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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

             OFFICE OF THE INSPECTOR GENERAL
                 EASTERN AUDIT DIVISION

                JF KENNEDY FEDERAL BUILDING
                       Room '911
                Boston. Massachusetts 02203-22H
                      (617, 565-3160
                      FTS 8-835-3160
NEW YORK OFF'CE

90 C^u'cr SfOfe:
Su •€> 802
                                      March 23,  1989
         MEMORANDUM
         SUBJECT:   Report on Audit of  Credit Period Costs
                    Claimed by the New  York State Department
                    of Environmental  Conservation for Love Canal
                    Audit Report No.  P5£G2cr02-0083 - 9100221
         FROM!      Paul D. McKechn	
                    Divisional Inspec
                    Eastern Division

         TO:        William J. Muszynski
                    Acting Regional Administrator
                    Region 2
                                 or
         SCOPE  AND OBJECTIVES

         We have  completed a final audit  of  credit period costs claimed
         by the New York State Department of Environmental Conservation
          (DEC)  for Love Canal under  the Comprehensive Environmental
         Response,  Compensation and  Liability Act of 1980 (CERCLA),
         which  included costs incurred by the Urban Development
         Corporation (UDC),  New York State Department of Transportation
          (DOT)  and New  York State Department of Health  (DOH) for
         activities at  Love Canal, City of Niagara Falls, New York,
         between  January 1,  1978 and December 11, 1980.  The audit was
         performed by the contract auditors,  Samuel M. Fisher Company,
         CPAs.  The audit field work began on July 22, 1987 and was
         completed on February 23, 1988.

         The  purpose of our audit was to  determine the acceptability  of
         costs  claimed by DEC for credit  under Section 104  (c)  (3) of
         CERCLA for direct out-of-pocket  non-Federal funds expended or
         obligated at Love Canal between  January 1, 1978 and December 11,
         1980.  Our examination was  made  in  accordance with generally
         accepted auditing standards and  the "Standards for Audit of
         Governmental Organizations,  Programs,  Activities and Functions,"
           
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                               -2-
 issued by  the  Comptroller General  of  the  United  States.   The
 audit included tests of  the  accounting  records and  other
 auditing procedures as we considered  necessary in the
 circumstances.  The Environmental  Protection Agency's Audit
 Guide for  Credit  Period  and  Pre-Award Costs under CERCLA
 Program was also  used as a guide  in our examination.
SUMMARY OF FINDINGS

We are unable  to accept the  total costs of  $17,619,773 claimed
by DEC for credit under Section  104  (c)  (3) of CERCLA for
direct out of  pocket non-Federal funds expended or obligated at
Love Canal between January 1, 1978 and December 11, 1980.
While we are accepting $12,479,270, we have questioned
$3,335,323 and have set aside $1,805,180.  The amount of
questioned and set aside costs is net of costs reimbursed by
other Federal  agencies and costs incurred after the cut off
date of December 11, 1980.   These costs were included in the
individual line items of the claim; however, the DEC had
adjusted the total so as to  not  include them in the total
claimed amount.

We have questioned costs in  this report due to lack of adequate
supporting documentation rather  than reporting them as set
aside where we believe that  DEC has had more than ample
opportunity to provide the necessary documentation.  This
office audited the State's initial claim for credit period
costs and issued a report in March 1983.   At that time $13.8
million of the $14.6 million claimed was set aside, principally
due to lack of adequate supporting documentation.   DEC was
again given the opportunity  to provide adequate supporting
documentation during the course of this audit.   In fact,
issuance of the report was delayed to provide DEC additional
opportunities to provide the necessary documentation.

The costs questioned and set aside are summarized on Exhibit A
of the audit report.  Details of these costs are provided as
follows:

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                              -3-
UDC  (Schedule A-l) - A total of  $1,002,442 was questioned  less
$483,019 attributable to costs incurred after the claim period
cut-off date of December 11, 1980 resulting  in net questioned
costs of $519,423.  Questioned costs consisted of property
acquisitions, relocation, closing, taxes, insurance, administra-
tive and personal service costs, all of which could not be
substantiated by UDC's accounting books and  records.

DOT  {Schedule A-2) - A total of  $900,853 was questioned less
$340,411 reimbursed by other Federal agencies participating in
the Love Canal clean-up and $154,916 not claimed, resulting in
net questioned costs of $405,526.  Questioned costs consisted
of $817,377 of personal services and related expenses incurred
in State fiscal years 1979 and 1980 for which the supporting
time sheets and payroll records were destroyed by DOT, and
$83,476 of fencing costs which were not supported by detailed
supporting cost schedules, vendor invoices or pricing schedules.

We also set aside $4,231,441 of housing and  relocation
expenditures claimed by DOT pending submission of adequate
documentation to support these claimed costs.  This total was
reduced to a net set aside amount of $1,805,180 based on
reimbursement payments of $2,426,261 received from other
Federal agencies participating in the Love Canal clean-up
program.

DOH  (Schedule A-3) - A total of $3,750,714 was questioned less
$633,726 reimbursed by another Federal agency participating in
the Love Canal clean-up and $706,614 attributable to expendi-
tures after the December 11, 1980 credit period resulting in
net questioned costs of $2,410,374.   Questioned costs consisted
of $928,514 of personal services expenditures which were not
supported by time sheets and payroll records, and applicable
fringe benefits costs of $288,890 and indirect costs of
$247,508; $413,394 of contractual services,  $1,014,666 of
equipment costs,  $800,289 of supply costs, and $57,453 of
travel costs all of which were disallowed because supporting
cost schedules could not be reconciled with DOH furnished
vendor invoices as well as a failure to provide applicable
contracts and contract procurement documentation.

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Details of our audit results, subject to litigation in
progress, if any, which may lead to recovery of claimed costs,
are contained in Schedules A-l,  A-2 and A-3 and the related
supporting notes.  The contents of the report have been
discussed with DEC, who responded in a letter dated December 30,
1988.  DEC'S comments were given full consideration in the
preparation of the final report.

we recommend that Region 2 not allow credit under Section 104
(c)  (3) of CERCLA for the unallowable costs of $3,335,323
claimed by DEC.  Further, we recommend that the action official
evaluate the appropriateness of allowing such credit for the
set aside costs of $1,805,180 in light of the comments
contained in Schedule A-2 and the related notes.
ACTION REQUIRED

In accordance with EPA Directive 2750,  the action official is
required to provide this office with a  copy of the proposed
determinations on the findings within 90 days of the audit
report date.

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                   ENVIRONMENTAL PROTECTION AGENCY

REPORT ON AUDIT OF CREDIT PERIOD COSTS CLAIMED BY THE NEW YORK STATE
     DEPARTMENT OF ENVIRONMENTAL CONSERVATION FOR LOVE CANAL

         FOR THE PERIOD JANUARY 1, 1978 TO DECEMBER 11, 1980

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                               TABLE OF CONTENTS
PURPOSE AND SCOPE OF AUDIT

BACKGROUND

SUMMARY OF AUDIT RESULTS - EXHIBIT A

SUMMARY OF COSTS CLAIMED, ACCEPTED
  AND QUESTIONED - EXHIBIT A

SCHEDULE OF COSTS CLAIMED, ACCEPTED AND
  QUESTIONED, URBAN DEVELOPMENT
  CORPORATION - SCHEDULE A-l

NOTES TO SCHEDULE A-l

SCHEDULE OF COSTS CLAIMED, ACCEPTED AND
  QUESTIONED, NEW YORK STATE DEPARTMENT
  OF TRANSPORTATION - SCHEDULE A-2

NOTES TO SCHEDULE A-2

SCHEDULE OF COSTS CLAIMED, ACCEPTED AND
  QUESTIONED, NEV) YORK STATE DEPARTMENT
  OF HEALTH - SCHEDULE A-3

NOTES TO SCHEDULE A-3

AUDITORS' COMMENTS ON ACCOUNTING
  SYSTEMS - EXHIBIT B

CORRESPONDENCE - EXHIBIT C

SUMMARY OF GRANTEE COMMENTS AND AUDITOR
  RESPONSE TO COMMENTS
   PAGE

    1

    1-3

    4
    6

  7-8



    9

10-15



   16

17-19


   20

   21


22-27

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                     SAMUEL M. FISHER COMPANY
                      CERTIFIED PUBLIC ACCOUNTANTS
                                 401 PARKWAY
                           BKOOKAJLL. PEXKSYLVAJCI
                                 1219) 328 3»00
PURPOSE  AND SCOPE OF AUDIT

We have  completed a  review of  the  $17,619,773 claimed by  the  New York State
Department  of Environmental Conservation (DEC) as  a  credit  against its share
of costs Incurred under  the  Comprehensive  Environment Response, Compensation
and  Liability  Act of  1980  (CERCLA)   for  activities   at  Love Canal,  City  of
Niagara  Falls,  New  Tork.    The  claim  included  costs  for New   York  State
Department  of Transportation (DOT), Urban  Development Corporation (UDC),  and
New  York State Department of Health (DOH)  for  costs  incurred from January  1,
1978 through December 11, 1980.

The  purpose of our audit was to determine  the  acceptability of costs claimed
by DEC for  credit  under  Section 104 (c)  (3) of CERCLA  for direct out-of-pocket
non-Federal funds  expended  or obligated  at  Love Canal between January 1,  1978
and  December 11,  1980.

Our  examination  was  made  in  accordance  with  generally   accepted  auditing
standards   and  the  "Standards  for   Audit  of  Governmental  Organizations,
Programs, Activities and  Functions" revised by the Controller General In 1981.
The  Environmental Protection  Agency's  Audit  Guide  for  Credit   Period and
Pre-Award  Costs under  the  CERCLA  Program  was also  used as a  guide in our
examination.
BACKGROUND

The  Act was  passed  as  Public  Law  96-510 on December 11,  1980  to  provide  for
liability,  compensation,   cleanup,   and  emergency   response   for  hazardous
substances released  into the environment and the cleanup of inactive hazardous
waste  disposal  sites.   Section  104  (c)  (3)  of  the  Act 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 assurances that  the
State  will pay  or assure payment  of 10 percent of the costs of the  remedial
actions  or at least  50  percent of coats  if the facility was owned by the State
or   a   political  subdivision  at  the   time  of  any  disposal  of  hazardous
substances.  Section 111  (a)  sets  forth the following purposes for which  the
Fund can be used:

      (1)  payment  of governmental response costs Incurred pursuant  to section
           104 of this title, including costs incurred pursuant to the
           intervention  on the High Seas Act;

      (2)  payment  of any claim for necessary response costs incurred by  any
           other person  as a result of carrying out  the national  contingency
           plan established under section 311 (c) of the Clean Water Act  and
           amended  by section 105 of this title; provided,  however*  that  such
           costs must be approved under said plan and certified by the
           responsible Federal official;

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     (3)  payment of  any  claim  authorized  by subsection (b) of thla section
          and  finally decided pursuant  to  section 112 of this title,  including
          those  costs set  out in  subsection  112 (c)  (3) of this title;  and

     (4)  payment of  costs specified  under subsection (c)  of this  section.

Subsection  (c) specifies  the uses  of  the Fund.   The  uses pertinent to this
review are:

     (1)  the  costs of assessing  both short-term  and  long-term injury to,
          destruction of,  or loss of  any natural  resources resulting  from a
          release of  a hazardous  substance;

     (2)  the  cost of Federal or  State  efforts  in the restoration,
          rehabilitation,  or replacement of  acquiring the  equivalent  of any
          natural resource Injured, destroyed,  or lost  as  a result  of a
          release of  a hazardous  material;

     (3)  subject to  such  amounts as  are provided in  appropriation  Acts, the
          costs  of a  program to identify,  investigate and  take enforcement  and
          abatement action against releases  of  hazardous substances;

     (4)  the  costs of epidemiologlc  studies, development  and maintenance of a
          registry of persons exposed to hazardous substances to allow long-term
          health effect studies and diagnostic  services not  otherwise available
          to determine whether  persons  in  populations exposed to hazardous
          substances  in connection with a  release or  a  suspected release are
          suffering from  long-latency diseases; and

     (5)  the  costs of permanent  and  temporary  relocation  of residents and
          businesses.

Love Canal  landfill is a  16-acre  tract  of  land  located  In  the southeast end of
the City  of Niagara Falls.  Hooker Chemical  admits to depositing, between 1942
and  1953,  21,800 tons of chemical  wastes from its  plants  in Niagara  Falls.
During  the  1950's,  hone  building adjacent to  the site was accelerated  and a
public  school was built  on the  property.  In  the mld-1970's chemical  odors
were cited  by  residents,  barrels  surfaced  and chemical  wastes were exposed.

On August 7,   1978,  tbe President of  the United States declared Love Canal  as
an emergency  area under  the Disaster Relief Act  of  1974  (Public  Law 93-288)
and authorized action necessary to save lives and  protect  property.   President
Carter  declared a second  Federal emergency  at  Love  Canal  on May  22, 1980  to
provide  Federal aid  to relocate  the more than 700  families  who  still  lived
near  the  toxic vaste dump.    The  second emergency  declaration  resulted  in
Congress  passing  an  Emergency  Appropriations Bill  which  provided *  $7.5
million  advance and  a $7.5 million  grant to the State, which  the state  had  to
match with  $5  million.

