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&EPA
Unfted States
Environmental Protection
Report of Audit
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TABLE OF CONTENTS
PAGE
SCOPE AND OBJECTIVP?; 1
SUMMARY OF FINDINGS , 2
ACTION REQUIRED 4
BACKGROUND 4
FINDINGS AND RECOMMENDATIONS
1 - UNSATISFACTORY PROGRAM PERFORMANCE 6
2 - SUPERFUND ACCOUNTING SYSTEM DEFICIENCIES 25
3 - INADEQUATE LETTER OF CREDIT PROCEDURES 32
EXHIBIT A - SCHEDULE OF COSTS INCURRED AND RESULTS OF AUDIT
FOR THE PERIOD JANUARY 1, 1985 TO JUNE 30, 1986 36
ENCLOSURE 1 - STATE OF UTAH RESPONSE TO FINDING AND
RECOMMENDATION NO. 1-UNSATISFACTORY
PROGRAM PERFORMANCE 43
ENCLOSURE 2 - STATE OF UTAH COMMENTS AND OUR EVALUATION
OF CONCLUSIONS IN FINDING NO. 2-SUPERFUND
ACCOUNTING SYSTEM DEFICIENCIES 59
ATTACHMENT 1 - PHOTOGRAPHS OF SHARON STEEL SITE 69
ATTACHMENT 2 - PHOTOGRAPHS OF OLSON-NEIHART RESERVOIR SITE 70
ATTACHMENT 3 - PHOTOGRAPHS OF SILVER CREEK TAILINGS SITS 71
ATTACHMENT 4 - PHOTOGRAPHS OF AMERICAN BARREL SITE 72
REPORT DISTRIBUTION .. - • 73
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL FOR AUDITS
WESTERN DIVISION
211 Main Street, Suite 220
San Francisco, CA 94105
415 974-7084
September 15, 1987
Subject:
FROM:
TO:
Report on Interim Audit of Multi-Site
Cooperative Agreement No. V008427
Awarded to Utah Department of Health,
Division of Environmental Health Under the
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980
Audit Report No. £5036-08-0062-^71906
Truman R. Beeler
Divisional Inspector General for Audit
Western Division
John Shearer
Regional Administrator
EPA, Region 8
SCOPE AND OBJECTIVES
We have performed an interim audit of the Multi-Site Cooperative Agreement No,
V008427 awarded to the State of Utah, Department of Health (DOH), Division of
Environmental Health (DEH), under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980. The primary objectives of our audit
vrere to:
* Determine the adequacy, effectiveness, and reliability of procurement,
accounting, and management'controls exercised by the state in adminis-
tering its cooperative agreement.
* Ascertain the state's compliance with provisions of the cooperative
agreement and applicable EPA regulations and instructions.
* Determine the reasonableness, alienability, and alienability of the
costs claimed under the cooperative agreement.
The financial aspects of our audit covered the period January 1, 1985 through
June 30, 1986. Our review of the DEH administration and performance under the
cooperative agreement covered the period January 1, 1985 through September 16,
1986. At the time of our audit, DEH had not submitted final Financial Status
asports (FSRs) for any budget periods under the cooperative agreement. As a
result, our financial audit was performed on costs incurred as reported in the
Budget Operating Report, (Report No. HL-176-100) prepared by the Utah DOH-
Office of Administrative Services for the fiscal years ended June 30, 1985 and
June 30, 1986.
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Our examination was made in accordance with Standards for Audit of Govern-
mentalOrganizations, Programs, Activities, and Functions issued by the Comp-
troller General of the United states,and accordingly, included such tests of
the records and other auditing procedures as were considered necessary in the
circumstances. We reviewed the state's system of internal controls relating
to the administration and management of the Superfund program under the MSCA.
Any internal control deficiencies noted in the above areas have been included
in the "Summary of Findings" and "Findings and Recommendations" sections of
this report.
SUMMARY OF FINDINGS
Our review disclosed that the DEH has not met the objectives established in
the $1.2 million EPA Multi-Site Cooperative Agreement. As a result, required
work was not completed at several of the Utah hazardous waste sites for which
DEH was assigned the lead responsibility, including two sites on the National
Priority List. DEH was also behind schedule on the completion of required
preliminary assessments and site investigations. It also had not established
an adequate accounting system to account for Superfund costs although this
was a prerequisite. for - obtaining a cooperative agreement. In addition, DEH
had not complied with the letter of credit requirements established in the
cooperative agreement. The ability of DEH to make satisfactory progress in
the above areas was hampered by the fact that (i) DEH was awarded the cooper-
ative agreement before it had the organization and capabilities to perform,
and (ii) an effective working relationship had not been.developed between DEH
and the Region.
The results of our review are summarized in the. following subparagraphs and
detailed, along with related recommendations in the "Findings and Recommen-
dations" section of this report. Details on our audit of costs incurred
under the cooperative agreement are included in Exhibit A of this report.
1. UNSATISFACTORY PROGRAM PERFORMANCE
DEH has not fulfilled the performance goals and objectives established by its
Superfund Multi-Site cooperative agreement. Consequently, it had not completed
required work in the areas of hazardous waste site forward planning, remedial
investigations, and site feasibility studies, including studies at two sites
included on the National Priority List. In addition, completion of the 21
required preliminary assessment and 14 site inspections had not been effective-
ly performed and the finalization of the resulting reports were behind schedule.
These conditions have the potential to seriously effect the public health and
safety of area residents since apppropriate action was not taken to alleviate
known hazardous conditions. This included sites with high concentrations of
lead, arsenic, and other metals. There are several factors contributing to
this condition including the following: (i) DEH had not met the minimum Federal
qualifications necessary to receive the initial cooperative .agreement, and
therefore was not equipped to perform under the cooperative agreement when it
was received, (ii) DEH had not developed the operating procedures necessary to
effectively perform the objectives of the cooperative agreement, and (iii) DEH
and the Region had not established the lines of communication or working re-
lationships necessary to assure the effective performance under the coopera-
tive agreement (see page 6).
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2. SUPERFUND ACCOUNTING SYSTEM DEFICIENCIES
DEH had not implemented the accounting procedures necessary to adequately ac-
count for its Superfund expenditures or to. conply with the accounting system
requirements specified in 40 CFR 30.510 or 40 CFR 30.301(a) (4). As a result,
we found major inadequacies in the accounting system used to record and accu-
mulate costs incurred under the $1.2 million Multi-Site Cooperative Agreement.
These inadequacies included (i) the use of unacceptable labor charging and
recording practices, which have allowed DEH to allocate employee indirect time
charges as direct labor, and to transfer labor costs to the cooperative agree-
ment from other projects without adequate documentation, and (ii) the failure
to adequately segregate allowable and unallowable costs in the accounting rec-
ords. The above accounting deficiencies represent a significant weakness in
internal controls which has both affected the integrity of the accounting sys-
tem and jeopardized the Federal Government's ability to recover Superfund costs
from responsible parties. We attributed these problems to a failure to (i)
adequately instruct employees on how to prepare their timecards, and (ii) re-
quire adequate supervisory review of the employees labor charging practices
(see page 25).
3. INADEQUATE LETTER OF CREDIT PROCEDURES
Letter of Credit (LOG) requirements provided for in the special conditions of
its cooperative agreement or in the LOC Users Manual had not been complied
with by DEH. As a result, the LOC was not being used as an effective means of
obtaining reimbursements under the Superfund cooperative agreement. Specif-
ically, our review disclosed that (i) required LOC financial reports were not
being submitted or were submitted late, (ii) LOC drawdown amounts were not
properly calculated, and (iii) LOC drawdowns were not being made on a timely
basis. These conditions were primarily attributable to DEH's lack of manage-
ment attention to the requirements of the LOC system, and its failure to devel-
op written guidance detailing the prescribed LOC procedures. Although only
about $115,000 had been withdrawn under the LOC as of the date of our audit,
more than $1 million of cooperative agreement funds remained available for
withdrawal. It is therefore our opinion that DEH's future use of the LOC be
closely monitored, and, if improvements are not made, consideration should be
given to revoking its LOC authority under the Superfund cooperative agreement
{see page 32).
In addition, as indicated in Exhibit A of this report, we have questioned
$95,077 and set .aside $206,398 of the $384,047 of costs incurred under the
Multi-Site Cooperative Agreement through June 30, 1986.
Copies of the draft audit report were provided to the Utah DEH and the Region
on March 11, 1987. DEH responded to the draft report on May 20, 1987, and the
Region provided its comments on May 28, 1987. An exit conference was held on
September 2, 1987 with both DEH and regional representatives in attendance.
DEH generally did not concur in the results of our audit. They indicated that,
while they agreed that many of the activities required by the cooperative
agreement were behind schedule, they did not believe that DEH was responsible
for the delays. They attributed the delays to changing EPA guidance and a lack
of timely regional actions. Contrary to the above comments, we believe that
DEH must share the responsibility for the delays.
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DEH's comments have been summarized and incorporated into each finding in the
"Findings and Recommendations" section of this report. Where applicable, ad-
ditional auditor comments have been included following the DEB comments and
the notes to Exhibit A. In addition, we have included DEH's complete response
to the Finding and Recommendation titled "Unsatisfactory Program Performance"
as Enclosure 1 to this report. Also, due to the volume of DEH's comments, and
our additional comments to the conclusions made in the Finding and Recommenda-
tion entitled "Superfund Accounting System Deficiences", we have included these
comments in Enclosure 2 to this report.
The suggestions contained in the Region's response have been considered and
incorporated into the report where appropriate.
ACTION REQUIRED
In accordance with EPA Directive 2750, the action official is required to pro-
vide this office, within 90 days of the audit report date, a written response
of the action taken or proposed to be taken on the audit recommendations.
BACKGROUND
The "Superfund" program was established by the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (CERCLA), Public Law 96-510,
which was enacted on December 11, 1980. The Superfund program was created to
protect public health and the environment from the release, or threat of re-
lease, 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 con-
trol of emergency situations to provision of permanent remedies at uncontrol-
led sites. CERCLA authorized a 51.6 billion program financed by a five-year
environmental tax on industry 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.
CERCLA was revised and expanded by the Superfund Amendments and Reauthorization
Act of 1986 (SARA), Public Law 99-499, which was enacted on October 17, 1986.
SARA reinstituted the environmental tax -and expanded the taxing mechanisms
available for a five-year period. It authorized a $8.5 billion program for
the period 1987 through 1991. The Trust Fund was renamed the Hazardous Sub-
stance Superfund.
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 program 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
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public threat. It, therefore, requires the maintaining of an NPL, which must
be updated at least annually. The NPL is composed primarily of sites that 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 un-
less the state in which the release occurs enters into a contract or coopera-
tive agreement with EPA to provide certain assurances, including cost-sharing.
At roost sites, the state nust pay 10 percent of the costs of remedial action.
Pre-remedial activities (preliminary assessments, site inspections), remedial
planning (remedial investigations, feasibility studies, remedial designs), and
removals may be funded 100 percent by EPA. For facilities operated by a state
or political subdivision at the time of disposal of hazardous substances, the
state mist pay at least 50 percent of all response costs, including costs for
removals and remedial planning previously conducted.
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SPA, Region 8 awarded the Multi-Site Cooperative Agreement No. V008427 to the
Utah Department of Health (DOH), Division of Environmental Health (DEH), Bureau
of Solid and Hazardous y^ste on December 21, 1984. The cooperative agreement
was 100 percent Federally funded in the amount of $1,247,046. The . initial
period of performance began January 1, 1985 and ended September 30, 1985,
The agreement was anended on September 30, 1985 to extend the performance
period to September 30, 1936 and to increase the agreement by $35,000 to a
value of $1,282,046. The purpose of the cooperative agreement was to provide
funding which would allow the State of Utah to serve as the lead management
agency for performance of preliminary assessments, site investigations, re-
medial investigations, feasibility studies, forward planning, and community
relations activities at specifically designated hazardous waste sites in Utah.
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FINDINGS AND RECXHMENDMTONS
1 - UNSATISFACTORY PROGRAM PERFORMANCE
DEH has not met the performance goals and objectives established by its $1.2
million Superfund multi-site cooperative agreement. As a result, it had not
completed required work in the areas of hazardous waste site forward planning,
remedial investigations, and site feasability studies, including studies at
two sites included on the National Priority List. In addition, 21 preliminary
assessments and 14 site inspections specified in the cooperative agreement have
not been effectively performed, and the completion of the required reports were
behind schedule. Ihese conditions could detrimentally effect the public health
and safety of area residents, since appropriate action was not taken to allevi-
ate known hazardous conditions. This included sites with high concentrations
of lead, arsenic, and other metals. There are several factors contributing
to this condition including the* following: (i) DEH had not met the minimum
Federal qualifications necessary to receive the initial cooperative agreement,
and therefore uas not equipped to start work when it was received, (ii) DEH
had not developed the operating procedures necessary to effectively perform
the objectives of the cooperative agreement, and (iii) DEH and the Region had
not established the lines of communication or working relationships necessary
to assure effective performance under the cooperative agreement.
Background
The Superfund process is described in detail in Subpart F of 40 CFR 300. This
subpart establishes the methods and criteria to be used in determining the
appropriate response to be followed when hazardous substances are released,
or there are substantial threats of release to the environment. The ultimate
goal of a Superfund action is to initiate a permanent remedy for the affected
hazardous waste site. The Superfund process can generally be divided into the
following three phases and their related subphases:
1. Discovery and Ranking
- Site Discovery
- Preliminary Assessment (PA)
- Site Investigation (SI)
- Immediate Removal (if necessary)
- Hazard Ranking System Scoring
- Nomination for National Priority List (NPL) (if appropriate)
2. Remedial Planning
- Remedial Investigation
- Feasibility Study
- Record of Decision
- Remedial Design
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3. Remedial Implementation
- Remedial Action
- Initial Remedial Measures
- Operation and Maintenance
The EPA multi-site cooperative agreement was awarded to Utah for the state to:
* Perform the remedial investigation/feasibility study (RJ/PS) at the
Sharon Steel, and Olson-Neihart Reservoir sites. (The above sites had pre-
viously been included on the NPL.)
* Assume the state lead for the RI/FS at the Sharon Steel and Olson-
Neihart Reservoir sites.
* Perform forward planning for the Silver Creek Tailings site. (This
site had not been included on the NPL.}
" Perform 21 PAs and 14 Sis.
Non-Accomplishment of Program Objectives
Our review disclosed that none of the program objectives contained in the
cooperative agreement had been achieved. We believe that DER's inability to
effectively complete the Superfund program objectives resulted primarily frcm
the combination of DOH's receipt of the cooperative agreement before it was
capable of performing under the agreement, and the inability of DEH and the
Region to effectively work together to achieve the goals of the cooperative
agreement. In summary, we found that: (i) the progress of the RI/FS work at
the Sharon Steel NPL site was significantly delayed, (ii) the quality of the
work performed under.the Olsen-Neihart NPL site and the Silver Creek sites was
not adequate to support the conclusions reached, and (iii) the performance of
the PA and SI program has been sporadic, ineffective, and behind schedule. In
addition, we noted that action to clean up the Wasatch Chemical site, which
potentially was one of the most serious hazardous waste sites in the state,
had not progressed towards the remedial phase although 2 1/2 years have passed
since its discovery. Further, timely actions had not been taken to complete
the preremedial work and inspections necessary to nominate the Kennecott Copper
sites for inclusion on the NPL.
The above sites are discussed in detail in the subparagraphs below.
Sharon Steel Site (See photographs of site in Attachment 1). We noted that
there had been no significant progress towards the elimination of the poten-
tial health hazard at this site since it was placed on the NPL in October
1984. The Region considered this site to represent a critical problem, and
determined that there may be an imminent and substantial endangerment to the
public health, welfare, and -the environment attributable to actual or threat-
ened releases at the site.
The Sharon Steel site is located in a heavily populated suburb of Salt Lake
City, Utah. The site consists of approximately 260 acres of tailings from a
mine smelting facility which operated from about 1880 until 1959. The tailings
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are 40 to 50 feet deep at some locations. Releases from the site in the form
of wind blown tailings and contamination of groundwater have been documented.
The PA and the SI for this site were performed by an EPA contractor, and the
results were issued in a report prepared on March 15, 1983. the site received
a hazard ranking system (HRS) score of 72.03 on April 25, 1984, and it was
included on the NPL as of October 15, 1984. It should be noted that any site
receiving an HRS score of 28.5 or more is nominated for inclusion on the NPL.
Bus project has been plagued with problems resulting from the inability of
DEH and the Region to nutually agree on a remediation plan for this site. In
this respect, progress has been hindered because of problems with the prepara-
tion of an approvable workplan, and with the notification of all potentially
responsible parties (PRP).
Failure to Approve Workplan. The DEH awarded a subagreement to Camp, Dresser
& McKee Inc. (COM), on December 4, 1985, to perform the RI/FS at the site. The
first draft workplan under the RI/FS was submitted to DEH on January 28, 1986.
Hie workplan was rejected by DEH because it was not prepared in accordance
with instructions. Subsequently, DEH has received three separate revisions
to the vorkplan. After each submission, both DEH and EPA have individually
reviewed the revised workplan and provided comments to CDM. EPA's comments on
the latest revision, dated May 21, 1986, included many of the same comments it
made on the original draft vorkplan. It was apparent that EPA's comments had
not been considered in the development of the subsequent workplans. As of the
date of our audit field work on September 16, 1986, a final workplan for the
site had not been approved.
As a result of the numerous changes and extensive revisions to the workplan,
CDM's original workplan budget has been significantly overrun. The June 1986
monthly progress report from CDM stated "...The original workplan budget is 312
percent expended, with the Final Wbrkplan not yet approved." The progress re-
port also commented that other subagreement tasks were in an overrun position
and stated that "...Compilation of the Quality Assurance and Field Investiga-
tion and Sampling Plans...is already 252 percent'expended, with the final plans
not yet approved." There was little evidence or supporting data in DEH's files
either explaining or justifying the cost overruns, or indicating that DEH had
approved the overruns. It was the responsibility of the DEH project manager
to document the basis for any overruns and to justify the approval of any ad-
ditional funding, or the acceptance of the contractor's poor performance. The
extent of the above overruns was distressing, since detailed work under the
subagreement had not yet begun. If performance to date is indicative of the
contractor's performance, continued close monitoring will be required. In this
regard some additional management techniques will be required by DEH, since its
project manager had no experience in the area of contract monitoring, and had
not received any training in this area. Discussions with the project manager
and DEH management personnel indicated that they were not familiar with the
contract administration guidance available in volume 2 of the EPA Purple Book
published in March 1986. This document provides basic guidelines for the man-
agement and administration of contract and subagreement work, and should be
utilized by DEH personnel as a reference document.
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i S. •
Problems with PRP Notification. Another problem adversely affecting the even-
tual clean up at this site was the notification of all PRPs for this site. In
this regard, there has been a general lack of communication between the Region
and DEH on the role of the PRPs in any necessary remedial actions. The PRP
problems have delayed the negotiation process, and have resulted in a virtual
stoppage of all work at this site.
The site has remained on the NPL for almost two years without significant pro-
gress towards elimination of the potential public health hazards to the resi-
dential and commercial areas immediately adjacent to the site. There are four
potential routes of public exposure to the hazardous wastes contained at this
site including: (i) the consumption of contaminated groundwater, (ii) the in-
halation of contaminated dust particles, (iii) the ingest ion of contaminated
soils or household dust, and (iv) the ingestion of crops grown on contaminated
soils. Samples taken from windblown tailings and groundwater sources have
shown high concentrations of arsenic, cadmium, lead, and zinc. There is also
a strong potential that the Jordan River may be effected by the direct slough-
ing of tailings into the river.
