H
            33-0
              STATES ENVIRONMENTAL PROTECTION AGENCY

                      WASHINGTON, D.C. 20460
                          N*  I9G0T
                                                             Of FICE OF
                                                        THE INSPECTOR GENERAL
MEMORANDUM

SUBJECT:
FROM:
TO:
          Report of Interim Audit of Maine  Department
          of Environmental  Protection's  Administration  of
          Its Superfund Cooperative Agreements
          Audi t . Report Numbr P5BG6-1 1-0029 -70902
              ~
          Kenneth D. Hockman
          Divisional Inspector General  for  Audit
          Internal Audit Division (A-109)

          Michael R. Deland
          Reigonal Administrator, Region 1
SCOPE AND OBJECTIVES

We have completed an interim audit of the cooperative agreements  awarded
to the Maine Department of Environmental  Protection (MEDEP)  under the
Comprehensive Environmental  Response', Compensation, and Liability Act  of
1980.  The audit was performed by the contract auditors Tichenor, Resler,
and Eiche, CPAs.

The objectives of the audit  were to:

     1.  Determine the adequacy, effectiveness, and reliability of
         procurement, accounting, and management controls exercised by
         the State in administering its cooperative agreements with EPA.
     2.
         Ascertain the State's compliance with provisions of the cooperative
         agreements and applicable EPA regulations and instructions.
     3.  Ascertain the State's compliance with provisions of the Letter
         of Credit - Treasury Financial Communications System Recipients'
         Manual.

     4.  Determine the reasonableness, allocability, and allowability of
         the costs claimed under the cooperative agreements with EPA.
                                        U.S. Environmental Proteotloa
                                        Library, Room 3404  F»-2U-A
                                        401 M Street, S.ff*
                                        Washington. DO   80400

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 Specifically, our audit covered the following cooperative agreements;
 McKin Site; Saco Tannery Waste Pits; and Multi-Site.  The audit included
 an examination of costs incurred and claimed under the referenced
 cooperative agreements from inception, July 26, 1983; April  16, 1984;  and
 August 1, 1985 respectively thorugh January 31,.1986 for the McKin Site
 and March 31, -1986 for the Saco Tannery Waste Pits and Multi-Site
 cooperative agreements.

 SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT
     COOPERATIVE
      AGREEMENT

     McKin Site
     Saco Tannery
       Waste Pits
     Multi-Site
                                             AMOUNT
CLAIMED/
INCURRED
$311,225
ACCEPTED
$224,982
QUESTIONED
$1,253
SET-ASIDE
$ 84,990
                 113,386
                  19.670
                $444,281
  47,815
   1.630
$274,427
                                                   $17253
  65,571
  18.040
$168,601
Questioned costs are costs claimed or incurred that we have concluded
should not be reimbursed by the Government or incurred as part of the
project eligible costs because they are not allowable under the provisions
of applicable laws, regulations, policies, cost principles, or terms of
the grant or contract.  Set-aside costs are costs which cannot be accepted
without additional information or evaluations and approvals by responsible
Agency program officials.

STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT

The procedures utilized by MEDEP to procure contract services under the
McKin Site and Saco Tannery Waste Pits cooperative agreements were not in
compliance with all requirements of Federal regulations (40 CFR Part 33).
MEDEP believed the involvement of the Region 1 Project Officer in the
selection process, who had a full vote during the technical evaluation of
contractor proposals, ensured adequate compliance by MEDEP of Federal
procurement requirements (40 CFR Part 33).  Cooperative agreement recipients
are required to comply with 40 CFR part 33 as a condition for obtaining
EPA funding.  Under the existing system, three contracts equal to $472,980,
and seven subcontracts equal to $115,825, were awarded although the
procurement system did not:
           ire -documentation to be submitted to the award official prior
       tq/':awardi'ng'''contracts for the Superfund projects.
    *!fo"l!Set EPA'a'n'd'-'the-'United States apart
                                    in the contractor selection
process, increasing the risk that EPA might be named as a defendant
in litigation concerning the State's contract award procedures.

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      0 Specifically state in MEDEP's request for qualified proposals  that
       the basis for awarding the contract would be based on initial
       offers alone as required by 40 CFR 33.520.

      0 Incorporate all required EPA subagreeme'nt clauses in the contracts
       awarded for engineering and construction services.

      0 Require affirmative steps to assure that small, minority,  and
       women's businesses are used when possible.

      0 Include adequate controls over subcontract agreements entered  into
       by their contractors.

INADEQUATE DISTRIBUTION OF PERSONNEL AND FRINGE BENEFITS

The procedures utilized by MEDEP to record and report personnel and fringe
benefits costs under Superfund cooperative agreements did not accurately
represent the actual time worked on different sites.  MEDEP's time reporting
policy resulted in time being charged to certain sites regardless of  the
actual time worked on that site.  OMB Circular A-87, Attachment B indicated
"Salaries and wages of employees chargeable to more th'an one grant program
or other cost objective will be supported by appropriate time distribution
records.   The method used should produce an equitable distribution of time
and effort."  It was not clear that an equitable distribution of time and
effort was being charged to the various cooperative agreement sites
utilizing the MEDEP system of charging sites for personnel and fringe
benefit costs.

UNSUPPORTED STATE SHARE COSTS

MEDEP was unable to support the eligibility and allowability of $3,206 of
credit period costs claimed for State cost-sharing requirements for the
initial remedial measures at the McKin Site project.  Section 104(c)(3)
of CERCLA and EPA regulations require the State to pay or assure payment
of 10 percent of remedial activity costs of privately owned sites.
Initial remedial measures is one of the remedial activity costs requiring
this  10 percent participation.  MEDEP was unable to provide supporting
documentation to verify any credit for the McKin Site.

STATE NEEDS TO FILE FEDERAL CASH TRANSACTIONS REPORTS TIMELY

MEDEP did not submit the Federal Cash Transactions Reports  (SF-272) to
Region 1  Project Officers within the required time frames as specified by
OMB Circular A-102.  MEDE? officials were aware of the  required time
frames but were unable to meet the requirements.  This  limits the ability
of EPA Region 1 in monitoring the State's effectiveness of handling
Federal funds.

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 STATE NEEDS  TO  FILE  FINANCIAL STATUS REPORT

 MEDEP did  not report  its  financial data to Region 1 on a Financial  Status
 Report (SF-269) for  the Saco Tannery Waste Pits and Multi-Site cooperative
 agreements.  The SF-269,-as required by Federal regulations, was not
 submitted  because MOEDP was unfamiliar with the requirement and the Region
 1  grants administration officials failed to request the documents.   As- a
 result, the  Regional  grants administration officials may not have monitored
 the  State's  activities effectively.

 MEDEP'S COMMENTS ON  FINDINGS AND OUR EVALUATION

 Exit  conferences were held with MEDEP officials and with Region 1 officials
 on June 27,  1986.  The purpose of the exit conferences was to present our
 findings and recommendations and to ensure a clear understanding of the
 report by  MEDEP  and  Reigon 1 management.  At the conferences and during
 the  course of the audit,  MEOEP and Region 1 officials discussed their
 position relative to  the  findings and recommendations.  In addition,
 MEDEP provided  formal written comments on the draft report in a letter,
 dated October 27, 1986.   The Commissioner of MEDEP generally concurred
 with  the findings and recommendations, except as noted i-n the Findings
 and  Recommendations  and Notes to the Exhibits sections of the attached
 report, and  indicated corrective actions were taken or were planned to
 resolve the  issues cited  in the report.  Our C?A firm concluded that MEDEP's
 comments were generally responsive to the findings and recommendations,
 except as  noted  in the Findings and Recommendations and Notes to the
                                  To provide a balanced understanding of
                                summarized at appropriate locations in
                                is included as Appendix 1.  The attachments
                                the response were considered too voluminous
                               entire response, including these attachments,
                               Office of Inspector General, Internal Audit
Exhibits sections of the report
the issues, MEDEP's position is
the report and MEDEP's response
included with and referenced in
to include in Appendix 1.  The
is available for review in the
Division, in Washington, D.C.

RECOMMENDATIONS

We recommend that the Regional Administrator, Region 1:

     1.  Request MEDEP to take all required affirmative action steps
         including:  soliciting small, minority and women's businesses
         whenever they are potential sources; listing these businesses
         on solicitation lists; and using the services and assistance
         of the Small Business Administration and the Office of Minority
         Business Enterprise of the U.S. Department of Commerce, as
         appropriate.

     2.  Require MEDEP to maintain documentation supporting compliance
         with Federal requirements for subcontracts relating to procurement,
         performance, and billings.
         Make a determination of
         set aside.
                                 the reasonableness of subcontract costs

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     4.  Determine whether MEDEP's policy for charging personnel  costs  to
         Superfund sites is acceptable for-Superfund cost recovery purposes
         and revise these procedures, if necessary.

     5.  Accept or reject personnel costs based upon the determination  reached
         in 4.  above.

     6.  Request that MEDEP retain the original documentation for the
         State cost-sharing credits for review during the final  audit
         of the McKin Site cooperative agreement.

     7.  Instruct MEDEP to correct the misclassification of the Saco
         Tannery charges that were erroneously charged to the McKin Site.
         Notes to Exhibits B and C contain more details.

     3.  Instruct Regional  personnel  not to act as members of state
         selection panels until EPA Headquarter's Grants Administration
         Division issues an Agency-wide directive on this matter.

ACTION REQUIRED

In accordance with EPA Directive 2750, the action official is required to
issue a final determination on set-aside costs an any other recommendations
in this report within 150 days of the audit report date.  In addition,
for any action not completed, please provide specific milestone dates for
completion of the action.  Where the action official considers a position
on the audit findings that differ from our recommendations, we would
appreciate the opportunity to discuss management's position before the
determination is issued to the auditee.  A copy of the final determination
should be provided to our office when issued.

Should your staff have any questions, please have them contact Elissa R.
Karpf or me on 332-4930.

Attachments

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                               DISTRIBUTION
A.  Office of Inspector General

    Director, Audit Operations Staff (3)
    Chief, Program Analysis Unit (1)
    Divisional Inspector General for
      Audit - Eastern Division (1)

B.  Headquarters Office

    Director, Grants Administration Division (PM-216)
    Chief, Superfund Accounting Branch (PM-226)
    Director, Resource Management Staff (WH-562A)
    Chief, Grants Policy and Procedures
      Branch (PM-216)
    Chief, State and Regional Coordination
      Branch (WH-548E)

C.  Regional Office

    Regional Administrator, Region 1
    Audit Follow-up Coordinator, Region 1
Copies

  5
               •\
  1
  1
  3
  2
  1

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               REPORT OF INTERIM AUDIT OF
     MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION'S
 ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
         COMPENSATION, AND LIABILITY ACT OF 1980
   FOR THE PERIOD JULY 26, 1983 THROUGH MARCH 31, 1986

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                         TABLE OF CONTENTS
                                                             Page

SCOPE AND OBJECTIVES                                           1

SUMMARY OF FINDINGS                                            2

BACKGROUND                                                     5

AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V001701010,
V001702010, AND V001715010 AWARDED TO,THE MAINE
DEPARTMENT OF ENVIRONMENTAL PROTECTION                         8

AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL
 AND COMPLIANCE                                               10

FINDINGS AND RECOMMENDATIONS

1 -  STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT   12

2 -  INADEQUATE DISTRIBUTION OF PERSONNEL AND FRINGE COSTS    18

3 -  UNSUPPORTED STATE SHARE COSTS                            20

4 -  STATE NEEDS TO FILE FEDERAL CASH TRANSACTIONS
      REPORTS TIMELY                                          22
                                                                *
5 -  STATE NEEDS TO FILE FINANCIAL STATUS REPORT              23

