UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20490
15
OFFICE OF
THE INSPECTOR GENE«AL
MEMORANDUM
SUBJECT: Audit Report No. M5CFLO-11-0019-0100080
Audit of Superfund Activities in the
Department of Justice's Land and Natural
Resources Division for Fiscal Year 1988
FROM: Kenneth D. Hockman J)Qwi\w\l $
Divisional Inspector General
for Audit
Internal Audit Division (A-109)
TO: Harvey G. Pippen
Director, Grants Administration
Division (PM-216F)
Attached for your information is the subject audit report.
We are not making any recommendations; however, you should know
that the Justice auditors examination disclosed internal control
weaknesses relating to time reports and travel documents. In
addition, the examination showed that the system of accounting
for costs relating to Superfund activities should be modified to
more accurately account for travel costs involving travel for
multiples cases. Appendix I of the report lists the corrective
actions the Land and Natural Resources Division has taken or
intends to take.
We are closing this report upon issuance. Should your staff
have any questions concerning this memorandum, please have them
contact Fran Tafer, Audit Manager, on 475-6753.
Attachment
cc: Director, Office of Program Management (OS-240)
Chief, Financial and Administrative Management
Section (OS-240)
Chief, Grants Information and Analysis
Branch (PM-216F)
-------
Superfund Activities in the
Land and Natural Resources Division
for Fiscal Year 1933
EXECUTIVE DIGEST
We have completed a financial and compliance audit of the Land
and Natural Resources Division's (LNRD) implementation of the
Environmental Protection Agency's (EPA) Interagency Agreement
(IAA) with the Department of Justice for fiscal year (FY) 1988.
The audit was conducted in accordance with the Government
Auditing Standards, issued by the Comptroller General of the
United States and included such tests of the accounting and
management records as deemed necessary in the circumstances.
The objectives of the audit were to determine the: (1) accuracy
and reliability of Superfund cost reports submitted by the LNRD
to the EPA, (2) adequacy of internal controls in the LNRD's
system of accounting for Superfund costs, and (3) LNRD's com-
pliance with the terms and conditions of the IAA and applicable
Federal laws and regulations. The audit covered the financial
activities for the period October 1, 1987 through September 30,
1988.
The audit included: (1) a determination as to whether the
financial and management control deficiencies noted in the prior
audit report on FY 1987 Superfund activities were corrected; (2)
a detenainati i of the reasonableness, allowability, and
allocability of direct and indirect costs charged against the
Superfund; and (3) an assessment of the LNRD's ability to
accumulate and document Superfund costs on a case-specific basis.
Audit work was performed in the LNRD; the Finance Staff, Justice
Management Division; and at the office of the Certified Public
Accounting firm that maintains the system to account for the
LNRD's costs and prepares the reports relating to the Superfund
activities.
Our examination of the accounting records, supporting documenta-
tion, and tests of Superfund costs for allowability and alloca-
bility disclosed no material discrepancies in the FY 1988
Superfund costs reported by the LNRD to the EPA. However,
internal control weaknesses were found relating to time reports
and travel documents. In addition, our examination disclosed
that the system of accounting for costs related to Superfund
activities needed to be modified to more accurately account for
travel costs involving travel for multiple cases.
-------
TABLE OF CONTENTS
Page
INTRODUCTION 1
SUMMARY OF AUDIT RESULTS 3
FINDINGS AND RECOMMENDATIONS 4
1. INTERNAL CONTROLS 4
Recommendations 6
2. TRAVEL COSTS 8
Recommendation 9
STATEMENT ON INTERNAL CONTROL STRUCTURE 10
STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS 11
APPENDICES 12
APPENDIX I - Land and Natural Resources
Division Comments 12
APPENDIX II - Audit Analysis and Summary of Actions
Necessary to Close Report 15
-------
Superfund Activities in the
Land and Natural Resources Division
for Fiscal Year 1983
INTRODUCTION
We have completed a financial and compliance audit of the Land
and Natural Resources Division's (LNRD) implementation of the
Environmental Protection Agency's (EPA) Interagency Agreement
(IAA) with the Department of Justice (DOJ) for fiscal year (FY)
1988.