DEH Comments and Our Evaluation
DfiH Comments. DEH generally agreed that progress on the site had been untimely
but did not agree with our comments that they contributed to the delay. DEH
believed that the delays were caused by changing EPA guidance, a lack of timely
regional reviews and approvals of work products, and an unresponsive contractor
(CDM). DEH also did not agree that the State Project Manager was inexperienced
and untrained. It also indicated that state management personnel were familiar
with the EPA Purple Book.
MG^Evaluation. Contrary to the above comments, we believe that DEH must share
the responsibilities for the delays at this site. In this regard, there was no
documentation substantiating significant changes in EPA guidance at this site.
Vfliile we agree that the Region's comments on the workplan were delayed, these
delays were partially attributable to the fact that the workplan had been re-
vised on three separate occasions. With respect to the comments concerning
the unresponsive contractor, it should be noted that the contractor has worked
with EPA on many other projects without any significant problems. We therefore
believe that some of the problems -with the contractor are attributable to DEH's
inability to adequately communicate its requirements to the contractor.
In regards to DEH's comments on the training of its staff and their familiarity
with the EPA Purple Book guidance, it should be noted that the comments have
contradicted statements made by DEH employees during the audit. At that time,
the state Project Manager stated that he had not received any training, and
did not have any experience in contract administration. Further, the DEH staff
personnel contacted during the audit indicated that they were not familiar with,
nor were they utilizing the EPA Purple Book for contract administration purposes.
Olson-Neihart Reservoir Site (See photographs of site in Attachment 2). There
had been no significant actions taken to initiate remedial work on this site
although almost two years had passed since the site was placed on the NPL.
The site was included on the October 15, 1984 NPL update. As of the date of
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our audit field work in September 1986, no remedial work had been performed,
and a vorkplan for conducting the RI/FS had not been approved. The site was
considered significant by EPA because of the potential effect that mine
tailings could have on water quality.
The Olson-Neihart Reservoir evolved as a hazardous waste site through the con-
tinual deposit of slurried mine tailings into an existing irrigation reservoir.
Approximately 200,000 cubic yards of tailings are in the reservoir which is
located in the Wasatch Mountains in a sparsely populated area. It is currently
planned that this area will be incorporated into the proposed Jordanelle Reser-
voir which will be constructed by the Federal Bureau of Reclamation. Based on
the PA and SI conducted by DEH, there is a potential that the tailings could
effect the water quality of the Jordanelle Reservoir. High concentrations of
zinc, copper, maganese, iron, and cadmium were found at the site. A subsequent
HRS scoring by an EPA contractor resulted in the site being recommended for
inclusion on the NPL.
The performance of work at this site has been hampered by a lack of effective
management. This was illustrated during DEH's procurement of construction ser-
vices for installation of underground monitoring wells 'at the site. Because
DEH did not have a self-certified procurement system, all procurements under
the cooperative agreement were subject to approval by the Region. Upon sub-
mission of the construction contract to the Region for approval, DEH was in-
formed of several major problems concerning its procurement process, including
its intended use of a prohibited form of contract. DEH reluctantly agreed to
reprocure the services only after the Region threatened to declare all costs
related to the procurement ineligible for Federal participation. At the time
of our audit, DEH was in the process of finalizing a new contract. It should
be noted that the procurement action for this $28,000 contract will ultimately
require about one year to complete, thereby resulting in a major cause for the
delay in the start of remedial work.
Another problem affecting the progress at the site resulted from the Region's
concern over the adequacy of the SI data used to score the site. These con-
cerns have delayed the Region's negotiations with the PRP until additional
data are available to substantiate the potential hazard of the site. It would
appear that these concerns could have been discussed with DEH early during the
HRS scoring process, rather than continuing for more than two years. The cur-
rent plan for the site is to continue with the installation of the wells under
the supervision of DEH. The wells will be used to confirm the release of
hazardous waste to the environment. If it can be demonstrated that a release
occurred, work at the site will proceed. If a release cannot be confirmed,
the site will be recommended for removal from the NPL.
DEH Comments and Our Evaluation
DEH Comments.
DEH did not agree that it was responsible for any of the delays
DEH maintained that it did not consider this site to be a high
at this site.
priority for remedial action because the general population was not affected
by this site. It therefore claimed that there was little potential harm to
the public health. DEH also disagreed with our observations concerning the
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problems with the contract for the monitoring wells. In this respect, DEH at-
tributed the delays to the Region's failure to approve the project work plans.
DEH also commented that the Region continued to negotiate with the PRP, even
though it was aware of problems with the SI data used to score the site.
PIG Evaluation. We disagree with DEH's conclusion that this was not a high
priority site. To the contrary, it was one of the two state lead sites spe-
cified in the cooperative agreement. The Region obviously considered this to
be a high priority site, or it would not have been included as a primary site
in the cooperative agreement. In addition, we cannot agree with DEH's observa-
tion that it was not in any way responsible for the delays at this site. It
was DEH which performed the SI which led to the eventual placement of this
site on the NPL.
We also do not agree with the DEH assertion that the procurement problems had
no effect on the progress of the project. The failure of DEH to comply with
the Federal procurement regulations had a direct bearing on the delays, since
the project had to be re-bid. Upon completion of the re-bidding process, we
did not find that any delays resulted from the Region's failure to approve the
work plan in a timely manner. To the contrary,' the Region had partially ap-
proved the workplan before the re-bidding process began. With respect to. the
comment concerning the Region's continuing negotiations with the PRP, we found
no evidence to support this statement. Available information indicated that
the negotiations were cancelled after deficiencies in the HRS scoring package
were discovered.
Silver Creek Tailings Site (See photographs of site in Attachment 3). This
site was recommended for inclusion on the NPL in January 1985 because of poten-
tial problems with the contamination of the ground and surface water. Because
of objections by both the community and DEH, efforts to include this site on
the NPL have been suspended, it should be noted that the DEH position repre-
sented a reversal of its earlier backing of the site for inclusion on the NPL.
The Silver Creek Tailings site is located within the resort community of Park
City, Utah, in the Wasatch Mountains. The site consists of about 80 acres of
mine tailings that vary in depth between one to ten feet. A tract of expensive
custom homes in Prospector Square, and commercial buildings were constructed
on the site during the last several years. The site was brought to the atten-
tion of the DEH as the result of soil samples taken by the Utah Geological and
Mineral Survey in 1984. The samples contained high concentrations of lead,
cadmium, arsenic, and silver. The DEH subsequently issued its PA report on
April 4, 1984, and its SI report on August 30, 1984. The SI report recommended
that the site be given consideration for the NPL. The site was evaluated by
an EPA contractor and assigned an HRS score of 38.4 on January 15, 1985. It
was recommended for inclusion on the next NPL update.
The Park City officials and residents of Prospector Square became alarmed at
the possibility of the site being included on the NPL. They were concerned
with the potentially negative impact this would have on property values, and
the resulting damage to the reputation of the area as a resort community.
Park City therefore initiated a project to cover the exposed tailings with six
inches of topsoil in order to help reduce the seriousness of the problem. They
also employed a consultant to review the accuracy of the HRS scoring package.
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The consultant raised several issues concerning the reliability of sampling
data, the validity of conclusions reached, and the resultant HRS score. After
numerous meetings and correspondence with Park City representatives, DEH re-
versed its position concerning the necessity to list the site on the NPL. In
a letter to the Park City Manager, dated September 16, 1985, the Director of
DEH stated that "Wfe have been further frustrated by the changes EPA has made in
the criteria for documenting proposed NPL sites. Those changes have resulted
in a proposal to list the Silver Creek site that appears to be based only on
limited surface water samples." While the letter suggests that EPA was at
fault, it should be noted that the SI was performed by the DEH staff. The
samples were taken by the DEH staff and it was their conclusion that the site
should be recommended for inclusion on the NPL. Further there was no documen-
tation in the DEH files indicating that its staff was dissatisfied with the
sampling data used.
Park City and DEH subsequently requested EPA to perform additional testing to
substantiate whether the site represented a hazard and should be proposed- for
inclusion on the NPL. The Region declined and responded that it was EPA's
national.policy to score sites as they were initially discovered. This policy
was adopted to preclude the partial clean-up of a site merely to lower the HPS
score below the threshold required for an NPL listing. At about this same
time period, EPA Headquarters reviewed the Park City consultant's report, and
also urged the Region to collect additional data to, support the RRS score.
The Region has steadfastly refused to conduct any additional testing until the
site was included on the NPL. This action precluded any further work at the
site.
In the Fall of 1985, there were numerous newspaper articles published in both
Salt Lake City and Park City which quoted DEH and Park City officials in their
criticism of EPA. In one instance the Director of DEH was quoted as stating
"...EPA made a number of mistakes in analyzing Prospector. The agency made
a false determination that city drinking water sources were connected to the
Pacific Bridge Well beneath the Prospector Square development..." As previous-
ly stated, the Director neglected to disclose that the DEH staff made that
determination in its SI report which EPA relied on to score the site. In fact,
there was no indication in either the newspaper articles or in other correspond-
ence that DEH acknowledged its role in the ranking process. At the urging of
local authorities, the Utah congressional delegation was successful in obtaining
special considerations in the Superfund reauthorization bill which would pre-
vent the site from being included in the NPL unless new data were developed,
and a new HRS score assigned.
A subsequent health assessment of the Silver Creek site was performed by the
Federal Department of Health and Human Services, Office of Health Assessment.
The report, dated September 2, 1986, stated that "The Silver Creek Tailings
contain elevated levels of heavy metals. They are uncontained, accessible to
the inhabitants of Prospector Square, and a potential source of contamination
to ground and surface water in the Park City area." It further stated "Addi-
tional environmental sampling is needed to adequately characterize the site
as it relates to public health." Based on the health assessment, as well as
data reported in the original SI, it is apparent that the site represents a
12
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potential threat to humans and the environment. It is therefore important that
the necessary site testing be accomplished as soon as possible to determine
whether the site should again be nominated for inclusion on the NPL.
DEH Comments and Our Evaluation
DEH Comments. DEH did not agree with the finding, and explained that, while it
prepared the PA and SI reports for the Silver Creek site in 1984, it did not
prepare the HR3 scoring package. DEH further commented that the HRS scoring
packages prepared by EPA did not consider air releases in scoring because of
questions about the air sampling data. DEH indicated that its major concern
was with the air releases and not the potential groundwater or surface water
releases. It further indicated that there were inadequate data to support
listing on either of these releases. Additionally, DEH took exception to our
inference that the state changed its position with respect to listing of the
Silver Creek site on the NPL because of political considerations. It indicated
that the state did not change its position.
QIC Evaluation. Contrary to the above comments there was an abundance of in-
formation available showing DEH's support for listing the site on the NPL. It
was not until Park City and Prospector Square residents began raising objec-
tions to listing the site that the state began to change its position. Addi-
tionally, we did not find any documentation in the files indicating that DEH
was primarily concerned with the air releases. To the contary, the DEH letter
transmitting the SI report made only the following minimal comment concerning
the air contamination "Dust sanples were taken during the site inspection con-
ducted in June 1984. Three homes were sampled and the analytical results of
one hone showed concentrations of lead at 4072 ug/g, silver at 28 ug/g, and
cadmium at 42 ug/g." The letter further commented that "With the additional
information, the site was rescored for NPL consideration. The new score given
Prospector Square was 46.63. This is above the cutoff point of 28.50."
On the basis of the data provided in the SI for the groundwater and surface
water, there was adequate justification for nominating the site for the NPL.
In fact, DEH utilized the groundwater and surface water data in making its
recommendation to EPA to list the site. In this respect, DEH's cover letter
transmitting the SI report stated that "Based upon information available at
the time of this inspection, it is* recommended that this site be given Nation-
al Priority List consideration." The fact that the site was not scored for air
contamination would not affect its nomination for the NPL listing. In fact,
SPA normally did not perform any air sampling until the RI/FS process.
Preliminary Assessment/Site Inspection (PA/SI) Program. The original cooper-
ative agreement required DEH to perform 21 PAs ahS 14 Sis by September 30,
1985. The cooperative agreement also included a special grant condition requir-
ing EPA project officer approval of the PA and SI reports prior to their ac-
ceptance. Our review disclosed that DEH failed to submit any of the required
PAs or Sis within the original period of performance which ended September 30,
1985. The cooperative agreement performance period was subsequently extended
to September 30, 1986. Vtiile DEH had prepared draft copies of all of the PAs
and 12 of the Sis at the time of our audit in September 1986, only three PAs,
.
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and one SI had been approved by EPA. There are several factors which have
contributed to DEH's inability to fulfill the PA and SI program objective. One
of these was the fact that DEH did not have the capability to perform when the
cooperative agreement was initially awarded. This condition is discussed in
detail in the succeeding paragraph. Another contributing factor was that DEH
had not developed effective operating procedures to schedule and control the
specific action dates when the individual PAs and Sis were to be performed and
submitted for review. As a result, we noted that 13, or more than half, of the
PAs were submitted to the Region simultaneously on March 28, 1986. Unfortu-
nately, the Region reciprocated by returning the results of its reviews on 17
PAs to DEH on June 10, 1986. However, neither the DEH nor the Region had the
resources to deal with a periodic heavy workload caused by the simultaneous
submission of large groups of PAs or Sis. We believe that this workload pro-
blem could have been avoided if the Region and DEH had prepared a mutually ac-
ceptable delivery schedule for the PA and SI reports at the beginning of the
year, such a schedule would help spread the submission of these reports in an
orderly basis over the year.
The regional project officer repeatedly requested that DEH provide status re-
ports indicating the action dates for submittals of its draft PA and SI re-
ports. In those instances where such action dates were established, it was
noted that the scheduled action dates were not being met. The delays in meet-
ing these action dates resulted from (i) delays in DEH's submission of the
draft reports, (ii) delays in the Region's review of the draft reports, and
(iii) regional requests for the resubmission of the reports. In this respect,
we noted that, for the 12 draft PA reports which were to be submitted by March
28, 1986, only one was accepted. The draft report dates for the other 11 PAs
were revised to August 22, 1986 or later. Some of these delays could have been
avoided if the Region and DEH had established a reasonable turn around time for
their respective comments. Our review disclosed that the Region required an
average of about 78 days to review and comment on a PA. Similarly, DEH re-
quired an average of about 78 days to consider the Region's comments, revise
the PA, and resubmit the PA to the Region for approval. Some specific PAs have
been in the review and approval process much longer. For example, the draft PA
for the Lark Tailings site was initially submitted on December 5, 1985. How-
ever, the Region did not comment on the draft report until June 10, 1986. A
revised PA was resubmitted by DEH on September 2, 1986, or about 271 days after
its original submission. As of September 16, 1986, the PA had not yet been ap-
proved by the Region.
With respect to the Sis, EPA had completed its review of only one SI, although
some had been under review over six months at the time of our audit. Discus-
sions with the DEH Superfund Program Manager and the EPA project officer dis-
closed that neither individual considered the PA and SI process to be a high
priority item. As a result, the PAs and Sis were not accomplished unless spare
time was available in their respective offices. This philosophy has been the
overriding factor in the failure to accomplish the PAs and Sis in a timely man-
ner. The PAs and Sis represent an important part of the Superfund process, and
are the first step in the identifying and prioritizing sites which may require
some form of remedial action. Accordingly, we believe they should be accorded
sufficient priority to meet the cooperation agreement objectives. We noted
that several of the sites which have been delayed in the PA and SI process
14
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represent significant hazardous waste problem areas which should proceed to
remedial action as soon as possible. These sites included (i) the Wasatch
Chemical site, potentially one of the most serious hazardous waste sites in the
state, (ii) the Kennecott Copper sites, (iii) the Bland Landfill site, and (iv)
the American Barrel site. Each of these sites are further described below.
a. Wasatch Chemical Site. The Wasatch Chemical site is located in an indus-
trial area of Salt Lake City. The site was found to present a serious poten-
tial health hazard as a result of ground and surface water contamination. How-
ever, our review disclosed that clean up action on this site had not progressed
to the remedial stage, although more than 2 1/2 years had passed since an ini-
tial SI was performed in May 1984. The SI report, stated "As the Huntsman-
Christensen pond may be representing a serious potential hazard to an important
municipal well and is releasing toxic and carcinogenic compounds to the local
ground and surface waters, it is felt that further CERCLA action there should
be given a high priority." An HRS score of 51.02 was established as a result
of the SI. However, it was not until June 1985, about one year later, that
DEH performed a CERCLA site inspection. Various parts of this site have been
leased and subleased to a number of chemical companies which used the facil-
ities to mix, blend, and package pesticides and herbicides. The site actually
consists of two separate parts. One part (Lot 6) covers 3.68 acres of partial-
ly fenced, but otherwise undeveloped land, except for a cement encased pond
which has been used for -bulk hazardous and toxic waste storage. The balance
of the site consists of 10.89 acres of property containing a number of struc-
tures used in the past for a variety of purposes. The 1984 SI covered only Lot
6. A subsequent 1985 SI was conducted and included sampling of the whole site.
The SI resulted in an HRS score of 87.5 on September 13, 1985. Both of the HRS
scores were far in excess of the 28.5 minimum required for consideration in the
NPL. Although the significant hazardous waste problems at this site have been
known since 1984, long term remedial action has not been initiated.
During the SI performed in 1985, a group of 48 55-gallon drums, numerous
smaller containers, and 13 compressed gas cylinders were discovered at the
site. The containers were in a severely deteriorated condition. Samples of
the containers showed elevated levels of 2-4-D, Xylene, Anthracene, Nepthalenes,
and Phenonthrenes. Soil samples also showed elevated levels of 2, 4, 5-T,
other organics and heavy metals. The cylinders were not sampled because of
doubts regarding their structural ^integrity. On the basis of the sample re-
sults, DEH requested the Region to conduct an immediate removal of the drums,
cylinders, and contaminated soil from the site. The immediate removal was
conducted during the months of March and April 1986. Approximately 19 of the
48 drums were found to. contain Dioxin contaminated wastes. The Dioxin level
of some of the containers reached as high as 9,000 to 12,000 ppb, which was
far in excess of the 5 to 10 ppb standard allowed for industrial areas. The
drums currently remain stored at the site locked in a metal shed.
There has apparently been some reluctance on EPA's part to list the entire
site on the NPL because a portion of the site is subject to the requirements
of the RCRA program. As a result, it is our understanding that only Lot 6
is being considered for an NPL listing. However, DEH contended that the
whole site should be listed on the NPL because the release of contaninants
"...on the site are unrelated to current RCRA practices and all parties have
15
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demonstrated a staunch unwillingness to conduct necessary remedial investiga-
tions or undertake remedial activities at the site." In this respect, the PRPs
on this site represent a major obstacle to the commencement of any remedial ac-
tion. DEH has attempted to negotiate an agreement with the PRPs since mid-1984
without success. As a result, DEH has subsequently filed a civil action in
Federal court to force the PRPs to participate in the site clean-up and to re-
imburse the state for its oversight costs. The suit is pending with no date
for final resolution. There were 11 PRPs named in the suit. This could prove
to be a very lengthy process which may result in further lengthy delays in the
actual remedial action at the site. A memorandum issued by EPA on March 20,
1984 entitled Participation of Potentially Responsible Parties in Development
of Remedial Investigations and Feasibility Studies under CERCLA clearly stated
that "The Agency will not engage in lengthy negotiations with PRPs over whether
PBPs will conduct the RI/FS." This policy was established to preclude an obsti-
nate or uncooperative PRP from unduly delaying remediation of the hazardous
site condition. It appears that the intent of this policy was not being fol-
lowed at the Wasatch Chemical site.
b. Kennecott Copper Sites. The Kennecott Copper sites represent a potentially
significant hazardous waste site in the State of Utah. However, little action
has been taken to ascertain the full extent of the hazardous waste problems at
these sites or to initiate a schedule of corrective action. In this regard,
there were nine individual Kennecott Copper sites listed on the CERCLIS. Only
three of these had either a PA or SI performed under the cooperative agreement.
