OFFICE OF INSPECTOR GENERAL
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Evaluation Report
       EPA Can Better Manage
       Superfund Resources
       Report No. 2006-P-00013

       February 28, 2006

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Report Contributors:
                   Carolyn Copper
                   Patrick Milligan
                   Tina Lovingood
                   Pankaj Arora
                   Katherine Beam
                   Bryan Holtrop
                   JeeKim
Chad Kincheloe
Jessica Knight
Barry Parker
Laura Tarn
Katherine Thompson
Abbreviations

ADA
ATSDR
CERCLA
CERCLIS

EPA
EPM
FTE
FY
GAO
IFMS
NIEHS
NPL
OARM
OCFO
OECA
OIG
ORD
OSRE
OSWER
RP
Advice of Allowance
Agency for Toxic Substances and Disease Registry
Comprehensive Environmental Response, Compensation, and Liability Act
Comprehensive Environmental Response, Compensation, and Liability Act
Information System
U.S. Environmental Protection Agency
Environmental Programs and Management
Full-Time Equivalent
Fiscal Year
Government Accountability Office
Integrated Financial Management System
National Institute of Environmental Health Sciences
National Priorities List
Office of Administration and Resource Management
Office of the Chief Financial Officer
Office of Enforcement and Compliance Assurance
Office of Inspector General
Office of Research  and Development
Office of Site Remediation Enforcement
Office of Solid Waste and Emergency Response
Responsible Party

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                  U.S. Environmental Protection Agency
                  Office of Inspector General

                  At  a   Glance
                                                                                     2006-P-00013
                                                                                  February 28, 2006
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                                   Can Qetter Manage Superfund Resources
                               What We Found
                              We provide answers to congressional questions about EPA's Superfund program
                              expenditures. We also identify numerous opportunities for EPA to more
                              effectively manage its existing Superfund resources, its program, and direct more
                              resources to cleanup. EPA needs to overcome challenges in accounting for
                              Superfund resources, understanding the program's resource needs, and
                              decentralized management of the Superfund program.

                              Several obstacles have prevented EPA from efficiently and effectively managing
                              the Superfund program for performance and adequately accounting for Superfund
                              resources. EPA has been unable to allocate and manage Superfund resources for
                              cleanup as efficiently and effectively  as possible because of the way the Agency
                              accounts for program resources, manages by functions, supplements the program
                              with other funds, relies on an outdated workload model, and maintains
                              unliquidated Superfund obligations and funds in special accounts. Closely
                              aligning offices that support the Superfund program, and producing program
                              performance and cost data, have been limited because EPA disperses the
                              responsibility for allocating and managing program resources.
                               What We Recommend
                              We recommend changes that will help EPA overcome these obstacles and better
                              manage its Superfund resources. We recommend actions that enable the Agency
                              to direct additional funds to Superfund cleanup. We recommend a specific action
                              Congress could take to help improve the Superfund program. The Agency is
                              developing a plan to implement our recommendations.
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                    UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                  WASHINGTON, D.C. 20460
                                                                  THE INSPECTOR GENERAL
                                   February 28, 2006

MEMORANDUM

SUBJECT:          EPA Can Better Manage Superfund Resources
                    Report No. 2006-P-00013

TO:                 Susan Parker Bodine
                    Assistant Administrator for Solid Waste and Emergency Response

This is the final report on the subject evaluation conducted by the Office of Inspector General
(OIG) of the U.S. Environmental Protection Agency (EPA).  This evaluation report contains our
findings that describe the problems the OIG has identified and corrective actions the OIG
recommends. This represents the opinion of the OIG; the findings contained in this report do not
necessarily represent the final EPA position.  Final determinations on matters in this evaluation
report will be made by EPA managers in accordance with established procedures.

We received EPA's written comments on our draft report on August 18, 2005.  We met with
EPA officials on October 20, 2005, to discuss their comments, and received additional  comments
on February  10, 2006, after the Agency indicated it was developing an implementation plan to
respond to our recommendations.

Action Required

In accordance with EPA Manual 2750, as the action official, you are required to provide this
office a written response to this report within 90 days of the final report date. Your response
should address all recommendations and must include your concurrence or nonconcurrence with
all recommendations.  For corrective actions planned but not completed by the response date,
please describe the actions that are ongoing and provide a timetable for completion.  If you do
not concur with a recommendation, please provide alternative actions that address the findings
reported. We have also  provided a copy of this report to the Assistant Administrators of the
other Offices that receive Superfund funding.  We ask that should these officials choose to
provide a response to the final report, that you as the action official consolidate those responses.
For your convenience, this report will be available at http://www.epa gov/oig .  Please e-mail an
electronic version of your response to Miliigan.Patrick@epa.gov .

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If you or your staff have any questions regarding this report, please contact Rick Linthurst at
919-541-4909, or Carolyn Copper at 202-566-0829.

                                                     Sincerely,
                                                    Nikki L. Tinsley

cc:     Assistant Administrator for Research and Development
       Assistant Administrator for Air and Radiation
       Assistant Administrator for Administration and Resources Management
       Assistant Administrator for Enforcement and Compliance Assurance
       Acting Assistant Administrator, Office of Environmental Information
       Chief Financial Officer
       General Counsel
       Audit Liaison, Office of Solid Waste and Emergency Response
       Audit Liaison, Office of Research and Development
       Audit Liaison, Office of Air and Radiation
       Office of General Counsel, Director of Resources Management
       Audit Liaison, Office of Administration and Resources Management
       Audit Liaison, Office of Enforcement and Compliance Assurance
       Congressional Liaison, Congressional and Intergovernmental Relations,
             Office of the Administrator
       Audit Liaison, Office of Environmental Information
                                                                           w
                                                                           (J

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                       Table of Contents
At a Glance
Chapters
   1  Introduction	    1

            Purpose	    1
            Background	    1
            Scope and Methodology	    6
            Agency Response to the Draft Report and OIG Evaluation	    6

   2  Obstacles Impact EPA's Ability to Efficiently and Effectively Manage
      Superfund Resources	    7

            Superfund Managers Disagreed About How to Classify
             Administrative Expenses	    7
            Decentralized Management of Superfund Resources Limits Ability to
             Manage  Resources to Benefit Cleanup	    8
            Incomplete Information on Superfund Costs Prevents Accurate Estimates
             of Program Needs	    10
            Outdated  EPA Workload Model Used to Distribute Superfund Resources....    10
            EPA Does Not Have a Fully Effective Process to Guide Decisions to
             Deobligate Unliquidated or Use Special Account Funds	    13
                 Portions of $174 Million in Unliquidated Superfund
                  Obligations Might Be Available	    13
                 Portions of $465 Million in Special Account Funds Are Potentially
                  Transferable to the Trust Fund	    14
            Conclusions	    16
            Recommendations	    17
            Agency Response to the Draft Report and OIG Evaluation	    18




   A    Details on Scope and Methodology	    19

   B    Definitions of Administrative and Programmatic Costs	    22

   C    Details on Removal Activities	    23

   D    February 10, 2006 Agency Response	    24

   E    OIG Evaluation of Agency Response	    29

   F    Distribution	    35

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Figure 1-1     Federal Spending for Discretionary Programs Has Decreased                    2
Figure 1-2     Expenditures Greater Than Appropriation, FY 1999-2003                      3
Figure 1-3     Regional and Headquarters Expenditures, FY 1999-2003                      4
Figure 1-4     Programmatic and Administrative Expenditures, FY 1999 - 2003                 5
Table 2-1      Superfund Carryover for FY 1999-2005                                      9
Figure 2-1     Status of Proposed, Final, and Deleted NPL Superfund Sites, FY 1987 - 2003      11
Figure 2-2     Change in Proposed, Final, and Deleted NPL Superfund Site Status by            12
	Region, FY 1987-2003	

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                                 Chapter 1
                                 Introduction
Purpose
             We performed this review in response to a congressional request specified in the
             conference report that accompanied H.R. 2673 (Consolidated Appropriations Act
             of 2004, page 1128). The U.S. Environmental Protection Agency (EPA) Office of
             Inspector General (OIG) was asked to evaluate Superfund expenditures and
             recommend options to increase resources directed to extramural cleanup while
             minimizing administrative costs.  Extramural funds are commonly understood to
             be "cleanup funds."

             We addressed four questions, developed in agreement with Senate and House
             Appropriations Committee staff:

             1)  What have headquarters and regional Superfund expenditures been for the last
                 5 years (Fiscal Years 1999 to 2003)?
             2)  How effective are the processes and criteria for determining, allocating, and
                 optimizing regional and headquarters' Superfund administrative and support
                 resources?
             3)  How effective are the processes and criteria for allocating Superfund program
                 dollars to program needs?
             4)  How effective are EPA's procedures for integrating efficiency and
                 effectiveness information into the Superfund program?