AUDIT OBJECTIVES
The objectives of the audit were to determine the: (1) accuracy
and reliability of Superfund cost reports submitted by the LNRD
to the EPA, (2) adequacy of internal controls in the LNRD's
system of accounting for Superfund costs, and (3) LNRD's com-
pliance with the terms and conditions of the IAA and applicable
Federal laws and regulations.
The audit included: (1) a determination as to whether the
financial and management control deficiencies noted in the prior
audit report on FY 1987 Superfund activities were corrected; (2)
a determination of the reasonableness, allowability, and alloca-
bility of direct and indirect costs charged against the Super-
fund; and (3) an assessment of the LNRD's ability to accumulate
and document Superfund costs on a case-specific basis.
AUDIT SCOPE AND METHODOLOGY
The audit covered financial activities related to the IAA for the
period of October 1, 1987 through September 30, 1988. The audit
included a review of the: (1) internal controls and adequacy of
the LNRD's system of accounting for Superfund costs and the
accuracy and completeness of reports generated from the system;
(2) methods and procedures for identifying, recording, and
allocating direct and indirect costs; and (3) LNRD's actions to
implement the IAA and the recommendations in the prior audit
report on the FY 1987 Superfund activities. Our examination was
conducted in accordance with the Government Auditing Standards
issued by the Comptroller General of the United States and
included such tests of the accounting and management records as
were deemed necessary in the circumstances. As part of our
examination, we evaluated employee time reports entered into the
Attorney Time System (ATS), the LNRD's employee salary rates as
calculated by the CPA firm, the identification and recording of
travel costs, and the indirect costing methodology.
-------
We selected direct costs on a random basis to determine the: (1)
accuracy of accounting entries and the adequacy of source
documentation supporting those entries, (2) allocability of
direct Superfund charges, and (3) allcwability of costs based on
Federal laws and regulations and the LNRD's IAA with the EPA. We
reviewed the quarterly expense reports and the final report
submitted to EPA for FY 1988.
Audit work was performed in the LNRD; the Finance Staff, Justice
Management Division; and the office of the Certified Public Account-
ing (CPA) firm that maintains the system to account for the LNRD's
costs and prepares the reports relating to the Superfund activities.
BACKGROUND
On December 11, 1980, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA), or Superfund, 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 the
Superfund Amendments and Reauthorization Act of 1986 (SARA).
Implementing procedures are contained in the National Contingency
Plan set forth in Executive Order (EO) 12316 of August 14, 1981.
This EO provides that the Attorney General is 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. In FY 1987, EPA began
issuing lAAs to the LNRD, which authorizes the DOJ to be reim-
bursed for the LNRD's costs for Superfund activities.
Beginning with FY 1987, and continued ,in FY 1988, the LNRD
instituted a system of accounting for all of its costs by cost
center. In this regard, the LNRD engaged a CPA firm to provide an
accounting of the LNRD's Superfund costs and preparation of
expense reports. The CPA firm designed a system for distributing:
(1) direct Superfund costs by specific case, (2) direct costs
other than Superfund, and (3) indirect costs. The direct costs
are further broken down between direct labor costs and all other
direct costs. The direct labor and other direct costs, for both
Superfund and non-Superfund cases, are subtracted from the total
LNRD costs to determine the indirect costs. The indirect costs
are then prorated to Superfund based on the proportion of direct
Superfund labor to total direct labor. The allocation of indirect
costs to specific Superfund cases was based on a calculation of a
percentage of total direct labor costs for each case. This
costing methodology was approved by EPA in FY 1987. The LNRD
provided the required cost data to the EPA in summary form, by
object class, by Attorney/Paralegal time, on a case- specific
basis, and on a site-specific basis where appropriate.
