Report of Interim Audit of
Mew Hampshire Department of Environmental Services Water Supply and
Pollution Control Division
(Formerly New Hampshire Water Supply and Pollution Control Commission)
Administration of Superfund Cooperative Agreements
With EPA Under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980
Audit Report No. E5bH5-01-0025-81914
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Table of Contents
Page
SCOPE AND OBJECTIVES 1
SUMMARY OF AUDIT RESULTS 2
ACTION REQUIRED 4
BACKGROUND 4
FINDINGS AND RECOMMENDATIONS
1. State Resident Engineer and On-Scene Coordinator Services
Were Procured Without Competition .... 8
2. Commission Needs to Perform Cost Analysis of Negotiated
Change Orders 12
3. Commission Has Not Complied With Superfund
Procurement Requirements 14
4. Inadequate Property Management Standards 16
EXHIBIT 1 - Summary of Costs Claimed, Accepted, Questioned
and Set-Aside From October 1, 1982 through
June 30, 1985 for Nashua Site 19
EXHIBIT 2 - Summary of Costs Claimed, Accepted, Questioned
and Set-Aside From October 1, 1982 through
June 30, 1985 for Keefe Site 21
APPENDIX A - NHDES Response to Draft Report 23
APPENDIX B - Distribution 26
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
EASTERN AUDIT DIVISION NEW YORK OFFICE
J.F. KENNEDY FEDERAL BU.LD1NG 9Q Chyrcn
Room 1911 Suite 802
Boston. Massachusetts 02203.1911 New york Ny
SUBJECT: Interim Audit of the Department of Environmental Services
Water Supply & Pollution Control Commission
(Formerly the New Hampshire Uater Supply and Pollution Control Commission)
Administration of the Superfund Cooperative Agreements
Audit Report No. E5bHfisD1^00Z5-81914
FROM: Paul D. McKechnie^ cc«^k^ ^^^.^
Divisional Inspector General 7
Eastern Audit Division '
TO: Michael R. Deland
Regional Administrator
Region I
SCOPE AND OBJECTIVE
We have conducted an interim audit of the Department of Environmental Services
Water Supply & Pollution Control Division (formerly the New Hampshire Water
Supply and Pollution Control Commission) (the Commission) administration of its
cooperative agreements with EPA under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) of 1980. The primary
objectives of our review were:
1. To determine the adequacy, effectiveness and reliability of pro-
curement, accounting and management controls exercised by the
State in administering its cooperative agreements.
2. To ascertain the State's compliance with provisions of the coopera-
tive agreements and applicable EPA regulations and instructions.
3. To determine the reasonableness, allocability and allowability of
the costs claimed under the cooperative agreements.
We performed the audit in accordance with the Standards for Audit of
Governmental Organizations, Program, Activities and Functions issued by
*he Comptroller General of the United States. We^reviewed the cost data
generated by the State's centralized accounting system, the Commission's
subsidiary project cost records, and Quarterly Status Reports to determine
if the financial records were prepared in accordance with Federal and
State requirements, and Agency guidance. We also examined project files,
including correspondence to determine if the award and management of the
cooperative agreements was in accordance with Federal regulations and
procedures. The field work began on October 7, 1985 and was completed on
October 28, 1986.
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Our review Included tests of management operations and the financial management
system for the period of our review.
Specifically, our review covered the administration of cooperative agreements
awarded for the removal of hazardous waste from the Nashua and Keefe sites.
The audit included a review of costs incurred and claimed under these two
cooperative agreements through payment requests submitted as of June 30, 1985.
We also conducted interviews with officials and staff from the Commission's
Municipal Services and Business Administration Sections; reviewed Federal and
State procurement rules and regulations, for both personnel and Architectural
or Engineering services; reviewed procurement actions and change orders to
ascertain compliance with CERCLA requirements. We also reviewed the latest audit
reports and workpapers of the EPA, Office of Inspector General, and the New Hampshire
Office of Legislative Budget Assistant. These audit reports contained specific
recommendations for management improvements and we assessed the Commission's
compliance with those recommendations. Because of the limited scope of our audit,
we did not perform a study evaluation of the internal accounting controls.
In our opinion, except for the deficiencies summarized below and presented
in detail in the Findings and Recommendations section of this report, the
Commission's procurement and management controls exercised to administer
its cooperative agreements are generally adequate and in compliance
with applicable EPA regulations and instructions. Details on our audit
of Claimed, Accepted, Questioned and Set-aside costs under the Nashua and
Keefe cooperative agreements are included in Exhibits 1 and 2 respectively.
SUMMARY OF AUDIT RESULTS
1. State Resident Engineer And On-Scene Coordinator Services Were
Procured Without Competition
The Commission awarded Consulting Engineer Service Agreement for Resident
Engineer and On-Scene Coordinator services with current and former
Commission employees in a manner that did not afford maximum free and
open competition. As a result, we have set-aside $163,268 in costs claimed
by the Commission because the procurement actions taken did not meet
Federal or State requirements. We have recommended that you review these
specific procurement actions taken by the Commission to determine its
compliance with Federal and State procurement standards.
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2. Commission Needs to Perform Cost Analysis of Negotiated Change Orders
The Commission had not performed costs analyses of negotiated change
orders in excess of $10,000 as required. As a result, excessive costs
may have been incurred under the Superfund Cooperative Agreement. We
set aside costs totaling $565,211. We have recommended
to perform a cost analysis of these Change
for the amount of the costs charged
have, therefore,
that you instruct the Commission
Orders and provide justification
under the agreement.