Under  the  provisions  of  the   Disaster Relief Act,  monetary  assistance  was
provided  to  the State  by the Federal Emergency Management  Agency (FEKA),
originally  the  Federal  Disaster  Assistance Agency   (FDAA).   Assistance  was
provided  for   temporary and permanent relocation  for  residents of  Love  Canal,
purchase  of homes within  the Love Canal area, and remedial  construction at the
site.
                                      -2-

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DEC submitted  «  letter,  dated  January 14, 1982, to the  EPA  Headquarters  State
and Regional  Coordination  Branch claiming $14,611,500 as a  credit  towards  the
required matching share  for current  or  future cooperative  agreements.   These
costs  were  purportedly   Incurred  by various State  and  local  agencies  as
described below:

Department of  Environmental Conservation  ($2,^91,500)

Represents costs  for  the  construction of  a leachate collection system for  the
North and Central Zones at Love  Canal  and  for  health and environmental testing
services.

Department of  Transportation ($2,000,000|

Represents  costs  relating  to  in-house   salary,  travel,  overtime and  other
expenses and remedial construction costs incurred by the City of Niagara Falls.

Urban Development Corporation  ($3,600,000^

Represents money spent  on the  permanent  relocation and acquisition  of  homes
within Rings  I and  2.

Department of  Health  ($5,500,000)

Represents   claimed  expenditures   for   analytical   services,  health   and
epldemlological  studies at Love Canal.

City of Niagara  Falls ($620.000)

Represents  costs for the  remedial  construction at  the  Southern Zone of the
Canal.

The  above  described costs were  reviewed  by  the  EPA Office of  the Inspector
General    (01C),   Eastern   Division.     In    their    Audit   Report    No.
E5cH3-02-0022-30753,  dated March  21,  1983,  OIC  accepted  $800,000  of  DOT
personnel  service  costs  and  questioned  $13,811,500 due  principally  to  the
inability  of  the  State  agencies concerned to identify  the  costs  claimed  in
their  accounting  records  and  submit  supporting  schedules  and  documentation
therefor.   In  response  to this  audit report,  DEC  requested that   in view  of
differences of opinion relating to the availability of  data to  be audited, the
audit be reopened and addressed in a more comprehensive manner.

On September  11,  1986, DEC submitted  a revised claim for credit  period costs,
as follows:
          Urban Development Corporation
          New York State Department of Transportation
          New York State Department of Health
                    TOTAL
This  revised claim is now the subject of our audit.
$ 9,340.000
  3,465,030
  4.814.743
$17.619.773
                                      -3-

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SUKKAJRY OF AUDIT RESULTS - EXHIBIT A

Based  on  our  review  of  information  provided  by  the aforementioned  State
agencies,  it  is  our opinion that  subject  to litigation In  progress,  if any,
which may  lead  to recovery of  claimed  cost«, $12,479,270 of  the $17,619,773
claimed by  DEC  if- acceptable as  credit  to the State  share  under cooperative
agreements  for  Love Canal,  Our  opinion  is  based  on  the premise  that  costs
claimed, amounting to $5,140,503, were unacceptable as such credit because the
purpose for which costs were incurred was not identified, expenditures claimed
were  not  reconcilable  to agency   records   and  not  adequately  documented.
Details of our findings are provided In the ensuing paragraphs of this report.

This report is Intended for use in connection with credit period costs claimed
under CERCLA  by  DEC  for  Love  Canal and  should not  be used  for any  other
purpose.
Broomall, Pennsylvania
February 23, 1988
                                     -4-

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                                                                    EXHIBIT A


                    NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                              CREDIT PERIOD AUDIT FOR LOVE CANAL
                       SUMMARY OF COSTS CLAIMED, ACCEPTED AND QUESTIONED

                             JANUARY 1, 1978 TO DECEMBER 11, 1980

                                          FINAL AUDIT
                                  CLAIMED     ACCEPTED     QUESTIONED

Srban Development Corporation  $ 9,340.000  $ 8,820,577    $  519,423

Department of Transportation     3,465,030    1,254,324       405,526

Department of Health             4.814.743    2,404.369     2.410.374

          TOTAL                $17.619,711  $12.479.270
 SET ASIDE  SCHEDULE

$             A - 1

 1,805,180    A - 2

	1    A - 3

$1.805.180
                                    -5-

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                                                          SCHEDULE A-l
          NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                    CREDIT PERIOD AUDIT FOR LOVE CANAL
             SCHEDULE OF COSTS CLAIMED, ACCEPTED AND QUESTIONED
                       URBAN DEVELOPMENT CORPORATION

                   JANUARY 1. 1978 TO DECEMBER 11, 1980

                                FINAL AUDIT
Property acquisition costs

Relocation costs

Closing costs

Taxes

Insurance

 dministrative expenses

  rsonnel costs

          TOTAL

          Less expenditures
          after 12/11/80

          TOTAL CLAIMED
CLAIMED
$7,368
1.442
108
73
45
711
72
$9.823
483
,690
,400
,221
,831
,436
.931
,510
,019
,019
ACCEPTED
$7.124
1,422
98
73
41
59

$8,820
_
.621
.706
,042
.831
.854
,523
_
.577

QUESTIONED
$ 244
19
10

3
652
72
$1,002
483
,069
.694
,179
-
.582
,408
,510
,442
,019
NOTES
1
2
3
4
5
6
7


                                              -6-

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            NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                      CREDIT  PERIOD  AUDIT FOR LOVE CANAL
                         URBAN  DEVELOPMENT CORPORATION
                            NOTES  TO SCHEDULE A - 1
                                   FINAL AUDIT
NOTE 1.   PROPERTY ACQUISITION  COSTS

          We  accepted  property   acquisition  costs   shown  in  a  record   of
          acquisitions  and  relocation expenses  with  sufficient details as  to
          persons,  location  of  property, purpose,  check  numbers and dates  of
          payment,   Our  test of the  close  out folders for these  costs  proved
          that  they  vere  adequately documented and traceable to  the record  of
          acquisition.    However,   the   total   costs   in   this  record   of
          acquisitions  amounted to only  $7,124,621,  while  the costs claimed
          totaled  $7,368,690.   We  therefore  questioned  the   difference   of
          $244,069.
NOTE 2.   RELOCATION COSTS
          Similarly, ve accepted a total  of  $1,422,706 of relocation costs
          sufficiently detailed In a disborsement  ledger for this item.  These
          costs were tested satisfactorily for  documentation and traceability
          to the ledger.  The costs claimed, however, amounted to $1,442.400.
          Ve therefore questioned the unsubstantiated costs of $19,694.
NOTE 3.   CLOSING COSTS
          The  record  of acquisition  and  relocation  expenses referred  to in
          Note  1  included  details of  closing costs expended  for  each  of the
          properties acquired.   Our  tests of  the  close  out  folders for these
          costs proved  they were  adequately documented and  traceable  to the
          disbursement  ledger  and  record  of acquisition,  and  to  cancelled
          checks.   However, the total  costs  in the  record of  acquisition
          amounted  to only  $98,042, while the costs  claimed  totaled $108,221.
          We therefore questioned the difference of $10,179.
NOTE 4.   TAXES
          The  record  of acquisition  and  relocation  expenses referred  to  in
          Note  1  included  details  of  taxes paid  for each of  the  properties
          acquired.  Our tests of the close out folders for these costs proved
          they  were  adequately documented  and traceable to  the  disbursement
          ledger  and  record  of acquisition,  and  to cancelled checks.   The
          total costs in the  record of  acquisition amounted to $88,364, while
          the costs claimed totaled only $73,831.  Although the total costs in
          the  acquisition  register  exceeded  those claimed  by $14,533,  our
          audit  cover*  only  costs  claimed.   Ve therefore  accepted  cost*
          claimed of $73,831.
                                      -7-

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NOTE 5.    INSURANCE

           We  accepted a total of $41,854 of insurance costs which were tested
           satisfactorily  to  supporting  documentation.    The   costa  claimed,
           however,   amounted  to   $45,436.   We   therefore   questioned   the
           unsubstantiated costs  of  $3,582.


NOTE 6.    ADMINISTRATIVE EXPENSES

           We   accepted  a   total   of   $59,523  of  Administrative  expenses,
           representing security  expenses which  were  tested satisfactorily to
           supporting  documentation.   The costs  claimed,  however,  amounted to
           $711,931.   We  therefore  questioned  the  unsubstantiated  costs  of
           $652,408.


NOTE 7.    PERSONNEL COSTS

           Since   no   disbursement   ledgers   or  supporting   schedules   and
           documentation were  provided, we  questioned  total claimed costs  of
           $72,510.
                                      -8-

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                                                                   SCHEDULE A-2
                  NEW YORK STATE  DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                               CREDIT PERIOD AUDIT FOR LOVE CANAL
                        SCHEDULE  OF COSTS CLAIMED, ACCEPTED AND QUESTIONED
                           NEV YORK STATE DEPARTMENT OF TRANSPORTATION

                               JANUARY 1, 1978 TO DECEMBER 11, 1980

                                           FINAL AUDIT
Personal  service,  additive
  and  related  expenses

State  payment  to City  of
  Niagara Falls

Standby bus  service

Housing and  relocation:

           Transient  housing

           Relocation costs

           Security

           Drainage

           Fenc ing

           Boarding

           Homeowners*  consultant

           Human  services grant

             Sub-Total
Less:
          FDAA and FEMA
          reimbursement

          Amount not claimed

             TOTAL
CLAIMED
$1,617,377
1,200,000
424,362
1,437,385
1,594,056
85,516
11,500
83,476
13,097
45.000
195,000
$6,706,769
3,086.823
154,916
ACCEPTED QUESTIONED SET ASIDE NOTE
$ 800,000 $817,377 $ - 1
1,200,000 2
424,362 - -
1,437,385 3
1,594,056 4
85,516
11,500
83,476 - 5
13,097
4*. 000
195,000
$1,574,475 $900,853 $4,231,441
320,151 340,411 2.426,261 6
154,916 - 7
$3.465.030

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 NOTE 1,
NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                      CREDIT PERIOD AUDIT
         NEW YORK STATE DEPARTMENT OF TRANSPORTATION
                     NOTES TO SCHEDULE A-2
                          FINAL AUDIT

  PERSONAL SERVICE,  ADDITIVE AND RELATED EXPENSES
           a)
           b)
       For Fiscal Year (FY) 1978-79 and FY 1979-80. we were informed
       that the time sheets and payroll records had been destroyed.
       No other documentation was provided in support of these costs.
       We, therefore,  questioned the costs of $817,377 for these
       fiscal years.

       Our test of personal service costs for FY 1980-81 proved to be
       satisfactory.   Although we were  only provided with an overall
       summary of  personal  service costs  from January 1, 1978 to
       December 11,  1980, we  reconstructed FY 1980-81 costs as follows:
                  PROJECT I.D.
                    NUMBER

                  5800-76-001

                  5800-76-101

                  5800-76-301

                    TOTAL
 BASIC
 PLUS
ADDITIVE
                                     OVERTIME
                                       PLUS
                                     ADDITIVE
TOTAL
                        $347,175     $164,869      $512.044

                              167       -               167

                          36.384       16.148       52.532
               However, this total of $564,743 was well within the $800,000
               accepted in the OIG interim audit, which we have also accepted.

          c)   Questioned costs were calculated as follows:
                    Costs claimed
                    Less accepted above
                    Questioned
                                    $1,617,377
                                       800.000
NOTE 2.   STATE PAYMENT TO CITY OF NIAGARA FALLS

               The only documentation for this item was New York State payment
               vouchers  and   an   appropriation  of   $1.200,000   in   partial
               reimbursement  to  the  City  of  Niagara  Falls  for  remedial
               construction work and  leachate  treatment in the  southern  zone
               of the  abandoned Love Canal chemical  dump.  We were  informed
               that the State  of  New York  performed  an audit of  these  costs
               but notwithstanding  our several requests, we were not furnished
               a copy of the audit report thereon.  Long  after the completion
               of our  field audit  and the preparation  of the first  draft  of
               our report  DOT ultimately submitted a copy  of  the audit report
               of the State of New York Department of  Audit and  Control  (DAC)
               on the Disaster  Claim  of  the  City of  Niagara Falls,  Project
                                     -10-

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Application   No.   FDAA  3066   EM4,   together  vith   related
correspondence.   Our review of  this audit  report shoved  that
while  the  auditors  performed  a commendable  job,  we noted  the
following comments:

a)   The  scope  of   the  audit  was  limited  due to  failure  to
     access the  records  of the prime contractor.

b)   Although the prime  contract was negotiated under emergency
     conditions,  the  auditors  concluded  that contract  unit
     prices were  exorbitant  and  had to disallow $1,623,840,  or
     261 of  costs  incurred  of $6,278,869,  based  oo available
     documentation  only.   Also,  the award  of this contract  la
     currently  the  subject  of  a   civil  suit for  Racketeer
     Influenced and Corrupt Organizations  (RICO) damages by  the
     State of New York and the City of Niagara  Falls.

c)   In  addition  to the  exorbitant  unit  prices,  the  prime
     contractor was  reimbursed $1,528,088 for special insurance
     coverage  under  a  direct  reimbursement   item   in   the
     contract.  The  auditors did not audit  this cost since  the'
     Federal  government  had  not  approved  funding  therefor  at
     the time of the audit.