An SI of the Kennecott Tailings Pond located in Magna, Utah was conducted by
DEH in July 1985. The pond, which covered approximately 5,000 acres has built
up to. a height of 80 to 90 feet. It is bordered on the south by the Oquirrh-
Mountains, on the north by the Great Salt Lake, and on its other sides by
marshy alkali flats and fresh water creeks and canals. A draft report sum-
marizing the results of the SI was issued by DEH in December 1985. The draft
report indicated that the pond had high levels of.arsenic, lead, and chromium.
A preliminary HRS score of 79.15 was calculated based on a scoring of air,
groundwater, and surface water releases. It should be noted that the tailings
pond was in close proximity to local populations and industry. This was re-
flected in the draft SI report which stated "Should the tailings ponds be
found to present environmental hazards, the potential for impacts upon local
population and industries is high."
f
Although the actual SI was conducted in July 1985 no action had been taken by
DEH or the Region as of the end of 1986 to recommend that this site be included
on the NPL. The files are vague as to the cause for the excessive delay. How-
ever, the results of a Field Investigation Team (PIT) review issued in Septem-
ber 1986 disclosed problems with the DEH sampling rationale used in the SI.
The review concluded that the data were not adequate to support an HRS score,
although it indicated that there was a definite problem with the Kennecott
Tailings site. The files did not explain why it took 9 months after the DEH
issued its draft SI report to conclude that the saipling was incorrect. Since
the actual sampling was performed in July 1985, there was, in reality, a 14
month delay in determining that DEH's sampling was inadequate. The files also
indicated that DEH may have been reluctant to take timely action because
-------
. Kenneoott Copper had initiated a 5 year, multi-million dollar study of the
effects of its operations on the groundwater. We do not believe that this
study should be used as a basis to delay moving forward on this site. To the
contrary, it is our opinion that either DEH or the Region should complete what-
ever actions are required to recommend the Kennecott Copper sites for inclu-
sion on the NPL as soon as possible. In this manner, they would be in a bet-
ter position to monitor and influence the Kennecott study.
c. Bland Landfill. The draft SI report for this site commented that magnesium,
barium, and arsenic were released to the surface water. In addition, hazardous
substances were detected in groundwater samples collected on site and downgradi-
ent of the site. A draft HRS score of 29.76 was assigned to the landfill site.
However, we found that further actions concerning this site have been held in
abeyance pending the Region's approval of the final SI report. It should be
noted that, through September 25, 1986, 178 days had elapsed since the initial
draft SI report was submitted to the Region on March" 3, 1986. The Region pro-
vided its comments to the initial draft SI report on June 10, 1976, and DEH
resubmitted its revised SI report to the Region on September 5, 1986.
d. American Barrel Yard. (See photographs of site in Attachment 4). This
site was located just north of downtown Salt Lake City near the railroad tracks.
A total of two draft PAs have been submitted on this site since the initial PA
submission in April 1986. None of the draft PAs have been approved as of the
date of our audit in September 1986. The draft PAs indicated that no specific
information was available as to the hazardous wastes which may have been dis-
posed of in the thousands of barrels at the site. However, they indicated
that numerous barrels have been observed with tops and bottoms expanded out
indicating the possible presence of gases. They also indicated that stained
soils were evident around the edge of the site and that strong odors were pre-
sent. The draft PAs expressed a. major concern because transient people had
easy access to the barrel yard for sleeping and cooking purposes. Because of
the delays in completing the PA, further actions on this site have not been
implemented.
DEH Comments and Our Evaluation
DEH 'Comments. DEH did not agree with our conclusions and provided the follow-
ing comments. *
1. DEH stated that the completion of the PAs and Sis by the target date
of September 30, 1985 was recognized by both the state and the Region as un-
realistic. A completion date of September 30, 1986 was considered more
realistic, but still an ambitious date for completion of the PAs and Sis.
2. DEH commented that it did not believe that the scheduling problems
were a significant cause for the delay in the completion of the PA and SI
reports. They indicated that the Region did not have the resources to review
the reports, regardless of when they were submitted. DEH also indicated that
other reasons for the delays were: (i) a lack of basic PA and SI training
courses for state staff, (ii) an absence of regional reviews as site activi-
ties progressed, (iii) insufficient sampling during the SI process because of
sampling limitations included in EPA directives, and (iv) continued changes to
the PA and SI reports to comply with new EPA policies.
17
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3. With respect to the priorities established for conducting the PA and
SI activities, DEH stated that its work was limited by funding and staffing
shortages. It indicated that work was focused on those PAs and Sis which it
believed represented the most serious threat to the public health and the
environment.
4. DEH generally agreed that remedial action at the Wasatch Chemical site
was delayed, and included a chronology of events at this site as part of its
response to this report. It indicated that EPA's indecision delayed listing
this site on the NPL because of its classification of a portion of this site as
a RCRA site. DEH also indicated that Superfund monies to initiate the RI/FS
activities at this site would not be available until the site was listed on the
NPL. Even then there was a question as to whether funding would be available
due to the number of other sites competing for these funds.
5. With respect to our comments on the Kennecott Copper sites, DEH indi-
cated that Sis on these sites were submitted to the Region for review during
the audit period. It also indicated that the Region had not approved the Sis,
and also that it was not aware of the FIT review of the SI. DEH also com-
mented that because of the length of delays .in the NPL process, and in accor-
dance with EPA policy, it encouraged Kennecott to assume the PRP lead for the
RI/FS activities.
DEH further commented that, on the basis of management decisions regarding
priorities and resources, both EPA and the state have intentionally not pushed
for listing the Kennecott sites on the NPL. It also indicated that the listing
of a site on the NPL may or may not be best means of getting PRP cooperation.
According to DEH, this was not a decision which the auditors could properly
evaluate.
PIG Evaluation. Our comments, keyed to the above DEH response, are as follows:
1. The DEH comment concerning the unrealistic target dates for completion
of the PAs and Sis was not substantiated by any supporting documentation. To
the contrary, regional staff members have denied that EPA considered the objec-
tives unachievable. For the Region to have knowingly awarded a cooperative
agreement which could not be achieved within the period of performance, would
constitute a misuse of Federal funds. ^Correspondingly, it would constitute a
poor management decision by the State of Utah to enter into an agreement con-
taining performance objectives which could not be met.
2. DEH's comments concerning the causes for delay are acknowledged. How-
ever, it remains our position that the primary cause for the poor performance
under the cooperative agreement was DEH's failure to adequately staff its
Superfund program. The responsibility of hiring and training a capable staff
rested with the state and not EPA. Without an adequate staff, the state did
not fulfill the minimum requirements for obtaining a cooperative agreement.
3. ttiile DEH has indicated that the PA and SI process was a high priority
concern, it apparently has not conveyed this position to its Superfund Program
ftenager. As indicated in the audit report, this individual informed the audit
staff that the PA and SI process was not considered a high priority item.
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4. The additional comments provided by DEH on the Wasatch Chemical site
are acknowledged. W» agree that the nomination of this site for listing on the
NPL was delayed for an extended period of tine because of EPA's indecision on
whether a portion of the site was subject to the requirements of the RCRA pro-
gram.
5. We agree that it was EPA policy to encourage PRPs to participate in
the performance of an RI/FS. However, this participation was to begin after
EPA had completed its pre-remedial work concerning (i) an understanding of the
potential threat posed by the site, and (ii) a determination as to the scope
of the remedial response activities.
Contrary to the DEH comments, the Region has indicated that it is their
intent to have the Kennecott site listed on the NPL as early as possible. DEH
also stated that it did not believe that auditors should not be evaluating any
decisions as to whether or not the Kennecott sites should be listed on the NPL.
This is a moot point at this time, since a decision has not been made on wheth-
er or not to list the Kennecott site. The inaction on this potentially signi-
ficant hazardous waste site was the thrust of our finding. We believe that
this lack of action and the significant delays which have resulted represent a
management deficiency which should be addressed during the audit process.
Premature Award
At the time of the cooperative agreement award in December 1984, DEH did not
have the required financial or management capabilities necessary to perform
the objectives of the agreement. 40 CFR 30.301 provides that assistance will
be awarded only if the applicant can meet certain criteria, including:
"(1) Financial resources, technical qualifications, experience, organiza-
tion, and facilities adequate to carry out the project, or a demonstrated
ability to obtain these;
"(2) Resources to meet the project completion schedule contained in the
assistance agreement;
"(4) Accounting and auditing procedures adequate to control property,
funds, and assets, as required in'Subpart E of this part".
During the initial period of performance under the cooperative agreement, DEH
did not have either the technical or managerial organizational staff, nor the
accounting procedures necessary to perform the tasks required. Additionally,
DEH did not move expeditiously to acquire the necessary resources and capabil-
ities after the cooperative agreement was received. In this respect, DEH did
not have the capability to perform under the agreement until a Superfund Pro-
gram Manager was hired April 1985. By the end of June 1985, the size of the
DEH staff had increased to four employees, including the manager. Such a
staffing arrangement was hardly adequate to perform and complete the required
work by September 30, 1985 as specified in the cooperative agreement. As of
September 1986, DEH had increased its staff to 12 employees, and therefore,
from an organizational standpoint, was more equipped to perform under the co-
operative agreement.
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Our finding titled "Superfund Accounting System Deficiences" discusses the
fact that DEH's accounting and financial procedures were not adequate to pro-
perly record and report costs incurred under the cooperative agreement. Spe-
cifically, we found problems with both the recording of direct labor costs,
and the segregating of allowable and unallowable project costs.
In summary, it appears that the premature award of the cooperative agreement
before DEH was ready to'perform resulted in a minimum of a one year delay in
the expected completion of performance under the cooperative agreement. During
this period, the public was given a false impression that actions were being
taken to clean up the state's hazardous waste sites.
DEH Comments
DEH generally agreed with our observations and stated that "...the situation
was not entirely avoidable given the need to build the state program from
scratch."
Need for Improved Working Relationships
The lack of satisfactory progress towards the remedial phase of hazardous
waste cleanups in Utah has been significantly hindered by the working relation-
ship between DEH and the Region. During our initial discussions with DEH and
regional personnel, it became readily apparent that the relationship between
the parties was strained.
An example of this problem occurred in the Fall of 1985 as a result of DEH's
procurement of a well drilling contractor at the Olsen-Neihart Reservoir site.
The Region did not approve the award, and stated in a November 8, 1985, letter
that the procurement was not consistent with 40 CFR Part 33. The Region there-
fore recommended that .DEH reprocure the services in compliance with Federal
procurement requirements. During the next several months, the difference in
state and EPA attitudes and perceptions of how the Superfund program should
operate became clearer. There were several instances during this period in
which the DEH staff seemed adanant and almost defiant in their positions. In
a letter to the Region, .dated December 2, 1985, the DEH Superfund Program Mana-
ger stated that DEH intended to award the contract to the successful bidder
over the Region's objections. In addition, the letter also addressed the
Region's oversight and coordination under Superfund by stating "...it is clear
that EPA perceives its oversight role as supervising item-by-item all state
activities under the MSCA." The letter continued by offering this suggestion,
"As an alternative to item-by-item supervision, the state recommends 'that EPA
oversee state activities on a periodic review/audit basis, as it does with
most delegated programs." The letter also cited several examples of the Re-
gion' s inability to provide the necessary time and resources to perform their
review of state activities on a timely basis. Upon receipt of this letter,
the Region informed DEH that if they were to award the contract without repro-
curement, any costs associated with the procurement and the resulting work
would not be allowed for Federal funding due to the noncompliance with Federal
procurement requirements.. In a subsequent response, the Director of DEH wrote
to the Region on January 2, 1986, stating that "...our experience with EPA's
20
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Superfund process has fallen short of a partnership. We seem to be more often
antagonists than partners. After reading your letter...! am again frustrated
by the whole Superfund process and sometimes wonder if it is really in the
state's interest to participate." The letter continued, "If this is the man-
ner in which EPA chooses to resolve issues, then our efforts in Superfund are
doomed to failure."
Another issue which created a problem between DEH and the Region occurred at
the Sharon Steel site. la this instance, DEH became upset because it was ex-
cluded from participation in the PRP negotiation, although this was a state
lead site. Additionally, DEH felt that it was not kept informed of the status
of work during EPA's immediate removal at the Wasatch Chemical site. It is
apparent that DEH would prefer to implement the Superfund program in Utah with
a minimum of intrusion and oversight by EPA. However, because of DEH's in-
ability to satisfactorily fulfill the requirements of the cooperative agree-
ment and its lack of experience, it appears that continuous regional monitoring
will be necessary. The Region has attempted to improve the working relation-
ships and to ease DEH's apprehensions by means of initiating monthly visits by
the Regional project officer. During the visits, which began in November 1985,
discussions were held on matters of. material concern and interest. While this
is a step in the right direction, DEH indicated they would like to have the
visits expanded to include contact between the DEH and EPA technical staffs.
In sunmary, we found that both regional and DEH management personnel were
aware that satisfactory progress had not been made in the program performance
area, and that their working relationship had a significant impact on the pro-
gress. It will therefore be necessary for their respective staffs to make ad-
ditional efforts to improve their mutual cooperation and willingness to work
together. Only in this manner can the mutual benefits of a successful coopeca-
tive agreement be reached.
DEH Conments and Our Evaluation
DEH Comments. DEH agreed that the working relationship between the Region and
the state was not satisfactory and had impeded progress towards remedial acti-
vities. DEH attributed this to a lack of a formalized process which defined
the EPA and state roles. It indicated that the Region and state were drafting
a Superfund memorandum of agreement to help avoid the past relationship problem.
DEH also commented that the past problems did not result from a defiant atti-
tude on their part, but rather from frustration. The frustration primarily
dealt with a lack of progress, problems with EPA oversight, a lack of guidance,
and inadequate SPA assistance.
DEH further commented that it did not resist EPA oversight, but objected to
the Region's "micromanagement". They felt that this type of management led
to applicative efforts on the part of EPA and the state. They also indicated
that they were working with EPA to help avoid similar problems in the future.
As a final summary comment, DEH stated that it did not believe that the audit
documented any basis for the finding that the state had not satisfactorily
fulfilled the requirements of the cooperative agreement.
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QIC Comments. We believe that the formalization of a Superfund memorandum of
agreement between the state and EPA is a positive step. It hopefully can eli-
minate the frustrations and oversight problems which currently exist. However,
it will only be successful if there is a change in the attitude of.the parties.
At the present time, it does not appear that the state has been willing to ac-
cept any responsibility for any of the failures in meeting the goals and ob-
jectives of the cooperative agreement. If this attitude does not change, the
memorandum will be of little value, and in our opinion, the cooperative agree-
ment process will be unsuccessful.
The state commented that there was' no basis for our conclusion that it had not
performed satisfactorily under the cooperative agreement. Throughout this
finding, we have discussed several instances where the state had not completed
work required in the cooperative agreement in the areas of hazardous waste site
planning, remedial investigations, and site feasibility studies, including
two sites on the NPL. Since these areas were the foundation of the coopera-
tive agreement, we cannot understand .how the. state can conclude that its pro-
gram performance was satisfactory.
RECX)MMENDATIONS
We recommend that the Regional Administrator:
1. Assist DEH in developing the management and accounting controls nec-
essary to accomplish the objectives of its cooperative agreement and to meet
the minimum grantee qualifications specified in 40 CFR 30.301. . Also, the Re-
gion should assure that adequate controls have been established before future
Superfund cooperative agreement awards are made.
2. Initiate procedures to perform a comprehensive review of the coopera-
tive agreement objectives and, through coordination with DEH, develop a plan
to accomplish these objectives. As a minimum, the following specific actions
should be undertaken:
a. Assure that a site specific action schedule is developed for the
Sharon Steel site. The schedule should include (i) a description of each step
required in the process and whether it is to be performed by DEH or the Region,
(ii) name of the the person responsible for accomplishing the step, (iii) the
target date for accomplishment of the step, and (iv) an explanation of any
delays or shortfalls. The Region should periodically monitor the progress
being made under this schedule. In addition, procedures should be established
to keep DEH apprised of the status of the PRP negotiations.
b. Assure that a site action schedule is developed for the Olson-
Neihart Reservoir in accordance with the procedures in 2. a. above. In addi-
tion, DEH should be encouraged to complete.its underground water sanpling as
scon as possible, and determine which further actions are necessary.
c. Require that timely follow-up testing and site investigative work
be performed at the Silver Creek Tailings site, in order to ascertain if the
site should again be recommended for inclusion on the NPL.
22
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"d. Require DEH develop an acceptable schedule for accomplishing the
PA and SI program. The schedule should include the dates that the specific PA
and SI reports should be submitted to the Region. It should also require DEH
to provide for written explanation for any performance delays. In addition,
the Region should give consideration to providing the DEH staff with addition-
al training in conducting the PAs and Sis and in preparing the resultant re-
ports.
e. Instruct DEH to begin RI/FS work at the Wasatch Chemical site as
scon as the site is listed on the NPL, regardless of the status of the civil
action which it has initiated against the PRPs. The Region should also coordi-
nate with EPA Headquarters to assess whether the total "vJasatch Chemical site
be included on the NPL.
f. Require DEH to complete its remaining actions on the Kennecott
Tailings Pond so that the site can be rescored under HRS, and be recommended
for inclusion on the NPL, In addition, DEH should be required to complete its
PA and SI review on the other Kennecott Copper sites listed on the CERCLIS.
g. Initiate necessary actions to expedite the completion-of the SI
for the Bland Landfill and the PA and SI for the American Barrel Yard.
3. . Encourage the DEH and the Regional Superfund program staffs to make
additional efforts to develop an effective working relationship. As a minimum,
these efforts should include more frequent coordination and interchange between
the DEH and EPA Superfund program administrative and technical staffs.
DEH Comments
DEH generally concurred with the audit recommendations, and provided the fol-
lowing specific comments:
Recommendation No. 1. DEH agreed with recommendation thac additional
regional assistance be provided in developing management and accounting con-
trols.
Recommendation No. 2.a. DEH stated that the Sharon Steel site has been
changed from a state lead to an SP'A lead site.
Recommendation No. 2.b. It was indicated that docunentation is being pre-
pared to withdraw the Olson-Neihart site from the proposed NPL.
Recommendation No. 2.c. It was explained that the state and EPA were
jointly performing an expanded site investigation at the Silver Creek Tailings
site.
Recommendation No. 2.d. DEH indicated that it has submitted a revised
PA/SI^schedule to the Region which included an allowance for EPA review time.
Recommendation No. 2.e. DEH indicated agreement that RI/FS work at the
Wasatch Chemical site should begin as soon as possible, and that a reassessment
was warranted regarding the partial listing of the site on the NPL.
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Reoonnendation No. 2.f. DEH stated that EPA had not provided comments on
the SI which the state submitted in March 1986. It was indicated'that a meet-
ing with'EPA was requested to plan future actions at this site.- -
Recommendation No. 2.g. DEH stated that the Region's comments
Bland Landfill and the American Barrel Yard had not been received.
on the
Recommendation No. 3. DEH indicated that it believed that the Memorandum
of Agreement would significantly improve relationships with the Region.
