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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
March 21, 1994
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
Management of Assistance and Interagency Agreements
Office of Research and Development, Environmental
Research Laboratory, Corvallis, Oregon
Audit Report No. E1FBF3-10-0069-4100214
^ FROM: Michael Simmons
^ Associate Assistant Inspector General for
W Internal and Performance Audits
^f TO: Gary J. Foley
Acting Assistant Administrator for
Research and Development
Jonathan Z. Cannon
Assistant Administrator for
Administration and Resources Management
This is our audit report on the management of assistance and
interagency agreements by the Environmental Research
Laboratory, Corvallis, Oregon (ERL-C). We appreciate the
cooperative spirit of your headquarters and laboratory staff
exhibited during this audit. The effective lines of
communication we have maintained throughout this effort have
enabled us to identify key opportunities to improve the use of
interagency and assistance agreements at the laboratory.
ACTION REQUIRED
We have designated the Office of Research and Development as the
action official for this audit. In accordance with our
longstanding agreement outlined in EPA Order 2750, the action
official is required to provide our office with a response to the
audit report within 90 days of the final report date. For
corrective actions planned but; not completed by your response
date, reference to specific milestone dates will assist us in
deciding whether to close this report in our management tracking
system. We also request, as the action official, that you
. coordinate your response with the Assistant Administrator for
Administration and Resources Management for the audit issues and
recommendation related to its operations. We remain ready to
assist you in crafting your corrective action plan as needed.
dnoU
SOKncycM!
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Assistance and Interagency Agreements
APPENDIX C . :
GRANTS, COOPERATIVE AND INTERAGENCY AGREEMENTS
SAMPLED
APPENDIX D
40
40
43
REPORT DISTRIBUTION 43
Audit Report: E1FBF3-IO-0069-4100214
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Assistance and Interagency Agreements
EXECUTIVE SUMMARY
PURPOSE
The Office of Inspector General (OIG) has completed an audit
of selected segments of the operations of the Environmental
Research Laboratory, Corvallis, Oregon '(ERL-C) . Based on
extramural -resource management deficiencies found in recent
audit work performed at the Environmental Protection Agency's
(EPA) Office of Research and Development (ORD) environmental
research laboratories, we performed a survey at ERL-C. The
results of the survey indicated that an audit was warranted.
The objectives of the audit were to determine whether ERL-C
management and staff:
• Properly used interagency and assistance agreements
to meet EPA's research mission;
• . Adhered to applicable statutes, regulations and EPA
guidance when procuring interagency services and
providing assistance funding; and
• Provided effective oversight and management of
agreements to ensure that performance met the
project goals and objectives/
BACKGROUND
As one of ORD's 12 laboratories, ERL-C is responsible for
research in terrestrial and watershed ecology and for
assessment of major environmental threats to inland .
ecological resources, such as forests, soils, wetlands, and
wildlife. Research programs concentrate on the terrestrial
and multimedia effects of pollutants as they move through
air, soil, water, and the food chain. The research at ERL-C
is organized into three branches: the Ecotoxicology Branch,
the Terrestrial Branch, and the Watershed Branch.
To accomplish its research mission with strictly imposed
Federal employment ceilings, ERL-C is dependent on extramural
level-of-effort contracts, grants, cooperative agreements and
interagency agreements.. ERL-C used $21.1 million of its
$29.6 million fiscal 1992 appropriations to support both on-
site and off-site extramural activities. The remaining $8.5
million was used for salaries and expenses. The on-site
extramural funding increased human resources at the
Audit Report: E1FBF3-10-0069-4100214
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;• £
Assistance and Interagency Agreements
i
areas. These include: (i) ensuring that' the scope of lAGs
is for an independent, distinct project;- (ii) establishing
controls to identify potentially unallowable costs and
ensuring that claimed costs are appropriate; . •
(iii). -.identifying the use of contractors under lAGsp v
( iv) improving documentation of • site visits;- and -
(v) increasing the reliability and usefulness of its
extramural database . . . •
Because. ERL-C did not have sufficient management controls
over its assistance agreements and lAGs, some projects were
managed less effectively; unallowable costs might have been
reimbursed; EPA funds were used to pay for work requested by
other agencies; and requirements for identifying -contract or.
use and approval of sole -source procurements -were
circumvented. . ..... : -
FMFIA INADEQUATELY IMPLEMENTED "-....
> t , "
ERL-C did not properly implement FMFIA because it did not
plan or perform reviews on assistance and interagency
agreements. Without such reviews there is little opportunity
to unc'over management control weaknesses similar to those
found during the 'audit. . ' .
RECOMMENDATIONS
1. We recommend that the Assistant Administrator for
Administration; and Resources Management (OARM) revise and
-clarify--EPA guidance for lAGs by requiring that the -
provisions of the FGCA Act be applied to the selection of -
assistance agreements and that the selection decision be
documented in-the decision memorandum; . ' • "
2.-, We also recommend that the Acting Assistant -Administrator
for Research and Development instruct the Director of ERL-C
to: <- _ r - - : .•••••.
f -.,.•'•-•-...•• • . . •• •
:-.: • Take steps--to ensure that the selection-of the "
funding instrument is in accordance with the FGCA Act
and that the basis for the selection, including the
- rprincipal purpose of-the.agreement/ is.clearly explained
in the decision memorandum. . -
• Take corrective action" to ensure* that grants,- ;
cooperative agreements•and lAGs are-appropriately used.
IV Audit Report: E1FBF3-JO-0069-4100214
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Assistance and Interagency Agreements
.• Develop procedures and controls to ensure that-each
JAG . is . f or. an^ 'independent, distinct, project with a -'"
clearly defineid objective. ,;
•^,Improve' financial monitoring of assistance agreements
and lAGs by:. .'.,..
a.-Requiring .reviews of FSRs on cooperative
agreements in relation to the recipients' progress
repbrtss'and th.e project officers'- evaluations. "•
-: . .. . rv- . r .. j .• - ; ~i~
., .b. Establishing a.system; to ensure .that all costs
' . (for .funds-in.IAGs-are'budgeted and 'accounted for
'- ,"-and billed to .other agencies.
*'r* .," - c. Requiring that project officers, obtain and
"review detailed costs'for funds-out lAGs prior to
.approving invoices for. payment. . • ' -.
4
• Perform reviews of internal controls including:
; -" <~
a... Scheduling and performing annual ,MCRs or AMCRs
''"".,„ for extramural agreements including .project officer
activities; and • • • -
b. Reviewing and, if necessary, revising ERL-C's
event cycle documentation to address weaknesses
disclosed by this audit. . . .-.:
AGENCY'COMMENTS.
•<-.,- f ../'-..••'
ORD 'Commerits. , , . .
All, except ''one 'of'.the recommendations. in jour .report are r
"addressed to 'ORD. " jln'a^..response,to the ;draft report, ORD
concurred with all "the recommendations and agreed to correct
all of the deficiencies, .noted in-the .report,. The response
stated that the recommendations,-were- constructive and that
.•corrective actions in" response to jtiany of them should be
designed not\.solely .for' .ERL-C operations but for. ORD
'operations generally'.:.' The complete rtext of ORD's comments is
included in; APPENDIX A .of'-J:his "report..
OARM Comments . , •' . , . . * -, .,-. -,• • . • •.
_tj ->- ..' ...—-• V - ' -'
.OARM was partially -responsive-, to pur recommendation by
'stating that the Grants'^ Administration Division had -w
instituted a procedure", requiring, the project of f icer-of other
agencies'to certify that assistance agreements awarded •
through lAGs were properly awarded.
Audit Report: E1FBF3-10-0069-4100214
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Assistance and interagency Agreements
CHAPTER 1
INTRODUCTION
PURPOSE
The Office of Inspector General (OIG) has completed an audit
of selected_segments of the operations of the Environmental
Research Laboratory, Corvallis, Oregon (ERL-C). Based on
extramural resource management deficiencies found in recent
audits performed at EPA Office of Research and Development
(ORD) environmental research laboratories, we performed a
survey at ERL-C during November 1992. The results of the
survey demonstrated that an audit was warranted.
The objectives of this audit were to determine whether ERL-C
management and staff:
• Properly used interagency and assistance agreements
to meet EPA's research mission;
• Adhered to applicable statutes, regulations, and
EPA guidance when procuring interagency services
and providing assistance funding; and
• Provided effective oversight and management of
agreements to ensure that performance met the
project goals and objectives.
BACKGROUND
ORD's mission is to provide high quality, timely scientific
and technical information, products and assistance in support
of EPA programs and goals. EPA's research program is
conducted through 12 environmental research laboratories
across the country employing about 1,900 scientific and
administrative personnel and expending an annual operating
budget of about $450 million. ORD's overall planning process
engenders an applied research and development program focused
on answering key scientific and technical questions as a
basis for EPA's programmatic and regulatory decision-making.
Short-term scientific and technical studies support immediate
regulatory and enforcement decisions while a longer-term core
research program extends the knowledge base of environmental
science and anticipates environmental problems.
