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350 ieo^         UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
      Łą \                      OFFICE OF INSPECTOR GENERAL
             5                         CENTRAL AUDIT DIVISION
             ?                         726 MINNESOTA AVENUE                        BRANCH OFFICES:
                                     KANSASCITY KANSAS66101               1445 ROSS AVENUE, SUITE 1200
                                            913-551-7878                       DALLAS, TEXAS 75202-2733
                                          FAY- Q11* 
                     No. L006515-05 Awarded to the Texas Natural                 $•>
                     Resource Conservation Commission                           p
                     Audit Report No. E3LLL7-06-0031-8100040                  rf C-:
        FROM:       Bennie S. Salem   /U*^^^^-^-w^_.                & <~ & ?
                                                                                     •s .
                     Divisional Inspector General                                ./Ł. /?'

        TO:          Jerry M. Clifford                                         ^^ § $
                     Acting Regional Administrator
                     Region 6

              Attached is our  audit report concerning the Leaking Underground Storage Tank (LUST)
        Cooperative Agreement Nos. L006515-91, L006515-04, and L006515-05 awarded to the Texas
        Natural Resource Conservation Commission (TNRCC). The primary objectives of this audit were
        to determine whether TNRCC adequately accounted for the LUST Trust Fund monies and complied
        with  the LUST  cooperative agreement special conditions.  This report contains findings and
        recommendations that are important  to both the Environmental Protection Agency (EPA) and
        TNRCC.

              This audit report contains findings that describe problems the Office of Inspector General
        (OIG) has identified and corrective actions OIG recommends. The report represents the opinion of
        OIG, and the findings contained in this report do not necessarily represent the final EPA position.
        Final determinations on matters in this report will be made by EPA managers in accordance with
        established audit resolution procedures.

        Action Required

              In accordance with EPA Order 2750,  you, as the action official, are required to provide us
        within 90 days, a report  on the actions you plan or have taken as a result of our
                                                                              RECYCLED

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recommendations.  Your response and the TNRCC response to the draft report were sufficient to
satisfy this requirement.  Consequently, we are closing this report upon issuance.

       If you wish to discuss this report, please contact me at (913) 551 -7831 or Dave Boyce, Audit
Manager in our Dallas office, at (214) 665-6620. Please refer to the report number on all related
correspondence.

Attachment

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                                        Audit of LUST Cooperative Agreements Awarded to the
                                             Texas Natural Resource Conservation Commission
                       EXECUTIVE SUMMARY
PURPOSE
The primary objectives  of our audit were to determine
whether:

       • costs claimed  were  allowable,  allocable,  and
        reasonable under the cooperative agreements; and

       • TNRCC complied with federal laws,  regulations,
        and cooperative agreement special conditions.
BACKGROUND
The Superfund Amendments and Reauthorization Act (SARA)
of 1986, Section 205, amended the Solid Waste Disposal Act
and established the Leaking Underground  Storage Tank
(LUST) Trust Fund to  finance the cleanup of petroleum
releases from underground storage tanks.

SARA authorized EPA to provide  LUST trust funds to the
states for the cleanup of leaking underground storage tanks
through cooperative agreements. The agreements identify the
amount of funds allocated to each state and establish LUST
program performance requirements. States may use the trust
fund to finance:

       • the cost of site corrective action;

       • enforcement action  taken to compel owners and
        operators (responsible parties)  to take  corrective
        action;

       • oversight of responsible party lead cleanups;
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                                          Audit of LUST Cooperative Agreements Awarded to the
                                               Texas Natural Resource Conservation Commission
                                          cost recovery efforts of trust fund expenditures from
                                          responsible parties; and

                                          reasonable and necessary administrative expenses
                                          directly related to the above activities.
RESULTS IN BRIEF
In our opinion, the  $19.8 million of costs claimed were
allowable, allocable, and reasonable under  the cooperative
agreements.