3. Commission Has Not Complied With Superfund Procurement Requirements
There is no evidence that the Commission has evaluated its procurement
system and certified that it meets EPA procurement requirements nor, in
the absence of such a certification, allowed an EPA preaward review of
proposed procurement actions. As a result, there are limited assurances
that the Commission's procurements were made in accordance with applicable
Federal regulations. We have recommended that you request the Commission
to submit their entire procurement system for certification . In the case
that their system does not meet EPA regulations, we recommend that you instruct
the Commission to provide all proposed procurements to EPA for preaward
reviews.
4. Inadequate Property Management Standards
The Commission did not maintain its property records in accordance with
proper property management standards. The Commission (i) charged equipment
costs to site specific grants which were used in the general operations
of the Commission; (ii) failed to maintain property records for all
equipment; and (iii) made no periodic reconciliation of physical inventory
to verify current use and continued need for property acquired with Federal
grant funds. As a result, the Commission could not assure proper control
and accountability over property purchased with Federal funds.
We have recommended that you require the Commission to update its property
inventory to permit control over the accountability, utilization and
disposition of property purchased with EPA grant funds.
A draft audit report was provided to the New Hampshire Department of
Environmental Services (NHDES) on May 11, 1988 for its comments. The
NHDES response dated July 12, 1988 indicated a general agreement with
the draft report. An exit conference was held on August 23, 1988.
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Full consideration was given to the Commission's response to the draft report
and comments provided at the exit conference in the preparation of the
final report. Based upon the corrective actions already implemented, we
eliminated 2 audit findings, that were included in the draft report i.e.,
Commission's Financial Management System Continues to Need Strengthening,
and the Commission Not Fulfilling Matching Share Contributions. We have
incorporated portions of the Commission's response in each finding. We
have also included as Appendix A, the Commission's response, less the
attachments. The attachments are available, for examination in our office,
if necessary.
ACTION REQUIRED
In accordance with EPA Directive 2750, the Action Official is required to
provide this office with a final determination to the audit report
within 150 days of the report date.
BACKGROUND
On December 11, 1980 Public Law 96-510, the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), was enacted by
Congress. CERCLA, commonly known as the Superfund, was passed to
provide the needed general authority and to establish a Trust Fund for
Federal and State governments to respond directly to any problems at
uncontrolled hazardous waste disposal sites, not only in emergency
situations, but also at sites where longer term permanent remedies are
required. CERCLA was established to fill the gap in the nation's system
to protect public health and the environment from hazardous substances by
authorizing Federal action to respond to the release, or threatened
release, from any source, including abandoned hazardous waste sites, into
any part of the -onment.
The blueprint .- Superfund program under CERCLA is the National
Contingency Plan v^oP), first published in 1968 as part of the Federal
Water Pollution Control Plan. The NCP outlines three types of responses
for incidents involving hazardous wastes which are immediate removal,
planned removal, and remedial response. The first two types of responses
were modifications of the earlier program under the Clean Water Act.
However, remedial response is a new type of response intended to deal
with the loi\Jier-term problem of abandoned or uncontrolled sites.
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CERCLA calls for compiling a National Priority List (NPL) of hazardous
waste sites for remedial action. In October 1981, EPA compiled an interim
priority 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 to the environment
was also considered. In September 1983, EPA published the first NPL
which consisted of 406 sites.
Section 104(c)(3) of CERCLA provides that no remedial actions shall be
taken unless the State in which the release occurs first enters into a
contract or cooperative agreement with EPA with assurance of payment of
10 or 50 percent of remedial 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. In addition,
cooperative agreements for remedial investigations, feasibility studies,
designs, and initial action can be funded up to 100 percent by EPA.
Section 104(c)(3) also provides for the State to receive a credit against
its share of costs for any documented direct out-of-the-pocket, non-
Federal funds expended or obligated between January 1, 1978 and December 11,
1980, providing the costs meet specified criteria.
In March 1982, EPA guidance authorized two instruments for obtaining
required assurances from the States:
Cooperative Agreements (State had lead management responsibility)
Contracts (EPA assumes lead management responsibility)
The guidance also required cost sharing not only for remedial construction
activities, but also for remedial planning activities (investigations,
feasibility study and design) at privately-owned sites. This requirement
was adopted to ensure early State involvement in remedial actions. EPA
reasoned that requiring cost-sharing for planning activities would provide
a means for EPA to encourage States to become more involved in the planning
of a project.
Experience showed, however, that this policy contributed to program delays
and State financing problems. As a result, on May 13, 1983, the EPA
Acting Assistant Administrator, Office of Solid Waste and Emergency
Response, revised the above policy to allow the funding of remedial
investigation, feasibility studies and remedial design at privately-
owned sites without a State cost share. The new policy also provided
that costs shares previously paid by the State for remedial investigation
feasibility studies, and remedial design at privately-owned sites, will
be applied toward the State's share of the cost for remedial construction
at the site.