             In September 2004, we reported on the first two questions.1  This report answers
             portions of these questions.
Background
             The Comprehensive Environmental Response, Compensation, and Liability Act
             (CERCLA) established the Superfund program in 1980.  Superfund is the Federal
             Government's program to clean up the Nation's uncontrolled hazardous waste
             sites.  According to EPA, through Fiscal Year (FY) 2005, work had been
             completed at 62 percent of the highest priority sites in the Nation - those on the
             National Priorities List (NPL) - and EPA had deleted 308 sites from the NPL.
             Underscoring EPA's commitment to the "polluter pays" principle, the Agency
             indicated it secured over $1.1 billion for FY 2005 in cleanup commitments and
             cost recoveries from the parties responsible for toxic waste sites, for a cumulative
       'U.S. Environmental Protection Agency, Office of Inspector General, OIG Response to Congressional
Request on Superfiind Administrative Costs, Report No. 2004-S-00004, September 15, 2004.

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              total of over $23 billion.  According to the Agency, about 70 percent of Superfund
              cleanups are performed by responsible parties as a result of EPA's enforcement
              program.

              An issue of primary and current concern in the Superfund program is the
              sufficiency of funding for cleanups. According to the Government Accountability
              Office (GAO), until 1995, dedicated taxes on petroleum, chemical feedstocks, and
              corporate income provided the majority of the Superfund program's income
              through the Hazardous Substance Superfund Trust Fund, the account designated
              to provide funding to these sites. However, the Trust Fund has decreased over the
              years, to the extent that in FY 20042 and 2005, all Superfund appropriations came
              from general tax revenue rather than the Trust Fund.  The Superfund program
              must compete for revenue along with other discretionary programs, which have
              received decreasing portions of Federal dollars over time. As shown in Figure 1-
              1, discretionary funding decreased from 67 percent of Federal spending in 1964 to
              39 percent in 2004, while mandatory Federal spending was more than half of all
              Federal spending in 2004. As a result of the overall decline of the Superfund
              budget and the identified shortfalls associated with the Superfund Trust Fund,
              questions about the program's efficiency and effectiveness have been asked.

              Figure 1-1. Federal Spending for Discretionary Programs Has Decreased

                                Federal Spending for
                              Discretionary Programs
                      1964
1984
 2004*
                         Discretionary
   Mandatory
Net Interest
                    * Current services esf mate
                    Source: Budget otlne united Slates Government FY 2005 Office or Management and Budget

              Source: GAO presentation, American Institute of Certified Public Accounts (AICPA) National
              Governmental Accounting and Auditing Update, August 2004,
       2 According to the Final Report of the Superfund Subcommittee of the National Advisory Council for
Environmental Policy and Technology, April 12, 2fX)4.

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              Superfund Appropriations

              The Superfund program experienced an overall decline in appropriations from
              approximately $1.367 billion3 in FY 1999 to approximately $1.265 billion in
              FY 2003,4 a decline of about 7.5 percent.

              Superfund Expenditures

              As summarized in Figure 1-2, between FY 1999 - 2003, total Superfund
              expenditures were greater than their corresponding appropriation. A key reason
              for this is that EPA expends prior year funding to pay for current needs. Total
              Superfund expenditures declined about 11 percent since FY  1999, down from
              about $1.73 billion in FY 1999 to $1.55 billion in FY 2003.5 As summarized in
              Figure 1-3, the majority of Superfund expenditures occurred in the EPA regions,
              which averaged about 75 percent of total expenditures during FY 1999 - 2003.

              Figure 1-2. Expenditures Greater Than Appropriation, FY 1999 - 2003
              Constant 2003 Dollars in Millions
                $1,800
                $1,600
                 $1,200 --
                  $800 --
                         FY1999    FY2000   FY 2001    FY 2002    FY2003
                    D Total Appropriation Q Expenditures Greater than Appropriation
              Source: DIG Analysis of EPA data.
       3 All financial data have been adjusted to constant 2003 dollars using the Gross Domestic Product Chained-
Price index.

       4 Excludes allocations for the Agency for Toxic Substances and Disease Registry (ATSDR), National
Institute of Environmental Health Sciences (NIEHS), and the Brownfields program.

       5 Our analysis of Superfund expenditures excludes expenses incurred by EPA OIG, ATSDR, NIEHS; does
not include any dollars appropriated to the Office of Research and Development (ORD) prior to 1998; and includes
expenditures for the Brownfields program. The Brownfields program, prior to F Y 2003, was funded under the
Superfund appropriation and thus is included in the Superfund expenditure data.

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              Figure 1-3. Regional and Headquarters Expenditures, FY 1999 - 2003
              Constant 2003 Dollars in Millions

                           $1,729     $1,712
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$1 400 -

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$800 -
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FY1999
                                    FY2000
FY2001
FY2002
FY2003
                                H Regional Expenditures 0HQ Expenditures
              Source: DIG analysis of EPA data.

              Superfund Programmatic and Administrative Expenditures

              Superfund programmatic expenditures are those uniquely related to programmatic
              work, including extramural expenses, special use facilities, and items with limited
              application or unique use.6  Superfund program managers believe that personnel-
              related costs directly associated with site-specific cleanup activities should be
              included in programmatic costs, although they  are not.

              Superfund administrative expenditures are generally categorized as personnel-
              related costs and non-personnel-related costs.  Personnel-related costs consist of
              wages and benefits, non-personnel-related costs consist of rent, utilities, travel,
              equipment, and other overhead-related costs.
       6 We used thu definitions of administrative and programmatic costs as outlined in chapter 4 of the
Administrative Control of Appropriated Funds Manual, used by EPA's Office of the Chief Financial Officer
(OCFO). See Appendix B for definitions.

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               Figure 1-4. Programmatic and Administrative Expenditures, FY 1999 - 2003
               Constant 2003 Dollars in Millions
                        _ $1,712 	$1,718 	
                                                                      $1,582
                           FY1999    FY2000    FY2001    FY2002    FY2003
                                     0 Programmatic 23Administrative
               Source: OIG analysis of EPA data.7

               As Figure 1-4 shows, administrative costs increased from about 23 percent to
               about 28 percent, while programmatic costs decreased from about 77 percent to
               about 74 percent from FY 1999 - 2003.  During this time, programmatic
               expenditures decreased about $171 million, or 13 percent, and administrative
               expenditures increased about $41 million, or 11 percent.  Total Superfund
               expenditures averaged  approximately 75 percent programmatic and 25 percent
               administrative from FY 1999 to 2003.8
               Personnel-related (Superfund staff) expenditures averaged nearly 80 percent of
               total known administrative expenditures over FY 1999 - 2003.9 The number of
               Superfund staff declined from 3,330 staff in 1999 to 3,088 staff in 2003. Overall,
               non-personnel administrative costs decreased over the 5 years.  This indicates that
               the increase in administrative costs was due to increases in personnel-related
               expenses. According to an EPA official, cost-of-living increases and other pay
       1 Percentages and totals of programmatic and administrative expenditures in the charts, figures, and tables
in this report may not add up to 100 percent because (1) a relatively insignificant amount of expenditures were not
coded as either programmatic or administrative, resulting in an amount lower than 100 percent of total expenditures;
(2) the Agency had deductions from total expenditures, which are reflected in total expenditures so they are not
overstated, that were not coded as programmatic or administrative, so we could not deduct these amounts from
either expenditure category (resulting in programmatic and administrative expenditures of greater than 100 percent
of total expenditures); in these cases, we could not adjust programmatic and administrative expenditures.
Percentages may also not add up to 100 percent due to rounding.

       8 The data may underestimate the true administrative cost associated with the Superfund program. Our
analysis of Superfund expenditures excludes expenses incurred by EPA OIG, ATSDR, and NIEHS. The expenditure
data do not include expenses from the Environmental Programs and Management appropriation subsidy (discussed
later in our report).

       9 Staff data do not include staff from EPA Office of Research and Development (ORD), EPA OIG,
ATSDR, and NIEHS.

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             and benefit increases associated with personnel appear to be the primary cause of
             the administrative cost increase. As discussed later in the report, the Office of
             Solid Waste and Emergency Response (OSWER), the office accountable for
             achieving Superfund goals, has limited control over these costs because it does
             not manage all Superfund personnel functions.

             Prior Superfund Studies

             Since 1995, over 120 internal and external audits, reviews, and evaluations about
             the Superfund program have been conducted by independent groups, including
             the EPA OIG, the GAO, the National Academy of Public Administration,
             Resources for the Future, and the National Advisory Council on Environmental
             Policy and Technology. In April 2004, EPA released an internal study,
             SUPERFUND: Building on the Past, Looking to the Future, commonly known as
             the 120-Day Study that made over 100 recommendations for improving
             Superfund. We found the 120-Day Study findings informative and reference
             some of its recommendations in this report.

Scope and Methodology

             We performed this evaluation from February 2004 to January 2005, generally in
             accordance with Government Auditing Standards issued by the Comptroller
             General of the United States (limitations and a more extensive discussion of this
             section are in Appendix A).  Subsequent to completing our fieldwork, we received
             limited updates on unliquidated obligations, special accounts, ORD expenditures,
             site-specific payroll charging information, and Superfund carryover.

