UNITED STATES ENVIRONMENTAL PROTECTION AGENCY of net or iNSPCCTO* GENERAL NORTHERN DIVISION tO W. JACKSON BLVD.. ATM FLOOR CHICAGO. ILLINOIS 0O0O4 350R90032 OFFICE OF AUDIT 312/3S3-2484 January 25, 1990 OFFICE OF INVESTIGATION 312/393-23O7 SUBJECT: Audit Report No. E1SJF9-05-0274-0100126 Review of Superfuncf Cost Recovery Accounts Receivable Establishment and Collection for Audits FROM: Anthony C. Carrollo Divisional Inspect Northern Division TO: Valdas V. Adamkus Regional Administrator Region 5 SCOPE AND OBJECTIVES We performed an audit of Region 5's collection of Superfund cost recovery amounts. The purpose of'the audit was to determine if: 1. Cost recovery amounts are recorded as accounts receivable in EPA's financial records. 2. Cost recovery amounts are collected in a timely manner. 3. Interest is assessed upon late payment. We reviewed Superfund cost recovery amounts which resulted from cost recovery enforcement actions for Region 5 Superfund sites. The review focused on amounts due from cost recovery actions completed from October 1, 1986 to September 1, 1989. We judgmentally selected to review the cost due from 16 of 52 (31 percent) cost recovery enforcement actions completed during fiscal years (FT) 1987 through 1989. We also reviewed the collection of oversight costs for four enforcement actions in our sample. Therefore/ we reviewed 20 (16 * 4) cost recovery amounts due. We did not review the amounts due from all cost recovery enforcement'actions because orders and decrees were not readily available. Also, as discussed in Finding 1, Region 5 plans to locate all order and decrees to determine whether cost recovery amounts were collected. ------- We recognize that, because our sample of enforcement actions was a judgmental sample and not a statistical random sample, statistical projections can not be made on the remaining enforcement actions in the universe. However, while our findings cannot be statistically inferred to the larger universe of enforcement actions, our sample was sufficient to satisfy our audit objectives. EPA delegated the responsibility for tracking and collecting cost recovery amounts owed to the regions at the beginning of FY 1989. Therefore, Region 5 was responsible for all Superfund cost recovery activities including the recording of accounts receivable and ensuring the payments were collected in F7 1989. For the prior fiscal years, Region 5 was responsible for all other activities related to the collection of cost recovery amounts owed except recording and collection. We performed the audit in accordance with the Government Auditing Standards issued by the Comptroller General of the United States (1988 revision). Fieldwork was conducted from July 17, 1989 to November 17, 1989. We reviewed reports,, policies and procedures, and cost recovery and accounts receivable files. Also, we held discussions with regional Superfund, Counsel, and Financial Management officials. Significant instances of noncompliance with internal administrative controls are detailed in this report. No other issues came to our attention which were significant enough to warrant expanding our review. We discussed our findings and recommendations with Region.5 officials. Their comments and actions taken in response to our findings are discussed in the body of this report. A copy of Region 5's January 17, 1990 reply to our draft report is attached as Appendix 1. SUMMARY OF FINDINGS Region 5 needs to {1) record Superfund cost recovery amounts due on the Region's financial records, (2) make timely collections, and (3) collect interest for late payments. Debts arising from consent agreements in enforcement actions and Superfund cost recoveries are valuable government assets, and EPA procedures are intended to protect these assets. Failure to report actions that create these debts, or failure to report them timely, results in substantial losses to the Hazardous Substance Superfund (Superfund Trust Fund). 1. Accounts Receivable Need to be Recorded For all 20 settlement documents we reviewed, neither Headquarters nor Region 5 recorded accounts receivable amounting to about $5 ------- million on the financial records of the Agency. Thus, the Agency's control over monies owed to the Superfund Trust Fund was ineffective. Because receivables were not recorded, the Agency was not aware of what payments were due the Superfund Trust Fund. As a result, a payment might be diverted, lost, or not paid without anyone being aware of it. This also results in late payments with resulting loss of applicable interest as discussed in Finding Number 2. The Agency was also not meeting internal control standards which require that significant events be promptly recorded and properly classified. The failure to record a receivable for amounts due to the Superfund Trust Fund is a material weakness in internal controls. The FY 1989 Agency Operating Guidance stated that the success of collecting cost recovery payments depends on being sure case closing information is immediately sent to the regional financial offices so the collections can be recorded properly and receivable amounts can be accurately reported to management. We found that accounts receivable were not recorded because: (a) Office of Regional Counsel (ORC) and Waste Management Division (WHO) did not forward the settlement documents to the Superfund Accounting Section (SFAS) in all cases, and (b) SFAS did not establish accounts receivable in the Financial Management System (FMS) when settlement documents were received prior to payment. In addition, routine procedures have not been established to regularly reconcile WMD and ORC records with FMS. Region 5 is currently formalizing procedures between the offices involved in cost recovery. ORC, WMD and SFAS are preparing a Memorandum of Understand (MOU) concerning Superfund cost recovery procedures. According to a November 13, 1989 draft of the MOU, WMD will be responsible for providing the SFAS with all administrative orders. ORC will be responsible for providing all judicial consent decrees and orders. In response to our draft report, the Regional Administrator stated that the Memorandum of Understanding is expected to be fully executed by the end of January 1990. Also, an internal control review of accounts receivable, which will include a review of the procedures in the Memorandum of Understanding, is scheduled in February 1990. The actions planned by the Regional Administrator, when implemented, will substantially correct the deficiencies cited in our report. We recommend that the Regional Administrator ensure regional officials complete their planned actions. ------- 2. Prompt ActionNeeded to Collect Amounts Owed Region 5 was not: promptly collecting cost recovery amounts owed to the Superfund Trust Fund because of (a) delays in sending accounting data to responsible parties/ (b) responsible party requests for further documentation and/or dispute of cost billed, and (c) late payment of amounts due. These conditions exist primarily because the responsibility for sending accounting data was not clearly assigned within the Waste Management Division (WHO). Delays in collecting amounts owed resulted in lost interest to the Superfund Trust Fund of at least $79,232. Of the 20 settlement documents we reviewed, 12 required that accounting data be sent to the responsible parties as a billing of cost incurred by EPA. In 10 of 12 cases where accounting data was required, there were delays in the collection of amounts due. In another case, the responsible party is contesting the court order and has not paid the cost due. The Treasury Department currently invests Superfund monies in 52- week U.S. Treasury MK Bills. When cost recovery amounts are not promptly collected, the Superfund Trust Fund loses the interest which would have accrued. Our draft report recommended that Region 5 (a) establish formal procedures between the Waste Management Division, the Office of Regional Counsel, the and Superfund Accounting Section to identify all settlement documents which include provisions for billing of oversight costs and forwarding settlement documents to Superfund Accounting Section, and (b) instruct Superfund Accounting Section to develop an automated tracking system for billings. In response to our draft report, the Regional Administrator stated that the Memorandum of Understanding will ensure that settlement documents are promptly forwarded to the Superfund Accounting Section. Also, an automated tracking system for billing oversight costs will be included as part of the newly developed Cost Documentation Monitoring System. The actions planned by the Regional Administrator, when implemented, will substantially correct the deficiencies cited in our report. We recommend that the Regional