In general, TNRCC complied with applicable federal laws,
regulations,  and cooperative agreement special conditions.
However, TNRCC has not recovered any of the $32 million
of federal funds spent on approximately 1139 sites since 1987.
Funds were not recovered by TNRCC primarily because the
funds were used at sites that resulted in minimal recovery
potential; i.e., sites with  multiple responsible  parties,
financially   incapable  responsible  parties, or  unknown
responsible parties. Secondly, TNRCC had not established an
effective cost  recovery program. We  identified  several
deficiencies  hindering the effectiveness of  TNRCC's cost
recovery program, including the lack of adequate procedures
for:

       •  accounting for complete site-specific cost;

       •  issuance, tracking, and followup of demand letters;
         and

       •  documenting decisions regarding cost recovery
         actions.
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                                          Audit of LUST Cooperative Agreements Awarded to the
                                              Texas Natural Resource Conservation Commission
RECOMMENDATION          We recommend that the Acting Regional Administrator work
                                 with TNRCC to develop and implement an effective cost
                                 recovery program that a minimum includes procedures that
                                 ensure:

                                        •     site-specific accounting for all identifiable
                                              costs;

                                        •     issuance, tracking, and followup of demand
                                              letters; and

                                        •     formal  documentation  of  cost  recovery
                                              decisions.
AUDITEE'S COMMENTS       TNRCC   generally  agreed   with   our  findings   and
                                 recommendations and provided that  a task force had been
                                 created on its own initiative, during the summer of 1997. The
                                 task force recommended an entire process for cost recovery,
                                 for which TNRCC is currently adopting formal cost recovery
                                 procedures and is developing the  baseline data that will be
                                 used to measure future cost recovery efforts.
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                                 Audit of LUST Cooperative Agreements Awarded to the
                                    Texas Natural Resource Conservation Commission
                       TABLE OF CONTENTS
                                                                Page
EXECUTIVE SUMMARY	i

ABBREVIATIONS 	v

INTRODUCTION	1

OBJECTIVES  	2

RESULTS OF AUDIT	2

OPINION	2

REPORT ON COMPLIANCE AND INTERNAL CONTROLS 	3

CONCLUSION 	6

RECOMMENDATION	6

AUDITEE COMMENTS	7

OIG EVALUATION  	8

BACKGROUND  	8

SCOPE AND METHODOLOGY  	9

APPENDICES

     APPENDIX I - TNRCC COMMENTS  	11

     APPENDIX H - DISTRIBUTION	13
                                                   E3LLL7-06-0031-8100040
                                 IV

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                                  Audit of LUST Cooperative Agreements Awarded to the
                                      Texas Natural Resource Conservation Commission
EPA

FSR

LUST

OIG

OSWER

SARA

TNRCC
         Abbreviations


Environmental Protection Agency

Financial Status Report

Leaking Underground Storage Tank

Office of Inspector General

Office of Solid Waste and Emergency Response

Superfund Amendments and Reauthorization Act

Texas Natural Resource Conservation Commission
                                                        E3LLL7-06-0031-8100040

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                                         Audit of LUST Cooperative Agreements Awarded to the
                                              Texas Natural Resource Conservation Commission
INTRODUCTION
 The Superfund Amendments and Reauthorization Act
 (SARA) of 1986, Section 205, amended the Solid Waste
 Disposal Act and established the Leaking Underground
 Storage Tank (LUST) Trust Fund to finance the cleanup of
 petroleum releases from underground storage tanks.

 SARA authorized the Environmental Protection Agency
 (EPA) to provide LUST trust funds to the states for the
 cleanup of leaking underground storage tanks through
 cooperative agreements. The agreements identify the
 amount of funds allocated to each state and establish LUST
 program performance requirements. States may use the
 trust fund to finance:

       •             the cost of site corrective action,

       •             enforcement action taken to compel
                     owners and operators (responsible
                     parties) to take corrective action,

       •             oversight of responsible party lead
                     cleanups,

       *             cost recovery efforts of trust fund
                     expenditures from responsible
                     parties, and

       •             reasonable and necessary
                     administrative expenses directly
                     related to the above activities.