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Assistance and Interagency Agreements
ERL-C is responsible for research in terrestrial and
watershed ecology and for assessment of major environmental
threats to inland ecological resources, such as forests,
soils, wetlands, and wildlife. Research programs concentrate
on the terrestrial and multimedia effects of pollutants as
they move through air, soil, water, and the food chain. The
research at ERL-C is organized into three branches: the
Terrestrial Branch, the Watershed Branch, and the
Ecotoxicology Branch.
To accomplish its research mission with strictly imposed
Federal employment ceilings, ERL-C is dependent on extramural
level-of-effort contracts, grants, cooperative agreements and
interagency agreements. ERLrC used $21.1 million of its
$29.6 million fiscal 1992 appropriations to support both on-
site and offrsite extramural activities. The on-site
extramural funding increased human resources at the
laboratory through the use of contractors and personnel
working under assistance agreements/ interagency agreements,
and Intergovernmental Personnel Act assignments. Currently,
contractors and other outside personnel represent nearly
three-fourths of ERL-C's human resources.
As of March 1993, ERL-C funded 64 active assistance
agreements (i.e., cooperative agreements and grants) which
were awarded to 45 different institutions and 23 interagency
agreements awarded to 13 different governmental agencies. In
addition, ERL-C received funding through 13 reimbursable
interagency agreements from 12 different organizations. The
majority of the awards were funded under $250,000 and half of
the assistance agreements were awarded competitively.
SCOPE AND METHODOLOGY
The overall objective of the audit was to determine if ERL-C
was using its extramural funds in accordance with the
provisions of applicable statutes, regulations, and EPA
guidance. To assess ERL-C's management of extramural
activities, we interviewed key laboratory personnel and
performed extensive reviews of cooperative agreement, grant,
and interagency agreement files. We also interviewed.
principal investigators and EPA grants specialists on
specific agreements.
We judgmentally selected and performed reviews of 14
cooperative agreements, 1 grant, 7 funds-out interagency
agreements, and 4 reimbursable interagency agreements. In
addition, we did a limited review of three assistance
agreements funded through interagency agreements. We limited
our review to agreements which were active as of March 1993.
The following chart summarizes "audit samples and the universe
Of agreements managed by ERL-C.
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Assistance and Interagency Agreements
AUDIT UNIVERSE ANDRELATED SAMPLES
Universe (March 1993) AuditSample
Funding Max. Value Max. value
Instrument Number (millions) Number (millions)
CAS 63 $29.30 14 $13.30
*
Grants 1 $ .02 1 $ .02
Funds -out
IAGS 23 13.80 7* 9.50
Reimbursable . .
IAGS _11 1.10 _4b .50
Totals 100 $44.22 26
Only six of the seven agreements were reviewed
for management issues.
Only three of four agreements were reviewed for
management issues.
Appendix C gives a listing of the grant, cooperative
agreements, and lAGs reviewed.
The audit was performed in accordance with the Government
Auditing Standards issued by the Comptroller General of the
United States (1988 revision) as they relate to economy'and
efficiency and program results audits. Our audit.included
tests of management and related Federal Managers' Financial
Integrity Act of 1982 (FMFIA) controls, policies, and
procedures specifically related to the audit objectives. The
ERL-C FMFIA activities were reviewed in accordance with EPA's
implementing guidance.
The findings in this report describe weaknesses identified
"during the audit and our recommendations to correct the
weaknesses. No previous audit reports have been issued
regarding ERL-C on the areas covered and no follow-up work
was necessary. .
The audit field work was performed from April through
June 1993 and included on-site work at ERL-C during April and
May 1993. This report also contains information gathered
during on-site survey work at ERL-C in November 1992.
Audit Report: E1FBF3-169-4100214
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•* Assistance and Interagency Agreements
..> ,
The scope of this a^d'it dfd>not ^nclude'iiextrainural activities
under contracts or purchase'orders. Contracting activities
were reported on in a prior OIG Survey Report on Contracting
Activities at Environmental. Research Laboratory - Corvallis
(Survey Reportf\No. E:fJBG2*lfb-0080?340001'9, da'^ed
February 3, 1993). 'Purchase orders will be reviewed
separately and are not included in this report.
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Assistance and Interagency Agreements
S IMPROPERLY
USED
ERL-C did not always meet the provisions of the Federal Grant
and Cooperative Agreement Act {FGCA Act), regulations, and
EPA guidance on the proper selection and use of funding
instruments^ The FGCA Act requires that the principal
purpose of the relationship established be considered when
the selection of funding instruments is made and that
controls be in place to ensure that agreements are used
properly.
ERL-C did not have adequate documentation to support the
selection and use of assistance agreements as opposed to
contracts for 12 of 18 assistance agreements reviewed. In
our opinion, seven of the agreements should have been
contracts. ERL-C did not have adequate documentation to
support the selection of assistance agreements instead of
contracts for the other five agreements.
SOME ASSISTANCE AGREEMENTS SHOULD HAVE BEEN CONTRACTS
Based Upon Supporting
Documentat ion
Awarded
By ERL-C
Awarded
Under lAGs
Totals
7
5
6
Should Be Contract 5 2a
Principle ^Purpose Not Clear 4 1
Correctly Awarded Agreements 6b 0
Totals 15 3
We found that 2 of 18 agreements were improperly used to
obtain goods and services:
a includes one agreement which was awarded through an
•IAG for the purchase of a computer;
b includes one agreement awarded to a university to fund
• a personnel position.
Audit Report: E1FBF3-10-0069^ 100214
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Assistance and Interagency Agreements
In addition, two lAGs were made with foreign governments
without a waiver of Agency policy.
ERL-C did not have adequate guidance to require that
decisions to select funding instruments be documented and
laboratory personnel were not sufficiently aware of the
limitations on the use of agreements. As a result, ERL-C was
making inappropriate use of,grants, cooperative agreements,
and interagency agreements; funds were inappropriately used;
and foreign-agreements may not have been appropriately
monitored.
BACKGROUND
The FGCA Act establishes guidelines for selection of funding
instruments. The legislative history (Senate Report 95-449)
states that prior to passage of the FGCA Act:
"No uniform statutory guideline exists to express
the sense"of the Congress on when executive
agencies should use either grants, cooperative
agreements or procurement contracts. Failure to
distinguish between procurement and assistance
relationships has led to both the inappropriate use
of grants to avoid the requirements of the
procurement system, and to unnecessary red tape and
administrative requirements in grants."
The FGCA Act discusses the distinction between procurement
and assistance relationships. When research is for the
direct benefit of the government, it should be competed under
procurement rules. The three types of funding instruments
discussed by the FGCA Act and when it is appropriate to use
them- are described below:
Contracts. To be used when the principal purpose of the
relationship is the acquisition, by purchase, lease, or
barter, of property or services for the direct benefit
or use of the Federal government. This is a Federal
purchase for Federal use.
Grant Agreements. To be used when (a) the principal
purpose of the relationship established is the transfer
of.money, property, services, or anything of value to
the recipient to accomplish a public purpose of support
or stimulation, and. (b) no substantial involvement
occurs between the Federal agency and the recipient
during performance of the activity.
Cooperative Agreements. To be used when (a) the
principal purpose of the relationship established is the
transfer of money, property, services, or anything of
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Assistance and Interagency Agreements
--value to the. ."recipient-to accomplish a public purpose of
support or .stimulation,;" and (b) substantial involvement
occurs ^between the Federal agency and'.the recipient
.during performance of the activity.-' '•
PRINCIPAL PURPOSE OF-AGREEMENTS'NOT CLEARLY DOCUMENTED
• T- . ••-;•• ' /' "'"•' ' " ' •" .
ERL-C did. not haveradequate .documentation" to support the
selection and use, of: assistance agreements^ instead of
contracts. —Our review of 18 assistance agreements disclosed
that ERL-C's documentation was unclear on the principal
purpose for 12 of'them. ,. The. agreements had'been awarded
directly" by .ERLrC. or through 'intefagericy agreements to non-
Federal recipients. ' ' :"f ., '
.. . • - • ' -*'.('
Principal-Purpose Not'Clear for-DirectlyAwarded Assistance
Agreements . ' . •'* ' .
ERL-C-(did not. have. adequate ' documenta'tion to support the
types of funding .instruments selected and directly • awarded by.
ERL-C to non-Federal recipients. We found that 9 of 15
assistance agreements awarded' to non-Federal recipients had
documentation in;;the~-files that was conflicting or unclear
about the principal purpose of the' agreements. ',The .
documentation for five'of'the agreements (see Appendix C)
showed that the principal purpose of the relationships
between ERL-C and the recipients was'to*provide a direct
benefit to the government and therefore, the funding
instruments should have been competed under procurement rules
and awarded as contracts.
