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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
EASTERN AUDIT DIVISION
1 CONGRESS STREET, SUITE 1100
BOSTON, MASSACHUSETTS 02114-2023
NEW YORK OFFICE:
290 BROADWAY
NEW YORK, NY 10007-1866
SEP 2 1
MEMORANDUM
SUBJECT: Grant Management Practices of Rhode Island
Department of Environmental Management
Audit No. 2000-1-00416
^fc>Uv^v«x»o
FROM: Ura Brass C? 5:
Principal Team Leader,
Eastern Audit Division
TO:
Mindy Lubber
Regional Administrator
EPA New England
Attached is our subject report which contains findings and recommendations
that are important to both EPA and the Rhode Island Department of Environmental
Management.
This audit report contains findings that describe problems the Office of
Inspector General has identified and corrective actions the OIG recommends. This
audit report represents the opinion of the OIG and the findings contained in this
report do not necessarily represent the final EPA position. Final determinations on
matters in this audit report will be made by EPA managers in accordance with
established audit resolution procedures.
ACTION REQUIRED
In accordance with EPA Order 2750, you as the action official are required to
provide this office a written response to the audit report within 90 days. Your
response should address all recommendations, and include milestone dates for
corrective actions planned, but not completed.
We have no objection to the release of this report to the public.
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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Should you or your staff have any questions about this report, please contact
me at (212) 637-3057 or Steven Weber, Team Leader at (617) 918-1470.
Attachment
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Grants Management Practices of Rhode Island
Department of Environmental Management
EXECUTIVE SUMMARY
INTRODUCTION
EPA accomplishes its mission and goals through
grants and cooperative agreements to States. The
States were responsible for planning, developing,
establishing, improving and maintaining
environmental programs as required by law. The
purpose of the audit was to determine if the Rhode
Island Department of Environmental Management
(RIDEM) was managing its Federal grants in
accordance with applicable requirements.
OBJECTIVES
The objectives of the audit were to determine if
RIDEM was:
> Managing grant funds provided by EPA in
accordance with the terms and conditions of
the grant.
* Allocating costs associated with Federal and
State activities appropriately.
> Drawing funds in accordance with the Cash
Management Improvement Act
> Meeting Federal match requirements.
RESULTS IN BRIEF
RIDEM needs to seize the opportunity to strengthen
its administrative processes to achieve effective
internal controls and fiscal responsibility. We found
that RIDEM's internal controls for financial
management of Federal funds were not adequate to
ensure that Federal funds were being managed
appropriately. RIDEM's approach was to maximize its
receipt of Federal funds without equivalent benefit to
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Controls Needed For
Payroll Costs
Costs Not Allocated
Appropriately
Matching Requirements
Not Supported
EPA programs and activities. Since Fiscal Year (FY)
1996, EPA has provided RIDEM over $16.7 million to
help ensure that the State of Rhode Island improves
the quality pf its air, land and water. Yet control
breakdowns raise questions about whether RIDEM is
meeting its grant management responsibilities.
Our audit of RIDEM found a variety of internal control
weaknesses. We believe RIDEM needs to address
and resolve these concerns to operate a better
program. Specifically, we found:
RIDEM did not have adequate controls over how
payroll costs were charged to Federal grants. Payroll
expenses were charged based on a budget rather
than on actual hours worked; authorized absences
were charged based on estimates or budgets; and
RIDEM did not include the cost of leave as part of its
fringe benefit rate.
RIDEM's Office of Air Resources did not have a
system to assure charges to the Federal grants were
allowable, reasonable and allocable. Computers
purchased were charged 100 percent to Federal
grants even though staff time was planned to be split
between eligible and ineligible Federal activities; and
the cost of vehicles were allocated to two different
Federal grants even though employees used the
vehicles to perform activities ineligible for Federal
reimbursement. In addition, time and travel costs
were not always appropriately charged and EPA did
not afways benefit from charges made to the Air
grant.
RIDEM lacked documentation to support that it
had met the minimum cost sharing requirements to
be eligible to receive its FY 1996 Section 105 Air
Grant funds. RIDEM had $94,280 (11 percent) in
unsupported matching funds out of the FY 1996
match of $891,204.
u
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Cost Transfers
Prevalent
Title V Revenues Not
Properly Maintained
RIDEM did not adequately financially manage its
grants, resulting in the Assistant Administrator for
Financial Management making substantial and
frequent costs shifts between State and Federal
accounts or between two Federal grants. Because of
these actions, RIDEM submitted multiple final
Financial Status Reports with different ending
balances; had excess Federal funds on hand; made
transfers without prior EPA approval; and would have
overspent Federal grants.
RIDEM did not maintain Title V operating permit fee
revenue in accordance with either the terms of the
Clean Air Act or Rhode Island's Air Pollution Control
Regulations. This resulted in operating fee revenue
from FYs 1997, 1998 and 1999 totaling $380,906
being deposited into the State's general revenue
account rather than utilized on the Title V program.
RECOMMENDATIONS
We recommend that the Regional Administrator
instruct Regional staff to work with RIDEM to develop
a corrective action plan for addressing the internal
control weaknesses and recommendations we
present in Chapters 3 through 7. Regional officials
should then regularly meet with RIDEM to review the
action plan's implementation progress.
REGION COMMENTS
AND ACTIONS
In responding to the draft report, the Regional
Administrator generally concurred with our Findings
and Recommendations and advised that most of the
recommendations were accurately stated and
acceptable to both the Region and to RIDEM.
Furthermore, the Regional Administrator advised that
RIDEM has agreed to develop a detailed corrective
action plan in conjunction with the Region's Rhode
Island State Program Unit that will address our
recommendations. Additionally, the Region has
in
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requested our assistance in reviewing the progress
that RIDEM makes towards meeting their proposed
corrective action plan.
In regards to Chapter 7, the Region felt that RIDEM
currently had in place a system to ensure that Title V
fee revenue collected was expended only on Title V
activities. Additionally, the Region felt that in FY 1997
EPA's policy did not clearly require that funds
collected and not expended on Title V activities during
the fiscal year collected be made available in the
subsequent fiscal year to carry out the Title V
program. Based on discussions during the exit
conference and information provided by the OIQ
General Counsel we have revised our
recommendations in this chapter.
OIG EVALUATION
The OIG concurs with the actions the Regional
Administrator proposes. The Region's actions in
concert with RIDEM, when implemented, will
strengthened the administration of the Rhode Island
grant program.
However, relating to Chapter 7, we disagree with the
Regional assertion that Agency policy was not clear.
Our evaluation of this matter can be found in
Chapter 7.
IV
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ABBREVIATIONS
ARC
CAA
EPA
FSR
FY
GAAP
ISDS
NFS
OAR
DIG
OMB
QMS
OPP
OWR
PPA
PPG
RCRA
RIDEM
RIDOH
RIPDES
UIC
Air Pollution Control
Clean Air Act
Environmental Protection Agency
Financial Status Report
Fiscal Year
Generally Accepted Accounting Principles
Individual Sewage Disposal Systems
Non Point Source
Office of Air Resources
Office of inspector General
Office of Management and Budget
Office of Management Services
Operating Permits Program
Office of Water Resources
Performance Partnership Agreement
Performance Partnership Grant
Resource Conservation and Recovery Act
Rhode Island Department of Environmental Management
Rhode Island Department of Health
Rhode Island Pollution Discharge Elimination System
Underground Injection Control
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VI
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TABLE OF CONTENTS
EXECUTIVE SUMMARY i
ABBREVIATIONS v
I
CHAPTERS
CHAPTERS 1 - INTRODUCTION
Purpose 1
Background 1
Scope and Methodology 4
Prior Audit Coverage 6
CHAPTER 2 - WEAK FINANCIAL CONTROLS COMPROMISE THE INTEGRITY OF
RHODE ISLAND'S ENVIRONMENTAL PROGRAMS 7
CHAPTER 3 - RIDEM'S CONTROLS OVER PAYROLL COSTS NEEDED
IMPROVEMENT 13
CHAPTER 4 - RIDEM DID NOT ALLOCATE COST TO THE APPROPRIATE
PROGRAMS 23
CHAPTER 5 - RIDEM COULD NOT SUPPORT THAT IT MET MATCHING
REQUIREMENTS OF THE FISCAL YEAR 1996 AIR GRANT 39
CHAPTER 6 - RIDEM NEEDED TO ESTABLISH CONTROLS OVER GRANT COST
TRANSFERS 43
CHAPTER 7- CONTROLS OVER TITLE V FEE REVENUE NEED
TO BE ENHANCED 51
APPENDIX 1 - EPA NEW ENGLAND RESPONSE 57
APPENDIX 2 - DISTRIBUTION 59
VH .
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Vlll
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CHAPTER 1
INTRODUCTION
PURPOSE
We initially conducted a survey of the Resource
Conservation and Recovery Act (RCRA) grant
Financial Status Reports (FSRs), based on concerns
regarding RIDEM's submission of three different
FSRs for the same RCRA grant. Based on the
results of the survey, an audit of RIDEM grants
management was conducted. The purpose of the
audit was to determine if RIDEM was managing its
Federal grants in accordance with applicable
requirements. Specifically, our objectives were to
determine if RIDEM was:
» Managing grant funds provided by EPA in
accordance with the terms and conditions.of
the grant.
» Allocating costs associated with Federal and
State activities appropriately.
* Drawing funds in accordance with .the Cash
Management Improvement Act.
* Meethg Federal match requirements.
BACKGROUND
RIDEM is comprised of three bureaus; Environmental
Protection, Natural Resources, and Policy &
Administration.
U.S. EPA Headquarters Library
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Each bureau administers the following specific
programs:
Environmental Protection
Air Resources
Compliance and Inspection
Technical & Customer
Assistance
Waste Management
Water Resources
Criminal Investigation
Natural Resources
Agriculture
Coastal Resources
Enforcement
Fish & Wildlife
Forest Environment
Parks & Recreation
Administrative
Adjudication
Policy & Administration
Human Resources
Management Services
Planning & Development
Strategic Planning and Policy
Legal Services
In FYs 1996,1997 and 1998 EPA awarded RIDEM 38
grants totaling $16,755,631. These grants were
awarded under 23 separate programs. EPA awarded
both categorical grants and Performance Partnership
Grants (PPGs) during FYs 1996-1998. A PPG is a
single grant made to a State or Tribe from grant funds
allocated and otherwise available for existing
categorical grant programs. PPGs are voluntary and
provide States and Tribes with the option to combine
funds from two or more categorical grants into one or
more PPGs. Recipients may receive their financial
assistance as one or more PPGs, or continue
receiving categorical grants.
