-------
-------
^
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
EASTERN AUDIT DIVISION NEW YORK OFFICE:
JOHN F. KENNEDY FEDERAL BUILDING 290 BROADWAY
BOSTON, MASSACHUSETTS 02203-0001 NEW YORK, NY 10007-1866
January 20, 1998
MEMORANDUM
..........
\
\
'
SUBJECT: Audit Report of Region 2's Deobligation and Closeout of £
Construction Grants j§ &
Assignment No. E1FWF7-02-0011-8100037 i <$
&3
r;'k -v i r* f \
«ta/
FROM: Paul D. McKechr^^/J^~2^£^L £ $ £'"?
Divisional Inspector General 'fr^r.^ --.
Eastern Audit Division § /?: -'-
TO: Jeanne M. Fox " r
Regional Administrator
Region 2
Attached is our report entitled Region 2's Deobligation and Closeout of Construction
Grants. Our overall objectives were to determine whether the Region: (1) identified and
deobligated actual and potential construction grant funds in a timely manner, (2)
implemented a successful closeout strategy to meet Agency goals, (3) issued timely draft
and final determination letters, and (4) resolved grantee disputes in a timely manner. We
appreciate the cooperation we received from your staff in conducting this audit. The
report contains important findings and recommendations regarding the subject area.
Action Required
In accordance with EPA Order 2750, you, as the action official are required to provide
this office a written response to the audit report within 90 days of the final audit report
date. For corrective actions planned but not completed by your response date, reference
to specific milestone dates will assist this office in deciding whether to close this report.
We have no objections to the further release of this report to the public.
Should you have any questions about this report please contact me or Herbert Maletz,
Audit Manager at (212) 637-3058.
Attachment
Rocycled/Racyclable .printed with Vegetable Oil Based Inks on 100% Recycled Paper (40% Postconsumer)
-------
I;This page intentionally left blank.]
-------
Deobligation/CIoseout
of Construction Grants
EXECUTIVE SUMMARY
PURPOSE
The purpose of this audit was to determine if Region 2:
° Identified and deobligated actual and potential
construction grant funds in a timely manner.
° Implemented a successful closeout strategy to meet
Agency goals for completing all construction grants.
0 Issued timely draft and final determination letters so
that grants could be closed out and excess funds
deobligated.
o Resolved grantee disputes or appeals effectively and in
a timely manner.
BACKGROUND
EPA is responsible for overall program management of the
Construction Grants Program. The State water pollution
control agencies or the US Army Corps of Engineers (COE)
handle most day-to-day administrative duties through
delegation agreements with EPA. EPA Regional offices
retain some project-related decision authorities not legally
delegable. Eligible activities funded by construction grants
include facility plans (Step 1), plans and specifications (Step
2), and the building of a treatment plant (Step 3).
Construction grants are funded from no-year appropriations
and remain available to the program until expended. Since
1972, the Agency awarded over $50 billion in grants for
wastewater treatment projects. Regional Grants
Administration Offices manage grants awarded to
municipalities to fund construction of wastewater treatment
plants. EPA's policy is to close out such grants promptly so
-------
Deobligation/Closeout
of Construction Grants
that funds not needed on one project can be deobligated and
reallotted to finance other projects.
EPA's August 27, 1992 Financial Closeout Policy for
Assistance Agreements emphasized closing out projects and
promptly deobligating unliquidated obligations. Closeout of
grants is an essential function of prudent grants
administration and regions should develop procedures to
address this policy. The policy stated that closeout should
occur within six months of the last grant action (i.e. final
audit resolution, OIG screenout, administrative completion,
appeal decision). Administrative completion was a key
milestone where administrative aspects have been completed,
final payment requested, eligible costs determined, grant
conditions satisfied and audit requested. Excess balances
should be deobligated at this point.
Regional grants administration branches process
deobligations, and delegated State agencies assist in
managing construction grants. States may be fully, partially,
or non-delegated. New York is fully delegated and
responsible for processing administrative completions, audit
resolutions, and closeouts. New Jersey is partially delegated
and EPA does not make initial allowability determinations.
New Jersey submits the administrative completion package to
Region 2 which processes audit resolutions and closeouts.
Puerto Rico and Virgin Islands administrative completion
responsibilities are not delegated.
In November 1993, the Senior Leadership Council designated
completion and closeout of the construction grant program an
Agency-level weakness. This program still involved billions
of dollars and there was a fear this was not universally
recognized and might result in loss of resources to properly
complete the program.
11
-------
Deobligation/CIoseout
of Construction Grants
RESULTS-IN-BRIEF In recent years Region 2 has initiated many steps to reduce its
backlog of construction grants and deobiigate a portion of the
unpaid funds. Although efforts were made to improve
controls or improve compliance with existing controls, we
identified areas of repetitive problems where further
improvements can be made.
Four OIG audits of Region 2's construction grant
deobligation efforts during the past 15 years disclosed
material weaknesses. Based on the Region's promises to take
action to correct these weaknesses, the OIG closed out these
audits. However, the same conditions found in 1982
continued to surface in 1989,1990 and 1991. We strongly
believe that strong top management efforts are needed to
resolve this long-standing problem. The specific findings
follow:
1. Region 2 has not effectively reviewed construction
grants to determine the viability of unexpended grant
obligations and did not promptly deobiigate unneeded
funds. The Region's inadequate control system, lack
of priority, poor coordination, and failure to follow
Agency guidelines contributed to this condition. As a
result, EPA accumulated idle funds of more than $70
million for the projects reviewed which could have
been used to fund other priority projects, State
administration grant and special appropriation
projects, or could have been deposited into the State
Revolving Fund.
2. Region 2 will not meet the Agency' s goal of
completing and closing out its construction grants by
the end of fiscal year (FY) 1997. Also, the Region
may not close out certain grants by its own projected
date of FY 2000. In addition to the approximately 127
Step 3 grants projected to miss the Agency's target
iii
-------
Deobligation/Closeout
of Construction Grants
date, an additional 50 Step 1 and 2 grants will also
miss the date. The Region did not give the highest
priority and coordination between program offices to
achieve more timely closeouts. As a result, millions of
Federal dollars of unexpended grant amounts remain
obligated unnecessarily, and personnel cannot be
reassigned to other areas.
3. The Region's issuance of proposed and final
determination letters (FDL) to resolve audit issues was
untimely. Although Agency guidance required^FDL
issuance within 90 or 150 days of the final audit
report, the average time for the cases sampled was 358
days. While the resolution process lingered, millions
of dollars of Federal funds remained unnecessarily
obligated and projects could not be closed.
4. The Region's resolution of grantee disputes has been
untimely. Cases have remained unresolved for close
to 10 years, and targeted dates for actions leading to
the Regional Administrator's decision were
continuously revised. Resolution was delayed because
initial conferences were not always scheduled and
personnel did not prepare timely program memoranda.
As a result, cases are reassigned to new attorneys and
program personnel and continue to remain open and
excess funds can not be deobligated.
RECOMMENDATIONS We recommend that the Regional Administrator
1. Require the Grants and Water Program Branches to
conduct a management control review to evaluate the
controls for reviewing unexpended obligations and
promptly deobligating unneeded funds. Specifically:
IV
-------
Deobligation/Closeout
of Construction Grants
a. Review the grants cited and initiate prompt
deobligation actions.
b. Determine whether additional funds could be
deobligated from other grants.
c. Develop specific Regional policies and
procedures.
d. Designate a specific person to coordinate
deobligation efforts between the Branches.
e. Implement periodic review meetings and
evaluations between various Branch personnel
to increase monitoring of unexpended balances.
2. Require the Grants and Water Program Branches to
give a higher priority to the expeditious closeout of all
Step 1,2, and 3 construction grants. Specifically:
a. Determine whether additional resources or
other actions are needed.
b. Designate a specific person to coordinate
closeout efforts between the Branches.
c. Initiate regular meetings between the program
offices to discuss actions needed.
3. Require the program offices to place a higher priority
on the audit resolution process and eliminate the
bottlenecks for preparation of final determination
letters.
4. Instruct the Office of Regional Counsel and Water
Programs Branch to implement an action plan to
accelerate the dispute resolution process and eliminate
-------
Deobligation/Closeout
of Construction Grants
the backlog. Timely actions and commitments must be made
and accomplished.
REGION 2 RESPONSE The Region agreed with many of our recommendations, but
and OIG EVALUATION disagreed with the significance of certain conclusions mainly
in the area of construction grant closeouts. After evaluating
the Region's comments that disagreed with our report, our
position remains unchanged. Their response has been
summarized at the end of each finding and other comments
were inserted in the body of the report. The complete
response has been included as Appendix 1. An exit
conference was held with representatives of Region 2 on
October 29, 1997.
VI
-------
Deobligation/Closeout
of Construction Grants
TABLE OF CONTENTS
EXECUTIVE SUMMARY i
CHAPTERS
1 INTRODUCTION 1
Purpose 1
Background I 1
Scope and Methodology .6
Prior Audit Coverage 8
2 IMPROVEMENTS NEEDED IN TIMELY
DEOBLIGATION OF CONSTRUCTION GRANT FUNDS 9
Background and Criteria 10
Unpaid Balances Remained Obligated 11
Examples of Untimely Deobligations 13
Inactive Projects Should be Reviewed 15
Internal Controls 18
Other Control Weaknesses 18
Conclusion 20
Regional Response 21
OIG Evaluation 22
Recommendations 25
3 INCREASED EMPHASIS NEEDED TO MEET
GRANTS COMPLETION/CLOSEOUT STRATEGY 27
Background and Criteria 28
Region 2 Must Accelerate Closeouts -. 29
Step 3 Grants 30
Grant Untimely Closed Out 34
. Step 1/2 Grants 35
Duplicate Audit Requests 38
Screened Out Projects Remained Open 39
Conditional Administrative Completions 41
GICS Information 42
Other Factors Affecting Closeouts 42
-------
Deobligation/Closeout
of Construction Grants
Conclusion 43
Regional Response 44
OIG Evaluation 45
Recommendations 51
4 AUDIT RESOLUTION PROCESS WAS UNTIMELY 53
Criteria 53
Analysis of Resolution Untimeliness 54
Regional Response 56
OIG Evaluation 57
Recommendations 57
5 LENGTHY DISPUTE/APPEAL
PROCESS DELAYED CLOSEOUTS 59
Background 60
Current Disputes Inventory 60
Status Reports 63
Untimely Program Memoranda 63
Other Factors 63
Regional Response 67
OIG Evaluation 68
Recommendations 68
EXHIBITS
1 Schedule of Unliquidated Balances 69
2 Schedule of FDLs Issued or Unresolved 72
3 Additional Examples of Untimely Dispute Appeal Resolution 75
APPENDICES
1 Region 2's Response to the Draft Report 77
2 Abbreviations :. 99
3 Distribution 101
-------
CHAPTER 1
INTRODUCTION
PURPOSE
We performed an audit of Region 2 construction grant
closeout efforts and deobligation of excess funds. Our
specific objectives were to determine whether the Region:
o Identified and deobligated actual and potential
construction grant funds in a timely manner.
o Implemented a successful closeout strategy to meet
Agency goals for completing all construction grants.
o Issued timely draft and final determination letters so
that grants could be closed out and excess funds
deobligated.
o Resolved grantee disputes or appeals effectively and in
a timely manner.
BACKGROUND
Regional Grants Administration Offices manage grants
awarded to local municipalities to fund construction of
wastewater treatment plants. EPA's policy is to close out
construction grants promptly so that funds not needed on
projects can be deobligated and reallotted to finance other
treatment works projects.
EPA is responsible for overall program management of the
Construction Grants Program. The State water pollution
control agencies or the US Army Corps of Engineers (COE)
handle most day-to-day administrative duties through
delegation agreements with EPA. EPA Regional offices
retain some project-related decision authorities not legally
-------
delegable. Eligible activities funded by construction grants
can include facility plans (Step 1), plans and specifications
(Step 2), and the building of a treatment plant (Step 3). No
new Step 1 and 2 awards were issued after December 29,
1981 and all such projects should have been completed by
September 30. 1985.
Construction grants are funded from no-year appropriations
and remain available to the program until expended. Since
1972, the Agency awarded over $50 billion in grants for
wastewater treatment projects: The EPA Administrator's
1988 Needs Survey Report to Congress assessed the capital
investment required to build or improve municipal
wastewater treatment facilities. The report estimated that $68
billion was needed for wastewater projects nationwide.
Delegation to States Although EPA's regional grants administration branches
process all deobligations, delegated State agencies assist in
managing construction grants. States may be fully delegated,
partially delegated, or non-delegated. New York is fully
delegated and responsible for processing administrative
completions, audit resolutions, and project closeouts.
Although the State submits a grant amendment to the Region
to deobligate funds, Region 2 is not free of all deobligation
responsibility. The Region must process amendments and
reduce unliquidated obligations in EPA's financial records.
Also, the Region must review all unliquidated obligations
semiannuallv and certify whether they are still valid.
New Jersey is partially delegated and EPA does not make
initial allowability determinations. The State submits the
administrative completion package to Region 2 which
processes audit resolutions and closeouts. Puerto Rico and
Virgin Islands administrative completion responsibilities are
not delegated. Region 2 is responsible for initiating all grant
amendments to deobligate unneeded funds.
-------
Criteria An October 15,1984 Office of Water and Inspector General
memorandum established policies for auditing grants with
unresolved claims. If the claim was clearly separable, the
grantee should submit a final payment request contingent on
resolution of the claim. EPA should then adjust the grant to
estimate Federal exposure, proceed to audit, and closeout the
balance of the grant. Another October 15, 1984
memorandum emphasized expeditious grant completion and
closeout. Regions should notify grantees to submit final
payment requests within 90 days or the last request will be
considered the final request, and deobligate unexpended
funds.
EPA's August 27, 1992 Financial Closeout Policy for
Assistance Agreements emphasized-closing out projects and
promptly deobligating unliquidated obligations. Closeout is
an essential function of prudent grants administration and
regions should develop specific procedures to address this
policy. The policy stated that closeout should occur within
six months of the last grant action (i.e. final audit resolution,
OIG screenout, administrative completion, appeal decision).
Administrative completion was a key milestone where all
administrative aspects of the project have been completed,
final payment requested, eligible costs determined, grant
conditions satisfied and audit requested. All excess balances
should be deobligated at this point.
.In November 1993, the Senior Leadership Council designated
. completion and closeout of the construction grant program an
Agency-level weakness. This program still involved billions
of dollars and there was a fear that this was not universally
recognized and might result in a loss of resources to properly
complete the program. Without such resources, the closeout
process could slow down to an unacceptable pace and result
in a loss of institutional knowledge, records, and ability to
manage over an extended period.
In 1996, the Office of Management and Budget (OMB) again
-------
recommended that completion/closeout of the construction
grant program should be declared a material weakness citing
"the closeout schedule continues to slip and millions of
dollars in ineligible costs are not being reimbursed for reuse
on other high priority state clean water projects..." The
Agency shared OMB's concern and elevated it to an Agency
level material weakness in the 1996 Integrity Act report.
Of the more than $50 billion total EPA construction grants.
awarded, 1,085 grants ($12 billion) remained open at the end
of fiscal year (FY) 1996. The 1990 Construction Grants
Completion/ Closeout Strategy was developed to expedite
closeout so resources could be reallocated. It established
goals of administratively completing all projects bv FY 95
and closing out all grants by FY 97.
Region 2 Prior to Region 2's recent reorganization the Grants
Progress Administration Branch (GAB) and Water Management
Division (WMD) had responsibility for construction grant
completion/closeout and deobligation of unneeded funds.
The GAB/WMD FY 95 update projected 5_8_closeouts.
However, WMD's tracking system only noted 32. due to (i)
inadequate or missing New Jersey project documentation, and
(ii) the prolonged New York disputes process.
WMD's September 21,1995 memorandum noted its FY 96
beginning inventory of 138 New York and New Jersey Step 3
grants (GAB's October 19,1995 memo stated 151 grants')
and 111 Puerto Rico and Virgin Islands grants. WMD
planned to administratively complete all New York non-
Modification/
Replacement construction grants by FY 97. The
memorandum provided the following information:
-------
Closeouts
FY Commitment Performance
93 79 80
94 - 74 79
95 58 27 projected
(reduced to 32)
96-39
Region 2's FY 94 Integrity Act Assurance Letter indicated
366 open construction grants (182 Step 1 and 2, and 184 Step
3 projects). The FY 95 Assurance Letter indicated 262 open
grants (151 New York/New Jersey, 111 Puerto Rico/Virgin
Islands) since 109 Step 1 and 2, and 32 Step 3 projects were
closed and $26 million deobligated. New Jersey and New
York Step 3 projects were reduced from 1,600 to 134 (NJ
58, NY 76), and Step 1 and 2 universe was reduced from 700
to 75 (as of September 30, 1995). Because of the difficult
projects, lengthy appeals process, and reduced resource
levels, the Region reflects a 2000 end date.
The FY 96 Assurance Letter noted 44 Step 3 closeouts. The
remaining 239 Step 3 projects includes 112 administratively
completed projects (47 to be completed during FY 97. The
Region also anticipated completing the 68 Step 1 and 2
projects ready for closeout by the end of the calendar year.
On July 21, 1996 Region 2 formally implemented its
reorganization to an integrated, multi-media approach to
environmental planning, compliance and program activities.
Responsibility for New York and New Jersey grants was
assigned to the Division of Environmental Planning and
Protection (DEPP), Water Programs Branch - Construction
Grants Section. However, the Division of Enforcement and
Compliance Assistance (DECA), Water Compliance Branch
was given responsibility for the Caribbean grants..
-------
SCOPE AND We performed this audit according to the Government
METHODOLOGY Auditing Standards (1994 Revision) issued by the
Comptroller General of the United States as they apply to
program audits. Our review included tests of the program
records and other auditing procedures we considered
necessary. No other issues came to our attention which we
believe warranted expanding the scope of the audit.
To accomplish our objectives we reviewed payment records
and interviewed Region 2 officials where focus was primarily
on the Grants and Contracts Management Branch (GCMB),
Water Programs Branch (WPB - Construction Grants
Section), Water Compliance Branch (WCB - Caribbean
Section), Office of Regional Counsel (ORC), and Financial
Management Division (FMD). We also reviewed records and
interviewed New York State Department of Environmental
Conservation (NYSDEC) and New Jersey Department of
Environmental Protection (NJDEP) officials.
To evaluate the timeliness and effectiveness of regional grant
deobligation and closeout actions, we judgmentally selected
open and recently closed New York, New Jersey, Puerto Rico
and Virgin Islands projects. Our review focused on grants
with the largest unliquidated balances. We reviewed EPA
orders, directives, regulations, policies, and procedures
related to construction grant closeout strategies, deobligations
of unneeded funds, audit resolution, dispute and appeal
process, information management and other tracking systems.
