UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
CENTRAL AUDIT DIVISION
726 MINNESOTA AVENUE
KANSAS CITY, KANSAS 66101
913-551-7878
FAX: 913-551-7837
June 9, 1997
BRANCH OFFICES:
1445 ROSS AVENUE, SUITE 1200
DALLAS. TEXAS 75202-2733
214-665-6621
FAX: 214-665-6589
999 18TH STREET. SUITE 500
DENVER. COLORADO 80202-2405
303-312-6872
FAX: 303-312-6063
Subject:
From:
To:
Audit of Missouri Department of Natural Resources
Superfund Cooperative Agreements V-0075 87-03 and VC-007494-05
Report No. E5BGL6-07-0035-71 00220
Bennie S. Salem l*j
Divisional Inspector General
Carol Rompage
Grants Management Officer
We have completed the subject audit. The Superfund cooperative agreements provided
support to conduct preliminary assessments and site investigations and support for Missouri
Department of Natural Resources (MDNR) overall ability to participate in the Superfund
response program. The purpose of the audit was to determine the allowability of interim costs
claimed for the two Superfund cooperative agreements and to review MDNR controls as they
related to the costs claimed.
We found MDNR improved its ability to accumulate, track, and report federal
expenditures through the implementation of the Integrated Administrative System (IAS).
MDNR used IAS to generate project costs to report interim federal financial status report
expenditures. However, MDNR needs to ensure the accuracy and completeness of IAS data and
document IAS processes, control procedures, and reporting responsibilities.
This audit report contains findings that describe problems the Office of Inspector General
(OIG) has identified and corrective actions OIG recommends. This audit report represents the
opinion of OIG. Final determination on matters in this audit report will be made by
Environmental Protection Agency (EPA) managers in accordance with established EPA audit
resolution procedures. Accordingly, the findings described in this audit report do not necessarily
represent the final EPA position.
We have no objections to the release of this report to any member of the public upon
request. This report contains no confidential business or propriety information that cannot be
released to the public upon request.
Should you or your staff have any questions, please contact me at (913) 551-7831 or
Connie Walton. Audit Manager, at (913) 551-7007. Please refer to the above audit control
number on any correspondence.
RECYCLE***
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY i
PURPOSE 1
BACKGROUND 1
SCOPE AND METHODOLOGY 2
PPJOR AUDIT COVERAGE 3
RESULTS OF AUDIT 3
OPINION 3
RE PORT ON COMPLIANCE AND INTERNAL CONTROLS 4
CONCLUSION 6
RECOMMENDATIONS " 6
AUDITEE COMMENTS AND OIG EVALUATION 7
EXHIBITS
EXHIBIT A - SCHEDULE OF INTERIM COSTS CLAIMED UNDER PA/SI 8
COOPERATIVE AGREEMENT V-007587-03
EXHIBIT B - SCHEDULE OF INTERIM COSTS CLAIMED UNDER
CORE COOPERATIVE AGREEMENT VC-007494-05 9
APPENDICES
APPENDIX I - AUDITEE RESPONSE 10
APPENDIX II - ABBREVIATIONS 13
APPENDIX III - DISTRIBUTION 14
Report No. E5BGL6-07-0035-7100220
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EXECUTIVE SUMMARY
PURPOSE
We performed an audit of interim costs claimed for two Superfund
cooperative agreements awarded to the Missouri Department of
Natural Resources (MDNR). The purpose of the audit was to
determine the allowability of costs claimed and the adequacy of
controls exercised by MDNR's financial management and
accounting systems.
BACKGROUND
The Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA or Superfund) provides the Environmental
Protection Agency (EPA) authority to clean up uncontrolled
hazardous waste sites. EPA encouraged states to assume lead
management responsibilities for cleaning up sites. CERCLA, as
amended, provided statutory authority to EPA to provide financial
assistance to the states through cooperative agreements.
MDNR had 13 active Superfund cooperative agreements in August
1996, totaling over $4 million in federal assistance. The
cooperative agreements provided MDNR funding to identify,
assess, and respond to sites which potentially threatened public
health and the environment from the uncontrolled release of
hazardous substances. The two cooperative agreements reviewed
had a funding level of $1.7 million and claimed cost of $1.2
million reported interim costs.
