ACCEPTED.  QUESTIONED AND SET-ASIDE
     FOR THE PERIOD JULY 30. 1982 THROUGH FEBRUARY 28, 198T

Note 2    (Continued)

          follow-up with EPA, Region 5,  Project  Officer revealed
          that this remedial measure expenditure was not approved
          for  classification under the  RI/FS  activity  phase.
          Consequently, MDNR claimed $11,332 ($113,318 x 10Z) for
          Federal participation,  in excess of allowable  project
          cost.  At  the exit  conference,  we  were told  by  MDNR
          that this  had been corrected  subsequent to  our audit
          period.

Note 3    We questioned  $6,026  of contractual service  costs for
          contract inactivity from October 20 through November 8,
          1982.    D'Appolonia   Waste   Isolation,   Incorporated
          (D'Appolonia) billed*MDNR $9,601 for "shut-down" expen-
          ses pertaining to a period of  inactivity on this RI/FS
          contract.  MDNR disallowed $3,575 of a $4,775 line item
          on  one  of  the  two  "shut-down"   invoices.   MDNR  and
          D'Appolonia  do not  agree on  whose  fault  caused  the
          shut-down  and  the related  charges.   MDNR  paid  and
          closed the $6,026 balance  ($9,601 less  $3,575 disal-
          lowed) as an allowable expense.

          According  to OMB  Circular A-87,  to be  allowable a cost
          must be  "allocable to  a  particular cost objective  to
          the  extent  of  benefits  received  by  such  objective."
          This contract  inactivity was due  to MDNR personnel not
          being  on site because  of a  scheduling  conflict,  and
          D'Appolonia  not having materials  and equipment  on site
          in a timely  manner.   Consequently,  MDNR claimed $6,026
          for contractual service cost which did not  benefit the
          project.

          MNDR'S COMMENTS ON FINDING

          We recommended in the  draft  report that the Regional
          Administrator, Region 5,  disallow the  $6,026 contract-
          ual service  costs claimed for "shut-down" expenses.

          The Deputy Director  of MDNR stated in  response to the
          recommendation in our draft report:

               Correction   of   the  $6,026   is   currently  being
               submitted to  EPA  in  the  form of a "draft" SF-269.
               We are  negotiating with EPA to close out the
                              -21-

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                                                        EXHIBIT B
                                                       (CONTINUED)

BERLIN AND FARRO INDUSTRIAL INCINERATOR COOPERATIVE AGREEMENT (V005784)
     AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
  SCHEDULE OF COSTS CLAIMED. ACCEPTED, QUESTIONED AND SET-ASIDE
     FOR THE PERIOD JULY 30, 1982 THROUGH FEBRUARY 28. 198?

Note 3    (Continued)

               Berlin-Farro Industrial Incinerator Project.  When
               EPA makes a  decision  on what  costs are acceptable
               a final  SF-269  can  be prepared  to  correct  this
               misunderstanding.   The  draft  SF-269  should  be
               submitted to EPA by March 20,  1987.

          OUR EVALUATION OF MDNR'S RESPONSE

          The proposed action  is  responsive  to the intent of our
          recommendation in that MDNR has indicated correction of
          the $6,026 in a "draft" SF-269 submitted to EPA.

          RECOMMENDATION

          We recommend that the Regional Administrator, Region 50
          follow-up  to  ensure  that the  $6,026  adjustment  is
          reflected  in" the  final SF-269 submitted by MNDR after
          completion of negotiations to close out this project.

Note 4    During our  evaluation,  we noted that  D'Appolonia  sub-
          mitted invoices  totaling  $430,692  of  which MDNR  paid
          and  claimed $66,867.  MDNR was  dissatisfied with the
          quality  of  the  work  performed   and  believed  that
          D'Appolonia was not  in compliance  with contractual re-
          quirements.  MDNR decided to withhold  payments total-
          ing  $363,825.  Subsequent  to  our fieldwork, this  con-
          tract dispute remained unsettled.

          MDNR'S COMMENTS ON FINDING

          The Deputy  Director  of MDNR stated  in  response to our
          draft report:

               We  feel  that Note 4  is  inappropriate  in  that  we
               are negotiating a final payment with EPA following
               a  settlement  with  the  contractor.   No  Federal
               funds  have  been claimed by the State  beyond the
               $66,807.

          OUR EVALUATION OF MDNR'S RESPONSE

          We  believe  that Note   4  is   appropriate  for  full
          disclosure  of  the events  relevant  to  this cooperative
          agreement covered in this report.
                              -22-

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                                                       EXHIBIT C

LIQUID DISPOSAL. INCORPORATED INDUSTRIAL INCINERATOR COOPERATIVE
AGREEMENT (VO05785) AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL
   RESOURCES SCHEDULE OF COSTS CLAIMED, ACCEPTED AND SET-ASIDE
      FOR THE PERIOD MAY 1, 1983 THROUGH FEBRUARY 28, 1986
                                      AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals


Federal Share
 CLAIMED
(Note 1)

$122,424
  37,147
  11,941
   5,446
 228,062
  13,530
  24,749
ACCEPTED
$122,424
  37,147
  11,941
   5,446
  24,465
  13,530
  24.749
$443,299    $239,702


$443,299    $239.702
SET-ASIDE
NOTE
  203,597
             $203,597


             $203,597
Note 1    The amounts claimed  represent  expenditures reported on
          the Financial Status  Report,  (SF-269)  through February
          28, 1986.

Note 2    We  set  aside  $203,597  of  contractual  service  costs
          based  upon  lack of  contractor  performance.   According
          to OMB Circular A-87, to  be allowable a  cost  must be
          "allocable to a particular cost objective to the extent
          of benefits received  by  such objective."   The contrac-
          tor, CMC,  lacked the staff  and/or  technical expertise
          to  perform  the required  tasks.   The MDNR paid  and
          claimed  $203,597  (full contract amount)  for RI/FS work
          that was not  complete or acceptable to MDNR.   The CMC
          project  manager  left CMC when  the  Remedial Investiga-
          tion was substantially incomplete.  CMC did not replace
          the project manager with someone of equal ability.  The
          LDI project manager  stated that CMC submitted a "draft
          Remedial  Investigation  report  -which  left  much  to be
          desired; major revisions are needed on the report."