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2 ~" SUPERFUND ACCOUNTING SYSTEM DEFICIENCIES
DEH had not implemented the accounting procedures necessary to accurately
account for its Superfund expenditures or to cortply with the accounting sys-
tem requirements prescribed in 40 CFR 30.510 or 40 CFR 30.301(a) (4). As a
result, we found that there were major inadequacies in the accounting system
used to record and accumulate costs incurred under the $1.2 million Multi-Site
Cooperative Agreement. These inadequacies included (i) the use of unaccept-
able labor charging and recording practices, which have allowed DEH to allocate
employee indirect time charges as direct labor, and to transfer labor costs to
the cooperative agreement from other projects without adequate documentation,
and (ii) the failure to adequately segregate allowable and unallowable costs
in the accounting records. The above accounting deficiencies represent a sig-
nificant weakness in internal controls which has affected both the integrity
of the accounting system and jeopardized the Federal Government's ability to
recover Superfund costs from responsible parties. We attributed these problems
to (i) a failure to adequately instruct employees on how to prepare their time-
cards, and (ii) a lack of adequate supervisory review of the employees labor
charging practices.
Background
40 CFR 30.301(a)(4) requires that an applicant for a cooperative agreement must
have "Accounting and auditing procedures adequate to control property, funds,
and assets, as required in Subpart E of this part..." Subpart E, or specific-
ally, 40 CFR 30.510 requires the recipient to maintain a financial management
system that consistently applies generally accepted accounting principles and
practices. A partial list of the requirements include:
(i) an accurate, current, and complete accounting of all financial trans-
actions;
(ii) records, together with supporting documents showing the source and
application of all project funds;
(iii) procedures for determining allowability, allocability, and reasonable
costs; and
•
(iv) audits at least every other year on an organization-wide basis.
The State of Utah maintains a state-wide accounting system which is titled the
Financial Information and Resource Management System (FIRMS). FIRMS represents
the official accounting system for the State of Utah and is the system reviewed
by the Utah State Auditor as part of the single audit performed in compliance
with the Office of Management and Budget Circular No. A-128. The accounting
system utilized by DEH for management and reporting purposes is derived from
the FIRMS system. DEH utilizes the FIRMS information, but reformats the infor-
mation for its own purposes. The responsibility for the operation and mainten-
ance of the internal accounting system rests with the DOH'-Bureau of Finance.
25
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The DEH accounting system supports a number of accounting and financial reports.
Che of these reports, the budget operating report (HL-176100), represents the
equivalent to a job cost accounting system under this system. - -
Unacceptable Labor Charging Practices
Our review disclosed that the labor costs recorded as applicable to the Multi-
Site Cooperative Agreement were inaccurate. As a result, we have questioned
$83,169 and set aside $162,859 of labor and related fringe benefit costs as
unallowable for Federal participation through June 30, 1986, as shown in Ex-
hibit A of this report. Some of the major deficiencies noted included (i)
the unsupported transfer of labor charges, (ii) a failure of the labor dis-
tribution system to accurately distinguish between direct and indirect labor
costs, and (iii) the use of inadequate timekeeping procedures. These areas
are further discussed in the subparagraphs below.
irted Labor Transfers. We noted that $66,651 of the $198,680 of
recorded labor costs as of June 30, 1986, represented unsupported labor costs
transferred to the cooperative agreement from other projects, as well as be-
tween various activity codes within the cooperative agreement. We were in-
formed that the transfers were made at the direction of the DEH Superfund
Program Manager and the DEH Management Services Coordinator. The direction
came in the form of a memorandum to the DOH, Bureau of Finance which detailed
the transfers to be made. The memorandum requested that the Bureau of Finance
make the changes in the accounting records. Our review disclosed that DEH did
not maintain appropriate documentation supporting the basis for the labor cost
transfers.
In addition, there was no evidence indicating that the Bureau of Finance had
reviewed the basis for or the validity of the requested transfers. As such,
the transfer of the labor costs between projects represented a breakdown in
internal controls. One of the major responsibilities of the Bureau of Finance
was to maintain the accuracy and reliability of the accounting system. This
responsibility was an important "check and balance" control technique, since
neither the Superfund Program Manager nor the Management Services Coordinator
were knowledgeable as to the Federal requirements for supporting and documen-
ting claimed costs. The adequacy of supporting documentation is especially
critical under the Superfund program, since the Federal government expects
to recover the costs of cleaning up specific hazardous waste sites. With the
integrity of the accounting system in question, the Federal recovery of costs
under the cooperative agreement is jeopardized.
In order to ascertain the validity of the labor transfers, we interviewed DEH
.employees and also reviewed the basis for the original tine charges for various
payroll periods between April 1985 and March 1986. We noted that employees
working under the Superfund program were encouraged to maintain a daily planner
which was a diary of daily work events. Our review of the planners indicated
that they did not support the transferred labor charges. Additionally, 4 of
the 8 employees interviewed were not aware of the labor transfers. The other
employees, while aware of the transfer, did not know the basis for the trans-
fers. Further, it was noted that neither the Superfund Program Manager, Manage-
26
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ment Services Coordinator, or the Bureau of Finance personnel made any attenpt
to verify the basis for the original labor charges. However, during the course
of the audit, it became apparent that the transferred labor charges generally
fit into two categories.
One category pertained to labor originally charged to inactive or ineligible
cooperative agreement activity codes which were transferred to eligible coop-
erative agreement activity codes. To illustrate, the labor costs were incurred
by DEH to perform PA and SI work at sites not approved for funding under the
cooperative agreement. These costs were subsequently transferred to those
PA and SI activity codes which were eligible for EPA funding. Such a practice
resulted in a misrepresentation of the costs allowable under the Superfund co-
operative agreement.
The second category of the labor transfers consisted of an allocation of labor
charges from several general, non-specific activity codes to one or more EPA
site specific activity codes. For example, we noted that under voucher number
289807, dated April 16, 1986, labor charges totaling $7,671 were transferred
from RCRA Activity codes and other non-specific CERCLA activities to site spe-
cific activity codes under the cooperative agreement. Two of the specific
sites vdiich received transferred costs were the Sharon Steel Site and the
Olson-Neihart Site. Both are NPL sites which were in the RI/FS stage. These
costs would therefore be potentially recoverable from the parties responsible
for the sites. However, the costs would not be recoverable under the situa-
tion described above, since they were not supported by adequate documentation.
According to a DEH memorandum, dated March 25, 1986, all charges to general
activity codes were reviewed by DEH management personnel who determined which
sites -and activities the staff had spent time on. However, neither the avail-
able records nor discussions with the employees could confirm the basis for
the transfers contained in the March 1986 letter. Ito the contrary, the em-
ployees indicated that they 'were not consulted during this decision making
process. The transferred labor charges included labor costs which were incur-
red as early as April 1985. The memorandum also stated that "Unless otherwise
stipulated, the charges should be divided evenly between the activities
listed." Again, there was no documentation to support the basis for such
a redistribution of labor.
It appears that DEH was trying to maximize cost recovery under the cooperative
agreement without proper consideration of the propriety of the charges. Such
actions are inappropriate and jeopardize the Federal Government's ability to
recover costs from the responsible parties at particular sites. The National
Contingency Plan, 40 CFR 300.69 states that "(a) During all phases, documenta-
tion shall be collected and maintained to support all actions taken under this
Plan, and to form the basis for cost recovery." In accordance with 40 CFR
30.510, DEH, the recipient of the cooperative agreement, was responsible for
ensuring that the accounting records accurately and completely represented the
organization's operations. The unsupported transfer of over $66,000 of labor
charges to the cooperative agreement, along with the lack of normal accounting
internal controls has severely hampered DEH's ability to support its Superfund
efforts, and EPA's opportunity to recover these costs.
.
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Unacceptable Allocationof Employee LeaveCosts. Our review disclosed
that the labor costs recorded under the cooperative agreement were composed of
direct and indirect labor charges. However, the DEH labor distribution system
was not able to differentiate betvieen these costs. This condition resulted
from the method used to allocate employee paid leave, such as vacation, holi-
day, and sick leave. It was DEH policy to charge the cost of paid leave-dir-
ectly to the last project or projects worked on in the pay period before the
leave was taken. For example, if an employee worked 40 hours of a bi-weekly
pay period on a Superfund activity and then took the remaining 40 hours on
vacation, the Superfund activity would be charged for 80 hours of labor costs.
We disagree with this approach since fringe benefits, such as paid leave, are
earned by an employee throughout the year, and therefore should be allocated
to all work during the year, rather than the last project worked on. The cur-
rent DEH policy did not assure an equitable allocation of paid leave costs.
OMB Circular A-87 provides that such costs are allowable and allocable to a
particular cost objective to the extent of benefits received.
The paid leave charged directly to the projects was only identified on the
employee t imesheets. The charges were not distinguishable from direct labor
costs in the accounting records. 40 CFR 30.510 requires that a recipient
"...mist maintain a financial management system that consistently applies ac-
cepted accounting principles and practices and at least includes...(f) Proce-
dures for determining allovtole, allocable, and reasonable costs." The DEH
method of accounting for paid leave does not meet the above cited criteria.
It will therefore be necessary for DEH to reconstruct its accounting records
and exclude the paid leave from the recorded direct labor costs. Such a re-
construction would identify the paid leave costs considered unallowable for
EPA participation as direct project costs. As indicated in Exhibit A, we have,
set aside the $131,516 of labor charges through June 30, 1986, due to the un-
acceptable allocation of paid leave costs.
Inadequate Timekeeping Procedures. The labor timekeeping procedures being
followed by DEH during tne period of our audit did not assure the accuracy of
the labor costs charged to the Superfund cooperative agreement. Vfe noted'that
employees were not adequately instructed on the proper timekeeping procedures
to be utilized under the Superfund cooperative agreement. In addition, super-
visory reviews and approvals of the employee time charges were not being sat-
isfactorily performed.
An effective timekeeping system requires the preparation and certification of
timecards by each employee and approval by their immediate supervisor. The
timecard represents the attestation of the employee and the concurrence of an
informed supervisor of the time spent by the employee. This attestation by
the employee and concurrence by the supervisor represent two of the major in-
ternal controls of an effective timekeeping system. The deficiencies in these
two areas are further discussed in the following subparagraphs.
According to DEH management personnel, many of the previously discussed
transfers of labor costs were necessary because employees incorrectly prepared
their timesheets. In this regard, on August 8, 1986, a DEH memorandum stated
that "...most of the problems have been' confusion on the part of staff as to
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which lumber, a State 600 nunber or a Federal 100 or 300 nunber, should be
charged..." Although DEH published a guide entitled Instructions for Com-
pleting Payroll Time Records, it'did not contain a detailed list, of activity
codes for specific Superfund sites. In February 1986, the guide was revised
to include a detailed list of activity codes. However, according to DEH man-
agement personnel, the revised guide had little impact in correcting the per-
sonnel timekeeping problems. Although DEH management was aware of the employee
time charging problems, they had not taken timely action to adequately train
or otherwise advise the staff on the proper timekeeping procedures which should
be followed. To the contrary, most of the employees interviewed were not aware
of any problems concerning how their time had been charged.
We found that the DEH's Instructions for Completing Payroll Time Records,
did not include procedures for supervisory review and approval of employee
timecards. Such reviews and the ultimate correction of any timecharging errors
are an important function of an effective timekeeping system. In addition, it
provides a timely feedback to the employee in an effort to preclude the contin-
uation of a timekeeping error. Any changes to the employee timecard should be
acknowledged by the employee and the supervisor by initialling any changes in
ink. It became apparent during our audit that the DEH supervisors had treated
timecard review as-a low priority item, and therefore approved the timecards
without adequate review.
Lack of Segregation of Allowable and Unallowable Costs
The project accounting system did not provide for segregation of allowable and
unallowable cooperative agreement costs. 40 CFR 30.510(f) requires that a
recipient must maintain an accounting system which can segregate allowable and
unallowable costs. In this regard, there was no provision in the DEH chart of
accounts to identify and segregate unallowable costs. As indicated in Exhibit
A of this report, our review of the DEH costs under the cooperative agreement
disclosed that unallowable direct labor and other direct costs were not.identi-
fied in the accounting records. For example, we noted that costs of secondary
level supervisors were being recorded as direct costs to the cooperative agree-
ment, although such a practice was contrary to the OMB Circular A-87. In addi-
tion, we noted that the prior approval required by the CMB Circular had not
been obtained before office furniture and equipment were purchased. Because
DEH had not submitted an FSR under the cooperative agreement, our review was
limited to those costs recorded in the project accounting records. We are not
aware of any existing procedures which DEH could utilize to segregate unallow-
able costs prior to preparation of an FSR. Without such a procedure, there
is no assurance that the unallowable costs will not be claimed for reimburse-
ment.
DEH Comments and Our Evaluation
DEB disagreed with most of the conclusions in this finding and provided exten-
sive rebuttal. We evaluated DEH's rebuttal and concluded it generally did not
change our considerations. Due to the length of pertinent DEH comments and our
evaluation, we have included them as Enclosure 2 to this report.
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RECOMMENDATIONS
We recommend that the Regional Administrator: - *
1. Advise the DEH that, as a minimum, the following changes are required
in order to comply with the requirements of 40 CFR 30.301(a}{4) and 40 CFR
30.510.
a. Internal controls should be instituted to assure that only those
labor charges supportable by the employee timecards are billed to the EPA
cooperative agreement. In this regard, the transfers of labor costs, between
projects should only be made when they can be supported by employee timecards
or other adequate documentation.
b. Procedures should be implemented to equitably allocate paid leave
costs to all projects in proporation to the benefits received.
c. Timekeeping procedures should be strengthened to include (i)
instructions to employees in proper timekeeping techniques, and (ii) timely
reviews and approvals.by the employee's immediate supervisor.
d. Internal control procedures should be initiated to segregate al-
lowable and unallowable costs, and to assure that only allowable costs are
claimed for reimbursement. In this respect, DEH should be advised that region-
al approval is required before the purchase of any office furniture and equip-
ment. .
2. Review the $301,475 of Multi-Site Cooperative Agreement costs ques-r
tioned and set aside in Exhibit A of this report, and advise DEH of those
costs which are unallowable for Federal participation.
DEH Comments and Our Evaluation
DEH Comments. DEH partially concurred with the audit recommendations and
provided the following specific comments.
Recommendation No. l.a. "The Division has already implemented procedures
to ensure that labor costs are not transferred unless time sheet errors are
corrected by both the employee and the supervisor."
Recommendation NO. l.b. "The State Labor Distribution System allocates
paid leave costs through a labor additive. Each activity charged on a time
sheet is charged an additional percentage, the labor additive, which is used
to cover the costs of paid leave."
Recommendation No. I.e. "The Labor Distribution procedures dated July 1,
1986 do provide adequate instructions and examples for employees to use when
completing time sheets and contain a statement that supervisors must review
and approve time sheets. The State has developed additional instructions for
supervisors to address comments from the Office of the Inspector General re-
ceived in April 1987."
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Recommendation No. l.d. "The State believes that -it has had internal con-
trol procedures to segregate allowable and unallowable costs in place since the
inception of the MSCA." .- .
Recommendation No. 2. "The draft audit report does not support the recom-
mendation to disallow any of the $301,475 questioned."
PIG Evaluation. Our additional comments on the areas of disagreement, keyed to
DEH's response, are presented below.
Recommendation No. l.a. The DEH comments are acknowledged as a positive
corrective action. However, the revised procedure can only be effective if
fully implemented. A continuation of the massive labor accounting transfers
in subsequent periods would discredit procedures implemented, and circumvent
the internal controls built into an adequate labor charging system.
Recommendation No. l.b. If properly implemented, the method proposed to
allocate paid leave would appear to satisfy our recommendation and should result
in an equitable allocation and identification of paid leave.
Recommendation No. I.e. Upon incorporation of the additional instructions
for supervisors into the Labor Distribution procedure, we would consider the
procedures to be acceptable.
Recommendation No. l.d. DEH indicated that its procedures were adequate
to segregate allowable and unallowable costs in its accounting system. How-
ever, it has not identified these procedures, and we did not observe any such
procedures during the course of our audit.
Recommendation No. 2. Contrary to DEH's comments, we believe that the
audit report clearly establishes the fact that the DEH accounting procedures
were not adequate to properly account for and support the costs claimed under
the cooperative agreement.
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3 - INADEQUATE LETTER OF CREDIT PROCEDURES
DEH has not complied with the Letter of Credit (LOG) requirements provided for
in the special conditions of its cooperative agreement or in the LOG Users Man-
ual. As a result, the LOG has not been effectively utilized as a means of ob-
taining reimbursenents under its $1.2 million multi-site Superfund cooperative
agreement. Specifically, our review disclosed that (i) required LOG financial
reports were not being submitted or were submitted late, (ii) LOG draw down
amounts were not properly calculated, and (iii) LOG draw downs were not being
made on a timely basis. These conditions were primarily attributable to a
'lack of DEH management attention to the requirements of the LOG system, and
its failure to provide written guidance prescribing the LOG requirements to
its staff. Although only about $115,000 had been withdrawn under the LOG as
of the date of our audit, more than $1 million of cooperative agreement funds
remained available for withdrawal when earned. It is therefore our opinion
that DEH's future use of its LOG should be closely monitored, and, if improve-
ments are not made, consideration should be given to revoking its LOG authority
under the Superfund cooperative agreement.
Background
The cooperative agreement specifies that DEH will comply with the following
LOG requirements:
* Make cash draw downs only as actually needed for its disbursements;
* Provide timely reporting of cash disbursements and*balances, as required
by the EPA Letter of Gredit Users' Manual, and
" Require the same standards of timing and reporting on secondary recipi-
ents.
The cooperative agreement further states that the "Failure on the part of the
State to comply with the above conditions may cause the unobligated portion of
the letter of credit to be revoked, and the financing method changed to a reim-
bursable basis." Detailed guidance explaining the recipient's use of the LOG
is contained in the Credit-Treasury Finance Communications System User1 s Manual.
DEH's Letter of Credit Procedures Require Improvement
Our review disclosed that DEH's LOG procedures required improvement in the
areas of reporting of financial information, calculating the LOG draw down
amounts, and improving the timeliness of the usage of the LOG system to obtain
reimbursements. A primary cause for these shortcomings was the failure of DEH
management to provide written procedures to its staff detailing the procedures
necessary to effectively utilize the LOG system. While LOG guidance material
is generally provided for in the various user manuals, these manuals were
apparently either not available, or not utilized by the DEH staff. It is
therefore important that this information be condensed and sunmarized into a
guidance document specifically for DEH personnel. Our comments on the LOG
shortcomings noted in the audit are summarized in the subparagraphs below.
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LOG Financial Reports Not Submitted Timely. The DEH had not submitted its
Financial Status Report (FSR) and a Federal Cash Transactions Report (SF Form
272) within the timefranes prescribed by 40 CFR 30.505, the Treasury User's
Manual, and the cooperative agreement special conditions.
The above guidance documents require that an FSR be submitted within 90 days
after the end of the budget period. Prior to September 30, 1985, recipients
of assistance agreements were required to submit FSRs on a quarterly basis.
However, our review disclosed that DEH had not submitted the quarterly FSRs
for the periods ended March 31, 1985 and June 30, 1985. It should be further
noted that, the FSR for September 30, 1985 had not been submitted as of the
completion of our audit field work in September 1986. DEH officials acknow-
ledged that a final FSR had not been submitted to EPA, but indicated that
draft FSRs had been prepared on several occasions. They indicated that the
drafts were never finalized because an agreement could not be reached on the
amounts to be included.
The purpose of the Federal Cash Transaction Report was to provide the EPA with
quarterly information on cash disbursements, LOG draw downs, and cash balances.
Section x(c) (2) of the Treasury User's Manual required the submission of this
report within 15 working days after the end of each quarter. In addition,
special condition l{b) of the cooperative agreement emphasized the requirement
for timely submission of the report. However, we found that the DEH did not
submit the report for the quarter ended June 30, 1986, until September 15,
1986, or about 60 days after the required date. Without the timely submission
of the above-mentioned reports, EPA financial and program personnel were de-
prived of an effective management tool for use in monitoring the financial
status of the EPA cooperative agreanent.
