"'^UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
t>
5 * OFFICE OF INSPECTOR GENERAL
\ ^MIMP^ * SOUTHERN DIVISION, SUITE 276 REGIONAL OFFICE:
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REPORT ON FINAL AUDIT OF
ALABAMA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENT
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE COMPENSATION AND LIABILITY ACT OF 1980
GRANT NUMBER V004550-87-5
FOR THE PERIOD JANUARY 1, 1987 TO DECEMBER 31, 1988
BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
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ALABAMA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT
FOR THE PERIOD JANUARY 1, 1987 TO DECEMBER 31, 1988
TABLE OF CONTENTS
PAGE
Background 1
Auditors' Report on Cost Incurred 2
Exhibit A - Summary of Costs Incurred, Accepted and
Questioned 3-4
Auditors' Report on Compliance 5-6
Auditors' Report on Internal Control Structure 7-8
Grantee's Comments r 9-13
Auditors' Response to the Grantee's Comments 14
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BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 1210
100 NORTH MAIN BUILDING
MEMPHIS, TENNESSEE 38103-5066
I9O11 536 5956
Mr. Mary Boyer
EPA Office of Inspector General
Audits and Investigations
Southern Division - Suite ^76
1375 Peachtree Street, N. E.
Atlanta, Georgia 30309
Dear Ms. Boyer:
We have audited the costs incurred by the Alabama Department of Environmental
Management related to the Cooperative Agreement Grant Number V004550-87-5
for the period January 1, 1987 to December 31, 1988 as detailed in Exhibit A.
We conducted our audit in accordance with generally accepted auditing stan-
dards and with generally accepted government auditing standards as set forth
in Government Auditing Standards - Standards for Audit of Governmental Orga-
nizations, Programs, Activities and Functions issued by the Comptroller of
the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes assessing the account-
ing principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
As part of our examination, we determined the allowability of costs claimed
under the project in accordance with the provisions of the cooperative
agreements and applicable Federal regulations. Exhibit A sets forth the
costs which we questioned in this regard and includes an explanation of the
reasons such costs were questioned.
In our opinion, Exhibit A presents fairly, in all material respects, the
costs incurred by the Alabama Department of Environmental Management under
the cooperative agreements with EPA on the basis described above.
The summary of costs incurred, accepted and questioned (Exhibit A) was pre-
pared by the U. S. Environmental Protection Agency relating to Superfund
Cooperative Agreements pursuant to Public Law 96-510. Accordingly, Exhi-
bit A is not intended to present fairly the financial position and results
of operations in conformity with generally accepted accounting principles.
This report is intended for use in connection with the cooperative agree-
ments to which it refers and should not be used for any other purpose.
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EXHIBIT A
Page 2 of 2
ALABAMA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT
FOR THE PERIOD JANUARY 1, 1987 THROUGH DECEMBER 31, 1988
NOTES TO THE STATEMENT
Note I - Supplies
During the audit, we noted the grantee claimed $14,301 for supplies. Of
this amount, $10,841 relates to repair and maintenance work performed on
the computer. We noted that the total repair and maintenance cost incurred
for the computer was $45,216. The amount was allocated among four (4)
grants. The grantee used a rate of 24% in allocating the repair and main-
tenance charges. Based upon the total project cost of four grants, we noted
that the CERCLA grant represented 10.66% of the total. We believe that only
10.66% of $45,216 or $4,820 should have been claimed and not $10,841. There-
fore, we have questioned $6,021 ($10,841 claimed less $4,820 accepted) as
being unallowable for EPA grant participation.
Note 2 - Indirect Cost
During our examination, we noted that the grantee used a fixed rate of 36.25%
for the months of October, November and December, 1988. This rate had not
been approved by EPA. Therefore, whenever the indirect cost rate for fiscal
year September 30, 1989 is approved, we recommend that necessary adjustments
be made to reflect the final approved rate for September 30, 1989.
Grantee * s Comments
Reference: Pages 9 through 13.
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BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 1210
100 NORTH MAIN BUILDING
MEMPHIS, TENNESSEE 38101-5066
September 1, 1989 I90!l ««-»•«
AUDITORS' REPORT ON COMPLIANCE
Ms. Mary Boyer
EPA Office of Inspector General
Audits and Investigations
Southern Division - Suite 276
1375 Peachtree Street, N. E.
Atlanta, Georgia 30309
We have audited the summary of costs incurred of Alabama Department of
Environmental Management (ADEM) Grant Number V004550-87-5 for the period
January 1, 1987 through December 31, 1988 and have issued our report dated
September 1, 1989.