Administrator ensure regional officials complete their planned actions. ACTION REQUIRED In accordance with EPA Order 2750, the action official is required to provide this office a written response to the audit report within 90 days of the audit report date. . We have no objection to the further release of this report at your discretion. Should there be any questions, please call me or Lee Stevens. ------- BACKGROUND In 1980, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund. This law provides EPA with the authority and necessary tools to respond directly or to compel potentially responsible parties to respond to releases of hazardous substances, pollutants or contaminants. CERCLA was reauthorized and amended on October 17, 1986, by the Superfund Amendments and Reauthorization Act (SARA). CERCLA Section 107 states that generators and transporters of hazardous substances, as well as past and present owners and operators of hazardous waste sites, are strictly, jointly, and severally liable for the costs of cleanup. Once EPA undertakes a response using Superfund Trust Fund monies, it can recover costs from the responsible parties. EPA may recover Federal response costs from any or all responsible parties involved in a remedial action. The monies recovered go back into the Superfund Trust Fund for use in the future. A major goal of the Superfund program is to have potentially responsible parties (PRPs) cleanup sites that are releasing or threatening to release hazardous substances. The enforcement process normally used by EPA to achieve this goal may involve five major efforts. First, EPA attempts to identify PRPs as early as possible. Second, EPA will encourage the PRPs to cleanup the site. Third, if EPA believes the PRP is willing and capable of cleaning up the site, an enforcement agreement is negotiated. The agreement may be entered in court, or it may be an administrative order. Under both agreements EPA oversees the PRP. Fourth, if a settlement is not reached, a unilateral administrative order may be issued to compel the PRP to perform the cleanup. Fifth, if the PRPs will not perform the cleanup, EPA will perform the cleanup and file a suit against the PRP to recover the money spent. The Superfund Trust Fund is administered by the Treasury Department. It is funded primarily by environmental taxes on petroleum and on the sale or use of certain chemicals. Other sources of funding for the Superfund Trust Fund are fines and penalties paid by individuals and entities, cost recoveries, and interest. EPA collects these funds and deposits them into the Superfund Trust Fund. When amounts from any of these sources are credited to Superfund Trust Fund, they are invested in U.S. Treasury MK Bills. Monies in the Superfund Trust Fund not needed for current expenditures remain invested, and only those amounts required for current expenditures are redeemed. All earnings are credited to and become part of the Superfund Trust Fund. ------- FINDINGSAND RECOMMENDATIONS Finding No. 1 - ACCOUNTS RECEIVABLE NEED TO BE RECORDED For all 20 settlement documents we reviewed/ neither Headquarters nor Region 5 recorded accounts receivable amounting to about $5 million on the financial records of the Agency. Thus, the Agency's control over monies owed to the Superfund Trust Fund was ineffective. Because receivables were not recorded, the Agency was not aware of what payments were due the Superfund Trust Fund. As a result, a payment might be diverted, lost, or not paid without anyone being aware of it. This also results in late payments with resulting loss of applicable interest as discussed in Finding Number 2. The ultimate responsibility for good internal controls rests with management. Internal controls should be recognized as an integral part of the collection of Superfund cost recovery < amounts. Also, debts arising from consent agreements in enforcement actions and Superfund cost recoveries are valuable government assets, and EPA procedures are intended to protect these assets. Failure to report actions that create these debts, or failure to report them timely, results in substantial losses to the Superfund Trust Fund. The failure to record a receivable for amounts due to the Superfund Trust Fund is a material weakness in internal controls. The FY 1989 Agency Operating Guidance stated that the success of collecting cost recovery payments depends on being sure case closing information is immediately sent to the regional financial offices so the collections can be recorded properly and receivable amounts can be accurately reported to management. We found that accounts receivable were not recorded because: (1) Office of Regional Counsel (ORC) and Waste Management Division (WMD) did not forward the settlement documents to the Superfund Accounting Section (SFAS) in all cases, and (2) 5FAS did not establish accounts receivable in the Financial Management System (FMS) when settlement documents were received prior to payment. In addition, routine procedures have not been established to regularly reconcile WMD and ORC records with FMS. EPA's Financial Management Manual, Chapter 7, states that an account receivable is to be promptly recorded for all amounts owed. In order for a receivable to be recorded, settlement documents need to be sent to the Financial Management Office (FMO). EPA's Comptroller issued a December 9, 1986 memorandum, to all Regions stating that Agency officials responsible for actions creating debts must ensure that copies of the settlement documents are forwarded to the FMO. The Comptroller also stated the responsibility for debts arising from settlements is not solely a financial management function, but that all Agency staff are accountable for these assets. ------- EPA's Resource Management Directive System (HMDS) Chapter 2550D "Financial Management of the Superfund Program" (2550D), issued on July 25, 1988, contains guidance on establishing receivables for cost recovery; The guidance states that Superfund Branch Chiefs should ensure that settlement documents are forwarded to the FMO within one work day of final signature. As to establishing accounts receivable, 2550D refers to RMDS 2540, Chapter 9, "Receivables and Billings" for more information. However, this guidance has not been issued to date. The amount and timing of cost recovery amounts may be found in documents such as responsible party agreements, consent decrees, administrative orders, settlements, court orders, or judgments. The documents may require payment of a fixed amount, or may state that EPA will send the responsible party accounting data which specifies the amount.owed. Any documents, including accounting data, which establish an amount owed we refer to as settlement documents throughout the report. x We judgmeritally selected to review the cost due from 16 of 52 (31 percent) cost recovery enforcement actions completed during FYs 1987 through 1989., For each of the enforcement actions selected, we reviewed the collection of monies due the Superfund Trust Fund for costs incurred by EPA before the effective date of the enforcement action. We also performed a limited review of the collection of monies due the Superfund Trust Fund for cost incurred by .EPA after the effective date of. the enforcement action (oversight costs). We reviewed the collection of oversight costs for four of the enforcement actions in our sample. Therefore, we reviewed 20 (16 + 4) settlement documents which established amounts owed for-past costs and/or oversight costs. Region 5 recognized the need for a systematic method for tracking amounts owed, to the Government and the payment of reimbursements resulting from enforcement actions. On.June 25, 1987, the Deputy Regional Administrator issued a memorandum assigning responsi- bility for forwarding settlement documents to the SFAS. WMD would be responsible for forwarding administrative agreements and ORC would be responsible for forwarding consent agreements to the SFAS. However, as discussed below, this was not accomplished. Policies And Procedures Were Not Followed Accounts receivables were not recorded, as required by the above procedures, prior to receipt of payment for any of the 20 "cost recovery amounts reviewed. The settlement documents we reviewed represented about $5 million due to the Superfund Trust Fund. A receivable was only recorded when the payment was received by Headquarters FMO or Region 5 SFAS. The primary reason receivables were not recorded was because neither WMD nor ORC ------- forwarded copies of settlement documents to Headquarters FMO or Region 5 SFAS in a-11 cases. Seventy-five percent (15 of 20) of the settlement documents reviewed were not forwarded to FMOs. Settlement Number Of Settlement Documents Settlement Documents Not Provided Costs Documents Forwarded But A/R To Be FY Reviewed* To FMO Not Recorded Recovered 1987 11 0 $ 124,000 1988 11 9 2 1,920,978 1989 _8 _§. 