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OFFICE OF INSPECTOR G
U S EPA Headquarters Library
Mail code 3404T
Pennsylvania Avenue NW
' -hington, DC 20460
202-566-0556
Report of Review
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The Office of Underground
Storage Tanks: Contract
Administration and Performance
Measurement Concerns
Report No. 2004-P-00014
March 31,2004
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Abbreviations
Bristol Bristol Environmental Engineering & Services Corporation
Center EPA Financial Management Center, Research Triangle Park, North
Carolina
EPM Environmental Program Management Funds
ICF ICF, Incorporated
LOE Level of Effort
LUST Leaking Underground Storage Tanks
OAM Office of Acquisition Management
OMB Office of Management and Budget
OIG Office of Inspector General
OUST Office of Underground Storage Tanks
RCRA Resource Conservation and Recovery Act
RTF Research Triangle Park, North Carolina
USC United States Code
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, DC 20460
OFFICE OF
THE INSPECTOR GENERAL
March 31,2004
MEMORANDUM
SUBJECT: The Office of Underground Storage Tanks: Contract Administration and
Performance Measurement Concerns
Report 2004-P-00014
FROM: Melissa Heist/s/
Assistant Inspector General for Audit
TO: Cliff Rolhenstein
Director, Office of Underground Storage Tanks
Office of Solid Waste and Emergency Response
The Office of Inspector General received a hotline complaint regarding the Office of
Underground Storage Tank's (OUST's) financial management. The complainant
questioned OUST's (1) use of funds on two contracts, and (2) progress in cleaning up
leaking underground storage tank sites, especially in Indian Country. We conducted a
review to determine the validity of the allegations and, if warranted, offer suggestions to
improve OUST's operations.
During the course of our work, we provided OUST management with a written summary
of our concerns, including actions for their consideration to address the issues discussed
in this report. OUST's comments have been incorporated where appropriate and OUST's
March 30,2004, response to our suggested corrective actions is included as Appendix 2
to this report. Because OUST has taken or has plans to take actions which should address
our concerns, we are closing this report on issuance.
The scope of our work does not constitute an audit conducted in accordance with
Government Auditing Standards. Our scope and methodology is presented in
Appendix 1.
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Background
In 1984, Congress responded to the increasing threat to groundwater posed by leaking
underground storage tanks by adding Subtitle I to the Resource Conservation and
Recovery Act (RCRA). Subtitle I required EPA to develop a comprehensive regulatory
program for underground tanks storing petroleum and certain hazardous substances. In
1986, Congress amended Subtitle I of RCRA and created the Leaking Underground
Storage Tank (LUST) Trust Fund which is to be used to:
• Oversee cleanups by responsible parties, and
• Pay for cleanups at sites where the owner or operator is unknown, unwilling,
or unable to respond, or which require emergency action.
Established in 1985, OUST, within the Office of Solid Waste and Emergency Response,
administers the underground storage tank program. OUST uses two primary contracts -
one with ICF, Inc. (ICF) and the other with Bristol Environmental Engineering &
Services Corporation (Bristol). In November 1999, ICF received Contract 68-W-00-065
to provide technical, analytical, and administrative support for the underground storage
tank program. The contract's maximum potential value is $5.4 million. In September
2001, Bristol received Contract 68-W-01-057, with amaximum potential value of $11.1
million, to assist in the remediation of leaking underground storage tanks in Indian
Country. The complaint received by OIG cited concerns with both contracts.
Results of Review
In summary, we found OUST had inappropriately used and inefficiently managed
contract funds. For the two contracts reviewed, OUST did not always identify the correct
appropriation to be charged when ordering and paying for work, and OUST obligated
money to contracts but did not order a commensurate amount of work. We identified the
following issues:
• OUST charged the wrong appropriation thus violating appropriation law.
Concerning the ICF contract, OUST, with the approval of RTF's finance and
contracting offices, used $218,000 of LUST funds to fund payments that should
have been made with Environmental Program Management (EPM) funds. In
addition, we identified four instances in which OUST paid invoices totaling
$77,101 solely with LUST funds even though OUST records indicated that the
work involved both LUST and EPM activities.