Our audit dealt primarily with RIDEM's Offices of
Management Services, Air Resources, and Water
Resources. The services and functions these offices
provide RIDEM are detailed below.
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The Office of Management Services (QMS) consists
of accounting, budgeting, data processing, boat
registration, commercial fishing licenses, revenue and
receipt tracking, property insurance monitoring, fresh
water fishing and hunting licenses, mail distribution,
in-house print services, basement record storage, and
the technical aspect of telephone operations. In
addition to fund accounting, the office handles all
purchase requests, debt collection management,
travel and conference requests. The office personnel
consist of a chief, budget administrator, assistant
administrator for financial management, accountants
and support staff. The licensing staff consists of an
administrator, titling supervisor and support staff. The
Information Management Unit consists of two
program analysts and a technical support specialist.
The QMS supports all divisions and offices of the
department. The OMS has fiduciary responsibility
with all State and Federal funding as it works closely
with all RIDEM officials and Federal and State
agencies. The OMS implements the Fiscal Integrity
Act which is a set of standards established by the
general assembly and assures that audit
recommendations are implemented as expediently as
possible. In support of the regulatory group, the
office staff tracks penalties, billings, and fines and
works closely with State collection personnel.
The Office of Air Resources (OAR) is responsible for
the preservation, protection and improvement of the
State's air resources. This is accomplished mainly
through regulating the emission of air pollutants from
stationary sources, and more recently, from mobile
sources. Planning, air pollutant emission inventory,
and air quality monitoring functions are also major
activities. Much of OAR's work is related to assuring
the State improves its air quality in order to attain the
standard on the schedule required by the Federal
Clean Air Act. The OAR is working to implement new
emission reduction programs and is working with
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other states to assure emission reductions in the
Region help Rhode Island attain the standard.
The Office of Water Resources (OWR) implements a
variety of programs aimed at protecting and restoring
the State's surface waters, groundwater and
wetlands. The OWR includes 11 major programs:
Individual Sewage Disposal Systems (ISDS) and
Freshwater Wetlands Permitting; Groundwater and
Surface Water Quality Certifications and
Underground Injection Control (UIC); Rhode Island
Pollutant Discharge Elimination System (RIPDES)
and Pretreatment; Wastewater Treatment Facilities
(WWTFs) and sludge management; Narragansett
Bay Estuary Program; Shell Fishing Area Water
Quality Monitoring; Groundwater Protection; Water
Quality Classifications and Standards; and
Watershed Protection and Restoration
(TM DL/Assessment).
SCOPE AND
METHODOLOGY
We performed this audit in accordance with
Government Auditing Standards (1994 Revision)
issued by the Comptroller General of the United
States as they apply to performance audits. Our
review included tests of the accounting records and
other auditing procedures we considered necessary.
We reviewed RIDEM's accounting records including
the comptroller's reports, cost schedules prepared by
the Assistant Administrator for Financial
Management, employees costs cards, invoices and
adjustment vouchers. We reviewed costs charged to
grants awarded to the OAR and OWR for FYs 1996
through 1998. Our review evaluated RIDEM's
controls, procedures, and documentation to assure
that grants were adequately managed and associated
costs charged to the grant were proper. We did not
evaluate RIDEM's performance under the grants.
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in order to address our a,udit objectives we conducted
the following audit work:
»• Interviewed EPA New England, RIDEM, Rhode
Island State Controller, and Rhode Island
Department of Health (RIDOH) staff.
»• Traced employee cost center reports to
Controller's records and to adjustment folders.
»• Traced payroll costs to grant summary
schedule and Controller's records.
> Traced non-payroll expenditures to supporting
documentation, grant summary schedules, and
Controller's records.
»> Traced grant summary schedules to FSRs
» Traced Air Grant indirect costs to the
supporting documentation.
*• Traced equipment purchases to inventory
records and specific employees.
> Reviewed controls and accounting of the Title
V Operating Permit Fee revenue.
We reviewed management controls and procedures
specifically related to our objectives. However, we did
not review the internal controls associated with the
input and processing of information reported to the
State Controller's Office.
Our fieldwork was performed from May 1,1999 to
January 29, 2000. Fieldwork was conducted at EPA
New England's Boston, Massachusetts office and
RIDEM's Providence, Rhode Island office. We
discussed our preliminary conditions with RIDEM's
OMS and OAR staff, and provided them position
papers on January 26, 2000 to which they responded
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on March 31, 2000. We provided the Region a draft
report on May 18, 2000. The Region respond to our
draft report on June 29, 2000. Their comments have
been considered in the preparation of this report.
PRIOR AUDIT
COVERAGE
No prior OIG audits have been conducted of RIDEM's
Grant Management. The OIG issued audit reports on
a Cooperative Agreement between RIDEM and EPA
(March 22, 1995) and the RCRA Enforcement
Program (January 21, 1999).
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CHAPTER 2
WEAK FINANCIAL CONTROLS COMPROMISE THE INTEGRITY OF
RHODE ISLAND ENVIRONMENTAL PROGRAMS
While RIDEM strives to enhance the quality of Rhode
Island's environment, we found that the internal
controls for financial management of Federal funds
were not adequate to ensure that program objectives
were met and that Federal funds were being
managed appropriately. RIDEM did not adequately
administer funds in accordance with the grant terms
and conditions established between RIDEM and EPA,
or in compliance with Federal and State regulations.
As a result, EPA has limited assurance that grant
funds were utilized in accordance with workplans and
established environmental targets negotiated with
RIDEM.
RIDEM was not following standard internal control
practices that should be used to ensure that grant
funds were properly applied and accounted for.
Specifically, we found that RIDEM did not:
• Have controls in place to assure that costs
charged to the Federal grants were allowable,
reasonable and allocable.
• Have documented written procedures to
assure consistent charges of costs to Federal
grants.
• Segregate the duties of the operating
accountant to assure propriety of accounting
records.
These deficiencies make RIDEM grant programs
vulnerable to fraud, waste, and abuse. This situation
raises questions whether RIDEM is meeting its grant
management responsibilities. Since FY 1996, EPA
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Grants Management Practices of Rhode Island
Department of Environmental Management
Objectives Of An Internal
Control Structure
Standards Of Financial
Management Systems
has provided RIDEM over $16.7 million to help
ensure that the State of Rhode Island improves the
quality of its air, land, and water.
The management of the State and the Department of
Environmental Management are responsible for
establishing and maintaining an internal control
structure. The objectives of an internal control
structure are to provide management with
reasonable, but not absolute, assurance that assets
are safeguarded against loss from unauthorized use
or disposition, and that transactions are executed in
accordance with management authorization and
recorded properly to permit preparation of the
financial statements in accordance with generally
accepted accounting principles.
The key organization controls include authorization
policies, segregation of duties, and clear description
of responsibilities and job tasks. Authorization
policies should be communicated to all affected
parties and monitored for compliance.
40 Code of Federal Regulations (CFR) § 31.20 (b)
states that the financial management systems of
other grantees and subgrantees must meet the
following standards:
Accounting Records - Grantees and
subgrantees must maintain records which
adequately identify the source and application
of funds provided for financially-assisted
activities.
Internal Controls - Effective control and
accountability must be maintained for all grant
and subgrant cash, real property, and other
assets. Grantees and subgrantees must
adequately safeguard all such property to
assure that it is used solely for authorized
purposes.
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RIDEM Control System
Weaknesses
Budget Control - Actual expenditures or
outlays must be compared with budgeted
amounts for each grant or subgrant.
Allowable Cost - Applicable Office of
Management and Budget (OMB) cost
principles, agency program regulations and the
terms of the grant and subgrant agreements
will be followed in determining the
reasonableness, allowability, and allocability of
costs.
Cash Management - procedures for minimizing
the time elapsing between the transfer of funds
from the US Treasury and the disbursement by
grantees and subgrantees.
We found RIDEM had the following internal
control weaknesses in its administration of EPA
provided Federal environmental funds.
> RIDEM did not have adequate controls over
how payroll costs were charged to Federal
grants. See Chapter 3 for more details.
*• The Office of Air Resources (OAR) did not
have a system in place to assure charges to
the Federal grants were allowable, reasonable
and allocable. See Chapter 4 for more
details.
> RIDEM lacked documentation to support it had
met the minimum cost sharing requirement to
be eligible to receive Federal Section 105 Air
funds. See Chapter 5 for more details.
*. RIDEM did not adequately manage its grant
funds, resulting in the Assistant Administrator
for Financial Management needing to make
substantial and frequent shifts of costs
between State and Federal accounts or
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RIDEM Comments
between two Federal grants. See Chapter 6
for more details.
» RIDEM did not maintain Title V operating
permit fee revenue in accordance with either
the terms of the Clean Air Act or Rhode
Island's Air Pollution Control Regulations.
See Chapter 7 for more details.
RIDEM's inadequate internal controls are indicative of
its weak oversight of the program, which also limits
EPA's assurance that future funding will be
adequately protected. The need for RIDEM to have
comprehensive and adequate controls is all the more
necessary now since RIDEM is receiving funding
under the PPG, which allows greater flexibility in
grants management.
In commenting on these matters, State officials
agreed with most of our issues and stated that they
will take action such as segregating the roles of the
operating accountant, establishing written policies,
where applicable, and complying with program
requirements if possible within the structure of the
State of Rhode Island's accounting system. RIDEM
also advised that the air permit fee area was out of
the Department's control and the General Assembly
will not allow RIDEM to create a restricted fund for the
retention of these fees.
RIDEM also stated that the Department is somewhat
constrained as to what it can do within the State
accounting system. The system makes RIDEM
dependent on the Controller's statements and his
postings and not when an expenditure occurred.
RIDEM further advised that in some instances the
OIG observations may be too burdensome to
implement because of staffing and/or funding,
however many of the review positions were accurate
representations.
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RIDEM's management has expressed a willingness to
improve grant management. RIDEM is currently
'developing systems and allocation plans to enhance
financial grant management. Additionally, the
Assistant Administrator for Financial Management
began to document procedures used to account for
Federal grant funds during our audit. At the same
time, RIDEM has stated that there are several
challenges it must overcome to meet all grant
management requirements. We believe that EPA
New England could provide RIDEM with the technical
expertise to assure that the planned technological
improvements will be successful and assist RIDEM to
overcome the obstacles to having a high performing
grant management program.
CONCLUSION
We believe that the timing is appropriate for EPA New
England to expand its partnering efforts with RIDEM.