          MDNR officials  indicated that  EPA  was fully informed,
          aware  and in concurrence with all actions taken by MDNR
          regarding contractor performance on the project.  Addi-
          tionally, MDNR officials stated:

               Substantial  delays  were incurred due  to the
               EPA's contract laboratory program, which dir-
                              -23-

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                                                       EXHIBIT C
                                                      (CONTINUED)

LIQUID DISPOSAL, INCORPORATED_INDUSTRIAL INCINERATOR COOPERATIVE
AGREEMENT (V005785) AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL
   RESOURCES SCHEDULE OF COSTS CLAIMED, ACCEPTED AND SET-ASIDE
      FOR THE PERIOD MAY 1, 1983 THROUGH FEBRUARY 28, 1986

Note 2    (Continued)

               ectly resulted in  increased  cost to the pro-
               ject as well as difficulties in completing an
               adequate remedial  investigation  report.   Our
               department  was  in  the  process  of  amending
               CMC's  contract  to  increase  the budget  and
               time period when the decision was made to let
               the  contract expire  and  have  another  con-
               tractor finish the work.   To a great extent,
               this decision was  due  to changes in contrac-
               tor  staffing and  the   State's  determination
               that they were no  longer capable of complet-
               ing  the work.  We are  convinced  that  they
               adequately performed the work for  which they
               were paid,  although  it required a  great in-
               vestment of  our resources  to oversee and en-
               sure that the work was done.

          MDNR'S COMMENTS ON FINDING

          We recommended  in our  draft report  that  the Regional
          Administrator, Region 5, review the matter to determine
          the  amount  of work  performed by  CMC which  should be
          eligible for EPA participation.  The Deputy Director of
          MDNR stated in response to our draft report:

               This  amount  of  contractor  costs  was   set  aside
               apparently   based  on   a   lack  of   contractor
               performance.   The  report pointed   out  that  the
               contractor   lacked  the  staff  and/or  technical
               expertise  to perform the  required  tasks  and the
               draft  audit  report stated that  the DNR paid for
               work that was not complete or acceptable.  It must
               be  pointed  out  that the contractor  was  only paid
               for acceptable work at  the rates specified in the
               contracts.   Approximately   $44,000   of  invoiced
               charges  were not  paid  because  the work  was not
               acceptable.   This  primarily  related to the  poor
               quality RI report submitted by the contractor.

               The  costs  to have  completed the  RI/FS  increased
               over  the course  of the  project;   however,  these
               costs were not due to the contractor's ability but
               instead were primarily due to the substantial delay
                              -24-

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                                                       EXHIBIT C
                                                      (CONTINUED)

LIQUID DISPOSAL. INCORPORATED INDUSTRIAL INCINERATOR COOPERATIVE
IQUII
GREEJ
AGREEMENT (V005785) AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL
   RESOURCES SCHEDULE OF COSTS CLAIMED, ACCEPTED AND SET-ASIDE"
      FOR THE PERIOD MAY 1, 1983 THROUGH FEBRUARY 28. 1986

Note 2    (Continued)

               in receipt and poor quality of analysis of samples
               through  the national  contract  lab program.   The
               delay amounting to 6-8 months and the poor quality
               of  the  analysis  of approximately  119  samples re-
               sulted in the  need to redo the  soil  sampling and
               monitoring  well  sampling program.  This  included
               the  need to  repeat  soil  borings  and some  well
               installations.

          OUR EVALUATION OF MDNR'S RESPONSE

          The response  provided by MDNR is not  adequate for the
          auditors to resolve this  finding nor  is the resolution
          within the  scope of our audit.  Due  to the complexity
          of  the  situation,  we believe that  this matter  would
          best be  resolved through negotiations between  MDNR and
          the contractor.

          RECOMMENDATION

          We recommend that the Regional Administrator, Region 5,
          review  this  matter in detail with  MDNR officials  to
          determine  the amount  of  work  performed  by  the  con-
          tractor  (CMC) is eligible for EPA participation.
                              -25-

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                                                       EXHIBIT D

ROSE TOWNSHIP INDUSTRIAL WASTE DUMP COOPERATIVE AGREEMENT (V005787)
    AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
             SCHEDULE OF COSTS CLAIMED AND ACCEPTED
   FOR THE PERIOD SEPTEMBER 1, 1983 THROUGH FEBRUARY 28, 1986
                                             AMOUNT
COST CATEGORY


Personnel
Fringe Benefits
Travel
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals

Federal Share
 CLAIMED
(Note 1)

$ 56,644
  15,652
   6,301
   2,741
 552,929
  13,084
  10,948

$658,299

$658,299
ACCEPTED
$ 56,644
  15,652
   6,301
   2,741
 552,929
  13,084
  10,948

$658.299

$658,299
Note 1    The amounts claimed  represent  expenditures  reported on
          the Financial  Status Report,  (SF-269)  through  Febru-
          ary 28, 1986.

                              -26-

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                                                       EXHIBIT E

  NORTHERNAIRE PLATING, INCORPORATED INDUSTRIAL WASTE DISPOSAL
COOPERATIVE AGREEMENT (V005786) AWARDED TO THE MICHIGAN DEPARTMENT
             OF NATURAL RESOURCES SCHEDULE OF COSTS
               CLAIMED AND ACCEPTED FOR THE PERIOD
           NOVEMBER 1. 1983 THROUGH FEBRUARY 28TT986
                                    AMOUNT
COST CATEGORY                CLAIMED         ACCEPTED        NOTE
                            (Note 1)

Personnel                   $ 66,867         $ 66,867
Fringe Benefits               17,104           17,104
Travel                         4,285            4,285
Materials and Supplies         4,737            4,737
Contractual Services         276,289          276,289          2
Other Direct Costs               305              305
Indirect Costs                13,949           13.949

Totals                      $383.536         $383.536


Federal Share               $367.214         $367.214
Note 1    The amounts claimed  represent  expenditures reported on
          the Financial Status  Report,  (SF-269)  through February
          28, 1986.                                  •  •       . -

Note 2    MDNR paid and claimed a  late  payment penalty amounting
          to $39,  assessed on invoices  submitted  by E.G. .Jordan
          Company  (Jordan),  under  the  cooperative  .agreement.
          According to OMB Circular A-87.^Attachment B, late pay-
          ment  penaltiesareunallowableforFederal  partici-
          pation.  This cost being claimed  resulted from the co-
          operative agreement Project Manager's lack of knowledge
          of  Federal requirements regarding  late  payment  pen-
          alties.
                              -27-

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                                                       EXHIBIT F

 CEMETERY INDUSTRIAL WASTE DUMP COOPERATIVE AGREEMENT (V005775)
    AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURClS
             SCHEDULE OF COSTS CLAIMED AND_ACCEPTED
      FOR THE"PERIOD MAY 21, 1984 THROUGH FEBRUARY 28, 1986
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals
 CLAIMED
(Note 1)

$ 50,805
  12,833
   5,927
  18,483
   4,724
 237,436
   4,426
  11,662

$346.296
                                             AMOUNT
ACCEPTED
$ 50,805
  12,833
   5,927
  18,483
   4,724
 237,436
   4,426
  11.662

