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.
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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)
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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.
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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
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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-
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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.
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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
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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-
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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
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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-
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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
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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
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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
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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.
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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.
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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
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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.
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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.
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EXHIBITS
-------
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).
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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
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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
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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.
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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-
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
.
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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
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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.
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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.
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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 .
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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,
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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
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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.)
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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.)
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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
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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
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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.)
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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.
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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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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.
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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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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.
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