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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.
                                      11

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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,
.
                                                    13

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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

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. 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.
                                      18

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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.
                                       19

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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.
                                      23

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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.
                                      24

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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.
.
                                                   27

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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
                                      28

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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.
                                      29

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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."
                                      30

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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.
                                      31

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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.
                                      32

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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
                                      48

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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
                                      49

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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.


                                      51

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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.
                                      53

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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.
                                      57

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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
                                      58

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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-

                                       59

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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-
                                      60

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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..."
                                      61

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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
                                      62

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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
                                      64

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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.
                                      65

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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
                                      66

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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.
                                      67

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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.
                                       68

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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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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
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