6 -  MINOR FINDINGS .- CORRECTIVE ACTION TAKEN                 24

EXHIBIT A -    COOPERATIVE AGREEMENTS AWARDED TO THE
               MAINE DEPARTMENT OF ENVIRONMENTAL PRO-
               TECTION SUMMARY OF COSTS CLAIMED/INCURRED,
               ACCEPTED, QUESTIONED AND SET ASIDE FOR
               THE PERIOD JULY 26, 1983 THROUGH
               MARCH 31, 1986                                 25

EXHIBIT B -    McKIN SITE (V001701010) COOPERATIVE AGREEMENT
               AWARDED TO THE MAINE DEPARTMENT OF ENVIRON-
               MENTAL PROTECTION SCHEDULE OF COSTS CLAIMED,
               ACCEPTED, QUESTIONED AND SET ASIDE FOR THE
               PERIOD JULY 26, 1983 THROUGH JANUARY 31,
               1986                                           26

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                  TABLE OF CONTENTS (Continued)
EXHIBIT C -
EXHIBIT D -
EXHIBIT E -
APPENDIX 1
SACO TANNERY WASTE PITS (V001702010)
COOPERATIVE AGREEMENT AWARDED TO THE MAINE
DEPARTMENT OF ENVIRONMENTAL PROTECTION
SCHEUDLE OF COSTS INCURRED, ACCEPTED AND
SET ASIDE FOR THE PERIOD APRIL 16, 1984
THROUGH MARCH 31, 1986                         30

MULTI-SITE (V001715010) COOPERATIVE AGREE-
MENT AWARDED TO THE MAINE DEPARTMENT OF
ENVIRONMENTAL PROTECTION SCHEDULE OF COSTS
INCURRED, ACCEPTED AND SET ASIDE FOR THE
PERIOD AUGUST 1, 1985 THROUGH MARCH 31, 1986   32

SCHEDULE OF MODEL SUBAGREEMENT CLAUSES  ,
OMITTED OR NOT EQUIVALENT FOR THE '
SUBAGREEMENTS                     '             33

MAINE DEPARTMENT OF ENVIRONMENTAL
PROTECTION RESPONSE TO DRAFT AUDIT REPORT      34

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                   REPORT OF INTERIM AUDIT OF
         MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION'S
     ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
    WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
             COMPENSATION, AND LIABILITY ACT OF 1980
       FOR THE PERIOD JULY 26, 1983 THROUGH MARCH 31,  1986


SCOPE AND OBJECTIVES

We performed an interim audit of the Maine Department  of Environ-
mental  Protection  (MEDEP)  administration  of  its   cooperative
agreements with  the U.S.  Environmental Protection Agency  (EPA)
under the Comprehensive Environmental Response, Compensation,  and
Liability Act of 1980.  The primary objectives of our  review were
to:

1.   Determine the  adequacy,  effectiveness,  and  reliability  of
     procurement, accounting,  and management  controls  exercised
     by MEDEP  in administering  its cooperative  agreements with
     EPA.

2.   Ascertain MEDEP 's compliance with provisions of the coopera-
     tive  agreements  and  applicable   EPA regulations  and  in-
     structions.

3.   Ascertain MEDEP' s  compliance with provisions of  the Letter
     of Credit - Treasury Financial Communications System Recipi~
           Manual.                            -
4.   Determine the reasonableness, allocability , and allowability
     of the  costs  claimed under  the  cooperative  agreements with
     EPA.

Specifically, our audit  covered the following cooperative agree-
ments: McKin Site; Saco  Tannery Waste Pits;  and Multi-Site.  The
audit included an examination of costs incurred and claimed under
the  referenced  cooperative  agreements from  inception,  July 26,
1983$  April  16,  1984;  and  August  1,  1985  respectively through
January 31,  1986  for the McKin Site  and March 31,  1986 for the
Saco Tannery Waste Pits and Multi-Site cooperative agreements.

Our  audit was performed in  accordance  with  generally accepted
auditing  standards  and the  Standards for Audit  of Governmental
Organizations,  Programs,  Activities, jrod  Functions   (1981  re-
vision") promulgated  by  the  Comptroller General  of"  the  United
States.  Accordingly,  the  examination included such tests of the
accounting records and such  other auditing procedures as we con-
sidered necessary in  the circumstances.
                                -1-

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SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT

Subject to the effects on  Exhibit  A  of  EPA's  ultimate  resolution
of the  questioned and set-aside costs  referred  to in the Audi-
tors' Report, Exhibit A (summarized below)  presents the financial
information  and  financial provisions of  the cooperative  agree-
ments .
  Cooperative
   Agreement

McKin Site
Saco Tannery
 Waste Pits
Multi-Site

Totals
                                      AMOUNT
CLAIMED/
INCURRED
ACCEPTED   QUESTIONED  SET ASIDE
$311,225    $224,982
 113,386
  19.670
  47,815
   1.630
$444,281    $274.427
             $1,253
             $1.253
$ 84,990

  65,571
  18.040

$168.601
Questioned costs are costs  claimed  or  incurred  that  we have con-
cluded should not be reimbursed by  the Government  or incurred as
part  of  project eligible  costs because  they are not allowable
under the  provisions  of applicable  laws,  regulations, policies,
cost  principles,-or terms  of  the  grant or  contract.   Set-aside
costs are  costs  which  cannot be accepted  without  additional in-
formation or evaluations and approvals by responsible Agency pro-
gram officials.

STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT

The procedures utilized by MEDEP to procure contract services un-
der the McKin Site and Saco Tannery Waste Pits cooperative agree-
ments were not  in  compliance with  all requirements  of Federal
regulations (40  CFR Part  33).   MEDEP believed the involvement of
the Region 1 Project Officer  in  the selection process, who had a
full  vote  during  the  technical  evaluation  of contractor pro-
posals,   ensured adequate  compliance  by MEDEP  of  Federal pro-
curement requirements  (40  CFR Part 33).   Cooperative agreement
recipients are required to comply with 40 CFR Part 33  as a condi-
tion of obtaining EPA  funding.   Under the existing system, three
contracts  equal to  $472,980,  and   seven  subcontracts  equal to
$115,825, were awarded although the procurement system did not:

0    Require documentation  to  be submitted to the award official
     prior to awarding contracts for the Superfund projects.

*    Specifically state in  MEDEP's request  for  qualified pro-
     posals that the  basis for awarding  the contract  would be
     based on initial offers alone as  required by 40 CFR 33.520.
                               -2-

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SUMMARY OF FINDINGS (Continued)


0    Incorporate  all  required  EPA  subagreeraent  clauses  in the
     contracts awarded for engineering and construction  services.

0    Require  affirmative  steps  to  assure that small,  minority,
     and women's businesses are  used when possible.

0    Include  adequate  controls  over  subcontract  agreements en-
     tered into by their contractors.

In  addition,  EPA  was  involved  in  the  contractor  selection
process,  increasing  the  risk  that  EPA  might  be  named  as   a
defendant  in litigation  concerning the  state's  contract  award
procedures.

INADEQUATE DISTRIBUTION OF PERSONNEL AND FRINGE COSTS

The procedures utilized by  MEDEP to record and report  personnel
and fringe  benefit costs  under Superfund cooperative agreements
did not accurately represent the actual  time worked  on different
sites.   MEDEP*s   time  reporting policy  resulted  in time  being
charged to certain sites regardless of the actual time  worked  on
that site.   OMB  Circular  A-87,  Attachment  B  indicated  "Salaries
and wages of  employees chargeable to more than one grant program
or  other  cost objective  will be  supported by appropriate  time
distribution  records.  The  method  used should produce  an equit-
able distribution of time and effort."   It was not clear that  an
equitable  distribution of time and effort was being  charged  to
the  various  cooperative   agreement  sites utilizing  the  MEDEP
system of charging sites for personnel and fringe benefit costs.

UNSUPPORTED STATE SHARE COSTS

MEDEP was  unable  to support the eligibility and  allowability  of
$8,206 of  credit  period costs claimed for State cost-sharing re-
quirements  for  the initial remedial  measures  at  the  Me Kin Site
project.  Section 104(c)(3) of CERCLA and EPA regulations require
the State  to  pay  or assure  payment  of 10 percent of remedial ac-
tivity costs of privately owned sites.  Initial remedial measures
is one  of  the remedial activity costs requiring  this 10 percent
participation.  MEDEP was unable to provide supporting documenta-
tion to verify any credit for the McKin Site.

STATE NEEDS TO FILE FEDERAL CASH TRANSACTIONS REPORTS TIMELY

MEDEP  did  not  submit the  Federal   Cash Transactions  Reports
(SF-272)  to  Region  1  Project  Officers  within   the  required
time frames  as specified  by OMB Circular A-102.  MEDEP officials
were aware of the required  time frames  but were unable to meet
the requirements.   This  limits  the ability of EPA  Region  1   in
monitoring the State's effectiveness of handling  Federal funds.
                               -3-

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SUMMARY OF FINDINGS (Continued)
STATE NEEDS TO FILE FINANCIAL STATUS REPORT

MEDEP did not  report  its financial data to Region 1 on  a Finan-
cial Status Report  (SF-269)  for the Saco Tannery Waste  Pits  and
Multi-Site  cooperative  agreements.  The  SF-269,  as required  by
Federal regulations, was not submitted because MEDEP was unfamil-
iar with  the  requirement and the  Region  1  grants  administration
officials failed to request  the  documents.  As  a result,  the  Re-
gional grants administration officials may not have monitored  the
State's activities effectively.

MEDEP'S COMMENTS ON FINDINGS AND OUR EVALUATION

Exit conferences were held with MEDEP officials and with Region 1
officials on June 27, 1986.   The purpose  of the exit conferences
was to present  our  findings and recommendations and to  ensure a
clear understanding of  our report by MEDEP and Region 1 manage-
ment.  At  the conferences  and during  the  course  of  the audit,
MEDEP and Region 1 officials discussed their position relative to
our findings and recommendations.  In addition, MEDEP provided us
with formal written  comments on  our  draft  report  in  a letter
dated  October 27,   1986.   The  Commissioner  of MEDEF  generally
concurred with our  findings  and recommendations,  except as noted
in  the  Findings and  Recommendations and  Notes to  the  Exhibits
sections of this report,  and indicated corrective  actions were
taken or were planned to  resolve the issues cited in the report.
We  concluded  that  MEDEP's comments were  generally responsive to
our findings and recommendations,  except as noted in the Findings
and Recommendations  and Notes  to  the Exhibits sections  of this
report.  To provide a  balanced understanding of  the  issues,  we
summarized  MEDEP's  position  at  appropriate  locations   in  the
report and  included the response as Appendix 1.  The attachments
included with  and referenced in the response were considered too
voluminous  to  include  in  Appendix  1.    The  entire  response,
including  these attachments,  is  available  for  review  in  the
Office  of  Inspection   General,  Internal  Audit  Division,   in
Washington, D.C.
                                -4-

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BACKGROUND


On December  11,  1980,  Public Law  96-510,  the Comprehensive  En-
vironmental  Response,  Compensation, and  Liability Act  (CERCLA)
was enacted by Congress.   CERCLA,  commonly known  as  "Superfund",
was passed to protect public health and the environment from haz-
ardous substances by authorizing Federal action to respond to the
release, or threatened release,  from any  source,  including aban-
doned hazardous waste sites, into any part of the  environment. A
Trust Fund was  established for Federal and  State  governments to
respond directly to any problems at uncontrolled  hazardous waste
sites, not only  in  emergency  situations, but also at sites where
longer term permanent remedies were required.

The blueprint for  the  Superfund program under CERCLA is  the Na-
tional Contingency  Plan  (NCP),  first  published in 1968,  as part
of the  Federal  Water Pollution  Control plan.  The NCP  laid out
three types of responses for incidents involving hazardous wastes
which were:  immediate removal, planned removal,  and remedial re-
sponse.   The  first two types  of  responses  were  for  short term
actions  in  emergency situations.   However,  a remedial  response
was intended to deal with the longer term problem of abandoned or
uncontrolled  sites.  NCP  changes  effective February 18,  1986,
established one broad category  of  removals,  thus  eliminating the
distinction between immediate and planned removals.