We conducted our audit in accordance with generally accepted auditing stan-
dards and generally accepted government auditing standards as set forth in
Government Auditing Standards - Standards for Audit of Governmental Organi-
zations, Programs, Activities and Functions. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
Compliance with laws, regulations, contracts and grants applicable to
Alabama Department of Environmental Management Grant Number V004550-87-5
is the responsibility of Alabama Department of Environmental Management.
As part of obtaining reasonable assurance about whether the costs incurred
are free from material misstatements, we performed tests of Alabama Depart-
ment of Environmental Management's laws, regulations, contracts and grants.
However, our objective was not to provide an opinion on overall compliance
with such provisions.
In our opinion, the tested transactions of ADEM complied with the material
terms and conditions of the grant award and the tested grant financial re-
ports were accurate and complete insofar as it was reasonable and practical
to determine, except as noted in the following paragraphs. Further, nothing
additional came to our attention as a result of the foregoing procedures to
indicate that ADEM had not complied with the material terms and conditions
referred to above, and that the grant financial reports were not accurate
and complete within reasonable and practicable limitations for those trans-
actions not selected for testing.
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Ms. Mary Boyer
September 1, 1989
Page 2
AUDITORS' REPORT ON COMPLIANCE
(Continued)
Improper Allocation
During our examination, we noted that the grantee did not properly allocate
repair and maintanance charges for the computer. The methology used did
not provide an adequate allocation base, which in our opinion resulted in
excess repair and maintenance charges being claimed. OMB A-87 requires
that all costs charged must be properly allocated.
Recommendat ion
We recommend that the grantee properly allocate all grant program cost.
The final determination regarding allowability or unallowability of costs
as a. result of our examination will be made by EPA.
Sincerely,
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BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 1210
100 NORTH MAIN BUILDING
MEMPHIS, TENNESSEE 38103-5066
September 1, 1989
AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE
Ms. Mary Boyer
EPA Office of Inspector General
Audits and Investigations
Southern Division - Suite 276
1375 Peachtree Street, N. E.
Atlanta, Georgia 30309
We have examined the summary of costs incurred of Alabama Department of
Environmental Management (ADEM) Grant Number V004550-87-5 for the period
January I, 1987 through December 31, 1988 and issued our report thereon.
We conducted our audit in accordance with generally accepted auditing stan-
dards and generally accepted government auditing standards as set forth in
Government Auditing Standards - Standards for Audit of Governmental, Organi-
zations, Programs, Activities and Functions. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
In planning and performing our audit of the costs incurred of Alabama Depart-
ment of Environmental Management, Grant Number V004550-87-5 for the period
January 1, 1987 through December 31, 1988, we considered its internal control
structure in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and not to provide assur-
ance on the internal control structure.
The management of Alabama Department of Environmental Management is responsi-
ble for establishing and maintaining an internal control structure. In
fulfilling this responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of internal con-
trol structure policies and procedures. The objectives of an internal con-
trol structure are to provide management with reasonable, but not absolute,
assurance that assets are safeguarded against loss from unauthorized use or
disposition, and that transactions are executed in accordance with manage-
ment's authorization and recorded properly to permit preparation of financial
statements in accordance with generally accepted accounting principles. Be-
cause of inherent limitations in any internal control structure, errors or
irregularities may nevertheless occur and not be detected. Also, projections
of any evaluation of the structure to future periods is subject to the risk
that procedures may become inadequate because of changes in conditions or
that the effectiveness of the design and operation of policies and procedures
may deteriorate.
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I»O11 326-5956
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Ms. Mary Boyer
September 1, 1989
Page 2
AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE
(Continued)
For the purpose of this report, we have classified the significant internal
control structure policies and procedures in the following categories:
General
Disbursements
Payroll
Contractual procurement
Cash management (Letter of Credit)
Property and equipment
Indirect charges
For all of the internal control structure categories listed above, we ob-
tained an understanding of the design of relevant policies and procedures
and whether they have been placed in operations and we assessed control risk.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be mate-
rial weaknesses under standards established by the American Institute of
Certified Public Accountants. A material weakness is a reportable condi-
tion in which the design or operation of one or more of the specific in-
ternal control structure elements does not reduce to a relatively low level
the risk that errors or irregularities in amounts that would be material in
relation to the financial statements being audited may occur and not be
detected within a timely period by employees in the normal course of per-
forming their assigned functions. We noted no matters involving the internal
control structure and its operation that we consider to be material weak-
nesses, however, we did note a reportable condition that is outlined in the
paragraph below:
Improper Allocation
During our examination, we noted that the grantee did not properly allocate
repair and maintenance charges for the computer. The methology used did
not provide an adequate allocation base, which in our opinion resulted in
excess repair and maintenance charges being claimed. OMB A-87 requires
that all cost charged must be properly allocated.