Agency Response to the Draft  Report and OIG Evaluation

             We considered and reviewed the Agency's comments we received in August
             2005, met with the Agency in October 2005, and received additional comments in
             February 2006,  after the Agency indicated it was developing an implementation
             plan to respond to our recommendations.  In its February 2006 response, the
             Agency indicated nonconcurrence with some of the recommendations. We met
             with the Agency to discuss  its nonconcurrence with some of the
             recommendations.  Where appropriate, we incorporated the Agency's comments
             into the final report.

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               :   „       :   Chapter2      _,/-   '     :  ,
     Obstacles Impact EPA's Ability to Efficiently and
          Effectively Manage Superfund Resources
             Several organizational and accounting obstacles prevented EPA from efficiently
             and effectively managing the Superfund program for performance and adequately
             accounting for Superfund resources.  For example, EPA has been unable to
             allocate and manage Superfund resources for cleanup as efficiently and
             effectively as possible because of disagreements about how to classify Superfund
             administrative expenses, decentralized Superfund management, incomplete
             information on program costs, an outdated process for allocating resources, and
             continuing to maintain unliquidated Superfund obligations and money in special
             accounts, as a "hedge against tough financial times."

Superfund Managers Disagreed About How to Classify Administrative
Expenses

             While Congress asked us to review Superfund administrative expenses to identify
             economies to enable EPA to allocate additional funds to cleanup, we found that
             Superfund managers did not agree on the definition of these costs.  EPA did not
             account for funds in a manner that allows managers to easily compare Superfund
             cleanup costs with Superfund program support costs. Similarly, EPA's
             accounting system did not provide reports that connect the costs of program
             support with the activities supporting the program.  These factors prevent the
             Agency from accurately determining its administrative costs  and needs, and
             effectively managing them.

             The Office of the Chief Financial Officer (OCFO), which manages the Agency's
             accounting system, defined administrative costs differently than OSWER, which
             manages most aspects of the Superfund cleanup and response program. OCFO
             uses a budgetary definition of administrative costs that includes all payroll
             expenses, even though some activities such as direct oversight of site cleanup may
             not be considered administrative. OSWER does not agree that all personnel-
             related costs should be considered administrative, noting that those directly
             associated with site-specific work should be categorized as non-administrative, or
             programmatic.

             By analyzing activities and related costs, EPA could identify opportunities to shift
             funds from support to cleanup activities. To maximize costs devoted to cleanup,
             EPA would need to categorize costs for Superfund-related activities and
             determine appropriate funding levels for the activities. An approach, called
             activity based costing, would allow managers to assess the cost/benefit of specific
             activities and take steps to reduce costs where necessary.

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             EPA "s 120-Day Study identified the need for improvements in site-specific cost
             accounting to improve Superfund program management and benefit cost recovery
             efforts. This improvement could help reduce overhead costs and provide more
             detailed information on actual site costs.

Decentralized Management of Superfund Resources Limits Ability to
Manage Resources to Benefit Cleanup

             EPA's decentralized management of Superfund contributes to allocation and
             resource management problems.  EPA spreads its Superfund appropriation across
             a variety of offices that  provide the program's administrative support and cleanup
             activities, limiting EPA's opportunities to more effectively manage Superfund
             resources for cleanup and impeding close alignment and integration among EPA
             offices that receive some portion of the Superfund appropriation.  The Agency's
             own internal review of the Superfund program (J 20-Day Study) identified this
             problem. It found that

                With resources spread broadly across multiple EPA headquarters offices and
                the Regions, efforts  end up less focused and less mutually supportive because
                different parts of the organization see themselves as beholden to their own
                program areas, rather than responsible for achieving overarching
                programmatic goals and mandates.

             As a result of this decentralized management of Superfund administrative and
             programmatic resources, no single program office had, or perceived it had, overall
             responsibility and authority for these resources.  For example, EPA allocates
             Superfund response and cleanup resources to OSWER, research and development
             funding to ORD, and enforcement funding to the Office of Enforcement and
             Compliance Assurance  (OECA).  Superfund management and support resources
             have been allocated to several organizations, but largely to the Office of
             Administration and Resources  Management (OARM) and OCFO.

             Decentralized  management of Superfund resources virtually eliminated any
             integrated analysis of Superfund program costs across these offices. It also
             impacted EPA's ability  to redirect some administrative resources to Superfund
             cleanups. For example, personnel, compensation, and benefits funding is
             managed by each EPA program office. In FY 2003, annual personnel,
             compensation, and benefits carryover from the Superfund Management and
             Support, Response, and Enforcement function was approximately $10 million (the
             carryover amount varies each year). However, EPA did not reprogram
             approximately $6 million of the 2003 carryover, and lost an opportunity to
             reallocate these funds to Superfund cleanups. EPA continues to lose opportunities

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               because its policy is to return Superfund carryover to the offices or functions to
               which it was originally appropriated.I0

               Consequently, when Superfund support or enforcement payroll carryover was
               available, as it was in FY 1999 - 2005, EPA did not reprogram it to alternative
               program functions with greater needs, such as Superfund cleanup.  Annual
               amounts were:

               Table 2-1. Superfund Carryover for FY 1999 - 2005
                              2000
                              2003:
                             -2005:
                                         {bป tuition*}
                                            $103.1
 $57.3
                                            $53.9
                                            $50.8
$47.61
                                           $27.61
 $38.0
              The data in Table 2.1 demonstrate a trend of carryover funds in the Superfund
              program. Because the program has a policy of returning all carryover funds to
              their original functions, and not reprogramming Superfund funds, the data suggest
              that, in addition to the known case for FY 2003, EPA has potentially lost other
              opportunities to reprogram some carryover funds to priority areas and needs.
              The carryover data we received from the Agency did not allow us to determine
              the amounts attributable to specific Superfund functions (e.g., enforcement,
              research, cleanup).  In addition, we were unable to determine whether carryover
              returned to  its  original function (per EPA policy) directly benefited the cleanup
              function in  some way.
       10 In F Y 1997 and 1998, Congress mandated that all Superfund carryover, regardless of the function, be
reallocated to Superfund remedial work. Except when directed to do so by Congress, OCFO has maintained that
reallocating among function caps is not consistent with its policies. For F Y 2006, Congress did not designate offices
or function caps in the Superfund appropriation.

       !' These amounts include funds that were deobligated during a fiscal year and were not obligated again by
the end of the same fiscal year.

       12 The amount of personnel, compensation, and benefits carryover cited in the example above is included
in this amount.

       13 The carryover amount provided by the Agency for FY 2004 was $75.2 million because the carryover
from FY 2003 was not issued until the Trust Fund balance was sufficient to support it. To prevent duplication, we
deducted the FY 2003 carryover from the amount provided by the Agency.

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Incomplete Information on Superfund Costs Prevents Accurate
Estimates of Program Needs

              EPA's lack of an accurate estimate of Superfund administrative costs prevents the
              Agency from accurately estimating Superfund program needs.  The Agency's
              Environmental Programs and Management (EPM) appropriation pays for a wide
              range of EPA costs, including those that cannot be attributed to a specific program
              or appropriation.  In part, these costs included overhead such as facilities,
              computers, information technology support, health and safety, and training. The
              cumulative amount of EPM funds that subsidized Superfund activities, as reported
              in the Agency's FY 1999 - 2003 annual reports, was approximately $360 million
              dollars. EPA did not record the EPM subsidy to Superfund in the Agency's
              accounting system for Superfund or for any of the other appropriations, and
              allocated the EPM subsidy only for financial statement purposes.  Full  costing for
              Superfund should include those costs subsidized by the EPM appropriation.

Outdated EPA Workload Model Used to Distribute Superfund
Resources

              EPA allocated Superfund personnel and resources based on an outdated workload
              model,14 which can result in potential misallocations.  The Agency acknowledged
              that the model is "massively out of date" and it took them over a year to provide
              us with documentation on the model.15  Because the Superfund program changed
              substantially since the model was last updated, EPA could not demonstrate that
              current personnel or other administrative activity allocations  are reasonable,
              efficient, and commensurate with current program requirements.

              Legislation, agency responsibilities, and the status of sites changed cleanup
              requirements and Superfund during the last  16 years.  For example, according to
              the Agency, EPA created the Brownfields program, which Congress later
              removed from the Superfund program and now funds  separately.  Also, the
              Agency stated that Presidential Decision Directives have added Homeland
              Security responsibilities. EPA's "enforcement first" policy has impacted the
              program by  limiting the amount of time spent litigating cases and saving the
              resources of the Trust Fund for responding to "orphan" sites where no viable
              responsible party can be found. Importantly, the status of proposed, final, and
              deleted NPL sites changed.  As shown in Figure 2-1, a majority of the sites are
              "construction complete."
       M According to EPA, it has discontinued its effort to collect, evaluate, and run model outputs on an annual
basis, and instead has dealt with annual marginal changes to personnel ceilings according to program priorities.