CERCLA provided  for compiling a National Priority List  (NPL) of
hazardous waste  sites for  remedial action.   In October 1981, EPA
compiled an interim priorities list of 115 hazardous waste sites.
The  sites  were  nominated  by  the  EPA  Regional  Offices  and the
States,  primarily on the basis  of  potential  threat to the public
health,   but  the threat  of the  environment was  considered.   In
September 1983,  EPA published the first NPL, which  consisted of
406 sites.

CERCLA Section 104(c)(3) provides  that no remedial actions shall
be taken unless  the State in which the release  occurs first en-
tered into a contract or cooperative agreement with EPA, with as-
surance of payment  of 10 or 50 percent of remedial action  costs.
The State must agree to cost  share at  10 percent if  the site was
privately owned.  At publicly owned sites (one owned  by the State
or a political subdivision thereof), the State is required  to pay
50 percent of all  remedial action costs.  Cooperative agreements
for  remedial investigations,  feasibility studies,  and remedial
designs can be funded up to 100 percent by EPA.

MEDEP is the designated State agency  for identifying and  ranking
sites which  pose a  risk  to  the public or  the  environment, and
performance  of  remedial investigation,  design,  and  clean up at
hazardous waste  sites.  During our audit, MEDEP was  actively in-
volved in the Saco  Tannery Waste Pits and Multi-Site cooperative
agreements with EPA.
                                -5-

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BACKGROUND (ContInued)
HcKln Site (V001701010)

The McKln Site is located on Mayall Road  in  Gray,  Maine  (Cumber-
land County).  The nearest major population  center was Portland.
The site  was approximately six acres  in  area, with about  three
acres contained within a fence.  This  fenced-in area  contains  the
actual McKin facility.

The McKin  Site was  the  location of  a former waste  collection,
transfer, and disposal facility owned  by  Richard A.  Dingwell. and
operated between  1965 and  1978.   Following  detection of  organic
chemical contamination in nearby residential wells,  an alternate
water supply was constructed and all surface drums  and tanks were
removed from the site.

There were two remaining major contamination problems  associated
with the site.  The  first was  on-site soil contamination  in spe-
cific areas,  which  served as  a  source for  off-site  groundwater
contamination.  The  second was ground water  contamination of  the
surficial and bedrock aquifers downgradient of the  site.

Potential health and environmental risks were associated  primari-
ly with contaminated ground water.  The release of contamination
to  the  off-site  aquifer caused  the   closure of  private wells.
Since this  aquifer   also represented  a potential  drinking water
source,   the  existing  contamination may  restrict  future  use of
this resource.

Richard Dingwell, the former owner and operator of the McKin Com-
pany, was sued by the Maine Attorney General's Office in 1978 and
this case has  not been resolved.   In  addition,  a  separate class
action suit  was  filed by a Gray citizens group and  was  settled
out of court.

Several  of  the  potentially responsible  parties  have  expressed
written interest in participating in the remedial  design and con-
struction process.    EPA  is continuing negotiations with these
parties.  Representatives of  these  companies participated in the
public hearing and public comment period.   Given the interest in
responsible  party  cleanup by  potentially   responsible  parties
there is a chance of concluding  successful negotiations  for con-
struction.

Potentially  responsible  parties for  the  McKin Site  include the
former owner and operators,  generators,   and transporters.  Two
companies have  offered to  perform  the actions  specified in the
Record of Decision,  including  those actions specified in  the Au-
gust 23, 1985 Executive  Order  (fence  the site; prepare a  project
operations plan; perform a soil aeration pilot study; and perform
preliminary  site  removal,  disposal and closure actions.)  These
companies  are Fairchild  Camera and   Instrument Corporation and
                               -6-

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_
         BACKGROUND (Continued)


         Sanders  Associates,  Inc.    Both  companies  produced  industrial
         wastes and arranged for its disposal on the MeKin Site.

         Another  Executive  Order was issued on  July  7,  1986 by  the  U.S.
         EPA Region 1 Regional Administrator and the Maine Commissioner of
         Environmental Protection.  The Respondents to the Order are Amoco
         Oil Company; Atlanta Terminal Corporation; Bath Iron Works Corpo-
         ration;  B.P.  Oil,  Incorporated;  Central Maine  Power  Company;
         Champion International Corporation; Fairchild Semi-Conductor Cor-
         poration; Georgia-Pacific Corporation; Maine Yankee Atomic Plant;
         Merrill Transport; Seacoast Ocean Services; Sun Refining and Mar-
         keting  Company;  Texaco;  and  Weyerhaeuser  Company.   The  Order
         required the  respondents  to undertake  the completion  of on-site
         aeration of soil in those site areas of identified hazardous sub-
         stance contamination.

         Saco Tannery Waste Pits (V001702010)

         The Saco Tannery Waste  Pits  site  is located  on Flag Pond Road in
         Saco, Maine.  The nearest year  round population center was Port-
         land,  Maine.   The  Old  Orchard Beach  section of Saco  becomes a
         major  seasonal  population  center during  the summer.   The  site
         occupied approximately  215  acres.  The Saco Tannery Company op-
         erated the  tannery Pits from 1959  to 1977  as  the  disposal area
         for  their  process  waste streams.   Approximately 35  open waste
         pits were located on  the  site,  and were used for the disposal of
         four process waste  streams:   chromium,  acid, caustic, and methy-
         lene chloride wastes.

         No  site  preparation,  other  than  the excavation  of  the pits and
         lagoons, was  performed prior to  waste  disposal.   Solid, liquid,
         and sludge  waste  streams were disposed of at the site from 1959
         to 1972.  Beginning  in  1972,  all  of the solid wastes and the de-
         watered chromium sludge were disposed of at  the Saco Landfill.

         The disposal site and the production facility, were  taken over by
         the Maine  Guarantee Authority  (MGA)  when the  company filed  for
         bankruptcy  in 1977.   MGA is now  the  Finance Authority of Maine.
         The production  facility only  was purchased by National Kirstin
         Industries, the pit site has been inactive since  1977.   There  are
         no viable potential responsible parties.

         Multi-Site  (V001715010)

         The Multi-Site  cooperative agreement  (MSCA) is an outgrowth  and
         continuation of the work initiated by the MEDEP  under  funds  pro-
         vided  to the State  through  Section  3012 of the  Resource Conserva-
         tion  and Recovery  Act.   The activities  provided  for under  the
         current  "3012"  and proposed MSCA  program  are the  investigation
         and evaluation  of  uncontrolled hazardous waste disposal  sites,
         specifically, preliminary assessments,  site  inspections, and site
         inspection  follow-ups.

                                         -7-

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      TICHENOR, RESLER & EICHE
         CERTIFIED PUBLIC ACCOUNTANTS
Mr. Kenneth D. Hockman
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
                             THE SUMMIT, SUITE 200
                             4350 BROWNSBORO ROAD
                             LOUISVILLE, KENTUCKY 40207
                             (502) 893-0700
     AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V001701010.
             V001702010. AND V001715010 AWARDED~fO
        THE MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION

We  have  examined  the  expenditures  incurred and claimed by the
Maine Department of  Environmental Protection (MEDEP), related to
the McKin  Site,  Saco Tannery Waste  Pits  and Multi-Site  coopera-
tive agreements for  July  26,  1983 through March 31, 1986, as de-
tailed in Exhibit A.  Our examination was. performed in accordance
with generally accepted auditing standards and the  Standards for
Audit of Governmental  Organizations,  Programs,  Activities, and
Functions (1981 revision).Accordingly,  our examination  included
such tests of the accounting records and  such other auditing pro-
cedures as we considered necessary in the circumstances.

The Summary of Costs Claimed/Incurred (Exhibit A) was prepared on
the basis  of regulations  and criteria  established by  the U.S.
Environmental Protection Agency  (EPA) relating to hazardous  waste
response cooperative agreement  projects  pursuant  to  Public Law
96-510.   Accordingly, Exhibit A  is not intended  to  present finan-
cial position and results of operations in  conformity with gener-
ally accepted accounting principles.

MEDEP received provisional  indirect  cost  rates from the EPA  Plan-
ning and Cost Advisory Branch,  the cognizant agency,  to be ap-
plied to its EPA cooperative agreements as  follows:
          Rates

          16.A9Z
          17.07Z
          17.46Z

          Total
   Provisional
	Period	

7/1/83 - 6/30/84
7/1/84 - 6/30/85
7/1/85 - 6/30/86
 Provisional Indirect
Costs Claimed/Incurred

        $27.284
          7,539
          2.888

        $37.711
The provisional  rates,  which were not audited  by  us,  were estab-
lished to allow  the obligation and payment of  funds to MEDEP un-
til actual  indirect costs are determined and a final  rate is es-
tablished.  The  provisional rates are subject  to  adjustment at a
future date.

As  part  of our  examination,  we determined  the  allowability of
costs claimed under the project  in  accordance with the provisions
                                -8-

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Mr. Kenneth D. Hockman
Page 2

of the agreements and  applicable  Federal regulations.   Exhibit A
sets forth  the costs which we  questioned and set aside  in this
regard and includes an explanation of the reasons such costs were
questioned or set aside.

In our opinion, subject  to  the  effects  of EPA's  ultimate resolu-
tion of  the questioned  and set-aside  costs  referred to  in the
preceding paragraphs  and except  for  the effect on  the  reported
financial information,  if any, as  might result from  the estab-
lishment of final indirect  cost rates,  Exhibit A presents fairly
the costs claimed  by the MEDEP under  the cooperative agreements
with EPA on the basis described above.

This report is  intended for use  in connection with  the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
June 27, 1986
                               -9-

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      TICHENOR, RESLER & EICHE
         CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT, SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE, KENTUCKY 40207
(502) 893-0700
Mr. Kenneth D. Hockman
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.

AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE

We  have  examined  the  expenditures  incurred  and claimed  by the
Maine Department of Environmental  Protection  (MEDEP),  related to
the McKin  Site,  Saco Tannery Waste  Pits  and  Multi-Site coopera-
tive agreements for July  26,  1983  through March 31, 1986, as de-
tailed in Exhibit A.  Our examination was performed in accordance
with generally accepted auditing standards and the financial and
compliance provisions of  the  Standards for Audit of Governmental
Organizations,  Programs,   Activities,  and Functions   (1981  re-
vision) .  Solely to assist us in planning and performing our ex-
amination, we made a study and evaluation of  the significant in-
ternal  accounting  controls of MEDEP.  For the  purpose  of this
report,  we  have classified the significant  internal accounting
controls into the following categories:

               D isbursements
               Payroll
               Contractor procurement
               Contractor performance  and billings
               Cash management  (letter of  credit  system)
               Property and equipment

Our study included all of  the control  systems  listed above.

That study and  evaluation was limited to :a preliminary review  of
the system to obtain an understanding of the  control  environment
and the  flow  of transactions  through  the accounting system.   Be-
cause the audit could be performed more efficiently through addi-
tional  analysis and .substantive audit tests,  thus placing very
little reliance on the  internal  accounting  control  system,  our
study and evaluation of the internal  accounting  controls  did  not
extend beyond this  preliminary review phase.   Accordingly,  we  do
not express an  opinion  on the system  of  internal accounting con-
trols taken  as  a whole.   Also, our  examination, made in  accor-
dance with  the  standards  mentioned  above, would not  necessarily
disclose all  material weaknesses  in  the  system of internal  ac-
counting control.   Our examination  did  not  disclose any  condi-
tions, other  than  those presented in the Findings and  Recommen-
dations, that we believe  to be  material weaknesses.