We further evaluated deobligation and closeout efforts by
reviewing Integrated Financial Management System (IFMS)
and Grants Information Control System (GICS) grant
payment and unpaid balance reports, unpaid obligation
records, NYSDEC and NJDEP records, OIG audit files, final
determination letters (FDL), and ORC files. We interviewed
appropriate FMD, ORC, GCMB, WPB and WCB personnel
-------
to determine their roles and responsibilities. We also
interviewed NYSDEC's Fiscal/Grants Management Unit and
NJDEP's Municipal Wastewater Assistance Unit personnel.
For the grants selected, we reviewed payment and project
files and discussed the grant status with State and regional
officials to identify any idle funds. We also identified
procedures for processing administrative completions and
grant closeouts to determine when funds are deobligated from
administratively complete grants.
To determine unliquidated balances which could be
potentially deobligated, we reviewed the January 2, 1997
IFMS Monthly Construction Grant Summary Report.
Because of incorrect obligation data, Finance provided a
revised IFMS report dated March 1, 1997. We also
considered the grantee's final payment request, grant
official's determination of allowable costs, audit results, and
any grantee appeals. The following amounts were considered
potentially eligible for deobligation:
(a) the excess of an outstanding grant award over the
grantee's final payment request; and
(b) disallowed amounts not appealed by the grantee.
We conducted our survey from February 20 to May 11, 1997
and initiated an in-depth review from May 12 to June 15,
1997. As part of our evaluation we reviewed the Region's
FY 94 to 96 Federal Managers Financial Integrity Act
(FMFIA) Assurance Letters. These reports did not identify
any material weaknesses or vulnerabilities pertaining to
construction grant deobligations or closeouts.
-------
PRIOR AUDIT The OIG has issued the following five audit reports
COVERAGE pertaining to Region 2's untimely deobligation of
construction grant funds. Reports E1VW2-01-0029-21443
(August 12, 1982) and E2FWPO-02-0041-0400001 (October
20, 1989) disclosed that substantial unliquidated obligations
in Region 2's construction grant program had not been timely
deobligated.
Report E1AME9-11-0041-0100523 issued September 1990
(Management of Unliquidated Obligations in
Administratively Complete Construction Grants) disclosed
that Region 2 had 38 grants with more than $40 million
needing deobligations. These grants had been
administratively completed for an average of 34 months.
Report E1AME9-11-0041-1100426 issued September 1991
(Management of Unliquidated Obligations in Construction
Grants that have not been Administratively Completed)
identified 17 grants with more that $58 million of deobligable
or potentially deobligable funds.
Also, OIG's August 29,1986 Review of Region 2's
Construction Grant Closeout Procedures (E1CW4-02-0144-
61424) disclosed (i) inaccurate construction grant
information recorded in GICS, (ii) grants screened out by the
OIG were not timely closed, (iii) grants completed for several
years were held open for extended periods of time, and (iv)
insufficient NJDEP staffing to eliminate backlog.
In all instances the OIG closed out these audits based on the
promised actions to be implemented.
-------
CHAPTER 2
IMPROVEMENT NEEDED IN TIMELY DEOBLIGATION
OF CONSTRUCTION GRANT FUNDS
Region 2 needs to improve its timeliness in identifying and
deobligating excess construction grant funds. We identified
more than $63 million that was unpaid, and not timely
deobligated. In addition, approximately $7.5 million of
recently deobligated amounts could have been accomplished
many years earlier. The grants with balances that could be
deobligated had been administratively complete an average of
76 months when we finished our fieldwork. The Region's
failure to deobligate unneeded construction grant funds has
been a continuous problem since 1982.
These conditions were caused by Region 2 generally waiting
until the project was ready for final closeout before
deobligating unneeded funds, instead of deobligating them
earlier. Specific factors were (i) the Region's inadequate
control system, (ii) lack of priority given to deobligation
efforts, (iii) inadequate or reduced Regional and State
personnel with construction grants knowledge, (iv)
inadequate coordination between Water, Grants, Regional
Counsel (ORC) and Finance officials, (v) lack of regional
policies outlining specific responsibilities and methods for
accomplishing deobligations, and (vi) missing grant files.
As a result, more than $70.5 million, that could have been
used to fund other priority construction projects, remained
idle.(See Exhibit 1 for details) and needed work has been
delayed. Such funds could have also been recently used for
State administration of construction grant and Special
Appropriation projects, or could have been deposited into the
State Revolving Fund.
-------
Background and EPA's policy has been that unneeded construction grant
Criteria funds should be taken from overfunded projects as soon as
possible and made available for other projects. The
Handbook of Procedures for Construction Grants states,
"Project reviewers are to be alert for legitimate opportunities
to reduce grants, since recovered funds, after being returned
to EPA, are reallocated to the State for funding other projects
on the State's project priority list." Also, grant decrease
requests are generally initiated by the Agency, not by the
grantee. Moreover, the Financial Management Manual
requires prompt adjustment obligations upon the occurrence
of any event which increases or decreases such obligation.
After the State or COE completes the final inspection and
certifies that the project is functioning properly, the grantee
submits a final payment request. The State, COE or EPA
reviews the request and recommends the final payment
amount. The grant should now be adjusted to deobligate any
excess funds and forwarded to the OIG for audit. If the grant
is not audited (screened out) it should be closed out. If
audited, all issues should be resolved, any remaining excess
funds deobligated, and the grant closed out.
EPA's policies and procedures require that unneeded funds
be deobligated during the administrative completion step.
The Administrator's November 22, 1982 memorandum
stated:
We should make the most effective use of EPA
construction grant funds and ensure that they not lay
idle as invalid, unpaid obligations for projects where
they are no longer required... The identification, and
subsequent deobligation, of funds that will not, or
need not, be spent is an important management
responsibility... You should consider deobligating
funds for projects when... the final reimbursement
request was less than the grant amount.
10
-------
Unpaid Balances
Remained Obligated
The General Accounting Office (GAO) defines deobligation
as an Agency's cancellation or downward adjustment of
previously recorded obligations. Region 2 generally followed
a policy of not deobligating funds until projects were closed,
instead of when grantees submitted final payment requests
and projects were administratively completed.
We analyzed IFMS reports as of March 1,1997 to
determine Region 2's open construction grants with unpaid
balances, and found 159 projects which exceeded $50,000.
Some projects have not reached the administrative
completion stage.
State
New York
New Jersey
Puerto Rico
Virgin Islands
Total
#pf Grants
52
27
75
5
^U2_
Total Unpaid
$189 million
23 million
71 million*
17 million
J300miilion_
*Includes projects awarded in 1992 or thereafter.
Besides these 159 grants, there were an additional 80 grants
in New York (27), New Jersey (26), Puerto Rico (26), and
Virgin Islands (1) with individual unpaid balances of less that
$50,000. This significant amount of Federal funds remained
unpaid for as long as 20 years.
From the 159 grants with large unpaid balances, we reviewed
35 projects either under construction, administratively
complete, audited, or appealed. Our review disclosed that 26
of the 35 grants reviewed had actual or potential unpaid
11
-------
Deobligation Policy
Not Consistent with
Agency Guidance
funds exceeding $63 million that could be deobligated (see
below, with more detail in Exhibit 1). Also, in four of these
grants more than $7.5 million were recently deobligated that
had been lying idle for substantial periods (See Exhibit 1).
Therefore, approximately 60 percent of the unpaid balances
reviewed ($110.9 million) were potentially deobligable.
Based on this sample, there are potentially millions of
additional dollars mat may be deobligable for grants not
reviewed.
Reviewed Potential Deobligation
State
NY
NJ
PR
VI
Total
Grants
15
11
7
2
35
Unpaid
Balance
(in millions)
$ 79.2
11.2
4.2
16.3
$110.9
Grants
12
8
6
OC*)
26
Amount
(in millions)
$49.7
9.1
4.2
or*)
$63.0
(*) Does not include $10 million applicable to the Mangrove
Lagoon Facility discussed later in this chapter.
Region 2's deobligation policy was not consistent with
Agency guidance that EPA should make the most effective
use of grant funds and ensure they do not lay idle as invalid,
unpaid obligations no longer needed. EPA's Administrator
has urged regions to deobligate funds when the final
reimbursement was less than the grant amount. Although
Region 2 officials acknowledged that unneeded construction
grant funds should be timely deobligated, they indicated and
our review disclosed this was not always a high priority.
The New Jersey Department of Environmental Protection's
(NJDEP) policy was not to deobligate funds until projects
were closed out. Its Standard Operating Procedures Manual
states that if excess grant funds remain, they will be removed
after audit resolution when all appeals have been resolved.
12
-------
EPA's deobligation policy is clear, and unneeded funds
should be promptly deobligated because funds are badly
needed for other projects. Unneeded funds should not be
confused with questioned or appealed amounts. There is no
uncertainty regarding the excess of an outstanding grant
award over the grantee's final payment request, and there is
no uncertainty regarding disallowed amounts not cited in the
grantee's final appeal. These funds are not being contested
and clearly not needed for the originally obligated grant.
Region 2 should work with New Jersey officials to ensure
they promptly deobligate unneeded funds.
In prior reviews Region 2's reason for not deobligating funds
until project closeout was to avoid possible grantee appeals.
Also, personnel concentrated on awarding and monitoring
new grants, rather than deobligating funds. The Region's
response to OIG report 0100523 (September 1990) reported
"it is working with its States and Territories to prepare a
policy during the first quarter of FY 91 to deobligate
unneeded grant funds upon administrative completion."
However, this policy has not been established or
implemented. The Region should have deobligated unneeded
funds as well as performed these other functions, and
management should have been alerted if resources were
insufficient to accomplish these tasks.
Although its policy is to generally wait until the project is
closed before deobligating funds, the Region previously got
requests for deobligations, particularly from NYSDEC.
However, the Region would generally not process grant
amendments to deobligate unneeded funds.
Examples of Untimely Region 2 has not always promptly deobligated funds. These
Deobligations four examples illustrate the need for timely review and
deobligation of excess funds.
13
-------
Nassau County (grant 891-09). was awarded on September
30,1980 and administratively completed on June 29,1987.
The current unpaid balance is $3.276.651. We believe that at.
least $3.137.150 could be deobligated ($139,501 could be
set-aside to resolve a dispute). NYSDEC officials also
agreed that $3,137,150 could be deobligated. Although
NYSDEC certified a grant decrease of $3,137,150 six years
ago, Region 2 refused to process it. Also, the September
1990 OIG audit report identified the same $3,137,150 that
could have been deobligated since June 29,1987. We do not
believe it was prudent management to tie up these funds for
10 years because of potential contingencies.
The City of Auburn (972-01) was awarded on December 1.
1976 and administratively complete on June 30,1988. The
last payment was September 3, 1986 and the grant currently
has an unpaid balance of $1,065,865. Based on an OIG audit
a bill for collection (BFC) for $141,054 was sent to the
grantee on March 21,1991. It was appealed and the
Regional Administrator's March 21. 1995 decision reduced
the $141,054 bill by $49,385. However, it wasn't until
February 27. 1997 (after our audit started) that $1,065,865
was deobligated (more than 10 years since the last payment).
Cape May (661-07) was awarded on December 28, 1984 in
the amount of $26,855,648 (subsequently amended to
$28,628,685). It was administratively completed on
September 28,1990, final payment was made on March 7,
1995, and an unliquidated balance of $2,453,828 remains. In
1995 one issue involving innovative costs of $171,000 was
appealed to NJDEP. The Region should have set-aside the
$171,000 until the matter was resolved and deobligated the
remaining $2,282,828 in March 1995 (26 months ago).
The PRASA-Anasco Trunk Sewer (120-08) was awarded
in the amount of $2,941,870 on March 9,1987 (grant was
increased by $2,968,259 on September 30, 1988) and
administratively completed on September 29, 1992. On
14
-------
September 15,1992 the grant was reduced by $905,503 and a
final payment of $187,418 was processed on May 21, 1994.
As a result, $2,942,169 is potentially deobligable ($2,941,870
has been unpaid since March 9, 1987 - 10 years).
The Region's response to the draft report indicated the
project was closed on July 9,1997, but provided an
inaccurate project chronology (date of award, grant amounts,
etc.). On September 15,1997 we discussed this matter with
the Grants Specialist and inquired why IFMS showed
$2,941,870 outstanding while the response asserts only $299
remained. The Specialist discovered a March 9.1987 grant
amendment (more than 10 years ago) to cancel this grant and
deobligate $2,941,870. However, this cancellation and
deobligation was not reported to Finance or action was not
taken in 1987 to correct this situation. For 10 years IFMS and
Agency records erroneously showed $2,941,870 obligated.
This error should have been corrected when the Region
submitted their required annual certification of grant
obligations. As a result of the draft report, on September 17,
1997, the Agency's records were corrected to eliminate the
$2,941,870.
Inactive Projects Financial disbursement activities should be reviewed
Should be Reviewed regularly to determine whether excess funds could be
released from inactive or completed projects. If the grantee
does not expeditiously initiate and complete the project, 40
CFR 30.903 through 30.905 allows grants to be terminated or
annulled.
One example of a possible inactive grant was Perth Amboy
(435-02). The $3,211,243 grant was awarded on September
26. 1985 and the only payment made ($250,310) on January
14. 1991 (64 months after award). Since 1991 no payment
activity has occurred for 76 months. OIG's September 30,
1991 audit report indicated three contracts would be awarded
by March 1991 and work completed by October 1992.
15
-------
However, the grantee has not completed the work or
requested reimbursement. Therefore, we believe the
unliquidated balance of $2,960,933 could be potentially
deobligated. Although Water Programs Branch personnel
believe this project was active they could not provide any
reason for the lack of progress.
The Virgin Islands Mangrove Lagoon (C780013-04)
awarded September 28,1984 ($11,134,058) was another
possible inactive grant. The 100% award was to design and
construct a treatment facility, collector and inceptor sewers,
force mains and an ocean outfall. The last payment was
February 10, 1988 and excess funds of$10.081.348
remained.
Throughout 1989 and 1990 the Region notified the grantee
about delays which violated the grant regulations and the
September 27, 1985 Consent Decree, and threatened to
terminate the grant. These documents required completion of
plans and specifications by January 1. 1986 and facility
operations by July 1. 1988. Final plans and specifications
have not been submitted and the grantee's September 1988
report stated "the status of final plans and specifications is
uncertain at this time." A Regional engineer also stated the
Region considered terminating the grant and deobligating the
excess $10,081,348. Another 1990 memorandum stated that
due to delays, the project's construction costs will escalate.
The Consent Decree included construction of the Mangrove
Lagoon Regional Facility. The grantee failed to construct it
and a March 1991 motion was filed to enforce the Decree.
On December 29,1994 an Amended Consent Decree
outlined specific revised construction dates. For example,
design contract award was March 31, 1995 and complete bid
document submission was March 31,1996. The Region's
current target closeout date is September 30,2001.
16
-------
Although we are not considering this grant as a current
candidate for potential deobligation, we believe this 13 year
old project could have been managed more effectively. It had
many problems since inception and could have been
terminated. Regional personnel cite the Consent Decree for
not terminating the grant or deobligating the funds. We
question whether the Facility will be built or efficiently
operated since the Amended Consent Decree deadlines have
been modified twice (additional 12 months). As a result,
more man $10 million has been idle since 1988. If
construction commences, additional Federal funds due to
these delays may be necessary. Meanwhile the Virgin Islands
residents have been deprived of adequate wastewater
treatment services for 13 years.
Unilateral EPA's August 21,1990 Project Acceleration Initiatives
Deobligations stated that when a final payment was made, with the possible
exception of set-aside costs involving pending claims, all
other monies should be immediately deobligated. The
grantee should be notified that set-aside monies remain for a
specified period, and if claims are not timely resolved, such
funds will be deobligated and the grant closed. Deobligation
of set-aside funds can be accomplished by a unilateral
amendment.
When the grantee did not take appropriate action, the Region
should unilaterally close out the project and deobligate excess
funds. This Initiative allows the deobligation of excess funds
when grantees do not request timely deobligation action.
Grantees should be given adequate notice where unilateral
deobligation would be considered and accomplished. Such
action would be a last resort to get the grantee-to act on
projects with significant excess funds. However, Region 2
has. been reluctant to use the unilateral deobligation option
when projects .with large unpaid balances have been
significantly delayed. This reluctance is due to the time and
effort involved and potential legal ramifications. We believe
this is a viable option and should be used when necessary.
17 .
-------
Internal Controls
The Federal Managers' Financial Integrity Act (FMFIA)
requires that internal control standards be followed when
establishing and maintaining internal control systems. The
objectives of an internal control system include (1) assets are
safeguarded against waste, loss, unauthorized use, and
misappropriation, and (2) revenues and expenditures are
properly recorded and accounted so that accounts and reliable
financial reports may be prepared and accountability of assets
maintained. We reviewed internal controls and procedures
related to our objectives, but not controls associated with
inputting and processing of IFMS and GICS information.
The Region's FY 94, FY 95 and FY 96 FMFIA Assurance
Letters did not identify any material weaknesses or
vulnerabilities. However, we believe that the Region's
inconsistency in deobligating funds was a material weakness
in internal controls. OMB Circular A-123 defines a material
weakness as a specific instance of noncompliance with
FMFIA which would (1) impair the fulfillment of an Agency
component's mission; (2) deprive the public of needed
services; (3) violate statutory or regulatory requirements; or
(4) significantly weaken safeguards against waste, loss,
unauthorized use or misappropriation of funds. The Region's
failure to timely deobligate unneeded construction grant
funds, deprives the public of funds that could be recommitted
to other badly needed projects, and improved water quality
that these projects would bring. We therefore believe that the
Region should include construction grant deobligations as a
material weakness in its FY 97 Assurance Letter.
Other Control
Weaknesses
1) Lack of Written
Procedures
Prior OIG reports and Grants and Water Branch personnel
disclosed there were no written Regional procedures
18
-------
2) Higher Priority,
Increased Resources,
Improved Coordination
regarding (i) deobligation of funds, (ii) roles and
responsibilities of individuals involved in deobligation/
closeout activities, (iii) conditional administrative
completions, (iv) unilateral terminations, and (v) program
office coordination with Finance.
Written procedures evidence practices followed to comply
with EPA regulation and policy. They provide management
with tools to coordinate and control activities of subordinates
and identify and anticipate problem areas. Procedures are
also used to evaluate management practices and ascertain the
degree in which internal control is exerted over operations.
Lack of written procedures could have contributed to the
untimely deobligation of funds and other conditions. The
lack of written procedures has been a continuing problem.
For example, a 1982 OIG Report (21443) recommended that
Region 2 implement formal written procedures to ensure
funds were promptly deobligated.
Region 2 must accelerate its deobligation of unnecessary
funds.by giving this a higher priority and providing increased
resources. Currently, one grant specialist is responsible for
various construction grant completion/closeout and
deobligation efforts. Although this individual is doing a
good job, she needs additional resources to more timely
complete
these tasks. We strongly believe that another full time
employee (FTE) would provide a great benefit in accelerating
the identification and deobligation of idle funds.