DEH Comments and Our Evaluation
DEH Garments. DEH stated that 'The State did not complete a separate FSR for
the period ending June 30, 1985, but included that period in the FSR prepared
for the period through December 31, 1985, the first full year of the MSCA. The
State understood that the EPA Regional office had agreed to this consolidation."
PIG Evaluation. The above comments confirmed that the required FSRs had not
been submitted. As indicated in the finding, the initial FSR was not submitted
until September 1986.
Improper Draw Down Calculations. The method used by the DEH to calculate the
LOG draw down was not correct. In this respect, the amount calculated by DEH
included an advance of funds for anticipated expenses. However, the LOC User's
Manual precluded such a calculation and stated that "The recipient organization
should request funds based on immediate disbursement requirements and disburse
funds as soon as possible to minimize Federal cash on hand.* This situation
is illustrated by the draw down requests made for July, August, and September
1985 which included a one month advance of funds in each request as follows:
33
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Month
July 1985
August 1985
September 1985
Total
Draw Down Amount of Amount of Anticipated
Request No. Draw Down Expenses Includedin Draw Down
•*" t-
6 $ 55,865 $20,000
8 31,448 25,000
9 25,000 25.000
$112,313 $70,000
As indicated by the above schedule, DEH has overstated its draw down requests
by $70,000 for the three month period reviewed. As a result, only $52,313
should have. been drawn down, rather than the $112,313 which was requested.
While DEH's draw down procedures have resulted in overpayments in individual
instances, there has not been an overall adverse monetary effect to EPA at this
time. This situation occurred because DEH's total cummulative withdrawals have
been less than the total expenditures it incurred under the cooperative agree-
ment. However, because of the inadequacy of DEH's procedures for calculating
the draw downs, there is no assurance that DEH will not draw down excessive
funds in the future. To preclude such a situation, we recommend that all LOG
draw down calculations be based only on incurred costs, and that anticipated
expenditures be excluded from the calculations.
DSH Comments and Our Evaluation
DSH Conroents. DEH stated that "The information outlined in the.. .draft audit
report incorrectly indicates that the draws were $70,000 overstated for this
period of time. The amount that is reflected in the auditors' workpapers as
an advance is actually an estimated amount of draw for a particular month."
The comment continued to explain that the claimed amounts were actually esti-
mated amounts for the various months and payments were not received until at
least the end of the month. The DEH continued that "During the eighteen month
audit period, the State had a positive federal cash balance in fewer than two
months. The largest amount of this balance at any time was $32,752.00. And,
as the draft audit report notes, it has actually been to the Federal Govern-
ment's advantage to have the State slow in drawing these funds."
PIG Evaluation. The DEH comments are acknowledged. However, they are not
fully responsive to our finding. Vfe were not concerned as to whether the
state or EPA had an advantage over the other. Our concern was that DEH had
hot used the LOG system properly. Our comment concerning the $70,000 of
overstated draw downs is correct. The $70,000 was not supported by the ac-
counting records, and was shown as an advance in DEH's own calculations.
Proper use of the LOG system would preclude the use of advanced funding esti-
mates.
Untimely LOG Draw Downs. DEH has not established effective procedures for
drawing down the UX funds on a timely basis. In this respect, we noted that
DEH had not utilized its LOG to request funds under its cooperative agreement
since September 25, 1985, or approximately one year prior to the date of our
review. As a result, DEH has not effectively utilized the reimbursable as-
pects of the LOG to meet its cash needs. To the contrary, as of June 30, 1986,
34
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DEH has drawn dam funds of only $114,795, although its accounting records show
that costs of $384,047 had been incurred as of that date. As a result, DOH
has, in effect, financed $269,252 of Federal costs with its own-funds. We
consider this practice to represent an ineffective cash management procedure
on the part of DEH. The fact that this condition has been allowed to continue
for an extended period of time indicates a possible breakdown in DEH's system
of internal accounting controls.
DEH Comments
DEH generally concurred in the audit finding and noted that corrective action
had been taken to correct this deficiency.
RECOMMENDATIONS
We recommend that the Regional Administrator:
1. Require the DEH to prepare written guidance describing the'procedures to
be followed by its staff in utilizing the LOC method of reimbursement.
These procedures should comply with the special conditions of EPA's coop-
erative agreement and the LOC User's Manual, and as a minimum, should
provide for:
a. The timely submission of the Financial Status Report and the Federal
Cash Transaction Report.
b. A method for calculation of draw down amounts which exclude amounts
applicable to advances for .anticipated expenses.
c. The timely draw down of LOC funds on the basis of .costs incurred.
2. Initiate plans to monitor DEH's use of its LOC, and if improvements are
not made in accordance with recommendation no. 1, consideration should be
given to revoking DEH's LOC authority under the Superfund cooperative
agreement.
DEH Comments and Our Evaluation
^^^^^^^^^^•" > • • ™ P^^— >
DEH Comments. DEH stated that "The Department. of Health is using the Cash
Status Report, which is run weekly to prepare the FSRs, to calculate draw
downs, and to draw down Letter of Credit funds. The State disagrees that
additional written procedures are necessary." It also stated that "The Let-
ter of Credit reports will be submitted quarterly."
PIG Evaluation. DEH commented that it did not agree that additional written
procedures were necessary. This comment gives the misleading perception that
some written procedures were available for the staff to follow in preparation
of LOC draw downs. To the contrary, there were no existing written procedures
available. On the basis of the inadequacy of DEH's past performance, we
strongly recommend implementation of this recommendation as soon as possible.
35
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Exhibit A
Multi-Site Cooperative Agreement No. V008427
Awarded to the
Utah Department of Health,
Division of Environmental Health
Schedule of Costs Incurred and Results of Audit
For the Period January lf 1985 to June 30, 1986
Per Audit
Description
Salaries and Wages
Fringe Benefit Costs
Travel
Other Direct Costs
Contract Services
Other Direct Payments
Total
Costs
Incurred Accepted Questioned. Set Aside
(Note 1) {Note 2)
$198,680
47,348
8,124
22,445
65,310
42,140
$
8,124
9,138
65,310
67,164
16,005
11,908
$131,516
31,343
1,399
42,140
Reference
Note 3
Note 4
Note 5
$384,047 $82,572 $ 95,077 $206,398
Note 1. At the time of our audit, the DEH had not prepared any final FSRs
under its Superfund multi-site cooperative agreement. As a result,
our financial audit was limited to a review of costs incurred by the
DEH -as of June 30, 1986. Costs incurred were those reported in the
Budget Operating Report (Report No. HI/-176-100) prepared by the Utah
. DOH-Office of Administrative Services for the fiscal years ended June
30, 1985 and June 30, 1986. It should be noted that the operating re-
port did not include an allocation of the department's indirect ex-
penses, although special condition no. 4 of the cooperative agreement
provided for inclusion of indirect expenses as a reimbursable expense.
Since DEH had not claimed reimbursement for indirect expenses, we did
not perform an audit of the department's indirect expense rates, and
therefore do not express an opinion on the acceptability of the indir-
ect expenses.
Note 2. A set aside cost is a proposed or claimed cost that does not require
questioning, but cannot be given unqualified acceptance by the auditor
at the time the audit report is issued. In this instance, the set
aside costs of $206,398 consisted of (i) $131,516 of salary and wage
costs which commingled employee paid leave costs and direct labor
costs, (ii) $31,343 for related fringe benefit costs, (iii) $1,399 of
unapproved office equipment and furniture, and (iv) $42,140 for inade-
quately supported laboratory testing services. The set aside costs
are further discussed in the subparagraphs below.
36
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a. We have set aside labor costs of $131,516 due to the inability of
the DEH to segregate direct and indirect labor charges in its account-
ing records. As discussed in the "Results of Audit" section of this
report, the method used by DEH to allocate employee paid leave to pro-
jects as a direct charge was unacceptable and not in compliance with
either OMB Circular A-87 or generally accepted acccounting principles.
It was DEH policy to charge the cost of paid leave, such as vacations,
holidays, and sick leave to the last project or projects worked on in
the pay period before the leave was taken. For example, the time for
one employee, who was on vacation for the two week pay period ended
March 7, 1986 was charged direct to the EPA cooperative agreement.
Wiile this employee nay have spent time working on the cooperative
agreement during the prior pay period, he also worked in other areas
not associated with the cooperative agreement. His vacation time
should therefore have also been allocated to these other areas. We
consider this practice to be inequitable since it did not result in
a reasonable allocation of leave costs, particularly where an em-
ployee has worked on several different projects over the course of a
year. Additionally, such -a practice was contrary to the requirements
of CMB Circular A-87 which provides that costs are allocable to a pro-
ject only to the extent of benefits received. The DEH should be re-
quired to segregate employee paid leave from direct labor in the ac-
counting records and to develop an equitable method of allocating
employee paid leave. vtien the DEH has performed these tasks, the
direct labor and an equitable share of employee paid leave costs
would be acceptable.
b. Fringe benefit costs set aside of $31,343 represented the costs
related to the labor costs set aside in Note 2.a. above.
c. Costs questioned of $1,399 represented the cost of office furniture
and equipment which was acquired without EPA approval. CMB Circular A-
87 provided that prior approval of EPA is required for capital acqui-
sitions. However, approval from the Begion was not sought by the DEH
prior to acquiring the furniture and equipment.
d. Set aside costs of '$42,140 pertained to unsupported costs for
laboratory testing services provided by the Utah State Health Labora-
tory (the laboratory). The laboratory billed the DEH for testing ser-
vices on the basis of a fee schedule. Upon inquiry, we were informed
that the fee schedule was not based on costs. In this respect, the
laboratory did not have the necessary accounting capability to deter-
mine the actual costs of performing the testing services. Instead, it
billed on the basis of average fees charged by private industry labora-
tories located in Utah. We noted that it was generally not the labora-
tory's practice to'bill other state programs for its services. .Appar-
ently, the Superfund program was one of the few programs which were
being billed for the laboratory services performed. Wiile we have no
disagreement with the policy of charging for laboratory services, the
services billed should be based upon the actual and necessary costs
37
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required to perform the services, provided that the costs are reason-
able. The laboratory fees could also be accepted as reasonable if
they had been procured through the competitive bidding process. Since
the cooperative agreement is a cost reiinbursable agreement with the
State of Utah, and the laboratory services were not competitively pro-
cured, only actual costs for the services rendered can be accepted.
We have therefore set aside the $42,140 of laboratory services billed
on the basis of the fee schedule as unsupported costs in accordance
with 40 CFR 30.510. The Region should perform a review of the ser-
vices to determine if the claimed costs are reasonable for the ser-
vices provided.
DEH Comments and Our Evaluation
DEH Garments. DEH did not agree with the audit conclusion regarding
the above costs set aside, and provided the following specific com-
ments.
a. As detailed in Finding and Recommendation No. 2 to this report,
DEH did not.agree that its method of charging paid leave costs was un-
acceptable.
b. • DEH commented that the fringe benefits associated with the set
aisde costs should be considered eligible for grant participation.
*
c. DEH contended that OMB Circular A-87 did not define capital equip-
ment, but cited several other authoritative sources for a definition
of capital equipment. These sources specified that capital equipment
generally had a unit value of $300 to'$500, and a useful life in ex-
cess of one or two years.
d. The DEH comments generally contended that the Superfund program
had been undercharged for the laboratory services provided. It
therefore concluded that EPA should accept the claimed charges, it
further commented that "The draft audit report is correct in stating
.that fees charged for laboratory work were not based strictly on costs.
The State Health Laboratory (Laboratory) has been required, since July
1, 1980, by the Utah State Legislature to charge for seme of its ser-
vices...As part of the budgetary process each year, the State Health
Laboratory submits a list of services and proposed fees for legisla-
tive approval...The auditor's were told that the Laboratory's fee
schedule, in general, was based on average fees from the private
sector, as required by the legislative intent statement...Over the
past few years, the Laboratory has been adopting a more rigorous
internal cost accounting process, to be applied to all Laboratory
services..."
"The Laboratory submitted three invoices for services performed in
support of the Superfund program...The total amount billed'was
$42,972.50. Of this anount, $42,140 was billed for MSCA-funded acti-
vities and $832.50 for State-funded activities. A subsequent credit
38
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of $1,275.00 was given to the MSCA-funded activities on September 30,
1986, based on an oversight regarding the fee for analysis of pesti-
cides and herbicides in water. The net bill for the MSCfirfunded acti-
vities was therefore $40,865. Of the $40,865, $39,387.50 was billed
for preremedial activities. These charges were billed under the
Laboratory's established fee schedule, consistent with the Legisla-
tive intent."
PIG Evaluation. Our conments, keyed to the DEH response were as
follows:
a. Our detailed response to the unpaid leave issue are provided in
NDte 2. In general, we do not believe that the set aside costs should
be accepted until DEH has segregated the paid leave and direct labor
costs in its records.
b. We agree that the disposition of the set aside fringe benefit
costs is dependent on the resolution of the costs set aside in Note
2.a.
c. For purposes of our review, we considered the office furniture
and equipment purchase as a total amount. We were not interested in
whether or not the individual items would require capitalization.
Our main concern was whether or not the requirements of the OMB Cir-
cular, and special condition no. 27, Appendix D of the cooperative
agreement had been met. The special condition stated that "The State
agrees that it will spend no funds under this cooperative agreement
for equipnent or training unless those costs directly benefited a
specific remedial site or pre-NPL activity receiving CEKIA funds."
We also discussed the issue of equipment purchases with the RPM and
were informed that the DEH had been verbally advised that no equipment
purchases should be made under the cooperative agreement without RPM
approval. As such, we have set aside the costs pending the Region's
determination as to the acceptability of the DEH equipment procure-
ment.
d. DEH's comments concerning the laboratory costs are acknowledged.
However, we have continued to set aside these costs since there was no
documentation supporting the basis for the laboratory costs. Wfe rec-~
ognize that services were provided, but cannot evaluate the reasonable-
ness of these services on the basis of the accounting records main-
tained.
Note 3. Vfe have questioned $67,164, the total salary and wage costs claimed
by DEH. The questioned amount consisted of (i) $66,651 of labor costs
which were transferred to various cooperative agreement projects via
unsupported after-the-fact adjustments to the accounting records, and
(ii) $513 of unallowable supervisory costs. The questioned amounts
are further discussed in the subparagraphs below:
a. Unsupported Transfer of Labor Costs. We have questioned
$66,651 of unsupported labor costs which were transferred to the
39
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cooperative agreement by after-the-fact adjustanents to DEH's account-
ing records. The transfers were made by general journal entries
based on instructions from the Superfund Program Manager and the
Management Services Coordinator. It should be noted that the orig-
inal employee time charge entries were made to a variety of general
and specific activities, many of which did not pertain to the EPA
cooperative agreement. Specifically, we found that an overall
justification for the transfer had not been prepared, nor had DEH
maintained appropriate documentation supporting the basis for the
labor cost transfers. Without a reasonable justification, and
appropriate documentation supporting the basis for the transfer
of labor costs to the EPA project, we consider the transfer to be
unsupported. As such, the costs are ineligible for grant reimburse-
ment in accordance with the provisions of 40 CFR 30.510. Ifte
$66,651 of unsupported transfers identified during our audit con-
sisted of the following adjusting general journal voucher entries:
DOH Voucher
Number
289304
289608
289807
289809
289980
290224
290256
290947
298948
290958
290969
290976
291036
Total
Date of Voucher Amount
February 11, 1986 $14,007
March 18, 1986 536
April 16, 1986 7,671
April 16, 1986 3,855
April 21, 1986 1,939
May 7, 1986 2,177
May 13, 1986 1,915
August 14, 1986 5,912
August 13, 1986 1,795
August 14, 1986 4,156
August 15, 1986 16,326
August 18, 1986 3,896
August 28, 1986 2,466
$66,651
b. Unallowable Supervision Costs. Questioned labor costs of
$513 represented, unallowable labor charges applicable to the-DEH Dir-
ector and the Assistant Director, Bureau of Solid and Hazardous Waste,
for the pay periods ended May 13, 1986'and June 13, 1986. Under the
guidelines of OMB Circular A-87, the costs of secondary level supervi-
sion are considered an indirect expense, and therefore not reimburs-
able as a direct charge to the EPA cooperative agreement. We have
therefore questioned the $513 as an unallowable grant cost.
DEH Comments and Our Evaluation
DEH Comments. The DEH did not concur in the audit costs questioned.
the detailed DEH comments relative to Note 2.a. were included in
Finding and Recommendation No. 2 of this report. .Generally, the DEH
40
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commented that the audit report did not support the conclusion that
the costs should be questioned. The DEH comments relative to Note
2.5. are provided below: ....
"The State charged $513 for secondary level supervisor labor during
the audit period. The draft audit report states that CHB Circular
A-87 does not allow secondary supervisors to direct charge effort in
support of grants. The State questions the basis for this interpreta-
tion of OMB A-87. Such interpretation is not consistent with the
Department's indirect rate agreement with EPA or its implementation.
It is also not consistent with other federal agencies' interpretation
Of CMB A-87."
PIG Evaluation. As explained in our additional comments to Note 2,
it remains our position that the labor transfers made to the coopera-
tive agreement by DEH were unsupported and therefore ineligible for
EPA funding.
DEH also commented that our position with respect to the secondary
level supervisors was not consistent with other Federal agency inter-
pretations on this issue. However, it did not explain the basis for
this statement, nor identify these inconsistencies. To the contrary,
we believe that OMB Circular A-87, Attachment A, Section E.I is very
specific in its definition of a direct cost. It defines a direct cost
as "...those that can be identified specifically with a particular
cost objective..." Further, in the discussion of indirect costs in
section F, the circular states that "All grantee departmental indir-
ect costs, including the various levels of supervision, are eligible
for allocation to grant programs..." Since the secondary supervision
costs cannot be specifically identified to a cost objective, it re-
mains our position that the costs should be recovered through the ap-
plication of an indirect cost rate.
Note 4. We have questioned the fringe benefit costs of $16,005 associated
with the direct labor costs questioned in Note 2 above. This adjust-
ment was made in accordance with 40 CFR 30.410 and OMB Circular A-87,
which provides that costs allocable to an ineligible activity are not
eligible for Federal participation.
DEH Comments and Cur Evaluation
DEH Comments. DEH stated the fringe benefit costs should be eligible
for funding on the basis of its earlier comments on the direct labor
costs.
PIG Evaluation. The disposition of the questioned fringe benefit
costs is dependent on the disposition of the questioned direct labor
costs.
Note 5. Questioned costs of $11,908 represented the unacceptable allocation
of building rental and communication costs on the basis of direct
41
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labor costs. While the allocation of building rental and coranunica-
tion costs to the EPA cooperative agreement through an approved in-
direct cost rate is an acceptable practice, allocations are not ac-
ceptable for the direct charging of these costs. We therefore recom-
mend that these costs not be accepted until they have been incorpor-
ated in an approved indirect cost plan prepared in accordance with
OMB Circular A-87.
DEH Comrents and Our Evaluation
DEH Conroents. DEH did not concur in the audit position on the building
rent and comnunication charges and commented as follows:
"The State disagrees with the draft report's conclusion that rent and
communication charges cannot be directly charged. OMB Circular A-87
does allow direct charging of rent and comnunication services. Also,
EPA Region VTII, in a letter dated September 17, 1979, specifically
agreed that telephone charges and building rent could be allocated
based on salary charges.. .the Department firmly believes that al-
locating rent and comnunication charges based on personal services
charges is a more equitable method of allocating these charges than
indirect methods. Rent and comnunication charges are charged consis-
tently. Consistency should be the criterion for determining the ap-
propriate direct and indirect charges, rather than auditor's varying
interpretations of appropriate indirect charges."