As  a part  of our examination,  we  performed certain tests  to  de-
termine  whether  or not  Federal  funds  were  expended in accordance
with the provisions of  the cooperative agreements and applicable
                               -10-

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Mr. Kenneth D. Hockman
Page 2

Federal  laws,  regulations, policies,  and cost  principles.   The
results of our  tests indicated that for  the  items  tested,  MEDEP
complied with  the provisions  of  the  cooperative agreements  and
applicable Federal laws,  regulations,  policies,  and cost princi-
ples,  except  for the  conditions  described in  the  Notes to  the
Exhibits.  Further,  for  the  items  not  tested,  based  upon  our
examination  referred  to  above,  nothing  came  to  our  attention
which  indicated  that MEDEP had not  complied  with the provisions
of the cooperative agreements  and applicable  Federal laws,  regu-
lations,  policies,   and  cost  principles,  beyond the conditions
described in the Findings and Recommendations.

This report  is  intended for use  in  connection  with the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
June 27, 1986
                              -11-

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FINDINGS AND RECOMMENDATIONS
1.   STATE'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT

The procedures utilized by MEDEP to procure contract services un-
der the McKin Site and Saco Tannery Waste Pits cooperative agree-
ments were  not  in  compliance with  all  requirements of  Federal
regulations (40 CFR Part  33).  MEDEP believed the  involvement of
the Region 1 Project Officer  in  the  selection process, who had a
full  vote during  the  technical evaluation  of contractor  pro-
posals, ensured adequate  compliance  by MEDEF  of Federal  procure-
ment requirements (40 CFR Part 33).  Cooperative agreement recip-
ients are required  to  comply  with 40 CFR Part  33  as  a  condition
of obtaining EPA funding.  Under the existing system,  three con-
tracts  equal  to  $472,980,   and  seven  subcontracts  equal  to
$115,825, were awarded although the procurement system did not:

0    Require  documentation to   be  submitted  to  the  EPA  award
     official  prior  to  awarding contracts  for  the  Superfund
     projects.

e    Specifically  state  in MEDEP1s  request  for 'qualified pro-
     posals that  the basis  for  awarding  the contract would be
     based on initial offers alone as required by 40 CFR 33.520.

0    Incorporate  all  required  EPA  subagreement  clauses  in the
     contracts awarded for engineering and construction services.

0    Require affirmative  steps  to  assure that  small,  minority,
     and women's businesses are used when possible.

0    Include adequate  controls  over subcontract  agreements en-
     tered into by their  contractors.

In  addition,   EPA  was   involved  in  the  contractor  selection
process,  increasing,  the   risk   that  EPA  might be named  as  a
defendant  in  litigation  concerning the  state's  contract award
procedures.

A.   EPA Preaward Review  of Procurement

     MEDEP did  not send  the  required  documentation to  the EPA
     award official  to allow for a  preaward  review  of proposed
     procurement actions.   In accordance with  40  CFR 33.110  the
     applicant and recipient must evaluate its procurement  system
     to determine if it meets  the requirements of  40 CFR Part  33
     and either certify that:

     (1)  Its  system will meet the intent of  all the requirements
          in this  Part before   any  procurement action  with  EPA
          assistance is undertaken, or

     (2)  Its  current system  does not  meet the intent of  the  re-
          quirements of this Part and, therefore,  the applicant
                              -12-

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FINDINGS AND RECOMMENDATIONS (Continued)


     will follow the requirements of 40 CFR Part 33 and allow  EPA
     preaward review  of proposed procurement  actions that will
     use EPA funds.

     MEDEP elected not  to certify its  procurement  system.   Under
     these circumstances the  applicant must follow the  require-
     ments of 40  CFR Part  33 and allow  EPA preaward review  of
     proposed procurement  actions  that  will  use  EPA funds  as
     defined in Appendix A to this part.

     The noncompliance with the review requirements was caused by
     an unfamiliarity with requirements by the  MEDEP  and lack of
     training of the EPA Project  Officer who did not  require  the
     submission of the documents to the EPA award official.   This
     resulted in a lack of assurance that all offerers were  fair-
     ly and uniformly evaluated in accordance with 40  CFR Part 33
     requirements and  limited assurance  that the  most qualified
     and best offerer was selected.

B.   Involvement in Contractor Selection Process

     We   tested  MEDEP  contracts    awarded   under   Superfund
     cooperative agreements for  compliance with the requirements
     of  40  CFR  33.245.   The  Selection  Committee   chosen  to
     evaluate contract proposals included an EPA Region 1 Project
     Officer for the review of  the  technical information.  MEDEP
     officials  and  the EPA Project  Officer believed  EPA policy
     only  prohibited   participation  by   EPA   employees   from
     reviewing budget (cost) information.

     As  a  result of  EPA  participation  in  the  State selection
     process, EPA's position  that  it was  not a  party to  any
     subagreement   may  be   jeopardized.    For   example,   EPA
     involvement  in. the  State  selection  process  increases  the
     risk,  however  slight,  that losing bidders  might succeed in
     naming  EPA  as  a  defendant  in  litigation  concerning  the
     assistance  recipient's  contract  award  procedures.   This
     potential problem  can be  avoided, or at least mitigated, by
     ensuring that  EPA employees only provide  oversight of the
     State procurement  process and  do not  participate  on  State
     selection panels.

     EPA's State  Participation in the^ Superfund Program, Volume
     II, Chapter II, Part B, states in part  that:

          EPA's role  during  implementation  of  the Agreement is
          one of oversight to ensure that the State complies with
          applicable statutes, regulations,  and policies. . .
          The State is responsible for resolving all  subagreement
          and administrative  issues  associated with  procurements
                              -13-

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FINDINGS AND RECOMMENDATIONS (Continued)
          under the  Cooperative  Agreement, since  EPA is  not a
          party to  any subagreements (40  CFR 33.245) (emphasis
          added).

     Request for  Proposal  Provision

     MEDEP's request  for  proposals  (RFP)  for  remedial   inves-
     tigation/feasibility  studies under the McKin  Site and Saco
     Tannery cooperative agreements  did not state that the basis
     for awarding the contracts would be on initial offers  alone.
     All contracts were awarded  based upon initial offers alone
     using the standard competitive negotiation method.    Unless
     the request  for proposals  states  that  the award  will be
     based on  initial offers  alone, the  recipient  must  obtain
     best and  final  offers  from qualified offerers with accept-
     able proposals within  the competitive range pursuant to 40
     CFR 33.520.   MEDEP did not obtain best and final  offers from
     qualified  bidders.

     MEDEP's noncompliance  was caused by  an  unfamiliarity with
     Federal requirements and  the lack of a  preaward review by
     the EPA award official.  RFPs  issued without  specifically
     stating that  the award shall be based upon initial  offers
     alone,  for  contracts awarded on that basis,  may encourage
     bid protests.  In  addition,  offerers  may not propose their
     best prices  on their  initial offers when  negotiations  on  the
     offers  are anticipated.

     Subagreement Provisions

     Our review  disclosed  that  four subcontracts  awarded under
     the  McKin Site  and  Saco  Tannery  Waste  Pits  cooperative
     agreements  omitted  several  of the  required  subagreement
     clauses,  per  40  CFR  33.1030, in whole or in  part,  and  did
     not contain  equivalent clauses  (See  Exhibit E).  The omis-
     sion of the  model subagreement  clauses  was due  to  MEDEP's
     failure to review subcontract agreements  awarded by  contrac-
     tors and  the lack of  written  procurement  procedures which
     address Federal requirements.   As a result, the best inter-
     ests of the  Federal  government  may  not  be adequately  pro-
     tected  if any contractual claims or  disputes  arise  between
     MEDEP and  the subcontracts  retained  under its  cooperative
     agreements.

     The subagreements  awarded under the  cooperative agreements
     were not  in  compliance with  40 CFR  33.1030 which stipulated
     that "Recipients must  include,  when appropriate, the follow-
     ing clauses or their equivalent in each  subagreement".   The
     clauses  referred  to   described the minimum  assurances.
                              -14-

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FINDINGS AND RECOMMENDATIONS (Continued)


     guarantees,   indemnity and  other  contractual  requirements
     necessary to assure  that  the Federal government's best  in-
     terests are  protected.

E.   Affirmative  Action

     All three contracts reviewed were not in  compliance with 40
     CFR 33.240.   The CFR  stated  "The recipient must take  affir-
     mative  steps  to assure  that small,  minority,  and women's
     businesses are  used  when possible  as sources  of  supplies,
     construction and services".   The  CFR  further  stated,   in
     part, that affirmative steps shall  assure:   including these
     businesses  on   solicitation  lists;   soliciting  these  busi-
     nesses whenever they are potential  sources;  and using  the
     services and assistance of the  Small Business Administration
     and the Office  of  Minority Business Enterprise of the U.S.
     Department of Commerce as appropriate.

     MEDEP did provide  an RFP to the Small  Business Development
     Center in Portland,  Maine.   However, we were unable  to  de-
     termine the extent this  organization met 40  CFR  33.240  re-
     quirements since they were no longer in  operation.  According
     to MEDEP officials there were a limited  number of engineers,
     contractors  and  subcontractors  in  their  immediate area  due
     to their geographical location.   MEDEP  did not have  an  af-
     firmative action policy to encourage small,  minority  or wom-
     en-owned firms  to submit  their  qualification statements  for
     consideration during  the procurement of  the Superfund  co-
     operative agreement contracts.

F.   Control Over Subcontractors

     We have set aside $115,825 of  contractual service costs  be-
     cause MEDEP did not  exercise adequate controls  over  subcon-
     tract agreements entered into by their contractors.   Subcon-
     tract procurement and contract documents were  not  reviewed
     by MEDEP.  The  subcontracts were received from the contrac-
     tors during our fieldwork.  Pursuant to  40  CFR  33.210  the
     recipient is responsible  for contractual  and administrative
     issues arising  out  of sub agreements.   The lack  of  control
     was caused  by  an unfamiliarity  with requirements by MEDEP
     personnel.   The result was a lack of assurance  that  subcon-
     tractor procurement,   performance and billings had been per-
     formed properly and were in compliance with Federal require-
     ments.   We have  set  aside  the  maximum subcontract agreement
     amounts  (prime  contractor invoices  did not  detail  subcon-
     tract costs  incurred to date) as detailed in Exhibit B, Note
     5; and Exhibit  C, Note 4.
                              -15-

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FINDINGS AND RECOMMENDATIONS (Continued)
MEDEP'S COMMENTS ON FINDING

The Commissioner of MEDEP  stated in response to the  recommenda-
tions in our draft report:

A.   EPA Preaward Review

     All of  the documentation required under  40 CFR 33.250  was
     submitted to EPA Region 1 for  EPA review and  approval.   The
     only error was the submittal of these documents to  the  EPA
     Project Officer rather than the EPA Region 1 Award  Official.
     In the future, the State will submit these documents  direct-
     ly to the award official.

B.   Involvement in Contractor Selection Process

     The participation of the EPA Project Officer  in  the  techni-
     cal review portion of the contract proposals was  viewed as
     appropriate EPA  oversight  of  the project.•  The  State  now
     recognizes that EPA personnel  should not be involved in  the
     selection process and will not  invite EPA  to  participate in
     the future.

C.   Request for Proposal Provision

     At  the  pre-bid conference,  MEDEP clearly stated' that  the
     selection would be based upon the proposals as submitted.
     MEDEP1s intention  to  consider initial offers alone  appears
     to have  been clear to  all  bidders,  since there  has  never
     been a problem.   In the future,  MEDEP will follow  the audit
     recommendation and clearly  state  in the  RFP that  initial
     offers alone will be considered.