• OUST allowed approximately $33 0,000 of EPM funds to expire because it did not
order work from contractors during the life of the appropriation. With the
exception of any costs relating to work ordered before November 30, 2001, these
funds will not be available for future work.
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• Unless it appropriately orders work, OUST risks losing $483,648 in unliquidated
obligations in light of a 2002 U.S. Court of Appeals for the Federal Circuit
decision relating to the practice of "parking" funds (i.e., obligating funds to
contracts without ordering work) on Level-of-Effort contracts.
In addition, we do not consider OUST's performance measurement data for Cleanups
Initiated and Cleanups Completed to be transparent and meaningful because the
definition for both categories involves situations where an initial investigation concludes
that no cleanup is warranted.
OUST has taken or planned actions to address these issues. The following sections
discuss these matters in greater detail.
CONTRACT ADMINISTRATION CONCERNS
1. OUST Charged the Wrong Appropriation
OUST violated appropriation law when it, with the approval of RTF's finance and
contracting offices, used LUST funds to cover payments made with expired EPM funds.
In addition, OUST paid contractor invoices using one appropriation when OUST records
indicated that both the LUST and EPM appropriations were involved.
Title 31 United States Code (USC) 1301, known as the Purpose Statute, provides that
public funds may be applied only for purposes for which the Congress appropriated them,
unless the expenditure is otherwise provided by law. The LUST appropriation is for
necessary expenses to carry out leaking underground storage tank cleanup activities. The
EPM appropriation, however, is for funding activities necessary to administer the
underground storage tank program.
In modification 13 to the ICF contract, dated November 20, 2001, OUST transferred
$330,609 of EPM funds from the contract's base period to the first option period. During
Option Period 1, OUST paid invoices totaling $236,375 with EPM funds. In January
2003, EPA's Financial Management Center (Center) in Research Triangle Park, North
Carolina informed the Contracting Specialist, who informed OUST, that the EPM funds
should have never been moved to Option Period 1 because the funds had expired. The
Center advised OUST to move the EPM funds back to the contract's base period and
indicated that $218,000 of LUST funds were available to be used to pay the invoices.
Through Modification 15, dated February 10,2003, OUST, with the approval of RTF's
finance and contracting offices, removed the $330,609 of EPM funds from Option
Period 1 and used the $218,000 of LUST funds to pay the invoices.
OUST officials said LUST funds were used to replace expired EPM funds because
Center officials said that unexpired Option Period 1 funds had to be used to replace the
expired funds and that the Center identified the problem too late for Fiscal Year (FY)
2002 EPM funds to be used. Center officials said that use of the LUST funds was only a
suggestion based on the fund's period of availability without an indepth analysis of the
appropriation involved.
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We also judgmentally selected four invoices from Option Period 2 to review. These
invoices (numbers 41,42,44, and 45), totaling $77,101, were paid solely with LUST
funds even though OUST Project Officer records indicated that the work was divided '
between LUST and EPM activities. OUST officials commented that they assumed any
funds obligated to a contract could be used to pay invoices regardless of the
appropriation^) involved.
In tfie above instances, OUST, Center, and contracting officials did not appear to have
sufficiently considered the nature of work involved when choosing the appropriation to
charge, contrary to law and agency policy. As noted above, 31 USC 1301 requires that
funds be used only for the purpose for which they were appropriated. Subtitle I of RCRA
authorizes use of the Trust Fund for overseeing and enforcing corrective actions taken by
responsible parties and emergency cleanup for tanks where the responsible party is
unknown, unwilling, or unable to respond.
EPA's Contracts Management Manual addresses procedures that must be followed when
a cost reimbursement term contract (with work assignments) is to be funded from more
than one appropriation. Chapter 9.6e requires that the Project Officer, among other
things, (a) indicate on the cover of the work assignment the total funds to be charged
against each account number and document control number, and (b) provide a basis (such
as percentage ratios) for the finance office to follow to charge vouchered costs to each
account number and document control number. In addition, Chapter 6.4 also describes
responsibilities, procedures, and instructions for the processing of contract invoices and
vouchers. It states that the Project Officer should determine which accounts should be
used to pay invoices and ensure the availability'of funds in the appropriate accounts
before signing the invoice. This guidance was in effect at the time the above actions
occurred.