In an  inter-office  memorandum  dated October 14, 1980,  enclosed
with the audit  report,  DAC stated  that  $1,036,811  can  be paid
by the State as follows:
     Allowable Insurance Cost (as adjusted
      from $1,528,000 to the amount actually
      paid by the contractor)
     Less Maximum Federal Reimbursement
      (as approved subsequently by FEMA)
$1.318,922

   282,111

SI.036.811
The $1,036.811 was paid to the City of  Niagara  Falls under DOT
Voucher  7835,  which  is  part  of  the  $1,200,000  claimed  for
credit period cost.

Also, the EPA OIC interim audit  report questioned the claim for
$1,200,000  as  representing  liability   insurance   costs  per
information furnished by  the Deputy Controller  for  the  City of
Niagara Falls.

With  so  many  significant  doubts  attendant  to  this   claim,
foremost among which is  the  failure  to comply with  the spirit
and intent of  EPA procurement  regulations  as  set  forth  in 40
CFR Part 33,  we set  aside the entire claim of $1,200,000.
                         -11-

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NOTE 3.   TRANSIENT HOUSING

          Support of  these costs vas  evaluated  as  follows:

          a)   New York State Appropriation Ledger Abstract,  showing  total
               expenditures up to December 11.  1980 amounting to  $1,437,385-

               Although this Abstract  is in agreement with costs  claimed of
               $1,437,385, it was not  sufficiently detailed to enable the
               tracing of individual vouchers selected for testing to the
               individual expenditures shown in the Appropriation Ledger
               Abstract.

          b)   Monthly Detail Ledgers  for Love Canal projects-

               These Ledgers  contained a mixture of all expenditures for Love
               Canal,  without sufficient detail and a summary of transient
               housing costs  that  tie in to the costs claimed.

          c)   A schedule  showing  details of  payments made to hotels,  motels,
               and  others  for temporary housing of  Love Canal  evacuees,  the
               total for which  amounted to $1,566,253-

               This  schedule  contains  sufficient details  to  trace  payments,
               but  does not agree with costs  claimed,  aod DO  reconciliation
               therewith was  furnished.  Although this schedule was  submitted
               very  late In the audit  IB  sectional  spreadsheets which  we had
               difficulty  in  assembling,  we attempted, with the assistance
               of the  Auditee,  to reconcile it with  the costs  claimed  but were
               unable  to do so.

          d)    New Tork  State duplicate vouchers covering  payments for
               temporary housing of Love  Canal evacuees-

               These vouchers were initially presented to  us without any
               supporting documentation at all.  Ve went to the
               State Archives to obtain the documentation  for  our test sample
               vouchers.  However,  ve were unable to obtain backup
               documentation supporting these vouchers as part of the claim.

          In addition, we were not  furnished the contracts with the various
          vendors, without which their bills could not be verified.  Neither
          were we provided documentation as to how these contracts were
          procured.

          As pointed out in the  Interim audit  report, it is incumbent upon  the
          State Agencies concerned  to provide  adequate supporting schedules
          and documentation for  costs claimed  to be  eligible  for credit.

          In light of the foregoing  comments,  we set aside all  costs  claimed
          for transient housing  amounting to $1,437,385.
                                     -12-

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NOTE 4.   RELOCATION COSTS
          Initially  the only  schedules and documentation  presented  to  support
          these costs were  the  Monthly Detail Ledgers and duplicate  copies  of
          State vouchers, many  of  which were Illegible without any  supporting
          invoices,  statements or receipts,   As  indicated  in  Note  1  above, the
          Monthly  Detail  Ledgers  consisted  of  all  Love  Canal expenditures,
          without  sufficient  detail  and summary of  relocation costs that tie
          in  to  the costs  claimed.   Nevertheless,  ve  tested expenditures  in
          these  ledgers  under   Object  Class 2503   and  traced  them  to  the
          vouchers.  Ve went to the State Archives  to obtain  documentation and
          legible copies of vouchers.  Ve were informed that  Object  Class 2503
          covered  transient  housing  and  relocation  costs.   Pursuant to this
          information,  and  In  an  effort  to at  least  approximate  the costs
          claimed   for  both  transient   housing  and  relocation  costs,  we
          summarized all  2503 expenditures  up to December 11, 1980,  resulting
          in  a total of $2,535,697.   We  attempted, with the  assistance of the
          Auditee,   to  reconcile  this  amount  with the  costs  claimed  of
          $3,031,441, but  were unable to do so.

          In view of the lack of supporting documentation, as explained above,
          ve had to set aside the relocation  costs claimed in the amount of
          $1,594,056.
NOTE 5.   FENCING
          We were not furnished with a detailed schedule and vendor invoice*
          for these costs.  Ve were provided a copy of the agreement with the
          vendor which did not include a pricing schedule.  No contract
          procurement documentation was presented for our examination.  We
          therefore questioned these costs amounting to $83,476.
NOTE 6.   PDAA AND FEMA REIMBURSEMENT

          According to supplemental schedules  of  Love  Canal Reimbursement  for
          FEMA Claims 3066 EM-4 and 3080-DR 92003, furnished to us by DOT,  the
          State was reimbursed by FDAA and FEMA for the following costs:
                                        -13-

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NOTE 6.   FDAA AND  FEMA REIMBURSEMENT  (Continued)
          Personal service and
          related expenses

          Transient housing and
          temporary housing
          and  relocation

          Boarding

          Security

          Fencing

               TOTAL
FPAA FEMA
$187,300 $ 370.635
399,202 2,027,059
13,097
31,084
58,446
TOTAL
$ 557,935
2,426,261
13,097
31,084
58,446
                     $2.397.694
     We distributed the total reimbursement between accepted and questioned
     costs on a basis proportionate to like costs accepted and questioned on
     Schedule A-2, as follows:
      Personal service
      and related costs

      Transient housing,
      temporary housing
      and relocation
                             ACCEPTED    QUESTIONED    SET ASIDE
                                       TOTAL
$275,970   $  281,965   $
-  $  557,935
                         2.426,261   2.426,261
Boarding
Security
Fencing
TOTAL
13,097
31.084
_
5320.151
-
-
58.446
$ 340.411
13,097
31,084
58.446
$2.426.261 $3.086.823
                                      -14-

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NOTE 7.   AMOUNT NOT CLAIHED
          On  September 11,  1986  DEC  submitted  a claim for DOT expenditures of
          $3.465,030,  which represented  gross  housing and relocation costs.
          On  October 20,  1986  DEC  submitted  additional information to include
          other  costs  shown in Schedule  A -  2  and reimbursements by FDAA and
          FEMA,  summarized  as  follows:
                Total  Expenditures
                Less Total  Reimbursements
                Net Expenditures
$6,706,769
 3,086,823
$3.619.946
          However,  since DEC maintained costs  claimed  at  $3,465,030, we
          considered  only  these  claimed costs  in our audit.
                                      -15-

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                                                          SCHEDULE A-3
        NEW YORK  STATE DEPARTMENT OF  ENVIRONMENTAL CONSERVATION
                      CREDIT  PERIOD AUDIT  FOR LOVE CANAL
               SCHEDULE OF COSTS CLAIMED. ACCEPTED AND QUESTIONED
                      NEV YORK STATE DEPARTMENT OF HEALTH

                      JANUARY  1, 1978  TO DECEMBER 11, 1980

                                  FINAL AUDIT
Personal service

Fringe benefits

Indirect overhead

Contractual service

Equipment

Supplies

Travel

          Sub-total

          LESS:

          FEKA reimbursement

          Expenditures after
          December 11, 1980

          TOTAL
CLAIMED
$2,545,724
788,728
1,204,441
413,394
1.014,666
800,289
57,453
ACCEPTED
$1,617,210
499,838
956,933
-
-
-
-
QUESTIONED
$ 928,514
288,890
247,508
413,394
1,014,666
800,289
57,453
NOTES
1
2
3
4
4
4
4
$6,824,695  $3,073,981    $3,750,714



   633,726       -          633,726


 1,376,226     669,612       706,614

$4.814.743  $2.404.369
                                      -16-

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        NEW YORK STATE DEPARTMENT OF  ENVIRONMENTAL CONSERVATION
                      CREDIT PERIOD AUDIT  FOR LOVE CANAL
                     NEW YORK STATE DEPARTMENT OF HEALTH
                             NOTES TO SCHEDULE A-3
                                  FINAL  AUDIT
NOTE 1.   PERSONAL SERVICE

          (a)  For FY  1978-79, we found  that  labor  hours  for Love Canal
               activities shown on the time and  effort  records vere not based
               on employee's time sheets, which  had no  analysis of hours
               vorked  for specific tasks.  We vere  unable to obtain the
               support documentation  for these manually prepared time and
               effort  records.  Ve therefore questioned $461,660.

          (b)  For FY  1979-80, we were provided  support documentation only for
               $459,208  out  of   the  total  claimed  of  $926,062.   Based  on
               satisfactory test  results  In  our  review of the time sheets and
               payroll records to support  personal  service  costs of $459,208*'
               ve accept this amount, and question  the  balance of $466,854.

          (c)  For FY  1980-81, since ve vere provided time sheets in support
               of time and effort records, ve obtained  satisfactory teat
               results in our review of personal service costs.  Ve therefore
               accepted $1,158,002 before deduction for costs pertaining to
               the period December 12, 1980 to March 31,  1981 as explained
               below.
NOTE 2.   FRINGE BENEFITS

          For reasons stated in Note 1 above, ve questioned fringe benefits of
          $136,975  for  FY   1978-79,  and  $151,915  for  FY  1979-80,  but  ve
          accepted  $149,426 for FY  1979-80  and  $350,412 for FY 1980-81 before
          deduction  of  costs pertaining  to the period December 12,  1980 to
          March 31,  1981 as explained in Note 5 below.
NOTE 3.   INDIRECT OVERHEAD

          Since  these  costs  are directly  related to personal  service  costs,
          for the same reasons in Note  1 above,  ve questioned  $247,508  for  FY
          1979-80 but ve accepted $243,453  for  FY 1979-80 and  $713,480  for  FY
          1980-81 before deduction for costs pertaining to the  period December
          12, 1980 to Harch 31, 1981 as explained in Note 5 below.
                                      -17-

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NOTE 4.   CONTRACTUAL  SERVICE,  EQUIPMENT SUPPLIES AND TRAVEL

          We questioned  these costs  for  Che following reasons:
           (a)   To  support  these  costs we  were initially furnished vendor
                invoices with  taped  summaries which did not agree with the coat
                claimed.  Ve were  informed that the taped summaries were based
                on  the accrual method while the costs claimed were based on
                cash  expenditures.   Ve attempted,  with the assistance of the
                Auditee, to reconcile the  accrued  costs with the costs claimed
                but were unable to do so.   We also attempted to  summarize Love
                Canal costs by class code  from the daily Journal (R-6),  but
                were  unable to do so manually.   Auditee*s computer was not
                programmed  to provide this Information.

           (b)   Our test verification of randomly  selected items showed  that
                almost all  tested items were  Insufficiently documented.
           (c)  We were not shown contracts and  contract procurement
               documentation.

           (d)  Our review of equipment purchased showed that many items could
               be used for general applications, such as an entire computer
               system.  We were informed that they were used exclusively for
               Love Canal purposes but no equipment usage reports or other
               proof was submitted in support of this Information.

           (e)  Subsequently we were provided with yearly cost summaries which
               agreed with the costs claimed.   However, we could not trace
               these yearly summaries through the voluminous maze of monthly
               and daily journals  comprising all DOH transactions to the
               source documents of costs claimed.

     We therefore questioned the following costs:

               Contractual service                     $  413,394
               Equ ipment                                1,014,666
               Supplies                                   800.289
               Travel                                      57.453
                         TOTAL                         $2.285.802
                                      -18-

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NOTE 5.   EXPENDITURES AFTER DECEMBER 11, 1980

          Personal service costs of $1,158,002 claimed for FY  1980-81 included
          expenditures thru March 31, 1981.   The cut-off date  for eligible
          credit period costs was December 11, 1980 and costs  incurred
          thereafter were not allowable for credit against the State share
          under cooperative agreements.  Since we were not provided with «
          monthly analysis of personal service costs, we calculated unallowable
          costs from December 12, 1980 thru March 31, 1981, a period of 110
          days, by pro-rating on a time basis the costs claimed as follows:
               Personal service
               Fringe Benefits
               Indirect overhead

               Pro-ration factor 110 Days
                                 365 Days
               Costs incurred after December
          $1,158,002
             350,412
             713.480
          $2,221,894

              .30137
11,  1980  $  669.612
                                     -19-

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                                                           EXHIBIT B

             NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                       CREDIT PERIOD AUDIT FOR LOVE CANAL
                         COMMENTS ON ACCOUNTING SYSTEMS
 During  our audit of this claim by New York State we worked with the accounting
 systems of the New York State Departments of  Health  and  Transportation and of
 the  New  York  State  Urban  Development  Corporation.  We had  no  particular
 difficulties  with  any of these  systems  which appeared  adequate  to meet  the
 needs  of these  organizations.  Our  difficulties  were with the  development  of
 the  claim itself which made it,  in many  instances,  impossible  to  identify  the
 amounts claimed In the system and, even where such costs  could  be identified,
 a  lack  of  the  documentation  required to  relate  such costs to  the  Love  Canal
 Project and to substantiate their allowability.

