UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, O.C. 204(0
DEC 12)968
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Audit Report No. M5BFL9-11-0020-9100096
Audit of EPA' s Interagency Agreements with the
Department of Justice for Superfund Activities
Fiscal 1987
FROM:
TO:
Kenneth D. Hockznan
Divisional Inspector General for Audit
Internal Audit Division (A-109)
Harvey G. Pippen, Director
Grants Administration Division (PM-216)
We requested the Audit Staff, Justice Management Division,
Department of Justice (DOJ) to perform a financial and compliance
audit of two Superfund Interagency Agreements (IAA) entered into
between EPA and the DOJ, Land and Natural Resources Division
(LNRD). The DOJ report of September 1988 is attached. The
report addresses obligations and expenditures during fiscal 1987.
The audit disclosed a need for improvements in the preparation
of expense reports, internal controls, and the methodology used
to compute employee costs. Specific problem areas are addressed
below.
Superfund cost information was not reported to EPA in a
manner consistent with the budgetary classifications provided
in the lAAs, or the object classes used by the DOJ to account
for LNRD costs. Furthermore, amounts reported on expense
reports could not be readily traced to accounting records. As
a result, the financial reports did not provide sufficient cost
data to assure that the costs incurred were within cost category
limitations of the lAAs.
The LNRD system of internal accounting controls needs
strengthening to improve the quality and accuracy of financial
representations in reports and records. As a result of weak-
nesses in LNRD's system of internal accounting controls,
management was not provided with reasonable assurance that
transactions were executed in accordance with management's
authorization and were recorded properly.
in
WASHINGTON. O.C. 20460
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Hourly employee rates used to allocate employee costs
between the various direct and indirect cost centers were not
in compliance with the terms and conditions of the lAAs. As a
result, direct employee costs distributed to individual cost
centers may not have represented actual LNRD costs.
DOJ, LNRD has taken corrective action by informing managers
and staff that controls must be strengthened to ensure: (1) expense
reports reconcile with accounting cost data and the format for
expense reporting is improved; (2) plans are developed to improve
internal controls on its timekeeping system and cost records manage*
ment procedures; and (3) hourly employee rate corrective measures
are instituted to ensure compliance with the requirements of the
lAAs. EPA can take action by following up on the DOJ, LNRD's
corrective actions and obtaining corrected expense reports and
cost data for the two lAAs from the LNRD. Accordingly, we are
making the following recommendations.
RECOMMENDATIONS
We recommend that the Director, Grants Administration
Division:
1. Request a status report on the corrective measures
instituted by the DOJ, LNRD, to ensure that costs
reported to EPA are (1) readily reconcilable with
amounts recorded in LNRD's accounting records, (2) and
in a manner consistent with the budgetary limitations
of the lAAs.
2. Obtain assurance from DOJ, LNRD, that hourly employee
rates used to allocate employee costs between the
various direct and indirect cost centers are in com-
pliance with the terms and conditions of the lAAs.
3. Obtain for accounting control and accuracy purposes,
corrected expense reports and cost data for the two
audited lAAs.
ACTION REQUIRED
In accordance with EPA Directive 2750, the action official
is required to provide this office with a copy of the proposed
determination on the findings within 150 days of the audit
report date. The Director, Grants Administration Division is
the action official for this report.
Should your staff have any questions concerning this report,
please have them contact John Walsh on 475-6753.
Attachment
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APPENDIX
DISTRIBUTION OF REPORT
Assistant Administrator for Solid Waste
and Emergency Response (WH-562)
Comptroller (PM-225)
Chief, Financial and Administrative Management
Section, Office of Emergency and Remedial
Response (WH-548D)
Director, Financial Management Division {PM-226)
Chief, Grants Information and Analysis Branch (PM-216F)
Agency Followup Official (PM-208)
Agency Followup Official {PM-225)
Attn: Resource Management Division
Agency Followup Coordinator (PM-208)
Attn: Program Operations Support Staff
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U.S. DEPARTMENT OF 1USTICE
Audit
Report
AUDIT REPORT Oil THE
ENVIRONMENTAL PROTECTION AGENCY'S
EJTERAGENCY AGREEMENTS WITH
THE DEPARTMENT OF JUSTICE FOR
suPERFUiro AcrrvmES
FISCAL YEAR 193?
«*«*»*«***»tt*«»**«t*ft***««*«****«»*«**ft*******
SEPTEMBER 1988
88-23
Prepared by
Audit Staff
Justice Management
Division
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AUDIT REPORT ON
THE ENVIRONMENTAL PROTECTION AGENCY'S
INTERAGENCY AGREEMENTS WITH
THE DEPARTMENT OF JUSTICE FOR
SUPERPUND ACTIVITIES
FISCAL YEAR 1987
EXECUTIVE DIGEST
The Audit Staff, Justice Management Division (JMD), performed a
financial and compliance audit of the Environmental Protection
Agency's (EPA) Interagency Agreements (IAA) with the Department
of Justice (DOJ) Land and Natural Resources Division (LNRD) under
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA or Superfund), and the Superfund
Amendments and Reauthorization Act of 1986 (SARA). The purposes
of our audit were to determine: (1) the accuracy and reliability
of Superfund cost reports submitted by the LNRD to the EPA,
(2) the adequacy of internal controls in LNRD's system of
accounting for Superfund costs, and (3) LNRD compliance with the
terms and conditions of the lAAs and applicable Federal
regulations.
The audit covered the period October 1, 1986 through
September 30, 1987 and two lAAs, as amended, as follows:
Jjumber
DW 15932400-01-0
DW 15932401-01-0
DW 15932401-01-1*
Period of Agreement
10/01/86 - 09/30/87
10/01/86 - 09/30/87
10/01/86 - 09/30/87
Total
Amount
$ 1,000,000
4,481,300
6.068.700
S11.55Q.OQQ
*Amends agreement no. DW 15932401-01-0
The audit disclosed a need for improvements in the preparation of
expense reports, internal controls, and the methodology used to
compute employee costs. The weaknesses associated with the audit
recommended improvements are summarized as follows:
Expense Reports - Pace 4
Superfund cost information was not reported to EPA in a manner
consistent with the budgetary classifications provided in the
lAAs, or the object classes used by the DOJ to account for LNRD
costs. Furthermore, the expense reports did not apply cost
information from the Expenditure and Allotment Reports uniformly.
As a result, the financial reports did not provide sufficient
cost data to assure that the costs incurred were within cost
category limitations of the lAAs.
-------
Internal Controls - Page 9
The LNRD system of internal accounting controls needs
strengthening to improve the quality and accuracy of financial
representations in reports and records. As a result of
weaknesses in LNRD's system of internal accounting controls,
management was not provided with reasonable assurance that
transactions were executed in accordance with management's
authorization and were recorded properly.