Recommendat ion
We recommend that the grantee properly allocate all grant program cost.
This report is intended for use in connection with the Cooperative Agree-
ment to which it refers and should not be used for any other purpose.
Sincerely, /
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GRANTEE'S COMMENTS
Page 1 of 5
igh Pegues, Director
51 Cong. W. L.
ckinson Drive
antgomery, AL
130
5/271-7700
;ld Offices:
lit 806. Building 8
5 Oxmoor Circle
mingham, AL
209
5/942-6168
04 Perimeter Road
abile. AL
615
5/ 479-2336
ALABAMA
DEPARTMENT OF ENVIRONMENTAL MANAGEMENT
Guy Hunt
Governor
Mr. Ernest Jones, Jr.
Brandon, Smith and Jones
Suite 1210
100 North Main Building
Memphis, TN 38103-5066
Dear Mr. Jones:
The following response Is provided to findings Included In the
February 15, 1990 draft audit report on the ADEM CERCLA Grant No.
V004550-87-5.
Finding No. 1 - Supplies:
During the audit, we noted the grantee claimed $14,301 for
supplies. Of this amount, $10,841 relates to repair and maintenance
work performed on the computer. We noted that the total repair and
maintenance cost Incurred for the computer was $45,216. The amount
was allocated among four (4) grants. The grantee used a rate of 24%
in allocating the repair and maintenance charges. Based upon the
total project cost of four grants, we noted that the CERCLA grant
represented 10.66% of the total. We believe that only 10.66% of
$45,216 or $4,820 should have been claimed and not $10,841.
Therefore, we have questioned $6,021 ($10,841 claimed less $4,820
accepted) as being unallowable for EPA grant participation.
Response;
Through fiscal year 1988 ADEM paid for the costs of maintenance on
our mainframe computer by dividing the costs equally among the four
program divisions, Air, Land, Water and Field Operations. While it
is true that the total project costs were not equal among the four
grants, ADEN felt that each division used the mainframe computer
equally and should cover an equal share of the costs. In fact, it
could be argued that the tremendous administrative requirements
Involved with "Superfund" monies actually create an increase in the
use of the computer.
It should be noted that beginning with Fiscal Year 1989, ADEM has
placed the maintenance costs of the central mainframe computer Into
the indirect cost pool. We feel this more equitably distributes the
cost to all of ADEM's programs.
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Page 2 of 5
GRANTEE'S COMMENTS
Mr. Ernest Jones, Jr.
Page Two
March 8, 1990
Finding No. 2 - Indirect Cost:
During our examination, we noted that the grantee used a fixed rate
of 36.25% for the months of October, November and December, 1988.
This rate had not been approved by EPA. Therefore, whenever the
indirect cost rate for fiscal year September 30, 1989 is approved,
we recommend that necessary adjustments be made to reflect the final
approved rate for September 30, 1989.
Response:
We are enclosing a copy of the approved fixed rate for indirect
costs covering the period October 1, 1988 through September 30, 1989.
We believe that the responses above will adequately address the
findings contained in the draft report. We appreciate the
professional manner in which the audit was conducted.
Sincerely
LP:ME:em
Enclosure
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Page 3 of 5
GRANTEE'S COMMENTS
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
August 29, 1989
Mr. J. Marshall Sanders
ADEM Fiscal Officer
Alabama Department of
Environmental Management
1751 Cong.W.L. Dickinson Drive
Montgomery, AL 36130
Dear Mr. Sanders:
Enclosed is a negotiation agreement reflecting an
understanding reached between you and Mr. Don Thomas of my staff
concerning indirect cost rates to be used on grants and contracts
with the Federal Government.
I have already signed the agreement. Please have the
agreement countersigned by a duly authorized representative of
your organisation. Photocopy the agreement for your files and
return the original to me. Please give this matter your
immediate attention.
Return the countersigned original agreement to me
addressed as follows:
Mr. John J. Zabretsky, Chief
Cost Policy & Rate Negotiation Section
Cost Review & Policy Branch (PM-214-F)
Environmental Protection Agency
Fairchild Building
Washington, D.C. 20460
If you have any questions, please contact Mr. Thomas on
(202) 382-3223.