$346,296
Federal Share
$332,535
$332,535
Note 1    The amounts claimed  represent  expenditures  reported on
          the Financial Status  Report,  (SF-269)  through February
          28, 1986.
                              -28-

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                                                       EXHIBIT G

  SPRINGFIELD TOWNSHIP INDUSTRIAL WASTE DUMP COOPERATIVE AGREE-
MENT (V005776) AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
             SCHEDULE OF COSTS CLAIMED AND ACCEPTED
      FOR THETERIOD MAY 21. 1984 THROUGH FEBRUARY 28. 1986
                                            AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals


Federal Share
 CLAIMED
(Note 1)

$ 58,440
  16,676
   5,102
     348
   6,036
 211,310
  15,121
  13,533

$326.566

$326,566
ACCEPTED
$ 58,440
  16,676
   5,102
     348
   6,036
 211,310
  15,121
  13.533

$326,566

$326,566
Note 1    The amounts claimed  represent  expenditures reported on
          the Financial  Status  Report,  (SF-269)  through February
          28, 1986.
                              -29-

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                                                       EXHIBIT H

 SPIEGELBERG/RASMUSSEN LANDFILL COOPERATIVE AGREEMENT (V005777)
     AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
       SCHEDULE OF COSTS CLAIMED. ACCEPTED AND QUESTIONED
      FOR THE PERIOD MAY 21, 198A THROUGH FEBRUARY 28,"T9"86
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals

Federal Share
                                      AMOUNT
 CLAIMED
(Note 1)

$ 98,176
  29,757
  11,422
  31,556
   7,614
 326,082
  12,879
  22,474
ACCEPTED
$ 98,176
  29,757
  11,422
  31,556
   7,614
 273,934
  12,879
  22.474
$539,960    $487,812

$539,960    $487.812
QUESTIONED


   $   -




    52,148
NOTE
               $52,148

               $52,148
Note 1    The amounts claimed  represent  expenditures reported on
          the Financial Status  Report,  (SF-269)  through February
          28, 1986.

Note 2    We  questioned  $52,148  of  contractual  service  cost.
          MDNR erroneously claimed $52,148 of ineligible contract
          expenditures.   According  to 40 CFR  30.510,  recipients
          are required to maintain a  financial management system
          that includes "An  accurate, current, and  complete ac-
          counting  of  all financial  transactions for  the  proj-
          ect..."  Due to a  bookkeeping  error,  MDNR claimed this
          ineligible contractual service cost by mistake.  Conse-
          quently,  ineligible  contractual  service  costs  were
          claimed under the cooperative agreement.

          During  a  program  management   assistance  review  in
          January  1986,   EPA  Headquarters   determined   that  the
          contract with Mid-America Corporation  for the building
          of  a  fence around the  Spiegelberg/Rasmussen  site did
          not contain  all necessary  40  CFR Part  33 provisions.
          Due  to   the   problems  involved   in   correcting  the
          Mid-America Corporation  contract  to conform  to  40 CFR
          part 33, MDNR decided to pay for the fence construction
          out of State funds,  instead of correcting the contract
          to conform with 40 CFR Part 33 requirements.

          Due to  a bookkeeping error, the  $52,148 paid pursuant
          to this contract was claimed on the SF-269 dated
                              _30-

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                                                        EXHIBIT H
                                                       (CONTINUED)

 SPIEGELBERG/RASMUSSEN LANDFILL COOPERATIVE AGREEMENT (V005777)
     AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
       SCHEDULE OF COSTS CLAIMED, ACCEPTED AND QUESTIONED
      FOR THE PERIOD MAY 21. 1984 THROUGH FEBRUARY 28. 1986

Note 2    (Continued)

          February 28, 1986.  According  to 40 CFR  30.510,  reci-         f
          pients are required to maintain  a financial management         f
          system that  includes  "An  accurate,  current, and  com-
          plete accounting of all  financial transactions  for the
          project...."   Consequently,  MDNR claimed  contractual
          service cost under the cooperative  agreement which was
          not eligible for EPA participation.

          CORRECTIVE ACTION TAKEN BY MDNR

          The Deputy Director of MDNR stated in response  to our
          draft report:

               The cost that was claimed for the fence construct-
               ed at Spiegelberg/Rasmussen was not  done in error.
               These costs were charged properly according  to 40
               CFR 30.510.   When it was  learned that the  fence
               would not be an  acceptable  cost, we  corrected our
               billings and Form SF-269.   All  corrective  actions
               have been taken.

          The corrective action taken is responsive to the intent
          of  our  recommendation and,  consequently,  we  make  no
          further recommendations.
                              -31-

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                                                                 EXHIBIT I

                  VERONA  WELL  FIELD  COOPERATIVE AGREEMENT  (V005793)
              AWARDED  TO THE  MICHIGAN DEPARTMENT OF NATURAL  RESOURCES
                       SCHEDULE  OF COSTS CLAIMED AND ACCEPTED
              FOR  THE  PERIOD  OCTOBER  1,  1984 THROUGH  FEBRUARY  28.  1986
                                                      AMOUNT
          COST CATEGORY
          Personnel
          Fringe  Benefits
          Travel
          Equipment
          Materials  and Supplies
          Contractual  Services
          Other Direct Costs
          Indirect Costs

          Totals


          Federal Share
CLAIMED
(Note 1)
$33,374
9,123
3,433
316
1,306
41,543
218
7,789
$97,102
$87,392
ACCEPTED

$33,374
9,123
3,433
316
1,306
41,543
218
7,789
$97,102
$87,392
          Note 1     The amounts claimed represent expenditures reported  on
                    the Financial Status Report, (SF-269) through  February
                    28, 1986.
.
                                        -32-

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                                                       EXHIBIT J

        METAMORA LANDFILL COOPERATIVE AGREEMENT (V005836)
     AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
             SCHEDULE QF CQSTS CLAIMED AND ACCEPTED
     FOR THE PERIOD MARCH 10, 1985 THROUGH FEBRUARY 28, 1986
                                              AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Contractual Services
Other Direct Costs
Indirect Costs

Totals


Federal Share
Note 1    The amounts claimed represent  expenditures  reported on
          the Financial Status Report,  (SF-269)  through February
          28, 1986.
CLAIMED
(Note 1)
$ 6,476
2,061
174
382,638
8,920 -.
1,445 \
$401,714 \
$ 10,790 /
ACCEPTED

$ 6,476
2,061
174
382,638
8,920
1,445
$401,714
$ 10,790
                              -33-