1 2.784.323 Total ,22 14 £ 34.829,301 * Each responsible party agreement, consent decree, administrative order, settlement, court order, or judgment is counted as a settlement document. In addition, for the four settlement documents where we reviewed the payment of oversight costs, each billing is counted as a settlement document. Settlement Documents Not Forwarded To FMO ORC officials stated that one reason judicial orders and decrees were not promptly sent to the SFAS was because the documents were not promptly sent by the Department of Justice (DOJ) to EPA. DOJ sends a monthly tracking report on the status of referrals to ORC. The report lists the status of the referral, including whether the order is entered. Judicial orders are effective when they are entered by the court. However, ORC may not receive the monthly tracking report until two months after the order is entered. DOJ has recently agreed to directly provide ORC with monthly status printouts to better allow ORC to determine and track the status of cases awaiting final judicial approval. ORC officials stated that the monthly status printouts would be an improvement over the DOJ tracking report. ORC and WMD need to ensure that settlement documents are forwarded to the SFAS. We found that settlement documents were not .forwarded to the SFAS because (1) WMD management did not clearly assign the responsibility and (2) ORC had no procedures to ensure that settlement documents are forwarded to the SFAS. The responsibility for forwarding settlement documents was not clearly assigned within WMD to the Remedial Response Branch or . the Superfund Program Management Branch. The remedial project managers (RPMs), who are in the Remedial Response Branch, are responsible "for developing administrative enforcement actions and assessing compliance with administrative and judicial agreements and orders. The PRP/Cost Recovery Unit, within the Superfund 8 ------- Program Management Branch, is responsible for cost recovery information collection and documentation for .Section 107 actions. We found that RPMs assumed that the PRP/Cost Recovery Unit was forwarding settlement documents to the SFAS. Personnel in the PRP/Cost Recovery Unit assumed the RPMs were forwarding the documents to the SFAS. Part of this confusion may have occurred when the Superfund program reorganized in 1988. At that time, the PRP/Cost Recovery Unit was part of the CERCLA Enforcement Branch, which was responsible for all aspects of the enforcement program. To clarify who is to forward settlement documents, a memorandum was issued on October 6, 1989, stating that once an administrative order is signed, a copy is to be sent to the SFAS. However, the memorandum did not clearly state who was responsible for sending a copy to the SFAS. A regional official stated that the RPM is to send a copy of the administrative order to the SFAS. ORC supervisors were not systematically reviewing attorney's work to ensure that settlement documents were forwarded to the SFAS. ORC section chiefs stated that they do monitor attorneys in their section to ensure that this is accomplished. However, several . regional attorneys were not aware of the requirement. To ensure that settlement documents are promptly sent to the SFAS, a memorandum was issued during the second quarter of FY 1989 assigning the responsibility for sending all Superfund consent decrees and administrative order to SFAS to a specific person within ORC. Region 5 is currently formalizing procedures between the offices involved in cost recovery. ORC, WMD and SFAS are preparing a Memorandum of Understand (MOU) concerning Superfund cost recovery procedures. According to a November 13, 1989 draft of the MOU, WMD will be responsible for providing the SFAS with all administrative orders. ORC will be responsible for providing all judicial consent decrees and orders. As shown in the schedule on page 8, settlement documents were not forwarded to Headquarters FMO or Region 5 SFAS in 15 of 20 cases. Regarding the 5 cases (20 - 15) where settlement documents were provided, neither Headquarters FMO nor Region 5 SFAS followed the procedures in the Financial Management Manual to record a receivable for the amounts due. For example: A consent order was signed on May 6, 1988, in the Northernaire Plating case. The order required Northemaire to pay $268,818 to reimburse EPA for past costs spent in cleaning up the site. Northemaire had not reimbursed EPA ------- for the costs because the consent order was being appealed in court. The consent order created an .obligation for the responsible party to pay for past costs, and should have been recorded as a receivable. No receivable was recorded . for the costs due the Superfund Trust Fund. A copy of the consent order was forwarded to SPAS, but not the Headquarters'FMO. SFAS should have forwarded the information to the Headquarters FMO so that a receivable could be recorded in the FMS. According to ORC officials, the accounts receivable was not recorded because the responsible parties have filed an appeal. The appeal has not yet been decided and it could result in a change to the amount the responsible parties will owe. The Treasury Financial Manual codifies instructions for the guidance of departments and agencies of the Federal government. The Treasury Financial Manual defines a receivable as an amount owed the Government from an individual, organization, or other entity in satisfaction of a claim. It further states: Any amount that is under appeal or in litigation should continue to be classified as "delinquent" or "not delinquent" and should be carried in its original status as a current receivable until the Government changes its position regarding the amount that is due and payable, through ,either a decision of the courts or an administrative settlement directed by a responsible Government official. Accounts receivable are to be recorded for all amounts owed in order to ensure control over receivables and to promote aggressive collection efforts. Amounts owed are to be recorded as receivables even if they are subject to change or appeal. The remaining four cases where Headquarters FMO or SFAS did not record the accounts receivable even though they had the settlement documents were Fadrowski Drum Disposal ($25,650), Spiegelberg Landfill ($650,108), Alburn ($155,157) and Fadrowski Drum Disposal (Oversight - $25,878). In addition., to the five cases where settlement documents were provided by WMD or ORC, SFAS did not record an account receivable after we provided a settlement document. Ormet Corporation signed an administrative order that required payment of past costs and yearly oversight costs based on accounting data provided by EPA. The accounting data was sent to Ormet on May 23, 1989. Costs due to the Superfund Trust Fund were $385,845. WMD did not forward a copy of the accounting data to the SFAS. On August 1, 1989, we provided the SFAS with a copy of the settlement documents needed to record a receivable. Even after 10 ------- providing the settlement documents, the SFAS had not recorded a receivable for the $385,845 owed, as of the end of fieldwork on November 17, 1989. The draft November 13, 1989 MOU states that the SFAS will establish accounts receivable for amounts due. Also, in a memorandum dated August 30, 1989, the SFAS outlined interim procedures.for Superfund accounts receivable. The interim procedures designated a person responsible for ensuring the information-on the amount owed is forwarded to the Finance and Accounting Section, who records the receivable in FMS. The SFAS also plans to locate settlement documents which were not forwarded to the SFAS, and determine whether cost recovery amounts were collected. Where amounts were not collected, the SFAS will record the amount owed as an account receivable and follow up with ORC and DOJ to affect collection. The Federal Managers Financial Integrity Act (FMFIA) requires that GAO internal control standards be followed when establishing and maintaining systems of internal control. The objectives of an internal control system include that (1) all assets are safeguarded against waste, loss, unauthorized use, and misappropriation, and (2) all revenues and expenditures are recorded and accounted for properly so that accounts and reliable financial reports may be prepared and accountability of assets may be maintained. Specifically, the internal control standards state that transactions and other significant events are to be promptly recorded and properly classified. Region 5's failure to record accounts receivable for amounts due to the Superfund Trust Fund was a material