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.

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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

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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.

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 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.

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                            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.

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                   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.

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 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

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 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

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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

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      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

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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


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  •   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.
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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

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      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

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Recommendations

we recommend that the Regional Administrator ensure that the
planned corrective actions- are completed.
                               15

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 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

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                                   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

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 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

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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

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                                                      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

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                                                                              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

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                                                                                                                        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

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                                                        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

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                                                        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

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                                                        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

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                                                                        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.

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                                                             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

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                                                              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

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                                                               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

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                                                         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

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                                                       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

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