WE FOUND THAT
MDNR improved its ability to accumulate and report federal
expenditures with the implementation of its Integrated
Administrative System (IAS). IAS improved the equitability of
MDNR's personnel cost allocations to federally funded projects.
Also, IAS tracked costs using the federal object class cost
categories which allowed MDNR to more efficiently track and
report costs incurred on federal financial status reports.
While MDNR improved its reporting capabilities with IAS,
MDNR had not ensured the accuracy and completeness of LAS
Report No. E5BGL6-07-0035-7100220
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processed data. MDNR had not reconciled IAS system data to data
in the Statewide Accounting for Missouri (SAM), Missouri's
official accounting system. As a result, I AS may have generated
inaccurate grant and project cost data. The lack of reconciliations
is a pervasive control problem which affects all EPA financial
assistance to MDNR.
MDNR had not documented its methodology, standards, or
guidelines of acceptability for verifying the accuracy and
completeness of IAS data. MDNR needed additional
documentation of IAS processes, control procedures, and exception
reporting responsibilities. MDNR should have an independent
assessment conducted on the propriety, reliability, and accuracy of
IAS processed data. And, MDNR needed to develop IAS
transaction level detail reports to enable independent reviews of
costs processed.
WE RECOMMENDED
THAT
The Regional Administrator direct MDNR to develop and
implement procedures to consistently reconcile all IAS cost data to
SAM. MDNR should document its methodology, standards, or
guidelines of acceptability for verifying the accuracy and
completeness of IAS data. Also, MDNR should establish clear
standard procedures for addressing exception report issues and
ensure responsibilities are clearly defined. MDNR should
consider obtaining an independent assessment of the reliability and
completeness of IAS processed data and the adequacy of IAS
controls. MDNR should develop transaction level detail reports
which support the IAS standard report cost summaries.
AUDITEE COMMENTS
AND OIG EVALUATION
Region 7 and MDNR agreed with our findings and
recommendations.
Report No. E5BGL6-07-0035-7100220
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PURPOSE
We performed an audit of interim costs claimed for two Superfund
cooperative agreements awarded to the Missouri Department of
Natural Resources (MDNR). The purpose of the audit was to
determine the allowability of the MDNR costs claimed for the two
Superfund cooperative agreements. Our specific objectives were
to determine whether:
*• costs claimed appeared to be reasonable, allocable,
necessary, and eligible based on compliance with
the cooperative agreement terms and applicable
federal and state regulations; and
> controls exercised by MDNR's financial
management and accounting systems appeared to
adequately provide assurance that costs claimed
were allowable.
BACKGROUND
The Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA or Superfund) provides the Environmental
Protection Agency (EPA) authority to clean up uncontrolled
hazardous waste sites. EPA encouraged states to assume lead
management responsibilities for cleaning up sites. CERCLA, as
amended, provided statutory authority to EPA to provide financial
assistance to the states through cooperative agreements.
MDNR had 13 active Superfund cooperative agreements in August
1996 totaling over $4 million in federal assistance. The
cooperative agreements provided funding for MDNR to identify,
assess, and respond to sites which potentially threatened public
health and the environment from the uncontrolled release of
hazardous substances. Cooperative Agreements V-007587-03 and
VC-007494-05 had the highest claimed costs.
Cooperative Agreement V-007587-03 provided MDNR funding to
conduct preliminary assessments and inspections at several
potential hazardous waste sites. This type of cooperative
agreement is referred to as a pre-remedial preliminary
assessment/site investigation (PA/SI) agreement. Region 7
awarded MDNR the PA/SI cooperative agreement on
September 30, 1994. The PA/SI cooperative agreement had a
$1,225,000 funding level and no state funds match requirement.
1 Report No. E5BGL6-07-0035-7100220
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MDNR reported $761,329 of interim PA/SI costs on the June 30,
1996 federal financial status report, detailed in Exhibit A.