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During our audit, the Commission was actively involved in eight cooperative
agreements with EPA for site evaluation and cleanup work at the Nashua,
Keefe, Ottati and Goss, Dover, Somersworth, Londonderry, Coakley and a
Multi-hazardous waste site as follows:
Cooperative Agreement Federal Funding Period of Performance
Nashua Site $10,678,352 7/21/81 - 9/1/86
Keefe Environmental Service 2,383,335 10/1/82-6/30/86
Ottati and Goss 837,912 3/15/83 - 2/28/86
Dover Landfill 327,657 4/16/84 - 1/5/86
Sommersworth Landfill 286,274 4/16/84 - 1/15/86
Londonderry 395,289 4/18/83 - 4/17/84
Multi-site 152,746 2/15/85 - 2/5/86
Coakley Landfill 600,000 8/20/85 - 8/20/86
TOTAL $15,661.56?
A profile of the two largest sites follow:
NASHUA SITE
This hazardous waste site in Nashua is the most serious site yet discovered
in New Hampshire in terms of groundwater pollution. It is listed by the
EPA as one of the most serious sites in the nation and was the first to
receive a Cooperative Agreement with trust fund monies in August 1981.
The site was a seven-acre sand and gravel pit containing discarded refuse
and demolition material. Over 1,300 55-gallon drums of hazardous wastes
were disposed of on the surface or buried on-site, and over nine hundred
thousand gallons of hazardous wastes were dumped into a leach field and
have seeped into the sandy soils below.
The disposal site, its underlying soils, and associated groundwaters are
very highly contaminated with a large variety of toxic organic and
inorganic compounds. The contaminant plume is migrating to the northwest
at approximately one foot per day and threatens wells of nearby homes. A
major portion of the contaminated groundwater flows into and under Lyle
Reed Brook and is then carried by surface water to the nearby Nashua
River and from there downstream to the Merrimack River, thus posing a
potential threat for downstream users.
Response measures were begun by the Commission on the site in May 1980 and
included on-s1te security and surface barrel removal. The proposed final
remedial action plan called for hydrologic isolation and groundwater
interception and treatment of the contaminant plume. A slurry wall and
cap was constructed at the site to contain hazardous materials in the
groundwater.
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Construction of the groundwater treatment facility began in May 1984.
The Commission's engineering consultant, Roy F. Weston, has started up a
temporary site groundwater recirculation system prior to the anticipated
commencement of facility construction. The system was completed in March
1984 and will further prevent contaminants from leaving the site under
the slurry wall containment facility.
KEEFE ENVIRONMENTAL SERVICES (KES). Epping, New Hampshire
The KES hazardous waste site is located on a 17-acre parcel of land in
Epping, New Hampshire. Prior to remedial actions the site was known to
contain over 4,100 abandoned 55-gallon drums of industrial chemicals,
four 5,000-gallon aboveground storage tanks, four 10,000-gallon storage
tanks, seven dumpsters containing sludges and contaminated soils, and a
600,000-galIon open storage lagoon.
Beginning in May 1978, KES operated a hazardous waste bulking and transfer
facility. Over the next 30 months KES received over 1 million gallons
of hazardous materials.
In January 1981, KES filed for bankruptcy and the site was abandoned.
Due to threats to the environment, EPA began an emergency cleanup action
program. This included the drawdown of the 600,000-galIon lagoon, which
was overflowing, overpacking of damaged drums, and stabilization and
separation of the 4,100 drums according to category. The EPA Field
Investigation Team contractor (Ecology and Environment, Inc.) prepared a
Preliminary Site Assessment (August 1981) and Proposed Work Plan (March
1982). A random drum sampling verification program was conducted to
provide a more accurate inventory of the number and condition of the
drums. A Remedial Action Master Plan (RAMP) was prepared by Camp, Dresser
and McKee, Inc. Initial remedial action measures included site security
and the transport of 4,100 drums off-site for proper treatment disposal.
At present all drums, storage tanks, and dumpsters have been removed to
hazardous waste treatment facilities. The lagoon decommissioning project
was completed despite severe winter operating conditions. The hazardous
liquid removal phase of the project was completed on January 29, 1984 and
the sludge solidification and disposal phase was completed February 9,
1984. The amount of hazardous liquids removed from the site was 580,000
gallons and taken to Dupont's Hazardous Waste Treatment Facility in
Deepwater, Mi* Jersey and 470 tons of sludge and 124 tons of contaminated
soil were t|leBn to the SCA hazardous waste secure landfill in Model City,
New York. Further work on the lagoon decommissioning including linear
removal, partial berm demolition and contaminated soil disposal was
completed in the Spring of 1986.
Tighe and Bond/SCI, Inc. conducted a Remedial Investigation (RI) under
the supervision of the NHWSAPCC. Following the approval, the Feasibility
Study (FS) will be conducted to identify the cost-effective long-term
response to the site.
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1
FINDINGS AND RECOMMENDATIONS
1. STATE RESIDENT ENGINEER AND ON-SCENE COORDINATOR SERVICES WERE PROCURED
WITHOUT COMPETITION
The Commission awarded Consulting Engineer Service Agreements for Resident
Engineer (RE) and On-Scene Coordinator (OSC) services with current and former
Commission employees in a manner that did not afford maximum free and open
competition. In addition, these contractors received reimbursement for
fringe benefits even though their agreements did not include provisions for
such reimbursement. As a result, we have set-aside $163,268 in costs claimed
by the Commission.
