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 - ------- |