The internal control weaknesses described in this
report, the challenges that RIDEM noted in the
preceding paragraphs, and the recent change in
accounting staff who manage Federal grants present
EPA New England the opportunity to provide RIDEM
with technical expertise to enhance RIDEM's grant
management program. This technical assistance in
the form of grantee financial management support
would benefit all RIDEM's programs. RIDEM
acknowledged that the management weaknesses
found in its system can be corrected to address the
Federal requirements.
The following chapters present the specific areas of
internal control weaknesses in RIDEM's grant
management with recommendations for
improvements. We believe RIDEM and EPA New
England working together to strengthen RIDEM's
internal controls will result in adequately protecting
EPA's grant funds.
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Grants Management Practices of Rhode Island
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percent of employee's time would result in
program/activity costs being incorrectly
charged to those programs for which time is
accounted not where it was spent.
Fringe benefits are allowances and services
provided by employers as compensation in
addition to regular salaries and wages. Fringe
benefits include but are not limited to, the costs
of leave, employee insurance, pensions, and
unemployment benefit plans. The costs of
fringe benefits in the form of regular
compensation paid to employees during
periods of authorized absences from the job,
such as for annual leave, sick leave...and other
benefits are allowable if: (a) they are provided
under established written policies; (b) the costs
are equitably allocated to all related activities,
including Federal awards; and (c) the
accounting basis (cash or accrual) selected for
costing each type of leave is consistently
followed by the governmental unit.
RIDEM NEEDS TO CHARGE
ACTUAL ACTIVITIES
AGAINST AIR GRANT
Our review of costs charged to the Section 105 Air
Grants revealed that RIDEM was utilizing an
unapproved cost allocation system. When seeking
reimbursement for Section 105 Air activities, RIDEM
employees did not fill out personnel activity reports or
the equivalent that reflected an after-the-fact
distribution of the actual activity of each employee. In
lieu of claiming actual activity, RIDEM was using a
cost allocation system that was not reviewed or
approved as required. OMB Circular A-87 mandates
that charges claimed against the Federal Section 105
Air grant were to be actual expenditures, not
proposed or budgeted costs. As a result, EPA has
limited assurance that costs claimed for
reimbursement under the Section 105 Air Grant were
for allowable grant activities. Additionally, the integrity
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Employees Charge Time
Based On Budget Not
Actual Hours
of the RIDEM Financial Management System and
reports generated from their system was brought into
question based on this condition.
RIDEM employees were directed to fill out their
time cards based on an allocation system, not based
on actual hours worked on a specific activity. The
Chief, .Office of Air Resources (OAR) provided each
employee on his staff with a percentage for each
activity to charge. The percentage was based on the
budgeted amount of Federal and State funds
available for the Air grant. It was not based on actual
activity. This was done to ensure RIDEM did not
overspend funds. Additionally, the Assistant
Administrator for Financial Management advised that
he was unaware that these amounts were estimates
and not actual.
During our review of a judgmentally selected sample
of cost cards, we found eight of the 18 (45 percent)
OAR employees charged their time based on a
budget allocation rather than actual.
The following are examples of cost cards charges:
Employee A
For the 23 weeks reviewed,
the employee regularly
charged 24.5 hours to the
Air Pollution Control and
10.5 hours to the Operating
Permit Program, a 70/30
allocation.
Employee B
For the 14 weeks reviewed,
the employee regularly
charged 17.5 hours to Air
Pollution Control and 17.5
hours to the Operating
Permit Program, a 50/50
allocation.
Employee C
For the 11 weeks reviewed,
the employee regularly
charged 21 hours to the Air
Pollution Control and 14
hours to the Operating
Permit Program, 60/40
allocation.
In addition, we found five other employees' cost
cards, included in our sample, showing similar types
of charging time on a regular allocation rate, such as
50/50, 70/30 and 60/40 basis.
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OMB Circular A-87 provides States with minimum
standards for their financial management system. A
State's financial management system shall provide:
(1) Accurate, current and complete disclosure of
the financial results of each program.
(2) Records that identified adequately the source
and application of funds for EPA-sponsored
activities. These records shall contain
information pertaining to Federal awards,
authorizations, obligations, unobligated
balances, assets, outlays, income and interest.
(3) Written procedures for determining the
reasonableness, allocability and allowability of
costs in accordance with the provisions of the
applicable Federal cost principles and the
terms and conditions of the award.
(4) Accounting records, including cost accounting
records, that were supported by source
documentation.
Without RIDEM having an adequate financial
management system in place, EPA has limited
assurance that the $3.8 million of Section 105 Air
Grant funds awarded during our audit period were
utilized in the most effective manner possible in
addressing the State's air pollution.
RIDEM's practice of charging costs based on
budgetary amounts rather than actual expenditures
was in violation of the terms and conditions of its
grant agreement with the Agency. The State Auditor
General's May 14, 1997 report noted similar
weaknesses where employees reported hours for
activities that did not correspond with their actual
effort. The Auditor General report states: "DEM
16
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Grants Management Practices of Rhode Island
Department of Environmental Management
RIDEM's Control Guidance
Not Followed By All Employees
contends that expenditures should be charged where
they were budgeted regardless of where the costs
were actually attributable." The report recommended
that all employee time cards accurately reflect hours
by activity.
RIDEM officials stated that employees were never
directed to fill out their time cards using a certain
percentage of time for different cost center jobs.
Employees were provided a percentage of time they
were expected to spend on activities under different
cost centers. Some employees may have interpreted
this as an instruction to fill out time cards according to
the percentages given. However, the policy directive
was to fill out time cards according to activities
performed. In any case, staff of the Office of Air
Resources have been advised that time cards must
be filled out based on actual activity. They have also
been advised that the percent of time expected for
different cost centers were targets and time cards
should not automatically reflect these percentages.
RIDEM issued several memos advising employees to
charge the actual activity, going back to 1997.
Another memo was issued in 1999 with similar
instructions and now in 2000 employees are being
advised again as to how to charge their time. This is
an indication that RIDEM's controls over the charging
of payroll expenses were not being adopted by its
employees. This further indicates that RIDEM should
seek a new control to ensure that employees charge
time in accordance with the actual activity worked
during the time period.
17
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Grants Management Practices of Rhode Island
Department of Environmental Management
CHARGING AND ACCOUNTING
FOR AUTHORIZED ABSENCE
IS NOT ADEQUATE
Leave Costs Are Allowable
If Equitably Allocated
RIDEM's controls over employees charging
authorized absence did not ensure that costs were
equitably allocated to all related activities. RIDEM's
employees charged leave as a direct cost to the grant
the same way they charged time for actual grant
work. There were no written procedures for charging
leave when employees worked on multiple activities.
The common practice for employees was to charge
the grant activity where most of the employees' time
was previously charged or based on an established
budget rate. Since a majority of the employees work
on multiple activities, employees must estimate which
activities to charge their leave. As a result, there was
limited assurance that leave costs were equitably and
consistently allocated to all activities.
OMB Circular A-87 provides that the cost of
fringe benefits in the form of regular compensation
paid to employees during periods of authorized
absences from the job, such as for annual leave, sick
leave, holidays, court leave, military leave, and other
benefits are allowable if: (a) they are provided under
established written leave policies; (b) the costs are
equitably allocated to all related, including Federal
awards; and, (c) the accounting basis (cash or
accrual) selected for costing each type of leave is
consistently followed by the governmental unit.
Our review of cost cards showed that employees
charged authorized absences in the same manner in
which labor was charged. The employees charged
the grant and noted next to the hours charged if the
hours were vacation, sick, holiday etc; The Office of
Air Resources employees charged their leave based
on their same budget allocation followed for labor. If
the employee charged his/her labor time on a 50/50
basis, the leave costs would follow this same
allocation.
The Chief of Office of Air Resources stated that there
was no specific protocol on how to split leave time.
18
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Grants Management Practices of Rhode Island
Department of Environmental Management
State Auditor Cites
Leave Costs Not
Consistently Allocated
RIDEM Concurs Its
Leave Policy Conflicts
With A-87
Additionally, the Deputy-Chief of Water confirmed that
there was no policy oh how to charge leave for
employees who work on multiple activities. The
standard practice was for employees to charge either
the current activity or estimate where the majority of
their previous time was charged.
The State of Rhode Island's Auditor General Report
of RIDEM for the period ending June 30, 1996
contained the following finding:
Costs for compensated absences (i.e.
discharge of vacation, sick or personal time)
are not consistently allocated. One group of
employees assigns cost center codes to
absences based on estimates. Costs for
another group are apportioned prorata based
on current charges.
In response to the State Auditor General's report on
April 9, 1997, RIDEM advised that the Department,
subject to funding availability, will continue to explore
the procurement and implementation of an automated
"image scanning" technology for payroll processing
and cost allocation.
On March 31, 2000, we were advised by RIDEM that
it was nearing completion of a scanned
personnel reporting time card that will allow for
improved accountability for Federal versus State time
allotment and leave structure. RIDEM further stated
that it was aware that its leave policy was in conflict
with OMB A-87 and acknowledged that the leave
allocation policy must be worked on. RIDEM's
position was that any changes must be prospective
and that implementation of a tracking allocation not
be burdensome. However, RIDEM believed that its
administrative controls over leave charging were
adequate.
19
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Grants Management Practices of Rhode Island
Department of Environmental Management
Leave Policy Weakness
Is A Chronic Problem
Based on the State Auditor General's finding in 1997
and our review's similar findings, we conclude that
RIDEM does not have adequate controls to assure
that leave costs are equitably and consistently
allocated to all activities. Additionally, RIDEM has
been indicating for three years that "scanning image"
technology would be implemented to resolve this
condition. A chronic condition such as this needs to
be addressed before additional time passes. RIDEM
also noted that its leave policy was in conflict with
OMB A-87 but controls should not be burdensome.
We concur that controls should not be burdensome,
however, compliance with OMB A-87 is a required
grant condition.
The current practice for charging leave may result in
Federal grants being inequitably charged for leave
expenses because employees charge leave based on
estimates or budgets rather than on an approved and
equitable allocation plan.
FRINGE BENEFIT COSTS
WERE UNDERSTATED
Fringe Benefits
Includes Cost Of Leave
RIDEM did not include authorized leave
compensation in its fringe benefit rate, resulting in
understating the actual fringe benefit costs associated
with the grant. There was no way to distinguish
payroll costs charged to a grant as representing
compensation for the time devoted and identified
specifically to the performance of the grant activities,
as opposed to the fringe benefit costs of authorized
leave compensation. As a result, RIDEM was not in
conformance with OMB Circular A-87 requirements.