D.   Subagreement Provisions

     The omissions of  the  subagreement clauses, specified  in 40
     CFR   33.1030,   in  the   four  subcontracts  awarded   were
     unintentional.  These subagreement clauses were  attached to
     the  RFP and  to  the  contract  with  the   prime  contractor.
     MEDEP's error was in failing to ensure that the subagreement
     clauses were  included  in  all subcontracts  let by  the prime
     contractor.  The recommendation  to  amend  the  four  deficient
     subcontracts  to   include  the  subagreement clauses  is  not
     useful since the McKin  contract has  already expired and the
     work performed by Glen Drilling (a subcontractor on the Saco
     project) has been completed.

E.   Affirmative Action

     The State agrees with  the  intent of this  regulation and has
     attempted to  determine  what minority and  women-owned busi-
                              -16-

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 FINDINGS AND RECOMMENDATIONS  (Continued)
^^^B^^_^^B^^M^^^B>^KM«a^^B^^^^^^^^H^_^aKVM^^^^^^MW««<*«^^^^^^^^^KA^^^^^^^^^^^MIMI«M^^^^^M


     nesses exist  in the State.  However, this information is not
     readily available  and it is  difficult  to conduct an indepth
     check  of  all  businesses to  determine  which fall  into the
     desired categories.   The DEP is open to suggestions  to in-
     crease participation  by  these businesses.

 F.   Control Over  Subcontractors

     The contracts with prime contractors clearly state that all
     subcontractor procurement practices  must comply with 40 CFR
     Part 33.  MEDEP questions whether or not it has the right to
     insert  itself into the  negotiation process  between  a con-
     tractor and its subcontractors.

     The Department did ensure  that the actual work conducted by
     the  subcontractors was  performed in a satisfactory manner
     and according to  project specifications.   For  this reason,
     it seems  inappropriate to set aside all  subcontractor  char-
     ges because of relatively minor oversights or errors in the
     procurement process.   MEDEP  is prepared to discuss with EPA
     the   meaning  of   "adequate   controls"  over   subcontract
     agreements.

 OUR  EVALUATION OF  MEDEP'S  COMMENTS

 The  Commissioner of MEDEP  stated  that  the recommendations regard-
 ing  Award Official approval, Project Officer  participation on
 selection  panels,  and  initial offers language  in RFP's will be
 enacted.   He  also stated  that  the recommendation  for amending
 subagreements  on  the   McKin  contract is  not feasible  and  that
 affirmative  action and control  over  subcontractors are matters
 for  further  discussion.   The proposed actions are  responsive to
 the  intent of the  majority of  the  recommendations  and  should
 ensure  improved compliance with  Federal procurement  regulations
 in the future.

 The  proposed  action relating to  subcontractors of  MEDEP1s  prime
 contractors  was not  responsive  to  the intent  of  the  recommen-
 dations.   We  did  not   intend for  MEDEP to  insert itself in  the
 negotiation process.   However,  we believe that MEDEP  must  review
 subcontractor  procurement and contract  documents to  comply with
 Federal  procurement   regulation   40  CFR  33.295  (subagreements
 awarded by a contractor).

 RECOMMENDATIONS

 We recommend that  the  Regional Administrator, Region 1:

 A.   Request MEDEP to  take all required  affirmative action steps
     including:   soliciting  small,  minority and women's  busin-
     esses  whenever  they  are  potential  sources;  listing  these


                               -17-

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FINDINGS AND RECOMMENDATIONS (Continued)
     businesses on solicitation lists; and using the services  and
     assistance  of  the  Small  Business Administration  and  the
     Office of Minority  Business  Enterprise of the  U.S.  Depart-
     ment of Commerce, as appropriate.

B.   Require MEDEP  to maintain documentation  supporting  compli-
     ance with Federal requirements  for subcontracts relating to
     procurement, performance, and billings.

C.   Make  a  determination of  the reasonableness of subcontract
     costs set aside.

2.   INADEQUATE DISTRIBUTION OF PERSONNEL AND FRINGE COSTS

The procedures utilized  by MEDEP to  record and report personnel
and fringe benefit costs under Superfund  cooperative agreements
did not accurately  represent  the  actual time worked on different
sites.  MEDEP1s  time  reporting  policy resulted  in  time  being
charged to certain  sites  regardless  of the actual, time worked on
that site.   OMB  Circular A-87, Attachment  B indicated "Salaries
and wages of employees chargeable to more than one grant program
or other  cost objective  will be  supported by  appropriate time
distribution records.  The method used should produce an equita-
ble distribution of time  and effort."  It was  not  clear  that an
equitable  distribution of time and  effort was being charged to
the various cooperative agreement sites utilizing the MEDEP sys-
tem of charging sites for personnel and fringe benefit costs.

MEDEP had a policy of charging personnel and fringe benefit costs
of two employees exclusively to the Multi-Site cooperative agree- .
ment.  These employees  actually worked  on  several  projects,  in-
cluding the McKin Site and Saco Tannery cooperative  agreements as
well as  non-Superfund projects.   Additionally,  other employees
had spent  time  on the Multi-Site cooperative agreement project,
but did not charge  their  allocable personnel and fringe costs to
that project.

At the exit conference, MEDEP officials explained the  system used
for charging time  cannot  cost effectively be changed  to accommo-
date actual site specific  personnel  time charging as  required by
EPA.  We believe MEDEP officials  should reconsider  their position
for  charging  time.   Cost  recovery  efforts  demand  that  site
specific  documentation  be maintained.   Failure  to provide  site
specific documentation may result in less  costs being recovered
from responsible parties.

Set-aside costs  for the  McKin Site,  Saco  Tannery and Multi-Site
cooperative agreements can be found  in Exhibit B, Notes 3  and 4;
Exhibit C, Note 3} and Exhibit D,  Note  3, respectively.
                              -18-

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FINDINGS AND RECOMMENDATIONS (Continued)


MEDEP'S COMMENTS ON FINDING

We recommended in our draft report  that  the  Regional  Administra-
tor,  Region 1:   determine  whether MEDEP's  policy for  charging
personnel costs exclusively to  certain sites,  regardless  of  time
worked on those sites, produced an equitable distribution of  time
and  effort;  accept  or  reject  costs  based  upon   the above
determination;  and  instruct  MEDEP  officials   to  require their
personnel  to  record time  sheet   information  which  accurately
reflects actual time spent by project.

The Commissioner  of  MEDEP stated in response  to  the  recommenda-
tions in our draft report:

MEDEP disagrees  with the statement  that an arbitrary means  was
employed to record and  report  personnel  and fringe benefit costs
under the Superfund cooperative agreements.  One  of  the  two  mul-
ti-site positions does,  to the degree possible, accurately charge
staff time  to the  Grant account.   Documentation for the hours
charged are recorded by individuals within the Uncontrolled Sites
Program who may  contribute significant  time to multi-site proj-
ects.  These records form the  basis for  the  hours charged on the
time  sheets of  one  multi-site employee.   Personnel  and fringe
costs are  not charged  to certain  sites regardless of  the  time
worked on  those  sites,  but rather  charged to  those  sites where
time was actually spent.

Accounting for the time of the other position is not as straight-
forward, but  again is not arbitrary.  MSCA  [Multi-site  coopera-
tive  agreement]  employees must  often draw  on the  expertise of
other  employees   both  from  within MEDEP  and  from  other  State
agencies.   To  track all  of  these  personnel and  fringe  costs in
the manner  proposed  by  the report would create a record keeping
nightmare  that  would be  virtually  impossible  to  implement.   To
resolve this problem, MEDEP developed a  system which reflects the
time  invested  by the State in  a  site.   The time  charged to the
Grant by  the  second  MSCA employee  reflects  this  joint effort.
The  procedure employed  by MEDEP  was allowed by  EPA  Region   1
personnel at  the beginning of  the  Multi-Site  cooperative agree-
ment, provided  that the  method reflected  the State's  level of
effort.   The procedure  meets  this  requirement  and does result in
an equitable distribution of time and effort among sites.

As a  final  point, the report  stated  that  MSCA employees charged
time  to  the McKin and  Saco  Grants.  This  is  inaccurate.  These
employees have not charged time to  these  accounts since the in-
ception of  the MSCA.  For these reasons, MEDEP believes  that the
recommendation to  set aside  personnel and fringe costs under the
McKin, Saco,  and Multi-site  cooperative agreements  is   unjusti-
fied.
                              -19-

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FINDINGS AND RECOMMENDATIONS (Continued)
OUR EVALUATION OF MEDEP'S COMMENTS

We agree  that the method utilized  by MEDEP to  record  personnel
and fringe  benefit  costs under the  Superfund  cooperative  agree-
ments was not "arbitrary", and have eliminated that language from
the  report.   The  balance  of  MEDEP's response reiterates  the
method used in allocating time charges and suggests that the dif-
ficulty of  maintaining  actual  time distribution  justifies  this
method.

Since actual time distribution records were not maintained, MEDEP
was unable  to  demonstrate  that  their procedures  result  in  an
equitable distribution  of time and effort among  sites.   Due  to
the cost  recovery provisions  of Superfund,  which require  site
specific identification  of costs, we believe  that MEDEP's system
may not be adequate to support these charges.

Additionally,  MEDEP  indicated that  our  report  stated  that Mul-
ti-site cooperative  agreement  (MSCA)  employees charged  time  to
the McKin and Saco Grants.  Our  report  indicates  that MSCA em-
ployees worked on these  grants, but does  not  indicate that their
time was charged to these sites.

RECOMMENDATIONS

We recommend that the Regional Administrator,  Region 1:

A.   Determine  whether  MEDEP's  policy  for  charging  personnel
     costs  to  Superfund sites  is acceptable  for  Superfund cost
     recovery purposes and revise these procedures, if necessary;
     and

B.   Accept or reject costs based upon the determination reached
     in A. above.

3.   UNSUPPORTED STATE SHARE COSTS

MEDEP was unable to  support the  eligibility  and allowability of
$8,206 of credit period  costs  claimed for State cost-sharing re-
quirements  for the  initial remedial measures at  the McKin Site
project.  Section 104(c)(3) of CERCLA and EPA regulations require
the State to pay or assure payment  of 10 percent of remedial ac-
tivity costs of  privately owned sites.  Initial  remedial measures
is one of the remedial  activity  costs requiring this 10 percent
participation.  MEDEP was unable  to provide supporting documenta-
tion to verify any credit for the McKin Site.

MEDEP claimed  the credit in  its  assistance  application  and was
awarded the  credit  in  the  assistance award.   Special  condition
number 31  of the cooperative agreement stated:
                              -20-

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FINDINGS AND RECOMMENDATIONS (Continued)


     The State has claimed a credit of at least $7,000 for expen-
     diture  of funds  for  response actions  at this  (the  McKin)
     site  between January 1,  1978 and  December 11,  1980.   EPA
     accepts this estimate at  face value pending final  verifica-
     tion  of  the  eligibility and  allowability of  claimed costs.
     At EPA's request, the State shall make supporting documenta-
     tion  available  for audit.  Based  on final verification  of
     these  costs,  the amount  the  State  will have to provide  as
     its cost share for remedial activities  taken  under this  co-
     operative agreement will  be adjusted to satisfy  the State's
     cost sharing responsibilities.

When supporting documentation  was  requested  to verify the credit
amount claimed by the State, MEDEP officials informed us that  the
records we needed were not available for our review.   The records
were stored in an area  that  had been  quarantined due  to asbestos
contamination.  Therefore,  we were unable  to verify any credit
for the McKin  Site.   Set-aside costs are detailed  in Exhibit B,
Note 2.                                          .

MEDEP'S COMMENTS ON FINDING

We recommended in our draft  report that the Regional Administra-
tor, Region  1  not accept the  §8,206  as  an  allowable credit  for
State  cost-sharing,   without  supporting  documentation.   In  re-
sponse, the Commissioner of  MEDEP  stated:  "Enclosed is documen-
tation that shows state credits in the amount of $14,556.06 (see
Attachment  /3).   It  is  requested  that  this  finding be removed
from the final report."