Cooperative Agreement VC-007494-05 provided MDNR funding
for its Core program. Region 7 annually awards MDNR a
cooperative agreement to fund activities which support its overall
ability to participate in the Superrund program, such as training
and computer equipment purchases. Region 7 awarded the MDNR
Core cooperative agreement for fiscal 1995 activities on
February 1, 1995. This Core agreement had a $446,297 funding
level with a 10 percent state funds match requirement. MDNR
reported $447,152 interim Core costs on the June 30,1996
financial status report, with a $375,000 federal share. These costs
are detailed in Exhibit B.
SCOPE AND
METHODOLOGY
We conducted our fieldwork from September 1996 to February
1997. We performed work at Region 7 in Kansas City, Kansas,
and at MDNR offices in Jefferson City, Missouri. Our review
covered the period October 1, 1994, through June 30,1996.
We performed the audit in accordance with Government Auditing
Standards (1994 revision). We used the Office of Management
and Budget Circular A-87, Cost Principles for State, Local, and
Indian Tribal Governments (May 1995); EPA regulation 40 Code
of Federal Regulations (CFR) Part 31, Uniform Administrative
Requirements for Grants and Cooperative Agreements to State and
Local Governments; EPA regulation 40 CFR Part 35, State and
Local Assistance; and the terms and conditions of the cooperative
agreements as criteria in evaluating claimed costs.
We reviewed Cooperative Agreements V-007587-03 and
VC-007494-05 and supporting documentation at Region 7 and
MDNR. We interviewed Region 7 project officers and reviewed
Region 7 administrative files and financial records. We
interviewed personnel from the MDNR Division of Administrative
Support and Division of Environmental Quality, and met with
personnel from the Missouri State Auditors Office. We obtained a
general understanding of MDNR's financial reporting process and
procedures. We sample tested personnel, travel, equipment,
supply, contractual, and other costs claimed.
Report No. E5BGL6-07-0035-7100220
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Our efforts did not include a complete review of MDNR's internal
control systems. We focused our review on the MDNR systems in
place to control and manage the Superfund cooperative
agreements. In regard to MDNR's additional controls, we relied
on the Missouri State Auditors' annual State of Missouri single
audits. We did not perform tests of all internal control systems;
however, we reviewed the single audit work and results for issues
applicable to MDNR's Superfund cooperative agreements for the
fiscal year ended June 30, 1996.
We did not review MDNR's approved indirect cost rates. The
United States Department of the Interior has responsibility to
review and negotiate MDNR's indirect rates. Although a review of
the development of the rates was not within our scope, we did
review the proper application of the rates.
Issues identified in our review concern weaknesses in MDNR's
Integrated Administrative System (IAS), implemented on
November 1, 1995, and are discussed below. No other significant
issues came to our attention at the time to warrant expanding the
scope of our review.
PRIOR AUDIT
COVERAGE
We reported several internal control and compliance issues in an
April 1992 audit report of two MDNR Superfund cooperative
agreements. We found: (1) MDNR used two questionable cost
allocation methods, (2) inventory records were not in compliance
with federal property management standards, (3) reporting
practices were misleading, and (4) MDNR claimed ineligible
cooperative agreement expenditures.
RESULTS OF AUDIT
OPINION
In our opinion, except for the possible effects, if any, related to
resolving the accounting system issues reported below, the interim
costs claimed under the two cooperative agreements appeared to be
fairly presented in accordance with applicable EPA regulations,
other federal and state requirements, and the cooperative agreement
terms and special conditions. We did not question costs claimed.
Report No. E5BGL6-07-0035-7100220
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REPORT ON
COMPLIANCE AND
[NTERNAL CONTROL
MDNR Improved
Reporting Capabilities
With IAS
MDNR Needed to
Ensure Accuracy
and Completeness
of IAS Data
In general, we found MDNR complied with the cooperative
agreement terms and special conditions. MDNR improved its
ability to accumulate, track, and report federal expenditures
through the implementation of IAS. MDNR developed and
implemented IAS, its new departmentwide system, to track the
costs of individual grant projects. MDNR used lAS-generated
project costs to report the interim federal financial status report
expenditures for the two cooperative agreements reviewed.
However, we noted some improvements are needed in the IAS
system to ensure the accuracy and completeness of I AS data.
