.If
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. O.C. 20460
I
V)
MAY 6
MEMORANDUM
SUBJECT:
THE INSPECTOR GENERAL
PROM:
TO:
Audit Report No. P5BG6-1 1-0032-7 1159
Report of Interim Audit of Louisiana
Department of Environmental Quality's
Administration of Its Superfund Cooperative
Agreements
Kenneth D. Hockman
Divisional Inspector General
for Audit
Internal Audit Division (A-109)
Robert E. Lay ton, Jr.
Regional Administrator, Region 6
SCOPE AND OBJECTIVES
We performed an interim audit of the Louisiana Department of Environmental
Quality's (LDEQ) administration of its cooperative agreements with the U.S.
Environmental Protection Agency (EPA) under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980. The primary objectives
of our review were to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised by
the State in administering its cooperative agreements with EPA.
2. Ascertain the State's compliance with provisions of the cooperative
agreements and applicable EPA regulations and instructions.
3. Ascertain the State's compliance with provisions of the Letter of
Credit - Treasury Financial Communications System Recipients'
Manual.
4. Determine the reasonableness, allocability, and allowabllity of
the costs claimed under the cooperative agreements with EPA.
•US. BtavifonaentM Protection Itftgklf
library. Room 24Q4 FM^2U*A %VVi"-.
401 M Street, S.W.
Washington. D0 _ 80460 ....
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Specifically, our audit covered the following cooperative agreements:
Old lager Abandoned Hazardous Waste Site Remedial Action (Old Inger);
Evaluation of Potentially Hazardous Sites (RCRA 3012); and The Preliminary
Assessments, Site Inspections, and Management Assistance at Bayou Sorrell,
Bayou Bonfouca, and Cleve Reber Sites (Multi-Site). The audit Included
an examination of costs claimed under the referenced cooperative agreements
from September 29, 1982; June 27, 1983; and March 27, 1985, respectively,
through March 31, 1986.
Our 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 for 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
1. 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 financial information and
financial provisions of the cooperative agreements.
COOPERATIVE
AGREEMENT
Old Inger
RCRA 3012
Multi-Site
Totals
Federal Share $1,288,139 $416,851 $450,236 $421,052
AMOUNT
CLAIMED
: 751,631
449,499
126,435
11,327,565
ACCEPTED
$387,605
5,290
62,712
$455,607
QUESTIONED
$ 6,697
444,209
$450,906 •
SET-SIDE
$357,329
63,723
$421,052
Questioned costs are costs claimed that we have concluded 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 grant or
contract. Set-aside costs are costs which cannot be accepted without
additional information or evaluations and approvals by responsible Agency
program officials.
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2. STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by LOEQ to procure contract services under all of
the Superfund cooperative agreements were inadequate and not in compliance
with all requirements of Federal regulations (40 CFR Part 33). These
conditions were primarily attributable to a lack of LDEQ's understanding
of: the applicable Federal regulations, and the responsibility assumed
by SPA Region 6 for its part in the procurement process. Cooperative
agreement recipients are required to comply with 40 CFR Part 33 as a
condition of obtaining EPA funding. Under the state's existing procurement
system, four contracts were awarded although:
0 Cost analyses were not documented for procured contracts.
0 LDEQ used the prohibited cost-plus-percentage-of-cost (CPPC) type
of contract.
0 LDEQ did not submit the required preaward documentation to EPA.
»
0 The request for proposals (RFP) did not state the relative Importance
attached to each of the specified evaluation criteria.
0 LDEQ did not incorporate all required EPA subagreement clauses in
the contracts awarded.
0 LDEQ did not retain written justification for the procurement method
used or type of subagreement awarded.
LDEQ'S COMMENTS OF FINDINGS AND OUR EVALUATION
Exit conferences were held with LDEQ officials on July 2, 1986 and with
EPA Region 6 officials on July 3, 1986. The purpose of the exit conferences
was to present our findings and recommendations and to ensure a clear
understanding of our report by LDEQ and Region 6 management. At the
conferences and during the audit, LDEQ and Region 6 officials discussed
their positions relative to our findings and recommendations.
In addition, LDEQ provided us with formal written comments on our draft
report in a letter dated January 21, 1987. The Undersecretary of LDEQ
generally concurred with our findings and recommendations, except as
noted in the Findings and Recommendations and Exhibits sections of the
report, and indicated that corrective actions were taken or were planned
to resolve the issues cited in the report. We concluded that LDEQ's
comments were generally responsive to our findings and recommendations,
except as noted in the Findings and Recommendations and Exhibits sections
of this report. To provide a balanced understanding of the issues, we
summarized LDEQ's position at appropriate locations In the report and
included the response as an Appendix. The attachments Included with and
referenced in the response were considered too voluminous to include in
the Appendix. The entire response, including the attachments, is available
for review in the EPA Office of Inspector General, Internal Audit Division,
in Washington, D.C.
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RECOMMENDATIONS
\
We recommend that .the Regional Administrator, Region 6:
A. Require LDEQ to submit documentation of cost analyses in compliance
with 40 CFR 33.290 for the contracts previously entered into for
' determination of the reasonableness of costs incurred or proposed.
B. Require LDEQ to submit the review of amounts paid to Earth Technology
Corporation for determination of the reasonableness of costs and
profits for which the contractor has been compensated.
C. Enforce the timely submission of required quarterly reports.
D. Amend special condition number 24, of the Old Inger cooperative
agreement, to expressly require LDEQ to submit quarterly progress
reports within 30 days after the end of the quarter.
E. Review the June 1986 Letter of Credit "drawdown made by LDEQ and
ensure that the Federal share of approximately $6,027, relating
to the $6,697 erroneous payment, was properly credited.
ACTION REQUIRED
In accordance with EPA Directive 2750, the action official Is required to
issue a final determination on costs set-aside and questioned, and any other
recommendations in this report within 90 days of the audit report date.
In addition, for any action not completed, please provide specific
milestone dates for completion of the action. Where the action official
considers a position on the audit findings that differ from our recommenda-
tions, we would appreciate the opportunity to discuss management's position
before the determination is issued to the auditee. A copy of the final
determination should be provided to our office when issued.
Should your staff have any questions, please have them contact Edward Gekosky
or me on 382-4930.