Computation of Employee Costs - Page 12
Hourly employee rates used to allocate employee costs between the
various direct and indirect cost centers were not in compliance
with the terms and conditions of the lAAs. As a result, direct
employee costs distributed to individual cost centers may not
have represented actual LNRD costs.
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TABLE OF CONTENTS
INTRODUCTION
Audit Objectives ,
Audit Scope ,
Summary of Audit Results ,
Background ,
FINDINGS AND RECOMMENDATIONS ,
I. EXPENSE REPORTS ,
Recommendations ,
II. INTERNAL CONTROLS ,
Recommendations ,
III. COMPUTATION OF EMPLOYEE COSTS ,
Recommendation
STATEMENT ON INTERNAL ACCOUNTING CONTROLS
STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS . .
OTHER REPORTABLE MATTERS ,
APPENDIX I - LNRD RESPONSE
APPENDIX II - SUMMARY OF RECOMMENDATIONS AND ACTIONS,
Pagg
1
1
1
2
2
4
4
8
9
11
12
13
14
15
16
17
29
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AUDIT REPORT ON
THE ENVIRONMENTAL PROTECTION AGENCY'S
INTERAGENCY AGREEMENTS WITH
THE DEPARTMENT OF JUSTICE FOR
SUPERFUND ACTIVITIES
FISCAL YEAR 1987
INTRODUCTION
The Audit Staff, Justice Management Division (JMD), has completed
a financial and compliance audit of the Environmental Protection
Agency's (EPA) Interagency Agreements (IAA) with the Department
of Justice (DOJ), Land and Natural Resources Division (LNRD)
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA or Superfund), and the Superfund
Amendments and Reauthorization Act of 1986 (SARA).
Audit Objectives
The purposes of the audit were to determine: (1) the accuracy
and reliability of Superfund cost reports submitted by the LNRD
to the EPA, (2) the adequacy of internal controls in LNRD's
system of accounting for Superfund costs, and (3) LNRD compliance
with the terms and conditions of the lAAs and applicable Federal
regulations.
Audit Scope
Beginning with fiscal year 1987, the LNRD instituted a system
of accounting for all LNRD costs by cost center. In this regard,
the LNRD contracted with the Certified Public Accounting firm
of Rubino & McGeehin, Chartered, (CPA firm) to develop expense
reports which summarized direct and indirect LNRD costs for
each Superfund case litigated by the LNRD. For the purposes of
the lAAs, LNRD identified costs as belonging to one of three
major groups: (1) direct Superfund costs, (2) direct costs other
than Superfund, and (3) indirect costs. Direct costs were
further broken down between direct labor costs and all other
direct costs. Indirect costs were calculated as a percentage of
total direct labor costs. In accordance with LNRD's decisions,
the CPA firm used the proportion of direct Superfund labor to
total direct labor to allocate indirect costs to each. EPA
approved the costing methodology used by the LNRD in IAA
No. DW 15932400-01-0.
As part of our examination, we evaluated attorney time reports
entered into the Attorney Time System (ATS), the resultant
reports from the ATS, the LNRD employee salary rates as calcu-
lated by the CPA firm, the identification and recording of direct
costs, and the indirect costing methodology. We selected direct
- 1 -
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costs on a random basis to determine: (1) the accuracy and
relationship of accounting entries vis-a-vis source documenta-
tion, (2) the allocability of direct Superfund charges, and
(3) the allowability of costs based on Federal regulations. We
reviewed all quarterly expense reports submitted to EPA for
fiscal year 1987. This provided the basis for the audit opinion
statements and recommendations covered by this report.
Our examination was conducted in accordance with generally
accepted government auditing standards and included such tests of
the accounting and management records as were considered neces-
sary in the circumstances. The audit covered the financial
activities for the period October 1, 1986 through September 30,
1987 for the following lAAs:
Number
DW 15932400-01-0
DW 15932401-01-0
DW 15932401-01-1*
Period of Agreement
10/01/86 - 09/30/87
10/01/86 - 09/30/87
10/01/86 - 09/30/87
Total
Amount
$ 1,000,000
4,481,300
6.068.700
S11.550.0QQ
*Amends agreement no. DW 15932401-01-0
Summary of Audit Results
Costs reported to the EPA were not readily reconcilable with
amounts recorded in LNRD's accounting records due to differences
in the methodology of expense classification and were not
reported in a manner consistent with the budgetary limitations of
the XAAs. In addition, we found weaknesses in internal controls
which could result in a higher risk that material errors could
occur and not be detected in a timely manner. Furthermore,
hourly employee rates used to allocate employee costs between the
various direct and indirect cost centers were not in compliance
with the terms and conditions of the lAAs.
Background
On December 11, 1980, CERCLA was signed into law. It provided
for liability, compensation, cleanup, and emergency response for
hazardous substances released into the environment and
uncontrolled and abandoned hazardous waste sites. This
legislation was subsequently amended by SARA. Implementing
procedures were contained in the National Contingency Plan set
forth in Executive Order (EO) 12316 of August 14, 1981. This EO
provided that the Attorney General was responsible for the
conduct and control of all litigation arising under Superfund.
To fund these activities, EO 12316 required the Administrator,
EPA, to transfer appropriation accounts to other agencies from
the Hazardous Substance Response Trust Fund.
- 2 -
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For fiscal year 1987, the Office of Waste Program Enforcement
(OWPE), EPA, issued two lAAs, as amended, to LNRO for conducting
litigation and other activities related to EPA Superfund as
authorized by CERCLA, SARA and EO 12316. The lAAs authorized the
DOJ to be reimbursed for LNRD's costs based on its professional
employees' level of effort.
Accounting for LNRD costs and preparation of expense reports was
provided by the CPA firm of Rubino & McGeehin, Chartered. The
CPA firm designed a system for distributing costs to the major
groupings discussed in the Audit Scope paragraph of this report.
This system was predicated on the identification and allocation
of direct costs to specific cases, which were subsequently
designated as either "Superfund" or "Other." Both direct labor
and other direct costs were then subtracted from total LNRD
costs, and the balance was allocated in proportion to direct
labor costs. This method of deriving actual and allocable costs
was generally consistent with the costing methodology stipulated
by the EPA under applicable provisions of the lAAs.
Site referrals were the primary means by which EPA authorized
other Federal organizations to incur reimbursable costs.
Accordingly, reconciliation of cost data with site referral
information is critical for determining the allocability of
incurred costs. In fiscal year 1987 the LNRD provided cost
information on 773 Superfund related cases. However, since the
cost information on the 773 cases could not be confirmed with EPA
site referral information, our audit is qualified to the extent
that the cases contained in the expense reports may not represent
all Superfund related cases being litigated by the LNRO.
Notwithstanding this qualification, LNRD provided EPA cost
information on a case by case basis; thus, discrepancies between
case referrals and LNRD cost claims should have been readily
identifiable by EPA officials.