EPA Title 40 CFR, Part 33, establishes the minimum requirements for the
procurement of supplies, services and construction under EPA assistance
agreements. 40 CFR, Section 33.001(f)(2) addresses the applicability of
this part when carrying out requirements under the Comprehensive
Environmental Response, Compensation, fl Liability Act of 1980 (CERCLA).
Specifically, the section states "Recipients of remedial action
cooperative agreements under the Comprehensive Environmental Response,
Compensation, & Liability Act of 1980...must follow the requirements in
Subpart A, 8, E, F and G." Subpart B presents the minimum procurement
standards that must be followed when employing any of the four methods
of procurement. The four methods are small purchases, formal
advertising, competitive negotiation, and noncompetitive negotiation.
Whichever method is employed, the recipient is required to conduct all
procurement transactions in a manner that provides maximum free and open
competition. Procurement practices shall not unduly restrict or eliminate
competition.
The Commission awarded contracts with four engineers on a sole source
noncompetitive negotiation basis. The services included engineering
inspection, site survey work, reviewing engineering design change orders,
and general oversight of construction work.
40 CFR Part 33.605 states that:
"Recipients may use noncompetitive negotiation to award a
subagreenent if the other three procurement methods are
inappropriate because:
(a) The item is available only from a single source:
(b) A public exigency or emergency exists and the urgency
for the requirement, will not permit a delay incident
to competitive procurement.
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(c) After solicitation from a number of sources,
competition is inadequate; or
(d) The EPA award official authorizes noncompetitive negotiation,
subject to the limitation in 33.715(a)(2) SS."
The recipient is required to document the procurement records and files
for all procurements in excess of $10,000.
Part 33.250 requires that procurement records show the following:
"(1) Basis for contractor selection;
(2) Written justification for selection of the procurement method;
(3) Written justification for use of any specification which
does not provide for maximum free and open competition;
(4) Written justification for the type of subagreement;
(5) Basis for award cost or price, including a copy of the
cost or price analysis made in accordance with 33.290
and documentation of negotiations; and
(6) Written justification for rejecting bids.
(b) Recipients must state the reasons for rejecting any or all bids
and the justification for procurement on a noncompetitively
negotiated basis and make them available for public inspection."
Review of the Commission's files and personnel data found that all four
contractors had :i employees of the Commission. Contractors A, B and 0
had terminate employment with the Commission and on the following
day executed tract at a higher rate of pay to provide RE and OSC
services. In auu .^on, Contractor A was rehired by the Commission upon
completion of the contract period, August 1983, at the same annual salary
paid when previously employed by the Commission. The type of services
that Contractor A provided upon being rehired were a continuation of
those services provided under contract.
In addition to the contract executed by the Commission, the Commission
also paid for health insurance, PICA taxes, mileage and vacations. These
benefits art normally only afforded to employees of the Commission and
not contractors.
The contracts executed between the Commission and Contractors A, B, C and D
totalled $283,076. As of June 1985, the Commission made payments of
$229,870 to the Contractors and filed claims for reimbursement with EPA
totalling $163,268.
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The following schedule presents a tabulation of contracts and payments made.
Contract
Contractor Number
A 07840
07840
B 09643
51094
C 51093
51093
51093
0 50197
50197
50197
Contract
Period
11/81
08/82
07/82
04/84
04/84
04/85
10/85
09/83
08/84
09/85
08/82
08/83
06/83
04/85
04/85
10/85
04/86
09/84
09/85
09/86
Contract
Amount
$ 32,570
35,000
17,500
9,000
35,000
20,000
20,000
35,000
39,000
40,000
$283,076
Payments
Contract
$ 22,850
23,636
17,500
2,329
32,183
17,551
14,573
29,359
37,211
18.911
$216,103
Fringe
B_e_n_ef1_ts_
$ 1,530
1,584
-0-
-0-
2,254
1,237
1,034
2,171
2,617
1.340
$13,767
The Commission's Business Administrator informed us that in order to
provide for the necessary expertise and supervision of remedial activities
related to the CERCLA program, they utilized a noncompetitive negotiation
procurement method to award the subagreement. The Business Administrator
provided an outline of the procedures the Commission utilized to award
the subagreement to individuals for services at hazardous waste sites.
The procedures utilized by the Commission were based solely on education
and experience. These procedures did not fulfill the requirements of
40 CFR Part 33.
While education and experience are important factors to consider, we do
not believe these individuals were the only professionals available with
such qualifications. To the contrary, we believe the type of services
contracted for could have been provided by most professional engineering
firms.
In addition to the Federal procurement regulations contained in 40 CFR,
Part 33, the flew Hampshire Code of Administrative Rules, Chapter WS 600,
establishes tfce requirements for the solicitation and procurement of
engineers. The Code of Administrative Rules specifically provides in
part that:
(a) Engineering contracts between consultants
political subdivisions or others shall be
consultants who have been prequalified by
WS 601:02.
and municipalities,
executed only by those
the Commission; section
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(b) Invite more than one of the several firms on the prequalified
roster; section WS 602:03.
(c) The Commission is required to maintain a record indicating
the factors considered which led to the selection of the
engineer; section WS 602:03(d).
(d) The Engineer shall submit to the Commission a rough draft
of the proposed contract repleted with full description of
the scope and development of fee and other costs. EPA form
5700-41 (Cost of Price Summary Format for Subagreement Under
EPA Grants) shall be prepared; section WS 602:02(b).