The Water Programs Branch has one person responsible for
New York grant activities and another person for New Jersey
activities. These individuals have conflicting grant
responsibilities (including dispute resolution). Although the
delegated States have various responsibilities, the two EPA
individuals cannot effectively handle all their functions and
effectively monitor the States without additional assistance
19
-------
from other individuals with construction grant knowledge. In
addition, the Water Compliance Branch has only 0.4 FTE
assigned to direct Caribbean construction grant activities.
This individual can not effectively handle the Puerto Rico
deobligation area in addition to other activities.
There could be better coordination between the grants
specialist and Water Program Branch individuals. The
specialist must receive complete and timely closeout and
deobligation data from Branch and State officials to timely
prepare data to be entered into GICS and IFMS.
As a result of these analyses, Region 2 must give this area a
higher priority, provide additional resources, and increase the
coordination and cooperation among the Grants and Water
Branches.
Conclusion Four OIG audits of Region 2's construction grant
deobligation efforts during the past 15 years disclosed
material weaknesses. Based on the Region's promises to take
action to correct these weaknesses, the OIG closed out these
audits. However, the same conditions found in 1982
continued to surface in 1986, 1990 and 1991. We strongly
believe that strong top management efforts are needed to
resolve this long-standing problem. It should be noted that
Region 2's response to OIG Report E1VW2-02-0029-21443
(August 12.1982) was "Please be assured that the Region
and the States are pursuing deobligations and
terminations more aggresively than ever before." We do
not believe this is the case.
The Region's various control system weaknesses contributed
to the conditions noted. Agency policies for expediting
deobligations were not folio wed-in the grants we reviewed.
If Agency policies had been followed, at least $63 million of
potentially unneeded construction grant funds could have
20
-------
been deobligated, and an additional $7.5 million could have
been deobligated in a more timely manner.
Regional Response The Region's September 11,1997 response to the draft report
stated that the approximately $70 million available for
deobligation was misleading. For more than five years New
Jersey deobligations were essentially put on hold pending a
Headquarters decision regarding Camden and Cape May
appeals. This appeal related to deobligation of excess grant
funds based on low bid construction costs and affected a
number of grantees.
The Region believes projects not having reached
administrative completion should not be included in the $300
million unpaid balance since "excess balances should be
deobligated at the administrative completion stage." The
response indicated that some New York projects had been
recently closed and amounts deobligated. Also, the Region
believes there may be as much as $40 million in "potential"
obligations owed to New York grantees based on current
disputes and other information.
The response stated that New York grantees may submit their
administrative completion package prior to fmali'zed costs
(i.e. construction contractor problems). Since the grantee
may have more costs to submit, funds are not deobligated.
Also, if an appeal is likely, funds are not deobligated since
grantees often added additional amounts almost up to
closeout. If claims are valid, Region 2 has paid them.
Region 2 does not consider any project to be inactive until all
construction, audit and appeals are completed and would not
terminate a grant until such time. The Region also does not
believe unilaterial deobligations are appropriate. In addition,
the Region disagreed that construction grant deobligations
should be deemed a material weakness since construction
grants closeout is already an Agency material weakness.
21
-------
Regarding recommendations 2-1,2-3, and 2-5, the Region
agreed to conduct a review of all construction grants with
unliquidated obligations to determine if any deobligation
actions can be taken. Deobligations will be processed as
appropriate. Regarding recommendation 2-2 to implement
Region policies, the response stated that EPA Headquarters
has already issued a grants closeout policy addressing
unexpended funds, and unilateral deobligations are
inappropriate. The Region believes recommendation 2-4 is
unnecessary since meetings are held to discuss "potential
project closeouts," and grant dispute issues.
OIG Evaluation Although we do not believe any statements were misleading,
we clarified certain matters in the report. Our review
disclosed approximately $63 million potentially available for
deobligation. We also found approximately $7.5 million (i.e.
Wanaque Valley) recently deobligated which could have been
accomplished many years earlier. Recent additional
deobligations might reduce the $63 million and increase the
$7.5 million, but the total of $70 million would remain.
The Region's assertion that New Jersey grant deobligations
were on hold pending a Headquarters decision does not deal
with our audit results. This issue concerned low bid
construction contract deobligation costs. Our audit
concerned the Region not deobligating excess funds at the
administrative completion stage. Page 3 of the Region's
response correctly states that in accordance with EPA's Final
Closeout Policy for Assistance Agreements dated August 27,
1992, excess balances (unliquidated obligations) should be
deobligated at the administrative completion stage.
The comment on Page 4 of the response regarding New York
projects closed out after the audit commenced and $8.7
million deobligated strengthens the OIG position.
Specifically, six New York and New Jersey grants identified
in Exhibit 1 (Irondequoit, Auburn, Westchester, Woodstock,
Leroy, and Little Egg Harbor) were closed between February
22
-------
and June 1997 and $8.7 million was deobligated. We had
identified the specific $8.7 million for these six grants that
should have been deobligated at.the administrative
completion stage or many years prior to FY 97.
To determine Region 2's construction grant's unpaid
balances, we used the IFMS monthly summary report. This
shows unpaid balances, and includes pre-administrative
completion projects. We recognize that additional
reimbursements may be forthcoming. However, we are
concerned that the Region does not consider any project to be
inactive until all construction work, audits and appeals are
completed and therefore would not terminate a grant until
such time. The Region must constantly monitor grants
unnecessarily delayed where payment requests have not been
submitted for many years. Such projects may be candidates
for termination or scope changes and could result in
deobligation of unneeded funds. Region 2 has previously
terminated grants and two current "active" grants are in
process of being terminated prior to administrative
completion.
Grants can be terminated or annulled if no substantial
progress is made without good cause (40 CFR 30 903
through 30.905). Also EPA's policies and procedures require
that unneeded funds be deobligated during various stages of
completion. For example, the EPA Administrator's
November 22,1982 memorandum to the Regional
Administrators discussed deobligation of funds that will not,
or need not be spent prior to, during, or after construction
was complete. Also, OIG's September 1991 report disclosed
$60 million that could be deobligated for Region 2
construction grants not administratively completed.
Region 2's unique policy of continuously allowing grantees to
claim additional Federal funds not previously claimed
indicates a weakness in administering construction grants.
Continuously allowing grantees to submit costs many years
23
-------
after administrative completion, the audit process, final
determinations, and the appeal process is not a sound
management practice and contributes to untimely closeouts.
We disagree with the Region that it is unnecessary to include
construction grant deobligations as a material weakness since
closeouts are already an Agency material weakness. We
strongly believe Region 2 should include deobligations as a
material weakness in Assurance Letters and FMFIA reports.
We are pleased that the Region will conduct an overall
review of all construction grants to determine if any
deobligation actions can be taken. We are also pleased that at
the exit conference the Assistant Regional Administrator
agreed to carefully review the OIG identified idle funds and
deobligate unnecessary funds immediately. However,
additional actions are needed to address the OIG concerns.
Periodic reviews should be commenced to review completed
projects which have not been closed for at least six months,
and minimum obligation balances should be estimated to
release at least a portion of the unexpended obligations. It is
also imperative that specific timeframes for initiation of
reviews and determination of actions be established.
Regarding recommendation 2-2, we strongly believe that
specific Regional procedures and policies are needed
regarding unexpended grant obligations. The Region
promised to implement such procedures in response to prior
audits. Also, Headquarter's August 27,1992 Final Closeout
Policy for Assistance Agreements emphasized the importance
of closing out projects and deobligating unliquidated
obligations timely. It requested that Regional Procedures be
developed to implement the policy requirements.
We recognize that periodic meetings may discuss project
closeout issues. However, these meetings mainly discuss the
grants in the dispute process and are not documented. We
believe those meetings should be expanded to discuss
24
-------
unexpended grant balances and areas where funds could be
deobligated. These meetings should be documented and
distributed to all attendees
Recommendations We recommend that the Regional Administrator require the
Grants and Water Program Branches to:
2-1 Evaluate effectiveness of its controls for reviewing
unexpended obligations, make necessary changes, and
promptly deobligate unneeded funds. Specifically,
review grants cited and take necessary actions to
deobligate unneeded funds.
2-2 Develop and implement specific Regional policies and
procedures for reviewing and monitoring unexpended
obligations, and determining requirements for
deobligating unneeded or idle funds. Also, consider
using alternative procedures (i.e. unilateral
deobligations) when necessary. These procedures
should include project management control reviews to
determine whether, additional funds could be
deobligated from other projects not part of this review.
2-3 Consider designating a specific individual to
coordinate reviewing open projects and unexpended
balances. Special emphasis should be given to
projects completed, but not closed for six months.
2-4 Initiate and document periodic review meetings
between the two Water Branches and Grants personnel
to increase monitoring of unexpended construction
grant balances. Also, evaluate construction grant fund
balances on completed or inactive projects on a
semiannual basis.
2-5 Estimate minimum obligation balances necessary to
expedite the release of unexpended obligations. By
25
-------
using these estimates, future obligation balances can
then be retained and excess funds reprogrammed.
2-6 Establish timeframes that will serve as a benchmark
for accomplishing the above actions.
26
-------
CHAPTERS
INCREASED EMPHASIS NEEDED TO MEET
GRANTS COMPLETION/CLOSEOUT
STRATEGY
Although Region 2 has made significant progress to reduce
its backlog of open construction grants, increased emphasis is
still needed. We found that approximately 127 Step 3
projects did not meet the Agency's goal of administratively
completing grants by the end of FY 95 or closing out all
grants by the end of FY 97. The Region may not close out
certain grants by its own projected date of FY 2000. Also,
approximately 50 Step 1 and 2 grants will neither meet the
Agency's nor Region's targeted closeout dates.
This condition was caused by such factors as the (i) highest
priority not always given to project closeouts especially Step
1 and 2 grants, (ii) inadequate level of communication and
coordination between program personnel, (iii) incomplete
administrative completions which did not accurately represent
the grantee's final claim, (iv) duplicate audit requests and
OIG screenout process, (v) inconsistent GICS and IFMS data,
(vi) turnover of experienced construction grant program
personnel, (vii) complexity of the remaining projects, and
(viii) lengthy dispute/appeal and final determination
processes.
As a result, millions of Federal dollars of unexpended grant
amounts remained unnecessarily obligated. These funds
could have been used to fund other eligible projects, thereby
creating a positive environmental impact. Also, personnel
assigned to the closeout process could have been reassigned
to new assignments. In addition, the Agency goal to timely
close out this program is in jeopardy.
27
-------
Background and The Office of Water's October 1990 Strategy for Closing Out
Criteria The Construction Grant Program addressed delays, review
and approval of plans and specifications, timely change order
submission, and the administrative completion process. The
Office of Water's January 18, 1991 Project Acceleration
Initiatives Work Book reissued policies for expediting grant
closeout with operational problems, unresolved claims, and
delayed final payment requests.
/
The Work Book described State actions to ensure grants were
administratively completed in a timely manner. One action
would withhold payments until administrative completion
progress was made; another action would identify the latest
date that a final payment request would be accepted. It also
suggested a final date be identified for jll. change orders to be
submitted. The Work Book further suggested that States
notify grantees that all change orders must be submitted
within 90 days of construction completion. Any increased "
change order costs submitted after this date would not be
allowable, except those resulting from meritorious claims.
The recent OIG audit strategy allowed program officials to
close many projects without requesting an audit and
expedited scheduling and completing necessary audits.
EPA's FY 1996 Integrity Act Report stated that Regions and
States should develop revised projections consistent with the
new OIG audit strategy. The Report also expressed concern
about Region 2's slippage in the rate of progress and
problems including resolving audit findings and disputes.
Therefore, Assistant Administrators will work with Regional
counterparts "to increase priority and attention devoted to
administrative completions, audit and dispute resolution, and
closeouts."
A Joint November 25, 1996 Office of Administration and
Resources Management, Office of General Counsel, and
Office of Water memorandum requested the Region 2
28
-------
Administrator's personal attention to completion/closeout of
construction grants and accelerate current closeout plans. It
stated that a "significant" number of Region 2 projects would
not meet the Agency's goals of administratively completing
all projects by the end of FY 95 and closing out alLgrants by
the end of FY 97. Region 2 estimated that 127 projects
would miss that goal including 51 Puerto Rico projects.
The memorandum indicated Region 2 had one quarter of the
nationwide projects which would miss the FY 97 goal.
Therefore, the Region "needs to devote more management
attention and/or resources" in the water program, grants
administration and regional counsel offices where audit
resolution, grantee dispute and other closeout work is done.
It advised the Region to make use of the OIG's Strategic
Plan and to prevent and resolve disputes.
Region 2 Must Region 2's Annual Report on Internal Controls dated
Accelerate Closeouts November 24, 1989 cited the closeout process as a weakness
requiring corrective action. The Report stated:
The Agency needs to accelerate the closeout of
construction grants projects so that unexpended
balances can be redirected to improve environmental
protection. Current projections of closeouts into late
1990's will exceed delegated state agencies' ability to
manage the closeout process, and opportunities to use
grant balances for additional wastewater treatment will
be lost.
Region 2's Assurance Letters consistently indicated that
particular emphasis was placed on grant closeouts since OMB
proposed this material weakness. The Letters stated it
"places the highest priority on closing screened out or audited
projects so that the deobligated funds can be reallocated for
further use." The Region has given construction grant
closeouts increased effort. However, additional attention is
29
-------
required if the Agency ?s goal of timely closeout is to be
realized. . .
EPA's FY 96 Integrity Report disclosed that 5,860
construction grant projects remained to be closed at the end
of FY 90. The Report also noted the number of projects
remaining to be closed at the end of FY 94 through 96.
EPA's Post 1997 Construction Grants Closeout Strategy also
estimated the pre-92 closeouts remaining at the end of FY
1997 through FY 2000. Our comparison of Region 2's pre-
92 closeouts to the nationwide totals showed that from FY
1994 to FY 2000, the Region's percentage of open projects
when compared to the nationwide universe dramatically
increased every year from 16 to 52 percent. This
percentage increase was most dramatic for FYs 1997-2000 as
illustrated by the following schedule:
EndofFY
1997
1998
1999
2000
Projected Closeouts Remaining
All Regions
503
230
129
60
Region 2
123
8.4
60
33
Percent of Total
25%
37%
47%
52%
This pattern clearly shows that while other regions have
accelerated their grant closeouts, Region 2 has not kept pace.
It has to accelerate its closeout of construction grants if the
Agency is to attain its goal.
Step 3 Grants
New Jersey
We reviewed New York and New Jersey Step 3 closeouts
projected for FYs 96 and 97 which were still open as of
April 15, 1997. Seven of the 18 New Jersey grants projected
for closeout in F Y 96 were still open. For two grants
30
-------
(Gamden 708-02 and Cape May 661-07), the Region revised
the projected closeout date from FY 96 to FY 98.
The Region had not taken timely action to close out the
Camden grant. The OIG issued the final audit report in July
1996 and requested the Region's proposed audit
determination by October 1996. As of April 15, 1997 we had
not received the Region's determination. On the Cape May
project, the grantee's revised final payment request was
appealed to NJDEP; The status of the 1995 appeal remained
unchanged as of the cut-off date of our review.
For the remaining five grants, the Region's revised targeted
closeout date was FY 97. On Neptune Township (410-01) a
contributing factor to the revised projection was the delay in
issuing the final determination letter (FDL). The draft FDL
was submitted to the OIG in February 1996 but not finalized
until March 1997. The East Rutherford (296-01) closeout
was delayed because project files could not be located.
Finally, regarding three Hudson County grants (399-06, 18
and 22), the Region issued its FDL in September 1996 but the
grants remained open at the time of our audit cut-off.
For FY 97, 14 of the 19 New Jersey State Specific Strategy
grants initially projected for closeout remained open. At the
time our field work was finished, it was unlikely that all 14
specific grants would be closed by the end of FY 97.
However, other grants projected for a subsequent year
closeout might be substituted. The Region's own projections
revised six closeout dates to FY 98 or FY 99. Camden (708-
09), Stockton (396-01) and Pine Beach (505-03) are
estimated to be closed in FY 98. Ocean County (714-04 and
356-01), and Keansburg (583-02) are estimated to be closed
in FY 99. It is also unlikely all remaining eight grants will be
closed by the end of FY 97. For example, Camden (708-06)
and Middlesex (637-01) have been appealed to Headquarters
and generally such appeals are not decided expeditiously.
Our review of the Region's recent submission disclosed that
31
-------
nine specific New Jersey grants targeted for FY 97 closeout
are now projected for closeout in FY 98 or FY 99.
We also reviewed New York closeouts projected for FYs 96
and 97. For FY 96, only two of the 15 grants projected for
closeout were open and were projected for FY 97. The
Region's closeout strategy did not indicate any reason for the
delay. On the Alexandria grant (1265-02), the strategy
assumed the grantee would not appeal the FDL. Our review
did not disclose any appeal, therefore there appeared to be no
impediment to its timely closeout. We found a similar
situation with the other New York City (713-05) grant.
For FY 97, nine of 20 grants projected for closeout were
open at the time of our audit cut-off. It is unlikely that all
nine would be closed by the end of the fiscal year since the
projected date for three grants was revised to FY 98. These
grants (Glens Falls 1279-04, Huntington 1040-04 and Tri-
Municipal 948-03) were under appeal with a decision
expected in FY 97 (no appeal to Headquarters was
anticipated). For four New York City grants (392-03,07,09
and 10), the OIG's February 1996 audit report requested a
Regional response by May 1996, but had not been received
by May 31, 1997. The Region's strategy stated the audit
would be resolved in 1996. Also, closeout of Whitestown
(1194-02) was delayed pending the appeal of the Region's
determination. The Region's recent submission indicated
eight specific grants open as of September 30,1997 are now
projected for closeout in FY 98.
Puerto Rico During FY 96, Region 2 closed six Puerto Rico and Virgin
and Virgin Islands Islands grants. As of March 1, 1997, Region 2's closeout
universe of Puerto Rico and Virgin Island Step 3 grants
consisted of 70 projects awarded between 1964 and 1992 (60
were awarded prior to 1990). The targeted closeout dates for
the 70 grants range between September 30, 1997 and
September 30, 2001 (53 are not expected to meet the
Agency's FY 97 closeout date). In fact, 32 projects are not
32
-------
expected to be closed before FY 2001. The following five
grants were awarded more than 10 years ago and are
scheduled for closeout in 2001:
Grant #
C72121-03
C72094-13
C72 120-06
C780 13-04
C72100-10
Award
Date
6/30/76
9/30/80
9/28/84
9/30/84
9/30/85
Admin.