Attachment
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DISTRIBUTION
Copies
A. Office of Inspector General 6
Director, Audit Operations Staff (3)
Chief, Program Analysis Unit (1)
Divisional Inspector General
for Audit, Southern Division (1)
Branch Manager, Dallas Office
Southern Audit Division (1)
B. Headquarters Office
Director, Grants Administration Division (PM-216) 1
Chief, Grants Policy and Procedures Branch .(PM-216) 1
Chief, Superfund Accounting Branch (PM-226) ' I
Director, Resources Management Staff (WH-562A) 3
Chief, State and Regional Coordination
Branch (WH-548E) 1
C. Regional Office
Regional Administrator, Region 6 2
Audit Follow-up Official 1
Director, Hazardous Waste Management
Division, Region 6 1
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-\-fu)
REPORT OF INTERIM AUDIT OF
LOUISIANA DEPARTMENT OF ENVIRONMENTAL QUALITY'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD SEPTEMBER 29, 1982 THROUGH MARCH 31, 1986
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TABLE OF CONTENTS (Continued)
EXHIBIT D - MULTI-SITE COOPERATIVE AGREEMENT
(V-006463-01) AWARDED TO THE LOUISIANA
DEPARTMENT OF ENVIRONMENTAL QUALITY
SCHEDULE OF COSTS CLAIMED, ACCEPTED,
AND SET-ASIDE FOR THE PERIOD MARCH
27, 1985 THROUGH MARCH 31, 1986 26
EXHIBIT E - SCHEDULE OF MODEL SUBAGREEMENT
CLAUSES OMITTED OR NOT EQUIVALENT
FOR THE SUBAGREEMENTS 27
APPENDIX LOUISIANA DEPARTMENT OF ENVIRONMENTAL
QUALITY RESPONSE TO DRAFT AUDIT REPORT 28
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TABLE OF CONTENTS
SCOPE AND OBJECTIVES
SUMMARY OF FINDINGS
BACKGROUND
AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V-006448-01,
V-006382-01 AND V-006463-01 AWARDED TO THE LOUISIANA
DEPARTMENT OF ENVIRONMENTAL QUALITY
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
AND COMPLIANCE
FINDINGS AND RECOMMENDATIONS
1 - STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS
IMPROVEMENT
2 - NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
3 - MINOR FINDING - CORRECTIVE ACTION IN-PROGRESS
8
10
12
18
20
EXHIBIT A -
EXHIBIT B -
EXHIBIT C -
COOPERATIVE AGREEMENTS AWARDED TO
THE LOUISIANA DEPARTMENT OF ENVIR-
ONMENTAL QUALITY SUMMARY OF COSTS
CLAIMED, ACCEPTED, QUESTIONED AND
SET-ASIDE FOR THE PERIOD SEPTEMBER
29, 1982 THROUGH MARCH 31, 1986
OLD INGER COOPERATIVE AGREEMENT
(V-006448-01) AWARDED TO THE LOUISIANA
DEPARTMENT OF ENVIRONMENTAL QUALITY
SCHEDULE OF COSTS CLAIMED, ACCEPTED,
QUESTIONED AND SET-ASIDE FOR THE
PERIOD SEPTEMBER 29, 1982 THROUGH
MARCH 31, 1986
RCRA 3012 COOPERATIVE AGREEMENT
(V-006382-01) AWARDED TO THE LOUISIANA
DEPARTMENT OF ENVIRONMENTAL QUALITY
SCHEDULE OF COSTS CLAIMED, ACCEPTED
AND QUESTIONED FOR THE PERIOD
JUNE 27, 1983 THROUGH MARCH 31, 1986
21
22
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REPORT OF INTERIM AUDIT OF
LOUISIANA DEPARTMENT OF ENVIRONMENTAL QUALITY'S
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD SEPTEMBER 29, 1982 THROUGH MARCH 31, 1986
SCOPE AND OBJECTIVES
We performed an interim audit of the Louisiana Department of En-
vironmental Quality's (LDEQ) administration of its cooperative
agreements with the U.S. Environmental Protection Agency (EPA)
under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980. The primary objectives of our review were
to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised
by the State in administering its cooperative agreements
with EPA. - . .
2. Ascertain the State's compliance with provisions of the 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
Rec ip ients' Manua1. ' -
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: Old Inger Abandoned Hazardous Waste Site Remedial Action
(Old Inger); Evaluation of Potentially Hazardous Sites (RCRA
3012); and The Preliminary Assessments, Site Inspections, and
Management Assistance at Bayou Sorrell, Bayou Bonfouca, and Cleve
Reber Sites (Multi-Site). The audit included an examination of
costs claimed under the referenced cooperative agreements from
September 29, 1982s June 27, 1983; and March 27, 1985,
respectively, through March 31, 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
financial information and financial provisions of the cooperative
agreements.
COOPERATIVE
AGREEMENT
Old Inger
RCRA 3012
Multi-Site -
Totals
Federal Share
AMOUNT
CLAIMED
$
$1
$1
751
449
126
,327
.288
•••^•m^^
,631
,499
,435
,565
,139
ACCEPTED
$387
5
62
$455
-— •"
$416
.605
,290
,712
.607
IHMmllllllPIMBM*
,851
QUESTIONED
$ 6,697
444,209
* $450.
$450.
906
236
SET-ASIDE
$357
63
$421
$421
,329
,723
.052
.052
Questioned costs are costs claimed that we have concluded 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 grant or contract. Set-aside costs
are costs which cannot be accepted without additional information
or evaluations and approvals by responsible Agency program
officials.
1. STATE'S SUFERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by LDEQ to procure contract services
under all of the Superfund cooperative agreements were inadequate
and not in compliance with all requirements of Federal
regulations (40 CFR Part 33). These conditions were primarily
attributable to a lack of LDEQ's understanding of two items:
(1) the applicable Federal regulations; and (2) the
responsibility being assumed by EPA Region 6 for their part in
the procurement process. Cooperative agreement recipients are
required to comply with 40 CFR Part 33 as a condition of
obtaining EPA funding. Under the State's existing procurement
system, four contracts were awarded although:
0 Cost analyses were not documented for procured
contracts.
0 LDEQ used the prohibited cost-plus-percentage-of-cost
(CPPC) type of contract.
0 LDEQ did not submit the required preaward documentation
to EPA.
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SUMMARY OF FINDINGS (Continued)
* The request for proposals (RFP) did not state the
relative importance attached to each of the specified
evaluation criteria.
0 LDEQ did not incorporate all required EPA subagrcement
clauses in the contracts awarded.
(
0 LDEQ did not retain written justification for the
procurement method used or type of subagreement
awarded.
LDEQ'S COMMENTS ON FINDINGS AND OUR EVALUATION
Exit conferences were held with LDEQ officials on July 2, 1986
and with EPA Region 6 officials on July 3, 1986. The purpose of
the exit conferences was to present our findings and
recommendations and to ensure a clear understanding of our report
by LDEQ and Region 6 management. At the conferences and during
the audit, LDEQ and Region 6 officials discussed their position
relative to our findings and recommendations. In addition, LDEQ
provided us with formal written comments on our draft report in a
letter dated January 21, 1987. The Undersecretary of LDEQ
generally concurred with our findings and recommendations, except
as noted in the Findings and Recommendations and Exhibits
sections of this report, and indicated that corrective actions
were taken or were planned to resolve the issues cited in the
report. We concluded that LDEQ's comments were generally
responsive to our findings and recommendations, except as noted
in the Findings and Recommendations and Exhibits sections of this
report. To provide a balanced understanding of the issues, we
summarized LDEQ's position at appropriate locations in the report
and included the response as an Appendix. The attachments
included with and referenced in the response were considered too
voluminous to include in the Appendix. The entire response,
including the attachments, is available for review in the EPA
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 and 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.
Pre-remedial activities (preliminary assessments, site
inspections) remedial planning (remedial investigations, fea-
sibility studies, remedial designs) and 'removals may be funded
100 percent by EPA. For facilities operated by a State or polit-
ical 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.
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BACKGROUND (Continued)
LDEQ was the designated State Agency for identifying and ranking
sites which pose a risk to the public or the environment, and
performance of remedial investigation, design, and cleanup at
hazardous waste sites. During our audit, LDEQ was actively
involved in three cooperative agreements with EPA for remedial
investigation, feasibility study, remedial design, identification
and evaluation or potentially hazardous sites; these agreements
were Old Inger, RCRA 3012 and Multi-Site.
Old Inger (V-006448-01)
The Old Inger Abandoned Hazardous Waste Site is located in
Ascension Parish, approximately 4.5 miles north of Darrow. The
site was initially opened in 1967. In 1976, it was obtained by
an oil refinery to be an oil reclamation plant of refinery
wastes. A large spill occurred in 1978 arid * the facility was
abandoned shortly thereafter.
There are two lagoons associated with the site that were used for
disposal of waste sludges, oils and surface waters. Because
these wastes posed severe environmental threats, EPA awarded LDEQ
cooperative agreement number V-006448-01 for a remedial
investigation study at the site. The Old Inger initial agreement
was awarded on September 29, 1982, and provided for 90Z Federal
participation with a maximum Federal share of $189,000. The
agreement was amended on April 20, 1983, adding Federal funds of
$180,000 to assist with a remedial feasibility study. The
amendment amount also provided for a 90Z Federal participation
level. The agreement was amended on September 26, 1984, to
provide for 100Z Federal participation, with a maximum Federal
share of $450,000, in the area of remedial design. Thus, the
maximum Federal share of the project cost, as of March 31, 1986,
was $819,000 with the State participation at $41,000. At the
time of completion of audit fieldwork, July 2, 1986,
approximately 79Z of the remedial design was complete and the
construction phase was set to begin late in 1986.
RCRA 3012 (V-006382-01)
Since the enactment of the Louisiana Hazardous Waste Management
Act, Act 349 of 1978, the State has made continuing efforts to
discover and evaluate potentially hazardous sites. However, due
to limited resources, funds were needed to evaluate sites
identified on the EPA Emergency and Remedial Response Information
Systems (ERRIS) list.