OUR EVALUATION OF MEDEP'S COMMENTS

We  reviewed  the  documentation provided as  Attachment  #3  to
MEDEP's  response  regarding  the   allowable  credit  for  State
cost-sharing.   The  documentation   included  a  copy  of  a hand-
written  cost  summary,  a  copy of  an  invoice referenced  to  the
McKin Site and copies of  various  invoices referenced to contract
or purchase order number 38776.

We can not accept the documentation  provided  to satisfy  the re-
quirements of  an  audit of the State  cost-sharing credits.  This
would  require  reviewing  the  contract  and  purchase  orders,  ex-
amining  the  original  payment  documents  (invoices  and  receiving
reports) and vouching the cancelled checks.

RECOMMENDATIONS

We recommend that the Regional Administrator,  Region  1:

A.   Request that MEDEP retain the original  documentation  for the
     State cost-sharing credits for review during  the final audit
     of the McKin Site cooperative agreement.

-------
FINDINGS AND RECOMMENDATIONS (Continued)
B.   Determine  the  allowability of the  $8,206 claimed as  State
     Cost-sharing credit,  based upon  the results  of the  final
     audit.

4.   STATE NEEDS TO FILE FEDERAL CASH TRANSACTIONS REPORTS TIMELY

MEDEP  did  not  submit   the  Federal  Cash  Transactions  Reports
(SF-272) to Region  1 within  the required time frames as specified
by  OMB  Circular  A-102.  MEDEP officials  were  aware  of  the
required  timeframes but were  unable to meet  the  requirements.
This limits EPA's ability to monitor the State's effectiveness in
handling Federal funds.

OMB Circular A-102  requires  the SF-272  to be submitted within 15
working days following the end  of each  quarter.  MEDEP officials
were aware of  the 15  day filing requirement  but stated they were
unable  to  submit the report  to EPA Region  1 in that  amount of
time.  As a result  of the  SF-272 not being submitted on a timely
basis,  EPA Region  1 cannot monitor the  State's effectiveness of
handling drawdowns as compared to disbursements.

MEDEP'S COMMENTS ON FINDING

In response to our  recommendation that  MEDEP be required to sub-
mit the SF-272 within 15 working days following  the end of each
calendar quarter, the Commissioner of MEDEP stated:

     The Department understands the requirement  of OMB Circular
     A-102 as  regards Federal  Cash  Transaction Reports (SF-272).
     The Department would like  to  comply, however,  the State's
     financial  system does not provide  final  month end informa-
     tion in time  to meet the  fifteen working day submittal re-
     quirement.  Federal Cash  Transactions are forwarded to EPA
     as soon as it  is practical.

     It is not the  intent of the Department  to withhold the in-
     formation  in  these  reports; however, it must be understood
     that the  Department cannot release information that it  does
     not have.

OUR EVALUATION  OF MEDEP'S COMMENTS

The  response   did not indicate  a  specified  time  frame  that  is
practical  for   MEDEP  to  submit the  SF-272s.   Consequently,  we
cannot determine if this alternative  is responsive  to the  intent
of the recommendation.

RECOMMENDATION

We recommend that the Regional  Administrator,  Region 1:
                              -22-

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FINDINGS AND RECOMMENDATIONS (Continued)


A.   Request the  recipient  to respond in  writing with the  rea-
     son(s) for the untimely submission of  the SF-272s and a  sug-
     gested alternative due date.

B.   Contact the  Headquarters Financial Management Division  to
     determine if  an alternative due  date could be  established
     which would be acceptable to both EPA  and the State.

5.   STATE NEEDS TO FILE FINANCIAL STATUS REPORT

MEDEP did not  report its  financial  data to Region  1  on a Finan-
cial Status Report  (SF-269)  for  the Saco Tannery Waste Pits and
Multi-Site  cooperative  agreements.   The SF-269,  as  required  by
Federal regulations, was not submitted because MEDEP was unfamil-
iar with  the requirement  and the Region 1  grants administration
officials failed to  request  the documents.  As  a  result,  the Re-
gional grants administration officials may  not have monitored the
State's activities effectively.

Comptroller Policy  Announcement  Number 85-5,  dated September 9,
1985, requires  the  SF-269 to be  submitted within  90  days after
the close of each budget period or if the budget period is longer
than one year  the  report  must be submitted annually.   MEDEP did
submit a  quarterly  report to the Region 1  grants administration
officials,  except  as noted  in Finding number  7B,  that provided
information similar  to that of the Financial Status Report.

As a result of the  SF-269  not being submitted,  Region 1 grants
administration officials were unable to  assure proper monitoring
and accountability of the recipients' activities.  MEDEP did sub-
mit final Financial  Status Reports for the McKin Site cooperative
agreement dated December 31, 1985 and January 31, 1986.

CORRECTIVE ACTION TAKEN BY MEDEP

We recommended that  the Regional  Administrator, Region 1  require
MEDEP to submit the  SF-269s as required.  The Commission of MEDEP
stated in response:

     Although the State did not  file the Financial Status Report
     (SF-269)  for  the Saco  Tannery Pits as  required by   Federal
     regulations, the  State did  submit quarterly project  reports
     that provided  essentially  the  same information.   When this
     oversight was  brought  to the  Department's attention by  the
     auditors,   an SF-269  was promptly  prepared  and submitted.
     The Department  will  submit  the SF-269 for  all future time
     periods as required by Federal  regulations.

The proposed action  is  responsive to the intent of our recommen-
dation and consequently, we make no  further recommendation.
                              -23-

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FINDINGS AND RECOMMENDATIONS (Continued)
6.   MINOR FINDINGS - CORRECTIVE ACTION TAKEN

A.   The amount of drawdowns received by MEDEP  during  the period
     November of 1983 through April of  1985  under  the  McKin Site
     cooperative agreement consistently exceeded the amount nec-
     essary to meet  current  disbursement needs  by  an  approximate
     average of $34,000.  The Letter of Credit  - Treasury Finan-
     cial  Communications  System  (LOC-TFCS)  Recipients  Manual
     states that the recipient  organization  should request funds
     based on immediate disbursement requirements whenever possi-
     ble and  disburse  funds as  soon  as possible.   Since  May  of
     1985,   when  the Region  began using  the  electronic  funds
     transfer  system,  MEDEP has drawndown  funds   in  accordance
     with the LOC-TFCS Recipients Manual.

B.   MEDEP  did  not  submit  to  the Region  1  Project Officer the
     required quarterly  progress reports  for the  quarters ended
     March 31, June  30,  September 30 and December  31  of calendar
     year  1985  for  the  McKin  Site  cooperative'.agreement.   The
     quarterly reports were  required  by special grant condition
     number 18 of  the  cooperative  agreement. MEDEP is currently
     submitting required quarterly  reports  for their  two active
     cooperative  agreements;  Saco  Tannery  Waste  Pits  and Mul-
     ti-Site.

C.   MEDEP allowed only  20  days to  elapse  between  the public no-
     tice date  for the  initial  remedial measures  contract under
     the McKin Site  cooperative agreement  and the  bid submission
     date.   MEDEP must allow at least  30  days to elapse pursuant
     to  40  CFR Part 33  Appendix  A.   Subsequent  Superfund con-
     tracts awarded by MEDEP for remedial investigation feasibil-
     ity studies did allow 30 days to elapse.
                               -24-

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                                            1
EXHIBITS

-------

-------
                                                             EXHIBIT A
                   COOPERATIVE AGREEMENTS AWARDED TO THE
               MAIN'S" DEPARTMENT OF ENVIRONMENTAL PROTECTION
               SUMMARY OF COSTS CLAIMED/INCURRED,  ACCEPflDT
                         QUESTIONED AND SET ASIDE
            FOR THE PERIOD JULY 26, 1983  THROUGH~MARCH 31, 1986
                                      AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials & Supplies
Contractual Services
Other Direct Costs
Indirect Costs
Totals

     Note 1
     Note 2


     Note 3

     Note 4


     Note 5

     Note 6


     Note 7

     Note 8


     Note 9

     Note 10
CLAIMED/
INCURRED
(Note 1)
$ 38.234
8,632
5,533
2,127
346,080
5,964
37,711
$444,281

ACCEPTED
(Note 2)
$
-
5,509
2,127
223,337
5,929
37,525
$274,427

QUESTIONED

$ 857
210
-
-
-
-
186
$1,253

SET ASIDE

$ 37,377
8,422
24
-
122,743
35
-
.$168,601
                                                   NOTES
                                                   3,  4
                                                   5,  6
                                                     7

                                                     8
                                                     9
                                                    10
The  amounts  claimed/incurred  represent  expenditures
claimed  on  the   Financial   Status   Report,   (SF-269)
through January 31, 1986 for the McKin Site cooperative
agreement  and  itemized  expenses as  indicated by  the
recipient on their quarterly reports prepared on a cash
basis through  March  31,  1986 for the  Saco  Tannery and
Multi-Site cooperative agreements.

See Exhibits B, C, and D for schedules of costs claimed
/incurred, accepted, questioned and set aside.

See Exhibit B for details of the $857 questioned.

The $37,377 set aside consists  of $13,272 (Exhibit B),
$9,722 (Exhibit C) and $14,383 (Exhibit D).

See Exhibit B for details of the $210 questioned.

The  $8,422 set aside  consists  of $2,711  (Exhibit B),
$2,054 (Exhibit C) and $3,657 (Exhibit D).

See Exhibit B  for details of the $24 set aside.

The $122,743 set  aside consists of $68,948 (Exhibit  B)
and $53,795 (Exhibit  C).

See Exhibit B  for details of the $35 set  aside.

See Exhibit B  for details of the $186  questioned.
                                    -25-

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                                                             EXHIBIT B
               MCKIN SITE (V001701010)  COOPERATIVE AGREEMENT
        AWARDED TO THE MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
       SCHEDULE OF COSTS CLAIMED. ACCEPTED, QUESTIONED AND SET ASIDE
           FOR THE PERIOD JULY 26. 1983 THROUGH JANUARY 31,  1986
                                          AMOUNT
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials & Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals
 CLAIMED
(Note 1)

$ 14,129
   2,921
   4,068
   2,061
 249,277
   2,649
  36.120
ACCEPTEDQUESTIONEDSET ASIDE  NOTES
                      (Note 2)
$
   4,044
   2,061
 180,329
   2,614
  35.934
857
210
186
$311.225   $224,982    $1.253
$13.272
  2,711
     24

 68,948
     35
                       $84,990
3
4
5

6
     Note 1    The amounts claimed represent  expenditures  reported on
               the Financial Status Reports,  (SF-269)  through January
               31, 1986.

     Note 2    We have set aside $8,206 of unsupported State credit to
               be used for the  State  10  percent cost-sharing require-
               ment  of  the  initial  remedial measure  portion of  the
               McKin  Site  project pursuant   to  section 104(c)<3)  of
               CERCLA and special condition number  31  of the coopera-
               tive  agreement.   See  Finding  Number 4  for  further  de-
               tails.  The amount set aside was determined as follows:

               The Financial Status Report submitted March 24, 1986 by
               the recipient claimed $82,063 for initial remedial mea-
               sures under the following cost classifications:
                                              Amount
                    Classification           Claimed

                    Personnel                $ 2,372
                    Fringe Benefits              475
                    Travel                       236
                    Materials & Supplies           4
                    Contractual               69,180
                    Other Direct Costs           345
                    Indirect Costs             9,451

                    Totals                   $82,063
                                State Share
                                 Set Aside

                                   $  237
                                       47
                                       24

                                    6,918
                                       35
                                      945

                                   $8.206
                                   -26-

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          MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
                       NOTES TO EXHIBIT B
Note 2    (Continued)

          a    This  amount  would otherwise have  been set  aside
               for the reasons and criteria stated in Note  3(a).

          b    This  amount  would otherwise have  been set  aside
               for the reasons and criteria stated in Note  4(a).