 Specifically,  our  difficulties were  as  follows:

     URBAN  DEVELOPMENT CORPORATION

           1)    Cash Disbursement  ledgers  did not  agree with claimed  costs.

           2)    Lack of schedules  detailing claimed  costs.

           3)    Lack of  documentation  such as  purchase  orders,  invoices and
                contracts.

     DEPARTMENT OF TRANSPORTATION

           1)    Lack of time  sheets supporting allocation  of  personal service
                costs  to  Love Canal.

           2)    Lack of schedules  detailing claimed costs.

           3)    Inability  to  examine  purchase  orders,   invoices,  receiving
                reports,  contracts  and cancelled checks.

          4)    Inability to Identify a cutoff date of December 11,  1980.

     DEPARTMENT OF  HEALTH

           1)    Lack  of schedules  or  inadequate detail on  schedules supporting
                claimed costs.

          2)    Lack of time sheets and payroll records.

          3)    Inability to examine  procurement  records,   invoices,  cancelled
                checks, signed  agreements and contracts.

ID the  course  of  our  audit these items were  requested;  copies,  of our  final
requests are attached as a part of this report.
                                     -20-

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                                               EXHIBIT C

NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
          CREDIT PERIOD AUDIT FOR LOVE CANAL
                    CORRESPONDENCE
                       -21-

-------
                      SAMTTZL M. FJSHZB COMPAKT
                                 ru»uc ACCOUNTANT*-
                                  «0\
                                     §!••§§«•
Barcb 11, 19M
Kr. larr? lii»*r
t?A» Offica of tbt Xa*f4ttor Central
fC Churcb Strati
•tv Tori, IT  1000?

D**r lArryi                                         ^

I calltd Md  ajrok* to Dick Irocb of ITCSEDCt and  lamtj tiatabut of ITDOH,  OB
        K*rcb 7, 1988, ta wt a(tttd at out  itctat BtttUft IB jour offiet  OB
        M*rch 4, 1988, X t^oU to S«tl»h C. (4 of rzSUK on Xtrct S, 19M.
Kt I  b*yt t*tt Btu^li to TMcb JM S»lti of HTDOT. All tbrtt tadlTldu*!*
    * »l»rttd  to tbt  ffttt th*t tbtj vould Vt rtctiri&t » Ittttt outlining
    dtttil tbi rtqutttd o>»cu»«nutio« itill  &iid»d OB tb« ten C*AA! ^
    ljT>cl vu §ppr»cJ§ttTt of tbt fact tbtt tbis ififorMtioB would W
    MKitLittd  to tb«  tbrtt dtpkttAtnt biftdc  at tbi «feai tUi b« vouli
     ivi bii  ififorutiot  to tbtt bt vlll b»  *tlt  to  eoordlMtt tbt »etiTiti»f»
   i to tb*t  BO  idditloBAl ttai vlll b« lo»t IB oVt«iAiB| tbt otetttiiy
 l&Torutioa*
 Ki. 10m*7 tittBbot taUtd tVout  tbt fact that lift dtp*rt»tat hat 4.000
 taplejtti a&d 26 ft? ptriodi, »d  tbtrtfort» tbty b&vt ortt  IOO.QQO .tiaa
 Tteordft. It v*i cottctr&td about  tbt tlat It vovld tabt  to  oVtaia tbt tiaa
 zoc&xdft fox aaj atl»ct»d ptriod. It v»nt»d to bov if alttr&att IbformatiOB
 eovld bt uitd, tueb a» aalarj blttotj  rtcordt tbat r»eotd  (ay ratal aad
 •»pioyB>e&t dtta, but b*»t BO llttltt  of boura. Bt adaittti tbat all of tba
 ttmi abttta prtvioualj rto,ut»ttd vtrt  Bot  at tbat tiBt available*  and IB
 fact* II vtrt Bii»i&i of tbo»t  rtquttttd.  It vtt eurioua aa to vbttbar or
 aot avn»«rit*d tt»i aod activity r»&ordi could bt vitd ia litu of ti»a
 »bttta» or vbttbar  aa *ttbcj jriet out of  rtpcrttd tiat could bt  Batd* la
 •lao  atattd  tbat ai&ct tb«»t iadiriduali raetivad a atttt cback  Md  aiaea
 tbt ailarj blttorj  card could or v»i  piovidtd»  it vai Bot cltar  ia bia «la4
 vbat  otbtr ieformatiofi ottd bt prtteottd.  I triad  to Btlt it cltar to bla
  tbat  docutttotttlon  vti rto,utrtd if fundi vtrt cltiatd» and tbat  vitbout
  adt^uata d&euatatatioa of Bteettitj,  tbt coat would bt q,utitioaad.

  I  talbtd to  Mr. 6
-------
X b*T» not ytt ba«t abli to talk to Jo« 8*ltb el ITDOT, altbot»|b I hart itft
*eiaat«s oa both Koadtj and Tutadaj. Tb« pur^ott of  ttt*  Ittttr 1* •tHply to
     you vf to ditt tfttr our »ost r«e«at •••tiaf*
       K. FIRE*. CFA
£«autl K. flabtr Covptaj

CK7/ba

ets  Paul KtKtcfanla
     Ztlda Vrottloraky
     Tom Vataoa
          Ho Una
?.I. I ttlkti to Jot 6»lth of ITDOT. on tUrcfe 11, 1981. Bt tutts tliat la
kit opinion, all tb« inforMtiob tvaila^lt om a oat alttraativt data txlita
•t ttaua tbae an&tbtt  f*dtral apoc; acetpttd otbtr material is lltu of
tl»t ah««ti vhlch be MJ«  MJ not bt avallabla.

-------
                       Ptbaa Otvtloptigat  Corp.  (TOC)           I Of 2
                               •j  of 2/23/88
                      (T»r Coaftrtac* f I7C EPA 016)
    Acc.pt.d - *«r TOC D«t*il
                   of
                   roc
»*t< d«t.Ui of tltit co.it «* *oc««t.tton la


Cott

     *
               f*«t
                ft Tltlt pcltcU»
                                           | 22.200.00
                                                              of tb«.
     Cltlmed I DlttllewW

     Ve have nt 4ocu»*nt»ticm ruck u bills . purcfcttt ordtri la iupport of
     tbe»e coats.  Ve btv« ofii CbtcV Ke|t»t*r piftt at follovat
                      * tovt Canal lac. ovntd froptrty
          Tuct on
Ipturaaeo
     Vc btvt ao tchedult tuaiBtrXiiat tfcest cottt. BO invoictt or furclata
     ordcrt. or copttt of in»ur*cct policiaa.

-------
**  •
                                   Doei»«utiot» ta;Bir»4 * BDC
                                            (CcmttaUd)
                                                                2 of 2
Adalntatrattva Ccata

     CUia*d tan

     Vt trra BO »cb.*dula tvmrlfiai tbtaa eoata.  Be
           a» toutracta or otbar dtcuKtotatlo*.  tk do
           •a follewss
                                                                        k
                      t
                     Security Contract 4 Security Cuppliti
                                      CcDtr»ct«
                                                            $  6.056.1?
                     Offict
                                                    13.405.25
                                                    76.454.09
                                                     6.991.02
                     Ccitt
                CUUtd t DUallovU

                Vc !uvt BO •cfctdult •uBtt«riclA| than  eeitt. BO pirionxttl tacorda,
                payroll racorda, or othtr docusaotatlofi tu  aupport of tbtaa coata.

-------
P«pirt»«t>t •* rrmtfrortittcm (DOTl
          tntmoa Mquir«4
          A, Of 2/23/S8
                                     1 of
CF«r CotJtrtaet »t IIC
                           OK)
                         '• ""'"'•


                                              ,
                                  •   1^.091
          - "<

-------
    * .
                                Doctatatatlon l*quir*4 » MI
lof 3
                   Sttvletj Mdittvt trtd
                                                                    ftrforM* *7
                       •cctp"« tht «*»« •*«— —	
               jpi 016*                    '                         __  .>.. ^^





                   .T .^j|. !•(•••
                ri«i»t4 tfio pii»**w»*^
V

-------
                             l*qoir*4 • DOT
U.793.12*
|Vft86.iai
      TOAA mi
            t«loe§tlo»
Ftr»90tl Strriti Coit
 Tot»I-t«?ot.rilj
                  eotti

-------
                           _P«j>aTt»«nt of Baaltb (DOij
                             Documentation taquirad
                                  a* of 2/23/88
                         (far Coafsrancs at ITC K?A OIC)
                                    1 of 2
 Ttracmal Strrieas
Accepted
     ••t
pr0rida4)
                                             I2.W5.724
                                              l.m.OOi
      Allovad costs arc for fiacal year 1980-81*
      Vc need lit* sheets for 1975-1979.  Uvt Canal eotu for 1979-1980
      V« identifitd atftc* ?«r»Mic*l aiiiptd to t«nrt Canal ebat|a< all tfctir
      tU* to that project, rrta if tb«y icturllj vorUd on a diffar*&t
      project.        •
        Uatfitt
                                             $  786.721
      Acctptad
          «at
      Saat  iaforaatloa aa i» raqoirad for Parional Strrlcaa.*

 Xodirtet 0»trt«li
               ll.204.Ui
                  713,480
     Acciptad
          iof&r»Jiloa at it rtqulrad for »ir»cmal atrrieaa.*
* Thcst eosti vill ea rtducai by  tbi aitiftitttf costs laeurrsi frcm 12/12/80 to
  3/31/81 (Cuirt&t ealevlfttiM  la (6(3.515).

Contractual
     Claiatd I Disillova4

     We nead th* vorVsheets shoving the eoaposttton of this ite»» contracts.
     purchase orders, receiving report*, invoices aad cancelled cbecfca for tba
     coapoaent tti
             and Diaallovai

     Saae inforaation at for Contractual Services.  Also, vt need information
     on the location, condition, use or diapoiltion of all iteas costing at
     least $1.000 and "aansitiva" itema (convartibla to personal use) costing
     between $50 and $1.000.

-------
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-------
             NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION
                       CREDIT PERIOD  AUDIT FOR LOVE CANAL
          Summary of  Grantee Comments and Auditor Response to Comments
                                   FINAL AUDIT
 Th« preliminary  contents  of  the draft  report  were discussed with the  grantee
 prior to the issuance of the draft report.   The  grantee  responded to the draft
 report in a letter dated December 30,  1988,  a  copy of which  is attached.

 The following  summarizes the  grantee's comments  with our  response  to their
 comments.

 URBAN DEVELOPMENT CORPORATION - SCHEDULE A-l

 Administrative Expenses (Note 6)

 We questioned costs of $652,408 for  being unsubstantiated.
 Grantee Comment:
 Auditor Response:
 The grantee states that the auditors acknowledged the
 existence of a check register in the amount of $312,086.31
 and the cancelled checks therefor and that since these are
 valid business  records  prepared in the  regular  course of
 business, the auditors Bust accept the aforesaid amount.

 Ve believe the grantee has confused competence or
 admlssibillty of  evidence with  sufficiency of  evidence.
 The  check   register   and  the   cancelled  checks   for
 $312,086.31,  while admittedly competent  evidence, are  not
 sufficient   proof  to   establish  the   validity  of   the
 transactions   they  represent.   We  also   requested   the
 invoices,    purchase    orders,    contracts   and   other
 documentation  for  these  expenditures  which  were   not
 furnished  by  the  grantee.   We, therefore,  continue  to
 question  these cost*.
NEW YORK STATE DEPARTMENT OF TRANSPORTATION  (DOT) - SCHEDULE A-2

Personal Service, Additive and Related Expenses  (Note 1)

We questioned  $817,377  for the  fiscal years  1978-79  and 1979-80 due  to  the
non-availability of the time sheets and payroll records for these periods.
Grantee Comment:
The DOT states that the auditors' statement to support
Personal Services costs is not correct since the following
documentation had been provided:
a)   A  letter  from  the  Federal  Highway  Administration
     attesting  to  the reliability  of  the  Department's
     payroll cost  distribution system which  is the  same
     system  that  was  used   during  the   two   years  in
     question.
                                    -22-

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                     b)    Detail ledgers shoving personal service costs charged
                          to  Love Canal  Project Identification  Numbers (PINS)
                          and  identifying these costs as JE9015 and shoving the
                          pay  period  date, payroll  line number, employer social
                          security  number and other relevant data.
                     c)    Payroll histories  confirming  that  the  Department's
                          payroll distribution system allocated  costs  based  on
                          the  employee's  correct wage rate.
                     The  DOT  further states that time  sheets  for  the  two years
                     in  question were  disposed of  in  accordance with  the  New
                     York  State's  Retention/Disposal  Procedures  but  were
                     available  to the  auditors  when this audit was previously
                     commenced  about five  years earlier.