Based on the results of our survey of LUST cooperative
agreements awarded by Region 6, we initiated a financial
and compliance audit of the Texas Natural Resource
Conservation Commission (TNRCC) LUST cooperative
agreement nos. L006515-91, L006515-04, and L006515-
05. These cooperative agreements were selected because
they had not been subject to prior review.
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                                        Audit of LUST Cooperative Agreements Awarded to the
                                             Texas Natural Resource Conservation Commission
OBJECTIVES
The primary objectives of our audit were to determine
whether:
                                                    costs claimed were allowable,
                                                    allocable, and reasonable under the
                                                    cooperative agreements; and
                                                    TNRCC complied with federal laws,
                                                    regulations, and cooperative
                                                    agreement special conditions.
RESULTS OF AUDIT
OPINION
In our opinion, the costs claimed were allowable, allocable,
and reasonable under the cooperative agreements. The
results of our analysis are summarized below.
                                Cooperative
                                Agreement No.
                                L006515-91
                                L006515-04
                                L006515-05
                                Total
                          Costs Claimed
                          and Accepted
                           (Note 1)

                          $12,907,780
                            3,877,975
                            3.022.755
                          SI 9.808.510
                                EPA Payments as of
                                October 24, 1996

                                Allowable EPA Share
                                Balance Due
                          $19,808,510

                           19.808.510
                          $	0
                                Note 1. This column represents costs TNRCC claimed on
                                its final Financial Status Reports (FSR), dated November
                                22, 1994, for cooperative agreement no. L006515-91 and
                                December 3, 1996, for cooperative agreement no.
                                L006515-04. The amount shown for cooperative
                                agreement no. L006515-05 represents costs claimed on
                                TNRCC's interim FSR, dated October 24, 1996.
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                                          Audit of LUST Cooperative Agreements Awarded to the
                                               Texas Natural Resource Conservation Commission
 REPORT ON
 COMPLIANCE AND
 INTERNAL CONTROLS
TNRCC Needed an
Effective Cost Recovery
Program
Accounting for
Site-Specific Costs
 In general, TNRCC complied with applicable federal laws,
 regulations, and cooperative agreement special conditions.
 However, TNRCC had not recovered any of the $32 million
 of federal funds spent on approximately 1139 sites since
 1987.  Funds were not recovered by TNRCC for two
 primary reasons. First, funds were used at sites with
 minimal recovery potential; i.e., sites with unknown
 responsible parties, financially incapable responsible parties,
 or multiple responsible parties for whom responsibility
 could not be clearly determined. Second, TNRCC had not
 established an effective cost recovery program.

 Our review disclosed several deficiencies hindering the
 effectiveness of TNRCC's cost recovery program, including
 the lack of adequate procedures for:

       •      accounting for complete site-specific cost;

       •      issuance, tracking, and foilowup of demand
              letters; and

       •      documenting decisions regarding cost
              recovery actions.

 Office of Solid Waste and Emergency Response (OSWER)
 Directive 9610.10A, as referenced in the cooperative
 agreements, require states to maintain site-specific
 accounting for all costs of corrective and enforcement
 actions and to contact responsible parties about their
 liability and demand payment. Further, EPA guidance
 requires states to fully document all decisions regarding cost
 recovery.

TNRCC had not established adequate procedures to
 account for all site-specific costs paid with LUST trust
funds.  Site-specific records  primarily documented the costs
of cleanup activities performed by contractors, but in
general, did not include TNRCC's salary costs for program
activities, such as administration, corrective action,
inspection, enforcement, and responsible party remediation.
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                                           Audit of LUST Cooperative Agreements Awarded to the
                                                Texas Natural Resource Conservation Commission
                                   By not accounting for all site-specific costs, TNRCC
                                   reduced the total recoverable costs.

                                   The cooperative agreements specifically required and
                                   provided funds for the organization and maintenance of site-
                                   specific information on activities and costs funded by the
                                   LUST trust fund.  Additionally, OSWER Directive No.
                                   9610.10A, dated May 24, 1994, requires site-specific
                                   accounting for:

                                         ...all costs of corrective action and enforcement,
                                         including interest, indirect and "management and
                                         support" costs associated with these activities that
                                         are paid for by the Trust Fund...

                                   We found that, although a majority of the work performed
                                   by program staff represented corrective action and
                                   enforcement activities, only two employees charged their
                                   time as site-specific. All other employee time charges were
                                   to more general project cost allocations.