Complete
12/20/88
9/29/92
12/06/89
6/30/00
3/01/89
Target
Closeout
9/30/01
9/30/01
9/30/01
9/30/01
9/30/01
Status
Screened
Screened
Screened
Redesign
Screened
Certain Puerto Rico and Virgin Islands active projects have
not proceeded as timely as expected. Currently, 17 pre-1992
projects awarded since 1979 are not administratively
complete (unpaid balances exceeding $30 million) and have
been in process for as long as 17 years.
Between FY 93 and FY 96 Region 2 awarded 39 additional
construction grants (in excess of $50 million). Targeted
completion dates range between three and five years from the
award, and targeted closeout dates between four and seven
years. Based on prior experience it is doubtful that these
targeted dates will be met.
In fact, the Region's September 12,1997 status report
submitted to Headquarters confirmed that targeted
administrative completion and closeout dates had been
extended for 30 (77 percent) of the 39 grants from eight
months to two years. For example, grant C72122-10 (Sabana
Grande) originally planned to be closed on March 30,2000
has been extended to September 30, 2002. In another
example (grant C72086-15-, Arecibo) the original projected
closeout date was also shifted two years (from March 30,
1999 to March 30, 2001).
Problems have also surfaced on post-1992 awards which will
impede timely completion and closeout. For example, certain
33
-------
FY 94 and 95 awards have not started construction or
contracts not awarded, and bids have not been received or
have been cancelled. Regional management and particularly
the Water Compliance Branch must give a higher priority and
devote additional resources to significantly reduce its project
backlog.
Grants Untimely Region 2 did not always close grants in a timely manner. The
Closed Out following is one example.
Caguas 82-01 (82-00) was awarded on December 29, 1972 to
construct intercepting sewers, force main pumping stations,
and a secondary water pollution control plant. The last
payment was made on April 2, 1986 (project was 99%
complete) and no action had been taken until January 26.
1994 (8 years later). Also, certain appropriations have been
unpaid since 1982. Although, the Region believed the grant
would be administratively completed in FY 92, it was not
completed until September 30.1993. At this point the
Caribbean Municipal Programs Branch recommended a
decrease of $5,087,634 and a bill for collection (BFC) for
$ 102,289 (excess amount).
It wasn't until January 26. 1994 (4 months) that the Region
initiated Amendment 4 (decreased $5,087,634) and sent a
BFC. The February 2, 1994 audit request was screened out
on December 11. 1995. As of April 16, 1997 (more than 16
months since screenout), the grant remained open and
$102,289 had not been deobligated. On April 18, 1997, the
Accounting Operations Section Chief acknowledged that
$102,289 should have been deobligated when the 1994
payment was received. The targeted closeout date is
September 30. 2000 and the status is "File Search Pending."
As a result^ this 1972 grant is expected to be closed 28 years
later (2000). In addition, OIG's September 1991 report
alerted the Region that these idle funds should be
deobligated. The response to the draft report indicated the
project was closed on June 25,1997.
34
-------
Step 1 and 2 Grants As of April 15, 1997, GICS listed 56_Region 2 Step 1 and 2
construction grants (NY-16, NJ-21, PR-19) awaiting closeout
with a Federal share of approximately $129 million. These
grants were awarded between 1974 and 1981 and
administratively completed between 1982 and 1994 (53
projects administratively completed prior to March 11, 1991).
Region 2 and State officials stated that Step 1 and 2 closeouts
were a low priority since emphasis was given to Step 3
grants. GICS indicated New York targeted closeout dates for
their 16 projects between 1991 and July 27, 1996. Similar
data was not available for New Jersey and Puerto Rico. As a
result, a majority of these 56 projects remained open for
approximately seven years since administration completion.
In addition, more than $2.5 million was unpaid and
potentially available to be deobligated.
As of September 30, 1995, Region 2 reduced its inventory of
over 700 projects to 75. Although the Region's FY 96
Assurance Letter had committed to closing the remaining 68
Step 1 and 2 projects by December 31. 1996. 56 projects
remain open. Many projects remained open subsequent to
September 30,1997 because certain project files could not be
found.
New Jersey Grants As of April 15, 1997,21 New Jersey Step 1 and 2 grants
awarded between 1973 and 1981 and administratively
completed between 1978 and 1990 remained open. Under
the delegation agreement NJDEP was responsible for
managing grants through the administrative completion stage.
Since all Step 1 and 2 grants have reached administrative
completion, Region 2 is responsible for all remaining
closeout activities.
While Region 2 has missed it's goal of closing all Step 1 and 2
grants by December 31, 1996, officials have targeted all
remaining grants for closeout during FY 97. Based on the
35
-------
following status of the 21 grants, we believe it unlikely that
all will be closed by the end of the fiscal year.
No. of Unpaid
Status Grants Obligations
Cioseout anticipated by May 31, 1997 5 $ 0
Status not known 8 27,512
Revised outlay report not submitted 3 39,907
Action needed to close out 3 132,340
Headquarters appeal 2 196.362
Total 21
Although Regional officials are trying to close out five New
Jersey grants by May 31, 1997, actions could have been taken
much earlier. For example, Evesham (463-01) reached
administrative completion on September 30,1988 (no funds
remaining). Regional officials stated that Step 3 closeouts
have been their priority, although that would not preclude
closing out Step 1 and 2 grants.
Closing all the remaining 16 grants by September 30, 1997 is
questionable. Two Camden grants (678-01 and 708-04) were
appealed to Headquarters. Three Hudson grants (399-01,
581-01, and 5 82-01) were delayed because the Region did
not impose deadlines to submit revised outlay reports. The
status of eight projects could not be provided (Linden-
Rosejle - 299-02, Patterson - 586-01, Wanaque - 390-01,
Wyckoff - 783-01, Hamilton - 383-03, Hudson - 399-04,
Rahway-681-02, and Wayne-393-05). Certain grant files
were missing and additional data will be needed to proceed
with closeout. Finally, three grants could be closed (Essex
Union - 686-01, Sommerset - 529-01, and Cape May - 661-
02).
New York NYSDEC officials have also stated that Region 2 has given a
Grants low priority to closing out Step 1 and 2 projects. NYSDEC's
April 7, 1997 memorandum indicated 16 open projects with
four that could be closed by the end of FY 97. The remainder
36
-------
would stay open until related Step 3 disputes get resolved.
Also, one project (1167-01) was a PCB grant and no action
was required. These grants were awarded between 1976 and
1981 and administratively completed by 1993. The
NYSDEC official had no knowledge of Region 2's goal of
closing all Step 1 and 2 grants by December 31, 1996 or even
by September 30,1997. He stated this could not be
accomplished since several grants were under appeal.
Eight of the remaining 11 grants have been appealed with no
indication that they will be resolved before the end of the
fiscal year. Three grants also remain open because of related
Step 3 grants. A NYSDEC official stated their policy was
not to close Step 1 and 2 grants until related Step 3 grants
were closed. One indication of the low priority for Step 1
and 2 closeouts was that during F Y 96 only three New York
projects (same grantee) were closed.
Puerto Rico Region 2 had 25 open Puerto Rico Step 1 and 2 grants based
Grants on February 20, 1997 information given to the OIG.
However, on February 25, 1997 (after our audit commenced)
the Region closed six projects leaving 19 grants awarded
between 1974 and 1980 (all administratively completed prior
to March 1991). We recognize that these closeouts were
ongoing prior to our review. These Step 1 and 2 grants were
given a low closeout priority. In fact, the Region has not
provided target closeout dates or even listed these grants in its
Closeout Universe sent to Headquarters.
We do not believe that all 19 remaining grants will be closed
by the end of this fiscal year since certain files cannot be
located. It should be noted that some of these grants have
large unpaid balances. For example, San Sebastian (130-02)
awarded March 2, 1977 in the amount of $455,588 has
$211,970 unpaid. Also Mayaquez (120-02) awarded June 28,
1976 in the amount of $827,324 has $131,284 unpaid. To
expedite the closeout process to get on track with the
Agency's goal, the Water Compliance Branch must give
37
-------
greater priority to closing these grants and deobligating
unneeded funds.
The Region's response to the draft report stated .that the Step 1
and 2 inventory was reduced to 25. (Puerto Rico - 5, New
Jersey - 8 and New York - 12). Also, the Region will
develop specific procedures to address the missing files.
However, the October 14,1997 Step 1 and 2 GIGS listing
shows 30 open projects (Puerto Rico - 6, New Jersey - II,
New York -13). It appears that this error was due to the
Region double-counting five grants closed on August 21, and
22,1997.
During FY 97 the Region closed 39 Step 1 and 2 grants (33
after our audit was initiated). Specifically, all 19 of the
PRASA Step 1 and 2 closeouts were completed after February
25,1997 (almost five months into the FY) and 12 were closed
in the last 40 days of the FY. We strongly believe that
additional resources directed to closeouts would have and
still could expedite the process.
Duplicate Region 2's inadequate controls over audit requests and
Audit Requests screenouts contributed to closeout delays. The Grants
Administration Branch (GAB) periodically submitted
duplicate (in some cases triplicate) Puerto Rico audit requests
to the OIG. The OIG acknowledged each initial audit
request.
The following are five examples:
Grantee Grantf Dates Submitted
Cayey 118-08 10/28/92 & 10/17/94
Anasco 120-08 10/28/92 & 10/17/94
Bayamon 103-04 4/6/92 & 10/17/94
Santa Rosa 103-12 4/11/94 & 10/17/94
Ricon 100-12 10/28/92 & 4/11/94 & 10/17/94
We also found New Jersey and Puerto Rico audit requests
38
-------
submitted for grants previously audited or screened out. For
example, a June 20,1994 OIG memorandum to the Chief,
GAB discussed the inability to reconcile Puerto Rico grants.
It mentioned the San Juan Land Outfall's (96-05) October 23,
1992 audit request that was audited in 1985.rReport 51473
issued September 12, 1985 with $350,000 questioned costs).
After many OIG attempts, the Regional Puerto Rico audit
request inventory still does not reconcile with our records.
Region 2's projected closeout submissions to Headquarters
consistently listed PRASA grant C72094-12 (Carolina) as
pending N8 (originally estimated for June 30,1997 with a
target closeout for January 31,1998). Its September 12,1997
submission listed this grant as "abandoned" with a target N8
of June 30,1998 and closeout for January 31,1999. The
Region previously claimed this grant was administratively
complete in 1992 and requested an audit on April 6,1992. It
is currently being audited by the OIG.
Screened Out Projects The OIG has screened out numerous construction grants.
Remain Open The OIG Policy requires audit requests to be screened out
within two years except for Mega grantees (i.e. Puerto Rico).
All other grantees were either screened out or assigned for
audit within this period. The Region must promptly resolve
the audit issues and issue an FDL. If the grantee does not
dispute the FDL the project should be promptly closed.
When the OIG screened out requests, memoranda were
provided to Regional and State personnel identifying specific
projects. However, in many instances these screen-out
memoranda were lost. Therefore, beginning in 1993 we gave
each memorandum a specific State code number so personnel
would know which screened out projects were missing. The
Region's inadequate control over screen-out memoranda and
their untimely submission to Water Branch personnel
adversely affected closeouts.
39
-------
New York,
New Jersey
Screenouts
Puerto Rico
Screenouts
After an audit request is screened put EPA's August 27,1992
"Financial Closeout Policy for Assistance Agreements" states
that grants should be closed out within six months of the last
grant action (i.e. OIG screenout). We judgmentally sampled
14 New York and New Jersey grants screened out between
1994 and 1996 to determine whether they were promptly
closed. As illustrated by the schedule below, four of these
projects (24 percent) remained open between 25 and 39
months after the screenout dates with $2.9 million unpaid.
Screenout Months Unliquidated
Grantee
Suffolk Co.
Cape May
Cape May
Rochester
Grant No.
709-02
661-02
661-07
745-03
Date
1/14/94
3/14/94
3/13/95
3/23/95
Open
39
37
25
25
Obligations
314,000
96,000
2,454,000
14.000
S2.878.000
The last two grants (Cape May and Rochester.) have been
appealed which would preclude closeout until the issues are
resolved. However, Suffolk and Cape May (661-02) are not
under appeal and should have been closed within six months
of the screenout date rather than remaining open for at least
39 and 37 months. For Cape May, GICS shows a
September 25, 1990 administrative completion date, but the
audit request was not made until March 13, 1994 (3Vz years
later).
Although Region 2 closed 10 of the 14 grants sampled, we
found that none were closed within the six month period
specified in the Headquarters policy. The closeouts ranged
between 9 and 35 months from screenout date (average of 23
months). For example, Leroy, NY (735-01) was screened
May 5, 1994 and closed February 3, 1997 (35 months later).
Although many Puerto Rico audit requests were screened out
prior to December 12, 1995,41 still remain open. Water
Branch personnel stated that these projects continue to remain
40
-------
Conditional
Administrative
Completions
open because of prior "conditional administrative
completions" and missing files. These 41 grants remained
open for more than 17 months since OIG screenout and have
unpaid funds of approximately $5 million. For example, the
OIG screened out Cayey (118-09) on April 14, 1994. As of
April 14, 1997 (36 months) the project remained open.
The Region has not complied with the Financial Closeout
Policy that grants should be closed out within six months of
the OIG screenout date. Also, many of these screened out
projects have large unpaid balances which could be
deobligated.
Region 2 officials claimed that certain administrative
completions were "conditional" (not fully complete)
and the completion packages did not accurately represent the
grantee's final claims. The Region could not determine
which grants were conditionally completed. Program
officials also stated that no one followed up "conditional"
Puerto Rico cases in the OIG inventory. Grants and Water
Branch officials indicated "conditional" completions have
severely hampered closeout actions. We concur, and believe
activities in this area were inconsistent with Agency policy.
Our recently completed Region 1 survey of construction
grants disclosed "conditional" administrative completions
were effectively handled. When the grantee submitted a
conditional final payment, a specific amount was set aside to
cover potential reimbursement requests (i.e. litigation).
Remaining amounts, less the set aside, were deobligated at
the conditional administration completion date. Region 1's
"conditional" completions did not impede grant closeouts.
During FY 97, Region 1 also implemented additional
closeout/completion procedures. One individual from the
Municipal Assistance Unit (Office of Ecosystem Protection)
was assigned to coordinate the construction grant phaseout
strategy. Monthly meetings instituted with the audit
41
-------
GICS
Information
Other Factors
Affecting Closeouts
coordinator, Office of Administration and Resources
Management, and program staff discussed all aspects of the
phaseout strategy. Subsequent conversations and OIG
meetings identified the grant universe and audit request and
report dates. Status reports of meetings were distributed to
the phaseout strategy team. The Region also provided a
management position in the Grants unit, and identified grants
management as a concern in their FY 96 Assurance Letter.
We believe Region 2 should consider such an approach to
accelerate closeouts.
Although the GICS national database stores historical grant
information, the data was not always consistent, correct, and
timely updated. GICS and IFMS financial data are not
reconciled and officials acknowledge long-standing
discrepancies between the two systems. For example, on
September 15,1983, NYSDEC informed Region 2 of grant
data discrepancies. The State noted that four of the five
discrepancies occurred in EPA financial records rather than
GICS. As a result of various discrepancies over the years
users cannot rely on the data integrity.
We have constantly informed program personnel of errors in
GICS especially incorrect grant listings in the OIG inventory.
Although errors have been significantly reduced for New
York and New Jersey they still persist for Puerto Rico and the
Virgin Islands. For example, on May 14,1997 we informed
Grants personnel of GICS errors in the Puerto Rico OIG
universe which still included December 1995 screenouts.
The Region must continue to accelerate its efforts to
complete and close out remaining construction grants. To
accomplish this task in an effective and timely manner,
greater communication and cooperation between the various
program offices is necessary. Specifically the grants
specialist must receive complete and accurate closeout
packages which have been adequately reviewed by the two
42
-------
Water Branches. Also, additional personnel with
construction grant knowledge should be assigned at least on a
part-time basis to assist the people currently working in this
area. We recognize that some very complex projects remain
open in Region 2. However, complex projects are being
closed in a timely manner in other EPA regions.
The Region's untimely audit resolution and dispute resolution
process significantly affected closeouts. We discuss these
issues in Chapter 4 and 5 of this report.
Conclusion EPA's Post 1997 Construction Grants Closeout Strategy
(April 23,1997) acknowledged that 84 percent of the 5,860
grants open at the end of FY 90 had been closed by FY 96.
However, estimates indicate that 498 pre-1992 projects will
remain open as of the September 1997 closeout goal date.
The number of projected open Region 2 projects (123)
represents 25 percent of the nationwide total of 498. Region
2 also estimates 84 grants will be open at the end of FY 98
(37 percent of the Agency universe), 60 at the end of FY 99
(47 percent), and 33 at the end of FY 2000 (52 percent).
Region 2 projected closeout of 62.Step 3 grants in FY 97. As
of April 15, 1997, only 24 grants were closed as follows:
NJ NY PR/VI Total
Projected 15 17 30* 62
Actual 1 7 16 24
However, subsequent to completing our fieldwork, the
Region accelerated Step 3 closeouts. As of June 13,1997,44
grants were closed (NJ-5, NY-11, PR/VI-28). (29 of 44
closeouts were completed after our audit commenced.) The
response to the draft report indicated 54 closeouts as of
August 18, 1997.
43
-------
NI NY PR/VI Total
Projected 15 17 -31* 63
Actual . 10 12 32 54
*The response stated tlie PR/VI commitment is 32.
To comply with Agency directives, the Region must
accelerate closeout of the remaining New York, New Jersey
and Puerto Rico Step 1, 2 and 3 grants. Headquarters Final
Closeout Policy for Assistance Agreements requires grant
closeout within six months of the last grant action. This
effort must be given a higher priority, and we as well as
Headquarters strongly believe that additional regional
resources are needed to expedite the closeout process.
Increased cooperation and coordination between the two
Water Branches, Grants, and NYSDEC and NJDEP
personnel will be needed to meet the Agency's goals.
Regional Response The response indicated that Headquarters review of Region
2's Closeout Plan concluded that most regions would miss the
i -' > D
FY 97 closeout goal, and that Region 2's closeout plan was
reasonable. It cited programmatic and external
considerations unique to Region 2 including the OIG screen
out process, conflicts between allowing grantees to submit
additional documents versus the desire to expeditiously
resolve the dispute, and specialty law firms.
The Region believes that increases in the investory of grants
awaiting closeout are due to the OIG's reluctance to make a
determination on audit criteria. It stated that the OIG
abandoned the mega-audit concept in 1995 and new criteria
were established (December 11,1995 memorandum to
Region 2).
The response indicated 41 Puerto Rico pre-1992 closeouts
remained and the OIG identified 28 of these for audits. Also,
the Region noted that the draft report mentioned 14 of 19
New Jersey grants projected for closeout remain open, but
44
-------
should read "14 out of 15 per the table on page 38." As of
July 27, "nine of the 14 had been closed with the remaining
five on target for closeout by the end of FY 97."