       15 EPA did not provide important workload model information in a timely manner. We requested a copy of
the workload model in July 2004 but were told that EPA no longer had any documents related to the workload
models. We did not fully assess the workload model documents EPA provided due to the late submission of the
documents and our tirneframes. EPA agrees with our recommendation to conduct a workforce assessment of
headquarters and regional Superfund staff levels and allocations.
                                          10

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Figure 2-1. Status of Proposed, Final, and Deleted NPL Superfund
Sites, FY 1987-2003
                                               IS Deleted/Referred to
                                                Another Authority
                                               • Construction Complete

                                               • Construction Underway

                                               ES Design Underway

                                               Q Remedy Selected

                                               ED Study Underway

                                               • Remedial Assessment
                                                Not Begun
As reported in a March 2004 EPA analysis of the regional workforce, Ihe current
regional workforce distribution was heavily influenced by the historic number of
Superfund sites per region. However, as shown in Figure 2-2, the number of
proposed, final, and deleted NPL sites managed by each region changed between
FY 1987 and FY 2003. For example, in FY 1987, Region 4 had 107 sites; by
FY 2003 that number had almost doubled to 209 sites.  The distribution of site
activity within stages of the Superfund process also changed.  For example, in
FY 1987, the majority of sites in Region 5 were classified as "study underway" or
"remedial assessment not begun," whereas in FY 2003, a majority of sites were
"construction complete."
                             11

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              Figure 2-2. Change in Proposed, Final, and Deleted NPL Superfund Site Status by
              Region, FY 1987-2003
              1987-All Reg ions
                                      10
2003-All Regions
                                                B?*'&.ฎ;?* JfiBa'^ • '-ฃ • &&:-w~ .-ป& •>• '
                                                  1  23456789 10
                                                           Region*
                 a MetecVReferred to Another
                  Authcrity
                  Constructicn Complete

                  Ccnstrucocn l^detwey

                 3 Design Lhdenvay

                 3 Remedy Selected

                 3 Study Underway

                 • Remedal Assessment Not
                  Begun
              Important differences exist in the nature of the current workload across regions,
              emphasizing the need for accurate resource allocation. In our survey of EPA
              regions, 9 of 10 EPA regions indicated they redirect some portion of their
              Superfund personnel outside Superfund offices to other regional activities, such as
              community involvement, public affairs, and the Regional Administrator's office.16
              We identified eight staff that charged 100 percent of their time to Superfund, but
              devoted some time to work as project officers for EPA's Brownfields program in
              FY 2003 - 2004.

              Regional workload can differ in areas such as managing megasites (sites
              estimated to cost over $50 million to clean up) and Superfund removals.  For
              example, as of the third quarter, FY 2004, Region 2 managed 24 megasites and
              Region 9 managed 25, while Region 7 managed 5. Megasites can differ from
              nonmegasites in that they can require more resources  over the long term to
              address complexities associated with developing remedies and cleaning up
              contamination that can cover many square miles, involve multiple communities,
              responsible parties, Indian Tribes, or States.

              During FY 1999 - 2003,  while the initial  annual allocation of Superfund removal
              funding to the regions was mostly constant, the actual workload, or need, was not
              (see Appendix C for detailed information).  Regions adapted to the fixed
              allocation system by managing their workload according to the funding received,
              which means some removal work may have gone unaddressed.  For example, in
              FY 2004,  Regions 2 and 3 reported backlogs  of approximately 12 and 25 removal
              assessments, respectively.17 According to EPA, it began an  effort to redefine the
       16 We did not verify whether these activities were related to Superfund or not.

       17 EPA attempted to alleviate removal funding shortages by keeping a national pool of additional removal
funds that regions can request. In FY 2004, OSWER provided approximately $3.75 million from this pool to fund
removal needs at four sites. However, the amount in the pool was less than the amount for the removal actions that
the regions requested
                                             12

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              baseline activities of the Superfund program18 and is reviewing the allocation
              methodology for Superfund removal activities.19

EPA Does Not Have a Fully Effective Process to Guide Decisions to
Deobligate Unliquidated Funds or Use Special Account Funds

              EPA maintains unliquidated obligations for longer than 2 years, and appears to
              lack information that will allow it to proactively and timely manage and account
              for Superfund obligations.  Lacking a fully effective approach for deobligating
              unliquidated Superfund obligations, the Agency was unable to state when and
              how much will be available. However, in response to our requests, the Agency is
              analyzing the unliquidated obligations.  EPA has reclassified (or transferred)
              some special account funds from sites that were not construction complete, while
              hesitating to transfer funds to the Trust Fund from sites where construction was
              complete.

              Portions of $174 Million in Unliquidated Superfund Obligations Might
              Be Available

              Between FY 2001 - 2005 (June), EPA deobligated approximately $685 million;
              portions of $174 million more remain available to deobligate. While EPA has
              taken significant steps in deobligating Superfund resources, the  Agency may not
              have been timely in its review or action on the remaining $174 million in
              obligations; other studies also found problems with EPA's management of
              unspent funds like these. As the Agency works to better manage and account for
              Superfund resources, timely and fully effective processes are key for identifying
              valid Superfund obligations that could be made available for cleanup actions.

              While EPA indicated that funds should be expended within 2 years of obligation,
              the $174 million represented unexpended obligations initiated from FY 1989
              through FY 2002 minus funds reserved for mixed funding accounts and funds
              held pending an DIG review.  EPA told us that not all of the $174 million may be
              immediately available, or available at all, to deobligate, due to various issues such
              as additional unplanned work, late billing invoices, and litigation issues. In
              response to the draft report, the Agency is analyzing how much  of the $174
              million might be available; it has thus far concluded that $38 million might be
       18 The Agency will use this information to evaluate whether significant shifts in resource allocations are
necessary, and whether modeling or some other approach will be helpful to make resource allocation decisions.

       19 Determining needs and priorities for Superfund removal funding may never achieve precision because
removals can be unpredictable.  However, reasonable factors to consider in estimating removal needs include:
regional or State capacity to conduct removal actions, nature of prior removal actions in regions/States, nature of
regulated facilities and businesses in regions and States, and type and volume of hazardous material transportation
that occurs in regions and States.
                                           13

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              available to deobligate. The Agency is continuing to explore opportunities to
              deobligate additional funds.20

              EPA's management of unspent funds like these was reported in the Agency's 120-
              Day Study and prior EPA OIG reports. According to the 120-Day Study,
              closeouts of completed contracts and interagency agreements continue to be
              delayed, resulting in EPA not deobligating funds promptly.  The study indicated
              that some regions appear to be holding money "as a hedge against tough financial
              times." Other research reported that regions are obligating funds for Response
              Action Contracts and Army Corps of Engineers interagency agreements in excess
              of 2-year future funding needs (the amount determined prudent for future
              funding). Also, expenditure and obligation data showed long time lags between
              obligating and expending funds, which indicates that EPA is not maximizing its
              resource use.

              Portions of $465 Million in Special Account Funds Are Potentially
              Transferable to the Trust Fund

              While special  accounts are a useful tool that can help the Agency negotiate
              settlements with responsible parties, EPA may be losing the opportunity to better
              use portions of these funds because the Agency has been slow to identify
              potentially available funds and implement protocols for the management of
              special accounts. By maintaining past costs  recovered in special accounts  and by
              maintaining funds in accounts where construction is complete, EPA is not
              maximizing the use of special account funds. The Agency acknowledged that no
              systematic approach exists for capturing and reporting decisions about using
              special accounts, or for determining when special account resources may be
              returned to the Trust Fund.  As with unliquidated Superfund obligations, EPA's
              120-Day Study found that funds in special accounts are potentially being held "as
              a hedge against tough financial times." Agency officials are working to improve
              guidance on special accounts.

              Under the terms of settlement agreements, special accounts are used to collect
              funds from responsible parties (RPs) to pay cleanup costs at specific Superfund
              sites. Special  accounts can hold funds when RPs who are unable or unwilling to
              perform a response action make "cash out" payments to address their past and
              future liability at the site. As of September 2005, approximately $465 million in
              special accounts was potentially available for transfer to the Trust Fund, though
              not all of these funds may be available immediately.  The majority of these funds
       20 The Agency's analysis of amounts available for deobligation is based on 80 percent of the total amount
analyzed, or $133 million.
                                           14

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              ($390 million21) are past costs reimbursed to EPA while the remainder ($75
              million22) are funds associated with sites that are "construction complete."

              In the past, the $390 million in past costs in special accounts would have been
              deposited into the Trust Fund and become available for congressional
              appropriation.  However, in 2000, EPA's Office of Site Remediation Enforcement
              (OSRE) issued a guidance memorandum stating that past cost recoveries could be
              deposited into special accounts using model language in the settlement agreement.
              Importantly, the OSRE memo also reported that EPA had the option of stating in
              agreements that past costs recovered could also be transferred by EPA to the
              Superfund Trust Fund. Circumstances do exist under which special account funds
              cannot be transferred to the Trust Fund, such as those created by terms of
              settlement agreements.