After we brought these issues to OUST's attention, OUST reconstructed the invoices
from Option Period 1 and determined that $140,004 of the $218,000 of LUST funds
were inappropriately used and initiated a contract modification dated February 27,2004,
to use available EPM funds. In addition, on February 11,2004, OUST submitted a
procurement request to replace $24,599 of the $77,101 of LUST funds with EPM funds
for invoices 41,42,44, and 45 for Option Period 2.
To prevent a recurrence of these problems, OUST informed us that (1) work assignments
to contractors will now be linked to the proper appropriation, (2) the current contract will
be modified to require the contractor to indicate whether costs billed on future invoices
are for LUST or EPM activities, and (3) the next contract will require the contractor to
submit invoices with this information.
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2. Significant Amount of Funding Lost Due to Expiration, Additional Amount at
Risk
Our review of the ICF contract disclosed that OUST has lost a significant amount of
funding because work was not ordered from the contractor before the appropriation
expired, and is at risk of losing more. We found that $424,000 of expired EPM funds,
including the $330,609 of EPM money which OUST tried to move from the contract's
base period to Option Period 1 as discussed on page 3, have already expired and can only
be used to pay for work ordered before November 30,2001. Furthermore, our analysis
revealed that $134,000 of FY 2000 LUST money has been moved from the base period to
the current option period and had not been expended as of December 12, 2003. These
particular funds will be unavailable without de-obligation and re-certification if not used
by the end of the contract, November 30,2004.
OUST officials commented that $94,306 of the $424,000 was used to pay for work
ordered during the contract's base period, and that some of the remaining $329,694 may
be used when final contract payment is made. However, funds not used will revert back
to the Treasury. OUST also informed us that $19,268 of the $134,000 of FY 2002 LUST
funds has been paid, leaving a balance of $114,732. OUST expects that these funds will
be used before the contract expires in November 2004.
In response to our finding, OUST officials stated that to prevent the loss of EPM funds in
the future, they have instituted a process to fund new work from the appropriate funding
source. OUST will institute a "pay as you go" process in which funds will only be
obligated to a contract when accompanied by a work assignment. The Office Director
and Deputy Office Director/Senior Budget Officer will approve all procurement requests,
and the Deputy Office Director/Senior Budget Officer will approve all work assignments.
OUST's revised procedures should help to avoid the loss of additional funds in the future,
not only because additional attention will be paid to the life of the appropriation but funds
should not be "parked" on contracts as discussed in the next section.
3. OUST Risks Losing Funds from Level of Effort Contract Fund "Parking"
Decision
When we began our review, OUST did not have plans for using the $1.5 million of LUST
funds obligated on the Bristol contract to clean up tanks in Indian Country. These funds
were at risk of loss in light of a 2002 U.S. Court of Appeals for the Federal Circuit
decision concerning Level-of-Effort contracts (contracts which buy hours of service)
because OUST had not ordered work using these funds. A 2002 Office of Acquisition
Management (0AM) "News Flash" stated that, for a Level-of-Effort (LOE) contract, the
court decision may make EPA liable for payment of all funds allotted to the contract,
without regard to whether the contractor has incurred costs up to the amount allotted.
OAM's guidance said the practice of "parking" funds on contracts (obligating funds to
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contracts although no corresponding work has been identified) must be seriously
reexamined.
From 2001 to 2003, OUST obligated money to this contract without ordering a
corresponding amount of work. The contract was signed in September 2001 and
$725,700 was obligated at that time. Although no additional contract work was ordered,
another $1.275 million was added to the contract in July 2002. Adding funds at that point
appeared unnecessary because only $36,017 of work had been tasked and $689,683 were
still available.
Schedule of Funding for the Bristol Contract (Through 09/01/20031
As the chart shows, OUST added $1,275,746 to the contract on July 24,2002 but only
ordered a small amount of work, $111,791, or less than one percent of the $1,965,429
available, four months later. As of September 2003, OUST had not issued work
assignments using the remaining $1,554,971.