weakness in internal controls. OMB Circular A-123 defines a material weakness as a specific instance of noncompliance with FMFIA which would (1) impair the fulfillment of an agency component's mission; (2) deprive the public of needed services; (3) violate statutory or regulatory requirements; or (4) significantly weaken safeguards against waste, loss, unauthorized use or misappropriation of funds. The failure to record receivables meets all these conditions. When receivables were not properly recorded, the FMS did not provide EPA management with timely and accurate financial information. OMB Circular A-127 (A-127) states that an FMS is to provide useful, timely, reliable, and complete information. A-127 and FMFIA require- that an Agency's FMS provide for: Complete disclosure of the financial activities of the agency, Adequate financial information for agency management and for formulation and execution of the budget, and 11 ------- Effective control over revenue, expenditure, funds, property, and other assets. Reconciliation Procedures Would Help Ensure Receivables Are Recorded Regular reconciliation of WMD and ORC records with FMS would serve as an internal control to assure that all settlement documents have been forwarded to the SPAS and the receivables have been recorded. HMDS Chapter 2S50D states that the FMOs should establish routine procedures with the Superfund Branch Chief and Regional Counsel to regularly reconcile Program and Counsel records with FMS. In addition, the offices are to exchange information on the status of debts, including cases concluded by OOJ. Region 5 had not established these procedures. WMD and ORC each have computer systems which include information on cost recovery enforcement actions. The Comprehensive Environmental Response, Compensation, and Liability Information System (CERCLIS) is a historical database of the Superfund program, containing the official inventory of CERCLIS sites, and serving site planning and tracking functions. Headquarters relies on CERCLIS as the source of data for plans and accomplishments. The Enforcement Docket System (Docket) is the main case-tracking system of the Headquarters Office of Enforcement and Compliance Monitoring (OECM). The docket system .was established for tracking and managing judicial enforcement cases. The ultimate objective of a computerized information system is to collect all the data pertaining to an operation and to amass it in computer files from which any information and all reports can be readily extracted. In a June 18, 1986 speech, EPA's Administrator stated that national program systems, such as CERCLIS and the Docket, have traditionally suffered from incomplete and untimely data for a number of reasons: (1) imprecise definitions of reporting requirements, (2) a lack of management attention (there were no real consequences when reporting requirements were not met), and (3) computer systems that have been relatively inaccessible for either data entry or retrieval. During our review, we attempted to identify cost recovery enforcement actions completed from October 1, 1986 to June 30, 1989. We compared information from CERCLIS and the Docket. Also, we identified during our review settlement documents in the SPAS for enforcement actions not listed in either. CERCLIS or the Docket. We did not attempt to identify all cost recovery enforcement actions not listed in CERCLIS or the Docket. 12 ------- As shown in the table below, we found that CERCLIS listed 80 percent (16 of 20} of the administrative enforcement actions. As for judicial enforcement actions, we found that 72 percent (23 of 32) were listed in CERCLIS and 75 percent (24 of 32} were listed in the Docket. See Exhibit 1 for list of enforcement actions. Enforcement Actions Administrative Percent Civil Percent Enforcement Actions Identified 20 32 Listed in CERCLIS 16 80 23 72 Listed in the Docket * 24 75 Enforcement Actions in Neither System 3 20 13 * The Enforcement Docket System lists enforcement actions filed in court, not administrative actions. Enforcement actions need to be timely and accurately entered so that accurate reports can be generated. ORC attorneys update the information in the Docket. In the past, RPMs updated the information in CERCLIS. The responsibility for updating cost recovery enforcement actions in CERCLIS was transferred to the PRF/Cost Recovery Unit in a memorandum dated October 6, 1989. The November 13, 1989 draft MOU includes the establishment of a consolidated tracking system for cost recovery as a area for possible future refinement. In the interim, ORC and WMD will periodically reconcile their tracking system reports. Further reconciliation of the tracking system reports to the FMS would ensure receivables are recorded and that follow-up action is promptly taken. Draft Report Recommendations We recommended that the Region 5 Regional Administrator take appropriate action to:- 1. Instruct Waste Management Division, Office of Regional Counsel, and Superfund Accounting Section to complete the Memorandum of Understanding and implement the procedures. 2. Perform an internal control review of the procedures in the Memorandum of Understanding during FY 1990 to determine whether the procedures are being followed and whether they are adequate to ensure that receivables are promptly recorded on the financial records. 3. Instruct the Financial Management Branch to implement its Superfund Accounts Receivable - Interim Operating Procedures, as outlined in its August 30, 1989 memorandum, 13 ------- to identify settlement documents not forwarded to Superfund Accounting Section. Where cost recovery .amounts have not been collected, the amount owed should be recorded as an account receivable and action.taken for collection. 4. Instruct Office of Regional Counsel and Waste Management Division to establish a consolidated tracking system for cost recovery. Until a consolidated tracking system, is established, require the Office of Regional Counsel and the Waste Management Division to continue to reconcile their tracking system reports. Also, require that tracking reports be provided to Superfund Accounting Section. 5. Instruct Superfund Accounting Section to regularly reconcile tracking.reports provided by Office of Regional Counsel and Waste Management Division to the financial management system. Regional Reply to Draft OIG Report Region 5's response to our draft recommendations was as follows: 1. We agree with the recommendation. The final version of the Memorandum of Understanding is expected to be fully executed by the end of January 1990. 2. We agree with the recommendation. A review of accounts receivable is scheduled for February 1990, and will include of review of the procedures in the Memorandum of Understanding. 3. We agree with the recommendation. Financial Management Branch has initiated action to implement these procedures. 4. While we understand the benefits that a consolidated system could produce, we do not agree that this should be required. However, we do agree that Office of Regional Counsel and Waste Management Division must continue to reconcile their tracking system reports and provide the tracking reports to Superfund Accounting Section. 5. We agree with the recommendation and believe the new procedures will help in performing this function. Auditor's Comments The actions outlines by Region 5 in reply to our draft recommendations, when implemented, will substantially correct the deficiencies cited in our draft report. 14 ------- Recommendations we recommend that the Regional Administrator ensure that the planned corrective actions- are completed. 