The Commission maintained a prequalified list of engineering firms; however,
these four individuals were not included on the Commission's prequalified
list for selection as required by New Hampshire policy. Further, Commission
officials did not provide documentation or justification for executing
contracts in a manner contrary to Federal and State procurement regulations
and policy. The Commission's procurement practices unduly restricted
competition which in our opinion was not justified.
Commission's Comments
The- Commission stated that when the Superfund program was first started they
considered hiring classified employees to handle the duties of an On-Scene
Coordinator. However, this was not considered adequate because of the
temporary nature of the work and the difficulty of setting up these
positions on a temporary basis. They also stated that another method
considered was the use of professional engineering firm personnel, but
the cost of this method would be at least two to three times the salary
costs (if they had used this method cost would have increased approximately
$300,000). The method chosen to best fit the situation was to hire
qualified individuals under short-term contracts overseen by the State
personnel system. They also stated that this was a widely used process
for hiring individuals with special expertise for limited duration
projects. The process is tightly controlled and cost effective.
PIG Response
While the Commission advised that the method employed was a widely used
process for hiring individuals with special expertise for limited duration,
we could not, find evidence that thr State's procurement or personnel policies
permit such a practice. It is clear that federal procurement procedures only
permits contracting on a sole source or negotiated manner when specific
situations warrant such methods. We do not believe the criteria were met.
The NHDES did not advertise to get qualified applicants or follow State
procedures for hiring classified employees as required by New Hampshire
Code of Rules, which requires job description of position, posting,
testing and verification of applicant qualifications.
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The Commission's practice for hiring these individuals has restricted the number
of potential candidates for the positions, as the availability of positions
is not advertised, but rather is made known to a limited few, usually through
word of mouth.
If the Commission considers the individuals employees, then the method in which
they were hired raises the question of whether State civil service requirements
were violated.
In either case, consideration should be given to obtaining a legal opinion for
guidance in making a final ruling on the propriety of the method used.
Recommendation
We recommend that you instruct your staff to review the propriety of the Commission's
actions in the execution of the contracts discussed in this finding. In performing
the review, your staff should require the Commission to provide their:
1. basis for contractor selection;
2. written justification for selection of the procurement method
used rather than utilizing the Commission's prequalified
3. basis for award cost or price, including cost or price analysis
made as well as justification for the payment of benefits such
as health insurance, PICA and vacations.
To assist your staff in the review, a legal opinion should be requested as to
whether the practice has violated any existing Federal or State law.
Based upon the results of your staff's review, any costs not properly incurred or
deemed ineligible for other reasons should be reimbursed, by the Commission, to
the Superfund Account.
We further recommend that you instruct the Commission to award contracts only if
they conform to prescribed Federal and State procurement procedures.
Your staff should closely monitor the Commission's compliance with your
instructions.
2. COMMISSH* NEEDS TO PERFORM COST ANALYSIS OF NEGOTIATED CHANGE ORDERS
...' •«* -
The Commissiim has not performed cost analysis of negotiated change orders
in excess of $10,000 as required. As a result, excessive costs may have
been incurred under the cooperative agreement. We have, therefore, set
aside costs totalling $565,211.
40 CFR 33.290(a) states: "The recipient shall conduct a cost analysis of all
negotiated change orders and all negotiated subagreements estimated to exceed
$10,000."
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The Commission executed change orders which exceeded $10,000 for work
performed at the Keefe site. A change order was executed with Contractor A
on January 30, 1984 which provided for an increase in contract price of
$363,732.96 for work performed pertaining to the drum and bulk waste
removal. On May 8, 1984 the Commission executed a change order with
Contractor 8 which provided for an increase in the contract price of
$201,478.10 pertaining to the Keefe site lagoon decommissioning. These
represented increases in the contract amounts of approximately 46 percent
and 60 percent respectively.
The commission had no documentation available to indicate that it had
performed a cost analysis for these change orders to assure the
reasonableness of the proposed costs. Included in the change order with
Contractor A was a line item for an independent Health and Safety Officer
totalling $11,448. Review of the supporting documentation disclosed
that the proposed cost was based upon a daily rate of $528 ($480 per day
for Safety Officer plus 10%, or $48, for administrative services). We
consider this cost to be excessive, in the absence of any justification,
since it exceeds the maximum daily rate of $253 for a GS-18. 40 CFR
33.280(a) provides that "...EPA will limit its participation in the
salary rate {excluding overhead) paid to individual consultants retained
by recipients or a recipients' contractors or subcontractors to the
maximum daily rate for a GS-18." As a result, the Commission claimed
$5,775.00 in excess of the allowable maximum amount.
Without adequate documentation of the reasonableness of costs charged,
EPA has no assurance excessive costs were not incurred under the
cooperative agreement. A cost analysis of these change orders is
necessary to provide EPA with that assurance.
Commission's Comments
The Cor:.,-niscioi provided copies of the "Change Order Documentation and Cost
Analysis" sections for the two change orders noted in the draft report. In
addition, they stated that cost analyses were performed for all negotiated
change orders in question for the Keefe site. They also stated that EPA
Regional Office Superfund staff concurred with all change orders prior to
awarding the contract changes, and that continued reviews of project status
was provided through the quarterly review program.