- 3 -
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FINDINGS AND RECOMMENDATIONS
EXPENSE REPORTS
Superfund cost information was not reported to EPA in
a manner consistent with the budgetary classifications
provided in the XAAs, or the object classes used by
the DOJ to account for LNRD costs. Also, the expense
reports did not apply cost information from the
Expenditure and Allotment (E&A) Reports uniformly.
This occurred because the system used to accumulate
and distribute Superfund case cost information
compressed all direct costs into one of two
categories: (1) Direct Labor, and (2) Other Direct.
The lAAs between LNRD and EPA required that cost
reports reflect costs by object class and budget line
item for each agreement. Furthermore, organization-
wide cost information used in the preparation of
expense reports should have been obtained from the
final E&A report, and not preliminary reports thereo'f.
As a result, the financial reports did not provide
sufficient cost data to assure that costs incurred
were within the individual cost category budget
limitations of the lAAs.
Identification of Costs bv Expense Categories
The governing lAAs required the LNRD to report expenses
both by IAA and object class, our review of the two lAAs,
as amended, disclosed that cost estimates were established
by budget category, and no provision had been made for
indirect costs. By special condition to DW 15932400-01-0,
however, direct costs allocable to the EPA were to be
determined by the proportion of direct labor expended on
Superfund related activities. Accordingly, to comply with
these agreements LNRD should have accounted for all direct
costs by budget line item, then allocate costs on a line by
line item basis, not by indirect cost pool. The LNRD,
however, established procedures to account for all direct
labor, expert witness, automated litigation support,
transcript, and travel costs. All other costs were
included in an indirect cost pool.
The governing lAAs required the reporting of expenses by
ten separate object classes, as appropriate to the
individual IAA. The expense report for fiscal year 1987,
on the other hand, was comprised of direct labor, other
direct costs, indirect costs, and unpaid obligations. As a
result, the following differences were noted between the
reporting categories required by the lAAs and the LNRD
fourth quarter expense report.
- 4 -
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Budgeted Costs Per lAAs
Amount
IAA
Exense
(a) Personnel
(b) Fringe
Benefits
(c) Travel
(d) Equipment
(e) Supplies
(f ) Pl'm .i tt qfl itfj tt
Assistance
(g) oaa»ttucticn
(h) Other
(i) Total Direct
(j) Indirect
Costs
DW15932400-01 CW159324Q1-O1
$ 0 $ 4,952,000
0
0
0
0
1,000,000
0
0
0
681,000
709,000
45,000
65,000
3,067,000
0
1,031,000
0
Ccnbjjied
$ 4,952,000
681,000
709,000
45,000
65,000
4,067,000
0
1,031,000
0
S 1.000.000 610.S50.QQQ
(k) Total
I/ As amended
Reimbursable Superfund Costs Per Expense Reports
Category
Direct Labor 9/
Other Direct Costs **
Indirect Costs
Subtotal
Unpaid Obligations
Total Superfund Allocation of
fiscal year 1987 LNRD obliga-
tions
Amount
$ 2,517,609
2,325,929
6.306.723
$11,150,261
1.160.850
gl3.311.lll
a/
2J Includes Expert Witness Costs,
Automated Litigation Support
Costs, Transcripts, and Travel.
3_/ From case cost summary.
Per page 1 of 2 of the September 30,
Expense Report.
1987
Although the EPA has reimbursed LNRD without requiring
additional IAA or object class identification, the
reporting format used by LNRD was not responsive to the
requirements of the lAAs.
Reporting of LNRD Costs
Amounts could not be readily traced from the accounting
records constructed by the CPA firm to the expense reports
sent to EPA. This occurred because costs were not reported
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by the sane cost categories used in the DOJ accounting
records. In addition, contrary to the design for
reporting, the expense reports did not reflect all non-
Superfund costs. Because the expense reports used LNRD's
total expenses and obligations for allocating costs, all
direct costs should have been identified in order to
support indirect cost pool determinations. Since the
expense report did not reflect all direct expenses, there
existed an unreconciled difference of $6,180,480 in costs
between the accounting records and the report. These
differences are summarized as follows:
As of September 30. 1987
Expense
I. Direct labor
Superfund
Other Cases
Total Part I
II. Other Direct
Superfund
other Cases
Adjustments
Total Part H
III. Section 1595 *f.
Section 1596 *f.
Section 1598 **
Total Part HI
IV. indirect
labor
fringe Benefits
Indirect Travel
Freight
Space, Lights,
Utilities
Printing
Training
Supplies
Non-capital
Equipment
Other
Total Part IV
Total
Accounting
$ 2,517,546
7.257.038
S 9.774.584
$ 1,045,439
1,047,977
10.451
$ 3,230,232
476,454
2.695.856
S 6.402.542
$ 8,954,626
2,406,682
59,299
319,572
3,397,903
260,076
1,309,293
367,042
304,007
286
S17.378.786
$ 2,517,546
7.257.038
S 9.774.584
$ 2,325,929
0
Q
S 2.103.867 6 2.325.929
0
0
0
$ 8,954,626
2,406,682
59,299
319,572
3,397,903
260,076
1,309,293
367,042
304,293
Q
S17.378.786
$2
Difference
0
0
$ (1,280,490)
1,047,977
10.451
S (222.0621
$ 3,230,232
476,454
2.695.856
S 6.402.542
$ 0
0
0
0
0
0
0
0
(286)
286
$ Q
fi 6.180.480
This amount, used in the computation of the proportion of Superfund
direct labor to INRD direct labor, does not agree with the amount
reported in the case cost summary.
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Section 1595 relates to reimbursable amounts from
agencies other than EPA.
Section 1596 relates to non-Superfund litigation support
and office automation.
I/ Section 1598 relates to charges which are Superfund
specific.
As a result, the report did not provide either a complete
summary of all costs incurred by the LNRD or a systematic
means of determining the allocability of those costs
charged to the EPA as Superfund related.
Use of Expenditure and Allotment Cost Information
Amounts of unliquidated obligations presented in the
expense report were not extracted consistently from LNRD's
E&A Report. Two E&A Reports, one printed October 8, 1987
and the other on October 23, 1987, were used to compute
"Net Unliquidated Obligations," as depicted below:
"EPA Billing
Pace 2 of 2
IKRD Fiscal Year 1987 unliquidated
obligations at September 30, 1987
Less - unliquidated obligations:
Section 1595
Section 1596
Section 1598
Net unliquidated obligations -
IKRD (a)
Superfund percentage -^ (b)
Superfund portion of unliquidated
obligations (a) x (b)
Add * Section 1598
unliquidated obligations
Total Super fund unliquidated
obligations
Adjustment for Superfund portion of
payments on prior fiscal years'
unliquidated obligations
Total Superfund unliquidated
obligations
less: Amounts previously billed
Met Superfund unliquidated
obligations - fourth quarter
Per Expense
Report
Corrected Per
10/23/87 Recort
$ 5,952,590
(2,468,685)
( 375,848)
fl.322.2281
2/
I/
I/
$ 5,952,590
(2,481,131)
( 659,161)
fl.323.4711
2/
2/
S 1.785.829 6 1.488.827
$ 459,959
1.322.228
1,782,187
(621.3371
1,160,850
(1.900.9611
$ 383,462
1.323.471
1,706,933
(621.3371
1,085,596
fl.900.9611
S r740.1111 S (815.3651
I/ FY 1987 E&A Report printed 10/08/87
2/ FY 1987 E&A Report printed 10/23/87
Difference
$ 0
12,446
283,313
1.243
S297.0Q2
$ 76,497
fl.2431
75,254
S 75.554
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I/ Superfund 's percentage of unliquidated obligations was
calculated by dividing year to date Superfund direct labor
as of September 30, 1987 by the total direct labor for the
period ($2,517,608 / $9,744,584 - 25.7561).