- 2 -
-------
SUMMARY OF AUDIT RESULTS
Our review disclosed no material discrepancies in the FY 1983
Superfund costs reported by the LNRD to the EPA. However, the
audit disclosed a need for the LNRD to implement internal control
procedures to strengthen the supervisory control over time
reporting as was recommended in our prior audit report on the FY
1987 Superfund activities. Further, the audit disclosed that the
LNRD needed to implement additional internal control procedures
relating to the employee time reports and the timeliness of their
submission; the validation of case numbers recorded on the travel
authorizations, travel vouchers, and employee time reports; and
the allocability of travel costs involving multiple cases related
to the purpose of the travel.
The audit also disclosed that the LNRD needed to modify the system
of accounting to more accurately account for travel costs
involving travel for multiple cases.
-------
FINDINGS AND RECOMMENDATIONS
1. INTERNAL CONTROLS
Our examination of the accounting records, supporting
documentation, and tests of Superfund costs for
allowability and allocability disclosed no material
discrepancies in the FY 1988 Superfund costs reported
by the LNRD to the EPA. However, internal control
weaknesses were found relating to the time reports and
the travel documents that unnecessarily increase the
risk that errors could occur and not be detected in a
timely manner. The conditions found could have been
minimized, or possibly eliminated, had: (1) those
employees working on Superfund cases exercised greater
care in the preparation and timely submission of the
required weekly time reports; and (2) those officials
involved in the request, authorization, and approval
of travel, including the traveler, exercised greater
care in the preparation and review of travel documents
relating to Superfund cases.
The Budget and Accounting Procedures Act of 1950 established the
principles and standards governing the accounting of governmental
activities. The standards were 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.
As of July 1989, the LNRD had not completed the corrective actions
to satisfy the recommendation as cited in our prior audit report
on the FY 1987 Superfund activities. According to the LNRD's
timetable, the procedures for strengthening supervisory control
over employee time reports were to have been developed and
implemented by March 13, 1989. We were advised during the current
audit that the new procedures will not be completed and
implemented before October 1, 1989. In our opinion, management
needs to take the necessary measures to ensure that the control
procedures are expeditiously developed and implemented since they
- 4 -
-------
are necessary to provide added assurance that the labor charges to
the Superfund cases accurately reflect the time worked by all
employees. At a minimum, it is essential these procedures be
implemented by the beginning of FY 1990.
The need for greater supervisory control over the weekly time
reports was further demonstrated by yet another problem—the
untimely submission of the reports. Although the weekly time
reports are required to be submitted on the first workday
following the end of the time reporting period, data accumulated
by the LNRD disclosed that an average of about 65 of the 350
required weekly time reports, or 18 percent, were not timely
submitted by the LNRD employees. The extent of the delinquent
reporting is further demonstrated by our analysis of the weekly
time report submissions for the FY 1988 fourth quarter. A total
of 122 were delinquent of which 40 (or about 33 percent) had been
delinquent for more than 30 days. Furthermore, 8 of the 40
delinquent time reports were for a period of time between January
and May 1988. Similar conditions were also noted for other
quarters in FY 1988.
In our opinion, both the employees and their immediate supervisors
need to be more cognizant of their respective responsibilities and
the importance of timely report submissions. Although the
delinquent reports as of the end of the fourth quarter were
obtained before preparation and submission of the FY 1988 final
year-end reports to the EPA, the delinquent reports: (1) result in
untimely and/or incomplete reporting to the EPA of Superfund labor
cost by the LNRD on a quarterly basis; and (2) unnecessarily
increase the risk that employees may not keep a daily record of
their time worked, thus adopting a practice of reconstructing the
time worked on specific cases when submitting delinquent reports.
