.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.
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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.
                               -2-

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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.
                                -3-

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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.
                               -4-

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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;


                                -5-

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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.
                               -6-

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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.
                                -7-

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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
                                -8-

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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
                                -9-

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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-

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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

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                                                       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-

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                 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.
                              -26-

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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.
                               -27-

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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.
                                         -28-
            pncru mf-rc 111 ill

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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
                                   -29-

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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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