PIG Evaluation. By definition, an allocated cost is not a direct
cost. A direct cost is identifiable tq a particular cost objective
and is charged accordingly. The erroneous approval of a regional pro-
gram official of the allocation of the direct cost does not preclude
the OIG from questioning this practice. DEH argued that it was con-
sistent in its allocation of these costs. While we do not disagree
that DEH was consistent, we strongly disagree with the allocation of
these costs as direct charges. It is more important that the account-
ing treatment selected meet the criteria for alienability and equi-
tability. The inclusion .of rent and comnunication costs in the De-
partment's approved cost allocation plan would help assure the allow-
ability and equitability of these costs through an annual review and
approval by the cognizant' Federal audit agency.
42
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Enclosure 1
STATE OF UTAH RESPONSE TO
FINDING AND RECOMMENDATION NO. 1 -
UNSATISFACTORY PROGRAM PERFORMANCE
43
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May 20, 1987
State of Utah Comments on
EPA Draft Audit Report No. E5bG6-08-0062
Office of Inspector General
U.S Environmental Protection Agency
March 11, 1987
The State appreciates the opportunity to submit comments on the
above-referenced draft audit report. The State understands that these
comments will be considered prior to preparation of the final audit report.
The State also requests an exit conference prior to the final report and
requests that the State comments be attached as an appendix to the final
report.
General Comments
The State recognizes the time and effort spent by the auditors in evaluating
the State's Superfund program covering the period January 1, 1985 through
September 16, 1986, the first eighteen months of the State's program.
The State believes that the draft audit report reflects an intent on the part
of the auditors to make constructive criticisms and recommendations to improve
overall effectiveness of the State program. The report, however, should be
revised to more accurately reflect the facts with respect to site specific
program activities and State accounting procedures.
The State's specific comments on the draft audit report are set forth below.
The organization of the State's comments follows that of the draft audit
report.
Draft Audit Report Finding No. 1: Unsatisfactory Program Performance
As the draft audit report notes, the State received the Superfund Multi-Site
Cooperative Agreement (MSCA) in December of 1984. At the time of receipt of
the MSCA the State had no staff funded or committed to Superfund activities.
It was recognized by EPA Region VIII and the State that a substantial amount
of start-up time would be required for the State to gear up to perform MSCA
activities. At the time, EPA was encouraging states to enter into MSCAs in
order to increase State and CPA Superfund activities. EPA Region VIII was
anxious to obligate its allocation of funding for state MSCAs, and therefore
encouraged the State of Utah to enter into the MSCA for the full amount of the
$1.2 million dollar grant by the close of first quarter, FY'85. The EPA
Region VIII Project Officer recognized and acknowledged that, given the lag
time in planning, recruiting, hiring, and training a manager and staff, the
State would be unlikely to meet all objectives of the MSCA. Both agencies
felt it would be advantageous to proceed with the MSCA in order to develop the
State program and attempt to meet as many objectives as possible during the
eight months remaining in the FY '85.
44
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The draft audit report is correct that the State received the HSCA before it
had the capability to perform the MSCA activities. However, because EPA, at
the time, was,not funding states to set up Superfund core programs, and Utah
had no independent source of State funding available for Superfund activities,
the HSCA was viewed as the appropriate mechanism for accomplishing startup.
Targets for completion of MSCA activities were viewed by both EPA and the
State as flexible. A contrary view would have placed the State in a Catch 22
situation where the State could not enter into a MSCA until it had the
capability to perform the activities, but could not have achieved such
capability without having the MSCA. The State notes that EPA is now in the
process of developing a core program funding mechanism for states which will
help to eliminate such problems in the future.
Sharon Steel RI/FS Site
The State acknowledges that, as the draft audit report notes, development and
approval of a work plan for the Sharon Steel site in Midvale, Utah has not
been timely. The State has been, and is, frustrated by the delays with the
project. Delays during the audit period were primarily the result of:
1) changing EPA guidance that presented a moving target during work plan
development;
2) lack of timely EPA response to drafts of the work plan submitted to EPA
for review and approval; and
3) unresponsiveness of the contractor COM to State and EPA directives. (COM
is also EPA's-REM contractor, .and was presumed to have expertise in RI/FS
Work Plan development.)
A factual chronology of the Sharon Steel response activities pursuant to the
HSCA is attached as Exhibit A to the State's comments.
The draft audit report correctly notes that the contractor's performance
indicated a need for close monitoring by the State's Project Manager. (GAD
reports of January 4, 1985 and January 12, 1987, and an Office of the
Inspector General report of September 23, 1986 noted serious problems with
cost overruns by EPA Superfund contractors generally, and the State has been
aware of this problem.) Several work plan items submitted by the contractor
appeared excessive or unnecessary'to the State Project Manager. The State
Project Manager was concerned about excesses in proposed field activities and
cost overruns, particularly in view of possible"cost recovery proceedings, and
closely monitored contractor performance throughout the project. Discussions
with the contractor to resolve these concerns resulted in further delays.
The draft audit report is not correct in stating that the State Project
Manager had no experience or training in the area of contract monitoring. The
draft audit report is also inaccurate in stating that State management
personnel were not familiar with the guidance available in Volume II of the
EPA's State Participation in the Superfund Remedial Program Manual (Purple
Book) regarding management and administration of contracts. The Superfund
Program Manager had received training in procurement under. Superfund; and the
Program Manager, Project Manager, and senior level Engineer assigned to assist
the Project Manager had, in fact, received training in project management and
were familiar with the Purple Book guidance.
45
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Additionally, the State personnel assigned to this site were highly qualified
to manage the project. The State Project .Manager holds a Masters Degree in
water resources management, with a specialty in ground water, from the
University of Wisconsin, and has over eight years of experience-in ground
water investigations. In January 1986, the State's Superfund Program Manager
assigned a senior level Engineer with project management training to assist
the Project Officer on the Sharon Steel site. This Engineer holds a Masters
Degree from Columbia University in Mining Engineering and has extensive
experience in the mining industry dealing with environmental issues, including
Superfund. Both the Project Manager and the Engineer expressed to the
Superfund Program Manager throughout the project the need to closely monitor
COM's project management and work plan development. See Memorandum of May 13,
1987 summarizing these concerns, attached as Exhibit B of the State's
comments. Supporting documentation was available to the auditor at the time
of the audit.
The draft audit report correctly notes that major delays with respect to the
Sharon Steel site have resulted from lack of timely potentially responsible
party (PRP) notification and negotiations. The audit report shou.ld also note,
however, that the State was not tasked with PRP notification under the MSCA
and was not in any way responsible for PRP search or notification. EPA did
not coordinate PRP search or notification with the State. In late spring of
1986, EPA notified the State that, pending EPA negotiations with PRPs, the
State would not be allowed to proceed further with RI/FS activities at the
site except to modify the work plan to address EPA comments.
In September of 1986, EPA decided to change the designation of the Sharon
Steel site from a State-lead RI/FS activity to an EPA enforcement lead. The
State advised EPA that the State believed that a cost recovery action could .be
filed to preserve PRP assets while allowing the State to proceed with the
RI/FS. EPA, however, chose to file a civil action against the PRPs seeking
both cost recovery and injunctive relief for investigation and clean-up of the
site. EPA continued to indicate to the State that if negotiations with the
PRPs were not fruitful, the State would be allowed to proceed with the RI/FS.
However, in February of 1987, EPA finally decided to undertake the RI/FS
itself, using COM as its contractor.
The State has been prepared to proceed with the RI/FS since July of 1986,
lacking only EPA's permission to do so. To date, EPA has not initiated an
RI/FS at the Sharon Steel site. In fact, RI/FS activity is not likely to
begin soon because EPA will have to revise several portions of the work plans
to reflect the change in lead designation, the change in analytical
laboratories from the State Health Laboratory to an EPA contract laboratory,
and changes in guidance.
The draft audit report notes that EPA determined that the Sharon Steel site
may present an imminent and substantial endangerment to public health or the
environment. The State has never received any documentation from EPA
reflecting such a determination.
46
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The State believes that the audit report should accurately reflect that the
State was not a major or primary cause of delay in addressing releases and
threats to. public health at the Sharon Steel site. In fact, the State has
been addressing air releases and releases to the Jordan River from the site
through independent State enforcement authorities. Sharon Steel has recently
proposed to the State plans for control of air releases and sloughing of
tailings into the Jordan River under the Utah Air Conservation Act and the
Utah Water Pollution Control Act. See copy of Notice of Violation and Orders
to Sharon Steel attached as Exhibit C to the State's comments. Additionally,
the State has conducted sampling and performed health assessments in nearby
neighborhoods and has required Sharon Steel to restrict access to the site.
Olson-Neihart Reservoir RI/FS
The draft audit report indicates that as of September, 1986 there had been no '
significant actions taken to initiate remedial work at the Olson-Neihart site
since the site was placed on the National Priorities List (NPL). The draft
audit report correctly notes that the primary concern with respect to the
Olson-Neihart site was that a proposed Bureau of Reclamation reservoir Jn the
area, which would inundate the tailings at the site, would create a potential
for releases that might affect water quality. However, because the State
determined that there were presently no receptor populations in the area, and
little potential for harm to public health under present conditions, it has
not considered the Olson-Neihart site to be a high priority for remedial
action under the Superfund program. Both EPA and the State have considered
the site a likely candidate for deletion from the NPL.
Nevertheless, the State has proceeded with remedial response activities at the
site. The draft audit report suggests that the primary cause of delay of work
at the Olson-Neihart Reservoir site was a significant disagreement between the
State and EPA concerning requirements for a minor contract for installation of
monitoring wells at the site. This is simply incorrect. There was a
disagreement (see below), but that disagreement did not affect the timing of
work at the site. Even after the State had rewritten the contract, obtained
EPA approval of the contract, rebid it, and selected a contractor, EPA still
had not given the State approval to sign the contract or begin field work.
EPA would not do so until it had completed its review of State-submitted
project plans for the proposed field activities. As pointed out below, EPA
did not approve those plans for even the first phase of the RI/FS for another
nine months after the contract issues were resolved, a year after the plans
were first submitted to EPA.
The state first submitted the project plans for EPA review in October 1985.
They were revised and resubmitted several times in response to EPA comments.
The substance and structure of the project plans did not change significantly
from the initial drafts. However, several drafts of the plans were required
because:
1) Consistent review criteria for RI/FS project plans had not been
established;
47
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2) Comments were not comprehensive; the State was required to address in
later drafts new comments that could have been raised with earlier
drafts;
3) Reviewers changed; new reviewers were unfamiliar with the site and
State Health Laboratory protocols, and frequently offered different,
sometimes conflicting comments; and
4) Guidelines were unclear on how to address a site that probably did not
belong on the NPL.
In every case, the State's revision of the project plans to answer EPA's
comments was timely and responsive. Nevertheless, the number of revisions
required significantly delayed work on the site. Those project plans were in
EPA's Region VIII Office for technical review in October 1985, concurrent with
the State's initial draft drilling contract, but were not approved 5y EPA so
that work could proceed until October 1986.
The draft audit report correctly notes that EPA's negotiations with PRPs also
delayed work at the'site. EPA did require the State to postpone work at the
site for several weeks during the summer of 1986 pending conclusion of EPA's
negotiations with the PRPs. However, the draft report may be incorrect in
stating that those negotiations were delayed until further data could be
obtained. As far as the State is aware, EPA's negotiations proceeded without
additional data. Again the.report should note that the State was not involved
in PRP notification or negotiations.
The State agrees with the draft audit report that EPA's concerns about the
quality of data used for HRS scoring should have been discussed early during
the HRS scoring process, rather than continuing for more than two years.
Though the dispute between the State and EPA over the drilling contract was
not, as the draft audit report indicates, a cause of delay of work at the
Olson-Neihart Reservoir site, it is still significant because it illustrates
the difficulty the State had in completing work under EPA's. detailed
oversight. After receiving conflicting advice from EPA Region VIII, the State
concluded that its monitoring well drilling contract was an engineering
services, rather than a construction-type contract under State law, and that,
therefore, State and Federal requirements (which referenced
State-interpretation) applicable to engineering services contracts were
legally adequate for such a contract. Given that the existing contract
substantially met those requirements, the State believed it would be
unnecessary, expensive and time-consuming to completely redraft and refaid the
contract as a construction contract, as EPA was finally requesting. (The
State was still concerned about contract delays at that point, because it
expected EPA approval of State-submitted project plans shortly, in time for
seasonal field work; in fact that approval did not come for many more
months.) The State wrote to EPA stating this position, and urging that, if
EPA was otherwise ready to authorize field work, the State wanted to proceed
with the drilling. The State indicated that, in order to initiate field work,
it was willing to run the risk that it would have to fund the contract with
State dollars if EPA ultimately determined that the State's contract did not
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meet federal requirements. The State further requested EPA to explain its
determinations regarding the contract characterization. As previously
mentioned, EPA was not ready to approve project plans and authorize field work
for some time. Given the continued delays for such authorization-, the State
did rebid the contract as a construction contract as EPA requested. However,
to date EPA has not explained its rationale for interpreting the contract as a
construction versus engineering contract. It should be noted that, although
the two contracts were nearly identical in technical requirements, the low bid
for the contract increased from $26,780 to $32,180 with the second bid, a 20
percent increase, as a result of the rebidding. State and EPA costs also
increased.
The State urges that the audit report reflect that the most significant delays
in the project were the substantial delays in EPA review and approval of the
work plan and related project plans. These delays illustrate some of the
fundamental problems the State (and other states) have experienced in
conducting RI/FS activities in a timely manner under the Superfund process. A
factual chronology of Olson-Neihart response activities pursuant to the MSCA
is attached as Exhibit 0 to the State's comments.
Silver Creek Tailings Forward Planning
The draft audit report mischaracterizes the State's involvement and position
with respect to the Silver Creek Tailings site. The State has been concerned
about the Silver Creek site since the site was brought to the attention of the
Department of Health as a result of soil samples taken by the Utan Geological
and Mineral Survey (UGMS) in 1984. As the draft audit report indicates, these
UGMS samples indicated high concentrations of lead, cadmium, arsenic, and
silver. The State's primary concern at this site was the potential for air
releases which could have a direct impact on public health, particularly the
health of small children who might be susceptible to ingestion of tailings
materials containing high concentrations of lead and cadmium. The State did
in 1984 conduct limited air and dust sampling and blood lead tests at
Prospector Square. The dust sampling indicated a high potential for release
of contaminants through the air pathway. The blood lead results, however,
indicated no immediate threat to public health. The State believed that
additional sampling was required to confirm these conclusions and evaluate
other pathways.
While the State did prepare the PA and SI reports for the Silver Creek site in
1984, the State did not prepare the HRS scoring package. The HRS scoring
packages were prepared by EPA, and EPA did not consider air releases in
scoring the site because it had questions about the representativeness of the
air sampling data. Instead, EPA based HRS scoring on potential for ground
water release and on observed surface water release to Silver Creek. There
were inadequate data to support listing on either of these bases.
The draft audit report indicates that the State changed its position with
respect to listing of the Silver Creek site on the NPL and implies that this
change in position was based on political considerations. This is not
accurate. In fact, the State did not change its position. The State has
consistently maintained that sufficient information needs to be developed for
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the site to ensure that any threats to public health or the environment are
Identified and adequately addressed. After reviewing in-depth the data EPA
used to support the MRS scoring and additional geohydrology data obtained by
the State, the State recognized and informed EPA'that the limited-ground and
surface water data did not support a score. The State also objected that its
primary concern regarding air releases was not being addressed.
The draft audit report should recognize that the State developed its PA and SI
data for Silver Creek in early 1984, over a year before EPA proposed the site
for the NPL. In the interim, EPA revised its own guidelines regarding
documentation required to support an HRS score. To comply with the more
stringent documentation requirements for NPL listing, EPA excluded the air
quality data from the State's SI, but did not exclude other documentation
relating to ground water pathways that was also no longer acceptable under
EPA's more stringent guidelines.
The draft audit report indicates that the State did not acknowledge its role
in the ranking process. The State was not involved in the ranking process,
and did not QA/QC the proposed HRS package. The State's role was limited to
preparation of the PA and SI reports.
The State acknowledges that NPL listing of a site theoretically does no more
than make the site eligible for further investigation using Superfund monies.
However, at a residential community such as Park City, such listing actually
has serious emotional and economic consequences. Therefore, defensibility of
the data used to score the site becomes particularly critical. The State did
not recommend against NPL listing based upon political considerations;
Technical validity and representativeness of data are not, in the State's
view, political issues.
The draft audit report should also note that during 1985-86, the residents in
the Prospector Square area undertook certain remedial actions designed to
eliminate any immediate threats to public health, with commitments from the
State to assist in evaluating the need for any further action at the site.
The State agrees with the draft audit report that further investigations at
the Silver Creek site are necessary to determine the need for any additional
remedial action, and is working with EPA and Park City to conduct such
investigations.
*
Preliminary Assessments/Site Inspections (PAs/SIs)
The draft audit report notes that the original MSCA required the State to
perform 21 PAs and 14 Sis by September 30, 1985. The draft audit report also
indicates that a special grant condition required EPA approval of the PA and
SI reports prior to their acceptance. The State had no program in place until
four staff, including the Superfund Program Manager, had been hired in June of
1985. Therefore, completion of the PAs and Sis by the target date of
September 30, 1985 was recognized by both agencies as being unrealistic.
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In fact, both EPA and the State recognized that September 30, 1986, the close
of FY '86, was a more realistic, but still ambitious date for completion of
the PAs and Sis, given the State's staffing level and Superfund program
workload. (In addition to the 21 PAs and 14 Sis, the original MSCA also
required the State to initiate two RI/FS projects, and to complete Forward
Planning and RI/FS work plan development for two additional NPl sites. A'
third Forward Planning site was added during the audit period. The State was
also involved in several other Superfund activities not addressed in the HSCA,
including an RI/FS and a non-NPL site.)
By the close of the audit period, September 16, 1986, the State had submitted
draft reports for 24 PAs and 15 Sis. One additional draft PA and one draft SI
report were submitted prior to September 30th, the close of the fourth quarter
of FY'86. 20 of those PA reports and 1 of the SI reports were second drafts
rewritten in response to EPA comments. By the end of that quarter, EPA had
accepted 2 PA reports and 2 SI reports as final. The other 20 revised draft
PAs, 3 initial draft PAs, the one revised draft SI, and 13 initial draft Sis
were still awaiting EPA comment. EPA comments did not begin trickling in
again until mid-November 1986 for a few Sis, and mid-December 1986 for a few
PAs. To date, nine months after close of the FY'86, the State has still not
received any comments on 6 of these draft PA reports or 3 of these draft SI
reports, some a year or more old. The State cannot complete these reports
without EPA review and approval. (DEH Quarterly HSCA Report, 4th Quarter
FY'86. See PA/SI status summary attached as Exhibit E.)
The draft audit report correctly identifies the need for additional
coordination in scheduling EPA and State PA/SI activities to expedite the
timely completion of PA and SI reports.. However, the draft audit report
should clarify that the State did provide schedules for submittal of draft PA
and SI reports to EPA for FY '86, as requested (OEM quarterly MSCA Reports).
In all quarters, the State met or exceeded commitments to submit draft PA
reports. In 3 of the 4 quarters the State met or exceeded commitments to
submit draft SI reports.. By the close of FY'86, the State had exceeded its
target number of draft PA and SI reports. No schedules for EPA review or
estimates of review time have ever been provided to the State.