Because the expense report was not prepared from the most
recent E&A Report, both "Net Superfund unliquidated
obligations - fourth quarter" shown above and the
$12,311,111 reported for "Total Superfund Allocation of
fiscal year 1987 LNRD Obligations" (See page 5 of this
Report) were overstated by $75,254.
The Audit Staff recommends that the LNRD:
1. Revise the system used to accumulate Superfund costs to
permit the reporting of costs in a manner consistent
with the budgetary categories of the lAAs.
2. Prepare an amended final report using E&A Report
information that identifies costs in a manner
consistent with the accounting records, and include
sufficient information to permit the reconciliation of
all costs claimed to LNRO's E&A Reports.
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II.
INTERNAL
The LNRD system of internal accounting controls needs
strengthening to improve the quality and accuracy of
financial representations in reports and records. The
system weaknesses vere: (1) the attorney time
reporting system lacking effective quality and
supervisory controls, (2) direct costs being allocated
among Superfund cases on a computed rather than actual
basis, and (3) adjusting entries not providing adequate
referencing to locate source documentation.
Accordingly, the LNRD's system of internal accounting
controls did not provide management with reasonable
assurance that transactions vere executed in accordance
with management's authorization and were recorded
properly.
The Budget and Accounting Procedures Act of 1950
established the principles and standards governing the -
accounting of governmental activities. The standards vere
promulgated by the General Accounting Office's Policies and
Procedures Manual for Guidance of Federal Agencies, and set
forth guidance pertaining to technical compliance elements
and the usefulness of financial data. The Office of
Management and Budget circular No. A-123 further defines
the responsibilities of administering agencies to include
the development and use of systems of internal control.
The policies and standards set forth under this circular
make it incumbent upon individual organizations within an
executive agency to ensure that: (1) all transactions and
other significant events are documented and readily
available for examination, and (2) transactions and
significant events are accurately recorded. In addition,
Generally Accepted Accounting Principles require the
accurate and complete reporting of financial information.
Attorney Time Reports
Allocation of direct labor costs vas based upon attorney
time reports vhich identify hours worked by specific case.
Time reports were adjusted for mathematical and case number
errors, if any, by LNRD system analysts then entered into
the Attorney Time System by contract data entry personnel.
Attorney case hours were subsequently entered into the cost
accounting system for computation of direct and indirect
labor costs.
LNRD supervisory personnel did not approve individual
attorney time reports, and attorneys charged with the
overall responsibility for cases did not verify case hours
reported on the attorney time reports. Also, time report
corrections made by systems analysts were not returned to
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and approved by responsible case attorneys before their
input into the data base. These weaknesses precluded LNRD
from having the necessary assurance that case hours
represented in attorney time reports were an accurate
reflection of the attorneys1 work.
Allocation of Direct Costs
Direct costs other than personnel were not allocated on a
basis consistent with actual effort or actual cost. For
example, one-third of the dollar amount of Batch Number
2170IX - Voucher Number 017, or $333.17, was incorrectly
allocated to case 90-11-2-156. This occurred because the
total voucher amount was allocated evenly among the three
cases initially authorized on the travel request without
regard to the fact that travel in relation to case 90-11-2-
156 had been subsequently cancelled. Allocation of direct
costs by this method did not provide LNRD with accurate
Superfund case specific costs although total Superfund
direct costs may have been stated fairly.
Adjusting Entries
Adjusting entries for direct costs other than personnel did
not provide adequate referencing to source documents. For
example, in our sample of 105 adjusting vouchers, five
could not be traced to source documents due to inadequate
referencing. These are identified as follows:
Batch
Kefr
1031
1065
1121
1128
3099
42301V
52601V
6290LR
62901R
91806H
Voucher
Number
005
001
on
022
051
Total
Amount
$ (27.90)
(3,796.88)
(1,667.25)
71,324.29
f763.991
S65.068.27
Travel
Expert witness
ADP services
Automated litigation
Court reporter/tran-
script
Each of the above vouchers was an adjusting voucher used to
reclassify expenses between object classes. Because of
inadequate referencing, we were unable to examine the
original voucher or the original obligation document to
determine the allowability or allocability of these
charges.
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Recommendations
The Audit Staff recommends that LNRD:
3.
4.
5.
Develop and implement procedures for the strengthening
of supervisory controls to include: (a) approval of
attorney time reports by supervisory personnel, (b)
requiring attorneys with overall responsibility for
Superfund cases to verify case hours represented on
attorney time reports, and (c) returning time reports
corrected by LNRD systems analysts for approval by case
attorneys.
Adopt procedures for allocating direct costs other than
personnel on a basis consistent with actual effort or
actual costs.
Provide assurance that adjusting entries are adequately
referenced and supported with documentation evidencing
authorization and approval.
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III. COMPUTATION OF EMPLOYEE COSTS
Hourly employee rates used to allocate employee costs
between the various direct and indirect cost centers
vere not in compliance with the terms and conditions
of the lAAs. This was because: (1) costs for
attorneys vere based on rates of pay, and not actual
earnings; and (2) hours worked were adjusted to
reflect a minimum average of 8 hours for each work
day during a given month. The costing methodology
set forth in the governing lAAs required that actual
costs be used as the basis for reimbursement. As a
result, direct employee costs distributed to
individual cost centers may not have represented
actual LNRD costs.
The EPA approved costing methodology for determining
reimbursable costs required that the LNRD use the level of
effort expended by its professional employees, as deter-
mined by comparing Superfund case hours to total case
hours, to allocate all LNRD costs. To implement, a costing
methodology which would comply with the lAAs while provid-
ing the most accurate accounting of direct costs possible,
the LNRD decided to weight the hours worked by professional
employees by their respective levels of remuneration. This
was accomplished by applying an employee's rate of pay to
the hours worked in a given month. This procedure may
result in incorrect rate computations whenever changes
occur in employee salary rates, or where employees are on
work schedules which do not result in an average of 8 hours
worked for each workday in a given month. In either
circumstance, the use of employee pay rates and not actual
remuneration may result in incorrect cost allocations. In
computing rates for the month of December 1986, for
example, the LNRD appeared to have used January 1987 salary
rates which included a 3 percent cost of living adjustment
not applicable to the December period.