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                                                       EXHIBIT K
           MULTI-SITE COOPERATIVE AGREEMENT (V005843)
     AWARDED TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
             SCHEDULE OF COSTS CLAIMED AND ACCEPTED
     FOR THE ."PERIOD APRIL 15. 1985 THROUGH FEBRUARY 28. 1986
                                            AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials and Supplies
Contractual Services
Indirect Costs

Totals
 CLAIMED
(Note 1)

 $51,537
  14,485
   6,268
   2,721
      69
  11.535

 $86,615
ACCEPTED
 $51,537
  14,485
   6,268
   2,721
      69
  11.535

 $86.615
Federal Share
 $86.615
 $86,615
Note 1    The amounts claimed  represent  expenditures reported on
          the Financial  Status  Report,  (SF-269)  through February
          28, 1986.
                              -34-

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                                                       EXHIBIT L
           MULTI-SITE COOPERATIVE AGREEMENT (V005851)
     AWARDED~TO THE MICHIGAN DEPARTMENT OF NATURAL RESOURCES
             SCHEDULE OF COSTS CLAIMED AND ACCEPTED
     FOR THE PERIOD JUNE 15. 1985 THROUGH FEBRUARY 28, 1986
                                              AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials and Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals
 CLAIMED
(Note 1)

 $13,692
   A,192
   4,294
     662
      19
       1
   3,193

 $26,053
ACCEPTED
 $13,692
   4,192
   4,294
     662
      19
       1
   3.193

 $26,053
Federal Share
 $26.053
 $26.053
Note 1    The amounts  claimed  represent  expenditures reported on
          the Financial  Status  Report,  (SF-269)  through February
          28, 1986.
                              -35-

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                                                       EXHIBIT M

              COOPERATIVE AGREEMENTS AWARDED TO THE
            MICHIGAN DEPARTMENT OF NATURAL RESOURCES
        SCHEDULE OF MODEL SUBAGREEMENT CLAUSES OMITTED OR
              NOT EQUIVALENT FOR THE SUBAGREEMENTS

                                                     Cooperative*
             Clause;                                  Agreement

Supersession                                             NO
Privity of Subagreement                                  NO
Changes                                                  NO
Termination                                              NO
Remedies                                                 NO
Audit; Access to Records                                 XX
Covenant Against Contingent Fees                         NO
Gratuities                                               NO
Responsibility of Contractor                             NO
Final Payment                                            NO


 NO - Subagreement did not contain clause.
 XX - Clause was not equivalent to Federal requirements.
     All  subagreements  awarded under EPA  cooperative agreements
     contained identical  clauses  as a result  of  being developed
     from a  standard contract format.  Therefore, we have iden-
     tified  the  noncompliance with 40 CFR 33.1030  (model  sub-
     agreement clauses)  in  total  rather than  by  individual  sub-
     agreement .
                              -36-

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                                                            EXHIBIT N

         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                 DEPARTMENT OF NATURAL RESOURCES

Berlin and Farro Industrial Incinerator (V005784)

The Berlin  and Farro Industrial Incinerator  site  is  a hazardous
waste site  located near the  town  of Swartz  Creek,  Gaines Town-
ship, Genesee  County, Michigan.  This  site was used as an indus-
trial waste  dump  from 1971 until  1980,  and  created  a threat to
the public water supplies.   Additionally, a landfill, operated on
the site's west end, was used for  the  disposal of drums contain-
ing waste  liquids.   To  assist in  the  clean up and  study of the
site, EPA  awarded  cooperative agreement number V005784  to MDNR
for   remedial  measures   and  a   remedial   investigation   and
feasibility  study  (RI/FS).  Cooperative  agreement  number V005784
was awarded  under CERCLA on  July 30,  1982,  providing 90 percent
Federal  participation  for remedial measures  and   100  percent
Federal participation  for  RI/FS.   As  of February 28,  1986,  EPA
was participating up  to  a  maximum of  $1,033,844.   The State was
providing advance  match funds of  $114,871 to be  applied toward
subsequent State  matches for  remedial  measures at  the site.   On
March 31,  1986,  the  project  was  approximately  50 percent  com-
plete.   (All  projects  were  evaluated by  the  recipient as  of
March 31,  1986.   No  such  project  evaluation  exists  through
February 28, 1986.)

Liquid Disposal, IncorporatedIndustrial Incinerator  (V005785)

The  Liquid  Disposal,  Incorporated  Industrial Incinerator  site
(LDI) is a  hazardous  waste site  located near Utica, Shelby Town-
ship, Macomb  County, Michigan.  LDI  was  closed by  court order on
January 13,  1982.   In April 1982 LDI was forced into involuntary
bankruptcy by a creditor  as  a result  of.  an  industrial accident
which led to the  death  of  two workers.   The site contained stor-
age tanks, and over 1,000 barrels with unknown amounts of liquids
and/or sludges.   Because of the  threat to  public water supplies
and the environment, EPA awarded a cooperative agreement to per-
form  a RI/FS and  a community  relations  program.   Cooperative
agreement  number  V005785  was awarded  to MDNR  under  CERCLA on
April 22, 1983, providing  100 percent  Federal participation with
a maximum Federal share of $466,703, as of February 28, 1986.  On
March 31,  1986,  the  project  was  approximately  20 percent  com-
plete.   (All  projects  were  evaluated by  the  recipient as  of
March 31, 1986.  No such project evaluation exists through Febru-
ary 28, 1986.)

Rose Township  Industrial Waste Dump V005787)

The Rose Township Industrial Waste Dump is a hazardous waste site
located on private property off the Demode Road in Rose Township,
                              -37-

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                                                            EXHIBIT N
                                                           (CONTINUED)
         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                 DEPARTMENT OF NATURAL RESOURCES

Oakland County, Michigan.  This  12 acre  open field had been used
for the disposal of drums containing both liquid and solid indus-
trial wastes between  1966  and 1968 and  possibly  on an intermit-
tent basis until  1971.   During  that  period,  an unknown number of
liquid wastes  were  emptied and  approximately  5,000 barrels  were
deposited at the  site.   Being surrounded on  at least three sides
by low lying marshes  and ponds, the site was  deemed a threat to
public water supplies and the environment.  Cooperative agreement
number V005787 was awarded  to   MDNR under  CERCLA  on  August 24,
1983, providing  100 percent  Federal  participation  for  a RI/FS,
with  a  maximum  Federal  share  of  $756,400,   as  of  February  28,
1986.  On March  31, 1986,  the project was approximately 80  per-
cent complete.   (All projects were evaluated by  the recipient as
of March  31,   1986.   No  such project  evaluation  exists  through
February 28, 1986.)