OUST officials told us that use of LUST Trust Fund resources to clean up sites in Indian
Country is constrained by unique challenges in identifying site owners and that OUST
was studying this issue. We were also told by officials that they were not sure what
ramifications, if any, there would be to the Bristol contract in light of the recent court
decision involving LOE contracts. However, OUST officials informed us that they
would request that the Contracting Officer modity the Bristol contract to allow more time
to find LUST-eligible work. The contract periods were changed from a base period of
two years with three one-year option periods to a base period of five years (running
through 2006), allowing three more years to use available funds.
At the end of our fieldwork, OUST officials informed us that several events had occurred
which lead them to believe that the Bristol contract will be fully used. The most
significant events were the submission of a work assignment by Region 9, and an
amendment to Region 10's current work plan to continue additional work on two sites in
Indian Country. Officials stated that Ihe contracting officer has approved Region 9's
work plan with estimated costs of $512,276. The estimate for the Region 10 Work
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Assignment (including recent amendments) totaled $871,992. When ordered, OUST will
obligate a total of $1,384,268, leaving $617,178 remaining on the contract. According to
OUST officials, the remaining funds may be consumed entirely by potential work on
other LUST-eligjble sites in Region 9. OUST provided documentation for the recently
approved work plan for Region 9, the amended work plan for Region 10, and the list of
potential sites for LUST-eligible work in Region 9. On March 25,2004, OUST informed
us that Region 9 recently added $133,530 to its original work assignment, leaving a
balance of $483,648.
We commend OUST for their efforts in working with Regions 9 and 10. If planned
activities are realized, OUST will not only avoid the risk of losing funds because of the
court ruling, but also increase the amount of cleanups in Indian Country.
OUST Actions to Improve Contract Administration
In addition to the actions described above, OUST, in its March 30,2004, response,
indicated that the Office will receive additional training in funding and administering
contracts and in appropriations law. OUST will also monitor the Bristol contract and, if
necessary, deobligate unneeded funds.
PERFORMANCE MEASUREMENT CONCERN
Based on our limited review of OUST's performance measures, we are concerned that the
measures for Cleanups Completed and Cleanups Initiated are not transparent (i.e., readily
understandable) and meaningful. OUST performance data showed a 24-percent decrease
in the number of Cleanups Completed from 2000 to 2002. In March 2003, OUST
changed the definition of "Cleanup Completed" and "Cleanup Initiated" to include sites"
where an evaluation determines no cleanup is needed, which we believe reduced
transparency and meaningfulness. Later that year, OUST reported a 17-percent increase
in Cleanups Completed.
In a March 28, 2003, memorandum, the Director, OUST, discussed changes in the
definitions for Cleanups Completed and Cleanups Initiated. Specifically, under the new
definitions, OUST would recognize those situations where a State has determined no
cleanup action is necessary because the level of contamination was below environmental
standards. According to the Deputy Director, "the impact of the change in definition will
vary throughout the Regions, although for most, it will affect a small, if not insignificant,
number of sites."
The Office of Management and Budget's (OMB's) Program Assessment Rating Tool,
asks, "Does the program collect grantee performance data on an annual basis and make it
available to the public in a transparent and meaningful manner?" The OIG is concerned
that OUST's definition change reduces the transparency and meaningfulness of
performance data because it no longer indicates how many sites reported as Cleanups
Initiated require cleanup and how many reported under Cleanups Completed have
actually been cleaned.
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Cleanups Completed
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In November 2003, OUST reported that Cleanups Completed during FY 2003 increased
by 17 percent over FY 2002. While OUST officials contend that it would be highly
unlikely that the change in definition was responsible for the increase, they also
commented that "it is too early to determine if the 2003 results constitute abona-fide
reversal in our cleanup trend," and that "it is difficult to ascertain the exact reasons for
the increase." Thus, OUST could not conclusively explain what portion of the
performance increase for FY 2003 was due to the definition change versus an actual
increase in performance.