Compounding this problem, the LNRD engaged in a practice of
adjusting employee time reports to reflect hours normally
charged for a month. For instance, the hours worked in
June by employee number 302 appear to have been increased
from 114 hours to the 176 hours normally charged by an
employee for that month. The addition of indirect work
hours to compensate for unreported time had the dual effect
of lowering the employee rates used to determine direct
time charges while increasing costs retained as indirect
costs. Because the quarterly expense reports used actual
LNRD costs reported on the E&A Reports as a basis for
determining total costs, and derived indirect costs by
deducting direct costs from total LNRD costs, variances in
direct charges were offset by corresponding changes in the
- 12 -
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indirect cost pool. Since both direct Superfund and direct
non-Superfund costs were treated in a like manner, this
practice should have had no material effect on the total
costs reported to the EPA. This practice, however, may
have had some effect on the allocation of costs among the
individual cases.
Although rates determined by use of employee earnings
varied only marginally from those rates developed by LNRD
from employee salary rates, our test of 93 computations
disclosed variances in 49. In each instance the variance
appeared to have been due to either the rate or hours
adjustment issues disclosed herein. Since the governing
ZAAs required the LNRD to use actual costs, actual employee
earnings and actual hours should be used to allocate
employee costs.
Recommendation
The Audit Staff recommends that LNRD:
6. Ensure that actual employee earnings and hours are used
for computing distributable direct labor costs.
- 13 -
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STATEMENT ON INTERNAL ACCOUNTING CONTROLS
He have reviewed the system of internal accounting controls as
required by the Standards for Audit of Governmental Organiza-
tions. Programs. Activities and Functions, issued by the
Comptroller General of the United States. Accounting control
comprises the procedures and records that are concerned with the
safeguarding of assets and the reliability of financial records.
LKRD is responsible for establishing and maintaining a system of
internal controls. The objectives of a system of internal
controls are to provide the management of LKRD with reasonable,
but not absolute, assurance that assets are safeguarded against
loss, unauthorized use or disposition, and that transactions are
executed in accordance with management's authorization and are
recorded properly. Because of inherent limitations in any system
of internal controls, errors and irregularities may nevertheless
occur and not be detected. Also, projection of any evaluation of
the system to future periods is subject to the risk that proce-
dures may become inadequate because of changes in conditions or
that the degree of compliance with the procedures may deterio-
rate.
Our study and evaluation, made for the limited purpose described
previously, would not necessarily disclose all material weak-
nesses in the system. Accordingly, we do not express an opinion
on LNRD's system of internal controls taken as a whole. However,
our study and evaluation disclosed conditions that could result
in a higher risk that material errors or irregularities may occur
and not be detected within a timely period. These conditions are
discussed in the Findings and Recommendations section of this
report.
- 14 -
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In our opinion, the LNRD complied with the applicable laws and
regulations for the transactions tested which could have a
material effect on the cost of litigative services provided to
the EPA.
For those transactions not tested, nothing came to our attention
during the examination that caused us to believe that the LNRD
was not in compliance with applicable laws and regulations.
- 15 -
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OTHER REPQRTAPLE MATTERS
1. Cost centers have been established for the accumulation of
LNRD costs which are related to the provision of legal
services to the EPA, but which are not related to ongoing
Superfund litigation. As these costs are not treated as
overhead expenses, they may not be recovered by the EPA
through subsequent litigation.
2. Beginning with the fiscal year ended September 30, 1987, the
indirect rate calculation included all indirect costs paid
(liquidated obligations) during the current fiscal year in
lieu of obligations to calculate the indirect cost rate.
Payments were used instead of obligations because the CPA
firm determined that payments of obligated amounts were often
made significantly later than when obligated. As a result,
when calculating the indirect cost rate for the current
fiscal year, the payments made on the prior year's
obligations were included as part of the indirect cost pool
for the current year.
For fiscal years ending September 30, 1986 and prior, LNRD
used all obligated amounts, whether paid or unliquidated, to
calculate the cost associated with work performed by the LNRD
for the EPA. For 1987 and subsequent years, LNRD needs to
credit the Superfund account to reduce the amount requested
for obligations paid in one year but already charged in those
prior years when unliquidated obligations were used in the
billing formula. With respect to EPA reimbursement, this
credit is reported on page 2 of 2 of the EPA Billing Summary,
and is described as "Adjustment for Superfund Portion of
Payments on Prior Fiscal Years' Unliquidated Obligations."
In submitting claims against responsible parties under
CERCLA, the entire issue of how past costs would be handled
was being explored between LNRD and the CPA firm. In the
interim, a credit was being applied based on a charged hours
percentage for the prior years relating to a particular case.
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APPENDIX I
U.S. Department of Justice
Land and Natural Resources Division
Executive Office
, D.C 20530
MEMORANDUM
TO:
FROM:
SUBJECT:
Guy K. Zimmerman
Director
Audit staff
Justice Management Division
vRoger J. Marzulla
sistant Attorney General
Land and Natural Resources Division
Draft Audit Report on the Environmental Protection
Agency's Interagency Agreements with the Department of
Justice for Superfund Activities
Thank you for the opportunity to respond to the subject
audit. Audits of this nature are useful and constructive, and
significantly benefit the government's efforts to recover from
polluters federal funds spent to clean the environment. I am
particularly pleased that corrective actions for the audit's
findings can be implemented quickly, and that our system of
accounting for cost recovery cases has passed this critical first
test.
For your convenience, our detailed responses to the six
recommendations are attached. However, I would like to respond
briefly to the summary of audit results. The Land and Natural
Resources Division agrees with the audit about the need to
better reconcile expense reports with accounting data, and our
/ format for expense reporting has been revised accordingly. In
addition, the internal control issues outlined in the audit are
basically accurate, and the Division has developed plans to
improve internal controls on its timekeeping system and cost
records management procedures. Our position on the issue of
hourly employee rates was made known to your staff at a meeting
held Wednesday September 7, 1988, and we have instituted
corrective measures for those few calculation errors noted in the
audit.
Overall, I believe that this audit is best read in
light of the problems which were not found to be present — no
major internal control weakness which would prejudice an
independent opinion about the costs was identified, nor were
- 17 -
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Mr. Guy K. Zimmerman
Page 2
flaws in the accounting system design unearthed. While this was
an "exception* audit, and thus its mandate was limited to
preclude an opinion about the reasonableness of costs, the report
would nonetheless have included a negative statement about the
overall cost system had your audit discovered major flaws. The
lack of a negative statement of this ilk can be read as an
endorsement of the Lands Division's systems for cost accounting.