Northernaire Plating, Incorporated Industrial Waste Disposal
(V005786)'

Northernaire Plating, Incorporated Industrial Waste Disposal is a
hazardous waste site located at  1002 Sixth Street, Cadillac,  Wex-
ford  County,  Michigan.   This 12.75  acre site is  situated  in an
area of both industrial and residential properties.  Because pro-
cessed waste  waters  leaked  into the  ground from  1971  to  1978,
there was  a threat to the public  and industrial  water supplies
which developed  from the  aquifer  underlying  the  site.   Cooper-
ative agreement  number V005786  was awarded  to MDNR under CERCLA
on  September  26, 1983,  providing  100  percent Federal  partici-
pation for a RI/FS.  As of February 28, 1986, EPA was participat-
ing up to a maximum of $633,100.  The State was providing advance
match funds  of  $190,495  to be  applied  toward  subsequent  state
matches  for remedial measures   at  the site.  As  of  March   31,
1986, the project was approximately  65  percent  complete.   (All
projects  were  evaluated  by  the  recipient as  of  March 31,  1986.
No such project  evaluation exists through February 28, 1986.)

Cemetery  Industrial Waste Dump  (V005775)

Cemetery  Industrial Waste  Dump  is  a  hazardous waste site located
on North  Milford Road,  Rose  Township, Oakland County, Michigan.
Before  being   classified  as  rural  residential,  the site was  a
gravel  pit.   Approximately  300 to  600 barrels   of  industrial
wastes were dumped  into the gravel pit during the late 1960's and
early 1970's.  The  area was then backfilled, leaving it appearing
innocuous.  However,  a threat to the public  water supply and the
environment developed from the  aquifer underlying the site.   Co-
operative agreement number V005775 was awarded to MDNR under
                              -38-

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                                                            EXHIBIT N
                                                           (CONTINUED)
         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                 DEPARTMENT OF NATURAL RESOURCES

CERCLA on May 24, 1984, for project costs beginning May 21, 1984,
providing  100  percent Federal  participation for  a RI/FS and a
community  relations  program.   As  of  February 28,  1986,  EPA was
participating  up  to  a   maximum  of  $589,584.   The  State  was
providing advance match funds of $1,538,430 to be applied toward
subsequent remedial  measures  at  the  site.   On March   31,  1986,
the project was approximately 44 percent complete.  (All projects
were evaluated  by the recipient  as  of  March 31, 1986.   No  such
project evaluation exists through February 28, 1986.)

Springfield Township Industrial Waste Dump (V005776)

The  Springfield Township  Industrial  Waste  Dump  is a  hazardous
waste  site  located  off  Schindler Road,  Springfield  Township,
Oakland County,  Michigan.   This four acre parcel of  land is be-
lieved  to  have been  used for  the  dumping of  industrial wastes
between 1966 and  1968.  During  that  period,  an unknown number of
tank trucks of liquid wastes were emptied and approximately 1,500
drums were deposited  at the site,  causing  a threat to the public
and  the environment.  Cooperative  agreement number V005776  was
awarded to MDNR under CERCLA on May  24, 1984,  for project costs
beginning May 21, 1984, providing  100 percent Federal participa-
tion for a RI/FS and a community relations program with a maximum
Federal  share  of $612,450,  as  of  February 28,   1986.   As  of
March 31,  1986,  the  project  was  approximately  50 percent  com-
plete.   (All projects  were  evaluated  by  the  recipient as  of
March 31,  1986.   No  such  project  evaluation  exists  through
February 28, 1986.)

Spiegelberg/Rasmussen Landfill  (V005777)

The  Spiegelberg/Rasmussen  Landfill   is  a  hazardous  waste  site
located on Spicer Road,  Green  Oak Township,  Livingston  County,
Michigan.  As early  as 1966 and continuing  until  1977,  this  site
was being  used  for the disposal of solid and liquid domestic and
industrial waste materials.  Due to the threat to the public, the
water  supply,   and  the environment,  EPA  awarded  a  cooperative
agreement  to  perform a   RI/FS.   Cooperative  agreement  number
V005777 was  awarded  to MDNR  under CERCLA  on May  30,  1984,  for
project costs beginning May 21,  1984, providing 100 percent  Fed-
eral participation with a maximum Federal share of $1,247,024, as
of February 28,  1986.  As  of  March 31,  1986,  the  project  was ap-
proximately 60 percent complete.   (All projects were evaluated by
the  recipient  as of  March 31,  1986.  No such project evaluation
exists  through February 28, 1986.)
                              -39-

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                                                            EXHIBIT N
                                                           (CONTINUED)
         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED_ TO THE MICHIGAN
                 DEPARTMENT OF NATURAL- RESOURCES

Verona Well Field (V005793)

The Verona Well  Field  is  located one half mile northeast of Bat-
tle Creek, Pennfield Township,  Calhoun  County, Michigan.  Incor-
porating property  on both sides  of the Battle  Creek  River,  the
well field provides potable water to approximately 100,000 resi-
dents of  the Battle Creek  area, numerous major food  processing
industries,  and a  variety of  other  commercial  and  industrial
establishments.  Because  of  the threat to the,public  and indus-
trial  water  supplies  which  developed  from - the  contaminated
aquifer underlying the  site,  EPA awarded  a cooperative agreement
to  perform  well operation  and  maintenance work.   Cooperative
agreement  number V005793  was  awarded  to MDNR under CERCLA  on
September 29, 1984,  providing 90 percent Federal  and  10 percent
State participation.  As  of February 28,  1986, EPA and the State
were  participating up  to  a  maximum of  $444,123 and  $49,347,
respectively.   As  of  March 31,  1986,  the  project was  approxi-
mately 20 percent complete.   (All projects were evaluated by the
recipient  as  of March 31,  1986.   No such project  evaluation
exists through February 28, 1986.)

Metamora Landfill (V005836)

The Metamora Landfill is a hazardous waste site located on Dryden
Road, Metamora  Township,  Lapeer County, Michigan.   From 1966 un-
til 1980,  approximately  fifty acres of the  eighty acre  site was
used as a  general  refuse  landfill, including areas of industrial
and  chemical waste  disposal.   In addition,  illegal  demolition
material  disposal  occurred on  the site.   Waste  disposal activ-
ities at the landfill have ceased; however, gravel mining contin-
ues immediately south  of the study  area.  Because of  the threat  .  ,.
to public  water supplies  and the  environment, ;.EPAjawarded a-co-
operative agreement  to  perform  a RI/FS and a community relations
program.   Cooperative  agreement  number V005836  was  awarded  to
MDNR under CERCLA  on April  18,  1985, for  project costs beginning
March 10,  1985,  providing 100 percent Federal participation.   As
of  February  28,  1986,  EPA was  participating up to a  maximum of
$899,000.   The  State  was  providing  advance  match  funds  of
$488,705 to be applied toward subsequent remedial measures at the
site.   As  of March  31,  1986,  the project was  approximately  10
percent complete.   (All  projects were evaluated by the recipient
as of March  31,  1986.   No such  project evaluation exists through
February 28, 1986.)