15 ------- Finding No. 2 - PROMPT ACTION NEEDED TO COLLECT AMOUNTS OWED Region 5 was not promptly collecting cost recovery amounts owed to the Superfund Trust Fund because of (1) delays in sending accounting data to responsible parties, (2) responsible party requests for further documentation and/or dispute of cost billed, and (3) late payment of amounts due. These conditions exist primarily because the responsibility for sending accounting data was hot clearly assigned within the Waste Management Division (WMD). Delays in collecting amounts owed resulted in lost interest to the Superfund Trust Fund of at least $79,232. Of the 20 settlement documents we reviewed, 12 required that accounting data be sent to the responsible parties as a billing of cost incurred by EPA. In 10 of 12 cases where accounting data was required, there were delays in the collection of amounts due. (Each case may have more than one reason for delay.) See Exhibit 2 for a listing of cases. Number Reason For Delay Of Cases Delay in sending accounting data 8 Request for further documentation and/or disputed costs 4 Late payment 4 . In seven of the eight cases (20 - 12) where no accounting data had to be sent, the collection of funds was timely. In the remaining case, the responsible party is contesting the court order and has not paid the cost due. One of most important objectives of the Superfund program is to recover the funds that EPA spends in cleaning up a Superfund site. Recovery may be affected either through negotiation or as a result of legal action against responsible parties. The costs EPA tries to recover may be for (I) past expenditures, (2) future work that EPA will do at the site, or (3) the costs of EPA overseeing cleanup work that the responsible party may perform under contract at the site. Section 107(a) of the Superfund Amendments and Reauthorization Act (SARA) requires that cost recovery amounts accrue interest at the same rate as investments of the Superfund Trust Fund. The Treasury Department currently invests Superfund monies in 52-week U.S. Treasury MK Bills that mature in early September of each year. When funds are needed for Superfund activities, MK-Bills are sold and the proceeds are used to pay EPA costs. When funds are received, additional MK-Bills of the same maturity are purchased. The MK-Bill rates for FYs 1987 to 1989 are: 16 ------- Interest Rate 1987 5.63% 1988 6.99% 1989 8.39% Delays In Sending Accounting Data \ Accounting data were not promptly sent to the responsible parties in 8 of 12 (67 percent) cases where accounting data were required. In 6 of the 8 cases, WMD did not promptly (1) request the accounting data from the Superfund Accounting Section (SFAS) and/or (2) send the accounting data to the responsible parties. In the other.two cases, the SFAS did not promptly prepare the cost documentation packages. According to EPA's "Financial Management Procedures for Documenting Superfund Costs" (September 1986), when accounting data are needed, WMD is to prepare a cost recovery checklist. The checklist identifies the (1) site, (2) costs to be documented, (3) date through which costs are to be documented/ and (4) date the documentation is required. The checklist is to be forwarded to the Headquarters Office of Waste Program Enforcement (OWPE) and SFAS. OWPE is responsible for obtaining documentation of Headquarters costs and contractor costs which are not billed on a site-specific basis. The SFAS is responsible for documenting regional site-specific costs. WMD can request either a cost documentation package or a SPUR (Software Package for Unique Reports) report. A cost documentation package includes documentation of all costs and is typically completed within 30 calendar days. However, Region 5 found that cost documentation packages take two to four months to complete. SPUR reports are computer summaries of the charges to a specific site as contained in the Financial Management System (FMS). Requests for SPUR reports are usually responded to within five work days. Based on the cost documentation package or SPUR report, WMD sends a letter billing the responsible parties for the costs due. Region 5 recently revised its procedures for cost documentation because of the large number of requests for cost documentation and the amount of time required to prepare cost documentation packages. When accounting data are needed to bill responsible parties, an annotated SPUR report will be used. The annotated SPUR report includes a one page summary of major costs categories. The summary is backed up by computer reports on payroll, travel, indirect costs, and individual reports on contract, cooperative agreement, and interagency agreement costs. The annotated SPUR reports take about three weeks to complete. The annotated SPUR report will provide more information to the 17 ------- responsible party than a standard SPUR report, a:»d will take less time to complete than a cost documentation package. In 6 of the 12 (SO percent) cases where accounting data were required, WMD did not promptly (1) request the accounting data from OWPE and SFAS and/or (2) send the accounting data to the responsible parties. The six cases were Ormet Corporation, Hagen Farm, Hagen Farm (oversight), Reilly Tar and Chemical, South Point Plant (oversight),' and Fadrowski Drum Disposal (oversight). See Exhibit 2 for details of each case. In several cases there were significant delays in requesting accounting data. For example, The administrative order for Ormet Corporation was effective on Kay 11, 1987. EPA was to send Ormet an accounting of all response costs incurred prior to April 1, 1987. In addition, yearly billings were to be made for oversight costs starting in April 1988. The billing, for (1) past costs and (2) two years of oversight costs, was not sent until May 23, 1989, two years after the administrative order was signed. In a letter to Ormet, Region 5 said that the billing was late because of "administrative oversight". The administrative order for Fadrowski Drum Disposal stated that at the end of each 12 month period beginning with the effective date of the order, EPA was to submit an accounting of all oversight costs. The order was effective on May 11, 1987. Therefore, the first billing of oversight costs should have been in May 1988. However, a SPUR report on oversight costs was not requested until January 26, 1989, eight months later. WMD is responsible for notifying SFAS that accounting information is needed to bill responsible parties and sending the bill to the responsible parties. However, the duties were not clearly assigned within WMD. A memorandum was issued.on August 3, 1987,. that the remedial project managers (RPM) in the CERCLA enforcement section were responsible for notification of responsible parties of amounts due. In March 1988, WMD was reorganized, combining enforcement and program RPMs in a Remedial Response Branch. According to the Chief of the Remedial Response Branch, this responsibility was reassigned to the Cost Recovery Unit in the Program Management Branch when the division reorganized. During our review, the Chief of the Program Management Branch found that the responsibility for notifying responsible parties of amounts due was not specifically assigned. In the November 13, 1989 draft MOU, the responsibility for billing responsible parties was transferred to SFAS. In order to ensure that billings for oversight costs are promptly prepared, 18 ------- SFAS officials, stated that they plan to locate all settlement documents which require billings for oversight costs. SFAS is also developing an automated system for keeping track of when billings are to be prepared. Once all settlement documents are located, SFAS. will have the information necessary to ensure* billings for oversight'costs are promptly prepared. An automated tracking system should also improve the timeliness of the billings. * . According to the "Financial Management Procedures for Documenting Superfund Costs", cost documentation packages are typically completed in 30 days. In 2 of 12 cases reviewed, Powell Road Landfill and Fadrowski Drum Disposal, which required accounting data, the cost documentation packages took four to five months. In the future, Region 5 will use annotated SPUR reports to bill responsible parties. The annotated SPUR reports take less time to prepare than cost documentation packages. \ Requests For Further Documentation Qr Disputed Costs Responsible parties have requested further documentation or have disputed the costs billed in 4 of 12 cases (33 percent) where accounting data were provided. The four cases were Ormet Corporation, Hagen Farm (oversight), Spiegelberg Landfill, and Powell Road Landfill. Examples of the type of documentation requested by responsible parties include: In a letter dated July 26, 1988, the responsible.party for Powell Road Landfill asked EPA to provide "documentation to show that the U.S. EPA contract costs were incurred in connection with the Powell Road facility and incurred not inconsistently with the NCP". Contract costs represented 59 percent of the costs billed for the site. Ormet Corporation, in a letter dated June 2, 1989, requested additional documentation such as (1) indication of the.nature of the work performed by employees, (2) summary of travel showing destinations and purpose of travel, and (3) description of the work performed by contractors. One of the elements of proof needed for a cost recovery action is that the actions taken were not inconsistent with the National Contingency Plan (NCP). The Agency's policy .is to maintain evidence that response actions are not inconsistent with the NCP. The scope of this review was limited to the collection of cost recovery amounts. We did not perform a review of EPA's ability to provide documentation to responsible parties that showed costs incurred were not inconsistent with the NCP. 19 ------- Late Payment Of CostaDue Payment of cost recovery amounts due were received after the due date in 4 of 12 cases (33 percent) where accounting data were required. The payments were received from 11 to 81 days after the due date. Site Name Date Due Date Paid Days Late Fadrowski Drum Disposal 11/21/87 02/11/88 81 American Anodco 11/29/87 02/05/88 68 South Point Plant (oversight) 10/30/88 01/03/89 65 Hagen Farm 02/06/88 02/17/88 11 SFAS is responsible for sending out demand payment letters for all debts 31 or more days old. However, with the exception of Fadrowski Drum Disposal, the settlement documents were not forwarded to FMO. Without a copy of the settlement document, the FMO cannot take action to follow-up on delinquent debts. Delays in (1) sending accounting data, (2) responsible party requests for further documentation and/or dispute of cost billed, and (3) late payment of amounts due, slow the investment of cost recovery amounts due to the Superfund Trust Fund. We reviewed $4,829,301 of costs due. If prompt action had been taken to collect the amounts owed, the funds could have been.invested by the Superfund Trust Fund at an earlier date and additional interest earned of at least $79,232. Draft Report Recommendations We recommended that the Region 5 Regional Administrator take appropriate action to: . 