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
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1
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3
2
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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:
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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.
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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:
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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-
-------
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-
-------
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-
-------
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-
-------
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.
-------
WtSftB" :¥iS^ll^^
.?- :/'?' '•:?"•• :/ • -: ^:8E<*-& #/.-. -.- -••: ••faJU •/::• vtiwwfer /
'"-' *
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
-------
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-
-------
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-
-------
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-
-------
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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