                                  We were informed by TNRCC management at the
                                  conclusion of our fieldwork that new timekeeping
                                  procedures requiring the use of site-specific project cost
                                  allocations by  all petroleum storage tank  staff were being
                                  implemented.

Issuance, Tracking, and           TNRCC had not established adequate procedures for the
Followup of Demand             issuance, tracking, and subsequent followup of demand
Letters                           letters issued to responsible parties for payment of costs
                                  incurred for corrective action and enforcement activities.
                                  As a result, demand letters were rarely issued.

                                  Cost recovery efforts mainly consisted of initial notification
                                  letters to potentially responsible parties to advise them that
                                  their facility might be a source of contamination and they
                                  might be liable for cleanup costs incurred. Even though $32
                                  million had been spent on approximately  1139 sites, we
                                  learned from program staff that fewer than 10 demand
                                  letters had been issued since the program  inception in 1987.

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                                          Audit of LUST Cooperative Agreements Awarded to the
                                               Texas Natural Resource Conservation Commission
                                  OSWER Directive 9610.10A provides that in each case
                                  states should make reasonable efforts to contact owners and
                                  operators who are liable for releases, notify them of their
                                  liability for enforcement and corrective action costs, and
                                  demand payment.

                                  On November 8, 1994, EPA issued a memorandum
                                  providing clarification of OSWER Directive 9610.10A. The
                                  memorandum provided that demand letters should be issued
                                  if a responsible party is located. If a responsible party is
                                 , determined to be financially unable and a formal
                                  determination of insolvency is made, the determination may
                                  be used to document that a demand letter is not necessary.

                                  At the conclusion of our audit fieldwork, we learned that
                                  new procedures requiring the issuance, tracking, and
                                  followup of demand letters are under consideration by
                                  TNRCC. In the case of multiple responsible parties, the
                                  procedures would require demand letters be issued to all
                                  parties, requesting the individuals work out their respective
                                  liability. Alternately, TNRCC would retain the authority to
                                  request the Attorney General take action to determine
                                  liability in instances where the parties could not come to
                                  some agreement.

Documenting Cost                TNRCC had not established procedures for adequately
Recovery Actions                 documenting cost recovery actions. Therefore, project
                                  records did not always reflect decisions  made on cost
                                  recovery actions.  While the project records sometimes
                                  indicated the reasons for not pursuing cost recovery, no
                                  formal documentation of cost recovery decisions was
                                  included.

                                  In its November 8, 1994 memorandum discussing the LUST
                                  cost recovery policy, EPA acknowledged that certain
                                  situations would warrant a state not issuing a demand letter.
                                  In those cases, however, the states should ensure that the
                                  bases for any compromise or termination of trust fund
                                  claims were adequately supported in the records of the state
                                  and reflected the efficient use of trust fund resources. The

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                                          Audit of LUST Cooperative Agreements Awarded to the
                                              Texas Natural Resource Conservation Commission
                                  memorandum further provided that regardless of the action
                                  taken by the state in exercising its discretion in cost
                                  recovery cases, the state is required to fully document its
                                  decision and to formally close out all cases.
CONCLUSION
An effective cost recovery system is important to ensure
that funds are available to pay for future LUST cleanup
activities. Specific procedures such as site-specific
accounting; the issuance, tracking, and followup of demand
letters; and the documentation of cost recovery actions are
vital elements to the development of an effective cost
recovery program and to maximizing the amount of funds
that can be recovered.

Recognizing the need to establish an effective cost recovery
system, TNRCC has begun instituting procedures to address
weaknesses in its cost recovery program.
RECOMMENDATION
We recommend that the Acting Regional Administrator,
Region 6, work with TNRCC to develop and implement an
effective cost recovery program that at a minimum includes
procedures that ensure:

       •       accounting for all identifiable site-specific
              costs;

       •       issuance, tracking, and followup of demand
              letters; and

       •       formal documentation of cost recovery
              decisions.
                                                                  E3LLL7-06-0031-8100040

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                                         Audit of LUST Cooperative Agreements Awarded to the
                                              Texas Natural Resource Conservation Commission
AUDITEE COMMENTS         TNRCC generally agreed with our findings and
                                 recommendations and provided that a task force had been
                                 created during the summer of 1997. The task force
                                 recommended a process for cost recovery. TNRCC is
                                 currently adopting formal cost recovery procedures and is
                                 developing the baseline data that will be used to measure
                                 future cost recovery efforts.