Multi-Site I (V005843)

Cooperative  agreement number V005483 was awarded to MDNR under
                              -40-

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                                                            EXHIBIT N
                                                           (CONTINUED)
         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                 DEPARTMENT OF NATURAL RESOURCES

CERCLA  on  May 30,  1985,  for  project  costs beginning  April 15,
1985.  This cooperative agreement provides for 100 percent Feder-
al participation in technical management assistance and community
relations coordinative lead  activities  for  eight EPA-lead CERCLA
sites with a maximum Federal share of $335,460.

1.   Burrows Sanitation and Sludge Disposal

     The Burrows  Sanitation  and. Sludge Disposal  hazardous waste
     site  is  located  in  Hartford  Township,  VanBuren  County,
     Michigan.  Because these four acres of land were operated as
     a  disposal  site from 1970  to 1977, there  was a  threat to
     public water  supplies  and the environment.  To  assist  with
     this problem, EPA awarded a cooperative agreement to provide
     technical management and community relations assistance.  As
     of March 31,  1986, the  project was  approximately 35 percent
     complete.   (All  projects  were evaluated by  recipient as of
     March 31, 1986.   No  such project evaluation exists through
     February 28, 1986.)

2.   Charlevoix Municipal Well Field

     The Charlevoix Municipal Well  Field  is  a  hazardous waste
     site  located In  Charlevoix  County,   Charlevoix,  Michigan.
     Local  residents,  tourists,  and  commercial industries  are
     served by a water  system  from an  aquifer  contaminated by an
     unspecified source underlying the site.  To assist with this
     problem,  EPA  awarded  a  cooperative  agreement  to  provide
     technical management and community relations assistance.  As
     of March 31,  1986, the  project was  approximately 52 percent
     complete.   (All projects were  evaluated by  the recipient as
     of  March  31,  1986.    No such  project  evaluation  exists
     through February 28,  1986.)

3.   Clare Municipal Well Field

     The Clare  Municipal Well  Field  is  a  hazardous waste  site
     located  in  the city  of Clare, Clare County, Michigan.   Be-
     cause of  contaminated  soils  on properties  northwest  of the
     municipal well  field,  there  existed a contamination  in the
     Clare aquifer and a threat to  the  public  and industrial wa-
     ter supplies.   To assist with  this  problem,  EPA  awarded a
     cooperative  agreement  to  provide  technical management  and
     community relations assistance.   As of March  31,  1986,  the
     project was  approximately 10 percent  complete.   (All proj-
     ects were evaluated by  the recipient  as  of  March  31, 1986.
     No  such  project  evaluation  exists  through  February 28,
     1986.)
                              -41-

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                                                            EXHIBIT N
                                                           (CONTINUED)
         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                 DEPARTMENT OF NATURAL RESOURCES

4.   Forest Waste Disposal

     Forest Waste Disposal  is a hazardous waste  site  located at
     8359  East  Farrand  Road,  Forest  Township,   Genesee  County,
     Michigan.  This  112 acre  landfill  and  adjacent  system of
     open and uncovered  waste lagoons was operated from  1972 to
     1978 for solid  and  liquid industrial waste  disposals.   Be-
     cause of  the threat to  public water  supplies  and  the  en-
     vironment,  EPA  awarded a  cooperative  agreement  to  provide
     technical management and community relations assistance.   As
     of March 31, 1986,  the project was  approximately  70  percent
     complete.  (All projects were evaluated  by  the  recipient as
     of  March  31,   1986.   No  such  project  evaluation  exists
     through February 28, 1986.)

5.   G & H Landfill

     G & H Landfill is a hazardous waste site located at Ryan and
     23  Mile  Roads,  Utica  Township, Macomb County,  Michigan.
     Operating as  a  liquid industrial  waste disposal  site  from
     the late 1950's  to  1966  and as a refuse landfill from 1967
     to 1974,  this 40 acre site was deemed a threat to the public
     water supplies  and  the  environment.  To  assist with  this
     problem,  EPA awarded  a  cooperative agreement  to  provide
     technical management and community relations assistance.   As
     of March 31, 1986,  the project was  approximately  75  percent
     complete.  (All projects were evaluated  by  the  recipient as
     of  March  31,   1986.   No  such  project  evaluation  exists
     through February 28, 1986.)

6.   Petoskey Municipal Well Field

     The Petoskey Municipal Well  Field  is a  hazardous  waste site
     located in the city  of Petoskey,  Emmet  County,  Michigan.  A
     threat to the public and industrial water supplies developed
     from  the aquifer underlying the  site,  because  industrial
     wastes were  disposed within 600 feet  of Petoskey's  water
     supply.   To assist with  this  problem, EPA awarded a  cooper-
     ative agreement to  provide  technical management  and  commun-
     ity relations assistance.  As of March 31, 1986,  the  project
     was approximately six percent complete.   (All projects were
     evaluated by  the  recipient as of  March 31,  1986.   No  such
     project evaluation exists through February 28, 1986.)

7.   Tar Lake Disposal

     Tar Lake Disposal is a hazardous waste site located east of
                              -42-

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.
                                                                    EXHIBIT N
                                                                   (CONTINUED)
                 DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
                 COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                         DEPARTMENT OF NATURAL RESOURCES

             K L Avenue Landfill

             K L  Avenue Landfill  is  a hazardous  waste site  located in
             Oshtemo Township, west  of the City of  Kalamazoo, Kalamazoo
             County, Michigan.  Located on 87 acres,  this  site is a for-
             mer sanitary landfill used in the 1960's by the township and
             in 1968 by the county.  In 1979, volatile organic contamina-
             tion was discovered  in  ten domestic wells,  and the K L Ave-
             nue  Landfill  was closed.  To assist with this  water  con-
             tamination problem,  EPA awarded a cooperative  agreement to
             provide technical management  and community relations assis-
             tance.  As*of March  31,  1986, the  project was approximately
             five percent complete.   (All  projects were evaluated by the
             recipient as of March 31, 1986.  No  such project evaluation
             exists through February 28,  1986.)