IAS improved MDNR's capability to accumulate and report federal
expenditures. IAS improved the equitability of MDNR's personnel
cost allocations to federally funded projects. Also, IAS tracked
costs using the federal object class cost categories which allowed
MDNR to more efficiently track and report costs incurred on
federal financial status reports.
IAS improved the equitability of MDNR's indirect personnel costs
allocated to federally funded projects. Prior to IAS, employees
elected where to charge their indirect time; e.g., annual and sick
leave. IAS automated the allocation of indirect personnel costs
proportionately to the employee's direct grant and project charges.
As a result, indirect personnel costs were more equitably allocated.
IAS provided MDNR the ability to more efficiently track and
report project costs by federal object class categories through
automated tracking and reporting. Prior to IAS, MDNR manually
tracked costs by grant and project. IAS provided the ability to
generate standard reports which summarized monthly and
cumulative expenditures. MDNR used the IAS standard reports to
prepare quarterly federal financial status reports.
While MDNR improved its reporting capabilities with IAS,
MDNR had not ensured the accuracy and completeness of IAS
processed data by ensuring the total IAS allocated costs agreed to
the total costs reflected in SAM. As a result, IAS may have
generated inaccurate grant and project cost data. All payments for
MDNR expenditures were processed in SAM and electronically
transmitted to IAS. IAS allocated personnel costs and accumulated
all other expenditures by projects and grants. MDNR used the
grant and project cost data to generate the federal financial status
reports.
Report No. E5BGL6-07-0035-7100220
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MDNR had begun developing reconciliation procedures for
supplies and equipment type costs; however, it had not developed
reconciliation procedures for personnel services costs. Personnel
services costs represented 55 percent of the total direct costs
claimed for the 2 cooperative agreements reviewed, and 87 percent
of total costs claimed when including fringe benefits and the
associated indirect costs.
The lack of reconciliations is a pervasive control problem which
affects all EPA financial assistance to MDNR. MDNR
representatives stated they were working on IAS to SAM
reconciliations. However, the representatives did not provide
timeframes for expected completion. Also, MDNR representatives
did not indicate plans to retroactively reconcile costs since the
inception of IAS on November 1, 1995. MDNR needs to perform
reconciliations to ensure IAS consistently processes accurate grant
and project cost data.
MDNR Needed Additional MDNR needed to clearly document IAS processes, control
IAS Documentation procedures, and exception reporting responsibilities. MDNR
needed detailed standard reports of IAS processed transaction level
data to enable independent reviews of costs processed.
MDNR needed additional documentation of I AS processes and
control procedures. MDNR had not documented its methodology,
standards, or guidelines of acceptability for verifying the accuracy
and completeness of IAS data. Systems documentation and
established control standards are essential for subsequent reviews,
continuing maintenance, and new user training. MDNR
representatives agreed the IAS Procedures Manual needed to be
updated. Also, MDNR had not developed standard procedures that
clearly defined exception reporting responsibilities, nor obtained
an independent assessment of the I AS system.
MDNR personnel could not use the IAS standard reports to review
the overall reasonableness and accuracy of IAS processed costs.
IAS standard reports contained only object class totals and did not
provide the detailed transactions. As a result, MDNR personnel
had to develop special query reports to provide transaction level
detail for costs claimed. MDNR personnel obtained the query
reports by requesting specific data from the IAS database using a
separate software program. The transaction level detail totals for
Report No. E5BGL6-07-0035-7100220
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personnel services costs for three of the nine query reports we
requested did not agree to the costs in the IAS standard reports.
Federal regulations, 40 CFR Part 31.20, requires the state's fiscal
control and accounting procedures to be sufficient to permit the
tracing of funds to a level of expenditures adequate to establish that
such funds have not been used in violation of the restrictions and
prohibitions of applicable statutes. MDNR representatives stated
they plan to generate an IAS detailed transaction report; however,
they did not indicate a timeframe for expected completion.
CONCLUSION
MDNR improved its capabilities in tracking and reporting federal
expenditures with IAS. However, MDNR needed to reconcile IAS
data with SAM. The absence of reconciliations affects all financial
assistance provided to MDNR.
Also, MDNR needed additional documentation of IAS processes
and controls, and clearly documented standards for assessing the
accuracy and completeness of IAS data. MDNR needed to develop
procedures to clearly define exception reporting responsibilities.