PIG Response
Documentation was not available at the time of the audit to provide support
and justification for the proposed changes. The documentation submitted
with the grantee's response consisted of the executed project change order
summary sheets only. Consistent application of Federal grant regulations
requires that when changes in quantities exceed 15% of the original bid
quantities and the total dollar change is significant, the grantee should
review the unit price to determine if a new unit price should be negotiated.
The contractor has the primary responsibility to provide sufficient cost
and pricing data to enable the grantee to determine the necessity and
reasonableness of the costs and amounts of proposed changes.
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RECOMMENDATION
We recommend that you instruct the Commission to perform a cost analysis
of these change orders and provide justification for the amount of the
costs charged under the agreement. Should they be unable or unwilling
to adequately support the costs charged as reasonable, we recommend
you disallow that portion which is not adequately supported as reasonable.
3. COMMISSION HAS NOT COMPLIED WITH SUPERFUND PROCUREMENT REQUIREMENTS
There is no evidence that the Commission has evaluated its procurement
system and certified that it meets EPA procurement requirements nor, in
the absence of such a certification, allowed an EPA preaward review of
proposed procurement actions. As a result, there are limited assurances
that the Commission's procurement system reflects the requirements of
applicable Federal regulations and that all procurements were made in
accordance with those same regulations.
40 CFR Part 33 establishes the minimum requirements for the procurement
of supplies, services, and construction under EPA assistance agreements.
40 CFR 33.001(f)(2) specifically requires recipients of remedial action
cooperative agreements under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 to comply with these procurement
requirements.
40 CFR 33.110 provides in part that:
(a) It is the applicant's and recipient's responsibility to
evaluate its own procurement system and to determine whether
the system meets the applicable requirements in this part.
(b) After - >ating its procurement system, the applicant or
recipi-••••• :omplete the "Procurement System Certification"
(EPA For- 48). The applicant or recipient will either
certify thai;
(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-
quirenents of this part and, therefore, the applicant will
folio* the requirements of 40 CFR, Part 33 and allow EPA
preaward review of proposed procurement actions that will
use EPA funds.
(c) The applicant must submit the signed certification form
with the assistance application to the award official.
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While there was no evidence the Commission performed the required review
and submitted the required certification to EPA, the Commission's Contract
Negotiation Office advised that a certification had been provided to EPA.
Our review disclosed that this certification separated the procurement
system into two parts, engineering services and construction services.
The form indicated that the Commission certified that the procurement
of engineering services complied with EPA requirements and that they
would not certify to the procurement system for construction services.
The Commission has not complied with the procurement requirements in two
areas. The regulations do not provide for certifying to the procurement
system in a piecemeal approach. Further, there is no evidence that pro-
posed procurements were forwarded to EPA for preaward review as required
of recipients who have not certified their procurement system to be in
compliance with 40 CFR Part 33.
Commission's Comments
The Commission responded that their procurement system was certified on
March 5, 1976, and provided us a copy of the Certification Agreement
approval under the provisions of 40 CFR part 35.936-2(lb). They also
informed us that on March 31, 1987, the Commissioner adopted the previously
approved procurement system as the system to be used by the new organized
Department of Environmental Services.
PIG Response
The procurement system certification mentioned in the Commission's response
is applicable to Construction Grant Awards. Recipient of Remedial Action
Cooperative Agreements Under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (Superfund), shall use their
own procurement policies and procedures if these policies and procedures
reflect applicable Federal, State and local laws and regulations, and at
least meet the requirements set forth in 40 CFR part 33.
RECOMMENDATION
We recommend that you instruct your Regional Counsel to provide an
opinion as to whether a recipient can segment their procurement system
and certify to its compliance with EPA regulations in a piecemeal manner.
Should such a practice be deemed unacceptable, we recommend the Commission
be requested to provide the required certification for its entire pro-
curement system. Should the Commission be unable or unwilling to provide
such a certification, or until such time as such a certification is provided,
we recommend the Commission be instructed to provide all proposed procure-
ments to EPA for preaward reviews as required by 40 CFR, Part 33.
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4. INADEQUATE PROPERTY MANAGEMENT STANDARDS
The Commission did not maintain its property records in accordance with
proper property management standards required by EPA regulations. The
Commission (i) charged equipment costs to site specific Cooperative
Agreements which were used in the general operations of the Commission;
(ii) failed to maintain property records for all equipment; and
(iii) made no periodic reconciliation of physical inventories to verify
current use and continued need for property acquired with Federal grant funds.
As a result, the Commission could not assure proper control and accountability
over property purchased with Federal funds. We have, therefore, set aside
costs for these items of equipment totaling $12,752.
40 CFR 30.531 establishes the standards to be followed for non-expendable
personal property purchased with EPA funds. It establishes the minimum
standards as follows:
(a) Maintain accurate records reflecting:
(1) A description of the property;
(2) Manufacturer's serial number, model number, or other
identification number;
(3) Source of the property, including assistance identification
number;
(4) Whether title is vested in the recipient or the Federal
Government;
(5) Unit acquisition date and cost;
(6) The percentage of the Federal share of the cost;
{7} Location, use, and condition of property and the date the
information was recorded; and
(8) Ultimate disposition data, including sales price or the
method used to determine the price, or the method used to
determine current fair market value where a recipient com-
pensates EPA for its share under §§30.532 of this part.
(b) Conduct a physical inventory of property, and reconcile the
results with the property records, at least once every two
years. Your inventory must verify the current use and con-
tinued need for the property.