OMB Circular A-87 provides the following:
Fringe benefits are allowances and services
provided by employers to their employees as
compensation in addition to regular salaries
and wages. Fringe benefits include but are
limited to, the costs of leave, employee
20
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Grants Management Practices of Rhode Island
Department of Environmental Management
insurance, pensions, and unemployment
benefit plans. Except as provided elsewhere in
these principles, the costs of fringe benefits
are allowable to the extent that the benefits are
reasonable and are required by law,
governmental unit-employee agreement, or an
established policy of the governmental unit.
The Assistant Administrator for Financial
Management stated that costs for authorized
absences were not included as part of the fringe
benefit rate. This practice conflicts with A-87's
definition of fringe benefit costs. Additionally, the
grant application budgets will not provide EPA an
accurate picture of labor charges to accomplish grant
goals, since the inclusion of fringe benefit costs will
distort payroll expenses. The payroll charges include
both direct labor and fringe benefit costs. There is no
readily accessible way for RIDEM to differentiate
direct labor and fringe benefit leave expense from the
grants' total payroll expenses.
CONCLUSION
RIDEM needs to address the controls in place over
the charging of time and leave on employees cost
cards, and the accounting for fringe benefit expense.
Our current audit and the State Auditor General's
report show that control weaknesses represent a
chronic problem for RIDEM. These repeat conditions
also demonstrate that RIDEM's actions to correct
these weaknesses have not been successful. To
ensure that RIDEM is charging grant costs that are
equitable, reasonable and in compliance with Federal
requirements, we recommend that RIDEM take the
following actions to resolve these grant management
weaknesses.
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Grants Management Practices of Rhode Island
Department of Environmental Management
RECOMMENDATIONS:
We recommend that you instruct RIDEM to do the
following:
3-1. Ensure that employees and supervisors follow
RIDEM's policy of charging its payroll costs to
actual activities by having Office of
Management Service staff perform regularly
scheduled quality assurance reviews of
selected cost cards for compliance.
3-2. Establish administrative controls over the
charging of authorized leave expenses. These
controls need to assure that leave costs are
equitably and consistently charged to all
activities.
3-3. Establish procedures for its employees to
follow when charging leave expense on cost
cards. These controls should allow for a
system that differentiates payroll expenses as
direct labor from authorized absence fringe
benefit expense; and will allow RIDEM to
determine leave costs and make them part of
its fringe benefit rate.
3-4. Ensure that its accounting of leave is in
compliance with Generally Accepted
Accounting Principles (GAAPs) regarding the
recording of leave under its chosen accounting
basis.
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Grants Management Practices of Rhode Island
Department of Environmental Management
CHAPTER4
RIDEM DID NOT CHARGE AND ALLOCATE COSTS
TO THE APPROPRIATE PROGRAMS
The Office of Air Resources (OAR) did not have a
system to allocate costs to allowable and unallowable
programs, and Air program staff charged incorrect
accounts and cost centers when traveling. Also,
RIDEM charged costs to the Air and Water grants
that were outside the grant period, and charged the
EPA Air grants for expenses incurred to conduct lead
inspections although these activities were included in
a separate agreement with another Federal
department. This occurred because of RIDEM's: (1)
philosophy of maximizing Federal grant funds, (2)
utilization of Federal funds for equipment and supply
purchases, (3) response to State budget cuts, and (4)
avoidance of cumbersome State regulations. As a
result, computers purchased were charged 100
percent to Federal grants even though staff time was
planned to be split between eligible and ineligible
Federal activities; and vehicles costs were allocated
to two different Federal grants even though
employees were to use the vehicles to perform
activities ineligible for Federal reimbursement. In
addition, time and travel cost was not always
appropriately charged and EPA did not always benefit
from charges made to the Air grant.
Two major functions administered by the OAR were
the Air Pollution Control Program (APC) and the
Operating Permits Program (OPP). The APC
activities were eligible for Federal reimbursement,
while those activities under the OPP were not. OAR
must assure that charges to the Federal Air grant
were allowable, allocable, and reasonable.
23
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Grants Management Practices of Rhode Island
Department of Environmental Management
The Implementation Guide for OMB Circular A-87
Section 2.10 clarifies that costs must be allocated to
all benefiting activities, including those that are
unallowable, as well as donated services. In addition,
Section 2.11, paragraph 2-12 requires that where a
cost or activity benefits multiple activities or programs,
those costs must be allocated in accordance with the
relative benefits received by each program or activity.
This requirement is the underlying principle of cost
allocation.
OMB Circular A-87 Section 11 (h)(1) states that
charges to Federal awards for salaries and wages,
whether treated as direct or indirect costs, will be
based on payrolls documented in accordance with the
generally accepted practice of the government unit.
In addition, Section 3-24 of the Implementation Guide
states that the timeliness of completing time and
effort reports depends on the nature of the activities
being reported. The Circular also requires that such
reports reflect the actual activity of each employee.
CHARGES TO FEDERAL
GRANTS NOT ALLOCATED
APPROPRIATELY
In July 1998, the OAR purchased 21 computers.
Seven were paid with State funds and the other 14
with Federal funds. We were able to locate
documentation that showed the individuals to whom
19 computers were assigned. Of the 19 computers,
three were assigned to individuals who were assigned
100 percent to the Air Pollution Control Program. The
remaining 16 computers were assigned to individuals
who, according to OAR's FY 1998 staffing plan,
charged or split their time between the Lead
Inspection Program, Operating Permits Program, and
the Air Pollution Program.
24
Report No. 2000-1-00416
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Grants Management Practices of Rhode Island
Department of Environmental Management
the following schedule shows the 19 computers and
the employees' planned program activities for FY
1998:
COMPUTERS ASSIGNED TO STAFF
SERIAL
NUMBER
6812BNT5Q645
6818BNT5E088
6818BNT53030
6818BNT5D944
6818BNT5E090
6818BNT5E127
6753BNT5PI71
6818BNT5E031
6818BNT5D546
6818BNT5E089
6818BNT5E087
6818BNT5E099
6818BNT5E125
6818BNT5D949
6752BNT5R518
6818BNT5E012
6818BNT5E094
6818BNT5E020
6818BNTSES49
PLANNED TIME BY
EMPLOYEE USING
COMPUTER
100% LEAD INSPECTIONS
100% PERMITS
40% PERMITS, 60% AIR
30% PERMITS, 70% AIR
30% PERMITS, 70% AIR
100% PERMITS
100% AIR
30% PERMITS, 70% AIR
50% PERMITS
30% PERMITS, 70% AIR
30% PERMITS, 70% AIR
100% AIR
100% PERMITS
100% PERMITS
100% PERMITS
40% PERMITS, 60% AIR
100% AIR
30% PERMITS, 70% AIR
50% PERMITS, 50% AIR
Since these computers were not used solely to carry-
out Federally eligible activities, 100 percent of the
cost should not have been charged to the Federal
grant. The Chief, OAR, conceded that there was no
allocation system in place that would allow the
25
Report No. 2000-1-00416
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
-------
Grants Management Practices of Rhode Island
Department of Environmental Management
Vehicles Charged One Hundred
Percent To Federal Grants
segregation of costs between eligible and ineligible
activities.
On March 31, 2000, RIDEM advised that "The
purchase of the computers was based on expected
percentage of time staff spends on the Federal air
grant. It was expected that staff would spend about
66% on the Federal grant. EPA's analysis stated that
the use was 50% on the Federal grants. DEM will
continue to closely monitor computer purchases to
assure actual use is within 10% of A (sic) planned
use".
We believe that because RIDEM was aware of the
percentage of time employees were' expected to work
on Federal activities, it could have allocated the
computer based on this plan. In addition, even if
RIDEM expected staff to spend 66 percent of their
time'on Federal activities, it failed to explain why it
charged the Federal grant 100 percent o'f the costs.
RIDEM charged the cost of three vehicles to two
different Federal Air grants even though the vehicles
were used for various eligible and ineligible Federal
Air activities. In the justification for the purchase of
the vehicles, the RIDEM Associate Director wrote that
"Two of the vehicles... will be used in the continued
implementation of the State's Air Pollution Control
Programs., These programs; currently consisting of
major and minor source inspections, operating
permits, air toxics, stack testing, and continuous
monitoring audits, mobile sources and other related
duties...." The memo also stated that the other car
would be used for a new fine particulate monitoring
program required by OAR's Federal grant which
required the installation and maintenance of a new
Statewide Air monitoring network. The memo clearly
shows that use of the vehicles will benefit more than
just the Federal programs, therefore, the cost should
have been allocated to all benefiting programs.
26.
Report No. 2000-1-00416
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Grants Management Practices of Rhode Island
Department of Environmental Management
The following schedule shows the cost and accounts
the vehicles were charged to:
Vehicle Type
1998 Ford Taurus
(2) - 1999 Ford
Contours
Accounts
Charged
1752-501
1752-506
1752 -501
1752-506
Amount
$12,152.32
$ 6,835.68
$24,974.08
$14,047.95
Date
Paid
09/14/98
03/08/99
1752-501 - Federal ARC, 1752-506 Federal Ambient Air
The OAR started using a "vehicle sign up form" in
January 1999. The form listed the make and number
of the vehicle, and the days of the week. It also
required employees to sign out, and document the
departure and return time. We believe OAR is on the
correct path by developing a sign up form. However,
they need to go further by expanding the form to
gather information on the purpose of the trip and the
number of miles driven. This information will allow
OAR to allocate future vehicle costs based on actual
usage.
We also noted numerous auto maintenance charges
to the Federal Air grant. The Chief, OAR stated auto
maintenance was charged to whatever account a
vehicle was purchased under. We believe auto
maintenance charges should be allocated to the
programs that use the vehicle not the program that
purchased the vehicles.
On March 31, 2000, RIDEM advised that, "The
Department contacted three state agencies to obtain
information regarding how they allocate the expenses
of vehicles purchased with Federal dollars. The
system that DOT has in place utilizes a semi-monthly
state vehicle distribution sheet. The data is then used
to proportion the costs between Federal and state
accounts. This procedure is the closest to that
27
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Grants Management Practices of Rhode Island
Department of Environmental Management
Inconsistent Cost Centers
And Accounts Charged When
Staff Traveled
suggested by the EPA. This is a full time
responsibility for one FTE. (Full Time Equivalent
position)".
Air Program staff charged incorrect cost centers
and accounts when they traveled. This was caused
by RIDEM's practice of maximizing Federal grant
funds. As a result, charges made to the grant did not
always benefit the Air program, and expenses and
salaries charged to the Air grant may not have always
been appropriate.