Sincerely yours,
John J. Zabretsky, Chief
Cost Fuiicy & Rate Negotiation Section
Cost Review & Policy Branch (PM-214-F)
Enclosure
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Page 4 of 5
GRANTEE'S COMMENTS
OMB CIRCULAR A-87 COGNIZANT AGENCY
NEGOTIATION AGREEMENT
Page 1 of 2
Alabama Department of Date: August 29, 1989
Environmental Management Filing Ref : This Updates Agreement
Montgomery, AL Dated January 7, 1988
The indirect cost rates contained herein are for use on grants
.and contracts with the Federal Government to which Office of
Management and Budget Circular A-87 applies, subject to the
limitations contained in the Circular and in Section II, A,
be low.
SECTION I: RATES
Effective Period
From To Rate^ Base
Fixed :
Indirect Costs 10/1/88 9/30/89 36.25% (a)
§a_s_i_s_ f gr Appl ication_;_
(a) Direct salaries and wages, including vacation, holiday and
sick leave.
Treatment of Fringe Benefits; Vacation, holiday and sick leave,
PICA, Retirement, Health and Life Insurance, Workmen Compensation
Insurance, and Unemployment Compensation applicable to direct
salaries are treated as direct costs.
SECTION
A. LIMITATIONS! Use -of the rates contained in this agreement is
subject to any applicable statutory limitations. Acceptance of
the rates agreed to herein is predicated upon the conditions: (i)
that no costs other than those incurred by the grantee/contractor
were included in the indirect cost rate proposal and that such
costs are legal obligations of the grantee/contractor, (2) that
the same costs that have been treated as indirect costs have not
been claimed as direct costs, and (3) that similar types of costs
have been accorded consistent treatment.
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Page5 of 5
GRANTEE'S COMMENTS
Alabama Department of
Environmental Management
Montgomery, AL
Page 2 of 2
3. CHANGES. The fixed rate contained in this agreement is based
on the organizational structure and the accounting system in
effect at the time the proposal was submitted. Changes in the
organiaational structure or changes in the method of accounting
for costs which affect the amount of reimbursement resulting from
use of the rate in this agreement, require the prior approval of
the authorized representative of the responsible negotiation
agency- Failure to obtain such approval may result in subsequent
audit disallowances.
C. THE FIXED RATE contained in this agreement is based on an
estimate of the cost which will be incurred during the period for
which the rate applies. When the actual costs for such a period
have been determined, an adjustment will be made In the
negotiation following such determination to compensate for the
difference between the cost used to establish the fixed rate and
that which would have been used were the actual costs known at
the time.
D. NOTIFICATION TO FEDERAL AGENCIES: Copies of this document may
be provided to other Federal Agencies as a means of notifying
them of the agreement contained herein.
SPECIAL REMARKS: None
ACCEPTANCE
By the State Agency:
By the Responsible
Agency :
Federal
/ (Signmtufa)
"^ '
J. Marshall Sanders
(Name)
Fiscal Mficer
(Title)
Environmental
( Agency )
September 5>, _1989
(Date)
John J. Zabretsky, Chief
Cost Policy and Rate
Negotiation Section
U.S Environmental
Protection Agency
August 29, 1989
Negotiated
Te lephone:
by: Don Thomas
(202) 382-3223
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ALABAMA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT
SUMMARY OF COSTS INCURRED, ACCEPTED AND QUESTIONED
FOR THE PERIOD JANUARY 1, 1987 THROUGH DECEMBER 31, 1988
GRANT NUMBER V004550-87-5
AUDITOR'S RESPONSE TO THE GRANTEE'S COMMENTS
Our response' is presented in the same order as the notes in Exhibit A.
Note 1 - Supplies
We questioned $6,021 claimed because we believe that the cost of maintenance
on the mainframe computer was not equitably distributed amont four grants.
The grantee stated it is true that the total project costs were not equally
distributed among four grants; however, they felt that each division used
the mainframe computer equally and should cover an equal share of the costs.
Based upon the total project cost of four grants, we noted that the CERLA
grant represented 10.66% of the total. As a result, we are recommending
that $6,021 remain questioned.
Note 2 - Indirect Cost
During our examination, we noted that the grantee used a fixed rate of 36.25%
for the months of October, November and December, 1988 which had not been
approved by EPA. The grantee provided us with the approval of the fixed
rate of 36.25% in its comments.
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