On June 27, 1983, the 100Z Federally funded RCRA 3012 cooperative
agreement number V-006382-01 was awarded for a sum of $189,840.
The project involved: conducting statewide identification and
evaluation of potentially hazardous sites on EPA's ERRIS list for
the prevention of releases and migration of hazardous substances;
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BACKGROUND (Continued)
evaluating potential candidate sites for the CERCLA NFL listing;
and scoring such sites using the Hazard Ranking System. It was
expected at the time of application for the grant that 65
preliminary assessments would be made and 112 site inspections
would be performed. Preliminary assessments are those activities
necessary in gathering background and initial technical
information about the site through review of data already
available. Site inspections are necessary to define the problems
at a site and provide a data base to determine the next action.
An amendment of $345,550 was granted on September 26, 1984, for
the purpose of analyzing samples taken during the site inspection
phase. The additional funding was to hire a contractor to
perform tfie sample analyses that EPA originally planned to
perform.
Multi-Site (V-006463-01)
Bayou Sorrell. The Bayou Sorrell hazardous waste site is located
in Iberville Parish, approximately six miles northwest of the
town of Bayou Sorrell. The site is about 265 acres in size with
about 34 acres of waste area. It was an active, hazardous-waste
landfill from 1976 to 1978, and is a threat to the environment
and public because of the migration of wastes. Approximately
993,018 cubic yards of waste were estimated to be present, at the
site. Cleanup costs were estimated to be $91,356,000. Remedial
activities have been administered under the lead of EPA. In
March 1984, EPA initiated a remedial investigation/feasibility
study (RI/FS) at the site.
Bayou Bonfouca. , The Bayou Bonfouca hazardous waste site is
located in St. fammery Parish near Slidell. Several acres are
highly contaminated with creosote on the surface. In addition,
several miles of sediments appear contaminated. This site had
been operated for approximately 100 years by a wood creosoting
company, but was abandoned when a fire resulted in a spill.
The estimated volume of waste is about 70,000 cubic yards. No
estimate of cleanup costs has been made. The RI/FS under EPA
lead was begun in May 1984, and sampling was completed in June
1984.
Cleve Reber. The Cleve Reber hazardous waste site is located in
Ascension Parish, approximately two miles southwest of Sorrento.
The site is about 25 acres in size, including an eight acre pond.
The site was originally a garbage dump, and was then used as a
dump for chemical wastes. Contaminants are toxic and
carcinogenic industrial wastes. The site was declared abandoned
in June 1981. With contractual assistance, a number of priority
pollutants were detected in chemical analyses. Fencing was
completed with State money, and EPA expended $140,000 for removal
of surface drums. The RI/FS was initiated in March 1984.
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BACKGROUND (Continued)
To assist with preliminary investigations and site inspections,
and management assistance at the NFL sites mentioned above,
cooperative agreement number V-006463-01 was awarded to the LDEQ
on March 27, 1985. The agreement provided for 100Z Federal par-
ticipation, with a maximum Federal share of $183,880. The agree-
ment was amended on March 28, 1986 for an additional $60,000
bringing the total Federal participation up to $243,880. The
additional amount was for site-inspection follow-up activities.
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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 COOPERATIVE AGREEMENTS
V-006%?IP01. 7-006382-01 AND V-006463-01 AWARDED TO
THE LOUISIANA DEPARTMENT OF ENVIRONMENTAL QUALITY
We have examined the expenditures claimed by the Louisiana
Department of Environmental Quality, related to the Old Inger,
RCRA 3012, and Multi-Site cooperative agreements for
September 29, 1982, through March 31, 1986, as detailed in Ex-
hibit A. Our examination was performed in accordance with
generally accepted auditing standards and the Standards for Audit
of Governmental Organizations, Programs, Activities, ari3
Functions (1981 revision).Accordingly, our examination included
suchtests of the accounting records and such other auditing pro-
cedures as we considered necessary in the circumstances. We did
not examine $195,098 of costs claimed for contractual services,
and the related procurement of those contracts, under phase I of
the Old Inger cooperative agreement, which is included in Exhibit
A. The $195,098 of cost was incurred during the period
September 29, 1982 through May 31, 1984, and represents
approximately 15 percent of the total costs claimed for
contractual services. The $195,098 and the procurement of those
contractual services was examined by other auditors whose report
thereon has been furnished to us, and our opinion expressed
herein, insofar as it relates to the $195,098 for contractual
services and the procurement of those contractual services of the
Old Inger cooperative agreement, is based solely upon the report
of the other auditors.
As part of our examination, we determined the allowability of
costs claimed under the project in accordance with the provisions
of the grant and applicable Federal regulations. We did not
determine the allowability of costs claimed for contractual
services procured prior to June 1, 1984, under the Old Inger
cooperative agreement in accordance with the provisions of the
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Mr. Kenneth D. Hockman
Page 2
grant and applicable Federal regulations. Contractual services
procured prior to June 1, 1984, under the Old Inger cooperative
agreement were examined for alienability of costs claimed in
accordance with the grant and applicable Federal regulations by
other auditors whose report thereon has been furnished to us.
Our opinion expressed herein, insofar as it relates to compliance
with the grant and applicable Federal regulations for Old Inger
phases I and II, is based solely upon the report of the other
auditors. Exhibit A sets forth the costs which we questioned and
set aside in this regard and includes an explanation of the
reasons such costs were questioned and set aside.
The Summary of Costs Claimed (Exhibit A) was prepared on the
basis of regulations and criteria established by the
Environmental Protection ' Agency relating to hazardous waste'
disposal cooperative agreement projects pursuant to Public Law
96-510. Accordingly, Exhibit A is not intended to present the
financial position and results of operations in conformity with
generally accepted accounting principles.
In our opinion, based upon our examination, the report of the
other auditors and subject to the effects on Exhibit A of EPA's
ultimate resolution of the questioned and set aside expenditures
referred to in the preceding paragraphs, Exhibit A presents fair-
ly the costs claimed by the Louisiana Department of Environmental
Quality under the Old Inger, RCRA 3012 and Multi-Site 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
July 2, 1986
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TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT. SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40207
(502) 893-0700
Mr. Kenneth D. Hockman
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
We have examined the expenditures claimed by the Louisiana
Department * of Environmental Quality (LDEQ) , related to the
Old Inger, RCRA 3012, and Multi-Site cooperative agreements for
September 29, 1982, through March 31, 1986, as* detailed in Ex-
hibit A, except as noted in our Auditors' Report on page 8 and 9
of this report. Our examination was performed in accordance with
generally accepted auditing standards and the financial and
compliance provisions of the Standards for Audit of Governmental
Organizations, Programs. Activities, and Functions (1981 re-
vision) . Solely to assist us in planning and performing our ex-
amination, we made a study and evaluation of the significant
internal accounting controls of LDEQ. For the purpose of this
report, we have classified the significant internal accounting
controls into the following categories:
Disbursements
Payroll
Contractor procurement
Contractor performance and billings
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.
Because the audit could be performed more efficiently through
additional analysis and substantive audit tests, thus placing
very little reliance on the internal accounting control system,
our study and evaluation of the internal accounting controls did
not extend beyond this preliminary review phase. Accordingly, we
do not express an opinion on the system of internal accounting
controls taken as a whole. Also, our examination, made in
accordance with the standards mentioned above, would not
necessarily disclose all material weaknesses in the system of
internal accounting control. Our examination did not disclose
any conditions, other than those presented in the Findings and
Recommendations, that we believe to be a material weakness.
-10-
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Mr. Kenneth D. Hockman
Page 2
As a part of our examination, we performed certain tests to
determine 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 indicate that for the items
tested, LDEQ complied with the provisions of the cooperative
agreements and applicable Federal laws, regulations, policies,
and cost principles, except for the conditions described in the
Notes to the Exhibits. Further, for the items not tested, based
upon our examination referred to above, nothing came to our
attention which indicated that LDEQ 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
July 2, 1986
-11-
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FINDINGS AND RECOMMENDATIONS
1. STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by LDEQ to procure contract services
under all of the Superfund cooperative agreements were inadequate
and not in compliance with all requirements of Federal
regulations (40 CFR Part 33). These conditions were primarily
attributable to a lack of LDEQ's understanding of two items: the
applicable Federal regulations, and the responsibility being
assumed by EPA Region 6 for their part in the procurement
process. Cooperative agreement recipients are required to comply
with 40 CFR Part 33 as a condition of obtaining EPA funding.