Please pass along our thanks to the audit team for
their fine work and cooperation. We look forward to working with
you and your staff in the future.
Attachment
- 18 -
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D«tail«d Responses to Audit Recommendations
I. Expense Reports
1. Consistent with the budgetary estimates listed in each of
the Superfund Interagency Agreements, the Land and Natural
Resources Division's format for Superfund expense reporting to
the EPA will be revised to include summary expense information
listed by object classification (see Appendix A).
2. An emended final report for fiscal 1987 will be prepared by
September 30, 1988, and a copy forwarded to the Audit Staff for
review. This final report, and all subsequent expense reports
prepared by the Division, will include a new schedule designed to
facilitate the reconciliation of the Superfund expense reports
with the Department of Justice's 'Expenditure and Allotment*
accounting reports (see Appendix A).
II. Internal Controls
3. The Lands Division intends to take several steps over the
next six months to strengthen and improve internal controls over
it's time keeping system (see Appendix B). In sum, these
measures will provide additional quality control over the time
data, and supervisory review of the reported information.
4. For the allocation of direct travel to cases, the Division
now requires staff to list on their travel vouchers (as well as
the travel authorizations) the proper allocation of costs when
multiple cases are involved (see Appendix C). The allocation
information provided on the actual payment voucher will be used
as the basis for allocating costs to individual cases. An
adjusting entry has been made to correct the erroneous allocation
identified by the audit for batch number 21701X voucher 17.
5. The problem identified by the audit involves record keeping
practices when adjusting entries which affect direct charges are
made within the Department of Justice accounting system. Most
of these adjusting entries involve corrections to the sub-object
classification or the accounting classification, and thus have
little impact on the cost system. With the cooperation of the
Justice Management Division's Finance Staff, the Lands Division
will collect copies of all paper documents related to both the
adjusting entry, and to the source document which was adjusted,
and maintain these records to support costs.
II. Computation of Employee Cost^s
6. The Lands Division's views and supporting papers on employee
earnings were provided to the Audit Staff on September 7, 1988.
The emended final expense report for 1987 will include
corrections for each of the computations which were erroneous,
and a copy of the final report will be provided to the Audit
Staff for review.
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Appendix A
Page 1 of 2
EPA Billing Summary
Reconciliation of Total LHRD Expenses
Total LNRD expenses per Expenditure and Allotment
Report dated September 30. 1987
Less:
Total direct Superfund labor
Total direct non-Superfund labor
Subtotal
$
$"
Total other direct Superfund costs $_
Total other direct non-Superfund costs $~
Subtotal $_
Net direct expenses
Net indirect expenses
Overhead payments - prior f/y obligations
Total Indirect Expenses
- 20 -
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Appendix A
Page 2 of 2
EPA Billing Suamary
Superfuad Coats by object classification
Object
Class
11
12
21
22
23
24
25
26
31
Description
Salaries
Benefits
Travel
Freight
Rent
Printing
Services
Supplies
Equipment
Direct
Expenses
$
$
$
$
$
$
$
$
$
Indirect
Expenses
$
$
$
$
$
$
$
S
$
Total
$
$
$ .
$
$
$
$
$
$
Total
- 21 -
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Appendix B
Page 1 of 6
Our comments on the attorney tine system internal controls consist of
three parts: (1) suggested clarifications to the audit report, (2)
our statement of intention regarding compliance with the
recommendations in the report, and (3) a timetable setting forth the
compliance schedule.
I. Suggested chancesi
Page 15, Attorney Time Reports, third line, reads:
Time reports were adjusted for mathematical and case number
errors, if any, and entered into the Attorney Time System by
systems analysts.
We suggest:
Time reports were adjusted for mathematical and case number
errors, if any, by systems analysts in the Lands Division and
entered into the Attorney Time System by contract data entry
personnel.
Page 15, Attorney Time Reports, second paragraph, reads:
LNRD supervisory personnel did not approve individual attorney
time reports, and attorneys charged with the overall
responsibility for cases did not verify case hours reported on
the attorney time reports. Also, time report corrections made by
systems analysts were not returned to and approved by responsible
case attorneys before their input into the data base.
We suggest:
LNRD supervisory personnel did not approve individual attorney
time reports prior to data entry. However, after data entry,
each section chief was furnished with computer generated reports
which indicated the total case and category hours reported by
each attorney and paralegal in his or her section. Also, time
report corrections made by systems analysts were not returned to
and approved by the timekeeper before their input into the data
base under the following circumstances:
date was incorrect
timekeeper's ID number was incorrect
section ID was incorrect
- name was incorrect
- math was incorrect
decimals were added to whole numbers
decimals .2, .7 were changed to .25, .75
decimals .3, .8, .9 were changed to .25, .75, 1.00
overtime was not recorded for hours in excess of normal
work week
corrections were made for clarity, i.e., handwriting was
illegible, hours were written above or below the box
- 22 -
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Appendix B
Page 2 of 6
provided, case hours were written in the lines provided
for categories
- file number was incorrect, i.e., dash was omitted, '9" was
written instead of *90,» »5* was written instead of *s,'
numbers were omitted in file number
- when a zero was listed for a case or category,it was
eliminated so that it would not be keyed
DJ file number was reported with no hours
- total column was blank but time was noted per day (time was
written in the total column.)
- wrong color timesheet was used (Timesheet was copied on the
appropriate colored paper.)
However, time reports were returned for corrections or
corrections were verified by telephone or electronic mail when:
- case name was noted instead of DJ file number
- file number was incorrect
- hours were reported with no DJ file number
- one timesheet was received instead of the two that are
required when the month does not end on Saturday
timesheet was unsigned
- holiday was not noted
- 40 hours were not reported by full time employees
After data entry, reports containing any incorrect DJ file
numbers used were produced and forwarded to the attorneys or
paralegals for correction. The corrected reports were
subsequently returned to the Systems Group for entry into the
data base.
Page 17-18, Recommendations. reads:
3. Develop and implement procedures for the strengthening of
supervisory controls to include: (a) approval of attorney time
reports by supervisory personnel, (b) requiring attorneys with
overall responsibility for Superfund cases to verify case hours
represented on attorney time reports, and (c) returning time
reports corrected by LNRD systems analysts for approval by case
attorneys.
We suggest:
Develop and implement procedures for the strengthening of
supervisory controls to include: (a) approval of attorney and
paralegal timesheets by supervisory personnel, and (b) returning
time reports corrected by LNRD systems analysts for approval by
case attorneys.
yi. Statement ofintention:
In its report, the Audit Staff of the Justice Management Division
concludes that the Division needs to implement procedures for
- 23 -
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Appendix B
Page 3 of 6
strengthening internal controls over the timekeeping forms, and that
time reported must be verified by a supervisory person.