Our review of assistance agreement - files showed that the
documentation.consisted of decision memorandums and ,other
correspondence that were written to justify award and funding
under existing EPA programs. There were statements about how
award of the agreements;would 'result•in accomplishment of
.ERL-Cf.s, mission'and program-^goals.'^'These statements also
indicate that the principal purpose of the agreements was to
.provide a direct .benefit-to-the .government from these'
projects. Below are some examples:
\ • > " * •. * * —
-CR816721 Oregon State University (OSU)
.-". . .In.July-1990,-ERL-.C entered into a cooperative agreement
.with OSU for $2/1 million. The-project description in"
the agreement is, "To establish the statistical base for
v ^Environmental.Monitoring and Assessment Program'(EMAP)
design and analysis activities needed in-the next
several years ... and to provide a framework for
- statistical .training in: the methods and theories needed-
..r , for associated-activities." According "to the decision
memorandum::-:- •: • " - *'- • • •
• ' • - ' - •
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Assistance and Interagency Agreements
In March 1990 ERL-C entered into an int'eragency.
agreement with FS for $1.2-million. The purpose of the
agreement was to station FS employees at ERL-C to assist
in the administration of EPA programs. Under this
""agreement, ERL-:C funded an extramural grant that was
"awarded by FS for $861,848 to The National Council of
the Pulp and Paper Industry for Air and Stream
Improvement (NCASI). . However, file documentation
indicates that the primary, purpose of the grant is to
directly benefit the Federal government. According to
the IA6 "Statement of Work :3 '- • : •
The Forest Service will contract up to three . .
environmental scientists from the National Council
,o"f the Pulp and Paper-Industry (a non-profit
research organization)'to assist with various
aspects of research in the following three
programs:
1. Ecosystem Health ... • '
2. Global Biogeochemistry .- ' • •
. . .. J 3. Global Effects ... .,-- - • ••"•••.
The decision memorandum states:
NCASI scientists, will..manage, portions-of the
following projects:
1) Reforestation - Global-;
2) EMAP - Forests;.and r •_ "'
. ,3) Circumpolar Project. - ?
* * ,
vThe use of a grant for the-direct'benefit of the
- government contravenes the provisions of the FGCA Act.
. This should have been awarded as 4.contract. Also, some
of the grant funds were used -to purchase a computer for
use by ERL-C's on-site contractor.;- This inappropriate
purchase is further discussed on page 13 under the
subsection Computer Equipment Acquired for Contractor's
Use. . ,' -. :-; ;. ' • • " ''••',
Database Modifications r '- •
. DW12934530, an TAG with the FS, contained a cooperative
agreement {for $50,000} with Oregon'State University
(OSU). The IAG statement of work and the -decision
memorandum did not state what the cooperative agreement
was for. At our .request, the project officer was able
to .obtain documentation from the FS that stated that the
purpose of the agreement with OSU was to extend ERL-C's
.Virtual Database Management System design so that it
could-be transferred
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Assistance and Interagency Agreements
This cooperative agreement with OSU is a procurement of
database design services that directly benefits ERL-C.
The project officer stated that this type of work would
now be performed by an on-site contractor, Computer
Sciences Corporation.
Performance of Rice Study
DW12934099, an IAG with the Department of Agriculture,
Agricultural Research Service (ARS) had an extramural
cooperative agreement with the University of Florida
(UF) . The IAG statement of. work and decision memorandum
did not state what work would be specifically performed
by UF. Apparently ARS and UF were working jointly on
the project. In the decision memorandum were the,
following statements:
"This IAG relates directly to the stratospheric
ozone/wetland rice research program „ These initial
studies, coupled with the field.studies in the
tropics, will provide the information necessary to
develop a focused, policy relevant risk assessment
(of global climate change on rice growth)."
The IAG with ARS appears to be a procurement of research
services for the direct benefit of ERL-C. Procurement of
goods and services is an appropriate use of an IAG but is not
appropriate for cooperative .agreements. The roles of ARS and
UF are ,so closely intertwined that it appears that UF
services are being purchased along with ARS services.
The primary purpose of each of the assistance agreements in
the examples above is a direct benefit to ERL-C by meeting
program goals. The fact that contracts were not awarded to
obtain the above goods and services gives the appearance that
ERL-C is using lAGs to make inappropriate awards of grants
and cooperative agreements to avoid the requirements of the
procurement system.
In our opinion, the current guidance, for IAG extramural
agreements is too vague to ensure that the statutory
requirements for the use of grants and cooperative agreements
are being followed. According to Section 1, Paragraph 7J of
the Interagency Agreement Policy and Procedures Compendium,
IAG extramural agreements can be contracts, cooperative
agreements or grants. The Compendium requires that:
"The agreement shall also state that both agencies have
the independent program authority other than the Economy
Act to enter into the IAG and comparable assistance
authority for such an extramural instrument."
11 Audit Report: E1FBF3-10-0069-410Q214
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Assistance and Interagency Agreements
We also believe that the existence of an IAG between two
Federal agencies does not change the relationship and
selection of funding instruments between the Federal
government and non-Federal recipients. The above requirement
that both agencies have the same authority should apply to
the selection of the type of extramural agreement to be used
under an IAG. However, the guidance does not specifically
state that the FGCA Act should be applied to extramural
agreements included in JAGs. EPA guidance for XAGs should be
clarified by requiring that the provisions of the FGCA Act be
applied to the selection of assistance agreements and that
the selection decision be documented in the decision
memorandum.
INAPPROPRIATE USE OF THE FUNDING INSTRUMENT
ERL-C did not always meet the provisions of the FGCA Act and
EPA guidance because it did not have controls in place to
ensure that agreements were used properly. We found that
ERL-C personnel did not have an adequate awareness of
requirements and controls for the appropriate use of the
agreements. As a result, our review disclosed that 2 of 18
agreements reviewed were inappropriately used:
.- • A cooperative agreement was used to improperly fund
a personnel position; and
• An IAG included a grant to a non-profit
organization which was used to purchase a computer
system for an ERL-C contractor's use.
ERL-C personnel stated that the inappropriate uses were to
overcome personnel and funding limitations at the laboratory.
They also said there was a lack of awareness on the part of
ERL-C personnel of the limitations on the use of these
agreements. The following is a discussion of the two
agreements:
Personnel Acquired Through use of Assistance Agreements
ERL-C improperly used a cooperative agreement to fund an
Intergovernmental Personnel Act (IPA) assignment. ERL-C
entered into an IPA assignment with an OSU faculty
member. The assignment was made to help EPA work toward
better management, evaluation, and restoration of
Superfund hazardous waste sites. At the same time, ERL-
C awarded a cooperative agreement (CR819077) to OSU to
fund the IPA assignment. The agreement was for $79,786
and was scheduled to run from October 1991 to
September 1993. According to the cooperative agreement
decision memo:
"The primary objective of the proposed cooperative
agreement ... is to fund a Personnel Assignment
12 Audit Report: E1FBF3-HHX36*4100214
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Assistance and Interagency Agreements
Agreement under the Intergovernmental Personnel
Act. The purpose of the Personnel Assignment is to
obtain an individual with expertise in terrestrial
ecology, particularly with microorganism-plant
interactions."
ERL-C officials informed us that restrictions on funding
and a .belief that it was appropriate to use cooperative
agreements in this manner resulted in the IPA assignment
being funded through a cooperative agreement.
In our opinion, this was an inappropriate use of a
cooperative agreement because a person working under an
IPA assignment acts as an EPA employee. Accordingly, we
believe that an IPA should be paid through EPA's payroll
system. - It also appears that by using the cooperative
agreement, research and development funds were
improperly used to pay for this employee's salary.
Computer Equipment Acquired for 'Contractor's Use
ERL-C improperly used a grant awarded as part of an IAG
to purchase a computer for use by an on-site contractor.
ERL-C entered into an IAG (DW12934530) with the FS that
included a grant with the NCASI for management services.
About $18,000 of the $861,848 grant was used to purchase
a computer workstation. Documentation in the IAG file
states:
"Project 87 (The Reforestation Project) of the
Global Climate Research Program is purchasing 1 Sun
Spares tat ion through NCASI ... funded by a grant ...
attached to IAG DW12934530 ... The workstation will
be used for GIS (geographic information software}
data analysis, modeling, and software development ...
This SparcStation will be located at ERL/Corvallis
in the Global Climate Research Program and used by
NSI (Northrop Services, Inc.) personnel."
In May 1993, we found that the computer workstation was
being used by an ERL-C on-site contractor employee.
ERL-C personnel informed us that the inventory of EPA
equipment was not accurate and that some of the
equipment might "not be appropriately tagged1. They also
stated that there might have been some funding
difficulties in obtaining equipment for on-site
contractors.
In our opinion, this is an improper use of a grant for
two reasons: the primary purpose of the agreement is
for ERL-C to receive a direct benefit from the grant
which contravenes the provisions of the FGCA Act, and
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Assistance and Interagency Agreements
the cost of the computer is more properly allocable to
the NSI contract instead of the NCASI grant.
According to Office of Management and Budget (OMB)
Circular A-122, "Cost Principles for Nonprofit
Organizations":
"A cost is allocable to a particular cost
objective, such as a grant ... in accordance with the
relative benefits received. A cost is allocable to
a"government award if'it is treated consistently
with other costs incurred for the same purpose in
like circumstances and if it: .
(1) Is incurred specifically for the award
(2) Benefits both the award and other work .and
can be distributed in reasonable proportion to
the benefits received, or
(3) Is necessary to the overall operation of
the organization, although a direct
relationship to any particular cost objective
cannot be shown.
Any cost allocable to a particular award or other
cost objective under these principles may not be
shifted to other Federal awards to overcome funding
deficiencies, or to avoid restrictions imposed by
law or by the terms of the award."