              Through guidance, EPA has established priorities  for the use of special account
              funds. The first priority  is to use the funds as a settlement incentive for
              responsible parties; second is to conduct EPA-led  cleanups; third is to apply the
              funds toward previous EPA expenditures at a site, which will allow funds
              previously reserved for the site to be "deobligated" for use at other sites  (also
              known as reclassification); and fourth is to replenish the Trust Fund.  EPA has
              made limited use of the option to reclassify special account funds; it has
              reclassified approximately $23 million (out of approximately $536 million in past
              costs special accounts) to other sites as of September 30,2005.  EPA has also
              expressed hesitancy to transfer funds from sites that are "construction complete"
              due to concerns about unexpected future costs.

              EPA is evaluating its options to conduct further transfers of special account funds
              to the Trust Fund. The 120-Day Study recommended that EPA revisit its special
              account guidance to determine whether additional clarification is necessary to
              maximize using special account dollars and free up money for current work. The
              study reported that:

                 ...in some cases special account dollars remain unobligated or unspent, even
                 after a significant time beyond when  work at a site has been completed At
                 present,  there does not appear to be particular attention  or pressure to
                 identify and take the necessary steps  to mobilize these funds to help complete
                 priority work.
       21 The past costs potentially available for transfer were estimated by comparing, for each account, the past
costs available (receipts minus disbursements) to the total available balance. The total available balance represented
the amounts received, plus interest minus disbursements and open obligations.  It also includes Agency data on
special account funds promised to RPs (about $25.5 million) and a $14.6 million transfer to another special account.

       22 The amount potentially available for transfer to the Trust Fund for "construction complete" sites was
estimated by subtracting the past costs available from the available balance to avoid duplication of reporting
potential amounts available for transfer to the Trust Fund. It also reflects Agency data on special account funds
promised to RPs less transfers to other accounts.
                                             15

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             Agency officials have recognized the need to nationally manage special accounts
             and, in August 2005, asked the regions to provide estimates of future needs for
             each special account.  Headquarters has received the regional estimates, is
             analyzing them, and will consider them in future decisions regarding special
             accounts.
Conclusions
              Because EPA has dispersed Superfund management and resources, no single EPA
              office, including the office accountable for Superfund cleanup goals (OSWER)
              has full responsibility or control over EPA's Superfund appropriation. Managing
              the Superfund appropriation across offices limits EPA's control and visibility of
              Superfund resources and has impacted EPA's ability to maximize resource
              utilization and cleanup activities.

              Additional obstacles to the Agency's ability to direct all potentially underutilized
              resources to cleanups  and better manage Superfund administrative and support
              resources include

              •   not managing Superfund administrative costs, unliquidated obligations, and/or
                 special accounts to maximize funds devoted to cleanup activities; and
              •   using an outdated  workload model to allocate funds.

              Importantly, because many obstacles stem from not managing administrative
              costs at an activity-level, EPA

              •   lacks information  on how administrative staff spend their time and contribute
                 to cleanup,
              •   is losing opportunities to be more efficient,  and
              •   is losing opportunities to assess the workload and distribute funds as needed,
                 because it does not know how much the different activities cost.

              These limitations in EPA's managing its Superfund resources are also significant
              internal control weaknesses requiring corrective action because they impact
              EPA's ability to fully  account for its funds.

              Given the increasing demands on shrinking discretionary funding, the current
              system of managing resources should no longer be considered an option. The
              Agency's ability to optimize its Superfund resources for cleanups will depend on
              reducing organizational impediments to resource management, realigning its
              staffing commensurate with its workload, fully  accounting for its Superfund
              administrative burden, making a long-term commitment to comprehensively
              manage the Agency's administrative and support resources, and using all
              available funds. Closer alignment  and integration of offices that receive
              Superfund resources could prevent lost opportunities in applying underutilized
              funds to cleanup, optimizing resources, and gaining efficiencies. Flexibility to
                                           16

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             reprogram Superfund resources can help overcome the current management and
             financial obstacles and facilitate more effective and efficient achievement of
             Superfund cleanup goals.

             EPA is attempting to address some of the limitations associated with managing its
             Superfund resources by creating a Superfund Board of Directors. The Board is
             functioning and is planned to be in place for about 2 years, after which time it will
             evaluate the need for the Board to continue.
Recommendations
    No.
    2-1
    No.
    2-2
    2-3
    2-4
    2-5
             We identified opportunities for congressional and EPA action to improve
             Superfund resources management.
                                 For Congressional Action
                              Recortimendattorw :
Reprogramming Carryover: Similar to actions Congress took in FY 1997 and
1998, Congress could direct EPA to monitor all Superfund carryover before each
fiscal year expires, and demonstrate how reprogrammed or non-reprogrammed
Superfund carryover directly benefits Superfund response and cleanup activities.
When implemented, this recommendation supersedes recommendation 2-4.
                                     For EPA Action
                                          Recommendations
Accountable Entity: EPA offices should more closely align themselves in support
of an accountable entity (e.g., a Board, a National Program Manager) to effectively
allocate and manage Superfund resources across the Agency according to the
program's demonstrated needs and goals.               	       	
Accounting Definitions: EPA should agree to define costs in a manner that
supports management decisionmaking and improve their accounting of such
resources to maximize achieving program goals.
Reprogramming Carryover: EPA should monitor all Superfund carryover before
each fiscal year expires, evaluate the need to reprogram carryover for extramural
cleanup, and reprogram as appropriate (with approval from Congress as
appropriate), so that EPA can ensure that funding is strategically aligned to meet
the highest priority needs.                                               	
Determining Superfund Resource Needs and Allocations: EPA should conduct
a workforce assessment and/or develop a workload model, comprehensively re-
evaluate regional and headquarters Superfund personnel levels and allocations, and
develop and communicate a schedule to regularly evaluate Superfund workload
models. Superfund removal needs and current allocations should be reviewed.
Consideration of factors including regional/State capacity to conduct removals,
nature of prior removal actions in regions/States, nature of regulated
businesses/activities in regions/States, and the type or volume of hazardous
                                          17

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    2-6
    2-7
    2-8
            material transport that occurs in regions/States may assist need or allocation
            decisions.
Unliquidated Obligations: EPA should deobligate the $38 million it has
identified. EPA should also continue to review and deobligate unliquidated
obligations, as appropriate. EPA should set up a process to ensure that funding is
deobligated more quickly than we found in the current system.  Such a system
would include: developing management reports and performance measures that
identify unspent obligations, along with the status of contracts, grants, and
interagency agreements; and reviewing contracting and invoicing procedures to
determine whether the time lag associated with the expending of funds can be
decreased.
Special Accounts: As of September 2005, approximately $465 million in special
accounts was potentially available for reallocation. EPA should timely review
special account dollars and set up a formal process and schedule to ensure special
account funds are used consistently according to the hierarchy specified in its
guidance.  This can include (1) using the funds as a settlement incentive for
responsible parties; (2) conducting EPA-led cleanups; (3) applying the funds
toward previous EPA expenditures at a site, which will allow funds previously
reserved for the site to be "deobligated" for use at other sites (also known as
reclassification);  and (4) replenishing the Trust Fund.
Internal Controls: EPA should declare its accounting for administrative and
supporting activities, and its lack of a current workload model, as internal control
weaknesses.
Agency Response to the Draft Report and OIG Evaluation

             We met with the Agency in October 2005 to discuss their written comments, and
             received additional comments in February 2006, after the Agency indicated it was
             developing an implementation plan to respond to our recommendations. In its
             February 2006 written comments, the Agency nonconcured with
             recommendations 2-6 and 2-7. The Agency also made comments on findings, and
             we made changes as appropriate.
                                          18

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                                                                           Appendix A

                Details on Scope and Methodology
To analyze Superfund expenditure data, we extracted data from EPA's Integrated Financial
Management System (herein referred to as EPA's accounting system), and adjusted it to constant
2003 dollars using the Gross Domestic Product Chained-Price Index. We analyzed trends in
Superfund expenditures according to their administrative and programmatic components.
Because the Agency's accounting system does not track transactions at the activity level
consistent with the definition of administrative and programmatic costs preferred by OSWER,23
we used the official EPA definition of administrative and programmatic expenditures.

Due to data quality concerns, we excluded ORD expenditure data from the draft report.  ORD
had concerns about the exclusion and requested the opportunity to submit new data.  Subsequent
to issuing the draft report, ORD provided additional expenditure data, which we analyzed and
include in the final report.  Also, the EPA OIG receives a portion of the Superfund appropriation
for program operations and reviews.  Our analysis did not include funds that the OIG received or
expended.