             Packaging Corporation of America

             Packaging Corporation of America is a  hazardous  waste  site
             located  just  east of Manistee Lake,  Filer  City,  Manistee
             .County,  Michigan.   From  the  1950's  until 1974,  Packaging
             Corporation of  America  discharged billions  of  gallons  of
             process  wastes   into seepage  lagoons  near Manistee  Lake.
             Investigations  have   documented  ground  water  contamination
             from  the lagoons moving toward Manistee Lake.   Because  a
             threat to water supplies developed from the aquifer underly-
             ing the site,  EPA awarded a cooperative agreement to provide
             technical management and community relations assistance.  As
             of March 31, 1986, the  project  was approximately 22 percent
             complete.  (All projects were evaluated by the recipient as
             of  March 31,   1986.    No  such  project  evaluation  exists
             through February 28,1986.)

             Novaco Industries

             Novaco  Industries is a  hazardous  waste  site  located  on
             Summerfield Road, Bedford Township, Monroe County, Michigan.
             This  2.6  acre  site  is surrounded  by  mostly residential and
             agricultural properties.   In  June 1979,  this  metal plating
             company discovered a  leak in  a  chromic  acid tank.  Within a
             few weeks, chromium contamination was detected in two ground
             wells.  Within a year, a residential well further downgradi-
             ent  was  contaminated.   All   three wells  were replaced  by
             .Novaco Industries.   Because  a threat to  water  supplies de-
             veloped from the  aquifer underlying  the site,  EPA awarded a
             cooperative agreement to provide  technical management  and
             community relations assistance.   As of March 31, 1986, the
                                      -45-

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                                                            EXHIBIT N
                                                           (CONTINUED)
         DESCRIPTION OF HAZARDOUS WASTE SITES UNDER THE
         COOPERATIVE AGREEMENTS AWARDED TO THE MICHIGAN
                 DEPARTMENT OF NATURAL RESOURCES

     project was  approximately  90  percent complete.   (All  pro-
     jects were evaluated by the recipient as  of March 31,  1986.
     No  such  project  evaluation  exists  through  February 28,
     1986.)

7.   Berlin and Farro Industrial Incinerator

     Berlin and Farro Industrial Incinerator is a hazardous  waste
     site  located  at  8322  South  Morrish .Road,  Swartz  Creek,
     Genesee County, Michigan.   In 1971,  this 40 acre  site was
     permitted to operate as a liquid waste incinerator; however,
     liquid-filled drums were discovered  in .1973 in  violation of
     the landfill permit.   In addition, unauthorized storage la-
     goons, ponds of liquid wastes, and thousands of  drums  con-
     taining liquid and solid wastes  were found.  Waste disposal
     continued at the site until 1979.  In 1980, Berlin and  Farro
     Industrial  Incinerator  filed for  Chapter  11  Bankruptcy.
     Title to  a  portion of the  site  was  deeded to  the  State in
     1980  for  nonpayment  of back taxes.   Title  to  the remainder
     of the  site was deeded  to the  State  in  1981  for  the  same
     reason.   In addition  to a previous  cooperative  agreement
     awarded to  MDNR covering remedial measures and a  RI/FS at
     the  site,  EPA  awarded a  cooperative agreement  to  provide
     technical management and community relations assistance.  As
     of March 31, 1986, the project was approximately  20 percent
     complete.   (All projects were  evaluated by the  recipient as
     of  March 31,  1986.   No  such  project  evaluation  exists
     through February 28, 1986.)

                              -46-

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- f  4
'„ *- * I £*
                                                                                  i
                                   APPENDIX



      Auditors'  Note:   The  Deputy  Director of  MDNR included  various
      documents  as Attachments  with  the  response to  the draft  audit
      report.   The attachments  were  too  voluminous  for inclusion  in
      this  report.  The entire response,  including the  attachments,  is
      available  for review in  the  Office of  Inspector General,  Internal
      Audit Division,  in Washington,  D.C.
                                                                                  ' f
                                                                                  \
                                                                                  I
                                                                                  !
                                                                                  I

                                                                                  I

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                                                            r
                                        STATE OF MICHIGAN
NATURAL HESOUNCES COMMISSION                          X *S|*,'
 THOMAS j ANDERSON                                1;—-y
  AftLENE J FlUMARTV                                ,f -• f-
      f GUYFR                                  •»P**yl
     HAMMER                                    ""•"
        MYEWS                        JAMES J. BLANCHARD. Governor
 DAVID o OLSON
                          DEPARTMENT OF NATURAL RESOURCES
                                       STEVENS T MASON BUILDING
                                            BO* 30076
                                          LANSING Ml 46909
                                       Gordon E. Guyer, Director


                                               March 18, 1987
        Mr. Kenneth  D.  Hockman
        Divisional Inspector General for Audit
        Office of the  Inspector General
        United States  Environmental Protection Agency
        Washington,  D.C.  20460

        Dear Mr. Hockman:

        Thank you for  the  opportunity to review the draft Superfund audit  report.
        I also appreciate  the review time extension that was given us by Ms. Karpf.
        I have attached our comments on the draft audit report for your information
        and consideration.  As a result of your audit, we have taken actions to
        correct  several deficiencies within the Superfund program area.

        I do have concerns regarding several of your findings, especially  those
        involving the  $203,597 in set aside costs and $52,1A8 in questioned costs
        contained in Exhibits C and H, respectively.  For the reasons stated in  the
        attachments, I feel strongly that neither the set aside costs nor  the
        questioned costs are appropriate findings and ask that they be deleted from
        the report.

        Again, thank you for the opportunity to provide these comments.

                                               Sincerely,
                                               Delbert Rector
                                               Deputy Director
                                               517-373-7917
        Attachments
        cc:   Thomas Mateer, U.S. EPA
              Ivars Antens, U.S. EPA
              Gary Guenther, MDNR
              Richard Johns, MDNR
              Timothy Trasky, MDNR
              Marion Hart, MDNR
              Robert Nowinski, MDNR
              Andrew Hogarth, MDNR
              Peter Ollila, MDNR
              R.  Willson, MDNR

^026                                       -47-
"86 ...;:-..,

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                                                                                   . t
                  Michigan Department of Natural Resources
                            Comments on the Draft
    Report of Interim Audit of Michigan Department of Natural Resources*
       Administration of its Superfund Cooperative Agreements with EPA
      under the Comprehensive Environmental Response, Compensation and
                            Liability Act of 1980
          Period Covered:  July 30, 1982 through February 28, 1986
                        Findings and Recommendations

1.    State Superfund Procurement System

     A.   The auditors are correct.  We have instituted a process to insure
          that all required EPA subagrcement clauses are contained in
          future contracts.

     B.   We are revising our bid package to Include all model subagreement
          clauses to comply with advertising requirements contained in 40
          CFR 33.