Under the existing system, four contracts were awarded although:
0 Cost analyses were not documented for procured
contracts.
0 LDEQ used the prohibited cost-plus-percentage-of-cost
(CPPC) type of contract.
0 LDEQ did not submit the required preaward documentation
to EPA.
0 The request for proposals (RFP) did not state the
relative importance attached to each of the specified
evaluation criteria.
0 LDEQ did not incorporate all required EPA subagreement
clauses in the contracts awarded.
0 LDEQ did not retain written justification for
procurement method used or type of subagreement
awarded.
A. Cost Analyses Not Performed
The procedures utilized by LDEQ to procure agreements with:
D'Appolonia Waste Management Services of Louisiana, Inc.
(D'Appolonia) and Walk, Haydel, and Associates, Inc. (WHA)
under the Old Inger cooperative agreement; The Earth
Technology Corporation under the RCRA 3012 cooperative
agreement; and Toxicon Laboratories under the Multi-Site
cooperative agreement were not in compliance with 40 CFR
33.290.
LDEQ officials had made representations that they had
performed a cost analysis for the previously mentioned
contracts in compliance with 40 CFR 33.290(a). This
Regulation specifies that the recipient shall conduct a cost
analysis of all negotiated change orders and all negotiated
subagreements estimated to exceed $10,000. The Office of
Solid Waste and Emergency Response (OSWER) issued OSWER
-12-
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FINDINGS AND RECOMMENDATIONS (Continued)
Directive 9375.1-5 which defined a cost analysis as the
review and evaluation of each cost element to determine the
reasonableness, allocability and allowability of the cost.
We cannot determine if LDEQ completed a cost analysis
because LDEQ did not retain documentation of the cost
analysis in its procurement records or files as required by
40 CFR 33.250(a)(5).
EPA cannot be assured that Federal funds were spent in the
most effective manner for these contracts due to the
inability of LDEQ to provide us with sufficient evidential
matter documenting that a cost analysis was performed. This
is particularly important since EPA will need to
substantiate that contracts were procured in compliance with
EPA regulations and costs incurred ..were reasonable for the
services received. If EPA cannot effectively demonstrate
that costs incurred were reasonable and in compliance with
EPA regulations, cost recovery actions from responsible
parties may be hindered. Set-aside costs related to this
finding can be found in Exhibit B, Note 2; Exhibit C, Note
2; Exhibit D, Note 2, respectively.
B. Prohibited Type Subagreement
The contract with LDEQ and Earth Technology Corporation
(Earth) was a prohibited cost-plus-percentage-of-cost (CPPC)
contract based on the detail provided in the contract, and
our interpretation of the applicable criteria. LDEQ was
unaware that the Earth contract was a CFPC type of contract
and therefore unallowable for Superfund procurement. CPPC
type contracts offer the possibility of the contractor
permitting the cost of the project to be increased in order
to increase their profit. Accordingly, 40 CFR 33.285
prohibits the CPPC contract method.
According to 40 CFR 33.285, "The cost-plus-percentage-of-
cost... shall not be used". An explanation of the CPPC
system, as is used with these type contracts, is from the
Comptroller General and involves consideration of four
elements: (a) payment is on a predetermined percentage
rate; (b) the predetermined percentage rate is applied to
actual performance costs; (c) contractor's entitlement is
uncertain at the time of contracting; and (d) contractor's
entitlement increases with increased performance costs.
(Matter of Marketing Consultants Int'l Ltd., 55 Comp. Gen.
554 (B-183705, December 10, 1975.)).
Earth's contract did not have a fixed fee; and Earth's
profit was solely contingent on its direct and indirect
-13-
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FINDINGS AND RECOMMENDATIONS (Continued)
charges to LDEQ. The contract indicated profit was to be
computed as ten percent of direct and indirect costs. There
were no incentives in the contract for cost containment
other than a "not to exceed" ceiling.
Since 1945, the Comptroller General has taken the position
that a maximum cost limit ('not to exceed* ceiling) does not
legitimatize an otherwise prohibited CPPC contract.
"It is true that in a number of our earliest decisions
we took the view that absolute costs limitations, and
provisions for Government supervision of costs and
expenditures, would sufficiently protect the United
States against the evils at which the cost-plus-
percentage prohibition was directed, even where a fee
or profit on a percentage basis was provided for.
However, since B-46232 of March 28, 1945, we have
adhered to the rule that such controls or dubious cost
limitations are not sufficient to save such contracts
from violating the prohibition, but are for
consideration only in connection with determinations of
amounts properly allowable as the reasonable value of
services or supplies furnished under such unauthorized
contracts. See 33 Comp. Gen. 291,292i" 38 Comp. Gen.
38, 40 (1958); accord Comp. Gen. B-151399, B-151458
(May 31, 1963).
The Earth contract was a prohibited CPPC contract based on
the detail provided in the contract and our interpretation
of the applicable criteria. Questioned costs related to
this finding can be found in Exhibit C, Note 3.
C. Procedural Requirements for Recipients Who Do NotCertify
Their Procurement Systems
The documentation required to be submitted to EPA officials,
due to the State of Louisiana not being self-certified, was
not submitted prior to the award of each contract. The Pro-
gram Manager for Technical Services at LDEQ stated he was
unaware of the regulation requiring submittal of documenta-
tion prior to the award of each contract. According to 40
CFR Part 33, Appendix A, those states that do not certify
their procurement systems must submit to the award official
the records required under 40 CFR 33.250, unless the award
official instructs otherwise. LDEQ had no documentation
waiving preaward review by EPA. EPA officials did not have
complete information to approve the award of each contract
since LDEQ did not submit the necessary documents prior to
the award of each contract. Therefore, contracts were
entered into by LDEQ which EPA should not have approved
without review of the required documentation.
-14-
-------
FINDINGS AND RECOMMENDATIONS (Continued)
Public Notice
The relative importance of each of the evaluation criteria
used to review the contractor's bids was not contained in
the bidding documents related to the award of the Earth con-
tract. The Program Manager for Technical Services at LDEQ
indicated the reason the relative importance of each
criteria not being stated was because each criteria was
equally weighted, up to a maximum limit. According to 40
CFR 33.510(c) "the request for proposals must...contain all
evaluation criteria and the relative importance attached to
each." The bidding documents were incomplete and did not
serve the best interests of the Federal government or the
State" of Louisiana. The state may not attract the most
qualified bidders by- not including the relative importance
of each evaluation criteria in the bidding* documents.
Model SubagreementClauses
The subagreements awarded under LDEQ's cooperative
agreements were not in compliance with 40 CFR 33.1030 which
stipulates "Recipients must include, when appropriate, the
following clauses or their equivalent in each subagreement."
The clauses referred to described the minimum assurances,
guarantees, indemnity and other contractual requirements
necessary to assure that the Federal government's best
interests are protected. A schedule of model subagreement
clauses omitted or not equivalent for the subagreements is
presented in Exhibit E.
LDEQ officials submitted the contracts procured under their
cooperative agreements to EPA Region 6 officials and then
assumed they had complied with applicable Federal
regulations since EPA gave them no indication of
noncompliance. EPA Region 6 officials stated that they did
not review the contracts submitted by the State for
compliance with Federal regulations since the State had
agreed to comply with Federal regulatipns when it signed
its cooperative agreements with EPA.
Since the applicable model subagreement clauses were not
included in the subagreements entered into by LDEQ, the best
interests of the Federal government or the State of
Louisiana may not be adequately protected should any
contractual claims or disputes arise.