In evaluating die effectiveness of EPA's process for managing its  Superfund administrative
costs, we focused on the personnel- and non-personnel-related components of those costs. We
considered  how EPA used the workload model to manage the personnel-related costs, which
compose the majority of administrative costs. Early in our review, we learned that significant
limitations  existed in information available on these costs  and EPA's managing them. As a
result, we focused on evaluating how the limitations we discovered affected the Agency's ability
to effectively manage its administrative costs. Also, we surveyed EPA's regions regarding how
they allocated Superfund administrative and support costs. We surveyed Regions 3 and 5 to
identify the estimated actual work  activities of staff who charge to Superfund., and compared the
results from Regions 3 and 5 to time-charging data supplied by OCFO for FY 2003.  We also
included data collected from a separate OIG evaluation of Brownfields resources.

In evaluating the effectiveness of EPA's process for managing its  Superfund programmatic costs,
we reviewed programmatic expenditures that are made pursuant to achieving the human health
and environmental protection goals of the cleanup program (e.g., activities supported by
Superfund remedial, removal, and  pipeline dollars, which compose a majority of the "Superfund
Response/Cleanup Actions" portion of the FY 2003  Superfund appropriation). Further, we
reviewed prior internal and external studies that had shown that programmatic activities, if
improved, could result in allocating more resources to the cleanup program, such as deobligation
processes and managing Superfund Special Accounts.
       23 EPA's Office of the Chief Financial Officer (OCFO) categorizes all Full-Time Equivalent (FTE) costs as
administrative. OSWER officials do not fully agree with this definition, because they believe certain personnel
costs are programmatic. For example, according to OSWER, work conducted by remedial project managers and on-
scene coordinators is specifically site-related and thus programmatic. However, although the Agency can identify
site-specific and non-site specific costs, these do not necessarily indicate administrative and programmatic costs
because the Agency indicates that some site-specific activities are administrative.


                                           19

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We identified the human health and environmental protection goals of the Superfund program in
EPA Strategic Plan Goal 3, Objective 3.224 and related performance measures. To help achieve
the goals, EPA allocates dollars to Superfund removal activities, Superfund remedial activities,
and Superfund pipeline activities25 using a specific "Advice of Allowance" (AOA) for each
category of activity. We identified and reviewed the AOA funding process at headquarters and
the allocating process at the EPA regional level (Regions 2 and 3).

We considered over 120 studies about the Superfund program conducted by external
organizations since 1995, including EPA OIG, GAO. Resources for the Future, the Superfund
Subcommittee of the National Advisory Council for Environmental Policy and Technology, and
internal EPA studies, including the 120-Day Study.  We also obtained internal policy memos,
guidance, and draft action plans from EPA headquarters and regional officials.

Limitations
We complied with Government Auditing Standards, with limitations as follows:

       (1)    We relied on EPA's new accounting system (the Integrated Financial
              Management System, or IFMS), as the primary system for determining Superfund
              expenditures.  An OIG report has indicated weak system controls.26 We reported
              that

              ... a general breakdown of security controls... could undermine the integrity of
              IFMS software libraries and financial system data. Duties were not adequately
              segregated, individuals used an inappropriate ID or continued to have system
              access after no longer needing it, and contractor personnel were granted access
              to IFMS without a successful background security check. Numerous
              accountability and contractual issues contributed to this, including OCFO not
              having a system for identifying employee responsibilities related to IFMS
              security, and management not performing a risk assessment of IFMS's general
              support system. As a result... [there was] a high risk that system programmers
              could make unauthorized or unapproved changes to system software and data
              used for EPA 's accounting and financial reporting.
       24 In the FY 2003 - 2008 EPA Strategic Plan: Directions for the Future, EPA Strategic Goal 3, Objective
3.2, says "control the risk to human health and the environment... by cleaning up and restoring contaminated sties or
properties to appropriate levels," p. 64, September 30,2003.

       25 Removal activities include removal actions (such as emergency or time-sensitive cleanup actions).
Remedial activities include long-term cleanup actions and other cleanup actions. Pipeline activities include
preconstruction activities such as remedial investigation/feasibility study, selecting the remedy, designing the
construction work, community involvement activities, records management, and State program development.
         U.S. Environmental Protection Agency, Office of Inspector General, EPA Needs to Improve Change
Controls for Integrated Financial Management System, Report No. 2004-P-00026, August 24, 2004. Though this
report was closed out by the OIG in May 2005, the findings were relevant for the period of our review.
                                            20

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       (2)    We did not test internal controls.

       (3)    We relied on data gathered by third parties, such as Resources for the Future, but
             did not test the data it used to reach its conclusions.

       (4)    We did not test the accuracy of data from EPA's Comprehensive Environmental
             Response, Compensation, and Liability Act Information System (CERCLIS).

Due to limited time and resources,  we did not evaluate every option to improve Superfund
program management. We could not determine overall savings for all recommended options,
nor the potential investments that may be required to implement them. We conducted a limited
analysis for potential fraud in the Superfund program. These limitations could have resulted in
decreased reliability of the data and findings reported.

We were limited in our ability to both identify options for redirecting more money to extramural
cleanup while also minimizing administrative costs.  IFMS does not provide detailed activity-
level data for administrative costs nor could we timely estimate administrative costs.  Therefore,
we were limited in our ability to recommend options that both minimized these costs and at the
same time provided more dollars for cleanup.
                                           21

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                                                                          Appendix B

 Definitions of Administrative and Programmatic Costs
We used OCFO's definitions of administrative and programmatic costs as cited in chapter 4 of
\hsAdministrative Control of Appropriated Funds Manual.
Administrative Costs are:
Staff*
Related
Supfxwt-
Related
Individual-
Related
Overhead*
Related
Include all payroll  and items for groups of employees, such as rent for space and
consumable office supplies that would not be incurred if the Agency did not have a
workforce.
Include all of the Agency's major support contracts for general-use facilities,
maintenance, etc.  Also include costs associated with Program Office management
staff activities, administration, and management.	
Include personal desktop office equipment and general staff training (as opposed to
technical program-specific training) that provides knowledge that can be utilized by
the employee upon leaving present position.	
Include management and administrative functions that all government and business
organizations have and which are not related to environmentally-mandated
programs.	
Programmatic cotft !iiiiK&.:: i^ttv : '•'$?ฃ:: •?:$&• • - •'ฃ&- : ::-^m^:^;m^ •• 4S:f- :-;: w- :< ^^^
Environmental
Mission-
Related
Acquisition or
Assistance-
Related
Fiefd-
ReJated
Special-Use
Facility-Related
Unique and
Limited Use-
Related
Include costs specifically driven by environmental statute and program activities
rather than in-house office staff involved with programs. Regulation development
and water quality monitoring activities are examples.
Include items historically termed as "extramural" that are directly related to activities
outlined by environmental statute and are traditionally obligated through
contracts/interagency agreements or grants/cooperative agreements.
Include program activities such as hazardous waste cleanup, environmental
emergencies, field sampling, and testing and monitoring, etc.
Include infrastructure operating costs (rent, utilities, etc. ) associated with dedicated
; single-purpose special use facilities, including regional Emission Standards Division
labs.
Include cost of items with limited application or unique use for specific programs that
i have no general use elsewhere. Examples would include cost recovery data
collection and enforcement effฐrtsiฃiiamietoSuperfui^ 	
       27 Chapter 4 of the Administrative Control of Appropriated Funds Manual does not specifically address
payroll costs. It was confirmed through an OCFO official that all payroll costs are considered administrative.
                                          22

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                                                           Appendix C
                     Details on Removal Activities
The following table shows removal action starts by type of action and region for FYs 1999-2003.
• *:; :S;-:P;Wi:C?|:# 1*
Region 1



Region 2



Regie's 3




Region 4




Region S



Region 6




Region 7



Region &



Regionfi



Region 10




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Emergency Response
Time-Critical
Non-Time-Critical
Total Starts
Emergency Response
Time-Critical
Non-Time-Critical
Total Starts
Emergency Response
Time-Critical
Non-Time-Critical
Not Coded
Totat-Staซs;;::;::: ; \mm^*
Emergency Response
Time-Critical
Non-Time-Critical

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Emergency Response
Time-Critical
Non-Time-Critical
Total Starts •••^•:--: • ::;•
Emergency Response
Time-Critical
Non-Time-Critical
Not Coded
wmsmm^mm^.^.
Emergency Response
Time-Critical
Non-Time-Critical
Total Starts ; : :
Emergency Response
Time-Critical
Non-Time-Critical
Tofctli Start*;: :;: :. •:^:rฑ--^
Emergency Response
Time-Critical
Non-Time-Critical
Total Starts •S'---;-^;-:;:::^
Emergency Response
Time-Critical
Non-Time-Critical
Not Coded
Total; Starts:;: :..::.=:;;;: •=••:. :-
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                                 23

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                                                                                                    I
                                                                        Appendix D

                    February 10,  2006 Agency Response
MEMORANDUM

SUBJECT:    Inspector General's Evaluation Report Entitled "EPA Can Better Manage
             Superfund Resources" Assignment No. 2004-000709, February 16, 2006

FROM:      Susan Parker Bodine
             Assistant Administrator
             Office of Solid Waste and Emergency  Response

TO:          Nikki Tmsley
             Inspector General

Thank you for the opportunity to review the final draft report of the EPA Office of Inspector
General, "EPA Can Better Manage Superfund Resources."  We appreciate your consideration of
the comments made in the August 18, 2005, Memorandum to you from Tom Dunne, and the
revisions you made based on those comments.