Our review of time reports and travel documents for the cor-
responding periods of time further disclosed the need for improved
controls over the quality of these documents. To illustrate, a
comparison of 87 employee weekly time reports with related travel
authorizations and travel vouchers for corresponding periods of
time disclosed 58 instances where the case numbers recorded on the
aforementioned documents did not agree. Although we recognize
that employees in travel status sometimes work on cases unrelated
to the purpose of travel, we found 22 instances in which the case
numbers recorded on the travel authorization and/or travel voucher
did not appear on the corresponding weekly time reports. Our
follow-up on 14 of the 22 discrepancies disclosed that in: (1) 9
instances an incorrect case number had been recorded on both the
travel authorization and voucher; (2) 2 instances an incorrect
case number had been recorded on the time report; and (3) 3
instances incorrect case numbers had been recorded on the
corresponding travel authorization, travel voucher, and the time
report. In our opinion, these discrepancies could have been
prevented had: (1) the employees and their immediate supervisors
- 5 -
-------
exercised due care in the preparation and review, respectively, of
the time reports and/or travel vouchers; and (2) those officials
responsible for requesting authorization to travel, authorizing
the travel, and approving the travel vouchers exercised due care
in reviewing the travel documents prior to processing. In 10 of
the above^14 instances the case number discrepancies had not been
detected, although the same individual who requested the
authorization (not the traveler) also approved the travel voucher
for payment.
In addition, the LNRD's accounting procedures for FY 1988 did not
provide for the allocation of travel cost between multiple cases
related to the purpose of the travel. This same weakness was
cited in our prior audit report of the FY 1987 Superfund activ-
ities. However, the LNRD was unable to take corrective action on
the reported weakness in ample time to affect the FY 1988
Superfund activities. As indicated in Finding 2 of this report,
we determined that the absence of allocation procedures in FY 1988
did not have a material effect on the total travel costs charged
to the Superfund program. However, absent the allocation
procedures in FY 1988, our review of 24 multiple case travel
vouchers disclosed 11 instances in which the travelers had
voluntarily allocated the travel costs on the vouchers, thus
further minimizing the overall effect. Based on the procedures
developed and issued to all LNRD employees in September 1988, all
multiple case travel costs should be allocated and documented on
the travel vouchers in FY 1989 providing implementation is
monitored and controlled by responsible supervisory personnel.
Although the case number discrepancies did not have a material
effect on the total FY 1988 Superfund labor and travel costs,
these discrepancies must be avoided. If not avoided, it
unnecessarily increases the risk that material errors could occur
and not be detected in a timely manner. Therefore, both the LNRD
employees and their respective supervisors must exercise greater
care in the preparation, review, and processing of the time
reports and travel documents. Furthermore, both the employees and
approving officials si 3 case numbers are
entered correctly on 1 ^j J avel authorizations, and
the travel vouchers tc
labor and travel costs
Recommendations
We recommend that the
appropriate action to:
r or undercharges of
rogram.
General for the LNRD take
1. Ensure that the control procedures over the employee time
reporting system, as indicated in the LNRD's response to
the prior audit of the FY 1987 Superfund activities, are
completed and implemented no later than October 1, 1989.
- 6 -
-------
2. Require the issuance of written policy and procedures that.
will hold the employees' immediate supervisors responsible
and accountable for obtaining and reviewing the employees'
weekly time reports on a timely basis.
3. Require the establishment of the necessary controls for
verifying the completeness and accuracy of the case
numbers related to the purpose of the travel recorded on
the Official Travel Request and Authorization and the
related travel vouchers, including the allocation of
travel costs now required to be recorded on the vouchers.
- 7 -
-------
2. TRAVEL COSTS
Because of limitations within the Department's
Financial Management Information System (FMIS), the
LNRD is not readily able to accurately account for
case-specific travel costs relating to trips involving
more than one case. As a result, the travel charges
made to a specific case could be over or understated
on the reports to EPA. However, in our opinion, this
does not materially affect the financial reports to
EPA or the cost data prepared for litigative cost
recovery actions.
According to the IAA, the LNRD is required to report costs to the
EPA on a case-specific basis. In order to do this accurately and
economically, the system will need to be modified to identify
multiple cases related to a single travel voucher to facilitate
the allocation of the costs to be charged to the individual cases.