Documentation
Written justification for the procurement method and type of
subagreement were not maintained by LDEQ. The Program
Manager for Technical Services at LDEQ stated he was unaware
-15-
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FINDINGS AND RECOMMENDATIONS (Continued)
of this requirement. Procurement records and files for
procurements in excess of $10,000 shall include written
justification for selection of the procurement method and
type of subagreement according to 40 CFR 33.250. Since this
written justification is part of the required documentation
involved in preaward review, EPA officials did not have
complete information for their review.
LDEQ'S COMMENTS ON FINDING
We recommended in our draft report that the Regional
Administrator, Region 6, require:
A. LDEQ to provide documentation of a cost analysis, for
the contracts previously entered into and any future
contracts, under these cooperative 'agreements. This
procedure would allow EPA Region 6 officials the
opportunity to determine if the costs incurred or
proposed were reasonable and if LDEQ has completed the
analysis in compliance with 40 CFR 33.290.
B. A review of the amount paid to Earth and make a
determination of the reasonableness of both the costs
and profit for which the contractor has been
compensated. Additionally, all future contracts,
related to EPA cooperative agreements entered into by
LDEQ, should not contain CPPC provisions.
C. LDEQ to submit all required information to the award
official prior to the award of each contract, or give
written instructions to LDEQ waiving this requirement.
D. All future bidding documents related to the award of
contracts by LDEQ, under EPA cooperative agreements,
state the relative importance of each of the criteria
that-will be used to evaluate the proposals.
E. LDEQ to amend its existing contracts relating to the
previously mentioned cooperative agreements, to include
the applicable model subagreement clauses required by
40 CFR 33.1030 and include these clauses in future
contracts.
F. LDEQ to maintain all information required by 40 CFR
33.250 within their procurement files for each
agreement.
The Undersecretary of LDEQ stated in response to our
recommendations:
-16-
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FINDINGS AND RECOMMENDATIONS (Continued)
A. Cost Analysis Not Performed. LDEQ relied on EPA Form
5700-41 submitted by the contractor, as well as the
sampling cost summary breakdown part of the Earth
contract for documentation of cost analysis. LDEQ will
provide documentation of cost analysis in all future
contracts and request that EPA send us a model of an
acceptable form for cost analysis that will respond to
the items set forth in the definition under OSWER.
B. Prohibited Subagreement. LDEQ did not consider this
contract a cost plus contract because LDEQ limited the
number of samples to be taken and analyzed. Since the
profit margin is tied to the number of samples taken,
there is no room for abuse by the contractor. In the
alternative, LDEQ submits that ,the costs in a prohibi-
ted CPPC contract may be used for "consideration in
connection with determinations of amounts properly
allowable as the reasonable value of services or
supplies furnished under such unauthorized contract."
There will be no further contracts with CPPC
provisions. A review of the costs and profits to Earth
is included with this letter as Attachment 5.
C. Procedural Retirements for Recipients Who Do Not
Certify Their Procurement Systems.Based upon LDEQ's
understanding, it was not unreasonable to assume that
approval by EPA of a contract meant that the contract
was acceptable both for its substantive content and for
its procedural requirements. LDEQ will submit all
required information to the award official prior to the
award of each contract.
D. Public Notice. LDEQ failed to rank the evaluation
criteria used to review the contractor's bid related to
the award of the Earth contract. When necessary, the
relative importance of each criteria is stated (page 2,
Attachment 6). Otherwise, each criteria is equally
weighted. This oversight has been corrected and is
currently in place in the proposed contract for the Old
Inger Site, and all future contracts under Superfund.
LDEQ will rank the criteria used to evaluate proposals
as required by 40 CFR 33:510. This has already been
done in the last two bidded contracts and will be
continued.
E. Model Subagreement Clauses. LDEQ did not include the
modelsubagreementclauses required under 40 CFR
33.1010. This oversight has been corrected and will
appear in the proposed contract for the Old Inger Site,
and all future contracts under Superfund. There are no
existing contracts to be amended but LDEQ will include
-17-
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FINDINGS AND RECOMMENDATIONS (Continued)
the applicable model subagreement clauses required by
40 CFR 33.1030 in all future contracts.
F. Documentat ion. LDEQ respectfully submits that written
justification for the procurement method and type of
subagreements used by the LDEQ are contained in the
policy and procedural manual memorandum labeled DNR-PPM
and referenced as Attachment 7. This PPH establishes
policies and procedures for every type of state or
federally funded contract between the Department and
any other person or entity. LDEQ will maintain all
information required by 40 CFR 33.250 in its
procurement files for each agreement.
OUR EVALUATION OF LDEQ'S COMMENTS
LDEQ'S comments regarding compliance with Federal regulations for
future procurements were responsive to the intent of our
recommendations. However, the documentation provided for cost
analysis for completed or existing contracts was not adequate to
determine if the costs incurred were reasonable or that the
analysis was in compliance with 40 CFR 33.290. Additionally, the
review of costs and profits to Earth Technology Corporation
should be submitted to the Regional Administrator, Region 6 for
review and determination of reasonableness.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 6:
1. Require LDEQ to submit documentation of cost analysis in
compliance 'with 40 CFR 33.290 for the contracts previously
entered into for determination of the reasonableness of
costs incurred or proposed.
2. Require LDEQ to submit the review of amounts paid to Earth
Technology Corporation for determination of the
reasonableness of costs and profits for which the contractor
has been compensated.
2. NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
LDEQ did not submit to EPA the required quarterly progress
reports within the required timeframes for any of their
cooperative agreements. The LDEQ Program Manager for Technical
Services stated that, due to the limited staff within the
Hazardous Waste Division, it was difficult to comply with all of
the administrative duties in addition to completing duties not
related to LDEQ's cooperative agreements with EPA. The timely
submission of the quarterly progress reports was required by the
special conditions in each of the cooperative agreements. The
-18-
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FINDINGS AND RECOMMENDATIONS (Continued)
Old Inger cooperative agreement was the only agreement which did
not expressly state that the quarterly progress reports were due
within 30 days. As a result, EPA did not have timely written
documentation detailing expenditures, estimates of work com*
pleted, cost and time variances, or estimated dates of com-
pletion.
LDEQ had not submitted all of the quarterly progress reports to
the Region 6 Project Officer as of our last day of fieldwork,
July 2, 1986. The status of the submission of the quarterly
progress reports beginning with the quarter ended June 30, 1984
through July 2, 1986, was:
Quarter
Ended
Cooperative Agreements
June 30, 1984
September 30, 1984
December 31, 1984
March 31, 1985
June 30, 1985
September 30, 1985
December 31, 1985
March 31, 1986
Old
Inger
1
1
A
A
A
A
2
2
RCRA
3012 *
1
A
A
A
A
B
B
B
Multi-Site
N/A
N/A
N/A
N/A
A
2
2
2
1
2
A
B
N/A -
Quarterly Progress Report not completed.
Quarterly Progress Report completed, not submitted to EPA
Region 6.
Quarterly Progress Report completed and submitted.
Quarterly Progress Report not required to be completed
since the cooperative agreement had expired. According to
the EPA Project Officer and LDEQ officials, a time
extension will be awarded on this grant for the purpose of
site inspection follow-ups.
Quarterly Progress Report not required to be completed
since the cooperative agreement had not been awarded.
CORRECTIVE ACTION TAKEN BY LDEQ
The Undersecretary of LDEQ stated in response to our
recommendations that quarterly reports listed in the findings
were prepared at the time of the audit but not submitted to EPA
until July 1, 1986 (Attachment 12). Quarterly progress reports
for future cooperative agreements will be submitted within the
required time frame. LDEQ will request in the next grant
amendment to the Old Inger Cooperative Agreement that a special
condition concerning quarterly reports be included.
-19-
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FINDINGS AND RECOMMENDATIONS (Continued)
The discussed actions are responsive to the intent of the
recommendations, and consequently, we make no further
recommendations. However, we have not examined the results of
the discussed actions, except for those reports provided with the
response, to determine if they are functioning as stated.
3. MINOR FINDING - CORRECTIVE ACTION IN-PROGRESS
LDEQ had paid $6,697 to D'AppoIonia in excess of the amount
invoiced for services performed under contract number
28800-84-01. The amount was overpaid because LDEQ's accounts
payable system did not compare amounts invoiced with amounts
disbursed. After we discovered the overpayment to the
contractor; LDEQ requested a refund from D'AppoIonia. The
contractor issued a check on June 24, 1986, for the $6,697
overpayment and LDEQ planned to reimburse' EPA through a reduction
of their Letter of Credit drawdown for the month ending June 30,
1986.