The Region indicated that additional evaluations of most
Puerto Rico "conditional" administrative completions (N8)
must be conducted. It is directing resources to review change
orders not previously submitted and research issues involving
inadequate documentation. The Region is also developing a
report to identify conditional administrative completion
projects which will be issued to notify program offices of
projects needing further action prior to closeout.
The response stated that the Region is on target to meet its
FY 97 closeout commitments, and reduced the Step 1 and 2
inventory to 25 projects. Finally, the Region believed it
always met/or exceeded its project closeout commitments
from FY 93 to FY 96.
Regarding the recommendations, the Region believes
dedicating additional resources to grant closeout is not
necessary. Also, there is "excellent coordination among
those involved in construction grant management," but will
develop a strategy addressing missing files. In addition, the
Region did not believe it should give a higher priority to
closing Step 1 and 2 projects.
OIG Evaluation . Although Region 2 generally met its original or revised
commitments, it is very clear that Headquarters expected
increased closeouts. Headquarters personnel periodically
visited the Region and expressed concerns regarding
closeouts. For example, a June 1994 Headquarters Office of
Water meeting with Region 2 Water Management and Grants
Administration discussed projects in process, administratively
completed stage, and resolution and dispute phase.
The official was concerned that the Region would not meet
Agency closeout goals. He cited NYSDEC's loss of
45
-------
qualified staff, large grants under construction, and OIG
mega-grantee audits to be resolved. Also, many New Jersey
grantees were reluctant to submit final.outlay reports and
believed they were entitled to additional monies from other
grant deobligations. Because of other priorities, excess
funds could not be deobligated timely. The official was very
concerned with the Region's plan to issue new Puerto Rico
grants while Headquarters was trying to close out the
program.
On April 15,1997, a Headquarter's Office of Water official
discussed recent Region 2 visits and additional closeout
problems. He stated that the Region prematurely entered N8
codes to meet commitments, and these "conditional"
administrative completions should have been but were not
promptly resolved. He had concerns with PRASA closeputs
because of long-standing problems, and the disputes backlog.
He did not believe the Region allocated enough personnel to
resolve issues and close out grants. He mentioned
discussions where Region 2 might detail experienced
program personnel to reduce the backlog, but it did not
materialize. Finally, he expressed concerns that the recent
Region 2 reorganization "knocked everything back a couple
of squares" and moving
grant responsibilities into the enforcement area was not
helping to close out grants.
The National Program Director's May 27,1997
memorandum to the Deputy Regional Administrator (DRA)
outlined his March 12, 1997 review of Region 2's
construction grant program. He stated that it "appears that
the New York and New Jersey programs are making steady
progress in closing out the old Title II program but will need
about three more years to complete the job. Close out plans
are dependent on retaining staff expertise... and renewed
progress in resolving grantee disputes..." (emphasis added).
He mentioned the accelerated plan to try to close out Puerto
46
-------
Rico grants by the end of 1999, but it would require
"increased resources, management attention, and cooperation
from the OIG." Also, the current plans for closing out the
program appear reasonable, but he was concerned that
responsibility for program closeout is spread across four
Regional organizations. Therefore, the Director
recommended that the DRA's "personal attention is needed to
assure that the close out plan is achieved. In particular,
additional resources may be needed to assure that the Puerto
Rico plan is achieved."
The March 12, 1997 trip report mentioned many key
concerns:
Whether the Region has sufficient resources and
expertise to meet its close out plan.
The number of grantee disputes, particularly in New
York, which will need to be decided.
The accelerated plan for Puerto Rico may be difficult
to achieve without additional resources.
The need to get the Commonwealth of Puerto Rico to
take necessary steps to meet the latest Regional plan.
This will require close management and support.
The large number of Puerto Rico grant awards since
1991 which will require Region 2's management
attention for several years into the future.
A September 29, 1997 discussion, with the Headquarters
official noted the Region's recent commitment updates and
closeouts. He reiterated prior concerns regarding Puerto Rico
conditional completions, and the need for additional Regional
resources for closeouts. He was concerned that the recent
update showed a slippage of nine projects. He stated the
47
-------
Region expected 119 projects to miss the FY 97 closeout date,
but the update showed 128 projects.
Also, the November 25,1996 memorandum from the
Assistant Administrators for Water, Administration and
Resources Management, and General Counsel to the
Regional Administrator (RA) expressed closeout concerns.
Region 2 needed to devote more management action and
resources to construction grant completion/closeouts both to
Regional activities and dealings with the States and Corps of
Engineers. Also, the Region needed to.use the OIG's
strategic plan for completing construction grant audits
(particularly in Puerto Rico) by the end of FY 98, and more
timely resolve disputes. The memorandum requested the
RA's "personal attention to completion/closeout of the
construction grants program" and to "accelerate current
closeout plans."
Based on the Region's response we made appropriate
modifications and clarifications. We recognize the Region
knew that it would not meet EPA's goal for closeout of all
grants by the end of FY 97. Headquarters April 23,1997
memorandum concluded that most regions would miss the
target date for pre-1992 construction grants but Region 2
would have 25 percent (123 grants) of the 503 grants that
would remain open (see Section- Region 2 Must Accelerate
Clpseouts). Therefore, Headquarters officials were highly
concerned about the slow pace of Region 2's closeouts.
When the Agency declared Construction Grants Close Out a
material management control weakness, the OIG
implemented a revised audit strategy that focused on the most
vulnerable grants. In December 1995, in line with the OIG
strategy, the Eastern Audit Division screened out
approximately 40 Puerto Rico projects administratively
completed many years earlier. These mega-audit grants were
not covered by the two year audit time frame. We do not
understand the Region's comment (page 11 of the response),
48
-------
"As a result, the Region recommended that the OIG prepare a
written Policy on the audit criteria for the construction grants
program."
Region 2 may have some unique programmatic and external
considerations, but most of their concerns are also found in
other regions. The same law firms represent grantees in other
regions, and allowing grantee submittal of additional
documentation is a nationwide problem. Also, the OIG
screen out process and mega-audit concept were used in all
regions. Despite all these factors the other Regions showed
greater success in grant closeout.
The Region originally projected 58.construction grant
closeouts for FY 95. However, its May 1995 mid-year report
submitted to the Office of Water significantly reduced this
projection to 32. closeouts based on certain factors (i.e. loss of
New Jersey records, New York disputes taking longer than
anticipated). Another Regional document showed 33
closeout commitments for FY 95.
As previously noted, the individual FY 97 closeout
commitments changed. Also, Region 2's Water Management
Division's September 21,1995 memorandum to the Office of
Wastewater Management commited |9 New Jersey and 20
New York grants (total of 39) for closeout which is seven
more than the number mentioned in the response. However,
the August 1996 State Specific Strategy update reduced the
previous 39 closeout commitment to 32 (New Jersey
reduction of 4, New York reduction of 3 closeouts).
Although the Region met its revised FY 97 commitment for
New Jersey and Puerto Rico, it missed it for New York by
two closeouts. We noted that 47 of the 62 FY 97 closeouts
occurred after our audit commenced and in the last eight
months of the year. Also, we do not agree that 41 pre-1992
Puerto Rico projects were awaiting closeout and the OIG
identified 28 for audits. In fact,'the Region's September 12,
49
-------
1997 submission to Headquarters indicated 42j>re-1992
Puerto Rico Step 3 grants awaiting closeout and 12_additional
ones not administratively complete (total of M open grants).
In addition, the OIG has not identified 28 grants for audit.
The September 12,1997 submission also erroneously lists 14
Puerto Rico grants in the OIG inventory. Therefore, the
Region's contention that it has a "potential universe of only
13 pre-1992 grant awards to be closed out" is incorrect.
The audit report correctly states that as of April 15,1997, 14
of 19 specific New Jersey grants projected for closeout
remajn open. Prior projections to Headquarters listed 19
specific New Jersey grants it expected to close during FY 97.
As of September 30,1997, nine specific grants remained
open, but substituted grants were closed. However, a
subsequent FY 97 projection reduced the commitment to 15
closeputs.
We believe the planned development of a report to identify
"conditional" administrative completions would be useful.
However, if it had been done five years ago it would have
been beneficial in closing grants more timely. For example,
while many Puerto Rico "conditional" administrative
completions were in the OIG inventory, the Region could
have taken further action. Consequently, when screenouts
occurred, the Region could have immediately closed them,
rather than having them sit idle for additional years.
We are pleased that the Region will develop a strategy
addressing the missing files problem. However, specific
procedures to address this long standing problem could have
been previously developed. We hope that the planned
strategy will be timely developed and implemented.
The OIG and EPA Headquarters strongly believe that
additional Region 2 resources and efforts are needed to
expedite the closeout process. In fact, on September 8,1997,
the Deputy Regional Administrator told OIG Headquarters
50
-------
personnel that a key reason for the Region 2 backlog of
construction grant closeouts was a lack of Regional
resources.
Recommendations We recommend that the Regional Administrator instruct the
Grants and Water Branch program offices to review the
construction grant completion/closeout strategy and:
3-1 Pay closer attention to expediting grant closeouts by
providing additional resources. Consider temporarily
detailing personnel with construction grant knowledge
to help current personnel, and assigning an individual
to coordinate program offices activities.
3-2 Conduct an evaluation of all open "conditionally"
administratively completed grants and determine any
pending issues (i.e. change orders). This evaluation
should be completed for New York, New Jersey, and
Puerto Rico projects. Also, future "conditional"
administrative completion issues should be identified
and promptly resolved.
3-3 Initiate and document regular program office meetings
to discuss (i) actions initiated or to be initiated, (ii)
specific closeout problems, (iii) projects in OIG
inventory, (iv) missing or incomplete files, (v) State
activities, (vi) revised targeted dates and justifications,
and (vii) OIG audit results. Regular communication
and coordination will be beneficial in accelerating
closeouts.
3-4 Give a higher priority to closing out the remaining
Step 1 and 2 grants and deobligate unneeded funds
during FY 98.
51
-------
[This page intentionally left blank.]
52
-------
CHAPTER 4
AUDIT RESOLUTION PROCESS
WAS UNTIMELY
The Region's audit resolution process was untimely.
Proposed and final determination letters (FDLs) were issued
later than required by Agency guidance. The Region did not
follow the required Agency guidance, and did not aggresively
pursue resolutions until an audit report was scheduled for the
overdue listing in the OIG Semi-Annual Report. The Region
also did not give audit resolution a high priority. As a result,
a total of $37,893,378 remained unliquidated longer than it
should have. Potentially, all or part of this money could have
been reallocated for use on other construction projects thus
having an even greater environmental impact.
Criteria EPA Order 2750, Management of EPA Audit Reports and
Follow-up Actions, states in Chapter 4, Resolution of
External Audits (Assistance Projects), that the Action Official
must issue a final determination within 150 days of the final
audit report date for audits with questioned costs below
$ 100,000; or provide the Divisional Inspector General for
Audit a proposed determination within 90 days of the final
audit report date for audits with questioned costs equal to or
greater than $100,000. Also, the Director, Grants
Administration's August 27, 1992 memorandum, Final
t Closeout Policy for Assistance Agreements, required regional
offices to comply with EPA Order 2750 regarding timely
audit resolution.
53
-------
Analysis of Resolution During Fiscal Years 1996 and 1997, there were 16
Untimeliness construction grant audit reports (covering 28 grants) issued
by the Office of Inspector General (OIG) for which either
FDLs were issued or the reports remained unresolved. FDLs
were issued for ten reports, only proposed determination
letters were sent in three, and no letters were sent in the
remaining three. Once proposed determination letters are
sent by the Region, the OIG reviews them within a few days
and advises the Region of its acceptance or rejection. In most
cases, the letters are accepted as written and should not
require much time to issue final determination letters. In a
few instances, needed revisions are discussed with Regional
staff.
The average time for the entire resolution process for these 16
reports, as of May 25, 1997, was 358 days. This amount will
increase once all the remaining FDLs are issued. The
timeframe range for ten instances with issued FDLs was 161
to 636 days. The timeframe range for the six instances where
no FDLs had yet been issued was 104 to 1,116 days.
The delay in the process appeared to occur at both the
preparation of the proposed and final determination phases.
The Average time it took for a proposed letter to be sent to
OIG for review was 212 days. The average time between the
submission of a proposed letter and the issuance of a final
determination letter was 179 days. (See Exhibit 2)
The following are two representative examples of this
untimeliness and the magnitude of the related unliquidated
obligations:
The OIG issued a report (4300034) on May 4, 1994 for four
grants given to the Ocean County Utilities Authority. On
September 14, 1995, the Region sent a proposed
determination letter to the OIG for review (498 day later).
54
-------
The OIG concurred with this letter on September 20, 1995.
As of May 25, 1997, 618 days passed without an FDL issued.
No explanation has been provided for this lapse of time.
There were $1,721,089 in unliquidated costs associated with
these four grants which were lying idle.
The OIG issued report 6100096 on February 5, 1996 for four
New York City Department of Environment Protection
(NYCDEP) grants for the Oakwood Beach treatment facility.
As .of May 25, 1997 (475 days), a proposed determination
was yet to be sent to the OIG. There were $15,334,737 in
unliquidated costs associated with these four grants.
There were also $5,468,448 in unliquidated costs for reports
where FDLs had been issued. For example, though an FDL
was issued on August 26,1996 to Westchester County
(Mamaroneck), there were $1,653,220 in unliquidated costs
still available as of May 25, 1997. No explanation was
provided for not deobligating these funds.
The untimeliness issue is not restricted to the past two years.
The Region has historically taken much longer than the
timeframes cited in EPA Order 2750 to issue FDLs. For
example, OIG report 3100374 (September 14,1993)
pertained to six grants awarded to NYCDEP (North River).
The Region did not issue its FDL until September 21, 1995,
over two years later. While this resolution involved several
grants, the response did exemplify the Regional pattern of
lengthy time needed to issue an FDL.
In conclusion, the Region's audit resolution process was
untimely, both at the proposed and final determination
phases, and funds remained idle that could have been more
beneficially used for other construction projects.
55
-------
Regional Response The Region in its response acknowledged that a number of
resolutions took longer than their targeted 180 days but stated
that its audit resolution rate compared favorably to other
regions. In addition, it provided various factors it believed
contributed to the length of the process, including:
the number, magnitude and complexity (mega audits)
of the audits issued;
the enormous dollar amounts reviewed and
questioned;
the complexities caused by diverse issues raised; and
only one State (New York) fully delegated and
providing proposed audit resolutions.
The Region also noted that two determination letters had
recently been issued and two or three more might be issued
by September 30,1997. This will leave only two pending
audits, one awaiting State, review, and the other for which a
determination will be issued in the first quarter of FY 1998.
The Region further stated that it is working to increase the
Section 205(g) Management Assistance Grant for New York
and New Jersey. The additional funds will maintain a higher
level of staffing and assure adequate funding for managing
projects up to administrative completion.
Finally, in response to our recommendation, the Region
stated it had been reviewing its audit resolution process and
was committed to timely audit resolution. It also stated that
ORC does not generally participate in the audit resolution
process.
56
-------
OIG Evaluation Though there is an acknowledgement by the Region that
untimeliness does occur, it should be reemphasized that the
Region uses a 180 day target. As previously noted, EPA
Order 2750 sets 90 or 150 day limits for determination letters.
Consequently, Regional resolutions are inherently untimely.
It also should be noted that the presented Regional audit
resolution rates are misleading because the data includes all
types of audit resolutions and our report deals only with
construction grants.
Finally, since ORC personnel only participate in the audit
resolution process on a case by case basis, we have modified
our recommendation. In addition, we want to reemphasize
the second part of the recommendation (which the Region did
not address in its response). A higher priority needs to be
placed on the timely resolution of audit reports and the
deobligation of funds.
Recommendation We recommend that the Regional Administrator instruct
Water Programs Branch and other appropriate personnel to:
4-1 Analyze its audit resolution process to determine the
bottlenecks that are slowing the process down. In
addition, a higher priority needs to be placed on timely
resolution of audit reports, and to deobligate funds of
$5,468,448 associated with the 10 issued FDLs.
57-
-------
[This page intentionally left blank.]
58
-------
CHAPTER 5
LENGTHY DISPUTE/APPEAL PROCESS
DELAYED CLOSEOUTS
Region 2 has not always resolved construction grant appeals
in a timely manner. Most disputes have lingered in the Office
of Regional Counsel (ORC) for many years before decisions
were rendered. Initial conferences have not always been
scheduled to discuss disputed areas and Water Branch
personnel have not prepared timely program memoranda.
Also, certain grant dispute files .were incomplete and written
chronologies of important actions (i.e. meetings and
conversations; information requested, received or not
received; followup actions) were not always maintained.
This condition was caused by such factors as (i) inadequate
resources and emphasis given to the disputes/appeals process,
(ii) inadequate communication and coordination between
program offices and ORC, (iii) non-compliance with
Regional disputes procedures, (iv) manual status report data
does not reconcile with computerized tracking system, (v)
loss of construction grant expertise, and (vi) grantees
represented by speciality law firms.
Untimely resolution of disputes further delay closeout of the
award until the action is settled. As a result, some cases have
been under appeal for close to 10 years and resolution is still
pending. These projects remained open and were reassigned
to different attorneys or program personnel. Also, excess
funds have not been deobligated. As disputes continue to
linger, there may be a tendency to drop certain issues or settle
them for amounts less than originally contemplated.
59
-------
Background Region 2's Assistance Disputes Procedures dated June
4, 1086 describe the roles and responsibilities of
program personnel. ORC is responsible for
docketing, monitoring and reporting the status of
dispute appeals, and notifying the Assistant Regional
Administrator for Policy and Management and the
Water Management Division (WMD) of the dispute
filing. ORC must also issue bimonthly status reports
indicating the appeal date, summary of issues and
status, and anticipated date for Regional
Administrator's (RA) decision.
According to these procedures, Region 2's goal is to
generally resolve each appeal within 120 days of
receipt if no informal conference is held, or within 120
days after the date of the conference. The ORC
attorney must notify the appellant of the right to an
informal conference, and a deadline for receipt of
documentary evidence and written argument if no
conference is requested. WMD and/or Grants
personnel must provide ORC with written comments
on the appeal "within 45 days after the informal
; conference or receipt of the appellant's submission
supporting its appeal, whichever is later." Finally,
based on WMD's comments, ORC will prepare the
recommended decision for the RA.
In August 1992 the Region created two positions
currently in the Construction Grants Section of the
Water Programs Branch (WPB) to facilitate more
timely dispute resolution.
Current Disputes Although the Region's written procedures established a goal
Inventory of 120 days (4 months) to resolve each appeal, this goal was
60
-------
Reconsiderations
rarely met. In fact, most open disputes have remained
unresolved for more than four years.
During FY 93, 50 disputes/appeals were in the Region's
inventory and 18 were resolved, leaving an ending balance of
32 projects. Between FYs 94 and 96, the Region reduced
their dispute/appeal inventory to the following 17 projects:
Grantee
Rockland Co
Rockland Co.