Our review of the Air grants for FYs 1996, 1997 and
1998 noted many instances where employees who
traveled to perform such duties as lead inspections,
charged the lead inspections cost center for labor
costs, but charged the Air Pollution account instead of
the Lead account for travel costs. We also noted
many instances where travelers, had no purpose
written on their travel voucher and would either
charge the Operating Permits Program cost center or
split their time between Operating Permits and Air
Pollution cost centers. These individuals then
charged 100 percent of the travel to the Air Pollution
Control Program,
28
Report No. 2000-1-00416
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Grants Management Practices of Rhode Island
Department of Environmental Management
The following schedule shows travel by employees
and the accounts and cost centers charged:
11 Hi ii 11111 m 11111111111 in i M n 1111111111 M in i iti 11
UIMU
'Date of
ill I:
Travel
HlllHlf II
10/11-'] 012/95
[tlllllii!
mint
10/19/95
iilil!
HUM 1
10/24/95
Mtlll 1
11/14/95
IlilH!
IHtMMI
11/29-30/95
IHHI
4/30/96
HUH
mmi
10/8-9/96
[ llti
H/4/96
nmii
11/12/96
Ill
NIMH
9/3-4/97
Mtlll 1
09/25/97,
IHIHl
Mill
10/9/97
II
1'ltllJ
rAccounc
iiuui
1752-501
*
i M 1 1 1 1
1752-501
\m\
1752-501
J&I
HUM
752-501
till! It
1752-501
lltfSI
tutu
752-501
1752-501
APC
1752-501
APC
HUH*
1752-501
APC
Hil
Ulltll
1752-501
1752-501
IMIjtl
1752-501
I'l it'll!!
.liost tenter
m' I'M. if
Air Pollution
ill!
i.mm.H
Air Pollution
111!
U.I «t '.I Ml
Air Pollution
'& Operating
liFp^fll
III'I'IUI
Air Pollution
'iOperitnJ
|j Permits |j
111'! '11.11
Air Pollution
(i X ' * * '- ' '
& Operating
|| Pe/rjiitj j;
I'lll'.ll
Operating
Permits [
I'lll'H
Operating
'&bp'erating
il'Pertnititt
IIIHIII.
Inspections
J I i i t t 1 *
Inspections
H'liaclil
J I i 11 : U I
Inspections]
IIPII
Conference
i I I ;
Inspections
jutyn
Lead Paint
Meeting
tlllll H
:NESCUM
Conference'
^fEseuM
' t i i » f i t
Conference
Ilillilt
imtni
NEWMOA
'1 1 ' 1 t 1 1
Conference
llllll!
Uti
nil
MM
None
11
iiniiiiiinniiiiiiiiiiiiiiiininiiiniiimiiiiiiiiii
The Chief, OAR stated that he reviewed all travel
vouchers to assure that the correct accounts were
charged. Because of the inconsistency in accounts
charged when employees traveled and the time
charged on the cost center cards, management
needs to develop a system to assure that employees
29
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Grants Management Practices of Rhode Island
Department of Environmental Management
charge the correct accounts and cost centers when
they traveled.
On March 31, 2000, RIDEM advised that, "The Chief
of the OAR is responsible for assignment and
requesting all out of State travel and the Chief will
issue a written policy requiring all travel requirements
meet Federal criteria. These breakdowns represent
the need for RIDEM to strengthen its internal
controls".
OAR travel policy should require that travel accounts
charged are consistent with the cost centers charged
for the dates of travel.
COSTS CHARGED
OUTSIDE THE GRANT PERIOD
Numerous costs charged to the Air grants and the
Water Performance Partnership Grants occurred
outside the grant periods. This occurred because of
RIDEM's policy of recording expenditures on a cash
basis and untimely voucher submittals. As a result,
costs were incorrectly charged to EPA grants.
Generally Accepted Accounting Principles define the
cash basis of accounting as expenses recorded when
cash is paid. The accrual basis is defined as
recognizing expenses when they occur, regardless of
when cash is disbursed.
40 CFR Part 31 Uniform Administrative Requirements
for Grants and Cooperative Agreements to State and
Local Governments § 31.41(b) (2) states that each
grantee will report program outlays and program
income on a cash or accrual basis. In addition,
§31.23 states that where a funding period is
specified, a grantee may charge to the award only
costs resulting from obligations of the funding period.
RIDEM's Financial Status Reports (FSRs) submitted
to EPA stated that the accrual basis for accounting
30
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Grants Management Practices of Rhode Island
Department of Environmental Management
was used. However, RIDEM procedures for grant
accounting states, "Post expenditures directly from
Controller's Statement B to accounting
worksheet/ledger (Postings will include all paid
vouchers)" which is the cash basis of accounting.
We found that RIDEM's Assistant Administrator for
Financial Management of Management Services
recorded expenditures when they were paid by the
Rhode Island Controller rather than when incurred.
Also, vouchers were submitted for payment from two
days to over three months after the travel dates. In
addition, RIDEM policy for local travel was to group
travel together on a monthly basis before submission
to Management Services for payment. This travel
was listed under the title "Sundry Payees".
The EPA grant period was normally from October 1,
to September 30 unless a grant extension had been
executed. The following are the time periods for the
cooperative agreements we reviewed:
Air
FY 1996 -10/01/95 to 09/30/96
FY 1997 -10/01/96 to 09/30/97
FY 1998 -10/01/97 to 09/30/98
Water-1,06 FY 1996 -10/01/95 to 09/30/97
FY 1997 -10/01/96 to 09/30/00
. - ' • .
Water - PRO FY 1998 -10/01/97 to 09/30/99
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Department of Environmental Management
The following illustrates Air and Water program staff
travel was charged to the wrong grant:
Voucher
No.
80734
81282
82245
32555*
82384
8/12/78
34484*
68639
70259
73752
86358
Date
Traveled
08/3-8/31/95
09/13/95
8/3-8/31/95
09/15/97
08/2/95
09/13/95
06/18/97
08/17-24/96
06/8-12/96
09/29-10/1/96
09/18-20/96
Date Voucher
Prepared
09/21/95
09/15/95
9/21/95
10/14/97
8/4/95
09/15/95
10/14/97
08/28/96
06/24/96
10/3/96
1 1/24/96
Date
Paid
10/11/95
10/13/95
10/18/95
10/21/97
10/19/95
10/13/95
11/21/97
1 1/1/96
11/13/96
12/2/96
1/13/97
Account
Charged
FY96-Air
FY 96 - Air
FY96-Air
FY98-Air
FY96-Air
FY 96 - Air
FY 98 - Air
FY 97 -Water
FY 97 -Water
FY 97 - Water
FY 97 -Water
* Sundry Payees
We also noted instances in which costs for University of
Rhode Island interns and costs for the contract with RIDOH
for Air lab services were also billed to the incorrect grant.
On March 31, 2000, RIDEM advised that/The DEM uses the
State accounting system. The Department of Administration
opted for a cash based rather than the generally accepted
accrual system. The Controller currently does not allow a
department to record charges to a grant prior to the
Controller's processing payments. This causes delays of up
to sixty days. Due to the accounting methods the state has
chosen, the department does not concur with the comments.
The Department must continue to utilize the State
Accounting system. In addition the Federal A-87 gives each
state the option of selecting its accounting methods".
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RIDEM needs to work with the Controller's office to
ensure that recording of grant costs complies with
Federal requirements. Activities budgeted under a
particular grant must be charged to that grant.
in addition, even though the State may use the cash
basis of accounting, RIDEM did not always use the
cash basis. We noted instances in which payroll was
charged to the Federal grant on an accrual basis. 40
CFR part 31 requires that only one basis of
accounting is used at a time not a combination of
both. RIDEM needs to improve its internal controls to
assure that charges made to the Federal grants
represent actual costs for the grant periods.
RIDEM CHARGED EPA FOR
ACTIVITIES NOT INCLUDED OR
BUDGETED IN THE AIR GRANT
RIDEM charged the FYs 1996 and 1997 EPA Air
grants for expenses incurred to conduct lead
inspections although these activities were included in
a separate agreement with another Federal
department. This was caused by RIDEM's general
philosophy to maximize the Federal grant. As a
result, EPA was charged for activities that did not
directly benefit the Air Program.
the Implementation Guide for OMB Circular A-87
Section 2.10 clarifies that costs must be allocated to
all benefitting activities, including those that are
unallowable, as well as donated services. In addition,
Section 2.11, paragraph 2-12 requires that where a
cost or activity benefits multiple activities or programs,
those costs must be allocated in accordance with the
relative benefits received by each program or activity.
This requirement is the underlying principle of cost
allocation.
OMB Circular A-87 defines a cost being reasonable
when the cost is of a type generally recognized as
ordinary and necessary for the operation of the
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Department of Environmental Management
government unit or the "performance of the Federal
award.
In August 1995, RIDEM entered into an agreement
with RIDOH for the period July 17,1995 to June 30,
1996 in which RIDEM agreed to continue to
undertake routine inspections of exterior paint
removal (both proactively and in response to citizen
complaints) and take appropriate enforcement action
when violations were found. The Associate Director,
RIDOH stated that they received funds for the lead
inspections from the Federal Department of Housing
and Urban Development. Lead paint activities were
not included in RlOEM's FY 1996 grant application to
EPA.
RIDOH supplied RIDEM with $40,000 to pay the
salary of up to one full-time equivalent inspector,
inspector training costs and other expenses towards
fulfilling the responsibilities of the RIDEM compliance
program for the Air Pollution Control Regulation No.
24. RIDOH also stipulated that the amount requested
should not exceed $40,000 for the full agreement
period.
The intent of RIDEM's lead removal program was to
protect the public from improper removal of lead
based paint by assuring that anyone, including private
homeowners, who removes lead based paint does so
in a manner that minimizes, to the greatest extent
possible, the impact of lead paint in the environment.
The program also sought to conduct public outreach
to educate persons on the proper lead based paint
removal methods.
In FY 1996, RIDEM expended $49,949.62 on payroll
and was reimbursed for $40,000 by RIDOH. The
additional $9,949.62 was billed to the FY 1996 Air
grant. In addition, travel expenses incurred to
perform lead inspections were also billed to the Air
Grant. The Assistant Administrator for Financial
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Management stated that the Chief, OAR directed him
to bill any excess lead inspection expenses to the
Federal grant. Although the Chief, OAR stated that
his agreement with EPA allowed excess lead
expenses to be billed to the Federal grant, he could
not provide documentation to confirm this statement.
However, the EPA project officer for Air stated that he
could not recall such an agreement.
Additionally, in FY 1997, RIDEM again entered into
an agreement with RIDOH for the period July 1,1996
to June 30,1997 to perform lead inspections. This
agreement was increased to $43,500. The additional
$3,500 was to be used to provide RIDEM's Division of
Compliance and Inspection with a computer
workstation(s) and software to develop, maintain and
transmit data to RIDOH.