The audit report should clarify that initial scheduling problems were not the
significant cause for delay in completing PA and SI reports. EPA simply did
not commit adequate resources to review reports, regardless of when
submitted. EPA did not review any reports until months after submitted. The
audit report should recognize the following factors as significant
contributors to delays in completion of PA and SI activities:
1) EPA did not schedule or complete reviews within a reasonable time
frame.
2) Because of funding constraints pending CERCLA reauthorization, EPA's
basic PA and SI training courses were not available to State staff
hired after June of 1985. State staff were trained in-house, without
the benefit of EPA's explanation of changing criteria and protocols
for these PA/SI activities.
3) Because of lengthy delays in obtaining EPA comment or approval on
PA/SI reports the State did not benefit from EPA review as site
activities progressed.
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4) The State conducted the field activities for most of the Sis conducted
during the audit period under EPA directives to avoid drilling new
wells and to limit sampling to roughly 10 samples per site. The State
has found that, in several instances, the resulting sampling
information was insufficient to support thorough evaluation of
relevant pathways, and thus supplemental field activities have been
required to complete Sis. Similar problems have occurred with EPA's
Field Investigation Team (FIT) SI activities in Utah.
5) Old draft PAs and Sis frequently must be revised to comply with new
EPA policies regarding report format and documentation and to update
site conditions.
The draft audit report should correct its characterization of the State's
position regarding the priority of PA and SI activities. With only site
.specific funding available under the HSCA, and with very limited State dollars
available for non-MSCA funded Superfund activities (including
immediate/emergency response actions), the State has been unable to fund a
core staff for the Superfund program. During the audit period, the State
Superfund program operated with 5-7 technical staff, one manager, a part-time,
temporary attorney (FY'86), and clerical, community relations, and part-time
Attorney General Office support. As a result, while the State has tried to
meet all of the PA and SI, as well as other MSCA commitments, it has also had
to prioritize sites and activities (PA/SI, RI/FS, immediate response) based on
a number of considerations. During this process, the State has focused on
those PA and SI sites which it believes present the most serious threat to
public health and the environment, as well as those activities which are most
likely to effect follow-up remedial action.
As site specific comments that follow indicate, the State has not neglected PA
and SL activities at sites-with the potential for significant threat to public
health or the environment, as the draft audit report suggests. In fact, the
State routinely works with PRPs during the PA and SI process, and has been
able to obtain PRP response action to stabilize or clean up sites pending
delays in the PA/SI review process (e.g., Highland Boy Smelter site cleaned
up; American Barrel site stabilized; D4RG Railroad North and South sites
undergoing cleanup). In addition, the State has proceeded with SI
investigations at priority sites identified in draft PAs even before those PA
reports are final.
The draft audit report is also misleading in suggesting that delays in the
completion of PAs or Sis has significantly hampered initiation of RI/FS
activities. The period of the audit coincided with the Superfund
reauthorization hiatus, Superfund funding crises, and EPA's Superfund
slowdown. Funds for hew RI/FS starts have not been available at all. Even
with new Superfund Amendment and Reauthorization Act funding, EPA's formulas
for allocating Superfund monies for new RI/FS starts versus completion of
remedial design, remedial action or ongoing RI/FS activities will not allow
for more than a few new starts each year for the entire EPA Region VIII.
Siven the priority Utah sites proposed for the NPL now awaiting RI/FS funding
and RI/FS starts, none of the sites currently in the PA/SI process are likely
to be funded until 1989 at the earliest, and even then only 1 or 2 sites are
likely to be funded.
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Wasatch Chemical
The State agrees with the draft audit report that initiation of remedial
action at the Wasatch Chemical site has not been timely. However, the audit
report should more accurately characterize State and EPA activities at the
site in order to correctly focus the cause for delay. A factual chronology of
events at the site is attached as Exhibit F to the State's comments.
The State conducted the May 1984 site investigation discussed in the draft
audit report and submitted an HRS scoring package to EPA. The following month
(June 1984), the State requested the PRPs to undertake response action to
eliminate health/environmental problems identified during that SI. The PRPs
refused, and the State, in the fall of 1984, requested EPA to initiate
immediate removal actions at the site. In response, in February 1985, EPA
developed a draft Study Plan for sampling to support a possible immediate
removal action. After several months of discussion among the State, EPA, and
the PRPs, EPA determined that it lacked the resources to conduct the proposed
sampling.
The State conducted sampling in June 1985 primarily to obtain additional data
to support a CERCLA removal action, and to supplement the existing SI and HRS
package. The State supplemented the SI and submitted a revised HRS package in
the fall of 1985. The State renewed its request to the PRPs to undertake
immediate response and removal actions at the site. Negotiations again were
not fruitful, and in January 1986, the State filed a civil action in Federal
District Court seeking PRP response action and recovery of State costs. The
State again requested EPA to initiate immediate removal actions limited to
abandoned drums and cylinders on Lot 6. The removal actions were, for the
most part, completed in June 1986. The State, EPA, and the PRPs also
restricted access to other potential problem areas at the site.
As the draft audit report states, in July of 1986, the State amended its
federal court action to seek an order requiring the PRPs to undertake the
response actions required for the entire site. The report should clarify
that, until EPA proposed the Wasatch Chemical site for the NPL, neither the
State nor EPA could use Superfund dollars to initiate RI/FS activities
required to address long-term remedial action. Thus, faced with EPA's listing
delays, and lacking an independent source of funding, the State expanded its
ongoing litigation action. The State continued to pursue NPL listing as a
source of funding for the RI/FS should the PRPs refuse to proceed. EPA,
however, did not propose even Lot 6 of the site for NPL listing until January
of 1987, fifteen months after submission of the State's October 1985 revised
HRS package.
The State fully concurs with the draft audit report's perception that EPA's
delay and indecision in listing the site, and particularly its application of
the RCRA/CERCLA policy to segment the site for NPL listing purposes, have
needlessly confused and delayed an already factually and legally complex
situation and thereby have delayed ultimate resolution of problems at the site.
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Kennecott Sites
The draft audit report correctly identifies the Kennecott sites as potentially
. significant hazardous substances sites in the State. However, *-he audit
report should more accurately characterize the activities underway to address
those sites, particularly regarding NPl listing.
The so-called Kennecott sites encompass approximately 250 square miles along
the Oquirrh Mountains and west Salt Lake Valley. Within that area are a
number of distinct sources of contamination, such as a major heap leaching
operation which includes a series of drainage ditches and evaporation ponds;
the major Kennecott tailings pile (and a number of smaller, old abandoned mine
waste and tailings piles); mine drainage sources; and contaminated creek
channels.
Both the State and EPA have recognized the complexity of addressing multiple
sites over such a large area and the need to phase response actions
appropriately.
Pursuant to a formal State/Kennecott agreement entered on June 3, 1985, the
State has for a few years been overseeing a multi-million dollar ground water
investigation Kennecott is conducting (primarily of the leaching operation) to
identify contaminant plumes and sources of contamination so that interim and
long-term remedial actions can be implemented to prevent further
contamination. In addition, with concurrence from the EPA Regional office,
the State has identified several other potential contaminant sources for
evaluation under the PA/SI program, and is evaluating these sites in order of
their priority under the PA/SI program.
The State submitted Sis on three of the sites during the audit period,
including the PA (September 1985) and draft SI and MRS packages (March 1986)
for the Kennecott Tailings site discussed in the draft audit report. EPA
comments are still pending on both. The State is unaware of the FIT review
referenced in the draft audit report, which was apparently issued in September
1986, and discusses the State sampling rationale used for the Kennecott
Tailings SI, The State has received no EPA comments on the Tailings site PA
or SI report. During the lengthy delay in obtaining EPA review, the State has
independently developed additional data on the site, as it does with many
sites held up in the review process^.
>
As the State has discussed with EPA and Kennecott, the State's intent with its
PA/SI activities at Kennecott is to develop information upon which to
determine appropriate scopes of work for additional response activities.
Because of the lengthy delays in addressing sites through the NPL listing
process, and consistent with EPA policy, the State has adopted a practice of
seeking PRP leads for RI/FS activities, and is pursuing that practice with the
Kennecott sites.
The State has filed a Superfund Natural Resource Damage case against Kennecott
in Federal District Court, which has been stayed by joint stipulation pending
completion of Kennecott's ongoing ground water investigation. In addition,
the State is pursuing independent enforcement action with Kennecott to control
air releases from the tailings piles. EPA has expressed a reluctance to push
54
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the NPL listing of Kennecott sites, given Kennecott's cooperation in
addressing Superfund problems, as well as other environmental regulatory
issues. Thus, the State's, and apparently EPA's, decisions not to have pushed
listing the Kennecott sites on the NPL during the time frame of:>the audit has
been intentional, based on management decisions regarding priorities and
resources, as well as the overall usefulness of the NPL listing at this stage.
The draft audit report should also note that in this case, as well as others,
NPL listing is a tool—not the solution. Listing simply identifies sites
eligible for Superfund monies for remedial response. Given EPA's limited
allocations of funding for new RI/FS starts and the number of other Utah sites
already proposed for, or close to qualifying for proposal to the NPL, the
Kennecott PA/SI sites may wait a number of years for Superfund monies for
Rl/FS starts. Listing may or may not be an effective means for obtaining PRP
cooperation to achieve response action on a faster track. This is not a
decision which the auditors can properly evaluate.
American Barrel (North Tempie|
The State agrees with the draft audit report observations that an SI should
proceed expeditiously. However, the report should correctly reflect that, by
the close of the audit period, the State had submitted a draft and revised
draft PA responding to EPA comments. The State is unaware of a third draft PA.
Given the potential for public exposure to possibly hazardous conditions
observed during initial site visits, the State requested EPA to initiate
immediate response actions to assess site conditions and to stabilize the site
pending a SI. However, EPA resources were unavailable for the initial
sampling required.
In addition, the draft audit report should reflect that the owner of the
property has initiated independent clean-up and stabilization action using a
technical consultant.
Premature Award
The State's comments with regard to the draft audit report's finding of a
premature MSCA award were addressed above. As noted, the State generally
agrees with the findings, but believes the situation was not entirely
avoidable given the need to build the State program from scratch.
Substantially greater EPA technical and administrative assistance would have
helped this process significantly.
Need for Improved Working Relationship
The State agrees with the draft audit report that the working relationship
between EPA and the State was not satisfactory and impeded progress toward
remedial activities. The State attributes this primarily to lack of a
formalized process for defining roles of the respective agencies, setting time
55
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frames and schedules for EPA review and approval of State-lead activities, and
resolving interagency disputes. With active participation of the State, EPA
is now preparing national draft EPA/State Superfund Memorandum of Agreement
(SMOA) guidance. Simultaneously, the State and EPA Region VIII:>are drafting a
SHOA designed specifically to avoid the relationship problems of the past.
The State believes it is important to note that, from the State's perspective,
the prior strained relationship did not result from a defiant State attitude.
Rather the State was extremely frustrated by:
1) the obvious lack of progress in Superfund MSCA activities in the
State;
2) the absence of a common understanding of respective State and EPA
roles and responsibilities, particularly with respect to oversight for
State activities;
3) the lack of clear guidance and directives regarding program
performance, as well as continually changing guidance;
4) delays in reviews and approvals of State activities;
5) lack of explanation for EPA decisions and actions; and
6) lack of adequate EPA assistance.
The State felt that many of the delays, as well as the lack of coordination,
were unnecessary, and could have been avoided if a timely process for
involving appropriate levels of EPA management had been available.
The State has not, and does not, resist EPA oversight of its State-lead
Superfund activities. However, the State has objected to what has been dubbed
by other states as EPA "micromanagement11 of State-lead activities,
particularly given the inadequacy of EPA's resources for such oversight.
Micromanagement tends to duplicate efforts in virtually every facet of the
process, and to delay progress without significant benefits to the overall
Superfund program. The State is now working with EPA and other states to
revise the state participation provisions of the National Contingency Plan to
help avoid the micromanagement problem in the future.
t
Finally, the State does not feel that the draft audit report documents any
basis for finding that the State is unable to satisfactorily fulfill the
requirements of the MSCA.
State response to draft audit report recommendations
1. The State agrees with the recommendation that the Regional Administrator
assist the State to develop (or modify) the management and accounting
controls required for participation 1n the Superfund program. The State
believes that proposed core program funding and guidance by EPA will help
in this regard.
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The State is extremely concerned that the draft audit report
recommendation that "the Region should assure that future Superfund
cooperative agreement awards are not made unless the recipients are
qualified to perform under the agreements" can place potential recipients
in a Catch-22 situation as mentioned earlier. As with core program
funding, the award itself may be necessary to develop the program
capability. Further, the State is concerned that the recommendation can
be misinterpreted by EPA as a basis for refusal to approve any further
MSCA or core program awards to the State. The State does not believe this
is.the intent of the auditors, or that there is any basis for such a
policy in the draft audit report. The State specifically requests
clarification of this recommendation in the final audit report.
2. The State agrees with the recommendation that the Regional Administrator
initiate procedures to perform a comprehensive review of the cooperative
agreement objectives and work with the State to accomplish those
objectives. The State and EPA are in the process of such a review at the
present through proposed revisions to the HSCA. Additionally, proposed
revisions to the State Participation provisions of the National
Contingency Plan, and the Superfund Memorandum of Agreement will require
this type of coordinated review effort.
a. Since the draft audit report, EPA has changed the Sharon Steel site
from a State-lead RI/FS to an EPA enforcement lead. The State
submitted to EPA a proposed Site Enforcement Agreement in March, 1987,
addressing the type of action schedule recommended by the draft audit
report.
b. The State has completed all field work at the Olson-Neihart Site and
has transmitted reports to EPA. EPA has advised the State that it is
preparing documentation for a proposal to withdraw the site from the
proposed MPL.
c. The State and EPA are conducting a shared-lead expanded site
.investigation (ESI) pursuant to a draft site investigation agreement
among EPA, Park City, and the State. Field work is scheduled to begin
in May, 1987.
d. The State has submitted to' EPA a revised PA/SI schedule incorporating
adequate allowance for EPA reviews. The State has yet to receive EPA
schedules or time frames for review of these PA/SI reports.
e. The State agrees with the recommendation that it should be allowed to
begin RI/FS work at the Wasatch Chemical Site, and that a reassessment
is warranted regarding only partial listing of the site on the NPL.
The State submitted to EPA in March 1987 a proposed State-lead Site
Enforcement Agreement. In April, the State submitted to EPA a
proposed Scope of Work for the RI/FS.
f. EPA has not provided comments to the State on the Kennecott Tailings
SI submitted by the State in March 1986. The State has requested a
meeting with EPA to plan future actions at the site.
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3.
The State has completed or scheduled PA/SI actions at other priority
Kennecott sites.
g. The State has not received EPA comments on the revised SJ.for the
Bland Landfill submitted to EPA on December 8, 1986. :
EPA has not responded to the revised PA for the American Barrel (North
Temple) site which the State submitted in January, 1987. The State
has agreed that EPA will assume the lead for the SI on this site, with
State oversight.
As mentioned previously in the State's comments, EPA and the State are
working together to develop an EPA/State Superfund Memorandum of Agreement
(SMOA) which will address procedures for interagency planning,
communication, information sharing, and dispute resolution.
LP/pw
0135Z/1-15
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Enclosure 2
STATE OF UTAH COMMENTS
AND OUR EVALUATION OF
CONCLUSIONS IN FINDING NO. 2 -
SUPEREUND ACCOUNTING SYSTEM DEFICIENCIES
DEH generally did not agree with the audit conclusions made in Finding No. 2.
We have therefore summarized their position by each subject area in the para-
graphs below. Our evaluation of the comments is presented following the DEH
comments.
DEH Comments
Unacceptable Labor Charging Practices
1. "The draft audit report does not carefully and accurately document the
questioned labor cost transfers, and does not support the recommendation that
the labor costs transferred should be disallowed under the MSCA." It provided
several pages of documentation to support its position.
2. DEH also stated that "...only $4,826.32 in labor costs transferred
to the Sharon Steel activity code may be subject to cost recovery. The other
MSCA-funded remedial activities are not likely to be subject to cost recovery
actions because: (a) EPA withdrew its proposals to list the Mayflower Tailings
and Silver Creek Tailings Forward Planning sites on the NPL; (b) EPA intends to
withdraw its proposal to list the Olson-Neihart RI/FS site on the NPL; and (c)
the Portland Cement Forward Planning site became a State-funded enforcement
lead RI/FS with too few federal MSCA dollars spent, $16,099, to support a cost-
recovery action."
3. "The draft audit report is incorrect in stating that the labor cost
transfers which the State made during the-period of the audit were not ade-
quately justified or documented. All labor cost transfers made during the au-
.dit period were made at the direction of the Superfund Program Manager based
on immediate knowledge of staff assignments and work performed at the various
Superfund sites, a thorough understanding of the cost accounting systems, and
the allowability of activities at various points in time under the MSCA. All
labor transfers were supported by memos submitted through the Divison's Manage-
ment Services Coordinator to the Department's Bureau of Finance, and discussed
among these parties before the actual transfers were made.
"In addition, all labor cost transfers were documented by changes in the time
sheets on which transfers were made in accordance with directions from EPA.
Prior to the audit, EPA Region VTII personnel reviewed the State's accounting
system and financial reporting procedures supporting the Superfund program.
In its June 24, 1986 follow-up letter, EPA recommended that '...anytime the
source document coding is changed, the supervisor and/or employee initial and
verify the activity code data corrected'...In accordance with this recommenda-
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tion, the Superfund Program Manager, the immediate supervisor for Superfund
program personnel, corrected each time sheet on which labor cost transfers
were made. Since July 1, 1986, at the direction of the auditors, all time
sheet corrections have been made by both the employee and the Superfund Pro-
gram Manager.*
4. "The draft audit report underplays the complexity of Superfund labor
cost accounting required for the State's program during the audit period, and
cost transfers under this system.
"Prior to initiation of the Superfund program, the Division had developed a
list of site specific activity codes, for various hazardous substances sites
identified on EPA's CERCLIS list. Upon acceptance of the MSCA, the Division
added a general MSCA activity cost code for the PA/SI activity. EPA's Purple
Book guidance indicates that the expenditures for PA and Si activities will
not be cost recovered, and are tracked only for the purpose of reporting labor
hours/site. Thus, a general code for reporting all PA/SI activity costs ap-
peared appropriate. Nevertheless, during the initial months of the State's
Superfund program, EPA Region VIII program and financial personnel directed
the Department to track all activities, including PA/SI activities, site spe-
cifically, and indicated that non-site specific accounting codes (such as the
State's general, non-site specific PA/SI activity code) could not be used for
tracking MSCA activities.
"To implement this directive, in late 1985, early 1986, the Division created an
elaborate site specific tracking system with approximately 500 activity codes.
Each Superfund site was assigned a two digit site-identifier code. These codes
were incorporated into the following series to identify the specific work con-
ducted at each site, and thus the proper MSCA or State activity to be charged:
100 series for PAs, the 300 series for Sis, the 400 series for HRS scoring, the
500 series for Forward Planning, the 600 series for State-funded activities,
the 700 series for RI/FS, and the 800 series for remedial Management Assistance.
Originally under this system, the 700 series was used for both RI/FS and For-
ward Planning activities. Later, the 700 numbers were reserved for RI/FS acti-
vities, and the 500 series was established for Forward Planning activities.
"Under this system, all activities were to be recorded site specifically oh the
time sheets, using the appropriate' site-identifier code along with the series
number which corresponded to the activities being conducted. Sites/activities
funded under the MSCA at the tine work was performed were charged to the ap-
propriate 100, 300, 400, 500, 700, or 800 series. The 600 series was used for
all Superfund sites/activities not funded under the MSCA. Time spent in staff
meetings, in training, or performing other non-site specific work which sup-
ported many or all of the PA/SI sites was spread on time sheets to a number of
site specific preremedial activity codes for active PA/SI sites, as well as to
appropriate State-funded sites."