We believe that your office now has a somewhat better understanding of how the Superfund
program operates.  This understanding will help both  OSWER and OIG as we work together to
address the challenges that face the Superfund program.

However, there remain a number of areas of apparent confusion that we would hope could be
corrected before the final draft.  In particular, your staff still appears to misunderstand the
congressional appropriations process and the operations of the Superfund Trust Fund and the
benefits that accrue from Special Accounts. The Superfund Trust Fund has always been an on-
budget trust fund. Any appropriations out of the Trust Fund are subject to the same discretionary
spending caps that apply to all discretionary programs. Similarly, any deposits into  the Trust
Fund can be used to off-set any  federal spending, not just spending on the Superfund program.
The Trust Fund is an account, not a fund of available  dollars. In addition, because Congress can
appropriate funds into, as well as out of, the Trust Fund, the level of appropriations out of the
Trust Fund has never been related to the balance of the Trust Fund.

Special Account funds are available for cleanup activities. If EPA were to deposit funds
received from potentially responsible parties (PRPs) in settlement of their liability under
CERCLA into the Trust Fund, then those funds are not available to EPA to use to support
cleanup activities unless appropriated for that purpose. Because those receipts into the Treasury
could  offset any other federal spending, these funds could be used to offset spending such as
appropriations for Corps of Engineers flood control projects or Department of the Interior park
maintenance activities, instead of appropriations from the Trust Fund for EPA Superfund
cleanup activities.  So, it is mistaken to suggest that depositing monies into the Trust Fund
increases funding for Superfund cleanup activities.  Where EPA has another mechanism for
                                         24

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keeping and using those funds, such as Special Accounts, then transferring PRP settlement
dollars to the Trust Fund decreases funds available for cleanup activities.

In addition, the OIG appears to misunderstand the timing of the use of Special Account funds.
OIG's methodology for calculating the amount of past costs in Special Accounts that are
potentially available for transfer is described in footnote 15 of page 13.  This footnote makes
clear that OIG considers funds to be potentially available if not already disbursed or obligated.
This methodology completely ignores the fact that Superfund cleanups take place over a period
of years and Special Account funds need to be kept available for future obligation until the site is
completely cleaned up.  For this  reason,  we do not concur with the Report's recommendation
that "EPA transfer that portion of $465 million available special account funds to the Trust
Fund" (Recommendation 2-7).

We also are concerned about the report's treatment of unliquidated obligations. The $174
million identified by the EPA  as Superfund unexpended obligations represents a snap-shot in
time and does not reflect the current situation regarding unliquidated obligations. In fact,
analysis conducted by the Superfund program characterizing $133 million out of the $174
million indicates that $95 million is not available for deobligation and $38 million is potentially
available for deobligation.  We are currently  analyzing the remainder to determine if
opportunities exist to deobligate additional funds.  EPA is continuing its efforts to deobligate
those  funds to make available  for use. Because we believe the Report misrepresents the funds
available for deobligation, we do not concur  with the Report's recommendation on this subject
(Recommendation 2-6).

While we continue to have some concern with many of the recommendations which we will
discuss in a formal written response to the report following its release, Attachment 1 provides a
list of those recommendations, including the  two recommendations cited above, with which we
do not concur.

In addition, we have recommended some specific additions in wording to address some of the
key issues. These are provided in Attachment 2.

We look forward to working with the Office  of Inspector General on this and other matters in the
future.

Attachments
Cc:    OSWER Office Directors
       Office of Chief Financial Officer
       Office of Site Remediation Enforcement
                                           25

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                                    Attachment 2
                  Suggested Language Additions in Key Areas

Page 1:  In the first paragraph under the heading "Background," please insert "in FY 2005, for a
cumulative total of over $23 billion" at the end of the third sentence.

Page 2:  In the first full paragraph, at the beginning of the fourth sentence please add:  "Whether
its appropriations are from the Trust Fund or from general revenues, the"

Page 9: The discussion of the workload model implies that FTE and resource allocations are
made solely based on that model. It is also not accurate to say that the Brownfields and
Homeland Security legislation have added new  requirements to the Superfund program.

Please change the first sentence of the second full paragraph to say: "EPA  allocated some
Superfund personnel and resources based on an outdated workload model, which can
result in potential misallocations."

In the second sentence of the second full paragraph, please strike "—which EPA cannot find—
" Copies of the workload models related to Superfund are referenced in Attachment 2 A-E.

Please strike the first two sentences of the third  full paragraph and replace them with the
following:

"Legislation, agency  responsibilities, and the status of sites changed cleanup requirements
and Superfund during the last 16 years.  For example, the Agency created the Brownfields
program, which Congress later removed from the Superfund program  and now funds
separately. Presidential Decision Directives have added Homeland Security
responsibilities."

 At the end of the third full paragraph, please add the following in a footnote:

"The workload is one factor underlying FTE allocations.  As its mission has evolved and
grown through legislative or administrative mandates, EPA has adapted, as necessary, by
reorganizing, Devaluating its needs, and requesting sufficient resources to meet its new and
changing responsibilities. The workload model in existence in 1989, which was used to assign
FTE among the Regions for baseline activities that are still drivers of the Superfund program
today, is not used to respond to these new priorities.  Because of the disruptive effect of
shifting personnel on an annual basis to address marginal programmatic changes, EPA
discontinued its effort to collect, evaluate, and run model outputs on an annual basis, and
instead has dealt with annual marginal changes to FTE ceilings according to program
priorities.  In FY2005, EPA commenced a new effort to redefine the baseline activities of the
Superfund program, and the Agency will use this information to evaluate whether significant
shifts in resource allocations are necessary,  and whether modeling or some other approach
will be helpful to make resource allocation decisions."
                                         26

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 Page 11, in the last line replace the word "deobligated" with "reclassified"
 (These funds are available for obligation, but are not obligated.)

 Page 12, in the first line, replace the word "deobligate" with "reclassify"
 (These funds are available for obligation, but are not obligated.)

 Page 12: The $174 million in unliquidated obligations the O1G uses to demonstrate potential
 deobligations is misleading.  Please replace the language in footnote 14 with the following:

 " We /OIGJ did not determine whether any of the $174 million was available for deobligation.
 Analysis conducted by the Super fund program characterizing $133 million out of the $174
 million indicates that $95 million is not available for deobligation and $38 million is
 potentially available for deobligation. EPA is currently analyzing the rest of the $174 million
 ($41 million) to determine if opportunities exist to deobligate additional funds, and is
 continuing its efforts to deobligate those funds to supplement Superfund appropriated
funding."

 Page 13: The discussion concerns managing the process for tracking special accounts and
 depositing them in the Trust fund to make them  available for congressional appropriation and
 EPA use (3rd paragraph).  This section needs a discussion of how EPA does use special accounts
 to perform additional cleanups. Please add the following new paragraph after the second full
 paragraph on the page:

 "EPA takes advantage of its ability to reclassify (or apply) special account funds to previous
 expenditures from appropriated Superfund Trust Fund dollars and make those funds
 immediately available, without further appropriation, for Superfund clean-ups.  There is an
 established process to reclassify and then return unused special account funds to the Trust
 Fund. First, EPA reclassifies (or applies)  site-specific special account funds from PRPs to
 previous expenditures from appropriated Trust Fund dollars. Second, any remaining, unused
 special account funds are then returned to the  Trust Fund essentially as a cost recovery. Cost
 recoveries deposited into the Trust Fund are not available to be used at other sites. Funds
 must first be appropriated by Congress to be  available to the Agency to spend for Superfund
 clean-ups and appropriated funds from Congress are subject to discretionary spending caps.
 EPA's policy for using special accounts maximizes the dollars available to EPA for Superfund
 cleanups from both special accounts and appropriated Trust Fund resources."
                                           27

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                                 Attachments 2 A-E

              Description of Attachments of Superfund Workload Models

Attachment 2 A:  9/27/91 Report from Superfund Resource Models Project Team

      This report provides a brief narrative of the updated 1991 Superfund workload model.

Attachment 2B:  Output from FY 1992 Superfund workload model

      This collection of spreadsheets provides output of the FY 1992 Superfund workload
      model. FTE allocations for pre-remedial. remedial, removal, laboratory, and
      management and support functions are provided in the spreadsheets.

Attachment 2C:  Technical Documentation for FY 1992 Superfund workload model

      This report provides the methodology for the FT 1992 Superfund workload model,
      including function of the model, activities included in the model, and pricing factors.