RIDEM expended $45,123.40 on payroll and was
reimbursed for $40,000 by RIDOH. The additional
$5,123.40 was billed to the Federal Air grant. In
addition, travel expenses incurred were billed to the
FY 1997 Federal Air grant. Also, RIDEM purchased a
computer for $4,197 which was billed to the FY 1997
Air grant. The Assistant Administrator for Financial
Management stated that they received the invoice too
late to bill RIDOH so they instead charged it to the
Federal grant. The purchase requisition for the
computer was initiated in March 1997, the purchase
order in May 1997 and was paid by the Controller on
July 23,1997. We believe that RIDEM had adequate
time to bill RIDOH for the computer.
The EPA project officer for the Air grant was not
aware that RIDEM was billing EPA for such services
and equipment, and was not aware of an agreement
in which EPA would be billed for expenses not
covered by RIDOH.
On March 31, 2000, RIDEM advised that the FY 1997
105 Air Grant application describes the lead paint
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Grants Management Practices of Rhode Island
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activities of the then Division of Air Resources. The
Department's position is that all charges made to the
Air grant for lead paint activities in FY 1997 were
proper. There was no such similar description of lead
paint activities in the FY 1996 Program narrative.
RIDEM further stated that lead paint activities are part
of the State's Air Pollution Control Program and are
related to protecting human health. Therefore, the
Department believes the charges were proper.
Even though RIDEM's FY 1997 grant application
included activities to protect the public from improper
removal of lead based paint, we believe the FY 1996
or 1997 costs were not proper because they were
incurred to fulfill the requirements of an agreement
with another Federal department.
The cost incurred by RIDEM was necessary for its
agreement with RIDOH not with EPA. The Air grant
should not be charged for services and equipment
that directly benefit another Federal department not
the Air program. Ultimately, the use of Federal Air
grant funds supplanted the use of State funds.
CONCLUSION
The need for RIDEM to develop a system to allocate
costs to all benefiting programs is imperative
because all OAR activities are not eligible for Federal
reimbursement. RIDEM's philosophy of maximizing
Federal grant funds for program expenses results in
unnecessary charges to Federal grants that do not
benefit EPA. RIDEM needs to work with EPA New
England and the State Controller to ensure that
Federal grants are managed in accordance with
Federal requirements.
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RECOMMENDATIONS
We recommend that you instruct R1DEM
management to establish controls and procedures to
assure that:
4-1. Costs are allocated to all appropriate
programs.
4-2. Vehicle costs are allocated to all benefitting
programs.
4-3. Employees consistently charge the appropriate
accounts and cost centers when they travel.
4-4. Accounting and charging of costs to Federal
grants adhere to OMB Circular A-87, and 40
CFRpart31.
4-5. Charges to the Federal grant are allowable per
the grant agreements.
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CHAPTER 5
RIDEM COULD NOT SUPPORT THAT IT MET MATCHING
REQUIREMENTS OF THE FISCAL YEAR 1996 AIR GRANT
$94,280 In Matching Funds
Were Unsupported
Our review of RlOEM's FY 1996 Section 105 Air
Grant revealed that RIDEM: (1) could not support it
had met the minimum cost sharing requirement to be
eligible to receive Section 105 Air funds; and (2) did
not maintain adequate records to support
expenditures claimed as its cost share. RIDEM's
Assistant Administrator for Financial Management
accepted costs that comprised the matching fund, at
face value, without adequate documentation. As a
result, there is limited assurance that the State of
Rhode Island met its mandated requirement to be
eligible for Federal funds. Additionally, Section 105
funds may have supplanted non-Federal funds that
would be used to maintain the State's air program.
RIDEM had $94,280 (11 percent) in unsupported
matching funds out of the FY 1996 match
requirement of $891,204. Included in RIDEM's cost
share calculation was a $25,380 rent charge from
RIDOH, which had an interagency agreement with
RIDEM to provide laboratory services. Neither
RIDEM nor RIDOH could provide support for this
charge. Additionally, RIDEM claimed $68,900 for
rental space at 291 Promenade Street in Providence
as contributions towards its requirement. To date,
RIDEM has not provided us with support for these
charges.
To be eligible to receive Federal Section 105 Air
Grant assistance, the State of Rhode island must
contribute non-Federal funds in the amount of 40
percent of the total approved allowable budget award.
The costs borne by the matching or cost sharing and
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Matching Funds Should
Be Fully Documented
in-kind contributions are subject to the OMB Circular
A-87 rules governing allowability.
Basic accounting controls for maintaining adequate
documentation supporting claimed costs and
expenses were not followed for the matching or cost
sharing amount. RIDEM's Assistant Administrator for
Financial Management relied solely on information
provided by RIDOH without proper verification of the
charge's validity.
Grantees are required to fully document, in the grant
application, the specific costs or contributions
proposed to meet a matching or cost sharing
requirement, the source of the funding or contribution,
and how the valuation was determined. Matching or
cost sharing costs must be consistent with the
applicant's accounting system and any restrictions or
[imitations in the applicable cost principles.
Internal controls must be designed to protect
resources against waste, loss, and misuse. Internal
controls are safeguards built into a process or work
flow to provide reasonable assurance to management
that the system is working as intended and that
resources are used in the most effective and efficient
manner possible.
Maintenance of effort or matching requirements is
generally used to refer to a statutorily specified
percentage of program or project costs that must be
contributed by a grantee in order to be eligible for
Federal funding. This requirement may either be
stated as a specified or minimum non-Federal
percentage of total allowable costs or a maximum
Federal percentage of participation in such costs.
Grantees may not use program income or other
Federal funds as a source of matching or cost sharing
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QMS Chief Requests
Back-up Documentation
in determining whether a grantee has met the
required matching or cost sharing.
In response to this condition, RIDEM stated that the
Chief, QMS contacted the Department of
Administration to ascertain that space rental
documents were completed and documented. Copies
were requested from the Department of
Administration and Department of Health.
During our audit we requested the supporting
documentation for these expenses on several
occasions with no success. The fact that RIDEM's
OMS does not have documentation on file is
indicative of basic accounting control problems within
the Department.
CONCLUSION
EPA has limited assurance that RIDEM met its
mandated requirement to provide State funding at the
level agreed upon in the assistance agreement.
Additionally, if the grantee did not provide the
required funding, the State Air Program was under-
funded and Federal dollars were used to supplant
State funding. This is a violation of the intent of the
assistance agreement. Further, the grantee could not
support the utilization of certain costs included as
match, which in our opinion, is a systemic problem
within the grantee's accounting system and its
associated internal controls.
RECOMMENDATIONS
We recommend that you instruct RIDEM
management staff to implement the following:
5-1. Obtain adequate supporting documentation
that supports the claimed matching costs in
question.
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5-2. Assure that controls over maintaining
supporting documentation are reviewed for
adequacy and staff are made aware of this
basic requirement.
5-3. Should adequate documentation not be
located for the $94,280 in unsupported costs,
these costs should be considered as
questioned, and RIDEM and EPA New
England should recalculate the grant award
based on the lower matching expense.
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CHAPTER 6
RIDEM NEEDS TO ESTABLISH CONTROLS
OVER GRANT COST TRANSFERS
Grantees Are Responsible
For Managing Day-to-Day
Grant Operations
RIDEM made substantial and frequent shifts of costs
. between Federal and State accounts or between two
Federal grants. These transfers were necessary
because RIDEM was not adequately managing the
grants financially. Also, inadequate financial controls
allowed RIDEM to make large transfers between
accounts without first advising applicable program
staff or obtaining prior management approval. As a
result, RIDEM's cost accounting system was
compromised in order to maximize available funding.
The Code of Federal Regulations, Part 40 provides
as follows:
40CFRPart31.20(a)
A State must expend and account for
grant funds in accordance with State
laws and procedures for expending and
accounting for its.own funds.
40CFRPart31.30(a)
Grantees and subgrantees are
permitted to rebudget within the
approved direct cost budget to meet
unanticipated requirements and may
make limited program changes to the
approved project. However, unless
waived by the awarding agency, certain
types of post-award changes in budgets
and projects shall require the prior
written approval of the awarding
agency.
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Grant Adjustment Made
Without EPA Approval
40CFRPart31.40(a)
Grantees are responsible for managing
the day-to-day operations of grant and
subgrant supported activities. Grantees
must monitor grant and subgrant
supported activities to assure
compliance with applicable Federal
requirements and that performance
goals are being achieved. Grantee
monitoring must cover each program,
function or activity. •
This chapter will detail several of these questionable
transfers.
Our survey of grant management practices focused
on RIDEM's closeout of the 1996 RCRA grant. In
closing out this grant, three FSRs were submitted to
EPA. Each of the FSRs reported different ending
balances (from $98,000 to $14,000). These
adjustments caused EPA New England to question
the difference.
The adjustment resulted from a transfer of cost from
State to Federal accounts. RIDEM effected these
transfers in order to avoid having to return unused
funds to the Federal Government. Also, these
transfers were made without first obtaining EPA
approval. RIDEM admitted to this grant violation in
response to EPA New England's request for
explanation of the different FSR balances.
RIDEM was able to change these costs through a
paper adjustment even though the costs were
properly charged to the State accounts in accordance
with RIDEM's cost accounting system. Proper grant
management would have identified the excess grant
funds prior to the end of the grant's budget and
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Transfer Results In
Excess Federal Funds
On Hand
Transfer Made Without
Prior EPA Approval
project end date; and would have alleviated the need
to compromise RIDEM's accounting procedures.
In June 1996, RIDEM transferred $80,000 from the
106 Water Grant to the State water account. RIDEM
decided that a transfer of costs was necessary to
reduce the grant by $80,000 and charge these costs
to the State water account. The $80,000 were
comprised of previously recorded payroll costs
charged to the Federal grant. The adjustment was
done during the East month of the State's fiscal year.
The reason provided on the adjustment voucher, "to
transfer personnel costs incurred on water resources
administration to proper accounts," was not accurate
since these payroll costs were originally charged to
the proper account.
The Assistant Administrator for Financial
Management's ability to make adjustments to grant
costs, record the costs, and draw down funds
represented a control weakness in RIDEM's grant
management. Additionally, the Assistant
Administrator for Financial Management's ability to
make these changes without having a supervisor's
authorization also represented a control weakness.
This weakness represents a need for a segregation of
duties. A segregation of duties is a basic accounting
control which ensures no one employee has absolute
authority over fund management. This arbitrary
transfer of costs impacted the integrity of RIDEM's
cost control system.