1. Establish formal procedures between the Waste Management Division, the.Office of Regional Counsel, and the Superfund Accounting Section to identify all settlement documents which include provisions for billing of oversight costs. The procedures should include forwarding settlement documents to Superfund Accounting Section. 2. Instruct Superfund Accounting Section to develop an automated tracking system for billings. 3. Instruct Waste Management Division to promptly notify . Superfund 'Accounting Section of all oversight billings required, until all settlement documents are forwarded to Superfund Accounting Section arid/or an-automated tracking system is developed. 20 ------- 4. Instruct the Superfund Accounting Section to promptly prepare accounting data and send billings to responsible parties. Regional Reolv to Draft PIG Report The Regional Administrator agreed with our finding and outlined . measures to address our recommendations. 1. The Superfund Cost Recovery Memorandum of Understanding formalizes, clarifies and expands on the existing procedures. Through these procedures, the Region insures that documents establishing responsible party obligations to reimburse the Superfund Trust Fund for oversight costs are promptly provided to the Superfund Accounting Section. The Memorandum of Understanding also allocates the responsibility for tracking and billing oversight costs to the Superfund Accounting Section. The Office of Regional Counsel provides assistance with Interpretations where necessary, and Waste Management Division provides assistance with compilation of certain documentation. 2. Action has been initiated to include an automated tracking system for billings as an enhancement to the newly developed Cost Documentation Monitoring System. 3. The procedures in the Memorandum of Understanding regarding the transmittal of settlement documents from Waste Management Division to Superfund Accounting Section will control this function. 4. The Region recognizes the importance of timely action. Auditor's Comments The actions outlined by Region 5 in reply to our draft recommendations, when implemented, will substantially correct the deficiencies cited in our draft report. Recommendations We recommend that the Regional Administrator ensure that the planned corrective actions are completed. . 21 ------- Exhibit Page 1 of 3 (see Page 13) ADMINISTRATIVE AND CIVIL ORDERS AND DECREES ISSUED AFTER OCTOBER 1, 1986 REGION 5 State IL OH MI MI OH IN WI HI IN IN MI WI HI OH OH IN MI OH OH OH Total IL IL IL IL MN IL MI Site Name Alburn Inc Alsco Anaconda American Anodco Inc Bendix Corp Dover Chemical Dowden Landfill Fradowski Drum Disposal Hagen Farm IJ Recycling Lakeland Disposal Serv Inc Midland Dow Hell Muskego San Landfill Oak Creek Naphtylamine Spill Ormet Corp Powell Road Landfill Reilly Tar & Chemical Indiana Roto-Finish Co South Point Plant Summit Natl Liquid Disposal Hade Park Chemical Administrative Agreements A&F Material Greenup Alburn Inc Alburn Inc Belvidere Municipal Landfill Bernard Rumple Property Brightly Galvanized Butterworth #2 Landfill FMS ID F3 1Y 2N AS BS 3Y Tl 3C CA 7B 61 J5 X3 12 H4 D4 4X J6 04 B7 17 F3 F3 C7 K9 D6 Type of Agreement Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Admin Judicial Judicial Judicial Judicial Judicial Judicial Judicial Completion Date In CERCLIS (1) 10/09/86 02/15/87 10/23/87 03/17/88 07/27/87 03/30/89 10/18/88 08/14/87 03/21/88 02/15/87 11/12/87 03/31/87 12/18/87 03/31/87 12/22/88 01/20/87 u. 08/09/88 10/21/88 12/15/87 04/22/87 Completion Date In Other The Docket Aareements (2) (3) _ 02/13/89 09/02/88 05/11/87 03/20/89 4 09/06/88 10/21/88 04/12/89 10/05/87 04/22/87 22 ------- Exhibit I Page 2 of ADMINISTRATIVE AND CIVIL ORDERS AND DECREES State IN OH OH IL IL HI IN IN IL MN MN MN IL OH MI WI MI MI IL MI MI OH WI IN MI MI ISSUED AFTER OCTOBER 1. 1986 REGION 5 Site Name Calumet Container Corp (J. Jagiella) Chemical & Mineral Reclamation Chemical & Mineral Reclamation Film Recovery System Chips Film Recovery System Chips Folkerstma Refuse (Oliver Machinery) Fort Wayne Reduction Dump Gary Dog Pound Gebhart Fertilizer Co Isanti Farmers Creamery Isanti Farmers Creamery Isanti Solvent Johns Manville Laskin/ Poplar Oil Liquid Disposal (Diamond Reo Truck) Mallable Iron Range' Northernaire Plating Northernaire Plating Outboard Marine Peerless Plating Co Inc Peerless Plating Co Inc. Peters JV & Co (David Shillman) Rogers Laboratory Seymour Recycling Corp Spiegelberg Landfill Thomas Solvent (Verona Well) FMS Ifi 66 08 08 H6 H6 W9 IK D9 43 43 43 A5 03 62 8B 83 83 G2 G2 H3 G3 01 A6 P9 Type of Agreement Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial Judicial v judicial Completion Date In CERCLIS U) 02/15/87 06/11/87 04/04/88 05/20/88 02/21/89 10/08/87 11/15/86 12/10/87 12/10/88 01/22/88 03/23/88 10/01/87 05/06/88 09/02/88 05/18/87 09/15/87 08/05/88 08/18/88 Completion Date In Other The Docket Agreements (2) (3) 03/15/89 06/11/87 05/20/88 01/10/89 10/09/87 10/27/86 12/10/87 04/30/89 04/07/89 09/21/87 05/06/88 04/28/89 05/18/87 11/10/87 12/26/87 08/05/88 12/01/88 1 1 / >*> /Ol l^/2//oi 12/29/86 ------- Exhibit 1 Page 3 of 3 ADMINISTRATIVE AND CIVIL ORDERS AND DECREES ISSUED AFTER OCTOBER I. 1986 REGION 5 State Site Name IN Tri State Plating (J. Padgett) IL Velsicol Chemical Corp FMS ID A2 Type of Agreement Judicial Judicial Completion Date In CERCLIS (1) 05/18/89 Completion Date In The Docket (2) 03/13/89 Other Agreements (3) Total Judicial Agreements 23 24 Notes CERCLIS completion dates were obtained from a listing of selected enforcement codes. The printout used was as of June 30, 1989. Enforcement codes selected were: NE Cost recovery negotiations AC Administrative order on consent AV Administrative/voluntary cost recovery SV Section 107 litigation CL Section 106/107 litigation JG Judgement CD Consent decree CA Consent agreement , Enforcement Docket System completion dates were obtained from a listing, of concluded Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) cases as of July 17, 1989. Only CERCLA Section 107 cases were selected. We reviewed the FMO's Superfund accounts receivable files to determine whether there were any other cost recovery agreements that were not listed in CERCLIS or the Docket. Copies of the agreements listed as "other agreements" were found in FMO files. 24 ------- Page 1 of 4 (see Page 16) SCHEDULE OF SUPERFUND COST RECOVERY COLLECTIONS REVIEWED ID Site Name 12 Ormet Corporation 2N American Anodco 3C Hagen Farm 3C Hagen Farm (Oversight) 83 Northernaire Plating A6 Spiegelberg Landfill B5 Dover Chemical D4 Reilly Tar and Chemical F3 Alburn, Inc Gl Midland Dow Hell Site G2 Peerless Plating H4 Powell Road Landfill H6 Film Recovery Systems J6 South Point Plant J6 South Point Plant (Oversight) J6 South Point Plant (Oversight) K9 Bernard Ruple Property Tl Fadrowski Drum Disposal Tl Fadrowski Drum Disposal (Oversight) AS Bendix Corporation Total AND REASONS FOR LOST Cost " Recovery $ 385,845 14,133 39,203 54,795 268,818 650,108 45,724 .152,156 155,157 1,425,000 50,000 259,629 265,000 124,000 t) 63,664 t) 72,638 737,000 25,650 25,878 14,903 84,829.301 Effective Date of Settlement Document 05/11/87 10/30/87 09/14/87 05/06/88 12/28/88 09/02/88 07/07/87 10/21/88 04/10/89 11/10/87 02/01/88 05/20/88 07/16/87 12/10/87 05/11/87 02/13/89 INTEREST TO THE SUPERFUND TRUST FUND Date Accounting Data Sent 05/23/89 11/09/87 12/08/87 01/11/89 N/A 11/18/88 N/A N/A N/A N/A 05/04/88 N/A N/A 08/31/88 03/09/89 N/A 10/22/87 02/17/89 05/08/89 Date Costs Paid 02/19/88 02/29/88 04/24/89 02/11/88 09/15/87 01/03/89 05/05/89 02/04/88 02/11/88 03/13/89 Reasons For Lost Interest Delay in Sending Requested Lost Accounting Late Further Interest Data Payment Documentation / 1 ) Note X X $28,303 (2) X 165 X- X 390 (3) X ' ' X 3,199 (4) (5) X . 