We intend to comply with the recommendations for strengthening
supervisory controls by establishing levels of review for the
timekeeping forms. As a first step, the Division will implement a
procedure whereby the Section Chiefs will delegate authority to
review and correct timesheets to the Case Management Specialists and
designated supervisory person(s). Second, the Assistant Attorney
General or Deputy Assistant Attorney General will delegate to the
Systems Group limited authority to review and correct timesheets for
the entire Division. After these delegations have been established,
the following review process will be implemented:
A. Case Management Specialist Responsibilities
The Case Management Specialist in each section will collect
timesheets every Monday, review each timesheet for
completeness and accuracy, and be authorized to independently
make the following changes to assure that the:
- timesheet is legible
- timekeeper used the proper color timesheet
- timekeeper's ID number is correct
- timekeeper's name is correct
- section indicator is correct
- week ending date is correct
- DJ case numbers are correct
- math is correct
_ decimals are indicated for whole hours (8.0)
- time is reported in 15-minute segments
- overtime is recorded for hours in excess of
normal work week
- holiday is recorded under leave category
- zero or blank hours are not reported for any case or
category
- daily time also appears in the total column
The following problems will be returned to the timekeeper for
correction, and then re-submitted to the Case Management
Specialists:
- time sheet is not signed
- case name is noted instead of DJ file number
- file number is incorrect and Case Management
Specialist is unable to determine correct number
- hours are reported with no DJ file number
- one month-end timesheet is submitted instead of two
when the month does not end on Saturday
- holiday is not noted
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Appendix B
Page 4 of 6
- total hours are less than the timekeeper's normal work
week (40.0 hours if full time employee)
The Case Management Specialist will review time sheets for
completeness and accuracy.1
The Case Management Specialist will sort and batch the timesheets.
A check-sheet will accompany the timesheets and will be placed on
top of the verified timesheets, specifying the name of each
attorney or paralegal who is required to submit a timesheet and,
indicating those who have submitted a timesheet for the current
week and those who have submitted delinquent timesheets for prior
weeks.
The Case Management Specialist will submit the batched
timesheets to a designated supervisory person(s) for review and
approval.
B. Supervisory responsibility
After review, designated supervisory person(s) in each section
will sign the cover sheet and return the package to the Case
Management Specialist for submission top the Systems Group by
noon each Wednesday.
1 Verification of the accuracy of time reports includes
assurance that:
1. Total hours are filled in and represent "at least* the
number of hours that a particular employee normally works
during the work week (i.e., 40.0 hours for full time).
2. The employee's name, section, ID number and week ending
date are correct.
3. The case numbers reported on the timesheet are assigned to
the timekeeper. If the case is not assigned to the timekeeper,
the Case Management Specialist will verify that the timekeeper
is working on the case.
4. The timesheet is signed by the timekeeper.
The verifier is not responsible for attesting to the number of
hours reported for each case nor the total time worked if it is
beyond the normal work week.
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Appendix B
Page 5 of 6
C. Systems Group responsibility
The Systems Group will perform a second quality assurance review,
and may independently correct timesheets within the limits
established for Case Management Specialists in paragraph A.
The Systems Group will submit the timesheets for Keypunching,
verify their return, and maintain locked files for the timesheets
until they are permanently stored on microfilm.
III. Timetable;
The timetable for implementing the new review procedures for the
timesheets is below:
Milestones
Draft delegation of authority from
Section Chiefs to Case Management
Specialists and other supervisory
person(s) to review and correct
timesheets.
Forward draft to Section Chiefs for
review and comments.
Incorporate comments of Section Chiefs.
Forward final delegation of authority
to Section Chiefs for signature.
Draft delegation of authority from
Deputy Assistant Attorney General
or Assistant Attorney General to
Systems Group to review and correct
timesheets for the entire Division.
(Include copy of signed delegation
from Section Chiefs.)
Forward draft to Deputy Assistant
Attorney General for review and comments.
Incorporate comments of Deputy
Assistant Attorney General.
Forward final delegation of authority
to Deputy or Assistant Attorney General
for signature.
Contact sections to establish supervisory
processing points.
Completion Date
9/30/88
10/3/88
10/2/88
10/24/88
10/31/88
11/1/88
11/18/88
11/21/88
11/30/88
- 26 -
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Appendix B
Page 6 of 6
Draft list of supervisory processing points,
Forward list to Section Chiefs for review.
Incorporate comments of Section Chiefs.
Draft new timekeeping policy guidelines
setting forth the above delegations, new
supervisory review functions, and how
amendments to timekeeping form will be
handled.
Forward draft of policy guidelines
to Section Chiefs for review and
comments.
Incorporate comments of Section Chiefs.
Forward draft of policy guidelines to
Deputy Assistant Attorney General for
review and comments.
Incorporate comments of Deputy Assistant
Attorney General.
Forward final of policy guidelines to
Deputy Assistant Attorney General for
approval.
Forward guidelines to Assistant Attorney
General as a Division directive.
Review process with Case Management
Specialists.
Implement new procedures.
12/7/88
12/8/88
12/19/88
12/30/88
1/3/89
1/20/89
1/30/89
2/13/89
2/20/89
2/27/89
3/6/89
3/13/89
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U.S. Department of Justice
Land and Natural Resources Division
WaiftinfTon.D.C. 20530
Appendix C
Page l of l
MEMORANDUM
From: Gary M. Peterson
Executive Assistant
To: All Employees
Land and Natural Resources Division
Subject: Allocating Costs for Multi-case Travel
Effective immediately, all personnel in the Land and Natural
Resources Division are required to list on each travel voucher an
allocation of the total amount claimed to each of the cases or
projects for which you traveled. You may make this allocation based
on any of the folowing criteria:
Number of hours worked on each case or prelect
This would be appropriate if you visit one city, but work on
several cases. If you work 10 hours on Case A and 20 hours on Case
B, the allocation would be 33% for Case A and 67% for Case B.
Cost of airfare when separate cites are visited
If you visit Philadelphia for Case C (airfare is 20% of total
cost), then fly to San Francisco to work on Case D (airfare is 80%
of total cost), the allocation could be 20% for Case C and 80% for
Case D.
Cost of airfare and number of hours worked
Should you visit New York for six days, and Los Angeles for one
day, a hybrid approach might be appropriate, counting the costs of
airfare as well as the number of hours worked.
Primary purpose of travel
If you must fly to San Fransisco for Case E, and then stop by
Denver for Case F as an afterthought, you might allocate 90% of the
trip's costs to Case E and 10% to Case F.
Your allocation is not intended to be an exercise in higher
mathematics; you are asked only to provide a good faith estimate of
the costs allocable to each case or project. Should you have any
questions about cost allocations on travel vouchers, please call Kyra
O'Kieffe in the Financial Management Group on 272-5977.
- 28 -
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APPENDIX II
SUMMARY OP RECOMMENDATIONS AND ACTIONS
Recommendation Number:
X.