The relationship of the NSI contract to the computer
workstation is one of direct benefit. The computer
workstation was purchased under the grant and was being
used by contractor personnel to perform the contractor's
work. The cost of the computer workstation should be
.allocable to the contract and not the grant.
In our opinion, ERL-C may have shifted costs of the
contract to the grant to overcome funding deficiencies
or other restrictions. ERL-C should improve controls
over its extramural agreement procedures to ensure that
the appropriate funding instrument is used for the
products or services'required.
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AWARD OP TAGS TO A FOREIGN GOVERNMENT WITHOUT A WAIVER
ERL-C awarded funds-in and funds-out lAGs with Environment
Canada National Wildlife Research Center without obtaining
required waivers. Funds-in lAGs are agreements where ERL-C
provides the products or services for the benefit of another
agency and receives payment from that agency. Funds-out lAGs
are agreements where products or services are provided by
another agency for the benefit of ERL-C and funds are paid to
that agency.
In our opinion,-these lAGs with Canada were improperly
awarded. According to the Interagency Agreement Policy and
Procedures Compendium, "No element of EPA is authorized to
enter into an IAG with any foreign organization." The
Compendium further states that the proper procedure requires
EPA to enter into an IAG with the Department of State, unless
an exception is made by the Office of International
Activities (OIA). By not following the requirements for
foreign agreements, ERL-C defeated Federal monitoring of
funding instruments with foreign governments.
Funds In-IAG. RWCN935019, from Environment Canada
Biotechnology Section to ERL-C, was used to fund an
$86,000 cooperative agreement with the University of
Maryland. The IAG was entitled "Validation of Microcosm
Interim Protocols for Competition and Survival Tests for
Genetically Engineered Microorganisms" and was scheduled
to run from February 1991 through September 1993.
Funds Out-IAG. DWCN935524, with Environment Canada
National Wildlife Research Center, was used to fund a
$121,300 position of a foreign national at ERL-C. The
purpose of the IAG was to have a technical expert
provide scientific oversight and input for ERL-C's
participation in a multi-agency effort to investigate
the effects of alternative farming practices.. The
project was scheduled to run from May 1992 through
April 1994 and the scientist was to work on-site at
ERL-C. As of May 1993, ERL-C had taken steps to convert
this IAG into a cooperative agreement based upon
guidance from the Office of General Counsel.-
At the time the lAGs were awarded, ERL-C personnel were not
aware that they could not directly enter into agreements with
foreign governments.
ERL-C personnel have taken the action described above to
correct the use of lAGs with foreign organizations. However,
improvements to procedures are needed. ERL-C currently uses
a checklist to review lAGs for completeness, but the
checklist does not clearly statie the steps required to enter
into an agreement with a foreign organization. The checklist
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Assistance and Interagency Agreements
requires that a memorandum be sent.to the Director of the
OIA. The checklist should be revised to require that lAGs
are made with the Department of State to obtain the services
of a foreign organization, or that a waiver is obtained from
OIA.
RECOMMENDATIONS
1. We recommend that the Assistant Administrator for
Administration and Resources Management revise and clarify
EPA guidance for lAGs by requiring that the provisions of the
FGCA Act be applied to the selection of assistance agreements
and that the selection decision be documented in the decision
memorandum.
2". We recommend that the Acting Assistant Administrator for
Research and Development instruct the Director of ERL-C to:
a. Take steps to ensure that the selection of the
funding instrument is in accordance with the FGCA Act
and that the basis for the selection, including the
principal purpose of the agreement, is clearly explained
in the decision memorandum.
b. Take corrective action to ensure that grants,
cooperative agreements and lAGs are appropriately used.
Specifically:
(1) . IPA assignments -of university staff to EPA
should not be funded with cooperative agreements;
and
(2). Controls over extramural agreement procedures
should be improved to ensure that costs are not
shifted to other agreements to overcome funding
deficiencies.
c. Take steps to ensure that IAG review checklists are
revised to require that lAGs are made with the
' Department of State to obtain the services of a foreign
organization, or that a waiver is obtained from OIA.
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AGENCY'S COMMENTS AMD QIQ EVALUATION
AGENCY COMMENTS
OARM Comments
OARM was partially responsive to our recommendation by-
stating that the .Grants Administration Division had
instituted a procedure requiring the project officer of other
agencies to certify that assistance agreements awarded .
through -lAGs were properly awarded.
OARM disagreed with some of the findings and conclusions in
our report which related to recommendations made to ORD. One
area of disagreement was our conclusion that five grants and
cooperative agreements should have been awarded as contracts.
OARM stated that our conclusions should not have been based
upon wording in decision memorandums, but upon wording in
statements of work.
It is OARM's position that these documents serve different
purposes and the fact that files contain conflicting or
unclear documentation about the principal purpose should be
expected. Decision memorandums are written'in large part to
justify the use of EPA funds in support of each project.
They have little' bearing on whether a proposed project is
appropriately awarded as a grant or a cooperative agreement.
Statements of work are the primary documents reviewed by
grants staff. Since each determination is a judgement,
reasonable persons may differ as to the principal purpose of
any agreement.
The response also stated that the Grants Administration
Division is developing new guidance to aid in the selection
between grants and cooperative agreements and contracts. The
complete text of OARM's comments is also included in
APPENDIX A of this report.
ORD Comments
In a response to the draft report, ORD concurred with all the
recommendations and agreed to correct all of the deficiencies
noted in the report. The response stated that the
recommendations were constructive and that corrective actions
in response to many of them should be designed not solely for
ERL-C operations but for ORD operations generally. The
complete text of ORD's comments is included in APPENDIX A of
this report.
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Assistance and Interagency Agreements
PIG EVALUATION OP AGENCY'S COMMENTS
We are pleased that Agency officials have accepted our
recommendations and have already begun corrective actions.
OARM's statement that the Grants Administration Division had
instituted a procedure requiring the project officer of other
agencies to certify that assistance agreements awarded
through lAGs were properly awarded will help to solve some of
the deficiencies identified in our report.
However, in our opinion, EPA also has some responsibility to
ensure that assistance agreements awarded under lAGs meet the
provisions of the FGCA Act. As discussed in Chapters 2 and 3
of this report, assistance agreements awarded under lAGs can
be a significant portion of the lAG's scope o.f work and we
noted some inappropriate uses of those agreements.
Regarding OARM's comments on the appropriate selection of
extramural funding instruments, we concluded that some
agreements did not meet the provisions of the FGCA Act based
on our examination of pertinent documents in the agreement
files including the scopes of work, decision memorandums,
proposals, and correspondence.
It is also our opinion that decision memorandums and scopes
of work should not contain conflicting principal purposes for
the agreement merely because they are intended for different
purposes. Because scopes of work might not always explicitly
state the principal purpose of the agreement, we continue to •
recommend that the Agency takes steps to ensure that the
selection of the funding instrument is in accordance with the
FGCA Act and that the basis for the selection, including the
principal purpose of the agreement, is clearly explained in
the decision memorandum.
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CHAPTER 3
MANAGEMENT OF ASSISTANCE AND INTERAGENCY
AGREEMENTS NEEDS IMPROVEMENT
ERL-C needs to improve its management of assistance
agreements and XAGs. While we found that the project
officers met. the requirements for obtaining technical
reviews, monitoring progress, .and meeting special conditions
for assistance agreements, improvements are needed in several
areas. These include: (i) ensuring that the scope of lAGs
is for an independent, distinct project; (ii) establishing
controls to identify potentially unallowable costs and
ensuring that claimed costs are appropriate;
(iii) identifying the.use of contractors under lAGs;
(iv) improving documentation of site visits; and
(v) increasing the reliability and usefulness of its
extramural database. " .
Because ERL-C did not have sufficient management controls
over it's assistance agreements and lAGs, some projects were
managed less effectively; unallowable costs might have been
reimbursed; EPA funds were used to pay for work requested by
other agencies; and requirements for identifying contractor
use and approval of sole-source procurements were .
circumvented.
BACKGROUND
The EPA Assistance Administration Manual (issued
December 1984), .the Project Officer's Handbook (issued March
1988), and the Interagency Agreement Policy and Procedures
Compendium (issued May 1988) establish guidelines for
management of assistance agreements and. lAGs. The guidance
states that the project officer is responsible for managing
and monitoring the progress on extramural projects.
SCOPE OF WORK NOT PROPERLY MANAGED FOR INTERAGENCY AGREEMENTS
In three of six funds-out lAGs reviewed, we found that the
scope of work did not cover a distinct project, as required.
We believe that the combining of multiple, and sometimes
unrelated, projects contributed to difficulties for project
officers to manage" the lAGs effectively.
The EPA Assistance Administration Manual requires that each
IAG be for an independent, distinct project with a clearly^
.defined objective. The activities under the agreement should
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all serve the same objective throughout the project period.
Unrelated activities should be funded under separate
agreements. In addition, the IAG Handbook developed by ERL-C
requires that the project officer review any change of scope
to ensure that it is within the original scope of work.
The three lAGs that we identified with multiple projects are
discussed below.
DW12934099 with ARS
ERL-C -entered into this IAG with the ARS to perform rice
• studies. The IAG was amended to include a second
project related to tree studies.