                                 TNRCC's  specific comments  to the individual findings
                                 and recommendations are summarized as follows.

                                 Accounting for Site Specific Costs. TNRCC responded that
                                 detailed site information was kept for the direct costs of site
                                 investigations and emergency actions.  Additionally,
                                 TNRCC stated that it is in  the process of creating specific
                                 program cost account numbers for capturing indirect costs.
                                 Program cost account numbers had only been  used in a
                                 limited number of cases until recently.  TNRCC anticipates
                                 that the indirect costs will represent only a fraction of total
                                 site costs.

                                 Issuance, Tracking and Followup of Demand Letters.
                                 TNRCC acknowledged that only a limited number of
                                 demand letters had been mailed to responsible parties.  The
                                 process for the issuance and followup of demand letters was
                                 considered as part of the task force recommendations and
                                 subsequent procedures.

                                 Documenting Cost Recovery Actions.  TNRCC
                                 acknowledged that a formal memorandum documenting
                                 cost recovery actions had not been prepared for each  site.
                                 However, it emphasized that there was no statute of
                                 limitations  to complete this process and that TNRCC had
                                 plans to pursue this action further and to fully  document the
                                 cost recovery position for each site where federal grant
                                 dollars were used. In addition, TNRCC has been
                                 prioritizing its sites for cost recovery. This prioritization
                                 will be used as a basis for TNRCC's decision for cost
                                 recovery actions.
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                                        Audit of LUST Cooperative Agreements Awarded to the
                                             Texas Natural Resource Conservation Commission
OIG EVALUATION
 We acknowledge TNRCC's comments and commend their
 planned actions. However, we wish to clarify TNRCC's use
 of the terms direct and indirect cost in the section on
 Accounting for Site-Specific Costs. Through discussions
 with TNRCC subsequent to receipt of their response, we   .
 determined that their use of the term direct cost refers to
 contractor costs, while the term indirect cost  refers to
 TNRCC salary costs.  The finding, as presented in this
 report, addresses contractor and TNRCC salary costs,
 rather than direct and indirect costs.
BACKGROUND
 In 1984 and 1986, Congress passed Underground Storage
 Tank legislation under Subtitle I of the Resource
 Conservation and Recovery Act.  SARA, Section 205
 authorized EPA to. provide LUST trust funds through
 cooperative agreements with the states to clean up leaking
 underground storage tanks.

 These agreements provide the basis for EPA's oversight and
 management of the LUST trust fund. The agreements
 identify the amount of funds that  have been allocated to
 each state and establish LUST program performance
 requirements. In Texas, the LUST program is administered
 by TNRCC located in Austin, Texas.

 Region 6 awarded LUST cooperative agreement no.
 L006515-91 to TNRCC on September 14, 1990.  The
 objective of the agreement was to provide funding to
 implement cleanup actions at sites contaminated by
 regulated substances stored in underground storage tanks.
 The agreement, with six  amendments, totaled $14,341,979
 and covered the period September 1, 1990, through
 August 31, 1994. TNRCC submitted a final FSR on
 November 22, 1994.

Cooperative agreement no. L006515-04 was awarded on
September 21, 1994. The purpose of the agreement was to
provide continued funding for administration of the LUST
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                                         Audit of LUST Cooperative Agreements Awarded to the
                                             Texas Natural Resource Conservation Commission
                                 program.  The agreement, with four amendments, totaled
                                 $4,452,836 and covered the period September 1, 1994,
                                 through August 31, 1996. TNRCC submitted a final FSR
                                 on December 3, 1996.