In order to close out the FY 1996 106 water grant,
budget overruns made it necessary for RIDEM to
move additional costs from one grant to another. The
Assistant Administrator for Financial Management
with the approval of the Chief of the Office of Water
transferred $72,052 from the surface water account to
the groundwater account. RIDEM completed this
adjustment on March 12,1997. On March 13,1997
RIDEM sent EPA the FSR showing all grant funds
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$300,000 Transferred To
Avoid Overspending Grant
were expended. A letter accompanying the FSR
explained that RIDEM had transferred $72,052 in
eligible surface water 106 program costs to the
groundwater set aside portion of the grant. RIDEM's
cost reprogramming was completed prior to its
advising EPA of the transfer. RIDEM acknowledged
that utilizing 106 funding originally set aside for
groundwater purposes to support other 106 eligible
activities pertaining to surface water constituted a
change in the workplan subject to pre-approval.
Another adjustment took place on November 6, 1997.
The Assistant Administrator for Financial
Management advised OWR that the 106 water portion
of the PPG had overspent Federal expenditures by
approximately $300,000. This resulted in numerous
transfers having to be made to different accounts
such as State Water Program ($26,000), Indirect
Account ($100,000), Air and Water Restricted
Account ($95,350), 1996 Water Quality Management
($15,894), and various water accounts such as NFS,
NPDES, and Water Quality.
RIDEM's reasons for the adjustments were to adjust a
grant that was being overspent, to utilize funding that
would otherwise be returned to the funding agency,
and to use old funding sources to close these grants.
These cost transfers usually occurred at the State or
Federal fiscal year ending dates, or when RIDEM
needed to close a grant out.
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Examples of adjustments made were as follows:
Date
September 1995
June 1996
March 1997
May 1997
January 1998
May 1998
January 1998
January 1998
January 1998
June 1998
June 1999
June 1999
June 1999
Grant Reduced
1995 106 Grant
1996 106 Grant
1996 Surface Water
RCRA State Match
1997 PPG-106
1997 PPG- 106
1997 PPG-106
1997 PPG- 106
1997 PPG-106
1997 PPG-106
1998 PPG
1995 NPS
1996 NPS
Amount
$104,711
80,000
72,052
69,547
12,149
15,718
100,000
26,000
15,894
95,350
29,707
31,033
18,049
Grant Increased
205G Grant
State Water Program
Groundwater Set-aside
1996 RCRA
1997 PPG-NPS
1 997 PPG-Water Quality
Indirect Account
State Water
1996 Water Quality Mgt.
Air & Water Restricted Account
1995 NPS
1996 NPS
1995 NPS
RIDEM used arbitrary adjustments with inadequate
explanations in order to transfer costs to maximize
Federal or other available funding. This happened
because RIDEM was not adequately performing day-
to-day grant financial management to prevent grants
from either being over or under charged. Additionally,
RIDEM was not complying with Federal grant
requirements to obtain EPA approval prior to
adjusting grants.
These adjustments compromised the integrity of
RIDEM's cost accounting system. RIDEM's ability to
move payroll costs previously charged, paid and
accurately recorded under the cost system to a
Federal grant or to a State account via a paper
transfer resulted in inaccurate back-up cost cards for
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Adjustments Result In
Excess Federal Drawdowns
RIDEM Asserts That
EPA Approved Most
Grant Adjustments
transfer resulted in inaccurate back-up cost cards for
these affected employees. The cost cards may
reflect the employees charged time to a Federal grant
but were actually paid from a State account. This
practice allowed RjPEM to utilize all Federal and
State funds available through the use of arbitrary
cost-shifting adjustments.
The draw down of Federal grant funds was also
impacted by these adjustments. RIDEM's practice
was to draw down funds to reimburse incurred
expenses. We reviewed two instances where grant
funds were drawn down on incurred expenses.
However, after drawing down the Federal funds,
RIDEM moved costs to another grant/account
resulting in having excess Federal funds on hand.
The grant 1751-501 (1996 106 water grant) had
approximately $70,000 in excess funds due to RIDEM
reducing the grant by $80,000 through an adjustment
of costs (i.e. reducing the costs previously charged to
the grant). These excess funds were on hand for less
than three months. The grant 1720-515 (1996 NPS)
had excess Federal funds of approximately $37,000
on hand for a 12 month period. RIDEM followed
procedures for drawing down funds but adjustments
to incurred costs after funds were drawn resulted in
RIDEM having excess Federal funds on hand.
In answering our position paper on transfers RIDEM
provided the following response:
DEM disagrees with the position paper. The
EPA position paper lists a number of
'adjustments that were made and appears to
state that the adjustments made were not
authorized. In the case of the June 1999
adjustments for the FY 95 NPS grant, the three
adjustments correspond to actions taken at the
time to close the FY 95 NPS grant. DEM
specifically sought and received permission
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from EPA Region, 1 to execute the changes.
They reflect a portion of the reprogramming
that DEM has pursued as part of a two-year
strategy to fully expend and close out older
grants.
These June 1999 adjustments were made based on a
June 30, 1999 memorandum from the Deputy
Director Office of Water to the Assistant Administrator
for Financial Management. This was the last day
before the FSR was due to be submitted to EPA.
This memo contained nine adjustments totaling
approximately $113,605 out of the original grant
award of $643,000. The memo noted that RIDEM
received EPA verbal approval of these adjustments.
One of these adjustments necessitated the transfer of
$23,101 in expenses from the 1995 NPS grant to the
1996 NPS grant. This transfer was required because
RIDEM charged $23,101 in June 1999 to the 1995
NPS grant after its end date of March 31,1999. The
Office of Water advised OMS that these costs were
ineligible and had OMS transfer these costs to the
active 1996 NPS grant. It is questionable whether
costs that are ineligible under one grant can be
reprogrammed to another grant and considered
eligible.
Having a grant opened four years after the grant
period should have ended; making numerous
adjustments 90 days after the grant ending date and
on the date the FSR was due; and transferring
ineligible costs under one grant to an open and active
grant were examples of RIDEM's ineffective grant
management controls.
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CONCLUSION
The frequent, tardy and inadequately
explained transfers, particularly where they
involve projects with significant overruns or
unexpended fund balances, raised questions
about the propriety of the transfers themselves
as well as the overall reliability of the grantee's
cost accounting system and internal controls.
RIDEM lacked effective, day-to-day grant
management practices. As a result, RIDEM's
cost accounting system was often
compromised in order to transfer costs and
RIDEM did not always follow grant
requirements by obtaining EPA's approval of
transfers when required.
RECOMMENDATIONS:
We recommend that you instruct RIDEM to do the
following:
6-1. Require that RIDEM's project managers,
budget manager, and accountant meet at least
monthly to review grants status.
6-2. Ensure that adjustment vouchers provide an
accurate reason for any transfer and require
the Director of OMS approve all adjustment
vouchers.
6-3. Require that all drawdowns from EPA be
authorized by the Director of OMS.
6-4. Institute adequate controls to ensure
adjustments do not compromise RIDEM's cost
controls and that adjustments receive prior
EPA approval, when necessary.
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CHAPTER 7
CONTROLS OVER TITLE V OPERATING FEE REVENUE
NEED TO BE EI^HANCED
Permit Fee Revenue
To Be Used Solely To
Administer Title V Program
RIDEM did not maintain Title V operating permit fee
revenue in accordance with the terms of the Clean Air
Act. The Rhode Island legislature converted RIDEM's
previously restricted accounts for operating permit fee
revenue to general revenue accounts in order to
maintain oversight of these accounts. As a result,
unused operating fee revenue totaling $380,906 was
deposited into the State's general revenue account
rather than in a RIDEM restricted operating fee
revenue account.
The Clean Air Act Section 502 Permit Program
provides the following:
Any fee required to be collected by a State,
••.local or interstate "agency under this subsection
shall be utilized solely to cover all reasonable
(direct and indirect) costs required to support
trie permit program as set forth in
. subparagraph (A).
Oh July 21,1994, the Assistant Administrator for Air
and Radiation issued a memorandum to the Regional
Administratprs regarding permit fee revenue. This
memorandum provided the following definition on
permit fee revenue:
' Any fee required to be collected under Title V
' must be utilized solely to cover the reasonable
(direct and indirect) costs of the Title V
program.
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Rl Legislature Converts
Restricted Accounts To
General Fund
The Rhode Island (Rl) Legislature converted all
restricted accounts to general revenue accounts
through Article 40 of the FY 1996 Budget Bill. The
State Assembly intended to maintain oversight on
these former accounts. This action changed the way
operating permit fee revenue was previously held in a
restricted account. Staff turnover, bureaucratic
problems involved in hiring new people, and some
operating costs not accurately charged to the
operating permit program resulted in significant
amounts of unused operating permit fee revenue in
FYs 1997 and 1998.
A summary of Title V.operating fee revenue and
expenses was as follows:
FY
1997
1998
1999
Totals
Fees Received
$ 674,981
774,634
630,986
$2.080.601
Title V
Expenses
$ 423,784
535,556
740,355
$1.699.695
Fee Revenue
not used to
run Program
$ 251,197
239,078
(109369)
$ 380.906
$380,906 In Unused Permit
Fees Not Used On Title V
Activities
For FYs 1997, 1998, and 1999 RIDEM collected a
total of $2,080,601 in permit fee revenue, while
expenses totaled $1,699,695. There were no unused
fees generated in FY 1999 because payroll expenses
increased due to hiring staff and fees to ratepayers in
1999 were reduced based on the unused fees
generated in FY 1998. The legislature appropriated
$2,234,989 during this period to administer the
program. Of this amount RIDEM returned $535,294
to the State Controller since the funds were not
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Enhanced Controls Over
Title V Revenue Are Needed
RIDEM Advises Fees
Are Out Of Its Control
expended on operating permit activities. As a result,
$380,906 in Title V operating fees were not used on
Title V activities during these three years.
40 CFR Part 70 provides that the revenue from
operating permit fees be used solely to cover the
costs of meeting the various functions of the
permitting program. RIDEM management should
utilize these unused fees to maintain Title V program
activities. RIDEM should also establish an
accounting control to reconcile Title V operating
permit revenue received and expenses incurred to
operate the Title V Program. This reconciliation
should detail how any unused fees will be used. This
reconciliation should utilize the RIDEM official books
and records, and be provided to EPA Region 1 on an
annual basis.
In response to our position paper, RIDEM officials
stated that the air permit fees are out of RIDEM's
control. In FY 1996, the Rl General Assembly
converted most restricted accounts to general
revenue through legislation. One of the accounts was
the Title V operating permit fee account. In FY 1997,
the program ended with a $251,197 balance, which
stayed in the general fund. In FY 1998, the program
ended with a balance of $239,078, however, the
unused fees were taken into account to reduce the
ratepayer assessment in FY 1999. In the fall of 1997,
the Department met with the House Finance
Committee with the intention of returning the
Operating Permits Program back to a restricted
account. The Department agrees with EPA that a
restricted receipt account system is good and will
continue to pursue the legislature for approval.