Tri-Municipal Co.
Amherst
Huntington
Moodna Basin
Rockland Co.
Glens Falls
Niagara Co.
Niagara Co.
Nassau Co.
Landis Sewerage
NYCDEP
Rockland Co.
Morristown
Nassau Co.
Wanaque Valley
Grant #
744-08
744-02/13
948-03
618-02/03
040-04
954-01
744-09
279-04
707-02
707-01
891-05/12
461-02
1100-1/3/4
744-14
376-22
1139-03
390-06
Date of
Appeal
05/13/90
07/10/90
01/12/92
08/07/92
12/09/92
01/21/93
01/23/93
03/08/93
03/19/93
10/20/93
01/04/95
07/07/95
10/19/95
10/18/95
04/17/96
06/14/96
10/28/96
Months in
Process (1)
85
83
65
58
54
53
53
51
51
44
29
23
20
20
14
12
7
(1) Date of Appeal to June 1, 1997
In addition, to these 17 active disputes, Region 2 also has to
resolve 15 Petitions for Reconsideration. These petitions
include 13 Nassau County disputes (filed between 1989 and
1992 and resolved between 1992 and 1996) and two Amherst
disputes (filed between 1989 and 1990 and resolved in 1992
and 1993).
61
-------
Resolution of the Nassau County Petitions has been delayed
and the Water Management Decision. (WMD) memoranda
submission dates has been continuously revised, presently
showing the targeted date as January 21,1997. Both Amherst
Petitions have seen little Region 2 activity. Since June 1993,
ORC status reports for Docket No. 02-89-AD13 indicates
ORC is awaiting a response to the grantee and scheduling
preliminary discussion with Grants personnel. Regarding
Docket No. 02-90-AD26 the next action is Awaiting WMD.
Therefore, Region 2 has 32. active disputes and requests for
reconsiderations in its inventory. This total does not include
disputes resolved by the Region, but subsequently appealed
to Headquarters where they have lingered for many years (i.e.
Ocean County 372-03, Camden County 708-04).
NYSDEC Concerns Region 2's untimely resolutions have affected delegated State
activities. For example, NYSDECs Deputy Commissioner's
February 24, 1987 letter to Region 2's Deputy Administrator
stated that its Grants personnel historically presumed that
Regional disputes would be settled within a year and those
reaching Headquarters within a second year. However, some
"larger issues have been under appeal since the late 1980s
and were to be resolved as long as five years ago." Of the 20
projects with appeals pending some will be owed additional
funds, and others might result in substantial recoveries.
Continuing delays have made it almost impossible to estimate
project increases/decreases and closeouts.
i
NYSDEC has committed 17 and 18 Step 3 closeouts in FYs
97 and 98 and another 21 over the following three years (17
Step 1 and 2 projects also remain). However, NYSDEC must
reduce Grants staff from eight persons to three. Thus,
closeout projections cannot be met when disputes are not
settled, and reduced staff cannot handle an increased
workload. The Deputy Commissioner concluded "it is
imperative that EPA give a high priority to rendering appeals
decisions." Region 2 concurred that numerous appeals
62
-------
present a problem to EPA and NYSDEC in managing funds
and staffing needed to close the construction grants.
Status Reports Program offices have not always complied with Regional
Assistance Dispute Procedures. Although the procedures
require ORC to issue bimonthly status reports indicating
information and target dates, reports were not always issued
on a bimonthly basis and were discontinued in October 1996.
They were replaced by a Disputes Resolution Schedule
prepared by Water Programs Branch (Construction Grants
Section). Although the Schedule provides targeted action
dates, it is virtually useless because most information was
eliminated. Also, targeted dates were constantly revised and
commitments were rarely met. ORC personnel advised that
due to untimely decision memoranda from the Construction
Grants Section, the planned effort for construction grant
appeals has accordingly been reduced by 50 percent.
Until recently Status Reports were periodically submitted.
These reports provided the date of appeal, attorney and
program contact persons, grant number, audit report number,
disputed amount, issues, current status, and targeted action
dates. Our review of the December 1, 1994 to October 17,
1996 reports and ORC files disclosed limited activity to bring
projects to timely closure. For example:
Rockland County (No. 02-90-AD13^ - The July 10,1990
appeal involved cost allocation issues. An informal
conference was held on October 11, 1991(15 months after
appeal was filed) and additional documentation was
provided. All status reports listed the Next Action as
"Awaiting WMD Review." On March 15, 1993 WMD
issued a technical memorandum for one grant involved. On
November 20, 1996 the Water Programs Branch issued
another memorandum for the same grant. The review of the
second grant was targeted for December 1996. The appeal
has not been resolved as of May 1, 1997 (almost seven years)
63
-------
and the latest targeted date of January 30, 1997 has not been
met.
Rockland County (No. 02-90-AD17^ - The appeal was filed
on May 13, 1990 and the December 1, 1994 status report
indicated that the informal meeting was held in April 1991.
However, the grantee's attorney's March 15,1993 letter
informed ORC that an informal conference had never been
scheduled. Also, the letter indicated it was unlikely that the
appeal would be resolved until the summer of 1993. The
issues were similar to the above dispute and the Next Action
for all the status reports was "Awaiting WMP Review." The
appeal has not been resolved as of May 1,1997 (seven years)
and the latest target date of March 30, 1997 has not been met.
Tri-Municipal (No. 02-92-AD06) - The appeal was filed on
January 12, 1992. Each of the status reports stated that
additional information was received on March 30, 1994 and
ORC was awaiting WMD's determination since that date.
The appeal has not been resolved and is targeted for FY 98.
We found many other examples of untimely dispute-appeal
resolutions (See Exhibit 3 for details).
Untimely Program Progress could not be made to resolve grantee disputes until
Memoranda Water Branch (formerly WMD) personnel provided a detailed
program memorandum which adequately outlined all issues.
ORC personnel and status reports have indicated that
untimely memoranda have significantly contributed to
delayed resolutions. Water Branch personnel acknowledged
that due to other priorities, this area was not given enough
attention.
Although ORC has overall responsibility for resolving
disputes, in actuality the process is controlled by the Grants
and Water program offices. Since most disputes involve
.
64
-------
technical areas, construction grant program personnel must
review the disputed areas and provide ORC with a technical
memorandum of their review results. After receiving the
memorandum, ORC can prepare the dispute decision for the
RA's approval. ORC expressed frustration with the program
personnel's failure to meet their commitments for providing
adequate technical decision memoranda.
One example where untimely and continuously revised
technical memoranda delayed resolution was Nassau County
(02-90-AD03). On January 19, 1990 the grantee appealed
the Region's final determination and an informal conference
was held on March 14,1990. ORC could not proceed until
WMD prepared a technical memorandum. WMD did not
prepare the memorandum until June 16, 1994 (almost 4%
years since the appeal). Between June and December 1994 .
ORC messages to WMD requested additional information,
explanations, clarifications, and corrections. For example, a
December 14, 1994 message stated "we need to maintain
consistency with the DDO decision unless we have a reason
to revise it. Let me know what the correct numbers are.
Unfortunately, these issues are delaying finalizing this
document."
On December 15, 1994 ORC wanted additional discrepancies
explained and on December 22,1994 a revised technical
memorandum was sent to ORC. Between December 1994
and April 1995 additional clarifications were necessary and
ORC's frustration was clearly evident with such statements as
"He finally provided me with a copy of his revised memo", "I
found another far reaching mathematical error in the
revision", "I have attached my millionth draft of this
decision", "Here is the trillionth draft of 361-01", and "The
December 22nd version changes everything but
administrative costs." Finally, the RA decision was issued on
April 20, 1995 (more than five years since the appeal).
65
-------
Other Factors
No Informal Conferences Our review of ORC files and discussions with appropriate
or Chronological Logs personnel disclosed that informal conferences had not been
held for many disputes. ORC personnel believed that holding
informal conferences would be a waste of time if Water
Branch personnel did not followup with a timely and
complete program memorandum. We recognize that untimely
program memoranda was the main factor for delayed
resolutions, but believe timely informal conferences should
have been scheduled to clarify the disputed issues.
In many instances ORC personnel did not maintain complete
and organized files or chronological logs showing dates of ,
important actions, meetings, conversations, requests and/or
receipt of grantee or Water Branch information. Although
this did not materially offset the delays, we believe that
complete and organized files are necessary to assure that
ORC and program personnel effectively monitored the
individual projects. Also, complete files would be necessary
if the matter went to trial.
Status Report
Reconciliation
with Adtracs
Status report information did not always reconcile with the
ORC tracking system (Adtracs). For example, the FY 97
Disputes Resolution Schedule as of October 17, 1996 listed
16 disputes while Adtracs listed 19 disputes. Also, the date
of the appeal differed between the two systems. For example:
Rockjand County (02-90-AD17)
Tri-Municipal (02-92-AD06)
Rockjand County (02-93-AD02)
Niagara County (02-93 -AD04)
Rockjand County (02-95-AD05)
Adtracs
5/3/90
1/23/92
2/22/93
3/22/93
10/19/95
Status
Reports
5/13/90
1/12/92
1/23/93
3/19/93
10/18/95
66
-------
Loss of Experienced
Personnel and Specialty
Law Firms
Regional Response
Adtracs also did not account for the 15 reconsideration cases
returned to Region 2 for resolution. When they were returned
to the Region, the attorney should have completed a form for
the revised information to be input into the system.
As resolutions linger in the dispute process they become more
difficult to resolve. Over the years personnel with
construction grant expertise have left the Agency or been
reassigned to other areas. The current cases have been
reassigned to different attorneys or program personnel.
When a case is transferred, the new individual must review
the files and get up to speed on the specific matters. In some
cases, inadequate or incomplete case files have delayed this
process.
Another factor causing delays are the specialty law firms that
represent some grantees. These firms are very
knowledgeable of the construction grant regulations, and
Regional officials spend considerable effort in analyzing each
point under consideration. Although these same firms
represent grantees located in other regions, those disputes
have been generally resolved in a more timely manner than in
Region 2.
The response noted numerous factors contributing to the
Region's lengthy disputes/appeals process, and grantees have
been given every opportunity to submit additional
information to support these claims. Also, ORC and WPB
agreed that disputes were not progressing as expected and
ORC had little control over WPB production of memoranda.
Therefore, it was inefficient for ORC to maintain bi-monthly
status reports containing the required information.
The response indicated that the Adtracs system could not
accomodate disputes before the Region for reconsideration.
However, ORC will inquire whether Adtracs can be revised
to accommodate this information, and will continue to
67
-------
include reconsideration cases in the bimonthly status report.
The Region believed it has made considerable progress in
reducing its disputes, and will review the current inventory to
determine whether these can be resolved more expeditiously.
OIG Evaluation
We acknowledge the factors contributing to timely resolution
of disputes/appeals and the increased number of resolutions
between 1993 and 1996. However, more needs to be done to
eliminate the backlog as well as new disputes that will arise
in the future. We are pleased that the issuance of the
bimonthly status reports will be resumed showing all cases
(including reconsiderations). This will allow management to
monitor cases that are not moving to closure as expected.
Regarding our recommendation to implement a plan to
accelerate the dispute resolution process, review of the
current inventory to determine which can be resolved
expeditiously is a good first step. However, after the review
is completed, an action plan with commitment deadlines
should be initiated outlining responsibilities for both offices.
Recommendation
We recommend that the Regional Administrator instruct ORC
and Water Programs Branch personnel to:
5-1 Implement a joint plan to accelerate the dispute
resolution process. This effort must contain a greater
commitment by both offices to eliminate the case
backlog. Increased Water Branch actions are clearly
needed to provide complete and timely, program
memoranda, and dates can not be constantly revised.
In addition, ORC must initiate timely informal
conferences, maintain adequate files with
chronological logs of actions, and adequately
document all meetings and conversations.
68
-------
NEW YORK
SCHEDULE OF UNLIQUIDATED BALANCES
EXHIBITI
PAGE 1/3
Grantee
NYCDEP (Oakwood)
NYCDEP (North River)
NYCDEP (North River)
IronDeQuit Bay
Rochester PWD
Rochester PWD
Nassau Co
Auburn (Step 2)
Suffolk Co
Town of Amherst
Westchester Co
Clinton Co
Glens Falls
Woodstock
Leroy
(Totals
Grant*
C360392-07
C361 100-03
C361 100-04
C360500-01
C360715-02
C360745-03
C360891-09
C360972-01
C360 1036-03
C360618-03
C360908-06
C361 171-02
C361279-04
C360799-04
C360735-01
| Average months delayed
Award
Date
09/30/87
09/28/79
09/30/80
12/10/69
07/29/77
06/30/81
09/30/80
12/21/76
09/30/77
06/30/75
09/30/88
09/08/83
09/30/84
09/30/81
05/16/75
Adm, Compl
(N8)Date
09/27/95
07/26/94
06/30/93
09/30/96
12/09/93
03/31/93
06/29/87
06/30/88
02/09/96
06/09/89
09/12/96
N/A
02/23/90
12/31/92
07/31/92
Last Payment
Date
05/26/94
08/31/94
12/26/91
01/06/97
09/23/93
02/07/97
04/14/94
09/03/86
07/10/96
09/29/89
09/19/94
10/15/96
11/20/91
10/16/96
05/21/93
Grant Amt
$80,247,971
$227,821,362
$272,598,442
$40,388,685
$23,851,289
$139,893,635
. $7,582,258
$1,154,161
$20,556,460
$7,761,719
$66,958,888
$23,526,782
$15,286,854
$10,136,774
$959,196
$938,724,476
Cumulative
Payments
$65,554,320
$206,739,260
$250,226,309
$35,583,622
$21,313,674
$139,879,364
$4,305,607
$88,296
$16,596,278
$5,831,092
$65,305,668
$22,883,768
$14,830,839
$9,688,431
$674,244
$859,500,772
Unliquidated
Balance
Per IFMS
$14,693,651
$21,082,102
$22,372,133
$4,805,063
$2,537,615
$14,271
$3,276,651
$1,065,865
$3,960,182
$1,930,627
$1,653,220
$643,014
$456,015
$448,343
$284,952
$79,223,704
Potential
Deobligation
$13,224,286
$13,295,704
$5,381,646
$4,805,063
$2,400,257
$14,271
$3,137,150
$1,065,865
$3,960,182
N/A
$1,653,220
N/A
N/A
$448,343
; $284,952
$49,670,939
N8 Date To
May 1, 1997
(MONTHS)
19
33
46
7
40
49
118
106
14
94
7
86
52
57
52
69
-------
NEWJERSEY
SCHEDULE OF UNLIQUIDATED BALANCES
EXHIBIT 1
PACE 2/3
Grantee
Bernards S.A,
Parsippany
Middlesex County
Cape May County
Ocean County
Little Egg Harbor
Pine Beach
Keansburg MUA
Bridgewater TWP
Perth Amboy
Wanaque
TOTALS
Average months
delayed
Grant*
C340382-01
C340587-02
C340637-01
C340661-07
C340372-03
C340579-02
C340505-03
C340583-02
C340638-02
C340435r02
C340434-01
Award Date
09/30/81
05/07/76
.08/30/76
12/28/84
05/27/76
06/30/81
09/30/82
09/30/82
09/30/80
09/26/85
09/30/80
Admin
Compl
Date (N8)
08/18/87
09/28/88
07/19/89
09/28/90
10/09/90
" -03/31/97
12/31/86
12/19/88
.N/A
N/A
12/84
Last Pymt
Date
03/18/88
08/17/88
06/13/94
03/07/95
12/05/91
04/21/88
10/01/84
01/01/89
,10/18/96
01/10/91
12/10/84
-
Grant Amt
$13,577,213
$9,108,502
.$77,232,210
$28,628,685
$48,086,604
"$li263,894
$2,203,388
$5,965,394
.$9,294,644
$3,211,243
$3,663,600
$202,235,377
Cumulative
Outlays
$12,575,718
$8,302,210
,$76,738,248
$26,174,857
$46,804,856
'$949,725
$1,605,660
$5,573,670
.$8,424,125
$250,310
$3,663,600
$191,062,979
Unliquidated
Balance
PerlFMS
$1,001,495
$806,292
$493,962
$2,453,828
$1,281,748
$314,169
$597,728
$391,724
.$870,519
-$2;960,933
$0
$11,172,398
Potential
Deobligatio
n
$729,620
$806,292
$0
$2,282,828
$968,349
$314,169
$597,728
$391,724
.$0
$2,960,933
$0
$9,051,643
Delayed
Deobligatio
n
$0
$0
.$0
$0
$0
$0
$0
$0
-$0
$0
$656,392
$656,392
N8 Date To
May 1,
1997
(MONTHS)
116
103
93
78
79
108
151
100
112
104
70
-------
PUERTO RICO
SCHEDULE OF UNLIQVIDA TED BALANCES
EXHIBIT 1
PAGE 3/3
Grantee
Puerto Nuevo
San Antonio Comm.
Anasco Trunk Sewer
Camuy Hatillo
Botijas
Caguas
Carolina
SUBTOTAL
Dept. of Public Works
Gov't of Virgin Islands
SUBTOTAL
TOTALS
Average months
delayed
Grants
C720096-06-02
C720102-1M
C720 120-08
C720126-08-02
C720200-02-1
C720082-01/00
C720094-12
C780013-04
C780025-01
Award
Date
06/30/80
09/29/88
03/09/87
09/07/83
09/30/80
12/29/72
09/29/79
09/28/84
09/29/89
Admin Compl
Date (N8)
09/21/84
12/29/92
09/29/92
09/29/92
05/07/96
09/30/93
06/30/97
Last Pymt
Date
05/05/91
10/23/91
05/21/94
03/24/94
07/13/93
04/02/86
06/01/83
VIRGIN
02/10/88
07/15/96
Grant Amt
$14,514,864
$1,400,860
$5,004,626
$1,374,987
$100,448
$5,100,280
$4,968,332
$32,464,397
ISLANDS
$11,134,058
$7,933,657
$19,067,715
$51,532,112
Cumulative
Outlays .
$14,078,813
$1,145,144
$2,062,457
$1,151,923
$100,448
$4,997,991
$4,722,159
$28,258,935
$1,052,710
$1,764,325
$2,817,035
$31,075,970
Unliquidated
Balance
Per IFMS
$436,051
$255,716
$2,942,169
$223,064
$0
$102,289
$246,173
$4,205,462
$10,081,348
$6,169,332
$16,250,680
$20,456,142
Potential
Deobligatio
n
$436,051
$255,716
$2,942,169
$223,064
$0
$102,289
$246,173
$4,205,462
*
$4,205,462
Delayed
Deobligatio
n
$0
$0
$0
$0
$1,714,017
$5,087,634
$0
$6,801,65!
*
$6,801,651
N8 Date To
May 1, 1997
(MONTHS)
151,
52
55
55
42
132
133
.