DW12934530 with FS
ERL-C entered'into this IAG with the FS to perform
several different projects. These projects covered many
areas of environmental research including Global Climate
Change, Ecosystem Health, Global Bi©geochemistry, and
Global Effects. These projects covered both the Global
Climate Change and Air Pollution Effects Programs under .
ERL-C's Terrestrial Branch and the Environmental
Monitoring and Assessment Program (EMAP) under the
Watershed Branch.
Since our survey, ERL-C has taken steps to decrease the
number of projects covered by IAG No. DW12934530. The
work under EMAP has been cancelled and other areas of '
the project have been completed.
DW12935631 with FS
ERL-C entered into this IAG with the FS to perform three
separate projects including: (i) plan and develop
databases for geographic analysis; (ii) research the
link between geography and environmental monitoring; and
(iii).research on the scientific basis for ecological
regionalization. In addition, a fourth project to
produce a subregional map of Massachusetts was discussed
in the Decision Memorandum (DM).
We also noted that in two of the three projects discussed
above, the project officers could not locate or had not
received all required progress reports. The project officer
for the FS agreement (DW1-2934530) could not initially locate
any required reports. After a subsequent search, the project
officer did locate 12 of 15 reports and found that three had
not been submitted to ERL-C. The project officer for the ARS
agreement could not locate 4 of 12 progress reports because
they had not been received or had been misplaced. In
addition, project officers were often transferred to
different projects and current project officers had
difficulty locating documents related to the projects.
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We concluded that a lack of training contributed to using one
IAG for multiple projects. While the project officers
believed that the tasks had been combined because they ^were
related, they also noted that they had not received training
on the management of XAGs.
INADEQUATE FINANCIAL MONITORING BY PROJECT OFFICERS
ERL-C personnel did not monitor the costs related to
assistance agreements and JAGs. ERL-C personnel were not
always aware"~of the requirements and did not have the
necessary information to perform the required functions. As
a result, the project officers did not adequately monitor
costs claimed under the projects.
Financial Monitoring.of Cooperative Agreements
ERL-C personnel were not receiving and reviewing the
financial status reports (FSRs) for assistance agreements.
In general, ERL-C personnel were unaware that they should
receive the reports and as a result there were no reviews of
claimed costs compared with progress on the projects.
The EPA Assistance Administration Manual recommends that the
project officer review the FSRs in relation to the
recipient's progress reports and the project officer's
evaluation. This report should be provided by the' Grants
Administration Division, which has the main responsibility
for monitoring costs.
The review of assistance agreement costs is an important
internal control step to assure that progress is being made
toward project completion within the budget. Also, the
recommended reviews could identify potentially unallowable
costs, such as costs incurred prior to the date of award.
As an example of potential unallowable costs, ERL-C granted
funds for a conference which was scheduled to occur prior to
the date of award. The,possibility of unallowable costs
claimed was not investigated by either the project officer or
the grants specialist. The Gordon Research Institute
received a grant for $24,950 to fund a research conference.
The recipient held the conference July 1-5, 1991., prior to
the date of the award which was July 18, 1991. The recipient
may have claimed unallowable costs for this conference. The
project officer, who was aware of the conference dates, did
not have any information on costs claimed. The grants
specialist did not have information on the conference dates
but knew that the recipients had claimed $12,671 for a
July 1991 conference.
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ERL-C Underbilled CostsFor Funds-in lAGs
ERL-C did not have a system in place to ensure that all costs
were budgeted and actual costs were billed to recipients of
EPA's services under lAGs. As a result, ERL-C did not
recover all. its costs related to reimbursable lAGs, and EPA
funds were used to pay for work requested by another agency.
Examples of these conditions are provided below:
RWFL934928 with the State of Florida
ERL-C agreed to assemble and prepare maps, data and
reports concerning environmental factors relating to
regionalization for the Florida Department of
Environmental Regulation under an TAG awarded in
January 1991. The budget of $160,000 included costs for
travel and procurement. No costs for EPA salaries were
budgeted, even though EPA personnel performed work in
Florida on this project. The billings to the State of
Florida were based on the budget.
RW21935113 with United States Department of Agriculture
ERL-C agreed to provide map plotting services for the
Forest Service, Columbia River Gorge National Scenic
Area under an IAG awarded in May 1991. The budget of
$5,000 included only costs for supplies. No costs were
included for procurement even though the work was to be
performed by an EPA contractor. The billings were based
on the actual cost of supplies and no other costs were
included.
We also determined that neither of these agreements included
ERL-C indirect costs (i.e., overhead). Yet, ERL-C has a
policy to include a 15 percent overhead on all costs of lAGs.
When EPA enters into an IAG with another Federal agency or a
State or local government, it should recover all costs. The
Intergovernmental Cooperation Act requires that salaries and
other identifiable costs of providing services be paid to the
executive agency by the State or local government making the
request. In addition, the Economy Act states that the basis
for costs of interagency agreements among Federal agencies
should be actual cost. The Economy Act states that "a bill
submitted or a request for payment is not subject to audit or
certification in advance of payment. Proper adjustment of
amounts paid in advance shall be made as agreed to by the
heads of the agencies or units on the basis of the actual
cost of goods or services.provided."
We attribute part of the above condition to the lack of
training in the management of lAGs. ERL-C project officers
stated that they had not received any training on lAGs. In
addition, ERL-C did not have a system in place to ensure.that
all the costs of the project were budgeted and that actual
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Assistance and Interagency Agreements
costs were accumulated for billing purposes. As a result,
EPA funds were expended to cover the cost of work for other
Federal agencies and State and local governments.
Financial Monitoring of Funds-out IAGs
In four of six funds-out lAGs reviewed, project officers
approved payments for services provided without a review of
detailed costs for the billings. The guidance for lAGs
requires specific costs for the billings. According to the
Project Officer's Handbook, project officers, as part of
monitoring the progress of work done, are-to:
"... Receive and review detailed cost information
submitted by other Federal agencies. If this
information is not included on or with vouchers
submitted for payment, the Project Officer shall contact
the other agency and obtain "the information. At the
same time, he shall notify CFMC (Cincinnati Financial
Management Center) of the lack of cost information and
the need to withhold payment."
During our review we found that ERL-C project officers
received, signed, and returned EPA payment approval forms to
the accounting office in Cincinnati without a review of
detailed cost information from the other agencies. There was
no assurance, other than a project officer's general
knowledge of project progress, that costs billed by other
agencies were reasonable or related to the work performed.
As a result, we could not determine if billings from other
agencies were reasonable or related to work performed because
there was no detailed support for the billings. In our
opinion, the review of-detailed cost information from other
agencies is a significant management control that ERL-C
project officers should follow.
USE OF A CONTRACTOR NOT ALWAYS DISCLOSED
The award document for IAGs (EPA Form 1610-1) did not always
disclose the use of a contractor, as required. As a result,
the Federal Acquisition Regulation (FAR)" requirements for."
identifying contractor use and approval of sole-source
procurements were circumvented. ' ; ^ "
According to Section 1, ,Paragraph 7J of the Interagency
Agreement Policy and Procedures Compendium, if a contractor
will be used under an IAG, the name of the contractor,
contract amount, and the percentage, if any, to be funded by
EPA should be identified on the EPA Form 1610-1. The
Compendium also states that when using another agency's funds
for a.contract, EPA must consider requirements in the FAR and
23 Audit Report- EiFBF3-UMX)69-410a214
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obtain approval of the sole-source justification from the
Office of Acquisition Management.
We noted an IAG where ERL-C did not meet the contractor
disclosure requirement. ERL-C supplied contractor employees
under the U.S. Army Biomedical Research and Development Lab
funds-in interagency agreement awarded in July 1989. The IAG
was for $255,000, of which $205,000 has been obligated.
Under the IAG, ERL-C will develop and adapt bioassay test
methods for direct and site assessments of contaminated
wetland areas. The budget for the agreement includes costs
for salaries, travel, equipment, supplies, procurement and
indirect costs. With the exception of the sixth and most
recent amendment, no costs were budgeted for procurement.
The laboratory stated on Form 1610-1 that no costs would be
expended for procurement. However, we found that all costs
to date and all expected costs were/will be incurred by
Mantech Environmental Technologies, Inc., an EPA contractor.
The Form 1610-1 was incorrectly completed and did not clearly
state the intent to use contractors for the project because,
in our opinion, the project officers have not had adequate
training on the management of interagency agreements. As a
result, ERL-C personnel did not follow FAR requirements
including those for competition or approval of sole-source
justification.
SITS VISITS NOT DOCUMENTED
Site visits performed by project officers were not always
documented, as required. As a result, an important
management tool was not used and the grants specialist did
not receive information on the project progress.
For 9 of the 15 assistance agreements that we reviewed, we
were able to determine that project officers had made site
visits. However, the project officers did not prepare or
were unable to locate a trip report for five of the nine site
visits. The project officers were not always aware of the
requirement to prepare a trip report.
The EPA Assistance Administration Manual requires the project
officer to prepare a trip report after performing a site
visit. This report should highlight the project officer's
findings and evaluate the quality of work being performed.
The project officer should provide this information to the
grants specialist assigned to the project.
It is important for the project officer to document work
performed on the project. A trip report not only documents
the information for the current- project officer's reference
but also provides valuable information to anyone else who may
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work on the project in the future. In addition, this
information can help the grants specialist in managing the
award.