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CONCLUSION
We concur that RIDEM took the 1998 unused, fee
revenue of $239,078 into account to calculate the
1999 rate, but some of these unused funds remained
in the general fund as did the 1997 used fees. Also,
as required by the Title V requirements, fee revenue
can only be used to support the Title V Program. The
Title V Program requires that permit fee revenue is to
be used solely to support Title V activities. By
allowing the fees to remain in the general fund
RIDEM is not administering the program in
compliance with requirements.
RECOMMENDATIONS
We recommend that you instruct RIDEM to do the
following:
7-1. Provide Region 1 with a plan on how these
$380,906 in unused revenue will be utilized to
maintain the Title V program in accordance
with program requirements.
7-2. Perform an annual reconciliation of Title V
Operating Permit Fee revenue and Title V
program expenses utilizing the RIDEM official
books and records. This reconciliation should
also show how any unused revenue will be
utilized.
REGIONAL RESPONSE
Region 1 in response to our draft report did not agree
with our conclusions relating to Title V. The Region
was satisfied that RIDEM has in place a system to
account for excess fees since FY 1998 and adds that
RIDEM should provide an annual accounting of fees
in its Annual Report. The Region contended that
during Fiscal Year 1997, EPA's policy did not clearly
require funds collected in excess of program support
requirements be used to support Title V activities.
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Additionally, they also believed it was not appropriate
to hold RIDEM to EPA's subsequent policy that all
collected fees be expended on Title V activities.
Additionally, the Region felt that there is no Federal
mandate that required Rhode Island to maintain a
restrictive account to ensure Title V revenues were
only available for Title V activities.
01G EVALUATION
We disagree with Region regarding the $251,197 in
FY 1997 Title V unused revenue. We found that
Agency policy was very clear relating to the use of
Title V revenue. Agency policy, the Clean Air Act and
CFRs all contain language that the revenue received
will be used solely for the Title V activities. A July 21,
1994 memorandum from the Assistant Administrator
for Air and Radiation to all the Agency Regional
Administrators clearly sets EPA policy regarding Title
V revenues. It states: "Any fee required under Title V
must be utilized solely to cover reasonable (direct and
indirect) costs of the Title V program." In addition, a
June 2,1994 memorandum from the Associate
General Counsel Grants and Intergovernmental
Division to the Agency's General Counsel'stated:
"Title V requires that any such permit fees collected
by the state be utilized solely to cover all reasonable
costs...EPA regulations likewise require that States
demonstrate that Title V permit fees are used solely
to cover the costs of the permitting program."
Additionally, RIDEM's Air Pollution Control
Regulations for Operating Permit Fees provides that:
"The Department will deposit all fees required by this
regulation in the Clean Air Operating Permit Fee
Fund. The fund shall be non-lapsing and shall be
dedicated solely for use by the Department in
administering the operating permit program...."
RIDEM's own program regulations clearly required
that fees be used only for its Title V activities. The
Regions monitoring of the RIDEM FY 1997 operating
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Grants Management Practices of Rhode Island
Department of Environmental Management
permit program cited provisions of the Clean Air Act
stating that "any fee required to be collected by a
state ... agency ... be utilized solely to cover all
reasonable (direct and indirect) costs required to
support the permit program." This monitoring report
found excess fee revenue at the end of FY 1997
which was necessary to support the FY 1997 and
1998 programs spent on non-Title V activities.
Regarding the State of Rhode Island Legislature's
decision to abolish the restricted account previously
utilized to account and control Title V fee revenue, we
concur that there is no Federal requirement to
mandate the Rhode Island Legislature to re-establish
the restricted account. However, both RIDEM and
EPA Region 1 concur that such a restricted account
would be good for the program's administration. The
RIDEM regulations currently provide for such a
restricted account. This account would alleviate the
need for the Air Program and the Office of
Management Services to conduct the planned annual
reconciliations.
In lieu of a restricted account, we concur that an
annual accounting of fees and diligent oversight by
the Region would be desirable. It is important to note,
based on our review of fee revenue received and
expenses incurred for FYs 1997,1998 and 1999 there
was $380,906 in fee revenue which has not been
used on Title V activities. RIDEM should reconcile
the fee revenue initially in order to establish a base
for its future reconciliations. This fee revenue needs
to accounted for and utilized solely on the Title V
Program.
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Grants Management Practices of Rhode Island
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APPENDIX 1
REGIONAL RESPONSE
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 1
1 CONGRESS STREET. SUITE 11 DO
BOSTON, MASSACHUSETTS O2114-2O23
MEMORANDUM
DATE: June 29, 2OOO
SUB J: Grant Management Practices of Rhode Island
Department of Environmental Management
Audit No. 1999-222
FROM: Mindy S. Lubber
Regional Administrator
TO: Paul D. McKechnie
Divisional Inspector General
Eastern Audit Division
OFFICE OF TME
REQIONA1. ADMINISTRATOR
This is in response to your memorandum of May 18, 2000. We appreciate the opportunity to
review the subject draft report concerning the Giants Management Practices of the Rhode Island
Department of Environmental Management (R1DEM). Your memorandum requested a review
of the draft report that addressed its factual accuracy and any policy implication of the
recommendations. You also asked that -we include plans for taking corrective actions as
recommended with specific milestone dates.
My staff has reviewed the report and met with the RIDEM on June 8,2000. During our meeting,
it became evident that most of the recommendations were accurately stated and acceptable to
both EPA and the RIDEM.' The REDEM has agreed to draft a detailed corrective action plan hi
conjunction with our RI State Program Unit that will address each of the recommendations listed
in Chapters 3-6 in the draft. It is our intention to incorporate specific Milestone dates into the
plan. We expect to receive a draft plan from the RIDEM by July 31,2000. We also expect to
finalize the plan and begin its implementation before September 1, 20OO.
As part of our monitoring process, we would like your help in reviewing the progress that the
RIDEM is making in meeting the objectives of our proposed corrective action plan.
Your recommendation in Chapter 3 outlined the need to establish administrative control over
leave expenses. Our Grants Office will provide the RIDEM with referrals to other similar state
agencies in New England to identity the best method for allocating authorized leave to ensure
equitable charging to EPA grants.
Help M« »crve you better. Iryou need to call u«
* cumm*Oftqe*»ce m lap future,
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During our discussions regarding the recommendations outlined in Chapter 5, the RIDEM feels
that they will be able to provide the supporting documents needed to resolve Recommendation
5-1 that deals with a shortfall in the matching requirements for the section 105 grant. Hopefully
this informationi will negate!the need for'any '^^tr^u^ions for:theiRy-96!'grant period;
Concerning your recommendations in Chapter 7, no state is mandated under the Clean Air Act
(CAA) to have a separate fund to account for Title V fees. Therefore, thwe"|s noJe
receipt of operating permit fee revenue. We can recommend to Khode Island that a separate
account is desirable as a policy matter, but we cannot require it^Sinw'the beginning of 1998, we
believe that the RIDEM has bad in place a system in which the amount of Title V fees collected
is expended on Title V activities, The RIDEM has stattjd to us;ito if it does not expend all Title
V monies id a given year, those unexpended monks are mcludid in the budget allocation for the
following year and the Title V fees charged are^rresponrfingly reduced. .-Therefore, jt appears as
if RIDEM has put in place an adequate process totnanage the -Title V ptipgram.
It IS fl'TCQUlTCQXdlt Ol-T**V Vwr^ir*"**1****'-1"**?''' **M,W..^T_/|^^^lWM«^^*M*W«^V>»'ei*»*A*Y*-**"*>*™***—i"*'1' «jgM|*|.«w* *
itself In FY 97, EPA's poH(^ did nofdW^ reqt^
support requirements!:!*us«I-taj«»ppprt..ffi&$:«sjiJ3H& for the"ne«.fi«:;ai year. Subsequently,
EPA's interpretatibn of section 502(b)(?) of Ttflis'WittP^e CAA.clstr^eS'ltotreVeaue generated
from the operating pernut program be used only;: for Title V activities, even,revenue|n excess of
program costs. ^ea^^^fi^^-^v^'<^^lx^xi'^!&t V feijs wut notyet set .injl997i it is
not ajppropnaje;fc*:CT^ ^ all coHected fees
must be expended oh-Titte".V activitiJes.
Since FY 98, RIDEM claims that it h^ u^ Ae lioexpHsnded {und? to reduce fees requixed to
adequately support me Title''Vprogra^w^ftJ]^ Gjonsequcntly, the opirating
permit budget consists of fees coHecied'at a reiice^a^
this is an appropriate approach but wiUrecon^e^
accounting of tlie^'fees-r^iei^^and expe^e;i;|k|ipl0pco«ld ^yideth^ a^unting in its
accounting is rnide available td^EPANE an^l^frjW^Hc., This wjllensWci in the'foture, RIDEM
is requiring dl fees co^liected:!^ used off the T^ arid that .any excess pennit fee
revenue not be applied elsewhere.
If you have any questions regarding our response,;please call Oeorge Mollineaux our Audit
Coordinator at 617r91»-i936.
cc:.Tred Vincent, Assocja'te Director, Btj^u'of ||6|ky.and Adjmnistration, RIDEM
Robert Mendos^ Rhode Island Stke'Pregram^Wfen^er, EPA NE
Help us serve you belter. If you need K> oil \a tempting thll aurapatOtaee m the ftlturt. pte^je reference Dt-0000310.
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Department of Environmental Management
APPENDIX 2
DISTRIBUTION
Office of Inspector General
Inspector General (2410)
Assistant Inspector General for Audit (2421)
Deputy Assistant Inspector General for External Audits (2421)
Assistant Inspector General for Planning, Analysis, and Results (2450)
Acting Assistant Inspector General for Office of Program Evaluation (2443)
Divisional Inspectors General for Audit
Headquarters
Assistant Administrator for Administration and Resources Management (3101)
Agency Audit Follow-up Coordinator (2724)
Agency Audit Follow-up Official (2710)
Associate Administrator for Congressional and Legislative Affairs (13010
Associate Administrator for Communications, Education, and Public Affairs (1701)
EPA Library (3403)
EPA Region 1
Director, Office of Ecosystem Protection
Director, Office of Administration and Resource Management
Rhode Island State Program Manager
Audit Coordinator
Rhode Island Department of Environmental Management {RIDEM)
Director, RIDEM
Associate Director, Bureau of Policy and Administration
Director, Office of Management Services
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