The questioned cost related to this finding can be found in
Exhibit B, Note 2(b).
CORRECTIVE ACTION TAKEN BY LDEQ
The Undersecretary of LDEQ stated in response to our
recommendations that LDEQ has reimbursed EPA through a reduction
of the Letter of Credit drawdown. LDEQ's accounts payable system
is set up to compare amounts invoiced with amounts disbursed.
For the case of D'Appo Ionia, a mistake was made which has been
corrected.
The discussed actions are responsive to the intent of the
recommendations. However, we have not examined the results of
the discussed actions to determine if they are functioning -as
stated.
RECOMMENDATION
We recommend that the Regional Administrator, Region 6 review the
June 1986 Letter of Credit drawdown made by LDEQ and ensure that
the Federal share of approximately $6,027, relating to the $6,697
erroneous payment, was properly credited.
-20-
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EXHIBITS
-------
-------
EXHIBIT A
COOPERATIVE AGREEMENTS AWARDED TO THE
LOUISIANA DEPARTMENT OF ENVIRONMENTAL QUALITY
SUMMARY OF COSTS CLAIMED, ACCEPTED, QUESTIONED AND SET-ASIDE
FOR THE PERIOD SEPTEMBER 29. 1982 THROUGH MARCH 31, 1986
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Equipment
Materials &
Supplies -
Contractual
Services
Totals
Federal Share $1
CLAIMED
$
s
1
$1
11
(Note
3,
5,
1.
f316,
,327,
±288.
1)
199
225
460
761
160
760
565
139
ACCEPTED
(Note
$ 3,
5,
1,
444,
$455.
$416,
2)
199
225
460
761
160
802
607
851
QUESTIONED
$
-
450", 906
$450.906
$450,236
SET- AS IDE
$
-
. 421.052
$421,052
$421.052
NOTES
3,4
Note 1
Note 2
Note 3
Note 4
The amounts claimed represent expenditures reported on
the Financial Status Report (SF 269) through March 31,
1986.
See Exhibits B, C, and D for schedules
claimed, accepted, questioned and set aside.
The $450,906 questioned cost consists
(Exhibit B) and $444,209 (Exhibit C).
of costs
of $6,697
The $421,052 set aside consists of $357,329 (Exhibit
B) and $63,723 (Exhibit D).
-21-
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EXHIBIT B
OLD INGER COOPERATIVE AGREEMENT
AWARDED TO THE LOUISIANA
DEPARTMENT OF ENVIRONMENTALQUALITY
P. QUESTIONED AND SET-ASIDE
2 THI
[ENTAL 0
SCHEDULE OF COSTS CLAIMED. ACCEPTED. QUEST^»^ «»„ „». *-™
FOR THE PERIOD SEPTEMBER 29. 1982 THROUGH MARCH 31. 1986
AMOUNT
COST CATEGORY
Travel
Contractual
Services
Totals
Federal Share
CLAIMED
(Note 1)
$ 37
751,594
$751.631
$712,205
ACCEPTED
$ 37
387,568
$387.605
$348,849
QUESTIONED
$ -
6,697
$6,697
$6,027
SET-ASIDE NOTES
$
357,329 2
$357.329
$357,329
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report, (SF 269) through March 31,
1986.
Note 2 We have questioned $6,697 and set aside $357,329 of
contractual services costs determined as follows:
(a)
(b)
Totals
Questioned
$ -
6.697
$6,697
Set-Aside
$357,329
$357.329
(a) The procedures utilized by LDEQ to procure con-
tractual services under the Old Inger cooperative
agreement were inadequate and not in compliance
with Federal regulations. The specific violations
applicable to our interim audit related to docu-
mentation; cost and price considerations; and mod-
el subagreement clauses. In accordance with 40
CFR Part 33, cooperative agreement recipients are
required to comply with the above requirements.
These conditions were primarily attributable to
a lack of LDEQ's understanding of two items: The
applicable Federal regulations, and the responsi-
bility being assumed by EPA Region 6 for their
part in the procurement process. The procurement
procedures utilized by LDEQ prohibited assurance
to EPA that the best offerer was awarded the
-22-
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OLD INGER COOPERATIVE AGREEMENT
AWARDED TO THE LOUISIANA
.DEPARTMENT OF ENVIRONMENTAL QUALITY
EXHIBIT B
(CONTINUED)
SCHEDULE OF COSTS CLAIMED. ACCEPTED, QUESTIONED AND SET-ASIDE
*lluw wUU W4 WVw A *J ^m»^l lAJA^ i flWvmU A *^*S y \ W^^ jb A\/IHm^ flfc*^ WMJL CT
-------
EXHIBIT C
RCRA 3012 COOPERATIVE AGREEMENT
•AWARDED TO THE LOUISIANA
DEPARTMENT OF ENVIRONMENTAlTQUALITY
SCHEDULE OF COSTS CLAIMED. ACCEPTED AND QUESTIONED
FOR THE PERIOD JUNE 27. 1983 THROUGH MARCH 31. 19?6
COST CATEGORY
Travel
Equipment
Contractual
Services
Totals
AMOUNT
CLAIMED
(Note 1)
$ 3,529
1,761
444,209
$449.499
ACCEPTED
$3,529
1,761
$5.290,
QUESTIONED
NOTE
444.209 2, 3
$444.209
Federal Share
$449.499
$5.290
$444.209
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report, (SF 269) through March 31,
19,86.
Note 2 The procedures utilized by LDEQ to procure contractual
services under the RCRA 3012 cooperative agreement were
inadequate and not in compliance with Federal regu-
lations. The specific violations applicable to our
interim audit related to documentation; cost and price
considerations; and model subagreement clauses. In
accordance with 40 CFR Part 33, cooperative agreement
recipients are required to comply with the above
requirements. These conditions were primarily
attributable to a lack of LDEQ's understanding of two
items: The applicable Federal regulations, and the
responsibility being assumed by EPA Region 6 for their
part in the procurement process. The procurement
procedures utilized by LDEQ prohibited assurance to EPA
that the best offerer was awarded the contract. The
entire $444,209 of contractual costs would have been
set aside for this reason, except for the effect of
Note 3 on this cost. See Exhibit E for details by
cooperative agreement of the specific subagreement
clauses which were omitted or not equivalent. Also see
Finding Number 1, State's Superfund Procurement System
Needs Improvement, located in the Findings and
Recommendations section, for further development of
this finding.
-24-
-------
RCRA 3012 COOPERATIVE AGREEMENT
'. AWARDED TO THE LOUISIANA
EXHIBIT C
(CONTINUED)
DEPARTMENT OF ENVIRONMENTAL DUALITY
SCHEDULE''OF COSTS CLAIMED. ACCEPTED AND QUESTIONED
FOR THE PERIOD JUNE 27. 1983 THROUGH MARCH 31. 1986
Note 3 The contract between LDEQ and Earth Technology
Corporation (Earth) was a prohibited cost-plus-percent-
age-of-cost (CPPC) contract based on the detail
provided in the contract and our interpretation of the
applicable criteria. LDEQ was unaware that the Earth
contract was a CPPC type contract and therefore
unallowable for Superfund procurement. CPPC type con-
tracts offer the possibility of the contractor permit-
ting the cost of the project to be increased in order
to increase their profit. Accordingly, 40 CFR 33.285
prohibits the CPPC contract method.
We have questioned the total of $444,209 ($40,384
profit and $403,825 balance) claimed pursuant to this
contract. Also see Finding Number 1, State's Superfund
Procurement System Needs Improvement, located in the
Findings and Recommendations section, for further
development of this finding.