Note 3    We have questioned  $857  and set aside  $13,272 of per-
          sonnel costs determined as follows:

                                   Amount
                 Reference  QuestionedSet Aside

                    (a)       $ -       $13,272
                    (b)
                  Totals
                    $857
$13,272
          (a)
          (b)
     The procedures  utilized  by MEDEP  to record  and
     report personnel  and  fringe  benefit costs  under
     Superfund cooperative agreements did not accurate-
     ly represent  the  actual time worked  on different
     sites as required by OMB  Circular  A-87  Attachment
     B.   See  Finding  Number  2 for further  details.
     Additionally, $237  of  the $13,272  set  aside here
     was also set aside in Note 2.

     MEDEP erroneously allocated $857 of personnel cost
     to the  McKin Site  cooperative agreement  when it
     should have  been  charged to the Saco Tannery co-
     operative  agreement.   A  bookkeeping  error  was
     blamed for the  misclassification.   OMB  Circular
     A-87  states  that  to be allowable  a  cost  must be
     "...   allocable  to  a particular cost  objective to
     the  extent of  benefits  received  by such objec-
     tive."   Costs  which should  have  been  charged to
     Saco Tannery were claimed under the McKin Site.

RECOMMENDATIONS

We recommend that the Regional Administrator, Region 1:

(a)  See Finding  Number 2  for recommendations related
     to the improper reporting of personnel costs.

(b)  Instruct MEDEP to correct the misclassification of
     the  Saco  Tannery  charges  that were erroneously
     charged to the McKin Site.
                              -27-

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          MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
                       NOTES TO EXHIBIT B
Note 4    We have questioned $210 and set aside $2,711 of  fringe
          benefits determined as follows:

                                         Amount
                      Reference  Quest lone (I  Set AsiHe

                                              $2,711
 (a)
 (b)

Totals
$ -
 210

$210
                                              $2,711
          (a)  The procedures  utilized by  MEDEP  to record  and
               report personnel  and fringe  benefit costs  under
               Superfund cooperative agreements did not accurate-
               ly represent  the  actual time worked  on different
               sites as required by OMB Circular A-87,  Attachment
               B.   See  Finding  Number  2 for further  details.
               Additionally, $47 of the $2,711 set aside here was
               also set aside in Note 2.

          (b)  MEDEP erroneously allocated $210 of fringe benefit
               cost to the  McKin Site  cooperative agreement when
               it should  have been  charged  to the  Saco Tannery
               cooperative  agreement.   A  bookkeeping  error  was
               blamed for the  misclassification.   OMB Circular
               A-87 states  that to be  allowable a  cost  must b"e
               "...  allocable  to a particular  cost  objective to
               the  extent of  benefits received  by such objec-
               tive."  Costs which should have been  charged to
               Saco Tannery were claimed under the McKin Site.

          RECOMMENDATIONS

          We recommend that  the  Regional Administrator, Region 1:

          (a)  See Finding  Number 2 for  recommendations related
               to the improper reporting of fringe benefit costs.

          (b)  Instruct MEDEP to correct the misclassification of
               the  Saco   Tannery charges  that  were erroneously
               charged to the McKin Site.

Note 5    We have set aside $62,030 of  subcontractor costs be-
          cause  MEDEP did  not  exercise  adequate  controls  over
          agreements  entered  into  by   their  contractors  as
          required by 40  CFR 33.210.   See Finding Number l.F for
          further details.   The amount set  aside was  determined
          as follows:
                               -28-

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          MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
                       NOTES TO EXHIBIT B


Note 5    (Continued)

                                                  Maximum
                                                  Contract
               Subcontractor                       Amount

               Gerber                             $46,650
               Northeast Diamond Drilling           4,380
               Enpro Services, Inc.                  9,000
               Weston Geophysical                   2.000

               Total                              $62.030


Note 6    MEDEP erroneously  allocated $186  of  indirect  cost  to
          the McKin  Site  cooperative  agreement which should have
          been charged to the Saco Tannery cooperative agreement.
          A bookkeeping  error was blamed  for the misclassifica-
          tion.  OMB Circular A-87 states  that to be allowable a
          cost must be "... allocable to a particular cost objec-
          tive to the extent  of  benefits  received by such objec-
          tive."  Costs  which should have been  charged  to Saco
          Tannery were claimed under the McKin Site.

          RECOMMENDATION

          We recommend that  the  Regional  Administrator,  Region 1
          instruct MEDEP  to  correct  the  misclassification of the
          Saco Tannery  charges  that were  erroneously charged to
          the McKin Site.
                              -29-

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                                                        EXHIBIT C
   SACO TANNERY WASTE PITS (VO01702010)  COOPERATIVE AGREEMENT
  AWARDED TO THE MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
       SCHEDULE OF COSTS INCURRED, ACCEPTED AND SET ASIDE"
      FOR THE PERIOD APRIL 16. 1984 THROUGH MARCH 31.
COST CATEGORY
Personnel
Fringe Benefits
Travel
Materials & Supplies
Contractual Services
Other Direct Costs
Indirect Costs

Totals
AMOUNT
INCURRED
(Note 1)
$






9
2
1

96
2

,722
,054
,316
66
,803
,552
873
ACCEPTED
(Note 2)
$

1

43
2

_
-
,316
66
,008
,552
873
SET ASIDE
NOTES
(Note 2)
$ 9
2


53


,722
,054
-
-
,795
-
-
3, 5
3, 5


4

5
$113.386
$47.815
$65,57.1
Note 1    The  amounts incurred  represent  itemized expenses  as
          indicated by  the recipient  on their  quarterly  report
          prepared on a cash basis through March 31, 1986.

Note 2    The amounts accepted and  set aside represent our clas-
          sification of the reported expenses should the items be
          claimed by  the  recipient  on a  Financial  Status  Report
          (SF-269).

Note 3    We have set aside  $9,722  of personnel costs and $2,054
          of fringe benefits  because  the procedures  utilized by
          MEDEP to record and report personnel and fringe benefit
          costs under Superfund  cooperative agreements did not
          accurately represent the  actual time worked^on differ-
          ent sites as  required by OMB  Circular A-87^Attachment
          B.  See Finding Number 2 for further details.

None 4    We have  set aside  $53,795  of  subcontractor costs be-
          cause MEDEP did  not  exercise  adequate  controls  over
          agreements  entered  into  by   their   contractors  as
          required by 40  CFR  33.210.   See Finding Number l.F for
          further details.   The  amount set  aside was determined
          as follows:
                              -30-

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          MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
                       NOTES TO EXHIBIT C

Note 4    (Continued)
                                                  Maximum
                                                  Contract
               Subcontrac tor                       Amount

               Goldberg, Zoino and
                Associates, Inc.                  $16,158
               Enpro Services, Inc.                 9,600
               Glenn Drilling                      28.037

               Total                              $53,795


Note 5    MEDEP did not report $857 of personnel cost and $210 of
          fringe benefit  cost allocable to the Saco Tannery co-
          operative agreement.  Additionally,  this misclassifica-
          tion resulted in $186 of  indirect  cost not  being re-
          ported  under the Saco  Tannery  cooperative  agreement.
          A bookkeeping error was blamed  for  the misclassifica-
          tion.  OMB Circular  A-87 states  that to be allowable a
          cost must be  "... allocable to a particular cost objec-
          tive to the  extent  of benefits received by such objec-
          tive."  Costs which  should  have been  charged  to  Saco
          Tannery were  claimed under the McKin Site.

          RECOMMENDATION

          We recommend the Regional Administrator,  Region 1 in-
          struct MEDEP to  correct the misclassification  of the
          Saco Tannery charges that were  erroneously  charged to
          the McKin Site.
                               -31-

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                                                        EXHIBIT D
          MULTI-SITE (V001715010)  COOPERATIVE AGREEMENT
  AWARDED TO THE MAINE DEPARTMENT OF ENVIRONMENTAL PROTECTION
       SCHEDULE OF COSTS INCURRED. ACCEPTED AND SET ASIDE"
      FOR~THE PERIOD AUGUST 1.  1985 THROUGH MARCH  31.  1986
COST CATEGORY
Personnel
Fringe Benefits
Travel
Other Direct Costs
Indirect Costs

Totals
AMOUNT
INCURRED
(Note 1)
$14,383
3,657
149
763
718
ACCEPTED
(Note 2)
$ -
-
149
763
718
SET ASIDE
(Note 2)
$14,383
3,657
-
•
-
                                    NOTES
                                      3
                                      3
$19,670    $1.630
$18.040
Note 1    The  amounts  incurred  represent  itemized  expenses  as
          indicated by  the recipient  on  their quarterly  report
          prepared on a cash basis through March 31,  1986.

Note 2    The amounts accepted and  set  aside  represent  our clas-
          sification of the reported expenses  should the items be
          claimed by the  recipient  on a  Financial  Status  Report
          (SF-269).

Note 3    Me have set aside $14,383 of personnel costs and $3,657
          of fringe benefits  because the  procedures  utilized by
          MEDEP to record and report personnel and fringe benefit
          costs  under  Superfund  cooperative  agreements did  not
          accurately represent the  actual time  worked on differ-
          ent sites as  required by OMB Circular  A-87 Attachment
          B. See Finding Number 2 for further details.
                              -32-

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                                                            EXHIBIT E
             SCHEDULE OF MODEL SUBAGREEMENT CLAUSES OMITTED OR
                   NOT EQUIVALENT FOR THE SUBAGREEMENTS
            Clause;

Supersession
Privity of Subagreement
Changes
Differing Site Conditions
Suspension of Work
Termination
Remedies
Audit; Access to Records
Covenant Against
 Contingent Fees
Gratuities
Responsibility of Contractor
Final Payment
Northeast
 Diamond
Drilling

   NO
   NO
    X
   NO
   NO
    X
   NO
    X

   NO
   NO
    X
    X
        Weston      Glenn
Enpro Geophysical Drilling
NO
NO
X
NO
NO
X
NO
X
NO
NO
X
X
NO
NO
X
N/A
N/A
X
X
X
NO
NO
X
X
NO
NO
X
N/A
N/A
X
NO
X
NO
NO
NO
X
     NO - Subagreement does not contain clause.
     N/A - Clause not applicable to this Subagreement.
     X - Clause not equivalent to Federal requirements.
                                    -33-

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                            APPENDIX
Auditors' Note:  The attachments  provided  by the Commissioner of
MEDEP and referenced  in the Appendix 1  (Attachments  1-3)  to the
response were  considered  too  voluminous  for inclusion  in this
report.   The complete  response,  including  these Attachments,  is
available for review in the Office of Inspector General, Internal
Audit Division in Washington, D.C.

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WtSftB" :¥iS^ll^^
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'"-'       *
              7'*                      STATE OF MAINE
              if It

                  Department of  Environmental  Protection

                                MAM OFFICE: MV BUILDING. HOSPITAL STREET. AUGUSTA
                                 MAIL ADMES& SUI* HouM SUIton \ T. Augii ita. 04333

       JOSEPH E. BRENNAN                                                       KENNETH C YOUNG. JR.
         GOVERNOR                                                           COMMISSIONER

                                      October 27, 1986


        Mr. Kenneth D.  Bookman  .
        Divisional  Inspector General  for Audit
        United States Environmental Protection Agency
        Washington,  D.  C.  20460


        Dear Mr. Bookman:
            The Maine Department of Environmental Protection baa reviewed the Tichenor,
        Rialer and Eiche report concerning the State's administration of Superfund
        Cooperative Agreements.

            The DEP appreciates the opportunity to furnish comments concerning this
        report.  As requested, the comments address the factual accuracy of the data
        presented.  However, the DEP has taken the liberty to discuss other issues
        which are germane.    :

            Zt is the State's understanding that the audit was conducted to determine
        whether or not federal funds have been used in an appropriate manner.  Zt is
        the State* s contention that all monies received from the federal government
        have been spent in a manner consistent with the goals of the EPA and the
        Superfund program.