89
71
-------
(a)
Grantee
Ocean County UA
Neptune SA
Rochester PWD
New York City -
Oakwood Beach
PRASA - Bayamon
Camden County MUA
(b)
Report No.
4300034
5100407
7100010
6100096
6100102
6100255
ALL CONSTRUCTION GRANTS EITHER with FDLs
ISSUED IN FYs 96 and 97 or STILL UNRESOLVED
(AS OF MAY 25, 1997)
(c)
Grant Number
C340372-03
C340372-08
C340356-01
C340371-01
C340410-01
C360715-02
C360392-03
C360392-07
C360392-09
C360392-10
C720103-03
C340708-02
C340708-09
(d)
Final Report
Date
.5/4/94
7/10/95
10/15/96
2/5/96
2/5/96
7/25/96
(e)
Proposed
Determination
Date
9/14/95
1 1/30/95 .
2/20/97
not issued
5/20/97
not issued
(f)
Days to
Issue (e-d)
498
143
128
475*
470
304*
(g)
Final
Determination
Date
.not issued
3/28/97
3/25/97
not issued
not issued
not issued
(h)
Days to
Issue (g-e)
618*
493
33
475*
5*
304*
Page 1/3
(i)
Total Days
to Issue
,1.116*
636
' 161
475*
475*
304*
72
-------
(a)
Grantee
New York City -
Owls Head
Suffolk County
Hudson County UA
Westchester County
Mamaroneck
Wanaque Valley RSA
Monroe Township
MUA
(b)
Report No.
7100111
7100091
5100231
6100076
6100127
5300032
ALL CONSTRUCTION GRANTS EITHER with FDLs
ISSUED IN FYs 96 and 97 or STILL UNRESOLVED
(AS OF MAY 25, 1997)
(c)
Grant Number
C360402-03
C360402-04
C361036-02
C340399-05
C340399-06
C340399-18
C340399-22
C360908-06
C340390-06
C340423-01
C340423-02
(d)
Final Report
Date
2/10/97
1/9/97
3/28/95
12/6/95
3/11/96
9/18/95
(e)
Proposed
Determination
Date
not issued
5/20/97
9/25/95
3/12/96
9/19/96
2/29/96
(0
Days to
Issue (e-d)
104*
131
181
97
192
164
(g)
Final
Determination
Date
not issued
not issued
9/4/96
8/27/96
9/30/96
'
6/28/96
(h)
Days to
Issue (g-e)
104*
5*
345
168
10
120
Page 2/3
(0
Total Days
to Issue
104*
136*
. 526
265
203
284
73
-------
(a)
Grantee
Gibbsboro
Morristown
Johnstown/Gloversville
Liverpool Pump Station
* As of 5/25/97
(b)
Report No.
5100404
5100410
5200020
5100270
ALL CONSTRUCTION GRANTS EITHER with FDLs
ISSUED IN FYs 96 and 97 or STILL UNRESOLVED
(AS OF MAY 25, 1997)
(c)
Grant Number
C340871-01
C340376-02
C360878-03
C361200-05
(d)
Final Report
Date
7/10/95
7/10/95
6/15/95
4/10/95
(e)
Proposed
Determination
Date
10/31/95
1 1/13/95
'10/16/95
8/31/95
(f)
Days to
Issue (e-d)
113
126
123
143
(g)
Final
Determination
Date
.3/29/96
2/20/96
2/12/96
2/12/96
(h)
Days to
Issue (g-e)
150
99
119
165
Page 3/3
(0
Total Days
to Issue
-263
225
242
308
74
-------
Exhibit 3
ADDITIONAL EXAMPLES OF UNTIMELY
DISPUTE/APPEAL RESOLUTIONS
1. AmherstfNo. Q2-92-AD13') - The August 7, 1992 appeal regarded execution of
change orders and other issues. The grantee requested and received an extension
to the early December 1992 to submit its request for review of the July 17,1992
determination. On December 9, 1992 the grantee's attorney submitted a detailed
Request for Review and a prompt informal conference. Our review of ORC's
files and discussions with the attorney in charge did not disclose any actions since
December 1992, not even an informal conference. All status reports noted ORC
was awaiting WMD's memorandum. Action dates were revised from FY 95 to 96
to 97 to 98. The appeal has not been resolved and the revised target date is FY 98.
2. Town of Huntington (No. 02-92-AD 19^ - The appeal was filed on December 9,
1992. An informal conference was held on March 16, 1993 and documentation
submitted. Status reports from December 1, 1994 to the present indicated revised
dates for WMD's memorandum. On December 1, 1994 WMD revised its
submission date to no later than (NLT) July 30. 1995 and the RA decision during
FY96. On January 3,1994, ORC informed the grantee that it was "currently
handling a large backlog of disputes." Therefore, "we are unable to properly
review and evaluate the information submitted", but will handle the appeal
expeditiously. On December 23, 1994, ORC again informed the grantee that its
decision will "be issued no later than September 30, 1996, but we will make every
effort to issue it late in 1995 or early in 1996. In early 1995 EPA's letter assured
the grantee that the decision will be issued ASAP. Subsequent reports continued
to revise WMD's submission to August 30, 1995, June 30, 1996, August 30,
1996, and finally August 15, 1997. The RA decision date was also revised. No
memoranda has been received to date.
3. Moodna Basin (No. 02-93-ADO 1) - The appeal was filed on January 21,1993,
and an initial conference was not held. However, a recent Water Branch schedule
lists an April 15, 1993 informal conference. WMD's schedule for document
submission was constantly revised from NLT May 30, 1995, August 30, 1995,
May 30, 1996, FY 97 and currently FY 98. The RA determination was revised to
FY98.
75
-------
4. Glen Fails (No. 02-93-AD03^ - The appeal was filed on March 8, 1993 and on
April 5, 1993 ORC acknowledged receipt. Status reports from 1994 to October
1996 state an informal entrance conference will be held during FY 95. As of
January 1997 no informal, conference has. been held. The WMD submission of its
technical memorandum' and the RA decision has been continually revised from
May 1995 to September J998. ' '
'
i
5. Niagara (No. 02-93-AD04^ - The appeal was filed on March 19,1993 and
documentation was received in May 1993. WMD constantly revised dates for
submitting their memorandum from FY 96 to 98. The RA decision was also
revised from FY 96 to 98. There has not been an informal conference to date.
6. Niagara (No. 02-93-AD09') - The- appeal was filed on October 20,1993 and
documentation was submitted. The last action was a January 24, 1994 grantee
letter requesting a meeting to clarify issues. WMD's dates for memorandum
submission were revised from September 30,1995, to FY 97 and finally FY 98.
The RA decision was similarly revised from FY 96 to FY 98. There has not been
an informal conference to date.
76
-------
UPJII tU til Alt£> tlMVIKUIMMtlMIAL HKUIbCllON AGENCY
REGION II
DATE: SEP 1 1 W7
SUBJECT: Draft Audit of Region II 's
Deobligation and Closeout of Construction Grants
Draft Audit No. E1FWF7-02-001
FROM: Herbert'Barrack
Assistant Regional AdnXmistrator for Policy and Management
TO: Paul D. McKechnie
Divisional Inspector General for Audit
Eastern Division
Region II's detailed response to the above-referenced Office of Inspector General (OIG) draft
audit dated July 3, 1997 is provided in the attachment to this memorandum. This is a significant
audit and our response reflects our careful review and consideration of all of the comments and
recommendations made by your office. In general, we believe the report fails to recognize the
unique circumstances in Region II that have impacted the construction grants closeout program.
In particular, the report ignores the number and complexity of the grants awarded in this region,
the huge dollar value of these grants, and the fact that grants continued to be awarded in Puerto
Rico after 1992 thus continuing to add to the inventory of grants heeding closeout. Additionally,
the report fails to discuss the delay in closeouts caused by the OIG holding projects in its audit
inventory beyond its own policy for a two-year timeframe for screening out projects.
As was made clear during the course of the audit, but was not reflected in the report, Region II
has a closeout strategy in place that has been approved by EPA's Office of Water, and we have
consistently met or exceeded our annual closeout commitments for each of the past four years.
We are continuing to implement this strategy and to effectively monitor the status of all grants
awaiting closeout. The Agency has acknowledged that its initial FY 1997 goal (which is cited in
this report) for closeout of all grants could not be met. Our strategy is consistent with the overall
Agency approach, but by failing to acknowledge this, the report lacks a critical context for its
discussion of Region II's closeout program.
With respect to the OIG's comments on the lack of timely deobligations of funds, we have
identified a number of factual and interpretive areas where we disagree with the statements made
in the report. We plan, however, in partnership with our delegated states, to conduct a review of
all construction grants with unliquidated balances to determine if any deobligation actions can be
taken. Additionally, we have identified progress made in the audit resolution process and in
reducing the inventory of audits under appeal. We will look at these two components of the
overall closeout program to see if further progress can be made.
77
-------
I would like to thank your office for accommodating our request to extend the response date for
this draft audit. If you have any questions, please jet me know or have your staff contact Scott
Opis, Policy, Planning and Evaluation Branch, at (212) 637-3699.
Attachments
cc: Herb Maletz, OIG ' ;
78
-------
Attachment
Region II Response (o Draft Audit of
\
Region II's Deobltgation and Closeout of Construction Grants
Chapter 1 - Introduction
Background Section (page 1)
The description of how the construction grants program works does not include
information on the range of activities carried out by EPA. Additionally, statements in the
report imply that the States manage most of the day-to-day administrative duties in Puerto
Rico and the Virgin Islands. This should be modified to .reflect the fact that the
construction grants programs in Puerto Rico and the Virgin Islands are not fully delegated.
'i -
The report notes on page 2 that EPA's closeout policy calls for excess balances to be
deobligated at administrative completion. In New Jersey however, deobligation of excess
balances upon administrative completion has been precluded by. a provision in the New
Jersey State Priority System since fiscal year (FY) 1982, which calls for a one-time
adjustment of the grant amount, up or down, as soon as bids are received based on the
' low bid construction cost.
This policy of certifying only one grant amendment after the initial award eliminated
increases for construction cost overruns, i.e., change orders, which occur in all projects.
Thus, the "excess balances" referred to by OIG represent the only contingent funds
available for change orders unless underruns in other line items (e.g., engineering, legal,
administrative) result in unexpended dollars. In the event an EPA audit disallowed any
previously reimbursed costs, eligible change orders could then be claimed, where needed,
to substitute for the ineligible amounts.
As the results of an audit are unknown until a final determination letter is issued, the
Region can never know at the time of administrative completion how much the grantee's
final claim may need to be increased. Grantee appeals of State or EPA audits also extend
these uncertainties. It is only after the final audit and appeal processes are complete that
unliquidated obligations can be positively identified.
* The second paragraph on page 4 should be modified to reflect the fact that the 1,086
grants and $2 billion identified as remaining open at the end of FY 1996 are national
numbers. Further, the report should provide the specific value of grants awarded in
Region II and the current correct amount of unliquidated balances that are not associated
79
-------
with active, ongoing projects.
Scope and Methodology Section (page 6)
Although the OIG characterized the Puerto Rico and Virgin Islands grants as problematic,
it failed to contact representatives of U.S. Army Corps of Engineers (USACE) during the
course of the audit. We believe that such consultation with USACE would have added
balance to the review since the USACE is a major participant in the administration of the
construction grants program in the Caribbean.
The OIG describes on page 6 that its review focused on grants with the largest
unliquidated balances. However, the OIG does not use a consistent nor clear definition of
unliquidated balances. For example, the OIG defines balances on both active construction
projects and administratively complete projects as "unliquidated." We believe that
balances for active projects should not be classified as unliquidated because they are not
available for deobligation. Their inclusion by the OIG gives an inaccurate view of the
. status of deobligation activity in Region II.
In its December 11, 1995 screen-out memorandum (regarding Puerto Rico construction
grants), the OIG asked EPA Region II to ensure that all outstanding issues were resolved
before proceeding with grant closeout. We are working to meet the OIG's request, and
we believe that this report should be modified to reflect that the Region must now conduct
additional evaluations of most, if not all, previously rendered conditional administrative
completions (N8) of Puerto Rico Aqueduct and Sewer Authority (PRASA) grants. To
accomplish this, we are directing resources to review change orders that may not have
been submitted at the time of the N8, and to research issues involving inadequate
documentation to ensure that PRASA can be reimbursed for eligible costs.
On the last line of page 6, WPD should read WPB.
80
-------
Chapter 2 - Improvements Needed in Timely Deobligation of Construction Grant Funds
On page 9 of the report, the OIG states "We identified more than $63 million that was unpaid,
and not timely deobligated. In addition, approximately $7.5 million of recently deobligated
amounts could have been accomplished many years earlier." These statements are misleading
since they imply that approximately $70 million was available for deobligation. Our information
indicates that this is not the case (see discussion on unpaid balances below)..
The OIG also states on page 9 that "such funds ($70.5 million) could have been used for State
administration of construction grant and special appropriation projects." Legislation for the use
of Title II deobligations for State administration of construction grants has not been continuously
in place. Specific language permitting the use of deobligated funds for State administration of
special appropriation grants was not provided until passage of the FY 1997 Appropriations Act.
Therefore this statement is misleading.
AJso on page 9, the OIG states "The Region's failure to deobligate unneeded construction grant
funds has been a continuous problem since 1982." For more than five years, deobligations of
New Jersey construction grants were essentially put on hold pending a final EPA Headquarters
decision on appeals by the Camden and Cape May County Municipal Utilities Authorities. These
Authorities objected to the provisions in the New Jersey Department of Environmental
Protection's (NJDEP) priority system which required deobligation of excess grant funds based on
the low bid construction cost. This practice affected a number of grantees with a combined total
of nearly $25 million in deobligations proposed by NJDEP.
Region II concurred with NJDEP on this matter in a March 23, 1988 decision. However, the
Region was obliged to suspend all such grant decrease actions until EPA Headquarters completed
its review (see memorandum dated September 25, 1991). This proved to be the proper course of
action because the final decision on May 29, 1992 declared that grant funds representing the
federal share of allowable costs incurred within the scope of a project may not be deobligated.
Unpaid Balances Remained Unobligated Section (pages 11-12)
It is not clear what data sources were used for the OIG's analysis of "Region 2's open
construction grants with unpaid balances," nor is it clear which grants comprise the 159
projects reviewed by the OIG. We believe that the information in the report misrepresents
the status of unpaid obligations in the Region. For example, projects which have not yet
reached the administrative completion stage should not be included in the $300 million
total indicated in the chart on page 11 of the report. In accordance with EPA's Final
Closeout Policy for Assistance Agreements dated August 27, 1992, excess balances
(unliquidated obligations) should be deobligated at the administrative completion stage.
Prior to administrative completion the project is still active, meaning construction is still
81
-------
taking place and therefore costs are still being incurred. Furthermore, one year after
initiation of operation of the treatment facility, the grantee must certify to EPA that the
facility is meeting project performance standards. Only then can EPA take any action to
deobligate funds and refer the grant to the OIG for audit.
$57 million characterized by the OIG as unpaid balances is being used for active ongoing
projects in the Caribbean. The chart on page 11 distorts this situation. For example, the
chart identifies 75 projects in Puerto Rico and 5 projects in the Virgin Islands that have
unpaid balances. Although all of the monies awarded under the grants may not have been
paid out, 38 of the identified projects were awarded in 1992 or thereafter. These 38
Puerto Rico projects, which are under construction, account for over $41 million in
unliquidated balances; Further, two of the five Virgin Islands projects are also under
construction and those two active projects account for an additional S16 million in
unliquidated balances. Of the three remaining Virgin Islands' projects, one was
administratively completed on September 30, 1996 with no outstanding balance, one is
due to complete construction during FY 1997, and the third was recently let for bid.
The OIG stated "We also found that in four of these grants more than $7.5 million were
recently deobligated that had been lying idle for substantial periods.... Therefore,
approximately 60 percent of the unpaid balances reviewed were potentially deobligable."
We believe that the OIG should provide information on the methodology used to calculate
the 60 percent potentially deobligable figure because the numbers used in the report are
misleading and confusing.
The OIG identifies $63 million of potential de-obligations for 26 of 35 grants it reviewed.
However, the OIG lists the Virgin Islands grants as being both included and excluded from
that figure. The OIG should clarify this statement to avoid confusion.
Although the OIG cites severaj projects which may be potentially deobligated, Region II
staff had previously reported that some of the New York projects identified had already
been closed out and therefore should not have been included in the analysis (please see
attached list). These eight projects, which were administratively complete and had no
outstanding appeals, provided a total of $8,712,882 in deobligated funds.
It should be emphasized that New York State is a fully delegated State program and that
EPA Headquarters has accepted the Region/State Specific Strategy for grant closeout.
Most of the projects appearing on the OlG's list have already been scheduled for closeout
by the New York State Department of Environmental Conservation (NYSDEC).
Moreover, a review of New York State (NYS) projects, which constitute $49 million of
the $63 million the OIG found not timely deobligated, indicated that there are $40 million
in potential obligations. Thus, the $63 million should be reduced by $40 million due to the
potential obligations in NYS! A breakdown of the $49 million identified by the OIG is as
follows:
82
-------
$13 million could be deobligated by the end of FY 1997
23 million is associated with grants which are under appeal
13 million is awaiting audit resolution
S49 million total
However, associated with the above are $40 million in potential deobligations:
* Associated with the $23 million awaiting appeal resolution, should the grantees
win all of their disputed costs, the total obligations would be $30 million; and
» Associated with the $13 million awaiting audit resolution, based on information
from, the NYSDEC and should there be no appeal of these audit resolutions, only
$2.4 million will be available for deobligation. Consequently, the remaining
obligated funds would be $10 million.
The following description of the administrative completion, audit and appeal processes,
provides an understanding of the impact of deobligation issues for grants in New York
State that the draft audit report fails to include:
*' Administrative completion process: NYSDEC has grantees submit their
administrative completion package prior to finalized costs if there are construction
contractor related problems. This is consistent with the memorandum dated
October 15, 1984 from the EPA Office of Water. Projects are then placed in the
audit inventory while any outstanding issues are being resolved. In these cases, the
grantee may have more costs to submit and, therefore, NYSDEC and EPA do hot
deobligate funds.
* Audit and appeal process. Once the audit is issued, NYSDEC and EPA are often
aware whether an appeal by the grantee is likely and, if so, funds are not
deobligated. Grantees' comments on draft audit reports, usually contained in the
final audit reports, often indicate whether the grantee will file an appeal.
Uncertainty regarding the excess of the grant amount over the final payment
request continues throughout the audit and appeal processes. Grantees have often
added previously uncited amounts to their final claim'almost up until closeout, and
where these claims are found to be valid, Region II has paid them. For example,
years after filing its initial appeals, Nassau County, New York is adding some $4
million to its claim for Y-fittings.