Cleanups Initiated
We also noted mat the increase in Cleanups Initiated for FY 2003 from the FY 2002 level
was more than the increases for the previous two years combined as shown in the
following table: „•'
Increase in Cleanups Initiated Over the Prior Year
Years
FY 2001 vs. FY 2000
FY 2002 vs. FY 2001
FY 2003 vs. FY 2002
Increase in Number of Cleanups
Over Prior Year
11,640
4,786
19,529
In our view, it is important that OUST knows how many Cleanups Completed and
Cleanups Initiated involve sites where an evaluation determined that no cleanup was
needed. Such information would aid planning, budgeting and program management. In
addition, the users of OUST performance measurement data should understand what
reported performance measurement data represents. We note that neither OUST's
FY 2003 Annual Performance Report or OUST's 20th Anniversary Report entitled
Underground Storage Tanks: Building on the Past to Protect the Future, issued March 1,
2004, discussed the March 2003 definition change.
To better inform the user of OUST performance measurement data, we suggested that
OUST (1) explain, in its performance reports, that the data for Cleanups Initiated and
Cleanups Completed contain sites where research indicated that no cleanup work was
necessary, or (2) report data for sites requiring cleanup separately from those that do not.
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OUST's Planned Corrective Action and QIG Evaluation
In its March 30,2004, response, OUST stated that it had posted its definitions on the
website and will link the definitions to future performance reports. While these actions
are positive, the OIG believes that performance reports would be more "reader friendly"
if OUST provided a brief description of applicable definitions, not just a link to where the
definitions can be found.
Attachments
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Appendix 1
Scope and Methodology
To address the complainant's concern with the administration of OUST's contracts, we
reviewed relevant contract and project documents, reviewed financial and performance
data, and spoke with OUST (including the Project Officer), Office of Acquisition
Management, Office of the Chief Financial Officer, and Office of Solid Waste and
Emergency Response personnel. We focused our efforts on the two primary contracts
OUST manages - ICF, Inc. (Contract 68-W-00-0065) and Bristol Environmental
Engineering & Services Corporation (Contract 68-W-01-057).
Although not part of the complainant's allegation, we expanded our work to include a
limited review of OUST's performance measurement data and focused our efforts on
whether the data was transparent and meaningful. Accordingly, we reviewed OUST's
performance data for 2000 to 2003 and reviewed the March 2003 revised definition for
cleanups initiated and cleanups completed. We also reviewed the OMB Program
Assessment Rating Tool Reports for budget years FY 2002 and 2004 and EPA's
November 2002 response to OMB's conclusions for FY 2002.
We began our work in May 2003 and completed fieldwork in February 2004. Our review
covered OUSTs financial operations from FY 2000 to 2003. Our scope did not include
all steps necessary to comply with professional auditing standards. For example, we did
not obtain a complete understanding of OUST's internal controls for contract
administration because we focused our efforts on determining the validity of the
complaint and, if valid, what actions OUST had taken or planned to address valid
concerns. Therefore, we did not do sufficient work to establish the reason why the
reportable conditions occurred and therefore did not make a formal recommendation to
correct the conditions noted. Accordingly, we did not conduct an audit in accordance
with Government Auditing Standards.
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Appendix 2
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Appendix 2
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Appendix 2
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Appendix 3
Distribution
Assistant Administrator, Office of Solid Waste and Emergency Response (5101T)
Acting Assistant Administrator, Office of Administration and Resources Management
(3101 A)
Acting Chief Financial Officer (2710 A)
Director, Office of Acquisition Management (3801R)
Director, Office of Financial Services (2734R)
Director, Contracts Management Division, RTF (MD-33)
Director, Financial Management Center, RTF
Agency Audit Follow-up Official (2724A)
Audit Followup Coordinator, Office of Solid Waste and Emergency Response (5103)
Audit Followup Coordinator, Office of Administration and Resources Management
(3102A)
Audit Followup Coordinator, Office of the Chief Financial Officer (2710A)
Associate Administrator for Congressional and Intergovernmental Relations (1301 A)
Associate Administrator, Office of Public Affairs (1101 A)
Inspector General (2401)
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