                     In addition, NYSDOT claims that the  personal  service costs
                     incurred  for fiscal  year  1980-81  is $661,007 rather than
                     the  $564,743 reported in  the draft report.
Auditor Response:
The Love Canal Disaster Project was  a new  and unique
project and  as  such called for new  and unique procedures.
Even with  routine  projects,  our experience has shown that
cost accumulation  for one project  is  not  necessarily the
same  for  another   project,  or  that  for  one  year,  not
necessarily  the   same   for   another  year.   Changes  in
personnel, systems, procedures and other circumstances can
affect cost  accumulation  from project  to  project or from
year to  year.   With  due  respect  to the  Federal Highway
Administration, we cannot  assume  that  their attestation
holds  true with  the present  audit since the costs  and
projects they  audited were different.  Nor  can  we assume
that since we  were  satisfied  with  the  documentation  for
personal service costs  In FT  1980*81  the  same  acceptance
should be  accorded those  for FT 1978-79  and 1979-80.   We
need to  know  that the personnel  for  which  salaries  and
related costs were claimed actually  worked on the project
and the amounts claimed were accurate for  these two years.
In  the  absence of time  sheets and payroll records,  we
cannot  accept  these  costs on  the   basis  of assumptions.
The detail  ledgers provided  us constitute only a part  of
the  required  documentation   and  by themselves  are  not
sufficient  evidence of the  transactions  they  represent.
The payroll  histories made available  to  us  relate  to  FT
1980-81.
                                     -23-

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                     As to  Che  claim of  the  DOT that  the  amount Incurred for
                     FT 1980-81  should  be  $661,007  rather than  the $564,743
                     reported in  the draft  report,  the  figures  in  the draft
                     report  comprise only  basic  and  overtime  salaries  plus
                     their respective additives  while the  costs claimed  by DOT
                     include,  in  addition   to  the  foregoing,   travel  and
                     equipment costs.  We did not accept the latter costs since
                     we were not  furnished the documentation therefor.  In this
                     connection,  we  accepted  a total of  $800,000 for personal
                     service costs, which is more than  sufficient even for the
                     $661,007 claimed by NYSDOT.  We also wish to state for the
                     record  that  Schedule A,  shoving  the  yearly summary  of
                     personal service  and related  costs, was  provided  to  us
                     only  now.
State  Payment to City of Niagara  Falls  (Note
                          3)
We  set aside $1,200,000 paid to the  City of Niagara Falls due  to  significant
doubts attendant  to  the nature of  these  payments.
Grantee  Comment:
Auditor Response:
 The  grantee  states that the State legislation authorizing
 the  payment  to the  City  required  that  It  include  only
 costs  not reimbursed  by  the Federal Government  that  were
 "...  considered reimbursable  under  existing rules of  the
 Department of Audit and Control  (DAC)...",  that  with  full
 knowledge  of   this   requirement   of   the   authorizing
 legislation,  the Comptroller approved the payments to  the
 City^,  and,  therefore,  it  is Inaccurate and  inappropriate.
 to  refer  to  the  Comptroller's  Audit  as  a  basis   for
 disallowing  the  payments  to the City.

 Our reference  to the Comptroller's Audit was  necessary
 since  the comments  in their report were  relevant to  our
 reason  for  questioning  these  payments.   In  addition, we
 also referred  to as  inter-office  memorandum of  (DAC) dated
 October   14,   1980,   copy  enclosed  with  the   grantee'*
 response, showing  the  application of $1,036,811, which it
 part of the $1,200,000 claimed, to the allowable  Insurance
 cost  of  the  contractor.   The DAC  audit report  showed
 $2,607,304  in  eligible  costs  not   reimbursed   by  FEMA,
 excluding  $1,528.008  for  insurance  cost.   DOT did  not
 address  the   issue why  with  $2,607,304  in  unreimbursed
 eligible  costs,  the  same office  (DAC)  that  performed the
 audit should  apply this payment  to  insurance cost,  which
 to date   remains  undocumented  except  for  the DAC  memo,
 and was not  even audited.  Also, we  mentioned that  there
was a  dearth  of  information  provided  to  us during  the
 field audit.   We were  Informed  that DAC performed an audit
of the expenditures of the  City of  Niagara Falls but  when
we first  asked for  a  copy of  the  audit report*  we  were
 told  that we  would have  to know the audit  report number
for its  retrieval, which answer amount*  to  begging  the
question.

-------
                      la  a  follow  up  letter  requesting  a  copy of  the  same
                      report, we  were Informed that the City  did  not  respond to
                      the   grantee'i  request  therefor.   Only   after   we   had
                      completed the  preliminary draft  of our  report,  showing the
                      disallowance of this  cost,  did  the grantee  provide  us  with
                      the requested  report.   All  these delays, notwithstanding a
                      reminder by  the Divisional  Assistant Inspector General  of
                      EPA that it is  the  grantee's  responsibility  to support and
                      document all costs  claimed, further added to our doubt  aa
                      to the  alienability of this  cost.   For these reasons,  we
                      continue to set  aside $1,200,000.
 Standby Bus Service  (Bote 3)
 We questioned the entire claim of $424,362 due to insufficient documentation.
 Grantee Comment:
 Auditor Response:
 The grantee submitted with its response the additional
 documentation  required,  together with  explanations about
 the variations  in hourly  rates  and the  necessity  of the
 Standby Bus Service.

 Ve find the additional documentation and pertinent
 explanations satisfactory and accordingly we have accepted
 these costs.
Transient Housing (Note  4)  and  Relocation Costs  (Note 5)

We  set aside  $1,437,385  for Transient Housing  and $1,594,056 for  Relocation
Costs  due to  lack of supporting  documentation.
Grantee  Comments:
Auditor Response:
 The  grantee  submitted comments stating that the DOT Real
 Estate  division has all the records and  documentation  for
 these  costs, which could be traced to  the  detail  ledgers.
 la   addition,   the  DOT  notes  that   $2,426,261   out   of
 $3,031,441 incurred for  these  costs was reimbursed by FEMA
 based on DAC audit reports.

 In the  draft report we stated  the details showing  how and
 why   these   costs  were   disallowed   for  insufficient
 documentation.   The DOT'*  response  that the  records  and
 documentation  are  available at  the Real Estate  Division
 does  not   resolve  the  question   that  these   records,
 consisting  of  the  detail   ledgers  and  worksheets  with
 deletions, changes, incomplete extensions  and  totals,  do
 not tie up with costs claimed.  As to the audit reports of
 DAC,   in  light   of  the  difficulties  and  problems   we
 encountered  in  our field audit, we  cannot rely on these
 reports.   In  addition,  considering  the  fact  that  five
 years have elapsed since the  EPA  OIG  interim  audit,  DOT
bad  ample  time  to  prepare and  make  available   all  the
 records and  documentation  necessary to support  and agree
with  the costs  claimed  but  this has not  been the  case  in
our field audit,  during  which  we ourselves had  to obtain
legible  copies  of  vouchers  and supporting documentation
and  to  attempt to do the  required reconciliation.  We,
therefore,  continue to set  aside these costs.

                 -25-

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  Fencing (Note 6}

  We  questioned   the  entire   cost   claimed   of   $83,476   for  insufficient
  documentation.
  Grantee Comment:
  Auditor Response:
  The DOT states that the correct expenditures incurred
  should  be  $58,446,  which  was  reimbursed  by  FEMA
  therefore no longer claimed for credit.
                                                                             and
  Pending appropriate amendment of costs claimed by the
  grantee, ve  continue  to  question  $83,476.   Further,  we
  note that  this is  an  instance,  among  others, where  the
  grantee claimed an incorrect amount.
 Honeovners'  Consultant  (Note  7)

 We  questioned   the   entire   cost   claimed  of   $45,000  due   to   insufficient
 documentation.

 Grantee Comment:    The grantee submits the required contract,  together with
                     an explanation  of controls for progress payments.

 Auditor Response:   We find the grantee'* comments responsive to our
                     requirements.   We, therefore, accept  this cost in full and
                     have so adjusted our report.
 FDAA and FEMA Reimbursement (Note 8)

 Based on  supplemental schedules furnished  to us by  the DOT, we  distributed
 FEMA and FDAA reimbursements for Love Canal costs as shown in Note 8.
 Grantee Comment:
 Auditor Response:
 The DOT states that our distribution in incorrect and
 encloses a corrected distribution as Schedule A.

 He stated in our report that  our distribution was based  on
 supplemental  schedules  supplied  by  the  DOT,  copies  of
 which  are  enclosed.   If  the   DOT  maintains  that   these
 schedules are  Incorrect,   then  this  is  another  instance
 where  we  have  been  furnished  incorrect   information.
 However,  on  the  assumption  that  the  grantee's  distribution
 per  their Schedule  A is indeed the correct one, we have no
 objection to  revising our report to  conform therewith.
Amount Not Claimed  (Note 9)

The  claim of DOT was  restricted to  $3,465,030 per letter  dated  October 20.
1986  of   the   grantee,  the   New  York  State  Department . of  Environmental
Conservation(DEC)* although additional information was submitted.
Grantee Comment:
The DOT seeks to revise its claim for credit from
$3,465,030 to $3,594,916.
                                     -26-

-------
 Auditor Response:
 The  grantee  (DEC)  agreed  to  limit  the  claim  for DOT to
 $3,465,030.   It  is not within our authority to alter this
 amount.   The  DOT  claim   is  another  instance where   the
 grantee   has  submitted   several   different  figures  as
 follows:
 a)   $2.000,000, submitted on January  14,  1982 based on a
     best estimate of  expenditures and subject of  the  EPA
     01G interim audit.
 b)   $3,465,030,   submitted   on   September  11,   1986,
     representing  gross housing and relocation costs.
 c)   $3,619,946,  submitted  on  October  20,   1986,  adding
     other    costs   and    deducting   FEMA  and   FDAA
     reimbursements.   However,  DEC  restricted  the  DOT
     claim to the previous amount of $3,465,030.
 d)   $3,594,916, submitted with  the DOT response  to this
     draft  report,  seeking   to  increase   the  claim  from
     $3,465,030.

We   believe   that  the   grantee,   in   view   of   its
 Inconsistencies over a  span of more than six  years, should
be precluded  from  further revising the costs  claimed  for-
DOT.
NEW YORK STATE DEPARTMENT OF HEALTH - SCHEDULE A-3

We questioned a total of $2,410,374 for costs with inadequate documentation.

Grantee Comment:    The grantee agrees to the questioned costs.

Auditor Response:   Our findings stand affirmed.
                                    -27-

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NYS DEPARTMENT OF TRANSPORTATION
SUPPLDtNTAL SCHEDULE OF LOVE CANAL REI«URSQtMT
FOR FEMA CLAIM 3080-OR 32003
PERSONAL SERVICE RELATED EXPENSES
SUPPORT SERVICES
                                     •    82,955.65
HOUSING t RELOCATION
   TRANSIENT HOUSING
   CONVENTIONAL HOUSING
   SUPPORT SERVICES

     TOTAL HOUSING ft RELOCATION
                                  • 1,578,161.00
                                      343,529.00
                                      393,048.15

                                  • 2,314,738.15

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                                                f •
NYS DEPARTMENT OF TRANSPORTATION
SUPPLEMENTAL SCHEDULE OF LOVE CANAL REIMBURSEMENT
FOR FEMA CLAIM 906S EW-4
LOVt CANAL  i - CLAIM FEMA 9066 EM-4
PERSONAL SERVICE I RELATED EXPENSES
     »
   OOAROING t MINTER1ZATION
   SECURITY
   FENCING
   EXTRA-ORDINARY PAYROLL
   ADO:  LEAVE CREDITS APPROVED
   TOTAL P/S t RELATED EXPENSES
t   40,645.96
       973.25
     8,482.81
   132,659.86
    27,977.96
•  210,739.26
HOUSING * RELOCATION
   TEMPORARY HOUSING i RELOCATION
   BOARDING I H1NTERIZATION
   SECURITY
   FENCING
   390,961.12 ;
              •
     7,354.80 '
            •  «
    30,110.32-
    49,983.68 -
     TOTAL HOUSING t RELOCATION      «_ 478,369.90 ;

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GRANTEE COMMENTS

-------
lew York State Department of Environmental Conservation
 Wolf Road, Albany, Ntw York 12233
                                                                       Thomas C. Jortlng
                                                                       CommlMlon*r
                                                        30 1?
 Mr. Paul  D.  McKechnle
 Regional  Inspector General  for Audit-
  Eastern  Division
 United States  Environmental Protection Agency
 JFK Federal  Bldg.  Km.  1911
 Boston. KA 02203-1911

 Dear Mr.  HcKechnlt:

      This 1s In response to your letter to me of November 21, 1968 enclosing
 four copies of a  revised draft report No. P2CW8-02-0083 covering the audit of
 costs claimed by  New York State as a credit for cost Incurred under CERCLA for
 activities at Love Canal, Niagara Falls, New York.  As you know, the audit
 included  costs Incurred by the New York State Departments of Environmental
 Conservation, Health and Transportation, and the Urban Development
 Corporation.  I provided a copy of the revised draft report to principals  1n
 each of those agencies for comment.