Due to the limited number and size of data fields in the FMIS,
LNRD personnel can only input one case number into the FMIS for
each voucher involving multiple cases. This information and
subsequent payment information is then electronically transmitted
to LNRD for allocation to Superfund and non-Superfund cases based
on the single case number.
In FY 1988, the LNRD reported total expenditures of $14,578,625 to
EPA for Superfund activities applicable to the FY 1988 IAA, of
which only $556,160, or 3.8 percent of the total cost, was for
travel. To determine the accuracy of travel costs allocated to
individual Superfund cases, we reviewed a sample of 100 travel
vouchers of which 74 (totaling $43,490} affected 67 different
Superfund cases. However, only 17 of the vouchers, totaling about
$10,000, pertained to trips with multiple cases involving both
Superfund and non-Superfund cases.
Our analysis of the cost allocations for the 17 multiple case
travel vouchers disclosed that the costs for: (1) 10 of the 17
vouchers ($5,981) were allocated solely to Superfund cases
although some of the costs should have been allocated to one or
more non-Superfund cases; and (2) 7 of the 17 vouchers ($3,935)
were allocated solely to non-Superfund cases although some of the
costs should have been allocated to one or more Superfund cases.
Further, we found 7 other multiple case vouchers ($2,973) which
were allocated solely to one Superfund case although some of the
costs should have been allocated to a second Superfund case.
Based on the above, the cost reports submitted to the EPA by the
LNRD did not accurately represent the travel costs for individual
Superfund cases. However, the net amount of the under and
overstated costs charged to these cases were minimal and had no
material effect on the financial reports. For litigative cost
- 8 -
-------
recovery purposes, the source documents are obtained and verified,
thus most of these discrepancies should be detected at that time.
Recommendation
We recommend that the Assistant Attorney General for the LNRD
instruct the Executive Office to:
4. Modify the system of accounting to identify those travel
vouchers having multiple cases for which travel costs must
be allocated.
- 9 -
-------
STATEMENT ON INTERNAL CONTROL STRUCTURE
In planning and performing our audit of the LNRD's Superfund, we
considered the internal control structure for the purpose of
determining our auditing procedures, but not for the purpose of
providing assurances on the LNRD's internal control structure as a
whole. Considerations were given to those internal control
structure policies and procedures which could materially affect:
(1) the accounting system methods and records to identify,
classify, record, and report the Superfund financial activities;
and (2) management's control methods for supervising and monitor-
ing performance and providing reasonable assurance that the LNRD's
Superfund financial responsibilities are being properly carried
out.
Our review, made for the limited purpose described previously,
would not necessarily disclose all material weaknesses in the
LNHD's internal control structure taken as a whole but rather
those elements that would materially affect the LNRD's ability to
record, process, summarize, and report Superfund financial data.
Because we are not expressing an opinion on the LNRD's internal
control structure, this statement is intended solely for the
information and use of the LNRD management in administering the
Superfund activities. In this regard, we noted conditions
relating to the internal control structure associated with
Superfund activities that, if not corrected, could result in a
higher risk that material errors could occur and not be detected
within a timely period. These conditions are discussed in the
FINDINGS AND RECOMMENDATIONS section of this report.
- 10 -
-------
STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS
We have audited the LNRD's implementation of the EPA's IAA with
the Department for the period October 1, 1987 through
September 30, 1988. The audit was performed in accordance with
generally accepted government auditing standards.
In connection with our audit and as required by the standards, we
tested transactions and records to obtain reasonable assurance
that the LNRD complied with laws, regulations, and procedures
which, if not complied with, we believe could have a material
effect on the Superfund activities. Compliance with laws, regula-
tions, procedures, and the terms and requirements of the IAA
applicable to conducting litigation and recording costs relating
to Superfund, and the reporting on such activities is the
responsibility of LNRD management.
Our audit included examining, on a test basis, evidence regarding
compliance with laws, regulations, and procedures. The specific
laws and regulations for which we conducted tests were the CERCLA,
the SARA, and EO 12316. Testing of compliance with IAA number
DW 15933415-01-0 was also performed.