24,308 (6) (7) X 2,794 (8) <9> v * X X 12,684 (10) (11) X X 4,790 (12) X X 1,084 (13) x 1,515 (14) fl 4 ' _4_ if?? f 232 ------- Exhibit 2 Page 2 of 4 Notes 1. Lost interest was calculated on uncollected monies from the date costs were due until costs were paid. For those cases where there were delays in sending accounting data, we estimated that accounting data were sent to the responsible parties within seven days of the effective date of the settlement document. For the nine settlement documents where there were delays -in sending accounting data, Financial Management System summary data (SPUR) reports were used as accounting data in four instances and cost documentation packages in five instances. SPUR reports are typically completed in 5 workdays, and cost documentation packages in 30 calendar days. Even though 30 days are needed to prepare cost documentation packages, the cost documentation package can be requested during the 30 day public comment period prior to the issuance of the administrative order. Also, the Proposed Guidance on Tracking and Collecting the Reimbursement of Oversight Costs from PRPs (June 27, 1988) recommends that SPUR reports be used as accounting data. 2. An administrative order was signed with the Ormet Corporation on May 11, 1987. EPA was to send Ormet an accounting of all response costs incurred prior to April 1,. 1987. In addition, yearly billings were to be made for oversight costs starting in April 1988. The billing for past costs and two years of oversight costs was not sent until May 23, 1989, two years after the administrative order was signed. In a letter to Ormet, Region 5 said that the billing was late because of "administrative oversight". On June 2, 1989, Ormet requested additional documentation of the cost incurred by EPA. Costs had not been paid as of September 1, 1989. 3. The administrative order for Hagen Farm was effective on September 14, 1987. The order stated that accounting data would be provided- on the amount due for past costs. Accounting data was requested by Waste Management Division (WMD) from the Superfund Accounting Section (SFAS) on July 1, 1987, but not until October 5, 1987 from OWPE. The accounting data were sent to the responsible party on December 8, 1987. 4. Accounting data for oversight costs for Hagen Farm were to be sent to the responsible party at the end of each twelve month period beginning with the effective date of the order. The first billing for oversight costs should have been made on September 14, ,1988. Accounting data were not sent until January 11, 1989, four months later. Costs had not been 26 ------- Exhibit 2 Page 3 of 4 paid as of September 1, 1989, because the responsible party is disputing the costs billed. 5. Responsible parties are, contesting the court order for Northernaire Plating. Past costs have not been paid. 6. The responsible party for Spiegelberg Landfill was sent accounting data on past cost of $650,108 on November 18, 1988. Costs of $344,859 were collected on April 13, 1989. The responsible party is disputing the remaining cost due of $305,249. The responsible party is disputing the allocation of costs for a cooperative agreement for two sites, Spiegelberg and Rasmussen Dump. Payment had not been received as of September 1, 1989. 7. Costs were paid in installments for Dover Chemical. All payments were collected timely. Date Due Date Paid Amount 12/31/88 09/23/88 $15,241.38 04/30/89 01/18/89 15,241.38 04/30/89 05/10/89 15,241.38 8. The administrative order for Reilly Tar and Chemical was effective on July 7, 1987. The cost documentation package used to bill the responsible party for past costs was dated April 3, 1987, prior to the effective date of the order. However, the billing for past costs was not sent to the responsible party until November 2, 1987, almost four months after the effective date of the order. According to the cost summary dated April 3, 1987, the total EPA expenditures were $152,156. However, the first billing for past costs incorrectly stated cost due as $150,948. A revised bill was sent on June 23, 1988 for the remaining costs due of $1,208. Both payments were made timely by Reilly Tar. Date Billed . Date Paid Amount 11/02/87 12/09/87 $150,948 06/23/88 07/11/88 1,208 9. Payments for Alburn were received from five responsible parties. All payments were made timely. Date Collected ' Amount 10/21/88 ' $107,012 10/21/88 4,034 10/21/88 825 11/23/88 41,182 11/23/88 2,105 27 ------- Exhibit 2 Page 4 of 4 10. Accounting data were sent to the responsible parties for Powell Road Landfill on May 4, 1988, for past costs incurred of $259,629. A cost documentation package was requested by WMD on January 5, 1988/ but was not completed until July 19, 1988. A SPUR report was also requested on January 30, 1988. The SPUR report, rather than the cost documentation package, was used to bill the responsible party on May 4, 1988. A payment of $106,521 was made by the responsible party on August 4, 1988. Responsible parties requested further documentation of cost incurred for the remaining $153,108. Based on further documentation, a payment of $82,153 was received on March 28, 1989. The responsible parties requested further documentation on the remaining $70,955 in order to show that the costs were consistent with the National Contingency Plan. 11. The consent order for Film Recovery Systems allowed for payment of past costs in installments. The first payment of $225,000 was due on June 19, 1988. The remaining $40,000 was to be paid in four yearly installments of $10,000 plus interest. Payments due through September 1, 1989, have been made timely. DateDue Date Paid Amount 06/16/88 06/23/88 $225,000 05/20/89 05/26/89 13,124 12. The administrative order for South Point Plant stated that within 60 days of the end of the calendar year, EPA would provide an accounting of all oversight costs. A SPUR report on oversight costs was requested by WMD on August 2, 1988, eight months into the year. The accounting data was sent to the responsible party on August 31, 1988. 13. The administrative order for Fadrowski Drum Disposal was . effective on May 11, 1987. A cost documentation package was requested by WMD on May 20, 1987. The cost documentation package was completed September 29, 1987, four months later. 14. The administrative order for Fadrowski Drum Disposal stated that, at the end of each 12 month period beginning with the effective date of the order, EPA was to submit an accounting of all oversight costs. The order was effective on May 11, 1987. The first billing of oversight costs should have been May 1988. A SPUR report on oversight costs was not requested until January 26, 1989, eight months later. Accounting data were sent to the responsible party on February 17, 1989. 28 ------- Appendix 1 Page 1 of 5 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY REGION V JAN 1 7 1990 ^ DATE: Draft Audit Report NO. E1SJF9-05-0274 Review of superfund cost Recovery Accounts SUBJECT: Receivable Establishment and Collection valdas Adamkus FROM: Regional Administrator TO. Anthony C. Carrollo, Divisional Inspector General for Audits, Northern Division I appreciate the opportunity to. review the draft audit report on the Review of Superfund Cost Recovery Accounts Receivable Establishment and Collection. We have reviewed the report and the following information represents Region 5's response to the draft audit report. MO.JL - Accounts Rec;e;i,vgi?ji,e Need to be Recorded Accounts receivable were not recorded because: (a) Office of Regional Counsel (QRC) and Waste Management Division (WMD) did not forward the settlement documents to the superfund Accounting Section (SFAS) in all cases, and (b) SEAS did not establish accounts receivable "in the Financial Management System (EMS) when settlement documents were received prior to payment. Also, no procedures have been established to require regular reconciliation of WMD and ORC records with EMS. econmendat ion 1 Hie Regional Administrator should instruct WMD, ORC, and SEAS to complete the Memorandum of Understanding (MXJ) currently being prepared concerning Superfund cost recovery procedures and to implement the procedures listed therein. Reion v We agree with the reconmendation. The final version of the MXJ is now in circulation and it is expected that it will be fully executed by the end of January 1990. The extensive consideration of the cost recovery process by WMD, ORC, and FWD that has produced this MOU has also led to valuable clarifications, and increased coordination, of the existing procedures that are formalized in the MDU. As such, please note that we had recognized the need for this action and initiated action to prepare this M3U prior to this audit. . Audit Recaui'ffl'ifiiflf-'ion 2: Perform an internal control review of the procedures in "the MCU during FY 1990 to determine whether the procedures are being followed and whether they are adequate to ensure that receivables are promptly recorded on the financial records. 