MDNR should have an independent assessment conducted on the
propriety, reliability, and accuracy of IAS processed data. And,
MDNR needed to develop IAS transaction level detail reports.
RECOMMENDATIONS We recommend the Regional Administrator direct MDNR to:
1. Develop and implement procedures to consistently
reconcile all I AS cost data to SAM. MDNR should include
procedures to ensure costs incurred since the inception of
IAS are reconciled to SAM.
2. Document its methodology, standards, or guidelines of
acceptability for verifying the accuracy and completeness
of IAS data.
3. Establish clear standard procedures for addressing
exception report issues and ensure responsibilities are
clearly defined.
4. Consider obtaining an independent assessment of the
reliability and completeness of IAS processed data and the
6 Report No. E5BGL6-07-0035-7100220
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5.
adequacy of IAS controls. An assessment and testing of
IAS should be performed by individuals independent of the
system development.
Develop transaction level detail reports which support the
IAS standard report cost summaries.
AUDITEE COMMENTS
AND OIG
EVALUATION
Region 7 and MDNR generally agreed with our findings and
recommendations. MDNR has implemented or begun
implementing corrective actions for three of the five
recommendations. MDNR did not indicate planned actions for one
recommendation and will reevaluate corrective actions for another.
MDNR agreed to reconcile all IAS cost data to SAM and expects a
reconciliation of all costs to be completed by the end of the federal
fiscal year. MDNR agreed with the recommendation to document
its methodology, standards, and guidelines of acceptability for
verifying IAS data; however, it did not indicate actions planned.
MDNR implemented appropriate actions to establish clear standard
procedures to address exception reporting issues and establish
responsibilities. MDNR is considering an independent assessment
of IAS and will discuss the assessment with the contractor
implementing a new statewide accounting system for Missouri.
MDNR has unsuccessfully attempted to develop transaction level
detail reports and will reevaluate the situation to develop corrective
actions.
Report No. E5BGL6-07-0035-7100220
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EXHIBIT A
SCHEDULE OF INTERIM COSTS CLAIMED
FOR THE PERIOD OCTOBER 1. 1994 TO JUNE 30. 1996
UNDER PA/SI COOPERATIVE AGREEMENT V-Q07587-Q3
Personnel
Fringe Benefits
Travel
Equipment
Supplies
Contractual
Other
Indirect Costs
Total
Shown on Financial Status Report
EPA Share Claimed
MDNR Share
$386,054
103,963
16,498
31,571
37,303
20,790
27,533
137.617
$761,329
$761,329
$761,329
$ 0
Report No. E5BGL6-07-0035-7100220
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EXHIBIT B
SCHEDULE OF INTERIM COSTS CLAIMED
FOR THE PERIOD JANUARY I. 1995 TO JUNE 30. 1996
UNDER CORE COOPERATIVE AGREEMENT VC-QQ7494-05
Personnel
Fringe Benefits
Travel
Contractual
Other
Indirect Costs
Total
Shown on Financial Status Report
EPA Share Claimed (84%)
MDNR Share
$283,823
78.443
49
232
300
84.305
$447,152
$447,152
$375,000
$ 72,152
Report No. E5BGL6-07-0035-7100220
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APPENDIX I
Page 1 of 3
STATE OF MISSOURI Mc' '•:-'m-'1'-"1- <»*<••«*>< - '^>
W
1997
Mr. Bennie S. Salem
Divisional Inspector General
Central Audit Division
U.S. Environmental Protection Agency
7296 Minnesota Avenue
Kansas City, KS 66101
Dear Mr. Salem:
Enclosed is our response to the draft audit report for interim cost claimed under Superfund
Cooperative Agreement Nos.V-007587-03 and VC-007494-05 awarded to the Missouri
Department of Natural Resources.
We are very pleased with the positive statements your report had on MDNR's effort to improve
our financial reporting capability. The issues presented in your review are addressed in the
enclosure. The recommendations made have already been implemented or will be completed in
the near future.
If you have any concerns or questions about our response, please contact Gary Heimericks,
Director of the Division of Administrative Support at 573/751-7961.
Very truly yours,
DEPARTMENT, (®fATURAL RESOURCES
>avid A.