EXTRAMURAL .AGREEMENT DATABASE INACCURATE
The database system developed by ERL-C to track extramural
agreements had many errors and could not be used by
management as a reliable source of information. To be an
effective management tool, a database system needs to be
accurate.
ERL-C had developed an internal database system to track its
large number (approximately 100) of extramural.agreements.
The database included information such as the project number,
recipient, title, dollars obligated, and project officer.
The system was developed primarily to provide a listing of
projects and to notify project officers when a new funding
package must be prepared.
We reviewed six database fields: project number, project
recipient, project period, cumulative dollars obligated,
total-project dollars allowed, and competition. There were
errors in all database fields reviewed except the
identification of project recipient. Of the agreements
included in our universe, there were errors -in 43 percent of
the project entries. As a result, the information could not
be relied upon and we had to review each file to determine
which agreements were, active as of March 1993.
ERL-C officials stated that the database system had become a
low priority and was not updated on a regular basis and that
they were aware of the inaccuracies in the system.
We believe that the database system is a significant
management control that is valuable in managing extramural
activities. If accurate, the information would give
management an overview of all the.current extramural
activities. In our opinion, an accurate and complete
database system is significant to the decision-making process
for the multi-million dollar extramural program at ERL-C.
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RECOMMENDATIONS
We recommend that the Acting Assistant Administrator for
Research and Development instruct the Director of ERL-C to:
1. Develop procedures and controls to ensure that each IAG
is for an independent, distinct project with a clearly
defined objective.
2. Improve monitoring of assistance agreements and lAGs by:
a. Requiring reviews of FSRs on cooperative agreements
in relation to the recipient's progress reports and the
project officers's evaluation.
b. Providing training for project officers on the use
and management of lAGs.
c. Establishing a system to ensure that all costs for
funds-in lAGs are budgeted and accounted for and billed
to other agencies.
d. Requiring that project officers obtain and review
detailed costs for funds-out lAGs prior to approving
invoices for payment.
3. Establish procedures to ensure that FAR requirements are
met and that the use of contractors is disclosed on LAG award
documents.
4. Require project officers to document site visits by
making trip reports.
5. Take steps to ensure that the extramural agreement
database is accurate.
In a response to the draft report, ORD concurred with all the
recommendations and agreed to correct all of the deficiencies
noted in the report. The complete text of ORD's comments is
included in APPENDIX A of-this report.
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CHAPTER 4
FMFIA INADEQUATELY IMPLEMENTED
ERL-C has not adequately implemented the Federal Managers'
Financial Integrity Act (FMFIA) of 1982, as it applies to
grants, cooperative agreements and lAGs. Internal control
evaluations .for cooperative agreements, grants, and lAGs have
not been planned or performed, and event cycle documentation
is not complete. ERL-C personnel have not been aware of how
to implement•evaluation procedures and the requirement for
event cycle documentation for grants. As .a result,
weaknesses of internal controls for assistance agreements and
lAGs were not detected, reported, or, corrected.
BACKGROUND
FMFIA requires that each executive agency establish "internal
accounting and administrative controls in accordance with
standards prescribed by the Comptroller General. OMB
Circular A-123 and EPA Resources Management Directive 2560
prescribe the policies and procedures for Agency
implementation of FMFIA requirements. The FMFIA process
consists of the following activities:
• Risk Assessments every year to identify vulnerable
operations;
• A Management Control Plan (MCP) covers a 5 year
period and lists the reviews to be performed each
year; and
• ^ Internal Control Reviews (ICRs)' and Alternate
": Internal Control Reviews (AICRs) annually.
The FMFIA activities that we reviewed at ERL-C included the
annual reporting of control weaknesses, performance of
internal control reviews, planning of the reviews, and
preparation of the internal control documentation used as a
basis for the reviews. We reviewed these FMFIA activities in
accordance with EPA's implementation of the FMFIA process.
ORD's Office of Research Program Management (ORPM) provides
guidance on implementation and performance of FMFIA tasks.
ORPM guidance uses slightly different terminology in
describing FMFIA activities. ORPM refers'to ICRs as
Management Control Reviews (MCRs) and AICRs as Alternative
Management Control Reviews (AMCRs).
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.
According to ORPM Transmittal No. 92-197, reviews (MCRs and
AMCRs) are to be conducted annually. The scheduling and
completion of these reviews are submitted to the Agency as
Management Control Plans (MCPs). There are three types of
reviews:
Management Control Reviews are based upon event cycle
documentation and include a review of all control
objectives and techniques. The results are written in a
report which states who performed the review, the
methods"used, conclusions, and recommendations.
Alternative Management Control Reviews are based upon
event cycle documentation and include a review of at
least one control objective and one control technique..
The results are also written in a report containing the
same types of information.
Other Reviews include OIG audits, GAO audits, contractor
studies, program office studies, congressional "reviews
and similar evaluations of management controls. These
other reviews can be classified as FMFIA reviews if they
meet the criteria of the above (MCR and AMCR) reviews.
In order to perform MCRs and AMCRs, event cycle documentation
must be prepared. According to a ORPM memorandum FY 1992
Internal Control Documentation, dated June 2, 1992:
• A major compliance requirement for _ the Office of
Research and Development (ORD) under ... FMFIA is
documentation of our Internal Control Program. One
principal category is Event Cycle Documentation
(BCD).
• ECD identifies the primary processes and
responsibilities of each major operating office,
i.e., Assessable Unit (ERL-C) ... It is to be
reviewed annually" and updated prior to submission
of annual assurance letters.
• Assessable Unit Managers (i.e., ERL-C Lab Director)
must certify to the completeness and accuracy of
their respective Event Cycle Documentation ...
There can be a number of event cycles identified with the
processes and responsibilities of a laboratory. Each event
cycle has documentation that consists of internal control
objectives and techniques. The number of objectives for each
event cycle and the number of techniques for each objective
will depend on the complexity and significance of the process
being documented.
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MATERIAL WEAKNESSES NOT REPORTED IN THE FISCAL 1992 ANNUAL
REPORT . .
ERL-C did not consider its extramural management program to
be a material weakness in fiscal 1992 even though ORD has
declared it a material weakness in its program since
fiscal 1990. Our review of ERL-C FMFIA procedures found that
the~ laboratory had not performed any reviews to determine if
its internal control objectives and techniques for grants,
cooperative agreements, and lAGs were operating effectively.
Without a re"view of its controls, the laboratory did not
identify any weaknesses. As a result, significant internal
control weaknesses in procedures for cooperative agreements
and lAGs identified in Chapters 2 and 3 of this report were
not detected and reported in the annual FMFIA report.
REVIEWS OF INTERNAL CONTROLS WERE NOT PERFORMED BY ERL-C
ERL-C has not performed any MCRs or AMCRs of internal
controls over cooperative agreements and lAGs. ORPM guidance
states that MCRs and AMCRs should be performed annually.
ERL-C personnel stated that they did not know who at the
laboratory should perform the reviews.
Management Control Reviews. ERL-C has not performed any MCRs
for extramural agreements or other activities of the
laboratory. MCRs are a review of all control objectives and
techniques of an event cycle. MCRs provide the opportunity
to test the adequacy of internal control objectives and
techniques to control the use of funds and accomplish program
objectives. • The testing of all objectives and techniques
together can detect weaknesses that are not covered by
existing cycle documentation. By not performing MCRs, ERL-C
was unaware of internal control weaknesses.
As an example of undetected weaknesses, we found that an IAG
with the Forest Service (DW12934530) included a number of
extramural agreements. One extramural agreement was a
cooperative agreement for $50,000 with Oregon State
University to provide database design services. Our review
and discussions with the project officer determined that the
extramural agreement should have been a contract instead of a
cooperative agreement. According to the FGCA Act, this
situation could be considered an avoidance of the procurement
system requirements.
ERL-C's IAG event cycle documentation did not include control
objectives and techniques to evaluate the type of extramural
agreement that should have been used in accordance with the
FGCA Act and did not include extramural agreements made
through lAGs. As a result, the're was a gap in the internal
control techniques that needs to be corrected.
29 Audit Report: EIFBF3-IO4069-410Q214
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Assistance and Interagency Agreements
Alternative Management Control Reviews. We found that no
AMCRs had been planned or performed. By not performing'AMCRs
or MCRs ERL-C had not tested the adequacy of any of its
internal control objectives and techniques for extramural
agreements and was unaware of internal control weaknesses.
To illustrate undetected weaknesses as a result of not
performing AMCRs, we found that ERL-C had entered into a
cooperative agreement (CR819077) with Oregon State University
to fund an Intergovernmental Personnel Act (IPA) assignment.
The agreement" provides funds for a university faculty member
to work at the laboratory. However, the funding of IPA
assignments by cooperative agreement is an inappropriate use
of the agreement. The IPA assignment should have been funded
directly through EPA payroll or by the university. The
effect of using a cooperative agreement to fund an IPA is to
inappropriately "reprogratn" research and development funds to
pay for salaries and expenses.
It is apparent that the reviews performed by the ERL-C
administrative office were not effective in detecting this
type of improper use of a cooperative agreement. By not
performing an AMCR, the internal control procedures of the
administrative office have not been tested. Had an AMCR been
performed, this weakness should have been detected.