            At the exit conference Mr.  John Payne, one of the auditors, noted that the
        State's Program was basically a sound one which did' not have any substantial
        problems.  This tone was apparently misleading as the audit report
        recommendations suggest that the State has serious deficiencies In several
        areas.   Moreover, it appears that the State is given the responsibility for not
        only policing it* s own actions , but those of EPA as well.

            Any new program, and in particular one as complex as Superfund, will
        undergo a maturation process.  Recognizing this, it is incumbent on the part  of
        the auditors to recognize problem areas and report them to EPA.  This obviously
        would greatly assist the Agency in identifying program deficiencies.  The
        administration of cooperative agreements has been a learning process for  both
        the State and the EPA.  Zn reviewing this report, EPA should consider the
        intent of the State to oomply with the regulations and the relatively minor
        degree of Infractions.
                                             -34-
                                        REGIONAL OFFICES

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                                                             APPENDIX 1
                                                              (CONTINUED)
                                  -2-

The State haa the following specific cooanents:

1.   State Procurement System Needs Improvement

     The audit report cites six areas in which the State did not strictly
     comply with the procurement procedures set forth in 40 CFR Part 33-
     Al though the State acknowledges some deficiencies in this area, the
     audit report would lead the reader to the conclusion that the State
     ignored 40 CFR Fart 33.   This is not the case.  Rather, it is, and has
     been, the State's intent to comply with the Superfund procurement
     system;  and the DBF did attempt to meet the requirements outlined in
     the Federal Regulations.  In spite of the cited deficiencies, the
     State's procurement practices have been conducted in a fair and
     Impartial manner and hare resulted in the selection of the most
     qualified, competitive bidder.

     The following is a point by point response to the procurement Issues
     raised in the audit report.

     A. EFA Preaward Review                        •

        All of the documentation required under 40 CFR 33.250 was submitted
        to EPA Region I for EPA review and approval.  The only error was
        the submlttal of these documents to the EPA Project Officer rather
        than the EPA Region I Award Official.  The State should not be  held
        solely responsible for this oversight since EPA Region I personnel
        were apparently also unaware of  this requirement.  In the future,
        the State will submit these documents directly to the award
        official.

     B. Privily of Subagreement

        The DEP did allow the EPA Project  Officer to  review  the  technical
        portion of the contract proposals.   The State did not realize that
        such a review was a violation of requirements relating to privity
        of subagreement.  Rather, such participation  was viewed  as
        appropriate EPA oversight of the project.  The State now recognizes
        that EPA personnel should not be involved In the selection process
        and will not Invite EPA to particlate In the future.   Again,  the
        State should not be held solely responsible for  this violation.

     C. Request for Proposal Provision

        Although the McKin and Saco  Requests for Proposals (RFP) did not
        explicitly state that initial offers alone would be the basis for
        awarding contracts,  it was Implied in the evaluation criteria  set
        forth in the RFP.  The RFP required the submlttal of detailed
        technical and budget Information and stated that the budget
        (project cost) would comprise 20% of the score for MoKln, 25%  for
        Saco.  At the pre-bid conference, the DEP clearly stated that  the
        selection would be based upon the proposals as submitted.  The
        DEP'a intention to consider  initial offers alone appears to have
        been clear to all bidders,  since there has never been a problem.
        In the future, the DEP will  follow the audit recommendation and
        clearly state In the RFP  that initial offers alone will be
        considered.
                                  -35-

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                                                        APPENDIX 1
                                                        (CONTINUED)

                             -3-

D. Subagreement Provisions

   As stated ID the audit report,  four  of  the subcontracts awarded
   under the Cooperative Agreements did not contain the subagreement
   clauses specified in 40 CFR 33*1030. These omissions were
   unintentional.  Both the Requests for Proposal and the prise
   contracts clearly state that the contractor and all subcontractors
   must comply with the Federal Procurement Regulations of 40 CFR Part
   33-  These subagreement clauses were attached to the RFP and to the
   contract with the prime contractor.   DBF* s error was in failing to
   ensure that the subagreement clauses were included in all
   subcontracts let by the prime contractor.  The recommendation to
   amend the four deficient subcontracts to include the subagreement
   clauses is not feasible or useful since the MoCin contract has
   already expired and the work performed  by Glen Drilling (a
   subcontractor on the Saco project) has  been completed.

E. Affirmative Action

   The State did attempt to ensure that mail, minority and women's
   businesses were given an opportunity .to submit proposals and
   several were ultimately hired.   The MoKin and Saco Requests for
   Proposals were submitted to the Small Business Development Center
   in Portland.  Additionally, the prime contractors also complied
   with 40 CFR 33.240 in the letting of subcontracts (see Attachments
   1 and 2).

   The State agrees with the intent of this regulation and has
   attempted to determine what minority and women-owned  businesses
   exist in the State.  However, this information is not readily
   available and it is difficult to conduct an indepth check of all
   businesses to determine which fall into the desired categories.
   The DEP is open to suggestions to increase  participation by these
   businesses.

F. Control Over Subcontractors

   The audit report cites the DEP for failure to review  all
   subcontract procurement procedures and subcontract  documents.   The
   contracts with the prime contractors clearly state  that all
   subcontractor procurement practices must comply with 40 CFR  Part
   33.  It was clearly the Intent of the DEP to have its contractors
   follow applicable Federal procurement procedures;   however,  the
   State questions whether or not it has the right to insert itself
   into the negotiating process between a contractor and its
   subcontractors.

   The Department did ensure that  the actual work conducted by the
   subcontractors was performed in a satisfactory manner and according
   to project specifications.  For this reason, it seems inappropriate
   to set aside all subcontractor  charges because of relatively minor
   oversights or errors In the procurement process.  The DEP ia
   prepared to discuss with EPA the meaning of "adequate controls"
   over subcontract agreements.


                             -36-

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                                                              APPENDIX  1
                                                              (CONTINUED)
     Although there may have been some Inadequacies In the State*s
     procurement practices,  the State's actions indicate a dear intent to
     comply with the Federal procurement procedures.  This is supported by
     EPA1s finding (EPA Protest Appeal No.  01-84-BP06, January 30, 1985)
     that the DEP had compiled with EPA regulations concerning procurement
     by competitive negotiation in the selection  of a contractor for the
     Saco Tannery Pits.

2.   Inadequate Distribution of Personnel and Fringe Coats

     DEP disagrees with the statement that an arbitrary means was employed
     to record'and report personnel and fringe benefit costs under the
     Superfund Cooperative Agreements.  In trying to explain the accounting
     system to the auditors, the DEP feels that there may have been some
     mlscoomiunl cations.

     Contrary to the audit report findings, the accounting'mechanism Is not
     arbitrary.  One of the two multi-site positions does, to the degree
     possible* accurately charge staff time to the Grant account.
     Documentation for the hours charged are recorded by individuals within
     the Uncontrolled Sites Program who may contribute  significant time to
     multi-site projects.  These records form the basis for  the hours
     charged on the time sheets of one multi-site employee.  Personnel  and
     fringe costs are not charged to certain sites regardless of the time
     worked on those sites, but rather charged to those sites where time
     was actually spent.

     Accounting for the time of the other position is not  as
     straightforward, but again is not arbitrary. Given that Superfund
     cases are very complex, the MSCA  employees must often draw on the
     expertise of other employees both from within the  DEP and from other
     State agencies, such as the Bureau of Health and the Department  of the
     Attorney General, who have no connectioa with the Multi-Site Program
     per se.  For example, past cases have required input from chemists,
     geologists, public relations people, attorneys,  engineers,  biologists,
     land use specialists, air quality specialists,  toxicologists and
     environmental specialists (in administrative and field oversight
     capacities).  Additionally, upper level management personnel within
     DEP are often involved with policy decisions on these sites.   To track
     all of these personnel and fringe costs in the manner proposed by the
     report would create a record keeping  nightmare that would be virtually
     impossible to Implement.  Furthermore, many of these individuals are
     in positions paid for out of  the State's general fund,  their time
     must be charged to the general  fund or  the positions will be lost.

     To resolve this problem absent  any  formal EPA guidance, DEP developed
     a system which reflects the  time Invested by the State in a site.   The
     time charged to the Grant by  the second MSCA employee reflects this
     joint effort and is not,  as  alleged by  the report, arbitrary.
                                  -37-

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                                                            APPENDIX 1
                                                            (CONTINUED)
                                  -5-
     The procedure employed by the DEP was discussed with EPA Region I
     personnel at the beginning of the Multi-Site Cooperative Agreement
     process.  EPA at that tine understood the difficulties posed in trying
     to keep track of all personnel hours.   Realizing this, the EPA allowed
     the DEP to track personnel time in  the manner proposed by the State,
     provided that the method reflected  the State's level of effort.  The
     procedure employed by the DEP meets this requirement and does result
     in an equitable distribution of time and effort among sites.  As a
     final point, the report stated that KSCA employees charged time to the
     MoKin and Saco Grants.  This is inaccurate.  These employees have not
     charged time to these accounts since the inception of the KSCA.  For
     these reasons, the DEP believes that the recommendation to set aside
     personnel and fringe costs under the McKin, Saco and Multi-site
     Cooperative Agreements is unjustified.

3-   Unsuspected State Share Credits

     Enclosed is documentation that shows state  credits in the amount of
     $14,556.06 (see Attachment #3).  It is requested that this finding be
     removed from the final report.

H.   State Needs to File Federal Cash Transactions  Reports Timely

     The Department understands the requirement  of OMB Circular  A-102 as
     regards Federal Cash Transaction Reports (SF-272).   The Department
     would like to comply, however, the State's  financial system does not
     provide final month end information In time to meet the fifteen
     working day submittal requirement.   Federal Cash Transactions are
     forwarded to EPA as soon as it is practical.

     It is not the intent of the Department to withhold  the information in
     these reports; however, it must be understood  that  the Department
     cannot release Information that it does not have.

5.   State Needs to File Financial Status Report

     Although the State did not file the Financial Status Report (SF-269)
     for the Saco Tannery Pits as  required by Federal regulations, the
     State did submit quarterly project reports that provided essentially
     the same Information.  When this oversight was brought to the
     Department* s attention by the auditors, an SF-269 was promptly
     prepared and submitted.  The  Department will submit the SF-269 for all
     future time periods as required by Federal regulations.

Summary

During the exit interview  Mr.  Payne  indicated that the State1 s program was
basically sound.  Therefore, it came as a  surprise when the audit report
recommended that EPA set  aside a  substantial amount of money.  The  tone of
the^epprt suggests,that  the..DEP'acted in  an improper manner.  This is not
the caseV  Given the time and  personnel demands of the Superfund Program,
the State acted in a responsible manner.   It did as well it could,  given
the urgency and pressures of  initiating a  program to clean  up hazardous
waste sites.

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                                                                 APPENDIX 1
                                                                 (CONTINUED)
                                      -6-
    Although many of the Issues raised by the audit report have merit, given
    the demands of the program, the Department feels (as was Indicated in the
    exit interview) that they are minor.   The Department has taken steps to
    correct deficiencies in the program as they have come to our attention and
    will continue to work with EPA on such issues in the future.

    In reviewing the audit report, one should not lose sight of the fact that
    Cooperative Agreements are, after all, Intended to encourage State
    participation in the cleanup of hazardous waste sites.  Although there may
    be some deficiencies in the State1 s program, the Department has attempted
    to use its resources in the most efficient and effective manner possible to
    accomplish the goals of the Superfund program.
                               Tours very truly,
                                  letfa p. Xbtag,  Jr.
                               Commissioner --:...•-
                               Maine Department of Environmental  Protection

KCT/HA/CB/gs
Enclosure

cc:  Director, Waste Management Division, Region I
                                     U.S. Envi
                                              ronment m.
                                          -39-

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