                                 Cooperative agreement no. L006515-05 was awarded on
                                 August 30, 1995.  The purpose of the agreement was to
                                 provide continued funding for administration of the LUST
                                 program.  The agreement, with two amendments, totaled
                                 $3,428,888 and covered the period September 26, 1995,
                                 through August 31, 1997. A final FSR is due upon
                                 completion.
SCOPE AND
METHODOLOGY
 We conducted a financial and compliance audit of LUST
 cooperative agreement nos. L006515-91, L006515-04,
 and L006515-05 to determine if the costs incurred and
 claimed were allowable, allocable, and reasonable under the
 cooperative agreement terms and conditions and in
 accordance with laws and regulations.  The audit
 represented a final audit of costs claimed under cooperative
 agreement nos. L006515-91 and L006515-04 and an interim
 audit of cooperative agreement no. L006515-05. The audit
 included review of costs incurred during the period
 September 14, 1990, through September 30, 1996. We
 performed our fieldwork from May 1997 to September
 1997 at EPA Region 6 and TNRCC offices in Austin,
 Texas.

 We conducted the audit in accordance with the Government
 Auditing Standards (1994 Revision) issued by the
 Comptroller General of the United States.  Accordingly, the
 review included tests of the accounting records and other
 auditing procedures as we considered necessary. Other than
 the issues discussed in this report, no other significant issues
came to our attention that warranted expanding the scope of
our audit.

The audit did not include a complete review of the grantee's
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         Audit of LUST Cooperative Agreements Awarded to the
              Texas Natural Resource Conservation Commission
 system of internal controls; rather we focused our attention
 on the key systems in place to control and manage the
 cooperative agreement.  Additionally, we relied on the
 Statewide Single Audit Report of the State of Texas for the
 fiscal year ended August 31, 1994, to the extent possible.
 We reviewed the original agreement justifications and
 language to determine the purpose of the agreement and
 requirements. We looked at FSRs and cash drawdowns and
 compared them to original authorizations, amendments,
 certifications, and obligations.  Grant expenditure
 worksheets were used to confirm what payments of
 authorized levels were actually made.

 In evaluating the adequacy of these systems, we focused our
 attention on assuming that procedures were adequate to
 comply with the legal and regulatory criteria set forth in
 EPA, federal, and state guidance cited in the Office of
 Inspector General audit guide.

 Because of the inherent limitations in any system of internal
 accounting control, errors or irregularities may occur and
 not be detected.  Except for the deficiencies discussed in the
 section of this report entitled Report on Compliance and
 Internal Controls, nothing came to our attention which
 would cause us to believe that TNRCC's procedures were
 not adequate for our purposes.

 In addition to the audit of accounting transactions, we
 selected and tested transactions to determine TNRCC's
 compliance with federal laws, regulations, and cooperative
 agreement special conditions. We reviewed TNRCC's
compliance with the cooperative agreements program and
financial reporting requirements and interviewed TNRCC
administrative and program  staff to determine whether
policies and procedures were appropriately implemented.
                                 E3LLL7-06-0031-8100040
         10

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   Barry R. McBee. Chairman
   R. 8. "Ralph" Marquez. Commissioner
   John M Baker. Commissioner
   Dan Pearson, Executive Director
APPENDIX  I
Page  1  of  2
               TEXAS NATURAL RESOURCE CONSERVATION COMMISSION
                             Protecting Texas by Reducing and Preventing Pollution

                                      December 09, 1997
   Bennie S. Salem
   Divisional Inspector General
   Office of Inspector General
   U.S. Environmental Protection Agency
   726 Minnesota Avenue
   Kansas City. Kansas 66101

   RE: Draft Leaking Underground Storage Tank Report
      Cooperative Agreement Nos. L006515-91. L006515-04 and L006515-05
       Audit  Report No. #3LLL7-06-0031-XXXXXX

  Dear Mr. Salem:

  We appreciate this opportunity of receiving and commenting on the draft audit report of the Texas
  Natural Resource Conservation Commission's (TNRCC) underground storage tank program. We
  hope the comments from the TNRCC can be incorporated into the final audit report.
 The stated objectives of the  audit were to evaluate grant costs claimed by the TNRCC and
 compliance with federal laws, regulations,  and cooperative agreement conditions. • While the
 TNRCC was found in compliance with these objectives, the only deficiencies noted were related
 to cost recovery.