Director
Attachment
c: John Young
Linda Jaegers
Ed Sadler
Ed Schneider
Maria Markway
o 10
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APPENDIX I
Page 2 of 3
We recommend the Regional Administrator direct MDNR to:
1. Develop and implement procedures to consistently reconcile all IAS cost data to SAM.
MDNR should include procedures to ensure costs incurred since the inception of IAS are
reconciled to SAM.
MDNR agrees with the recommendation to reconcile all IAS cost data to SAM. Since
your office has left the field, considerable progress has been made toward a complete
reconciliation. Thus far, all revenue and transfer transactions have been reconciled to
SAM since the inception of the IAS system. We are in the process of reconciling,
identifying and making necessary adjustments for the expense and equipment transactions.
Our MIS and Accounting staff are developing standard report formats that will be used to
facilitate the completion of all personal services (labor) costs. We expect the
reconciliations to be completed during the third quarter of this calendar year.
2. Document its methodology, standards, or guidelines of acceptability for verifying the
accuracy and completeness of IAS data.
MDNR agrees with the recommendation to document our methodology, standards, and
guidelines of acceptability for verifying IAS data.
3. Establish clear standard procedures for addressing exception report issues and ensure
responsibilities are clearly defined.
MDNR also agrees with the recommendation to establish clear standard procedures for
addressing exception report issues. Toward this end a matrix has been devised that
identifies the position in our Accounting Program responsible for all identified processes in
the IAS system. In addition, the procedures manual has been revised to include
procedures for the identification and handling of exception report issues.
4. Consider obtaining an independent assessment of the reliability and completeness of IAS
processed data and the adequacy of IAS controls. An assessment and testing of LAS
should be performed by individuals independent of the system development.
The State of Missouri recently awarded a contract to implement a state wide accounting
system for the state. We will discuss with the contractor, providing an assessment of the
IAS as part of MDNR's implementation of the new state wide system. The new state
system may replace the IAS system. We will not know that until we have had an
opportunity to review all of the modules of the new system.
11
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APPENDIX I
Page 3 of 3
5. Develop transaction level detail reports which support the IAS standard report cost
summaries.
Considerable effort has been spent in developing and programming a transaction level
detail report to support the IAS standard report cost summaries. Due to physical space
issues we had originally developed the report to be available on microfiche. Given the
amount of data to be included in the report, preliminary review of microfiche data
presented information that was very small and therefore difficult to read. When this issue
arose during the OIG's fieldwork, the computer program to generate this report was once
again reviewed. The report could be generated in hard copy form. As a result of other
IAS priorities, we have not had a chance to reevaluate how to best meet this
recommendation. A major concern in the analysis will be evaluating the generation and
maintenance of reports that are required on an exception basis. We will once again
reevaluate this situation to determine the best solution to meet the intent of this
recommendation.
12
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APPENDIX II
CERCLA
CFR
EPA
IAS
MDNR
O1G
PA/SI
SAM
ABBREVIATIONS
Comprehensive Environmental Response, Compensation,
and Liability Act
Code of Federal Regulations
Environmental Protection Agency
Integrated Administrative System
Missouri Department of Natural Resources
Office of Inspector General
Preliminary Assessment / Site Investigation
Statewide Accounting for Missouri
13
Report No. E5BGL6-07-0035-7100220
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APPENDIX III
DISTRIBUTION
Office of Inspector General
Inspector General (2410)
Deputy Assistant Inspector General
for External Audits (2421)
EPA Headquarters Office
Assistant Administrator for Administration
and Resources Management (3101)
Associate Administrator for Regional Operations and
State/Local Relations (1501)
Agency Audit Followup Coordinator (3304)
Agency Audit Followup Official (3101)
Director for Program and Policy Coordination
Office (3102)
Director for Grants Administration (3903F)
Office of Congressional Liaison (1302)
Office of Public Affairs (1707)
Headquarters Library (3304)
Regional Office. EPA Region 7
Director, Superfund Division
Audit Followup Coordinator
Missouri Department of Natural Resources
Director, Missouri Department of Natural Resources
Director, Division of Administrative Support
Director, Division of Environmental Quality
14
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