Attachment 2D:  FY 1987 Superfund workload model

      EPA's FY 1987 Superfund workload model outputs are described in two memos written
      in February 1987:
             a) The 2/12/87 memo provides the FY87 model output (Regional FTE
             distributions broken down by pipeline activity).
             b) The 2/25/87 memo provides methodology for the FY 1987 model.

Attachment 2E: EPA's Superfund Federal Facilities  Response Workload Model

      This attachment describes EPA's Superfund federal facilities response workload model,
      including a description of the history of the modeling effort (workgroup activities began
      in 1999), scope of the model, and current activities.
                                        28

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data current up through March) and a follow-up review in August is conducted to assure the
deobligations occurred. These individuals certify in October that the deobligations were
processed. Verification of these certifications occurs during Quality Assurance reviews.
There is no set pattern to determine when obligations should be liquidated. Cost reimbursable
contracts cannot be closed until an audil is performed and final indirect costs are identified and
paid. EPA may have to wait three or more years to receive audit results and final payment data.
Estimates are made of the maximum amount that can be charged once the contract is complete
and amounts in excess of the estimate are available for immediate deobligation.
No material audit issues on obligation controls were raised in the Agency's recent annual
financial statement audits. Despite the Agency's thorough review, the Agency agrees that it
should continue to strive to improve in this area because of the importance of deobligated funding
to the Agency's Superfund program.
Alternative Action. The Agency will continue to assure that its report process has the ability to
create management reports for EPA and Congress. The Agency will develop financial
performance measures.

OIG Evaluation
The OIG recognizes that the $174 million may not be immediately available to the Agency.
The unliquidated obligations dollar value was provided by OSWER officials. Specifically, the
$174 million is the total amount of Superfund obligations that were obligated before FY 2003 but
not expended, minus amounts for mixed funding accounts and funds held pending an OIG
review. According to EPA, Superfund funds should be expended within 2 years of being
obligated. Therefore, based on the Agency's own criteria, these obligations warrant review.
After the issuance of the draft report, the Agency provided us with an analysis of part of the $174
million in obligations. EPA analyzed approximately 80 percent of the $174 million and found
that approximately $38 million was potentially available for deobligation. Because this
information was provided after the issuance of the draft report, the OIG has not verified the
accuracy of the Agency's analysis.


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cleanup activity at that Superfund site. OIG acknowledges that EPA is limited by the terms of
settlements that established the accounts (that is, EPA may be legally obligated to provide funds
to PRPs for the work), yet continues to leave the impression that a significant amount of these
funds are in fact available for transfer. EPA guidance helps pnoritize use of the funds - as a
settlement incentive to get PRPs to commit to performing cleanup, funding EPA-led clean-up,
reimbursing government costs, and, finally, as the IG recommends, transfer to the Trust Fund as a
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The Agency has an established process to reclassify and then return unused special account funds
to the Trust Fund. First, the Agency reclassifies (or applies) site-specific special account funds
from PRPs to previous expenditures from appropriated Trust Fund dollars. Second, any
remaining, unused special account funds are then returned to the Trust Fund essentially as a cost
recovery. Cost recoveries must first be appropriated by Congress to be available to the Agency to
spend for Superfund clean-ups. As you know, appropriated funds from Congress are subject to
detailed spending constraints by appropriations sub-committee. Even if receipts (in this case cost
recoveries) increase to the Federal government, all receipts are not necessarily appropriated due
to discretionary spending constraints. (For example, in FY 2005, about $189 M in receipts were
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Thus, the Agency already has the ability to reclassify (or apply) special account funds to previous
expenditures from appropriated Superfund Trust Fund dollars and make those funds immediately
available, without further appropriation, for Superfund clean-ups. The Agency believes that this
is an important procedure that the Agency should fully utilize to achieve the maximum number of
Superfund clean-ups possible as allowed by legally binding settlement agreements with PRPs.
Finally, the Agency's ability to effect Superfund cleanups to protect human health and the
environment depend heavily on both appropriated funds from the Federal government and special
account funds from PRPs to fund clean-ups and minimize the backlog of clean-up projects. To
suggest that funds from one source (special accounts funds) should be redirected to another

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source (appropriated funds) to augment funding for Superfund clean-ups would not necessarily
reflect a net gain of total funding available for Superfund clean-ups or result in more clean-ups.
The Agency's primary concern is that the OIG's recommendation would ultimately decrease total
funding available for Superfund cleanups, actually resulting in fewer cleanups, due to
Congressional discretionary spending constraints on appropriated resources.

OIG Evaluation
The OIG recognizes that the $465 million in special accounts, cited in the report, and undisputed
by the Agency, may not be immediately available to the Agency. However, this does not mean
that some portions of $465 million are not available, and if the Agency abides by its own
guidance, could transfer some portion to the Trust Fund, therefore making it available for
appropriation.
In response to one of the 120-Day Study recommendations, EPA issued an April 2005
memorandum to regional officials stating that "First, with the decline in funding available for the
Superfund program, it is now more important than ever that we aggressively pursue cost recovery
claims to replenish the Superfund Trust Fund "The Fund." These recovered funds go back into
The Fund where they can be re-appropriated and used at other sites, particularly those where there
are no viable/liable PRPs or where PRPs are recalcitrant."
The OIG continues to believe that transferring funds (or reclassifying them as appropriate) would
result in more, not fewer, cleanups than if those funds remained available in special accounts.
For example, the Agency provided documentation showing that one special account alone had
approximately $ 100 million in past recovery costs. In this case, EPA has a consent decree with
the PRP to "implement all Site cleanup actions in a future settlement." Such a settlement would
include applicable financial assurance to cover the costs of cleanup should the PRP become
recalcitrant or become unable to pay for cleanup. Under the Agency's policy, as much as the full
$100 million could be reclassified to clean up the priority Superfund sites, or consistent with the
consent decree for the site, the funds could be transferred to the Trust Fund. Thus, this is an
example where EPA could be losing the opportunity to address other priority Superfund sites.
Trust Fund resources must be appropriated by Congress before they are available to EPA. The


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Agency believes this process is not necessary to put transferred or reclassifled special account
funds into productive use. According to the Agency, the reclassification process does not require
going through the Trust Fund appropriation process; the Agency can apply "site-specific special
account funds from PRPs to previous expenditures from appropriated Trust Fund dollars" for
cleanup at other sites.
Depositing some of EPA's recovered past costs into special accounts may be inconsistent with
EPA's "polluter pays" principle, meaning the polluters pay for the problems they create and
taxpayer money is used when there are no viable PRPs. While the PRP is reimbursing the EPA
for its past costs, these funds could be maximized either by (1) funding other priority Superfund
cleanups where there is no viable PRP or where the human health exposure environmental
indicator is classified as "not under control," or (2) depositing the funds into the Trust Fund
where they can potentially offset any contributions for the appropriation from general revenues
which are paid by the general taxpayer. Since the general revenue funded the Superfund
appropriations for FY 2004 and 2005, this shifted the burden to the taxpayers, not the "polluters."
Our recommendation would not deplete special accounts of all of their funding. Even if all
available funds we identified were transferred or reclassifled, as of September 30, 2005,
approximately $365 million would still be remaining in special accounts for PRP incentives and
to reimburse Government costs. In addition, the Agency has tools to ensure sites are cleaned up,
regardless of special account funds. Consistent with EPA's "Enforcement First" approach and
Polluter Pays principle, EPA retains the opportunity to issue a unilateral administrative order to
require PRPs to clean up a site should they become recalcitrant.
We have modified the recommendation to "As of September 2005, approximately $465 million in
special accounts was potentially available for reallocation. EPA should timely review special
account dollars and set up a formal process and schedule to ensure special account funds are used
consistently according to the hierarchy specified in its guidance. This can include (1) using the
funds as a settlement incentive for responsible parties; (2) conducting EPA-led cleanups; (3)
applying the funds toward previous EPA expenditures at a site, which will allow funds previously
reserved for the site to be "deobligated" for use at other sites (also known as reclassification); and
(4) replenishing the Trust Fund."



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                                                                        Appendix F
                                 Distribution
Office of the Administrator
Assistant Administrator for Solid Waste and Emergency Response
Assistant Administrator for Research and Development
Assistant Administrator for Air and Radiation
Assistant Administrator for Administration and Resources Management
Assistant Administrator for Enforcement and Compliance Assurance
Acting Assistant Administrator, Office of Environmental Information
Audit Liaison, Office of Solid Waste and Emergency Response
Audit Liaison, Office of Research and Development
Audit Liaison, Office of Air and  Radiation
Audit Liaison, Office of Administration and Resources Management
Audit Liaison, Office of Enforcement and Compliance Assurance
Audit Liaison, Office of Environmental Information
Agency Followup Official (the CFO)
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional  and Intergovernmental Relations
Associate Administrator for Public Affairs
Inspector General
                                         35

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