      In relation  to the Department of Health, New York State claimed expendi-
 tures of  $4,814,743, $2,204,369 of which has been accepted by the auditors.   We
 accept the questioned costs totaling $2,410,374.

      In relation to the Urban  Development Corporation, New York  State claimed
 expenditures of $9,340,000, $8,820,577  of which has  been  accepted by the
 auditors.   In his letter to me of December 15,  Mr. Satlsh C.  Sood makes •
 convincing argument, which we  support,  for acceptance  of  an additional
 $312,086.31 In administrative  expenses  (as detailed  on page 6 of schedule A-l of
 the Tentative Draft Audit Report)  based on the  auditors'  own  acknowledgement and
 admissions.   (See page 2 of attachment  to December 15  letter  from Satlsh Sood.)

      In relation to the Department of Transportation,  New York State claimed
 expenditures  of $3,465,030,  $922,379  of which has been  accepted by the auditors
 and $2,542,651  questioned.   The State has  Identified material  Inaccuracies In
 the tentative draft audit  report which  were pointed out 1n  our previous response
 to  the  preliminary audit  report, but  which were  apparently  disregarded by the
 auditors.  Additional  specific concerns are outlined 1n a December 13, 1988
 letter  from the Department of Transportation's Deputy Assistant Commissioner for
 Management and  Finance Joseph C. Smith  to me.  I have Included his comments and
 supporting Justification 1n their entirety.

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                                      -2-
     DespHe New York State's official financial records disposition  timetable
of six years, and that the audit period extended from January 1,  1978 to
December 11, 1980, a period 1n excess of eight years ago, an overwhelming
preponderance of evidence reviewed by the auditors would Indicate the
reliability of the State's accounting system.    Given the historic nature of
the period being audited, and the Inherent, statutoHly mandated
separation of functions related to Incurring and liquidation obligations,  as
well as the frequent and ongoing audits performed by the New York State's
Department of Audit and Control and numerous Federal agencies. It seems more
than reasonable to conclude that the State's claim to the expenditures made
during the period In question can be reasonably deduced to have occurred,  and
that the State's Inability to exhaustively document one-hundred percent of those
expenditures should not preclude reaching the reasonable conclusion that credit
should be extended for all costs claimed by the State.

     We urge your close examination of the Information provided once again In
this response, and trust that a substantial revision to the tentative draft
audit report will result.

                                            Sincerely,
                                            Richard R. _,..—
                                            Director of Fiscal Management
 Enclosure

 RRL/sar

 cc:   Samuel  M. Fisher Company w/enc.
      Romey C.  Elsenhut w/o  enc.
      Satlsh C. Sood w/o enc.
      Joseph C. Smith w/o enc.

-------
        Ntw York State
        Urban D«v*lopm*nt
        Corporation
1515
New York, NY 10036-8960
212/930-9000
                                   December 15,  1988
Richard  Lynch
Director of Fiscal Management
New  York State  Dept.  of
  Environmental Conservation
50 Wolf  Road
Albany,  New York  12233-3750

Dear Mr.  Lynch:

     Pursuant to the  first round audit (draft) report dated February
2, 1988,  audited by Samuel Fischer and Company, UDC's Administrative
Cost in  the amount of i711,931,  was disallowed because of the lack
of back-up  documentation  (see attached).   However, the auditors
acknowledged the existence of check register in the amount of
$312,086.31 for which the  cancelled checks were provided as evidence.

     For  all practical purposes, the check register pages and the
cancelled UDC/Love Canal Subsidiary checks are valid business
records,  prepared during the regular course of business.  Therefore
the auditors must accept at  least  $312,086.31 of UDC's cost for
administrative  expenses.

            If you have any questions please call me at (212)
930-0384.   Thank you.

                                   Very truly yours,
                                   Satish  C.  Sood
                                   Director Project Administration
/mda

 0139m

-------
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          Ceiti •
     Ace«pt*4 - **r CDC
                                           11,442,400
                                             .422.TJ
                                                                     »f
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     ciiiMd ft oitoio^d                   >  WiKl

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             eottt.   Vt only Lrrt eve
                ft«i
          S.«rcb » Titlt
                    U|i«t«r
                    $ 22.200.00
                        .572.03
                                                         *•
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     tbts« eottt.  V« btv* on* Cktct It*|ltttr pip at follovtt
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      Vt K»v» ao tchedult tvnaritiat tben co*tt» no tovoiett or purcbut
      ord*rt, or copitt of ibiortaet oolleiot.

-------
                                                         2* 2
          Cort»
Vt trrt ao febfrtal* »u»jrlilat tb«M eoft»» •» isroictt.
order* » eontr*ctf or otb«r d»oa«ot«tie«.  »• 4o lurt Ch«ck t*|i«t«r
                                           I  4,051.17
                                            U3.Uf.IS
                                             13.48S.25
                                             76,454.01
                                              MU.02
                                             fS.»7.23
PtllltiAJ
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         Co&tmt A I»«tlt7 fupplttt
                 Co&ttMt*
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Va luv* BO tchtdult  •vtaariilcg ttitti eeiti, fto ptrtMtoti
ptyroll raeerdt, or  othtr doeu»tec«tiea ia tupport of thttt eons.

-------
                                                                      NYSDEC
                                      STATE OF N EW YORK
                                DEPARTMENT OF TRANSPORTATION
                                      ALBANY. N.Y. 12232
        PltANKUM C WMITI
         COMMISSION!*


    December 13, 1988
                                                                       DIRECTOR OF
                                                                   FISCAL MWtAGEMENT
    Mr.  Richard R. Lynch
    Director of Fiscal Management
    NYS Dept. of Environmental Conservation
    50 Wolf Road
    Albany, New York 12233

    Dear Mr. Lynchi

    Your letter of  December  1.  1988  asked  for  comment*  on the  accuracy  of the revised
    rfr.ft  audit  report  P2CW8-02-0083,  covering  the  USEPA Inspector General'*  audit
    of  State  coats  claimed  a* a  credit  under CERCLA  for activities  at  Love  Canal,
    Niagara Falls,  New York.
•L-
    at  of  the notes to  Schedule  A-2 and  Exhibit  B of  this  tentative draft audit
 report  are  very  similar to  statements  included  in the preliminary  draft  report.
 These  items were  addressed  in  great  detail when the Department responded to your
 office  on that report.  Attached to  this  letter  is the original comments we made
 along  with  the complete package of additional  background material we had  referred
 to  in  that  response.   The  information  provided by the attachment appears to have
 been ignored in the revised draft audit  report.

 Our  comments  concerning  the notes on  Schedule A-2  are  as  follows,  and  include
 references to  the attached material.

 Note 1 - Personal Service,  Additive  and  Related Expenses

 The  statement  "No other documentation  was  provided"  to support Personal Services
 costs since  the earlier  years timesheets were  destroyed is not  correct.  The other
 documentation  provided  is  explained  In  the  attachment to  this letter which  ve
 had  forwarded  in response  to the  preliminary audit.   Also, as  referenced  on  the
 attachment,  the actual  personal  service costs Incurred  during  1980-81 is $661,007
 rather than  the $564,743 indicated in the draft audit report.

 Hote 2 - State Payment  to City of Niagara Falls

 The  audit  report  states  "With  so  many   significant  doubts   attendant  to this
 claim. ...we  questioned the entire claim of $1,200,000".   The New York State Office
 of  the  State  Comptroller as  cognizant  audit agency  conducted  the  audit of City
 of Niagara Falls  costs  for  FEMA,  and  this  audit  also became  the  basis for  the
}State Comptroller  certifying and  approving  the two payments to  the  City totaling
 $1,200,000.  Although  the  Comptroller's audit  did  question   the  reasonableness
 of  some  cost  items,   these  were  attributable  to  the  emergency nature of that
 situation, the  lack of knowledge regarding the types  of  chemicals  buried at  the

-------
 Mr. Lynch
 Page Two
.December 13, 1988
 Love Canal  and the potential dangers  to  the public of not  completing  the  remedial
 vork expeditiously.   The  State  legislation  authorizing  the  payment  to  the  City
 required that  it include only  costs  not  reimbursed by the  Federal  Government  that
 were "...considered  reimbursable under existing  rules of  the Department of Audit
 and  Control..."  with  full  knowledge  of  this  requirement  of  the   authorizing
 leEislation.  the Comptroller  approved the  payments  to  the  City.   Therefore,  it
 is  inaccurate   and   inappropriate   for  the  draft   audit   report1* refer   to   the
 Comptroller's Audit as  a basis  for disallowing the  payments to  the  City.   Further,
 information  was  also  provided  by the  attachment  to our  earlier  response which
 is also attached hereto.

 Note 3 • Standby Bus Service

 Additional  documentation  was   provided  previously  in  response  to the  questions
 raised  in  the  preliminary  draft audit.  This  Included emergency evacuation  plans
 and  correspondence describing  the  conditions  that   required  approval of  standby
 bus  service by State,  Federal and  local  officials.  This documentation and  our
 previous comments responding to this issue are attached.

 Note 4 - Transient Houstnt / Note 5 - Relocation Costs

 The  questions  or problems cited  concerning  Transient Housing and Relocation  Costi
 were responded to by the attached comments  to  the preliminary audit report.   These
 ^comments  reference  additional  supporting  documentation  which  our  Real  Estate
 Division  has  available  for  review  to support  this  claim.   Also,  it should  be
 re-emphasized  that  FEMA reimbursed the Department for S2,426.261 out  of  the  total
 of  $3  031,441   incurred  based  on audits performed by the  HYS Office  of  the  State
 Comptroller  and FEMA  involvement in  the  authorization process  for most  of  these
 costs    The costs not  allowed  by FEMA for  reasons  explained  in the correspondence
 In  the attached package of information are properly includable in this claim.

 Note 6 - Fencing

 As  stated  on  the  attached  previous  response, ail of  the  Fencing expenditures  were
 reimbursed  by  FEMA and our claim does not Include any  costs  for this category.

 Wote 7 - Homeowner's Consultant

 A  copy  of  the requested contract  is attached  and  was  also  forwarded with  our
 response  to  the preliminary  audit.   The other  questions  raised are  answered  by
 the attached preliminary  audit  response.

 Note 8  - FDAA  and FEMA  Reimbursement

 The attached  response  to  the  preliminary   audit shows  a  corrected  distribution
 ^ the  FD^ and Fm reimbursement received.  This ha. been  ignored in the tentative
 draft  final audit report.

-------
 Mr.  Lynch
 Page Three
 December 13,  1989

>
 Rote 9  - Amount Hot Claimed

 As  explained  In our attached comments  to  the preliminary draft  audit  report,  the
 total  unreimbursed costs  for  the  Department are $3,59^,916 rather  than the amount
 of $3,465,030 submitted by DEC in  based on preliminary information.   This corrected
 amount  should be considered the amount of our claim.

 The  Department's responses to inaccuracies  in Exhibit B of the  draft audit report
 are  as  followst

 Statement1  "Lack  of  timesheets  supporting allocation of  personal service  costs
 to Love  Canal"

 Responset   Other  supporting  documentation  exists  and  has been reviewed  by  the
 auditors  as  referenced  in the attached  preliminary  response  on Personal  Service
 Costa.

 Statement 2 "Lack of Schedules detailing claimed costs"

 Responset  The Department's accounting system  is an automated Integrated Accounting
 System.   Even  though  manually  prepared  schedules  vere  not   available   for   the
 categories  requested  by  the  auditors,  it  vas  explained  to  the auditors  bov to
 reconcile all  categories  of costs  to  our automated  system by  utilizing the detail
 ^ledgers  vhich   list   all  transactions  charged   against   the  eligible   project
 dentification  numbers  (PINS).  In  fact,  the  auditors  used  the  detail   ledgers
 to request samples of timeiheets,  and vouchers  for temporary housing and relocation
 costs.    Summary  worksheets were provided  which showed  how each  category  as  veil
 as our total claim reconciled  to these  detail  ledgers.