-25-
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EXHIBIT D
MULTI-SITE COOPERATIVE AGREEMENT
AWARDED TQ THE LOUISIANA
DEPARTMENT OF ENVIRONMENTAL QUALITY
SCHEDULE OF COSTS CLAIMED, ACCEPTED AND SET-ASIDE
FOR THE PERIOD MARCH 27. 1985 THROUGH MARCH 31, 1956
AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials &
Supplies -
Contractual
Services
Totals
Federal Share
CLAIMED
(Note 1)
$ 3,199
225
1,894
160
120.957
$126.435
$126,435
ACCEPTED
$ 3,199
225
1,894
160
57.234-
SET-ASIDE
NOTE
. 63.723
$63.723
$63.723
Note 1 The amounts claimed represent expenditures reported on
the Financial Status Report, (SF 269) through March 31,
1986.
Note 2 The procedures utilized by LDEQ to procure contractual
services under the Multi-Site cooperative agreement
were inadequate and not in compliance with Federal reg-
ulations. The specific violations applicable to our
interim audit related to documentation; cost and price
considerations; and model subagreement clauses. In
accordance with 40 CFR Part 33, cooperative agreement
recipients are required to comply with the above
requirements. These conditions were primarily
attributable to a lack of LDEQ's understanding of two
items: The applicable Federal regulations, and the
responsibility being assumed by EPA Region 6 for their
part in the procurement process. The procurement
procedures utilized by LDEQ prohibited assurance to EPA
that the best offerer was awarded the contract.
Therefore, we have set aside $63,723 of contractual
costs claimed. See Exhibit E for details by
cooperative agreement of the specific subagreement
clauses which were not included or equivalent. Also
see Finding Number 1, State's Superfund Procurement
System Needs Improvement, located in the Findings and
Recommendations section, for further development of
this finding.
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EXHIBIT E
COOPERATIVE AGREEMENTS AWARDED TO THE
LOUISIANA DEPARTMENTMENT OF ENVIRONMENTAL QUALITY
QW
TTI
SCHEDULE OF MODEL SUBAGREEMENT CLAUSES OMITTEDOR
NOT EQUIVALENT FOR THE SUBAGREEMENTS
Clause;
Supersession
Privity of Subagreement
Changes
Termination
Remedies
Price Reduction for Defective
Cost or Pricing Data
Audit; Access to Records
Gratuities
Responsibility of Contractor
Final Payment
RCRA 3012 Multi-Site
NO
XX
NO
NO
NO
NO
NO
NO
NO
NO
YES
XX
NO
XX
YES
NO
NO
NO
NO
NO
NO - Subagreement did not contain clause.
XX - Clause was not equivalent to Federal requirements.
YES - Clause was contained in this Subagreement.
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APPENDIX
Auditors' Note: The Undersecretary of LDEQ included the
following documents as Attachments 1 through 13 with the
response to the draft audit report:
1. Interim Audit of Cooperative Agreement-Old Inger Site
Audit Report No. E5bM4-06-0144-50011
2. Grant Amendment-RCRA 3012 Program Period: July 1983-
December 1984 and EPA Approval Letter
3. EPA Approval Letters-Multi-Site Superfund Project
Agreement No. V-006463-01-0
4. Contract For Professional Services between LDEQ and
Earth Technology Corporation, dated April 27, 1984
5. Review of Costs under RCRA 3012-LDEQ Contract with
Earth Technology
6. Solicitation of Proposals, SFP No. 28503-85-02,
"Analytical Services for the Inactive and Abandoned
Sites Division"
7. DNR-PPM Policy and Procedure Memorandum No. 84-1
8. LDEQ Memorandum: Ranked Evaluations of 3012 Project
Proposals
9. Solicitation for Proposals (SFP) No. 28136-84-01
"Assessments and Inspections of Potentially Hazardous
Waste Sites in Louisiana"
10. LDEQ Contract (Sample)
11. Cost or Price Summary Format For Subagreements Under
U.S. EPA Grants (EPA Forms 5700-41)
12. Quarterly Report for Multi-Site Agreement for the
Period July-September, 1985
13. Copy of check from IT Corporation payable to State of
Louisiana for $6,697.10
The attachments described above 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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Martha A. Madden
SECRETARY
JANET A. SMITH
UNDERSECRETARY
January 21, 1987
Mr. Kenneth D. Hockman
United States Environmental Protection Agency . .
Office of the Inspector General A-109
Room 300, NE Mall
401 M Street SW
Washington, D.C. 20460
Dear Mr. Hockman:
An audit was conducted by the Inspector General for Audit of the
Louisiana Department of Environmental Quality's administration of its
Superfund Cooperative Agreements with EPA under CERCLA for the period
September 29, 1982, through March 31, 1986. Specifically, the audit covered
the following cooperative agreements: Old Inger Abandoned Hazardous Waste
Site Remedial Action (Old Inger, V-006448-01); Evaluation of Potentially
Hazardous Waste Sites (RCRA 3012, V-006382-01); and Management Assistance at
Bayou Sorrel, Bayou Bonfouca, and Cleve Reber Sites (Multi-Site, V-006463-01-).
The audit was completed July 2, 1986.
Background:
Old Inger; The Old Inger initial agreement was awarded on September 29,
1982, and provided for 90Z Federal participation with a maximum Federal share
of $189,000. The agreement was amended on April 20, 1983, adding Federal
funds of $180,000 to assist with a remedial feasibility study. The amendment
amount also provided for a 90Z Federal participation level. The agreement was
again amended on September 26, 1984, to provide for IOOZ Federal
participation, with a maximum Federal share of $450,000, in the area of
remedial design. Thus, the maximum Federal share of the project cost, as of
March 31, 1986, was $819,000 with the State participation at $41,000. On
April 25, 1986,' the agreement was again amended for RDRA, to include the
additional amount of $3,589,410, plus the required State match participation
of 10Z of the RORA Construction Phase project costs (the last amendment has
not yet resulted in the Issuance of any contract by LDEQ).
RCRA 3012; On June 27, 1983, the IOOZ federally funded RCRA 3012
Cooperative Agreement Number V-006382-01 was awarded for a sum of $189,840.
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Mr. Kenneth D. Hockman, January 21, 1987, Page 2
An amendment of $345,550 was granted on September 26, 1984, for the purpose of
analysing samples taken during the site Inspection phase. The additional
funding was necessary to hire a contractor laboratory to perform the sample
analyses that EPA had originally'planned to perform under the Contractor Lab
Program (CLP).
Multi-Site; To assist with preliminary investigations and site
inspections, and management assistance at the NPL sites: Bayou Sorrel, Bayou
Bonfouca and Cleve Reber Cooperative Agreement Number V-006463-01 was awarded
to LDEQ on March 27, 1985. The agreement provided 100Z Federal participation
with a maximum Federal share of $183,880. The agreement was amended on March
28, 1986, for an additional $60,000 bringing the total Federal participation
up to $243,880. The additional amount was for site inspections follow-up
activities.
Response:
In general, the audit stated that state procedures utilized by LDEQ to
procure contract services under all the Superfund Cooperative Agreements were
inadequate and not in compliance with all requirements of Federal regulations,
40 CFR Part 33.
«p *
During the approximately four years LDEQ and EPA have worked together on .
Superfund projects, the LDEQ has relied extensively on the advice, counsel,
and experience of the EPA staff. This Department has had an ongoing dialogue
with eight different grant officers or section chiefs and at least five
different technical project officers from EPA for the various Superfund
projects. However, our Division (Inactive and Abandoned Sites) has rarely
been in contact with the same individual in the same role for as long as a
year. In response to programmatic pressures, many decisions and commitments
between the State and EPA were made verbally in phone conversations, or in
face-to-face discussions. This method of operation allowed LDEQ to meet
deadlines but did not provide the required documentation for audit purposes.
At no time has the effectiveness of the Division's program been questioned by
EPA. However, since the audit indicates that this method is inadequate, LDEQ
is prepared to revise its procedures to meet the requirements set forth in 40
CFR Part 33.
LDEQ was lulled into a false sense of security stemming from its
understanding that the failure to certify would evoke EPA pre-award review of
proposed procurement actions using EPA funds. As stated in the previous
paragraph, there were countless discussions with officials at the EPA and no
contracts were executed without approval, albeit verbal in many instances.