"It should be noted that these revisions to the cost accounting system to com-
ply with EPA directives required numerous labor cost transfers (1) to spread
the costs already charged to the general MSCA PA/SI activity code to the appro-
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priate site specific codes; (2) to correct site-identifier codes which were
changed during the accounting system revision; and (3) to transfer Forward
Planning costs from the 700 RI/FS-Forward Planning series be-the new 500
series."
"The complexity of this cost accounting system was exacerbated by the lack of
continuity in funding under the MSCA for the progression -of activities that
occurred as sites moved from discovery through remedial action, for example,
during the audit period, the Silver Creek site (-05) began as a State-funded
preremedial site (605); was funded in the MSCA for Forward Planning activities
upon proposal to the NPL (505); was dropped from the NPL and became a State-
funded site (605); and was later funded again in the MSCA as an expanded SI
upon addition to the list of approved SI sites (305). At other sites, both
allowable and non-allowable activities occurred simultaneously and had to be
coded separately on the time sheets (e.g., the State completed an MSCA-funded
SI (327) at Wasatch Chemical Company concurrently with State-funded immediate
removal and litigation activities (627)). Since the State frequently continues
working at sites after completion of the SI, but before remedial, and now en-
forcement funding is available, fundable activities often continue at sites,
but are not immediately picked up under the MSCA. Thus accurate accounting
requires not only a thorough understanding of the accounting system, but up-to-
date information regarding the current MSCA funding status of various activi-
ties, including PA/SI activities under the MSCA.
"Not surprisingly, inaccurate time sheet entries were not•infrequent during the
initial months of the Superfund program. The difficulty was further compounded
because, for the first several months of program operation, the Bureau Director,
and not the Superfund Program Manager who was familiar with the details of the
complex cost accounting system, reviewed and signed all time sheets. Vhen the
need for closer monitoring of time sheets became apparent, responsibility for
all time sheet review/approval for Superfund program personnel shifted to the
Superfund Program Manager. The Program Manager also reviewed all time sheets
from the initiation of the MSCA to correct inaccuracies. The Program Manager
corrected time sheets based on an understanding of the cost accounting system,
the allowability of activities at various times under the MSCA, and the work
performed by program personnel at the various sites. Staff were consulted as
necessary to ensure accuracy."
f
5. "In addition, as the previous section of the.State's comments notes,
the State has operated its Superfund program without core program funding for
administrative support personnel, such as a grants administrator, with primary
responsibility for establishing, administering, and overseeing the complicated
cost accounting system. Although all program personnel were instructed in pro-
per time accounting procedures, such focused attention would have ensured
smoother implementation of those procedures.
"Under these circumstances, the labor cost transfers were necessary to ensure
that Superfund labor costs were properly charged to the appropriate MSCA and
State activity codes. The audit report should note that during the audit per-
iod. ..labor costs were transferred from State activities to MSCA activities
...were transferred from MSCA activities to State activities...were transferred
among MSCA activities..."
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"The basis for the questioned labor cost transfers is described in the supporting
memoranda that accompanied the Superfund program's request for the transfers.
A summary of the bases for transfers follows: ^~"
4
"Labor cost transfers among preremedial (PA/SI) activity codes..."
"Labor costs for remedial activites mistakenly charged to the general MSCA
PA/SI activity code..."
"...labor cost transfers reflected an administrative change in the.series
code used to identify Forward Planning activites at the Portland Cement and
Mayflower Tailings Forward Planning sites."
"...labor cost transfers from State RCRA activity codes to MSCA activity
codes were made to correct errors on time sheets..."
"Certain labor cost transfers among remedial activity codes were required
to correct mistakes made in designating the appropriate series for activity
code..."
6. "The draft audit report's questioning of labor cost transfers not sup-
ported by the personal day planners of the Superfund staff mischaracterizes the
purpose of the day planners and is inappropriate. All Staff within the Divi-
sion are provided with day planners and encouraged to use them as time manage-
ment tools. Periodically time management consultants conduct training seminars
keying on effective use of the day planners; staff are encouraged to individu-
alize their use. During the audit period, staff were not required to use the
day planners, and some did not. .Certainly documentation in the day planners
was not required to support time sheets, and many staff were not regularly
using them for that purpose. Moreover, day planners were not normally reviewed
for accuracy by supervisors. Time sheets alone have been the official time
keeping documentation for the Division. Under these circumstances, and given
the types of labor cost transfers documented on time sheets, as noted above,
day planners could not be expected to support labor transfers."
7. "The draft report further questions the labor cost transfers not
specifically discussed with the staff performing the work. Some staff members
may not have been aware of each specific transfer involving their time sheets.
However, during Superfund program staff meetings and in numerous memos, the
Program Manager did repeatedly discuss procedures for and the importance of
accurate time keeping, errors discovered oh time sheets, the effort required to
correct those errors, and the need for staff to pay more careful attention to
correctly charging time to ensure that all Superfund program labor costs were
accurately tracked for MSCA reporting, as well as for cost recovery and program
monitoring purposes..."
8. "The draft audit report statements that the DEE is 'trying to maximize
cost recovery under the cooperative agreement without proper consideration of
the propriety of the charges...' and that the DEH has misrepresented costs are
unfounded and inappropriate, and should be stricken from the report. These are
serious charges that are without merit and cannot be supported. In fact, the
evidence supports, to the contrary, the State's intent to account fairly and
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objectively for its activities and costs. 'The labor cost transfers were in
every instance made to correct inaccuracies in time sheets or to reflect ac-
counting system changes so that labor costs would be accurately-and appropri-
ately documented..."
Unacceptable Allocation of Employee Leave Costs
1. "In" May 1979, fiscal representatives from EPA Region VIII conducted a
two day training seminar for Department of Health staff on acceptable methods
for allocating costs to EPA grants. The department, working with EPA Region
VIII staff, developed a plan for allocating costs which was approved by the EPA
Regional office. As part of the approved plan, the State and EPA developed
guidelines which established methods for allocating time and leave for all
staff in the Division of Environmental Health. The EPA Regional Office has not
advised the State that the State's method of allocating leave, which EPA ap-
proved in 1979 is no longer acceptable."
2. "OMB Circular A-87 states that compensation paid to employees during
periods of authorized absences from the job, such as annual, sick, court or
military leave, may be charged to federal programs if the leave is 1) provided
pursuant to an approved leave system, and 2) equitably allocated to all related
activities including grant programs. Under this time distribution system,
leave was distributed under the assumption that based on the law of averages,
leave would be charged to all applicable activities on which employees worked
to the extent of benefits received."
3. "The Division no longer uses the time distribution "system discussed in
the draft audit report. On July i, 1986, the Division implemented the Utah
State Labor Distribution system...It is important to note that under this new
system, leave is directly charged to programs through a labor additive feature.
Each time an activity is--charged, an additional percentage, or labor additive,
is also charged to the activity. All paid-leave is funded from the labor ad-
ditive activity."
"The State requested that the auditors also review the new labor distribution
system during their audit. The auditors would not review the system or discuss
it in their audit report, because they determined such a review was beyond the
scope of their audit...It was improper for the auditors to ignore a change in
methodology as important as a new labor distribution system, especially when
the auditors knew they would be specifically questioning leave costs."
4. "The draft audit report also implies that leave time cannot be re-
corded as a direct labor cost, stating that it will be "necessary for DEH to
reconstruct its accounting records and exclude the paid leave from the direct
labor chareges." The draft report further states that "all paid leave costs
would be considered unallowable for EPA participation as direct project costs."
The draft audit report cites no authority for this conclusion. In fact, OMB
Circular A-87 (relied upon extensively elsewhere in the draft audit report)
supports the Department's position that leave may be considered a direct cost."
"OMB Circular A-87 provides a general guideline for the proper charac-
terization of charges as indirect or direct. Specifically, A-87 states that
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there is no universal rule for classifying certain costs as either direct or
indirect under every accounting system...It is essential, therefore, that each
item of cost be treated consistently whether as a direct or an indirect cost."
5. "It is not appropriate for the draft audit report to question all
labor costs those for time worked, as well as those for leave time—based on
concerns regarding the leave allocation method. In order to evaluate whether
the leave distribution practices used during the audit period resulted in in-
equitable charges to the MSCA, the auditors should have attempted to determine
and evaluate the actual leave costs and distributions in question, either by
a review of all records.. .or through a random sample. Instead, the auditors
performed only a judgmental sanple of leave charged to Sharon steel and Olson-
Neihart activity codes during the period from 1-10-86 through 2-21-86 and
5-16-86 through 6-30-86. A judgmental sample cannot be used to project from
the sample to the population, particuarly in this case, where the leave alloca-
tion system hinges on a statistical average over time. The judgmental sample
used by the auditors does not accurately project' the amount or distribution
of leave actually charged against the grant. Moreover, the auditors incorrect-
ly recorded information from employee time sheets on the work papers used for
their judgmental sample."
Inadequate Timekeeping Procedures
1. "The draft audit report incorrectly implies that Superfund program
staff were not adequately instructed in timekeeping procedures for MSCA acti-
vities. ..The State significantly revised its cost accounting procedures for
the Superfund program in early 1986 to implement the shift to the State Labor
Distribution system. The draft audit report correctly notes that at that time,'
February 1986, the Division included a list of the current Superfund activity
codes in the D.iv is ion-wide timekeeping instructions. However, as noted above,
the Division did not, as the draft audit report implies, wait until then to
establish written timekeeping procedure's and training, or a list of Superfund
program activity codes."
2. "The State questions the conclusion in the draft audit report that
staff were not aware of any timekeeping problems. Certain staff may not have
been aware of each instance in which their time sheets had been corrected, par-
ticularly given the types of some labor transfers (e.g., to transfer costs from
one cost accounting system to another). However...staff were all advised many
times of the difficulties encountered in tracking time (both employee and sys-
tem-generated difficulties); the efforts required by the Superfund Program
Manager, the Division, and Department to transfer labor costs to correct in-
accuracies; and the importance of accurate cost accounting for grant adminis-
tration as well as program purposes. In addition, staff were consulted as
necessary to ensure that labor cost transfers on time sheets were accurate.
"Wien timekeeping errors and the need for closer monitoring of employee time
sheets became apparent, the State did add timekeeping training sessions and
increase its scrutiny of employee time sheets. Responsibility for all time
sheet review/approval for Superfund program personnel shifted from the'Bureau
Director to the Superfund Program Manager, who was familiar with the details of
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the complex cost accounting system, as well as the status of MSCA funding for
various Superfund activities, and staff assignments and activities. Employee
tame sheet errors decreased, as evidenced by the decrease in labor cost trans-
fers."
3. "Hie draft audit report is correct that the time sheet instructions
used during the audit period did not include written procedures for supervisory
reviews. The Labor Distribution Instructions dated July 1, 1986 do include the
statement that immediate supervisors are responsible for reviewing and approving
time sheets before they are turned in for data entry. At the suggestion of the
Office of the Inspector General on April 10, 1987, the State has prepared more
detailed procedures outlining supervisors' time sheet responsibilities."
Lack of Segregation of Allowable and Unallowable Costs
"The State, not the Division of Environmental Health, maintains the chart of
accounts, as outlined in the FIRMS accounting system. That system does provide
for segregation of allowable and unallowable costs...The State disagrees with
the draft audit report conclusions that certain unallowable costs were charged
to the MSCA..."
PIG Evaluation
Unacceptable Labor Charging Practices
1. We havfe reviewed the additional documentation submitted by DEH and
have reduced the transferred labor costs questioned from the $103,384 ques-
tioned in the draft report to $66,651. The $66,651 amount is exclusive of any
employee leave costs which are discussed separately. Since the transfers of
these costs was not adequately documented, we believe that a strong basis
exists for their disallowance.
2. DEH's comments are acknowledged. However, the comments are not re-
sponsive to our concern that a cost recovery action would have been unlikely
on the basis of the inadequacies in DEH's accounting system. As previously
rioted, the National Contingency Plan requires that adequate documentation be
maintained to support cost recovery.
t
3. We cannot accept a memorandum prepared, by the Superfund Program Man-
ager as adequate documentation as to the alienability or alienability of the
massive labor charges made by DEH to the Superfund program. Additionally,
several of the transfers were made during the period that the Program Manager
was on maternity leave.
Contrary to the statements attributed to Region 8 personnel, an effective
payroll accounting system does not provide for the massive volume of labor
transfers that were prepared under the DEH system. Such a situation is an
indicator of significant problems. As such, we cannot accept the transfers as
valid Superfund charges merely on the basis of the Program Manager's recollec-
tion of how the time was spent. Additional documentary evidence that the em-
ployee worked in the Superfund area must also be maintained. Since there was
an absence of this documentation, we cannot accept the transferred labor costs
as valid charges to the Superfund grant.
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4. The DEH response provides an informative overview of its labor charging
system, as veil as several reasons for the labor transfers. .However, the
sheer volume of the transfers made to the Superfund activity, coupled with the
lack of adequate supporting documentation has discredited the reliability of
the labor charging system. Since the sole purpose for the labor charging
system is to accurately report costs, it remains our position that the inade-
quately supported labor transfers should not be funded by EPA.
5. The DEH response provided further indications of the types of labor
transfers which were made. It should be noted that these transfers represented
about 70 percent of the total labor charges made by DEH. As explained pre-
viously, we cannot accept" DEH's unsupported after-the-fact transfers of these
costs as eligible costs under the Superfund cooperative agreement.
6. The audit did not question labor costs because the transfers were not
supported by day planners. The labor cost transfers were questioned because
of the lack of adequate documentation to support the validity of the charges.
Vfe .therefore merely reviewed the day planners in an attempt to ascertain the
validity of the labor charges from an authoritative source (the person who
performed the labor). As explained in the finding, we concluded that the day
planners could not confirm the validity of the transferred" labor costs.
7. The DEH response mistakenly concluded that the audit questioned the
transferred labor costs because the transfers were not specifically discussed
with the employees performing the work. The transferred costs were questioned
solely because they could not be supported with adequate documentary evidence.
Our discussions with the employees was made merely to ascertain if they could
provide any additional"information on the .validity of the transfers. Wfe con-
sider DEH's failure to consult and obtain employee initials on the changes to
represent a major internal control deficiency. The employees should have been
consulted since they were the most knowledgeable source to ascertain the valid-
ity of the labor cost transfers.
8. The DEH comments are acknowledged. However, it remains our position
that many of the labor transfers were not based on sufficient documentation.
Without proper documentation, the cooperative agreement is being burdened with
unsupported costs which do not represent valid Superfund charges.
>
Unacceptable Allocation of Employee Leave Costs
1. The DEH statement that the Region approved its method of charging
paid leave as direct labor was not documented in the material included with
its comments. Even if such an approval had been given, it was made incorrect-
ly since DEH's method of charging paid leave, was unacceptable. OMB Circular
A-87, Section E(2)(a) defines direct labor costs as the "Compensation of em-
ployees for the time and effort devoted specifically to the execution of grant
programs.* DEH employees on paid leave certainly were not devoting time and
effort to the cooperative agreement. As such, the paid leave costs did not
meet the criteria for direct labor costs. Conversely, OMB Circular A-87, Sec-
tion F(l) defines indirect costs as those "...(a) incurred for a common or
joint purpose benefiting more than one cost objective..." Paid leave is a
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benefit provided to all state employees for all work performed by the employee.
It was the generally accepted practice to charge the paid leave as an indirect
cost. In addition, 40 CFR 30.510 states that "You must maintain a financial
management system that consistently applies accepted accounting principles and
practices and at least includes: "...(d) A comparison of actual costs versus
budgeted object class amounts;...(f) Procedures for determining allowable, al-
locable, and reasonable costs..." The DEH method of commingling paid leave
with direct labor did not meet either of the above criteria.
2. The OMB Circular A-87 citation included in the DEH comments remains
applicable. However, the requirements of 40 CFR 30.510 must also be con-
sidered. It remains our position that DEH's procedures for allocating the
paid leave costs was inequitable and did not represent an acceptable accounting
practice.
3. We acknowledge the DEH comments regarding the implementation of a re-
vised method for allocating employee paid leave. Although we did not review
the revised procedures, the new allocation method was discussed with DEH repre-
sentatives during our audit. It was our observation that the actions taken by
DEH represent a positive action which should alleviate many of the problems
which we noted during our review. As a point of clarification, it should be
noted that we were unable to review the revised system at the time of our au-
dit, because it was not developed to a stage where it was ready for audit.
4. As previously explained, the very definition of direct labor charge
would preclude the treatment of paid leave as a direct labor cost. While the
OMB Circular A-87 allows alternative treatment for certain kinds of direct and
indirect costs, we do not believe that the commingling of paid leave and direct
labor fits in this category. It appears that DEH's comments in this area are
moot at this point, since it has agreed to implement improvements to its cur-
rent procedures for charging paid leave costs.
5. The sampling technique utilized during the audit was limited to a
review of the direct labor charging practices being utilized by DEH. Once
those practices were determined, there was no need for any random sampling
reviews, 'or for a review of all records since DEH's practices were considered
unacceptable. On this basis, we believe that it was appropriate to question
the propriety of the labor costs. '
Inadequate Timekeeping Procedures
1. It remains our position that the volume of the labor transfers demon-
strated that DEH had not adequately instructed its staff on the proper labor
charging practices. We also recognize that DEH has recently implemented
changes to its timekeeping procedures to help alleviate its prior timekeeping
problems.
2, Our observations regarding the employee awareness of timekeeping pro-
blems were based on our discussions with the employees. It remains our posi-
tion that the employees should be advised of all changes to their timecards in
order to assure that timekeeping errors are not repeated.
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3. No additional auditor comments are considered necessary.
Lack of Segregation of Allowable and Unallowable Costs
We reviewed the referenced chart of accounts, and found no provision for the
segregation of unallowable charges to contracts, grants or cooperative agree-
ments. Further, as indicated in Exhibit A of this report, we noted that DEH
has incurred $301,475 of questionable or set aside costs under the EPA coopera-
tive agreement.
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Attachrent
UTAH SUPERFUND COOPERATIVE AGREEMENT
Sharon Steel Site
Picture shows tailings and fence which separates
the tailings from the freeway.
Picture shows the various strata of the tailinos
which are beinn erroded hy the Jordan River, the
pictures v/ere taken under a nornal river flow condition
69
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Attachment 2
UTAH SUPERFUND COOPERATIVE AGREEMENT
Olson-Neihart Reservoir Site
Picture of Cofer Dam which holds the impounded tailings.
The tailings are approximately 40 feet deep at the base
of the dam.
Picture shows area adjacent to the dam with tailings
and a lack of vegetation.
70
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Attachment 2
UTAH SUPERFUND COOPERATIVE AGREEMENT
Silver Creek Tailinqs Site
Picture of Silver Creek tailings site with expensive
homes in the background.
Picture of Silver Creek tail inns site and its proximity
to the highway.
71
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Attachment •-
UTAH SUPERFUND COOPERATIVE AGREEMENT
American Barrel Site
Picture shows American Barrel site with downtown Salt
Lake City in the background.
Close-up picture of the barrel site showing the front
entrance gate.
72
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DISTRIBUTION
Copies
Office of the Inspector General
Headquarters Office
Inspector General (1)
Deputy Inspector General (1)
Director, Audit Operations Staff (3)
Chief, Programs Assistance Unit (Hqs)
Divisional Office
Other DIGA's (1 each)
Regional Office
Regional Administrator, Region 8
Director, waste Management Division
Director, Office of Policy and Management
Audit Fbllow-
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U*S. £•
fiibrarv
401 M
DC 20430
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