ERL-C should review and if necessary revise its event cycle
documentation. It should then start performing AMCRs to test
its internal controls and revise its BCD and internal control
procedures, based upon the results of the reviews.
MCR-AMCR Reviewer Not Appointed. According to the ERL-C
internal control coordinator, MCRs and AMCRs have not been
performed because ERL-C management did not know who should
perform them. In our opinion, ERL-C management should
appoint one or more staff who are familiar with the guidance
for extramural agreements and the procedures used at the
laboratory to be responsible for FMFIA activities. The
reviews should include project officers as well as .
administrative office activities.
30 Audit Report: E1FBF3-10-0069-4100214
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Assistance and Interagency Agreements
MANAGEMENT CONTROL REVIEWS WERE NOT PLANNED
ERL-C has not planned to perform any management control -
reviews (MCRs)-or alternative management control reviews
(AMCRs) for grants, cooperative agreements and lAGs.
According to FMFIA guidance, the reviews should be scheduled
in Management Control Plans. However, ERL-C's FMFIA
procedures were not adequate to ensure that the reviews were
planned. As a result, MCRs and AMCRs of extramural
agreements had not been performed and none were scheduled.
According to FMFIA guidance issued by the ORPM, FMFIA
requires that annual reviews be conducted to evaluate the
adequacy of management controls to detect and prevent fraud,
waste, and mismanagement. The scheduling and completion of
these reviews are submitted to the Agency as Management
Control Plans (MCPs).
A review of the FY 1992 management control plan showed that
ERL-C had not scheduled MCRs for any of its activities. The
plan consisted of AMCRs and other reviews. We found that
none of the AMCRs addressed internal control objectives and
techniques for cooperative and interagency agreements. The
only mention of any review of cooperative and interagency
agreements was a reference to.this OIG audit. ERL-C
personnel stated that it was an oversight that AMCRs had not
been scheduled.
The lack of planned reviews weakens ERL-C's controls over "its
FMFIA program. Documenting scheduled MCRs and AMCRs in the
Management Control Plan creates a record that can be used for
evaluating performance of reviews at year-end. At year-end,
reviews completed can be compared to the MCP to determine
which reviews have not been done. The result of not planning
reviews is that they will not be performed and non-
performance will not be detected.
GRANTS NOT INCLUDED IN CRITICAL EVENT CYCLES
ERL-C did not have event cycle documentation for all
extramural agreements types. Event cycle documentation is a
FMFIA program requirement and starting point for subsequent
internal control procedures. The documentation must be
annually certified as complete by the Laboratory Director.
There was a grant being administered by the laboratory but
there was no event cycle, documentation for grants. ERL-C
managers were not aware of any grants at the laboratory and
no grant event cycle documentation was prepared. As a
result, grants were not subject to FMFIA internal control
review procedures, and the Laboratory Director misreported
that event cycle documentation ^was complete in his annual
certification.
31 Audit Report: E1FBF3-HW069-41002I4
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Assistance and Interagency Agreements
RECOMMENDATIONS ,
We recommend that the Acting Assistant Administrator for
Research and Development instruct the Director of ERL-C to:
1. Appoint personnel, who are familiar with the guidance for
extramural agreements and laboratory procedures, to perform
reviews of internal controls to include:
a. Scheduling and performing annual MCRs or AMCRs for
extramural agreements including project officer
activities; and
b. Reviewing and if necessary revising ERL-C's event
cycle documentation to address weaknesses disclosed by
this audit.
2. Improve procedures to require that MCPs are complete and
specifically include MCRs and AMCRs of grants, cooperative
agreements, and lAGs.
3. Revise event cycle documentation to include internal
control objectives and techniques for grants.
4. Include all weaknesses disclosed by internal control
reviews in the year-end FMFIA reports and that those reports
reflect complete cycle documentation.
AGENCY'S COMMENTS
In a response to the draft report, ORD concurred with all the
recommendations and agreed to correct all of the deficiencies
noted in.the report. The complete text of ORD's comments is
included in APPENDIX A of this report.
32 Audit Report: E1FBF3-10-006SM100214
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APPENDIX A
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN 24 1994
OFFICE OF
RESEARCH AND DEVELOPMENT
MEMORANDUM
SUBJECT:
FROM:
TO:
Management of Assistance and Interagency Agreements at
ERL-Corvallis, Draft Audit Report No. E1FBF3-10-0069-
Gary J. Foley ^
Acting Assistani
for Research ant
linistrat
Development (8101)
Michael Simmons
Associate Assistant Inspector General
for Internal and Performance Audits (2421)
In response to your December 6, 1993 memorandum, we have
reviewed the draft audit report on Management of Assistance and
Interagency Agreements at the Corvallis Laboratory and concur
with all the findings.
Your audit staff has identified some important deficiencies
in our existing internal control and management systems. We will
correct all deficiencies noted in the report.
We accept all of the recommendations in the report. We find
them to be constructive and we intend that our corrective actions
in response to many of them should be designed not solely for
ERL-C operations but for ORD operations generally. We are still
in the process of defining responsibilities and deadlines for
these corrective actions and will be submitting our complete list
to you on February 1, 1994.
Thank you for the opportunity to provide this response.
cc: Jonathan Cannon
Courtney Riordan
33
Panted on Recycled Paper
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN Id 1994
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT: Comments on December 6, 1993, Audit of Corvallis, Oregon
Laboratory—E1FBF3-10—00,69
FROM:
TO:
Jonathan Z. Cannon M,
Assistant Administrator'
Michael Simmons
Associate Assistant Inspector General for
Internal and Performance Audits (2421)
This is the Office of Administration and Resources Management
comments on and response to the December 6, 1993, draft audit
report on the Corvallis Laboratory (Audit Report Number E1FBF3-10-
0069).
We question the audit's conclusion that five of the Corvallis
grants and cooperative agreements reviewed should have been awarded
as contracts. The audit report primarily depends on reviews of
decision memorandums to support the conclusions.
The EPA Assistance Administration manual includes an outline
of a decision memorandum (Chapter 15, Figure 3) which includes
"Relationship of Project to Program's Mission." Decision
memorandums are written in large part to justify the use of EPA
funds in support of each project, often by project officers with no
authority to commit funds. Approval officials who receive the
memorandums have many demands on funds available and use the
memorandums to determine whether a proposed project is the best use
of EPA funds when compared to other priorities. For example, on
page 8, the report says a project should have been a contract
because the decision memorandum states—
This data will contribute to the Agency's policy decisions
regarding acid deposition.
While this language makes clear the project represents a
worthwhile use of EPA resources, it does not necessarily imply the
principal purpose of the project is for the direct use and benefit
of the Federal government. Clearly, it would be inappropriate to
use funds for activities not consistent with and necessary to EPA's
mission.
34
PrW»d en ptp«r CM
« (MM 78% raeydtd
-------
In future audits, we recommend that auditors also review
statements of work to determine the principal purpose of each
project. This is the primary document reviewed by grants staff.
Since each determination is a judgement based on grant guidance and
GAD grants specialists' training and experience, as in any
judgement case, reasonable persons may differ as to the principal
purpose of any agreement. .
To provide additional documentation in determining whether a
proposed project should be funded as a grant or cooperative
agreement, GAG will issue revised guidance for HQ decision
memorandums by March 1, 1994, to require that the memorandums
include better explanations of the support or stimulation aspects
of each project: Also, as we have previously advised the Inspector
General, GAD is developing new guidance to aid in the selection
between grants and cooperative agreements and contracts.
.' With respect to Interagency Agreements, we can neither agree
nor disagree with the audit report's conclusions that at least two
of the grant/cooperative agreements awarded by other agencies
should have been contracts. We do disagree with the auditors
method for making those determinations. For funds out lAGs, as in
the case of cooperative agreements, the EPA decision memorandums
are written for EPA use in determining whether a project warrants
funding with EPA funds. To determine whether another agency
correctly awarded a grant or cooperative agreement with those
funds, it would be necessary to review the other agency's
statements of work for the assistance agreements as well as that
agency's legislation. Because of this difficulty, GAD took action
last year to reduce the likelihood that other agencies will use EPA
funds for activities under grants or cooperative agreements that
should be funded under contracts. When funds out agreements
indicate that the other agency will use some of the funds for a
grant or cooperative agreement, GAD requires the other agencies'
project officers to submit a statement similar to the following—
I have reviewed the work proposed to be conducted under the
IAG referenced above. I have concluded the principal purpose
of the work under the grant or cooperative agreement will be
to support or stimulate the receiving organization to
accomplish a public purpose. In my opinion, the principal
purpose of the project activities is not for the direct use
and benefit of EPA or the other Federal Agency.
Also, GAD has taken action to. assure that agreements with
foreign governments are approved by the appropriate agencies by
assuring the agreements are coordinated with the Offices of
International Activitiesvand General Counsel. Further, we have
determined that it is inappropriate to award funds-out lAGs to
foreign countries. We ended that practice before the beginning of
FY 1993. We also recommend that you delete the audit report's
reference (page 15} to the use of the State Department as discussed
in the Compendium. ' We have determined the State Department has
very little authority to provide funds directly to foreign
35
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governments. We now require that funds which EPA provides directly
to foreign governments be awarded only under grants or cooperative
agreements.