(c) Maintain a control system »:o prevent loss, damage, or theft.
(Yoy must thoroughly investigate and document any loss,
damage, or theft of nonexpendable personal property.)
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(d) Maintain adequate maintenance procedures that ensure the pro-
perty is in good condition and that instruments used for
precision measurements are periodically calibrated.
(e) Maintain proper sales procedures which provide for competition
resulting in the highest possible return.
(f) Maintain identification of Federally-owned property.
The Commission provided inventory listings for both the Nashua and Keefe
Hazardous Waste Sites, which detailed the item name, cost and location
of equipment charged to EPA Cooperative Agreements, along with other
data. A review of 22 of the items of equipment listed disclosed that for one
item there was no property record card, for another there was no support
for cost assigned to the agreement and for a third item there was neither
a property record card nor a basis for the cost assigned. Further, these
items were used on the general operations of the Commission, yet costs of
two items were assigned specifically to the Nashua and Keefe sites.
A. Nashua Site
A comparison of the total cost of equipment items on the listing to the
June 30, 1985 Quarterly Status Report (QSR) disclosed that the Commission
had reclassified the cost of a 512K Hewlett-Packard memory module ($5,005)
to the Admin-Audit Cost Category. Commission personel advised us that
Grants Administration of Region I provided the Commission with "verbal
approval" to reclassify the equipment cost to the Admin-Audit Cost
Category. The Grants Administration section chief, however, denied
ever providing verbal approval of the reelassification of costs. In
fact, he specifically stated all such actions require a formal grant
amendment. Our review of the Commission's grant files did not reveal
any evidence to support the Commission's reclassification of costs.
The laboratory manager advised that the memory module was used for the
Commission's overall benefit, along with providing site specific Superfund
ayalysis. In addition, Commission employees maintained programs within
the memory. He could not, however, detail for us the content of the
individual programs.
A Photoion1zit1on Analyzer with an assigned cost of $3,745 did not have
(i) a property record card that detailed method of costing, location or
the property tag number, and (ii) the method of determining cost.
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B. Keefe Site
The Commission charged EPA 54,002 for a gas chromatograph that was acquired
on a lease-purchase basis. The equipment piece was listed as being
located in the Commission's laboratory. The laboratory manager stated
that the approximate cost of the gas chromatograph was $45,000. However,
neither the Commission's Business Administrator nor the Superfund accountant
could provide documention supporting the basis for allocating the $4,002
to the Keefe site nor could they provide documentation establishing the
total cost. The laboratory manager stated the gas chromatograph provided
overall Commission and laboratory benefit to all hazardous waste cost
objectives and could provide no explanation why the Keefe site would
have been allocated the specific amount.
In addition to the conditions cited relative to equipment costs and
property record cards, there was no evidence that the Commission had
performed the required physical inventory of property nor whether they
had verified the current use and continued need for the property.
Unless the Commission follows adequate property management standards,
there are limited assurances that equipment costs charged under the coopera-
tive agreement are necessary and reasonable.
Commission's Comments
The Commission informed us that they have updated their property inventory to
account for all project related equipment, and that proper adjustments
have been made to charge only eligible equipment to the sites.
PIG Response
We are pieasei to see NHDES has taken positive actions to correct the
deficiency.
Recommendation
We recommend that your staff review the adequacy of the improvements
implemented by the Commission to its property management system to
assure that:
1. Property records are current.
2. Superfund equipment purchases are in compliance with Federal
property management standards.
3. Proper credit was provided for the cost of equipment which were
improperly charged to the Superfund Cooperative Agreements.
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Note (1): Set-aside costs are costs which we cannot accept without
additional information, documentation or evaluation and
approval by responsible EPA program officials.
Note (2): Set-aside costs of $1,623 include miscellaneous purchases,
such as film, film developing and general purpose supplies,
which lacked adequate documentation or cost allocation basis
to determine reasonableness and allocability of amounts charged.
Note (3): The set-aside amount $163,268 represents costs related to the
procurement of Resident Engineer and On-Scene Coordinator
services on a sole-source basis, without regards to the
requirements of EPA 40 CFR 33.230, which requires maximum open
and free competition. Additional details related to these costs
are included in Finding No. 1.
Note (4): The amount set-aside of $3,745 and $5,005 pertain to a
photoionization analyzer and a Hewlett-Packard and 512 memory
module respectively. The former lacked a property record card
and the latter was inproperly charged to the administration
and audit cost category.
-20-
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State of New Hampshire
DEPARTMENT OF ENVIRONMENTAL SERVICES
OFFICE of the COMMISSIONER
6 Hazen Drive. P.O. Box 95. Concord, N'H 03301
603-271-3503
ALDENH. HOWARD
a™10NKR APPENDIX A
GEORGE A. MOLLINEAI'X
July 12. 198B
•i !
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""I
Mr. Paul 0. McKechnie
Divisional Inspector General
Eastern Audit Division
Environmental Protection Agency
150 Causeway Street
Boston. Massachusetts 02114
Dear Mr. McKechnie:
The purpose of this letter is to respond to Audit Report #E5bH5-01-0025
regarding the Superfund grants for the Nashua and Keefe Environmental Services
sites. The draft interim draft report covered the period ending June 30, 1985.