2.    Lack of Fixed Fee Monitoring System

     We have modified the ledger sheets used to document payments to
     contractors to specify the fixed fee amount in the contract and the
     amounts paid to date.  No further actions on this item are necessary.

3.    Nonexpendable Personal Property Omitted from Property List

     All Federally funded equipment purchases, with the exception of the
     noted computer equipment which was in the possession of the contractor,
     have been recorded on State inventory records in accordance with 40 CFR
     30.531.  Information on the computer equipment, equivalent to 40 CFR
     30.531 was maintained in the project files.  Neither the State nor EPA
     Chicago staff were aware of the requirements to maintain Inventory
     records for equipment which the State does not yet have possession
     of.  We question the appropriateness of this finding.

     Since the audit, the computer equipment has come into the possession
     of the State and the relevant information has been entered into the
     State inventory records.

4.    Federal Cash Transaction Reports

     The auditors are correct.  Federal Cash Transaction Reports were never
     submitted to EPA until September 30, 1985.  We have always assumed
     these reports were only for advance drawdowns.  Our method of billing
     is on a reimbursement basis only.  We also received confirmation from
     the U.S. Department of Treasury that we didn't need to file this
     report.  This confirmation was submitted to EPA in 1980; a response
     from them was never received.  EPA contacted us late in 1985 explaining
     our non-compliance.
                                  -48-

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                                                   r
     In our opinion, Che Federal Cash Transaction Reports we are submitting
     are accurate.  When the new Letter of Credit process was initiated by
     EPA and the Department of Treasury, all of our balances agreed to
     their authorization.  We have been using that as our reconciling
     balance.  If the financial management section of EPA disagrees with
     our reports, please let us know.  We would be more than happy to
     discuss the correct balances.  We are currently meeting the require-
     ments of OMB Circular A-102.  No other corrective action will be taken
     without written instructions from EPA.

5.   Minor Findings - Requiring Corrective Action

     A.   Submittal of Quarterly Progress Reports to Region V — With the
          exception of one project, MDNR staff have been submitting
          quarterly reports in a timely manner to the EPA project officer
          since January of 1986.  The one exception has now come into
          compliance with the requirement and we will continue to comply
          with the requirement for quarterly report submittal for all
          cooperative agreements in the future.  Reasons for delays in
          quarterly report submittals for the Spiegelberg/Rasmussen
          cooperative agreement included extensive, critical and unantici-
          pated activity on the site by PRP's as well as EPA and DNR.
          Quarterly reports, while not being ignored were considered as
          lower in priority and benefit to the interests of both the
          Federal and State government, than other site related activities
          at the time.

     B.   The theft of the steam jenny has been reported to both U.S.  EPA
          and the police.  Attached are memos to project files regarding
          the theft as well as a copy of the police report.  It was an
          oversight that it had not been deleted from our inventory prior
          to the audit, but that has now been corrected.

     C.   Two separate State inventory systems existed at the time of  the
          audit.  The inventory records reviewed by the auditors contained
          purchase requisition costs which sometimes differed from the
          acquisition cost.  We have merged the two inventory systems and
          the State records now document acquisition costs for Federally
          funded equipment in accordance wich 40 CFR 30.531.

6.   Minor Findings - Corrective Action Taken

     A.   No comment.

     B.   Erroneous Claim of $11,988.  We agree with the auditors.  Correc-
          tive action was taken when the error was noted on the Financial
          Status Report (SF 269).

     C.   No comment.

                                  Exhibits

Exhibit B.  Berlin & Farro, $6,026 Set Aside.
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                                                     c
Correction of the $6,026  is currently being submitted to EPA  in  the  form of
a "draft" SF-269.  We are negotiating with EPA to close out the  Berlin-Farro
Industrial Incinerator Project.  When EPA makes a decision on what costs
are acceptable a final SF-269 can be prepared to correct this misunderstand-
ing.  The draft SF-269 should be submitted to EPA by March 20, 1987.

We feel that Note A is inappropriate in that we are negotiating  a final
payment with EPA following a settlement with the contractor.  No Federal
funds have been claimed by the State beyond the $66,807.

Exhibit C.  Liquid Disposal. $203,597 Set Aside.

This amount of contractor costs was set aside apparently based on a lack of
contractor performance.   The report pointed out that the contractor lacked
the staff and/or technical expertise to perform the required  tasks and the
draft audit report stated that the DNR paid for work that was not complete
or acceptable.  It must be pointed out that the contractor was only paid
for acceptable work at the rates specified in the contracts.  Approximately
$44,000 of invoiced charges were not, paid because the work was not
acceptable.  This primarily related to the poor quality RI report submitted
by the contractor.

At the time that the work performed adequately by the contractor was done,
they did have staff capable of performing the required tasks.   It'was only
after loss of that staff and inadequate staff replacements took place, that
it was concluded that there was inadequate expertise available to complete
the RI/FS.  The costs to have completed the RI/FS increased over the course
of the project; however,  these costs were not due to the contractor's
ability but instead were primarily due to the substantial delay  in receipt
and poor quality of analysis of samples through the national contract lab
program.  The delay amounting to 6-8 months and the poor quality of the
analysis of approximately 119 samples resulted In the need to redo the
soil sampling and monitoring well sampling program.  This included the need
to repeat soil borings and some well installations.

The contractor involved was charged with reviewing the quality of
laboratory analysis data, which was directly complicated by late receipt of
such poor quality data.  The cost for this task increased as a direct
result of the poor performance of EPA's contract laboratories.

Our Department was in the process of amending CMC's contract to Increase the
budget and time period for project completion when the decision was made
for reasons stated above  to let the contract expire and have someone else
complete the work.  We are convinced that they adequately performed the
work for which they were paid.  As stated before, inadequate work and
products to the cost of $44,000 were not paid for.

Throughout the decision making regarding CMC's contract, the U.S. EPA
project manager and project officer were Informed and in agreement with
actions taken.  Attached  are copies of communications with and from them
which indicate this.  In  addition, U.S. EPA granted the award of an amend-
ment to the LOI cooperative agreement to cover cost increases to complete
the work begun by CMC.  This implies that they accepted the costs already
paid to CMC.

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                                                   r
Exhibit IK  Spiegelberg/Rasmussen  Landfill,  $52,148,  Questioned Costs.

The cost that was claimed for  the  fence  constructed at  Splegelberg/Rasoussen
was not done in error.  These  costs were  charged  properly according to 40
CFR 30.510. ;,When it was learned that  the fence would not be an acceptable
cost, we corrected our .bill-ings and,.Form  SF-269.   All corrective actions
have been completed.
           *&>:,.          '.-'•    '-  ,.;
                                  -51-
                                                        , \ r-1\ /5  —  ,--  «. ~
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