2.
4.
5.
6.
Resolved. No further action required.
Resolved. Subsequent to our receipt and review of the
amended final Fiscal Year 1987 financial report, we shall
consider this recommendation for closure.
Resolved. Closure of this recommendation is dependent upon
successful completion of the scheduled corrective actions.
Resolved. No further action required.
Resolved. No further action required.
Resolved. No further action required. The information
provided to the Audit Staff on September 7, 1988, by the
contractual CPA firm was sufficient to remedy the finding and
recommendation. The information demonstrated that the CPA
firm was using a methodology which appeared to compute and
allocate actual labor costs on a fair and equitable basis.
Though alternatives exist, the method used by the CPA firm,
thus LNRO, appears reasonable.
- 29 -
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I t«*7 1 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
APR I I 1988
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Audit Report Summaries for Semiannual Report
to Congress
TO: See Attached List
The Office of Inspector General is required to provide a
semiannual report to Congress. In this report, we provide
summaries of some of the significant audits which we have
performed.
Attached are copies of report summaries relating to your
office which we plan to include in the next semiannual report.
These summaries are as close as possible to the final versions
that will appear in .the semiannual report to be issued to the
Administrator cgT'^gril 29, 19QB.^
Should you or your staff have any comments regarding the
factual content of the report summaries, please submit your
comments in writing to Ernest E. Bradley III. ^Assistant
Inspector General for~~A~ucTit^ To consider youiT comments, we
must receive them no later than April 20, 1988. We appreciate
your prompt attention to this matter.
Jo
Attachment
o»i OL Martin
-------
Addressees:
A. James Barnes
Deputy Administrator
Robert S. Cahill
Associate Administrator for
Regional Operations
Charles L. Grizzle
Assistant Administrator for
Administration and Resources Management
Sheldon Meyers
Acting Associate Administrator for
International Activities
John A. Moore
Assistant Administrator for
Pesticides and Toxic Substances
Rebecca W. Hanmer
Acting Assistant Administrator for Water
Thomas L. Adams, Jr.
Assistant Administrator for Enforcement
and Compliance Monitoring
J. Craig Potter
Assistant Administrator for Air
and Radiation
J. Winston Porter
Assistant Administrator for
Solid Waste and Emergency Response
David Kling, Acting Director
Asbestos Action Program
Charles W. Elkins, Director
Office of Toxic Substances
David P. Ryan, Comptroller
Office of the Comptroller
Harvey Pippen, Director
Grants Administration Division
Vincette L. Goerl, Director
Financial Management Division
Nelson Hallman, Acting Director
Facilities Management and
Services Division
ATTACHMENT
Page 1 of 2
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ATTACHMENT
Page 2 of 2
Gerald A. Byran, Director
Office of Compliance Analysis and
Program Operations
John Seitz, Director
Stationary Source Compliance Division
Paul F. Nadeau, Acting Director
Hazardous Site Control Division
James R. Elder, Director
Office of Water Enforcement
and Permits
Gene A. Lucero, Director
Office of Waste Programs Enforcement
John Chamber1in, Director
Office of Administration
Lloyd Guerci, Director
CERCLA Enforcement Division
Henry L. Longest II, Director
Office of Emergency and
Remedial Response (Superfund)
Joseph Carra, Director
Waste Management Division
Steve Allbee, Acting Director
Municipal Construction Division
Michael R. Deland
Regional Administrator, Region 1
Christopher J. Daggett
Regional Administrator, Region 2
James M. Self
Regional Administrator, Region 3
Greer C. Tidwell
Regional Administrator, Region 4
Valdas V. Adamkus
Regional Administrator, Region 5
Robert E. Layton, Jr.
Regional Administrator, Region 6
Daniel W. McGovern
Regional Administrator, Region 9
-------
MORE IMPROVEMENTS ARE NEEDED TO ENSURE
SUPERFUND ACCOUNTING
Problem
Although Agency guidance on accounting for Superfund costs has
significantly improved, further improvements are needed to ensure
accurate accounting for property management, cost allocations,
receivables, obligations, disbursements and personnel compensation.
We Found That
Humerous weaknesses existed in property controls. For example:
o 140 items purchased in fiscal 1986, costing about $736,000,
were not recorded in the Personal Property Accounting System.
o 103 sample items, valued at about $252,000, that were selected
for physical inspection could not be located.
A significant procedural weakness contributing to these deficiencies
was the lack of Agency policies and procedures requiring the
reconciliation of property and equipment purchases recorded in
the Financial Management System with items entered into the Personal
Property Accounting System.
We also found that the Agency's procedures for allocating general
support services costs to Superfund were not clearly defined. At
Headquarters, disbursements were allocated improperly, and at
Region 3, general support services cost allocations were overstated
because an incorrect personnel ratio was used. In addition, the
Superfund program was not always charged its proportionate share
of support services costs due to cost and personnel ceilings. As
a result, distribution of support services costs between Superfund
and EPA's other program was inaccurate.
Additionally, we found that amounts due Superfund from cost
recovery decrees and State cost-sharing agreements were not being
recorded timely. This occurred because various EPA offices failed
to properly coordinate and communicate cost recovery decrees and
agreements as required by existing Agency guidance. This precluded
the Agency from adequately managing receivables and collections
and could result in a material amount of lost interest.
While we accepted the majority of fiscal 1986 recorded obligations
of $393,272,582 and disbursements of $416,685,493, a statistical
analysis of key internal control and compliance attributes dis-
closed a higher than expected error rate of nonpayroll obligations,
nonpayroll disbursements, and personnel compensation transactions.
This could result in: unauthorized or misstated obligations
being recorded, improper or duplicate disbursements, and misstated
personnel compensation costs.
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We Recommended Thr.t
The Acting Assistant Administrator for Administration and Resources
Management:
o Establish policies and procedures requiring (1) reconciliation
of the personal property account in the Financial Management
System with property recorded in the Personal Property Account-
ing System, and (2) annual physical inventories.
o Clarify cost allocation procedures and ensure that appropriate
adjustments are made to reflect proper allocations.
o Require cost settlement documents and State cost-sharing agree-
ments be forwarded immediately to the appropriate finance office.
o Reconcile receivables with the Office of Waste Program Enforce-
ment's Case Management System to ensure that all settlement
documents are recorded.
What Action Was Taken
The final audit report was issued to the Acting Assistant Admini-
strator for Administration and Resources Management on QctLgber 7,
1987. On January 15, 1968, the Acting Assistant Administrator
yruvided a btatus report on corrective actions that were underway
when we issued the draft audit report, and responses to the final
audit report's recommendations. The status report and the response
indicated that the Assistant Administrator implemented our
recommendations.
As part of our audit of EPA's fiscal year 1987 portion of the
hazardous Substance Superfund, we will follow up on these findings
and recommendations to determine the adequacy of the corrective
actions implemented.
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