 The draft audit states the "TNRCC had not established adequate procedures to account for all site-
 specific costs paid with LUST trust funds". In response, the TNRCC keeps detailed information on
 the direct costs associated wich each site where site investigations and emergency actions are funded
 by federal grant dollars. The TNRCC also has a process of creating specific program cost account
 (PCA) numbers for capturing indirect costs for sites where federal grant dollars were used: however.
 this practice was only used  in a limited number of cases until recently.  The TNRCC has already
 implemented steps to improve record keeping for indirect costs at these sites even though they are
 expected to be only a fraction of the costs  associated with each site.

The audit report mentions a deficiency in issuing and subsequent follow up of cost recovery demand
letters. The TNRCC acknowledges that only a limited number of demand letters were mailed prior
to this audit. In fact, the TNRCC created a task force on its own initiative, during the summer of
                                            11

    P.O. Sox 130ST  •  Austin. Tixas 73711-3087  •  512/239-1000  "  Internet address: www.tnrcc.state.tx.us

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                                                                 APPENDIX  ?I
                                                                 Page 2  of  2
   Mr. Bennie S. Salem
   Re: Draft Leaking Underground Storage Tank Report
   Page 2
   1997, which recommended an entire process for cost recovery. A procedure for issuing initial
  demand letters and follow up letters was also considered.  This cost recovery process is defined in
  a report dated July 7, 1997, and a copy is enclosed for your review.  The TNRCC is currently
  adopting forma] cost recovery procedures and is developing the baseline data that will be used to
  measure future cost recovery efforts.

  Finally, the audit  determined that the TNRCC was not documenting its decisions made on cost
  recovery actions and that formal closure for cost recovery was required at all sites. The TNRCC
  shared with the auditors copies of sample memorandums used to document the agency's decision
  not to pursue cost recovery at a site. While it is recognized that such a memorandum has not been
  prepared for each  site; there is no statue of limitations for this action. The TNRCC has plans on
  pursuing this action further and will fully document its cost  recovery position for each site where
  federal grant dollars were used.  Furthermore, within the last twelve months, the TNRCC has made
  progress in prioritizing its sites for cost recovery which will be the basis for the TNRCC 's decision
  on seeking cost recovery or not.

  The auditors' recommendation that the Regional Administrator work with the TNRCC on a cost
  recovery program is well appreciated.  In fact, the TNRCC has already opened discussions with the .
  region staff and has shared with them the direction the TNRCC is planning on cost recovery.  These
 discussions were fruitful and well received by EPA's regional staff. We will make a conscientious
 effort to continue these discussions to further improve our cost recovery program.

 Thank you again  for this opportunity to comment on the audit findings. I assure you that efforts are
 underway to address the three areas where some deficiencies were found. If elaboration on any of
 these comments are needed, please feel free to contact me or  Ms. Jacqueline Hardee, Manager of
 the Petroleum Storage Tank Division's State Lead Remediation Section at (512) 239-2120.

 Sincerely,
Joe D. Woodard, Director
Petroleum Storage Tank Division
Texas Natural Resource Conservation Commission

Enclosure:  1 report

cc: Ron Pedde, Office of Waste Management, MC 122 (ref: ED #10267)
   Dan Pearson, Executive Director, MC 1 02
                                        12

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                                          Audit of LUST Cooperative Agreements Awarded to the
                                               Texas Natural Resource Conservation Commission
                                                                          APPENDIX 0

                                   DISTRIBUTION
 Office of Inspector General

 Inspector General (2410)
 Deputy Assistant Inspector General for External Audits (2421)

 EPA Headquarters

 Agency Audit Followup Coordinator (2724)
 Agency Audit Followup Official (3101)
 Associate Administrator for Congressional and Legislative Affairs (1301)
 Associate Administrator for Communication, Education, and Public Affairs (1701)
 Associate Administrator for Regional Operations & State/Local Relations (1501)
 Director, Grants Administration Division (3903F)
 EPA Library (3404)

 EPA Region 6

 Regional Administrator (6RA)
 Director, Multimedia Planning and Permitting Division (6PD)
 Chief, Grants and Authorization Section (6PD-G)
 Chief, UST/Solid Waste Section  (6PD-U)
 Director, Office of External Affairs (6XA)
 Audit Resolution Coordinator (6MD-R)
 Regional Library (6MD-0)

State Offices

Executive Director, Texas Natural Resource Conservation Commission
                                                                 E3LLL7-06-0031-8100040
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