Statement 3 •  "Inability  to examine  purchase  orders,  invoices,  receiving reports,
contracts and  cancelled  checks"

Responset  "The  attached   response to  the  preliminary draft  audit  addresses  the
problems referenced by  the auditors  on  lack of documentation.   All documentation
requested  by   the  auditors  vas  provided  with the   exception  of  the  destroyed
timesheets  for  the  two  earlier  years.   If  the   documentation  vas  not  readily
available,  it  was made  available  for  the  next visit of  the  auditors or  mailed
directly to the  auditing  firm.   It should  be pointed out that  some documentation
vas not  forwarded until  the time of the preliminary audit  report since  the auditors
did not  ask for  the contractual documents and other  support until their  last visit
prior  to the preliminary audit being issued.   It is  true  that the cancelled checks
vere  destroyed.   However,  the  Department  provided  certification  by  the  Office
of  the State  Comptroller  and  documentation  by  the State's Department of  Taxation
and Finance that  the vouchers had  been paid  and that no checks  vere  outstanding.
The  auditor  who  reviewed  this  material  agreed  that this  would  be  completely
acceptable  in   place of  the cancelled  checks.   The revised draft audit  report  la
inconsistent with  that agreement.

-------
  Mr. lynch
  Page four
   ecember 13, 1988
  Statement 4 - "Inability to identify a cutoff date of December 11,  1980"

  Responset   The  Department  provided  schedules  which  indicated  what  expenditures
  were  incurred  through December  11,  1980.  The  auditors  were  shown  how to verify
  thia  through our  Integrated  Accounting Syatem  by using  the detail  ladgera and
  other  supporting documentation.   The detail  ledgers  provide a  record  date for
  every transaction.

  In  summary,  there are  material inaccuraclea  in the tentative  draft audit report
  which we  have pointed  out  in  both  this  letter and in  the  previous  response to
  the  preliminary  audit report.   Many  of  the  assertions of  the auditors regarding
  documentation are the same as  for  the preliminary draft.   This Department expended
  considerable time  and effort  in retrieving and  assembling  supporting information
  and preparing  the  package of  materials  uaed  to respond to  the preliminary draft,
  and  for  the auditora use in  verifying  thia  documentation.   Either  that response
  waa not  received by  the  auditors or  it waa  ignored when  this final  draft audit
  waa prepared.  For that  reason, a copy of  that  information  is included again with
  thia response.   The  questioning of costs  due  to lack  of documentation is  groaaly
  inaccurate  aince the  Department  has  fully  demonstrated  that the  documentation
  waa and is available  to  support  the expenditures  claimed.

  Many of  the difficulties  experienced  in the  several audita  of this  claim seemed
  o be  caused by an   almost  complete  lack  of  communication  by the  auditors,  and
  their  failure  to  inform this  Department,  through  exit  conferencea  or  other
  procedures  usually   employed   in  auch  audita,  of  their  tentative  findings or
  deficiencies  in documentation.  For example, when the auditor (Mr.  Shabbir Moosajae")
 made  his  laat  visit  to  the  Department   to review  warranta  he was  asked by  the
 Director  of the  Accounting  Bureau, Mr. Cobb,  if there  was any documentation  that
 waa needed to complete the audit that had not been provided.   The auditor's response
 to  this  question waa negative.   Therefore, we  were completely  surprised,  as we
 were  with  the  earlier  draft  reports, when we  received  the  latest report which
 again  attributed   the  auditors  questioning  or disallowance  of coats  to "lack of
 documentation,"

 Please  advise  what further information or action by this  Department may  be  needed
 to reaolve  this matter.

 Sincerely  yours,
   ' A     4
  OSEPH C. SMITE
 Deputy Assistant Commissioner
   for Management and Finance
jJCSiRDRiadd

Attachment

-------
              NEW YORK  STATE DEPARTMENT OF  TRANSPORTATION
                      LOVE CANAL CREDIT PERIOD AUDIT
                         NOTES TO SCHEDULE" A - 2
NOTE 1.  PERSONAL  SERVICE, ADDITIVE AND RELATED  EXPENSE
A   IT WAS INDICATED IN THE TENTATIVE AUDIT DRAFT THAT PERSONAL SERVICE
COSTS FOR FISCAL YEAR  1980-81 WERE SATISFACTORY BUT THAT SINCE 1978-79.
AND 1979-80 TIMESHEETS WERE DESTROYED, THESE  PERSONAL SERVICE COSTS
WOULD SOT BE ALLOWED.  THE PERSONAL SERVICE FOR THESE EARLIER TWO YEARS
SHOULD BE ACCEPTED  BASED ON THE FOLLOWING:

  1   THE AUDITORS  ACKNOWLEDGED THAT THE 1980-81 TIMESHEETS THEY
  REVIEWED WERE CONSIDERED SATISFACTORY AND THAT THE HOURS WER£ POSTED
  CORRECTLY TO THE  DETAIL LEDGERS FOR THE LOVE CANAL PROJECTS.

  2   THE ATTACHED  LETTER (EXHIBIT I) FROM THE FEDERAL HIGHWAY
  ADMINISTRATION DATED 2/22/88 ATTESTS TO THE RELIABILITY OF THE
  DEPARTMENT'S PAYROLL COST DISTRIBUTION SYSTEM WHICH IS THE SAME
  SYSTEM THAT WAS USED DURING THE TWO YEARS IN QUESTIOK.  DATA PRODUCED
  BY THIS SYSTEM DISTRIBUTES EMPLOYEE PAYROLL COSTS TO PROJECTS AND
  OTHER COST OBJECTS BASED ON PAYROLL TIMESHEETS SUBMITTED BY EACH
  EMPLOYEE AND APPROVED BT THEIR SUPERVISORS  IN ACCORDANCE WITH THE
  DEPARTMENT'S MANUEL  OF ADMINISTRATIVE PROCEDURES. THE SYSTEM
  GENERATES PERSONAL SERVICE COST TRANSACTIONSCBY EMPLOYEE/PAYPERIOD)
  APPEARING ON THE  DETAIL LEDGERS FOR THE LOVE CANAL PROJECTS. AS NOTED
  THEREIN  THE FEDERAL HIGHWAY ADMINISTRATION AND THE USDOT OFFICE OF
  THE INSPECTOR GENERAL CONSIDER THE SYSTEM GENERALLY TO BE A RELIABLE
  BASIS FOR APPROVING  REIMBURSEMENTS TO THIS  DEPARTMENT FOR OVER $50
  MILLION PER YEAR  IN  PERSONAL SERVICE COSTS  OF DEPARTMENT EMPLOYEES
  CHARGED TO FEDERAL-AID HIGHWAY PROJECTS.

  3   IT IS HOT TRUE THAT NO OTHER EVIDENCE WAS PROVIDED TO SUPPORT
  PERSONAL SERVICE  COSTS.  ALL OF THE PERSONAL SERVICE WAS CHARGED TO
  LOVE CANAL PINS AND  THE DETAIL LEDGERS LISTING THESE CHARGES WERE
  PROVIDED TO THE AUDITORS.  THESE DETAIL LEDGERS CLEARLY IDENTIFY AU.
  PERSONAL SERVICE  TRANSACTIONS AS JE9015 AND SHOW THE PAY PERIOD
  ENDING DATE, PAYROLL LIHE NUMBER, EMPLOYEE  SOCIAL SECURITY NUMBER,
  ORGANIZATION NUMBER  AND OTHER RELEVANT DATA.

  4   IN ADDITION,  PAYROLL HISTORIES WERE PROVIDED TO THE AUDITORS TO
  CONFIRM THAT THE  DEPARTMENT'S PAYROLL DISTRIBUTION SYSTEM ALLOCATED
  COSTS BASED ON THE EMPLOYEE'S CORRECT WAGE  RATE.

  S   THE TLMESHEETS FOR THE TWO EARLIER YEARS WERE DISPOSED OF BECAUSE
  OF THE STANDARD RETENTION PERIOD IN ACCORDANCE WITH THE NEW YORK
  STATE'S RECORDS RETENTION/DISPOSAL PROCEDURES. THESE TIMESHEETS WERE
  AVAILABLE TO  THE  AUDITORS WHEN THIS AUDIT WAS PREVIOUSLY COMMENCED
  ABOUT FIVE YEARS  EARLIER. AT THAT TIME, NO  QUESTIONS WERE RAISED
  ABOUT THE ACCURACY OF THE PERSONAL SERVICE  CHARGES FOR THOSE YEARS.

«   THE TOTAL PERSONAL SBVICE AND RELATED EXPENSES BY FISCAL YEA1 IS
SHfJ.VscSmS A?   iSTAMOUNT ACTUALLY INCURRED DURING 1980-81 IS
$6^0™ ESS!™ IB$564,743 REPORTED IN THE TENTATIVE DRAFT AUDIT
REPORT.

-------
NOTE 2.  STATE  PAYMENT  TO CITY OF NLACAUA FALLS
ATTACHED  (EXHIBIT  D)  IS  CORRESPONDENCE FROM THE DEPARTMENT
OF AUDIT  AND  CONTROL  INCLUDING THEIR AUDIT REPORT NO.AL-MISC-69-80
WHICH IDENTIFIES COSTS INCURRED BY THE CITY THAT ARE ELIGIBLE FOR
REIMBURSEMENT FROM THE $1.2 MILLION STATE APPROPRIATION.  THERE WERE
TWO VOUCHER PAYMENTS  WH1CB TOTAL TO THE $1,200,000 PAID TO THE CITY OP
NIAGARA FALLS.  THE AUDITORS PREVIOUSLY REVIEWED THE OFFICE OF THE
STATE COMPTROLLER  COPY OF VOUCHER #8651 DATED 11/14/80 FOR $163,189.
ATTACHED  IS A PHOTOCOPY  OF THE OFFICE OF THE STATE COMPTROLLER COPY OF
VOUCHER #7836 (EXHIBIT D-l) FOR $1,036,811.00 DATED 10/16/80.

NOTE 3.   STANDBY BUS  SERVICE


A   THE SERIES OF  ATTACHMENTS TO THIS RESPONSE INCLUDE CORRESPONDENCE
WHICH OUTLINES THE MEDICAL AND OTHER REASONS STANDBY BUS SERVICE HAS
NECESSARY (EXHIBIT E).   ATTACHMENT E ALSO INCLUDES A NOTICE DISTRIBUTED
AT A MEETING  OF LOVE  CANAL RESIDENTS SUMMARIZING THE CONSTRUCTION PLANS
AND THE SAFETY PLAN TO PROVIDE PROTECTION TO RESIDENTS AND WORKERS
DURING THE REMEDIAL CONSTRUCTION WORK.  A KEY ELEMENT OF THIS IS THE
EVACUATION PROCEDURES USIHC THE STANDBY BUSES.  IN ADDITION, ATTACHED
IS ONE OF THE PURCHASE ORDERS FOR THIS SERVICE AND RELATED CONTRACTUAL
CORRESPONDENCE (EXHIBIT  E-l) AS REQUESTED BY THE AUDITORS.

B   THE ISSUANCE OF A PURCHASE ORDER AFTER A SERVICE IS RENDERED OFTEN
DOES OCCUR AND IS  A NORMAL PROCESS WHERE THE AWARD IS MADE AND THE
TRICE AND OTHER ITEMS ARE ESTABLISHED THROUGH THE PROCUREMENT PROCESS,
BUT THE ACTUAL QUANTITIES CANNOT BE DETERMINED UNTIL AFTER THE SERVICE
IS PROVIDED.   THIS IS OFTEN THE CASE IN AN EMERGENCY SITUATION SUCH AS
LOVE CANAL.   THE DEPARTMENT IS REQUIRED TO CERTIFY THAT VOUCHERS
SUBMITTED FOR PAYMENT ARE IN COMPLIANCE WITH THE CONTRACTUAL AGREEMENTS
AND PURCHASE  ORDER PRIOR TO CERTIFYING THEM FOR PAYMENT.  THIS IS DONE
BY SIGNATURE  OF AN AUTHORIZED EMPLOYEE ON THE VOUCHER. IN ADDITION, THE
OFFICE OF THE STATE COMPTROLLER ALSO AUDITS THE VOUCHERS TO INSURB THAT
THEY ARE  IN COMPLIANCE WITH THE PRICE AND OTHER TERMS OF THE APPROVED
CONTRACTUAL PROVISIONS.

NOTE 4 AND 5. - TRANSIENT HOUSING/RELOCATION COSTS
THE  DEPARTMENT'S REAL ESTATE DIVISION HAS A DETAILED LISTING OP
VOUCHERS  ISSUED  FOR TRANSIENT HOUSING AND TEMPORARY HOUSING AND
RELOCATION.   THE REAL ESTATE DIVISION'S COPIES OF THESE VOUCHERS ALONG
WITH THE  SUPPORTING DOCUMENTATION IS AVAILABLE FOR REVIEW.  THE REAL
ESTATE DIVISION  ALSO HAS REGISTERS SHOWING PAYMENT DATES FOR THESE
VOUCHERS. THESE PAYMENTS CAN BE TRACED TO THE DEPARTMENTS INTEGRATED
ACCOUNTING SYSTEM AND THE INDIVIDUAL TRANSACTIONS LISTED ON THE DETAIL
LEDGERS FOR  THE  PROJECT IDENTIFICATION NUMBERS (PINS) IN SUPPORT OF THE
DEPARTMENT'S CLAIM.