Finally, as the report states on page 17, the Compendium of
Interagency Agreement Procedures is a guidance document. Although
it states that lAGs must be awarded for specific projects, there
are-many cases when it is better to award a single IAG for a number
of related projects. The GAD specialists and Award Official review
each proposed IAG in accordance with the guidance, but allow award
of multi-activity agreements when it appears justified. This is
the case with respect to some of the lAGs cited in the report.
Further, what constitutes a specific project is dependent on the
view of each reviewer. In the case of the EMAP agreement, the
reviewer concluded that EMAP was a specific project. The project
under the Forest Service project was for computer system work and
again, the grants specialist concluded it was a'specific project.
The audit report must be made clear as to what specific aspects
about the multi-activity agreements resulted in problems.
In addition to these general comments, we have attached a list
of specific comments. If you have questions concerning our
comments, please call Scott McMoran on (202) 260-4392, the award
official for lAGs or Millie Lee on (202) 260-5252, the award
official for grants and cooperative agreements.
Attachment
cc: Sallyanne Harper
Gary Foley
Courtney Riordan
36
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ATTACHMENT
Specific Comments
o Page 7--The fact that .files contain conflicting or
unclear documentation about .the principal purpose should
, be expected as each document is to serve different
purposes. That statement should be revised to reflect
the fact that it would be improper for an approval
official to authorize use of funds for activities that
were not necessary for and directly related to EPA's
mission. Thus, these decision memorandums have little
bearing on whether a proposed project is appropriately
awarded as a grant or a cooperative agreement.
o Page 8—GAD staff have reviewed the statement of work for
the University of Maine cooperative agreement and we
believe it supports the award of the agreement.
o Page 10—The conclusion that the activities, carried out
under Forest Service grants were for the direct use and
benefit of the Federal government can only be made by
'. reviewing the Forest Service's statements of work. This
TAG was awarded under the authority of EPA's cooperation
provisions as well as the Economy Act. This means that
the proj ect was for more than the purchase of services
for the direct use and benefit of EPA. It was also
" intended to support a cooperative project.
o Page 16—Recommendation 2.b.(1) should be revised to
state that IPA Assignments of University staff to EPA
should not be funded with cooperative agreement funds.
IPA assignments to EPA recipients can be funded with
grant and cooperative agreement funds when the assignee
is working on an EPA supported project.
o Page 34—The "maximum amounts" shown on the table for
funds out lAGs generally exceeds the amounts awarded by
EPA. This gives a false picture of the amount of funds
in question.
o Page. 35—The table heading should read1 "Funds-in
Interagency Agreements."
GAD Response to OARM Recommendations
o Page iv, Number l.—Since October 1993, GAD required
other agencies' project officers to certify that EPA
funds used for grants and cooperative agreements will be
awarded consistent with the Federal. Grant and Cooperative
Agreement Act. We now require, from the other agencies1
project officers a statement similar to the following—
37
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I have reviewed the work proposed to be conducted
under EPA Interagency Agreement (DW #)". I have
concluded the principal purpose of the work to be
performed under the grant will be to support or
stimulate the receiving organization to accomplish
a public purpose. In my opinion, the principal
purpose of the project activities is not for the
direct use and benefit of this Department or EPA.
Page 16—Number 1. See response above.
38
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Assistance and Interagency Agreements
APPENDIX B
AICR
AMCR
ARS
CA
DM
BCD
EMAP
EPA
ERL-C
FAR
FGCA
FMFIA
FS
FSR
FY
IAG
ICR
I PA
Max.
MCP
MCR
NCASI
OARM
OIA
DIG
OMB
OPPE.
ORD
ORPM
OSU
R&D
S&E
UM
GLOSSARY OF ACRONYMS AND ABBREVIATIONS
Alternative Internal Control Review
Alternative Management Control Review
United States Department of Agriculture,
Agriculture Research Service
cooperative agreement
Decision Memorandum
~~ Event Cycle Documentation
Environmental Monitoring and Assessment
Program
Environmental Protection Agency
Environmental Research Laboratory, Corvallis
Oregon
Federal Acquisition Regulation
Federal Grant and Cooperative Agreement Act of
1977
Federal Managers' Financial Integrity Act of
1982
United States Department of Agriculture,
Forest Service
financial status report
Fiscal Year
interagency agreement
Internal Control Review
Intergovernmental Personnel Act
Maximum
Management Control Plan
Management Control Review
National Council of the Pulp and Paper
Industry for Air and Stream Improvement
Office of Administration and Resources
Management
Office of International Activities
Office of Inspector General
Office of Management and Budget
Office of Policy, Planning and Evaluation
Office of Research and Development
Office of Research Program Management
Oregon State University
Research and Development
Salary and Expense
University of Maine
39
Audit Report: E1FBF3-KW069-4100214
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Assistance and Interagency Agreements
APPENDIX C
Page 1 of 3
GRANTS. COOPERATIVE AND INTERAGENCY AGREEMENTS SAMPLED
Maximum
Recipient
Grant Agreement;
Gordon Research Institute
Cooperative Agreements:
California State University,
Los Angeles
CR818386 07/19/91 $ 24,950
CT902628 07/27/92 $ 267,336
Desert Research Institute,
University and Community
College System of Nevada
International Rice Research
Institute
Lund University
Oregon State University
Oregon State University
Oregon State University
Maine, University of
Missouri, University of
* CR820759 11/01/92 $ 530,664
\
CR817426 10/01/90 $5,033,243
CR820629 10/01/92 $ 24,500
* CR816721 07/03/90 $2,142,243
CR819077 10/01/91 $ 79,786
CR817682 10/01/90 $ 249,972
CR816261 01/01/90 $1,824,966
* CR819075 .11/15/91 $ 322,854
South Dakota State University CR820664 10/01/92 .$ 355,751
* CR816242 02/12/90 $1,240,000
State University of
New York
Terrene Institute
Texas A&M Research
Foundation
Vermont, State of
CR820226 07/20/92 $ 47,500
* CR820767 09/28/92 $1,085,724
CR815196 07/01/88 $ 106,901
* Assistance agreements that should have been
awarded as contracts.
40
Audit Report: E1FBF3-10-0069-4100214
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Assistance and Interagency Agreements
APPENDIX C
Page 2 of 3
GRANTS. COOPERATIVE ANDINTERAGENCY AGREEMENTS SAMPLED
Date Maximum
Recipient Number Awarded Amount
Funds-out Interacrency Agreements^
United States Department of
Agriculture (USDA),
Agriculture Research Service DW12934099 09/01/89 $ 477,167
USDA Forest Service (PS)
Pacific Northwest Forest and
Range Experiment Station DW12934530 03/01/90 $2,687,982
USDA FS, Pacific Northwest
Forest and Range Experiment
Station DW12935631 06/01/92 $4,900,000
Environment Canada, National
Wildlife Research Center DWCN935524 05/01/92 $ 246,300
Department of Energy,
Richland Operations Office
Battelle Pacific Northwest
Laboratory DW89935183 08/01/91 $ 230,000
Department of Interior, U.S.
Fish and Wildlife Service DW14935634 07/01/92 $ 326,045
Department of Interior, U.S.
Fish and Wildlife Service DW14935644 06/15/92 $ 673,503
Assistance Agreements Funded under Funds-out Interaoencv
Agreements:
Florida, University of
funded by DW12934099 - - $ 289,340
Oregon State University
funded by DW12934530 - 09/01/90 $ 50,000
NCASI
funded by DW12934530 - - $ 861,848
41 Audit Report: E1FBF3-10-0069-4IOQ214
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Assistance and Interagency Agreements
APPENDIX C
Page 3 of 3
GRANTS. COOPERATIVE AND INTERAGENCY AGREEMENTS SAMPLED
Recipient
Date
Awarded
Funds-in Interagencv Agreements:
USDA FS Columbia River Gorge RW12935113 05/01/91 $
U.S. Army Biomedical R&D
Laboratory
Environment Canada,
Biotechnology Center
Florida Department of
Environmental Regulation
5,000
RW21934093 07/01/89 $ 255,000
RWCN935019 02/25/91 $ 86,000
RWFL934928 01/01/91 $ . 160,000
42
Audit Report: EIFBF3-ltW069-4100214
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Assistance and Interagency Agreements
APPENDIX D
REPORT DISTRIBUTION
Office of Inspector General
Inspector General (2410)
EPA Headquarters
Assistant Administrator for Administration and Resources
Management (3101)
Audit Liaison, Office of Administration and Resources
Management (3101)
Assistant Administrator for Internal Activities (2610)
Office of General Counsel (2310)
Assistant Administrator for Research and Development (8101)
Director, Grants Administration Division (3903F)
Director, Office of Research Program Management (8102)
Audit Liaison, Office of Research and Development (8102)
Director, Office of Environmental Process and Effects
Research (8401) .—
Comptroller (3301)-
Agency Follow-up Official (3101)
Office of Congressional Liaison (1302)
Office of Public Affairs (1702)
Corvallis. Oregon
Director, Environmental Research Laboratory
External
General Accounting Office .
43
Audit Report- E1FBF3-KMM69-410Q214
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