29 EPA FORM 13»4 flW. ------- Appendix 1 Page 2 of 5 -2- Recfion V Response We agree with the recommendation, and the FAS. in the FMB has scheduled a review of accounts receivable in February, 1990 which will include a review of the procedures in the MOU. Financial Managanent Branch should implement its Superfund Accounts Receivable - Interim Operating Procedures, as outlined in its August 30., 1989 memorandum, to identify settlanent documents not forwarded to Superfund Accounting Section. Where cost recovery amounts have not been collected, the amount should-be recorded as an account receivable and action taken for collection. Region V Response We agree with the recommendation. FMB has initiated action to iinplanent these procedures. 4: Ine Regional aAninistrator should instruct ORC and WMD to establish a consolidated tracking system for cost recovery. Until a consolidated tracking system is established, ORC and WMD must continue to reconcile their tracking systan reports. Also, tracking reports must be provided to SFAS. Region V Response While we understand the benefits that a consolidated system could produce, we do not agree that this should be required. Because of their different areas of responsibility and expertise, the tracking systems now used by WMD and ORC have different emphases and track different milestones. A consolidated tracking systan that could effectively serve the needs of OSC, WMD, and SFAS would require careful planning and considerable retrofitting of whichever existing tracking system would be used for creation of a consolidated system. That is , the benefits of such a system may not outweigh the amount of time and resources that would be necessary to establish .such a system. However, we do agree that ORC and WMD must continue to reconcile their tracking systan reports and provide the tracking reports to SFAS. * SFAS should regularly reconcile tracking reports provided by ORC and WMD to the financial management systan. Region V Responqg We agree with the recommendation and believe that the new -procedures (referred to previously) will help in performing this function. 30 ------- Appendix 1 Page 3 of 5 -3- Findiiw ran. 2 - Prompt action Needed To collect amounts Quad Cost recovery amounts owed to the Super fund Trust Fund were'not promptly collected because of (a) delays in sending accounting data to responsible parties, (b) responsible party requests for further documentation and/or dispute of cost billed, and (c) late payment of amounts due. These conditions exist primarily because the responsibility for sending accounting data was not clearly assigned within WD. - . . . l; The Regional administrator should establish formal procedures between WD, CRC, and SFAS to identify all settlement documents which include provisions for billing of oversight costs. The procedures should include forwarding settlement documents to SFAS. Region V Response We agree with the reconnendation. The Superfund cost Recovery MDU formalizes , clarifies , and expands on the existing procedures through which the Region (1) insures that documents establishing responsible party (RP) obligations to reimburse the Fund for oversight costs are promptly provided to SFAS; and (2) allocates responsibility for tracking and billing those costs to SFAS, with ORC providing assistance with interpretation where necessary, and WMD providing assistance with compilation of certain documentation. In combination with the ongoing process of completing the compilation of all historical documents creating cost recovery obligations, . Recommendation 1 will be fully satisfied. As noted in the draft audit report, the timeliness of CRC's provision of decrees and court judgments to SFAS is constrained by the fact that in most court cases, the finalized cost recovery documents are initially possessed only by the Department of Justice (DOT) . This fact makes the goal of a 1-day turnaround stated on page 7 of the draft audit report impracticable in many cases. QRC has made DOT aware that DOJ must provide the final documents to the Region as quickly as possible, and DOJ has agreed to provide CSC a copy of DOJ's regular tracking reports so that CRC can determine promptly if newly finalized documents are outstanding. In addition, Region V would like to reinforce that it may often be appropriate to delay collection of oversight billings, or portions thereof, that are legitimately in dispute. As the draft audit report notes, RPs have a statutory right to be assured that the expenditures for which they are billed were consistent with the National Contingency Plan. Region V is trying, whenever. possible, to collect oversight payments on the basis of an annotated SPUR report rather than a full cost recovery documentation. The Region believes that in many cases, the annotated SPUR provides adequate documentation to establish the appropriateness of costs or, at the very least, narrow the areas of dispute. Therefore, the Region believes that its approach is the most efficient use of Agency resources. Moreover, 31 ------- Appendix 1 Page 4 of 5 -4- work done toward preparation of the annotated SPUR also helps lay the foundation for a full documentation package if such a package becomes necessary. Where possible, Region V is working to reduce the number and scope of oversight cost disputes, consistent with the .-statutory rights-of RPs. For example, in the model administrative order on consent for removal actions, the RPs agree to pay oversight costs based on the annotated SPUR, thereby limiting the permissible areas of inquiry with respect to those costs. SEAS should develop an automated tracking system for billings. Region V Response We agree with the reconroendation and have initiated action to- include such a system as an enhancement to the newly developed Cost Documentation Monitoring System. - 3 ; WMD should promptly notify SFbS of all oversight billings required, until all settlement documents are forwarded to SFAS and/or ah automated tracking system is developed. - . Region V Response We agree with the recomnendation and believe that procedures ' established in the M3U regarding the transmittal of settlement documents from WMD to SFkS will control this function. SEfcS should promptly prepare accounting-data and send billings to responsible parties.- Region V Response ' ' ' We agree with the recomnendation and recognize the importance of timely action. It should be noted however, that Region V, consistent with the rest of the Agency, interprets "an accounting of costs" to mean an itemized bill, cost Documentation packages are not required for oversight billings. Additionally,'the following errors/omissions relate to the schedule that appears on page 24 of the draft audit report: ' T * - ' 1. Regarding Site Afi-Spiegelberg Landfill, $344,858:55 was received on April 13, 1989. ' 32 ------- Appendix 1 Page 5 of 5 -5- 2. Regarding Site B5-Dover Chemical, $15,246.38 was received on September 23, 1988, $15,241 .-38 was received on January 18 1989, and $15,241.35 was received on May 10, 1989. ' 3., Regarding Site D4-Reilly Tar Chemical, $150,947.23 was received on December 9, 1987 and $1,208.29 was received on July 11, 1988^ 4. Regarding Site H6-Film Recovery Systems, $225,000 was received on June 23, 1988 and $13,124 was received on May 26, 1989. 5. Regarding Site AS-Bendix Corporation, accounting data was sent within 90 days as required by the order. Valdas 33 ------- Appendix 2 DISTRIBOTION Region 5 Regional Administrator (5 RA) Regional Audit Followup Coordinator (5 MFA) Office of Regional Counsel (5 C) . . Office of Public Affairs (5 PA) Headquarters Inspector General (A-109) Assistant Administrator for Administration and Resources Management (PM-208) Office of General Counsel (LE-130) Assistant Administrator for Solid Waste and Emergency Response (OS-100) *-' 'Assistant Administrator for Enforcement and Compliance Monitoring (LE-133) Comptroller (PM-225) Agency Followup Official (PM-225) ATTN: Director, Resource Management Division, Agency Followup Official (PM-208) <. Director, Financial Management Division (PM-226) Associate Administrator for Regional Operations (A-101) Office of Public Affairs (A-107) Office of Congressional Affairs (A-103) 34 ------- |