The results of our tests indicated that, for the items tested, the
LNRD complied with those provisions of laws, regulations, and the
IAA referred to above, except for those items identified in the
FINDINGS AND RECOMMENDATIONS section Of this report.
With respect to the transactions not tested, nothing came to our
attention that caused us to believe that LNRD management was not
in compliance with the requirements cited above.
- 11 -
-------
U.S. Department of Justice
Land and Natural Resources
APPENDIX I
Executive Offics Washington, D.C. 20S30
MEMORANDUM
September 19, 1939
TO: Guy K. Zimmerman
Acting Assistant Inspector General
for Audit
Office of the Inspector General
FROM: . Myles E. Flint
> ' Deputy Assistant Attorney General
Land and Natural Resources Division
SUBJECT: Draft Report on Superfund Activities in the Land and
Natural Resources Division for Fiscal Year 1988
Thank you for the opportunity to respond to the draft
audit report on Superfund activities. I am pleased that
corrective actions for the audit's findings can be implemented
quickly, and happy that your analysis of our system of accounting
disclosed no material weaknesses.
In general/ the Land and Natural Resources Division
agrees with the audit's findings concerning the need for
strengthened internal controls over timekeeping reports, and the
need to modify our accounting system to accommodate multi-case
travel allocation. Corrective measures will be taken as soon as
possible to remedy these minor deficiencies. Our detailed
response to the four audit recommendations is attached.
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 on future audits of the Superfund program.
Attachment
- 12 -
-------
ATTACHMENT A
Response to Draft Report on .Svtperfund Activities in the
Land and Natural Resources Division for Fiscal Year 1933
I._Audit Reconr.er.dations re Internal Controls
"We recommend that the Assistant Attorney General for the Land
and Natural Resources Division take appropriate actions to:
1. "Ensure that the control procedures over the employee tine
reporting system, as indicated in the LNRD's response to the
prior audit of the FY 1987 Superfund activities, are
completed and implemented no later than October 1, 1989."
Lands Division Response:
The Division issued Directive number 6-89 on August 24,
1989. A copy of the directive is attached.
2. "Require the issuance of a written policy and procedures
that will hold the employee's immediate supervisor
responsible and accountable for obtaining and reviewing the
employees' weekly time reports on a timely basis."
Lands Division Response;
Lands Division directive number 6-89 (attached), issued
August 24, 1989, provides for supervisory review and
verification of the weekly time reports.
3. "Require the establishment of the necessary controls for
verifying the completeness and accuracy of the case numbers
related to the purpose of travel recorded on the Official
Travel Request and Authorization and the related travel
vouchers, including the allocation of travel costs now
required to be recorded on the vouchers."
Lands Division Response;
The Division issued a memorandum (attached) on September 18,
1989, instructing employees to attach a copy of their
cognizant timesheet to each travel voucher submitted for
payment. This new procedure will take effect October 1,
1989.
NOTE: The attached documents referenced above are not
included in APPENDIX I of this report.
- 13 -
-------
ATTACHMENT A
Response to Draft Report on Superfund Activities in the
Land and Natural Resources Division for Fiscal Year 1933
II. Audit Recommendation re Travel Costs
"We recommend that the Assistant Attorney General for the Land
and Natural Resources Division instruct the Executive Office to:
4. "Modify the system of accounting to identify those travel
vouchers having multiple cases for which travel costs must
be allocated."
Lands Division Response:
Beginning on October 1, 1989, the Executive Office will use
the INDEX1 field in the OBL5FILE of the Financial Management
Information System (FMIS) to indicate multi-case travel.
For all travel authorizations keyed into FMIS, the INDEX1
field will contain either the letter "M", to indicate multi-
case travel, or the field will be left blank, to indicate
single-purpose travel. All multi-case vouchers will be
reviewed, and costs will be allocated accordingly.
- 14 -
------- |