-------
 THE AUDITOR'S STATED THAT FOR A FEW VOUCHER'S THE DOCUMENTATION
 ATTACHED TO THE OSC COPY OF THE VOUCHER WAS NOT SUFFICIENT. THEREFORE,
 WE ASKED THAT A LIST BE PROVIDED OF THE VOUCHERS WHICH LACKED
 SUFFICIENT DOCUMENTATION. WE WERE GIVEN A LIST OF ONLY 6 VOUCHERS THAT
 REQUIRED FURTHER SUPPORT. THESE VOUCHERS AND SUPPORTING DOCUMENTATION
 WERE THEN PULLED FROM THE REAL ESTATE DIVISION'S FILES AND WERE
 REVIEWED DURING THE AUDITOR'S LAST VISIT AT THIS DEPARTMENT.  WE WERE
 TOLD THE ADDITIONAL DOCUMENTATION WAS COMPLETELY ACCEPTABLE.

 ANY ADDITIONAL PAYMENTS REQUESTED BY THE AUDITOR'S CAN BE TRACED TO THE
 OFFICE OF THE STATE COMPTROLLER'S COPY OF THE VOUCHERS AND THE REAL
 ESTATE DIVISION'S RECORDS AS WAS DONE WITH THE ABOVE VOUCHERS.

 IT SHOULD BE NOTED THAT $2.426,261 OUT OF $3,031,441 INCURRED FOR THESE
 TWO CATEGORIES WAS REIMBURSED BY FEMA BASED ON THE AUDIT REPORTS ISSUED
 BY THE DEPARTMENT OF AUDIT AND CONTROL AS COGNIZANT AUDIT AGENCY.   THIS
 FURTHER DEMONSTRATES THAT THE SUBJECT EXPENDITURES ARE SUFFICIENTLY
 SUPPORTED.

 NOTE 6.  - FENCING
THE EXPENDITURES INCURRED RAVE  BEEN  CORRECTED  TO  $58,446 WHICH IS EQUAL
TO THE FEMA REIMBURSEMENT STATED  IN  THE  OSC AUDIT REPORT.  THEREFORE,
NO CREDIT  IS BEING CLAIMED FOR  THIS  CATEGORY.

NOTE  7.  HOMEOWNER'S CONSULTANT
THE AUDITORS  WERE PROVIDED WITH ALL SUPPORTING DOCUMENTATION THAT IS
REQUIRED WHEN CONTRACT PROGRESS ESTIMATES ARE INITIALLY PAID.  THE
APPROVAL OF PROGRESS PAYMENTS FOR A CONTRACT DO NOT REQUIRE TESTING OF
TIMESHEETS, TRAVEL DOCUMENTATION, ETC. PROGRESS PAYMENTS ARE APPROVED
BY THE DEPARTMENT'S REPRESENTATIVE (ENGINEER IK CHARGE) BASED ON HIS
KNOWLEDGE OF  RESOURCES BEING APPLIED TO THE PROJECT BY THE CONTRACTOR.
INVOICES OR MATERIALS CERTIFICATIONS FOR DIRECT MATERIALS MAY ALSO BE
REQUESTED Bl  THE  ElC.  THE CONTRACTOR'S COMPLETE SUPPORTING COST
DOCUMENTATION IS  REVIEWED IN DETAIL BY THE DEPARTMENT'S AUDITING BUREAU
WHEN THE FINAL AUDIT OF THE CONTRACT IS PERFORMED.  THE DEPARTMENT'S
AUDITING BUREAU HAS A DETAILED FILE SUPPORTING THEIR AUDIT OF THE
CONTRACT WITH WORKPAPERS AND COPIES OF SUPPORTING SOURCE DOCUMENTATION.

A COPY OF THE CONTRACT AS REQUESTED BY THE AUDITORS IS ATTACHED AS
EXHIBIT R.

-------
NOTE 8.   FDAA AND FEMA REIMBURSEMENT
THE  DISTRIBUTION OF FEDERAL REIMBURSEMENT AS SHOWN IN THE TENTATIVE
AUDIT REPORT IS NOT CORRECT, THE  PROPER DISTRIBUTION BASED ON THE
EARLIER AUDIT REPORTS PREPARED  BY THE DEPARTMENT OF AUDIT AND CONTROL,
AS COGNIZANT AUDIT AGENCY,  AND  ACCEPTED BY FDAA AND FEMA IS SHOWN
BELOW.
1. PERSONAL SERVICE AND
   RELATED  EXPENSE

2. TRANSIENT AND
   TEMPORARY BOUSING
   AND RELOCATION  COSTS

3. BOARDING

  . SECURITY

5. FENCING

TOTAL
                             FDAA
                           3066 EM-4
187,300



399,202

 13,097

 31,084

 58,446

689,129
                   FEMA
                 3080-DR
                  92003     TOTAL
  370,635
2,027,059
2,397,694
  557,935



2,426,261

   13,097

   31,084

   58,446

3,086,823
EXPLANATION OF REVENUE DISTRIBUTIONS

1. PERSONAL, SERVICE AND
   RELATED EXPENSE

A) EXTRAORDINARY PAYROLL
   AS STATED IN AUDIT        132,660

B) LEAVE CREDITS APPROVED     27,978
                  69,036
               132,660

                97,014

-------
 C) THE SUPPORT SERVICES
 FOR FEMA 3080 AUDIT
 INCLUDES PERSONAL SERVICE
 AND LEAVE CREDITS AS SHOWN
 18 THE AUDIT BY THE INCREASE
 IN THE "SUPPORT SERVICES"
 CATEGORY BY $69,036
 FOR LEAVE CREDITS.  THERFORE,
 TBE DIRECT LABOR CAN BE
 COMPUTED AS FOLLOWS

 $ 69,036
 *«• W*W WM*^W WW«M*^«W»«0 g
 .2289 (60/81) LEAVE RATE

 0.  WINTERI&ATION AS SHOWN
 IN DOTE 1.  OF AUDIT REPORT
 PERSONAL SERVICE $26,406
 EQUIP. UTILIZATION   256
                  301,599
               301,599
                              26,662
 TOTAL PERSONAL SERVICE
 AHD RELATED EXPENSE
 187,300
   370,635
 26,662

557,935
 2. THE TWO  CATEGORIES
 TRANSIENT HOUSING AND
 TEMPORARY ROUSING AND
 RELOCATION  BAVE BEEN
 COMBINED SINCE THERE IS HO
 CLEAR DISTINCTION
 BETWEEN THESE PHASES AND TBE
 CODING OF THE EXPENDITURES
HAS SIMILAR FOR BOTH.

CATEGORIES  STATED
CLEARLY IN  THE AUDITSI
TEMPORARY HOUSING AND
MOVING EXPENSE

TRANSIENT BOUSING

CONVENTIONAL HOUSING
390,961
               390,961

1,578,161    1,578,161

  343,529      3*3,529

-------
                                     SCHEDITE A
                          NVS DEPARTMENT OF TRANSPORTATION
                          SCHEDIT-E OF PERSONAL SERVICE AND
                                RELATED EXPENDITURES
                                   BY FISCAL YEAR



1073/79
1079/80
1030/31*

REGULAR
PERSONAL SERVICE
FRINGE k LEAVE
357,600
207,547
333,717
S 948. 3C4
OVERTIME
PLRSONAL SERVICE
FRINGE & LEAVL
230.907
70.069
J81.026
S <.82,U02
TRAVEL
t<
EQUIPMENT
50,5*3
:s.8is
96.152
s is:. sio

COST
CLMER
W
579
112
S 000 >


TOTAL
6JO.--J3
317.010
i«,i.OC7
1.017.3*5
* COVERS PEI:IOl> 4/1/80-12/11/80

-------
 OTHER DISTRIBUTIONS

 A)  BOARDING AMD WINTERIZATION
 TOTAL IN  AUDIT         48.000
 LESS  PERSONAL SERVICE (26,406)
 LESS  EQUIP.  UTILIZATION  (236)
 LESS  BOARDING         (13.097) 8,241

 B)  SUPPORT  SERVICES

 TOTAL AUDIT           476,004
 LESS  PERSONAL SERVICE 370,635
                                8,241
                   IDS,369    105,369
 TOTAL HOUSING COSTS
399,202
2,027,059 $2,426,261
 3. BOARDING - STATED
 IN AUDIT AS BEING
 COMBINED WITH
 WINTERIZATION
' 4. SECURITY - STATED
 SEPARATELY IN AUDIT
 13,097
 31,084
              13,097
              31,084
 5. FENCING - STATED
 SEPARATELY IN AUDIT

 NOTE 9,  AMOUNT NOT CLAIMED
 56,446
             58,446
 THE DEC SUBMITTED AMOUNT OF $ 3,465,030 WAS IN ERROR AND SHOULD HAVE
 BEEN $ 3,619,946 AS STATED IN THE TENTATIVE AUDIT REPORT.  DUE TO THE
 CORRECTION TO FENCING EXPENDITURES, THE REVISED TOTAL UNRELKBURSED
 COSTS ARE $ 3,594,916.   THIS AMOUNT SHOULD BE CONSIDERED AS THE
 DEPARTMENT'S CLAIM RATHER THAN THE $ 3,465,030.
 INCLUDED HEREWITH IS AN APRIL 18,1988 MEMORANDUM TO FILE FROM J.C.
 SMITH WITH ADDITIONAL DOCUMENTATION ATTACHED TO PROVIDE BACKGROUND
 INFORMATION TO SUPPORT EXPENDITURES INCURRED FOR LOVE CANAL.  SEVERAL
 ITEMS OF THIS DOCUMENTATION HAVE ALSO BEEN REFERENCED IN RESPONSE TO
 THE SPECIFIC NOTES TO SCHEDULE A-2 OF THE TENTATIVE DRAFT AUDIT REPORT.
LC

-------
                         SAMUEL M. FlBHEH GOHPAXY
                                    PUtLIC ACCOUNTANTS
                                     4*1 FAtKWM
                                   *Li» Penan.* AH* i
   rtb 21.
Hr» lichard X>. lacor. Aatoeiatt Ateouataat
Eava&ut Dnlt, Dtpartaant of transportation
Ivildias '3
1220  ITaahington *ra.
Albany, lav tort  12232

Xfea* fttr. taeori
                                                       •
Vhra X talkad vith yon today* I indicated  that tht information you iruVmlttad IB your
Ttbruary 19, 1988 lattar  vat in* 4* quiet for « to vork vlth, It It trut that yen
•uVmltttd •eb*4ul*a of »ori than 50 pt(ti  vltb a variety of uuattti oo th* pa(ts.
Tbtrt va« no •uaaury to ladieatt hov  tboii tcb»dult» titt ovt vith tbt aaoirett clalstd.
Zt la tbtrtfor«» »ot tbt ibformatioa  «t rt^unttd, nor la it prtpartd ta a maoaar
that l&dieatad tbt docuktatatin for  tbt aaov&ti
1 haft *tteloa*a a thrat pajt llatlA^ of tbt documentation raquirad. Zt la vy nadar-
ataadtai that Hz. Sadtb hai altaady taeaivad thla lafor»atio&. It la ftot out lataat
to otrform aay additional vorl oa tbt elala of tbt Dtp*rc»tat of Tratxtportatloa oatil
•ucb tlat at vt havt tbt  ia/ormatioa rtquttttd la tbt doeuatatatioa rtquttt* da tad
          23. 19SB.
  f you art abla to makt a autmary of tbt «at trial that yon pxarioualy aobmlttad.
"it»d It ac?mt vay abov bov tbott itt» rteooeilt to aay of tbt aaouatt clalatd, vt vould
bt pittitd to «erk vitb tbt »attrlal; hovtvar. it ia aot our lataat to try to raeoa*
•truet tbt rtcordt of tbt P«p»rt»tat of Traaiportatloa fro» tbttt acbtdulat.

Tbt pur>ota of thit  Itttar it •t*plj to iadleatt formally to yoti that vt hart «ot
racaivad tbt docuacctatioa rtqulrtd. Tbtrt la a lialtad a»»uat of tlat that vt havo
btte tivaa to audit  tbt d&cuat&tatloa. Our iattrvetloaa art to ittut a rtport vitbia
•  aptclfltd »triod»  aad that it vbat vt shall do vitb or without tbt documentation
vt  hart rt^utttad.

Z vant  to mala it  eltar that if tht Department of Tra&aportatlon tuVnltt no additional
fettarial. or dott  not   proTidt tbt inf&raation that abovt bov tbt docuatntt tubalttod
ajrtt vitb  the additioaal iofomatlon nttdad to support tbt cltia, our rtport vill
at and at ia. vitb  tbott eottt appearing at o,utttiootd cottt*
tary t»ly yovrt.
       M. FlSBOt, CPA
Saoutl M. f labtr Coapaqj
tne*
eci  Paul KeKtcknio
     Zelda Vrottlovaky
     Tom Vataom
     Crtg Molina
     Shabblr Kootajat
     Richard Lyneli
     iarr| Silvar
                                                                                      •-D

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