This sense of security as to the proper procedures was reinforced in the
document labeled Attachment 1, which is a federal audit of the Old Inger
Cooperative Agreement dated December 19, 1984. Page three of this document
addresses the LDEQ accounting system and states:
"We found that the agency was accurately reporting allocable and
allowable project costs, adequately monitoring consultant performance and
billings, and properly drawing down funds under the EPA letter of credit
authorization."
Since the contracts with Earth Technology for RCRA 3012, and with L.S.U.
for Multi-Site were in the same form as contracts under the Old Inger
Cooperative Agreement, LDEQ presumed that they were acceptable both to the
federal auditors and to EPA. See also Attachments 2 and 3 which contain
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Mr. Kenneth D. Hockman, January 21, 1987, Page 3
written approval from EPA for the RCRA 3012 application and work plan and for
the Multi-Site contract*
A. Cost Analysis Not Performed
By way of documentation for cost analysis , LDEQ relied on EPA form
5700-41 submitte'd by the contractor, as well as the sampling cost summary
breakdown which is part of the Earth Technology contract dated April 27. 1984
(Attachment 4). This was the method in use at the time of the December 19,
1984 Interim Audit of the Cooperative Agreement for the Old Inger Site which
approved our accounting methods (p. 3. Attachment I). It appears that the
language in this Interim Audit is equivalent to the OSWER definition cited in
the September 25, 1986 audit report. LDEQ's method of accounting did not
change between these two reports, yet we received a passing grade on the first
audit (December 19, 1984) and a failing grade on the second (received by LDEQ
on September 25, 1986).
B. Prohibited Subagreement: The September 25, 1986 audit further faulted the
Earth Technology contract for being a prohibited cost plus percentage of cost
(CPPC) contract. Neither Earth Technology Corporation, nor the State, nor EPA
considered this contract a cost plus contract because LDEQ limited the number
of samples to be taken and analyzed under the control* of Earth Technology.
Since the profit margin is tied to the number of samples taken, there is no
room for abuse by the contractor. LDEQ submits that the limitation of samples
placed on the contractor constitutes a cost containment that removes it from
the definition cited in the Matter of Marketing Consultants International,
Ltd^, Comp. Gen. 554 (B-183705, December 10, 1975), because there is no margin
for discretion or abuse.
In the alternative, if this argument is not sufficient to justify removal
of our contract from the prohibited CPPC contract classification, LDEQ submits
that the case cited in the September 25, 1986 audit report (page 14) clearly
states that the costs in a prohibited CPPC contract may be used for
"consideration {only} in connection with determinations of amounts properly
allowable as the reasonable value of services or supplies furnished under such
unauthorized contract." See 33 Comp. Gen. 291,292." 38 Comp. Gen. 38, 40
(1958); accord Comp. Gen. B-151399, B-151458 (May 31, 1963). Since this case
sanctions use of costs in the CPPC contract, it is respectfully submitted that
costs contained in the contract with Earth Technology be considered when
determining what is due.
The EPA grant award to LDEQ for the RCRA 3012 project amounted to
$535,550. Total contractual commitment for LDEQ was $512,128. The actual
amount paid to Earth Technology was $449,449. The contract came in under the
EPA grant award by $85,891, and under the LDEQ contract by $62,629. Also,
work was completed ahead of schedule. (Attachment 5) We believe this is
indicative of diligent project management by LDEQ to assure both cost control
and effective project performance under the contract.
C. Procedural Requirements for Recipients Who Do Not Certify Their Procurement
Systems; This topic was discussed in some degree under paragraph seven of
this letter which explains LDEQ's misplaced reliance on EPA for approval of
contracts. The fact that EPA should not have approved the Department's
contracts does not provide any relief to LDEQ. Based upon LDEQ's
understanding, it was not unreasonable to assume that approval by EPA of a
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Mr. Kenneth D. Hockman, January 21, 1987, Page 4
contract meant that the contract was acceptable both for its substantive
content and for its procedural requirements.
D. Public Notice: LDEQ failed to rank the evaluation criteria used to review
the contractor's bid related to the award of the Earth contract. When
necessary, the relative importance of each criteria is stated (page 2,
Attachment 6). Otherwise, each criteria is equally weighted. This oversight
has been corrected and is currently in place in the proposed contract for the
Old Inger Site, and all future contracts under Superfund.
E. Model Subagreement Clauses; LDEQ did not include the model subagreement
clauses required under 40 CFR 33.1030. This oversight has been corrected and
will appear in the proposed contract for the Old Inger Site, and all future
contracts under Superfund.
F. Documentation: LDEQ respectfully submits that written justification for
the procurement method and type of subagreements used by the LDEQ are
contained ill the policy and procedural manual memorandum labeled DNR-PPM and
referenced herein as Attachment 7. This PPM establishes policies, and
procedures for every type of state or federally" funded, contract between the
Department and any other person or entity.
Furthermore, 40 CFR 30.250 is satisfied as follows:
(a) (1) Basis for contractor selection is our evaluation criteria,
Attachment 8
(2) Attachment 7 - Policy and Procedural Memorandum for the
Department
(3) Attachment 9 which is a memorandum that sets forth the
procedure to be used for solicitation of proposals for
"Assessments and Inspections of Potentially Hazardous Waste
Sites in Louisiana."
(4) See Attachments 2, 3, and 10
(5) See EPA Form 5700-41 (Attachment 11) which are the
completed 5700-41 forms for Earth Technology, L.S.U., and
D'Appolonia (IT)
(6) See Attachment 8 (evaluation criteria)
(b) Reasons for rejecting any bids appear in the evaluation criteria,
Attachment 8. The only contract not competitively bid is the
contract with L.S.U. Institute for Environmental* Studies, which is
another state agency.
LDEO Concurrence With Auditors* Recommendations:
A. LDEQ will provide documentation of cost analysis in all future contracts
and request that EPA send us a model of an acceptable form for cost analysis
that will respond to the items set forth in the definition under OSWER.
B. There will be no further contracts with CPPC provisions. A review of the
costs and profits to Earth is included with this letter as Attachment 5.
C. LDEQ will submit all required information to the award official prior to
the award of each contract.
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Mr. Kenneth D. Hockman, January 21, 1987, Page 5
D. LDEQ will rank the criteria used to evaluate proposals as required by 40
CFR 33:510. This has already been done in the last two bidded contracts and
will be continued.
E. There are no existing contracts to be amended but LDEQ will include the
applicable model subagreement clauses required by 40 CFR 33.1030 in all future
contracts.
F. LDEQ will maintain all information required by 40 CFR 33-250 in its
procurement files for each agreement.
Noncompliance With Special Grant Conditions
Quarterly reports listed in the findings were prepared at the time of the
audit but not submitted to EPA until July 1, 1986 (Attachment 12). Quarterly
progress reports for future cooperative agreements will be submitted within
the required time frame. LDEQ will request in the next grant amendment to the
Old Inger Cooperative Agreement that a special condition concerning quarterly
reports be included.
Minor Finding - Corrective Action in Progress
LDEQ had paid to D'Appolonia $6,697.00 in excess of the amount invoiced
for services performed under contract number 28800-84-01.
The contractor issued a check on June 24, 1986 for the $6,697.00
overpayment (Attachment 13). LDEQ has reimbursed EPA through a reduction of
the Letter of Credit drawdown.
LDEQ's accounts payable system is set up to compare amounts invoiced with
amounts disbursed. For the case of D'Appolonia, a mistake was made which has
been corrected.
Summary Comments;
Findings from the audit show that there are problems with documentation
of LDEQ's procurement program and management of subagreement contracts. LDEQ
will correct these problems in the future, making full use of the
recommendations provided by the Division of the Inspector General.
We believe that the work performed under the cited LDEQ contracts was
properly and timely performed under LDEQ supervision, and was cost-effective.
Therefore, we respectfully submit that any costs questioned by the audit
should be allowed, in light of the comments and information submitted herein.
I appreciate the opportunity provided to complete this response to the
audit.
Sincerely,
ifcw
Janet A. Smith
Undersecretary
Attachments
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U.S. Environmental Protection
Ctbrary, Room 2404 FH-21L*!
401 U Street, S.W.
«BShln«ton, DC 20460
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