In general I would like to say that I appreciate the opportunity to be
appraised of the status of our Superfund program. I assure you that every
effort will be made to solve the concerns raised in the report. In fact, I
would note that the financial management system has been improved in a number
of areas since I have been Commissioner. Many of the improvements were based
on the comments, discussions and issues raised by your staff during the audit
review. An accountant has been assigned exclusively to track Superfund
grants. Tne records have been updated, and the whole program has been
computerized. This was a major improvement and one that affects all areas of
the program. We don't anticipate any future problems in substantiating
Superfund program expenditures.
The six findings outlined in the report are discussed below.
1. Resident Engineering Services
The report questioned the use of personnel service consultant contracts
for individual On-Scene Coordinator services. We hire individuals to
handle these duties on an as-needed basis.
When the program was first started we considered hiring classified
employees for this purpose. This was not considered adequate because of
the temporary nature of the work and the difficulty of setting up these
positions on a temporary basis. Another method considered was the use of
professional engineering firm personnel but the cost of this method would
be at least two to three times the salary costs (if we had used this
method, costs would have increased approximately $300,000). The method
chosen to best fit the situation was to hire qualified Individuals under
short-terra contracts overseen by the state personnel system. The
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_ , n » „ w . APPENDIX A
Mr. Paul D. HcKechme
July 12, 1988
Page 2
individuals selected were all Registered Professional Engineers and the
salary paid to them was approximately that of a classified employee
category of Civil Engineer V which is a senior engineer level in the state
personnel system. The process used is one established by the state that
has many check-and-balances and a formal approval process. The approval
process includes signoff by the Department of Personnel, Office of
Attorney General, Department of Administrative Services and final approval
by the Governor and Council. This is a widely used process for hiring
individuals with special expertise for limited duration projects. It is a
tightly controlled process and it is cost-effective. We have been using
it on many of our federal grant programs for the past 15 years. We
currently have approximately 10 such contracts in effect.
We think that the problem involved with this finding is one of choosing
the correct budget category. The process we use is a "personnel" process
and not a "contractual" process, therefore, it should be included in the
personnel budget category. We think that this is the proper category and
it would answer the problem of what procurement regulation should be
followed.
2. Financial Management System
The report recommended that we update our subsidiary project costs;
reconcile project costs to the State Integrated Financial System; and
submit timely reports to EPA. All of these recommendations have been
complied with.
As we sta-- ier, we have assigned a full-time accountant to the
Superfuno ... to give this program the attention it needs to provide
timely and ac^. ate records. The subsidiary project records have been
computerized and they are reconciled monthly. All reports are current.
3. Cost Analysis of Negotiated Change Orders
Costs analyses were performed for all negotiated change orders for the
Keefe change orders in question. In addition, the EPA Regional Office
Superfund staff concurred with all change orders prior to awarding the
contract charges and provided continuing review of project status through
the quarterly report program. A complete set of all the change order
paperwork Involved is very voluminous so we have not enclosed all the file
material. It is available in our office or in the EPA Regional Office.
Me have, however, enclosed copies of the "Change Order Documentation and
Cost Analyses" sections for the two change orders noted in the draft audit
report: one for Contractor A of $363,732.96 and one for Contractor B of
$201,478.10, It should be emphasized, however, that the unit costs and
wage rates negotiated were considered by the state and EPA program staffs
to be both competitive and cost-effective particularly given the limited
contractor availability 1n the Superfund program at the time and the
importance of health and safety procedures in the cleanup activities.
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APPENDIX A
Mr. Paul 0. HcKechnie
July 12, 1988
Page 3
4. Superfund Procurement Requirements
Our procurement system was certified by EPA on March 5, 1986. Reference
the attached letter from Russell Train, EPA Administrator, dated February
27, 1976 which transmittes the Certification Agreement approved under the
provisions of 40 CFR 35.936-21(b). Also attached is a letter from Alden
Howard, Commissioner of DES, dated March 31, 1987 which adopts the
previously approved procurement system as the system to be used by the
newly organized Department of Environmental Services.
5. Hatching Funds
We have identified and calculated the matching requirement for the Nashua
site. This information is available in our files for review..
6. Property Management
We have updated our property inventory to account for all project related
equipment. Adjustments have been made to charge only eligible equipment.
In Exhibit ? there were set-aside costs of $67,207 which is the entire
amount of expenditures in the Full-Time Employee category for the Keefe site.
There were no reasons given in the report for this set-aside. We have time
allocation records documenting these costs as direct charges to the Keefe
grant. We will be glad to supply you with whatever documentation you need to
substantiate these costs. Please let us know what you need and when.
We look forward to an exit conference with you so that we can resolve
these issues and provide you with any additional information you may need.
Yours truly, /
Alden H. Howard
Commissioner
AHH/hyv
Enclosures
cc: Mr. Michael Buckley, LBA
Mr. John Minichiello, WHO
Mr. Kenneth Morrissey, DES
1109V
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APPENDIX B
DISTRIBUTION
Recipient (Copies)
Office of Inspector General
Headquarters Office (A-109) 4
Director, Audit Operation Staff
Audit Control File (2)
AIGMTA (1)
Chief, Program Assistance Unit (1)
Divisional Office
Audit Follow-up File (1)
Regional Office
Regional Administrator, Region I 2
Director, Waste Management Division 1
Audit Followup Coordinator 1
Headquarters Office
Director, Financial Management Division 1
Comptroller 1
Director, Grants Administration Division 1
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