* Most of the New Jersey projects listed in Exhibit 1, attached to the draft report, have .
already been scheduled and accepted by EPA Headquarters for closeout in FY 1997 or FY
1998. We also question why the Wanaque Valley Regional Sewer Authority (WVRSA)
project appears on the list because there is no unliquidated balance for this grant. As
background, Headquarters had negotiated a payment settlement on USEPA Bill for
Collection (BFC) which allowed WVRSA to repay its BFC within 10 years from the issue
date. The BFC expires in 1998. Until such time as the BFC has been satisfied, EPA
cannot begin to process the closeout. It should also be noted that all of the unliquidated
-------
obligations were deobligated, resulting in a zero unliquidated balance. As stated in
Amendment No. 3 to this project (i.e., C340434-01-3; attached), "Since a negotiated
settlement was reached to collect a debt owed to EPA on this project, the amount being
deobligated reflects all of the unliquidated obligations which appear in. the grant.
Therefore, once the debt is collected by EPA, the project will then be closed out."
For Puerto Rico, the Region previously reported projects identified in this report as having
been closed out. The remaining projects listed are identified in the Grants Information
Control System (GICS) as active grants (i.e., projects that are still under construction or
have not reached administrative completion). To date, the Region has closed out 10
Puerto Rico construction grant projects on the OIG's list. A total of $3,073,711 in
unliquidated obligations associated with these projects was deobligated.
The OIG Report states that the grant specialist must receive complete and timely closeout
and deobligation data from Branch officials. For the program in NY, closeout and
deobligation data are provided by the NYSDEC, not the Water Programs Branch.
Examples of Untimely Deobligation Section (page 14)
* Citv of Auburn 972-01: The OIG implies that the Region failed to deobligate funds from
this grant in a timely manner after the |ast payment was made to the grantee in 1986.
Quoting the OIG's report, "However, it wasn't until February 27. 1997 (after our audit
started) that $1,065,865 was deobligated (more than 10 years since the last payment)."
Deobligation of funds from this grant was not based upon the "last payment" because the
last payment was not the final payment. In addition, the fact that the grant was closed out
on February 10, 1997, had been reported to the OIG prior to the issuance of the draft
audit report. It should also be noted that the Region received NYSDEC's certification for
the grant decrease on December 16, 1996. The Region initiated the deobligation/closeout
action on January 3, 1997, and it was signed by the Regional Administrator on February
.10, 1997. :
PRASA - Anasco Trunk Sewer 72-120-08: This project was closed out on July 9, 1997;
which had been reported to the OIG prior to the issuance of the draft report. The
information provided by the OIG on this project is confusing. Further, the OIG statement
that the project has been unpaid for ten years i? misleading. For example, it is should be
noted that the OIG held this project in its audit inventory from September 1992 to
December 1995.
The report should be revised to present a accurate chronology and evaluation of this
project. We recommend the following substitution: (I) the grant was awarded in March
1982 for $2,941,870; (2) a grant decrease of $905.503 was processed in September 1992
after the project was administratively complete (this brought the project amount down to
$2,062,457); and (3) an audit was timely requested and the project was screened out by
"84
-------
the OIG on December 11, 1995. When the grant was closed out on July 10, 1997, only
$299 in unliquidated balances remained to be deobligated
Inactive Projects Section (page 151
The OIG seems to determine inactive status based on payment activity, which is not a
good indicator of activity for a grant. For example, in some instances we have withheld
payment from a grantee due to some noncompliance issues. In other cases, there are
special programmatic conditions which may limit the amount of funds released dependent
upon achievement of certain milestones. Jn addition, IFMS and GICS do not reflect the
details of noncompliance issues that often affect payments to the grantees. Region II does
not consider any project to be inactive until all construction work, audits and appeals are
completed and therefore would not terminate a grant until such time.
With respect to unilateral deobligations, in most cases funds are held in a grant pending
audit resolution or appeal. Therefore, Region II does not believe that unilateral
deobligations in advance of final agency action are appropriate.
The OIG points to a Federal Highway Administration Directive as an example to EPA for
taking action on "inactive projects." We do not believe that this analogy is appropriate
because it is EPA policies and directives that are pertinent to the Region's activities.
Mangrove Lagoon Project: The OIG characterizes the Mangrove Lagoon project grant as
being inactive. Although the OIG attempts to explain the complex history of the project,
the chronology does not recognize that the Region requested an investigation of the
Virgin Islands Department of Public Works (VIDPW) and the consultant selected for the
planning and design of the project. Further, the report does not provide information on
how the length of the investigation contributed to the overall delay nor does it specify how
the review assured the protection of federal grant funds (i.e., the investigation identified
problems that ultimately resulted in the consultant being debarred). Nor does the report
portray an accurate and complete picture of EPA-initiated enforcement actions. We
- believe that the Mangrove Lagoon project should not be considered as a candidate for
potential deobligation since this project has been under Consent Order and the Region
continues to monitor its status. Therefore, the Mangrove Lagoon project should not be
considered in the comparison analysis of potential deobligations and unpaid balances
shown on page 12.
In the last paragraph on page 16, the OIG states that "We believe this 13 year old project
could have been managed more effectively. It had many problems since inception and
should have been terminated." We disagree with the OIG's conclusion since termination
of this grant would have deprived Virgin Island residents of adequate wastewater
treatment services. Even if the grant were to be terminated, the recovered monies would
revert back to the Virgin Islands for use in the development of other wastewater projects.
-------
The OIG also fails to recognize that the Virgin Islands experienced several major
hurricanes during the 1980's and 1990's which resulted in construction delays. Although
we realize that the delays are not all attributable to hurricanes and that VIDPW is
ultimately responsible for completion of the projects, the report should be modified to
distinguish when EPA is required to deobligate unused monies and when such actions may
not be appropriate.
Internal Controls Section (page 18)
The Region disagrees.that there are no written procedures regarding deobligation and/or
closeout of construction grants. On August 21, 1992, the agency published its Final
Closeout Policy for Assistance Agreements, which includes guidance for construction
grants closeouts. With respect to the statement that Region II should include construction
.grants as a material weakness, the Region feels that it is unnecessary since the
construction grants closeout is already identified as an agency material weakness. Based
on this, the Region reports progress in this area in the annual assurance letter and other
FMFIA reports.
In addition, the Region follows the Handbook of Procedures for the Construction Grant
Program and the Delegations Agreements for the States of New Jersey and New York
Copies of these documents were available to the OIG during the audit.
Resources. Coordination and Priorities Section (page 19)
; > ; '« '
Although current resources dedicated to the closeout of the construction grants program
are an issue, the Region has and will continue to effectively implement its strategy to
complete and close out the program expeditiously. The Region has submitted to EPA
Headquarters its completion/closeout strategy which has been accepted by the Office of
Wastewater Management, and we are on target to meet our fiscal year commitments
under this strategy.
The following are actual closeouts completed as of August 18, i 997:
Committed
Completed
The OIG states on page 19 that "This grants specialist also must have better cooperation
and coordination with the two Water Program Branch individuals. She must receive
complete and timely closeout and deobtigalion data from Branch officials to timely prepare
New Jersey
15
10
New York
17
12
Puerto Rico/
Virgin Islands
31
32
86
-------
documents and date to be entered into G1CS and IFMS." We believe this statement has
no place in the report and should be deleted.
The OIG states "...the Water Compliance Branch has only 0.4 FTE assigned to all
Caribbean construction grant activities. This part-time individual can not effectively
handle the Puerto Rico deobligation area." This statement should be clarified since the
person working on the closeout initiative is not part-time. A more accurate
characterization would be a notation that indicates that approximately 0.4 FTEs are being
used to support direct construction grants activities. In addition, the report fails to
acknowledge that there are activities other than closeout that are funded under the
construction grants management program element.
In this section, the OIG stresses the need for the Region to increase staff resources
dedicated to construction grants program. However, the 1998 resource model shows the
Region taking a net decrease in FTEs for that program element.
OIG Recommendations (pages 20-21)
!
"We recommend that the Regional Administrator require the Grants and Water Program
Branches to:
2-1 Evaluate the effectiveness of its controls for reviewing unexpended obligations,
make necessary changes, and promptly deobligate unneeded funds: Specifically,
review grants cited and take necessary actions to deobligate unneeded funds.
2-2 Develop and implement specific Regional policies and procedures for reviewing
and monitoring unexpended grant obligations, and determining requirements for
deobligating or reprogramming unneeded or idle funds. Also, consider using
alternative procedures such as unilateral deobligations. These procedures should
include project management control reviews similar to the one we completed to
determine whether additional funds could be deobligated from other projects not
part of this review.
2-3 Consider designating a specific individual to coordinate reviewing open projects
and unexpended balances. Special emphasis should be given to projects
completed, but not closed for six months.
2-4 Initiate periodic review meetings between the two Water Branches and Grants
personnel to increase monitoring of unexpended construction grant balances.
AJso, evaluate construction grant fund balances on completed or inactive projects
on a semiannual basis. These meetings or evaluations should be documented.
"87 '
-------
2-5 Estimate minimum obligation balances necessary to expedite the release of
unexpended obligations. By using these estimates, future obligation balances can
then be retained and excess funds reprogrammed."
Region II Response to Recommendations
2-1 The Region will conduct a review of all construction grants with unliquidated obligations
to determine if any deobligation actions can be taken.
2-2 EPA has already issued a grants closeout policy addressing unexpended funds. As
discussed above, the Region's position is that unilateral deobligations are inappropriate
given the complex nature of the program.
2-3 As stated above for 2-1, the Region will conduct a review of all grants with unliquidated
obligations.
2-4 Program office and Grants and Contracts Management Branch (GCMB) staff meet
periodically (i.e., quarterly) to discuss potential project closeouts. This effort includes a
review of the status of the various grants in the inventory. In addition, meetings are held
to review issues related to grants that are in the appeals and disputes process.
2-5 As stated above for 2-1, this will be covered in the review of grants with unliquidated
obligations. Deobiigations will be processed as appropriate.
88
-------
Chapter 3 - Increased Emphasis Needed to Meet Grants Completion/Qoseout Strategy
In FY 1991, EPA's strategy for completing the construction grants program was issued. It
established the goals of administrative completion by the end of FY 1995 and closeout of all
grants by the end of FY 1997. When Region II developed its initial strategy, the Region was
aware that it would not meet the FY 1997 goal, and the strategy clearly acknowledged this fact.
The OIG suggests that increased emphasis is needed to meet the grant completion/closeout
strategy. However, EPA Headquarters review of Region II's Closeout Plan concluded that
most Regions would miss the FY 1997 closeout goal, and that given the number of grants
remaining open in Region II, the closeout plan was reasonable.
The OIG does not comment on various programmatic and other external considerations, some of
which are unique to Region II, that contribute to the long time period from administrative
completion to project closeout. Among these are:
OIG's screen out process: The increases in the inventory of grants awaiting
closeout are due to the OIG's reluctance to make a determination on audit criteria.
For years, the OIG had a "mega-audit" concept in mind, which involved handling
several grant audits under a single report. The mega-audit approach was finally
implemented in some States, such as New York and New Jersey, in 1993. The
OIG later abandoned the mega-audit approach in 1995 and established new criteria
in a memorandum to Region II dated December 11, 1995. In that same
memorandum, the OIG screened out approximately 40 Puerto Rico Step 3
projects, which fell under the" mega-audit" concept. These same projects
remained in the OIG's inventory well over the two-year time frame stated in its
audit criteria. As a result, the Region recommended that the OIG prepare a
written Policy on the audit criteria for the construction grants program.
There is an inherent conflict between allowing the grantee to submit additional
and/or new documents to support its claim versus the desire to expeditiously
resolve the dispute.
The use of specialty taw firms by large grantees for appeals and reconsiderations.
These firms often present new arguments on old issues, and raise arguments on
issues which were not previously appealed.
For example, the audit resolutions for 19 Nassau County, New York grants
disallowed about 4% of the total $469 million claimed. Based on Nassau County's
appeals and the resultant Regional Administrator Determinations, the difference
was reduced to about 1.5%. However, when Nassau County's specialty law firm
filed for reconsideration, the disputed amount rose to between 9% and 13% of the
total amount claimed. Clearly, responses to these specialty law firms' arguments
are resource intensive.
89
-------
The report fails to acknowledge (as noted elsewhere in this response) that the Region is on target
to meet its FY 1997 closeout commitments. We have also reduced the inventory of Step 1 and
Step 2 projects to a minimum. This inventory now includes five projects remaining for Puerto
Rico, eight projects remaining for New Jersey and twelve New York projects, all of which will be
closed out once audit issues associated with related Step 3 projects are resolved
Region 2 Must Accelerate Closeouts Section (page 24)
The OIG states that "EPA's FY 1996 Integrity Report provided construction grant
information and disclosed that 5860 projects remained to be closed at the end of FY
1990." The report should be changed or clarified to give the specific number of projects
awaiting closeout in Region II
In addition, we believe the report should be modified to differentiate between the universe
of pre-1992 grants awaiting closeout and projects awarded after 1992. For Puerto Rico,
there are 41 pre-1992 projects awaiting closeout. Of these 28 have been identified by the
OIG as projects that will be audited thus, leaving a potential universe of only 13 pre-1992
grant awards to be closed out. Should the OIG timely complete audits or screen out
additional projects, the unjverse of 13 "readyv could increase. Further, the report fails to
provide information on how the OlG's lack of timely audit/screen out decisions hampered
the Region's ability to expeditiously dose out grants. Nor does it indicate that delays in
OIG audit decision-making caused the Region to continuously revise its list of target
grants for closeout to meet commitments.
Step 3 Grants Section (page 25)
The following should be considered:
New Jersey: Projects are closely monitored by the Region to identify projects which are
ready for closeout. Projects identified as "ready for closeout" are included in the Region's
annual commitment for closebuts. In the event problems arise relating to projects that
were originally slated for closeout, those projects are replaced with other projects.
New York: New York has a fully delegated .program. Therefore, the Region's
commitments for New York State construction grant closeouts are based on NYSDEC's
recommendations and knowledge of which projects are actually ready for closeout.
Puerto Rico: The FY 1997 commitment of 32 projects will be exceeded by one project.
On page 25, the OIG states ". .the Region's percentage of open projects when compared
to the nationwide universe dramatically increased every year from 16 to 52 percent This
percentage increase was most dramatic for FYs 1997-2000:" This information is
90
-------
misleading because the report does not recognize that 38 grants were awarded to Puerto
Rico during the period from 1994 to 1996. In light of this, the chart presenting
information on "Projected Closeouts Remaining" should be changed.
On Page 26, the three Hudson County grants mentioned had no funds remaining to
deobligate. Full grant amounts were paid out before audit.
On page 26, middle paragraph, the OIG states that for FY 1997, 14 of 19 New Jersey
grants projected for doseout remain open. We presume this should have read 14 out of
IS, as per the table on page 38. The OIG further predicts that it is unlikely that 14 more
would be closed out by the end of FY 1997, attributing this conclusion to "prior
experience" (page 38). We disagree with these conclusions. As of July 27, nine of the 14
had been closed out with the remaining five on target for closeout by the end of FY 1997.
To achieve this, grants whose closeouts were postponed were replaced with others whose
closeouts were advanced.
Puerto Rico and Virgin Islands Section (page 27)
Although we understand the need for the OIG to take a snapshot of the regional closeout
inventory, we believe that a March 1, 1997 cutoff date was premature. For example, the
OIG provides a table which identifies eight grants awarded over ten years ago. Of the
eight grants, all but one have been administratively completed. Three of the grants
identified on that table were closed out in June 1997. in addition, all of these grants, with
the exception of the Mangrove Lagoon grant, were held open by the OIG awaiting screen
out. It should also be noted that the seven PRASA grants listed accounted for only
$322,655 in unliquidated balances. We recommend that the OIG change the table to
present an accurate picture of all the relevant facts.
The OIG statement that "Based on prior experience we do not believe these targeted dates
will be accomplished" should be removed from the report since this statement is based on
the OIG's conjecture (see above comments as well). The OIG fails to note that the
Region is closely monitoring the status'of these projects and has received satisfactory
justification for project delays by PRASA. Although this information was previously
provided to the OIG, it is not incorporated into this report.
Grant Untimely Closed Out Section fpaee 28)
PRASA-Caeuas 72-82-01: This project was closed out on June 25, 1997. Region II was
not able to close out the grant until the Bill for Collection (BFC) for $102,289 had been
paid by the grantee. A total of $5,087,634 was deobligated from this grant on January 19,
1994.
-------
Step 1 and 2 Grants Section (page 29)
The amount of $129 million cited for grants awaiting closeout is misleading because this
amount does not represent unliquidated obligations nor unpaid balances appearing in any
of the outstanding Step 1 and Step 2 project inventories If this amount is cited, the
Region believes it should be clearly defined as the total project amount (Federal share).
As discussed above, Region II has a firm handle on the Step 1 and Step 2 projects for all
States. The one issue remaining is the closeout of projects with missing files. The Region
will develop specific procedures to address the missing file problem, and is aware of
previous OIG decisions on this issue.
* On page 31, the OIG states "Region 2 had 25 open Puerto Rico Step 1 and 2 grants based
on information given to the OIG on February 20, 1997. However, on February 25, 1997
(after our audit commenced) the Region closed six projects leaving 19 grants remaining
awarded between 1974 and 1980 (all administratively completed prior to March 1991)."
It appears that the OIG is implying that the Region only closed out these 6 projects after
learning of the OIG's decision to review closeouts/deobligations. We take exception to
this statement These closeouts were ongoing prior to the notification of the OIG review.
Rather than being overly critical of the Region's efforts, the OIG should report that
Region II is addressing Step 1 and Step 2 projects concurrently with the closeout of Step
3 projects.
Duplicate Audit Requests Section (page 32)
The Region believes that this issue is inappropriate to include in this audit, especially in
light of the fact that the Region has worked closely with OIG staff to reconcile audit
request inventories. This issue has been satisfactorily addressed in the past.
Screened Out Projects Remain Open Section (pages 32-33)
Region II has closed out most of its inventory of projects that have been screened out and
did not have any pending appeals or other outstanding audit-related issues. The remaining
projects have some unique problems which need to be resolved prior to closeout.
Conditional Administrative Completion (page 34)
The Region is currently developing a report thai will identify projects having conditional
administrative completion (N8) codes and will issue this report on a periodic basis to
notify the program office of projects needing further action prior to grant closeout.
' 92
-------
GIGS and IFMS Section (pages 35-36)
We suggest that this section be deleted Although there are some deficiencies in GICS,
the information is updated in GICS as grants are awarded
With respect to the differences in closeout dates found in GICS and IFMS, please note
that IFMS does not contain closeout dates. For example, based on a review of the IFMS
records for grant number 399-05, Hudson County, it is apparent that the date the OIG is
using as the "closeout date" in IFMS is actually the date the last deobligation was posted
in the system (i.e., February 28, 1997). The deobligation action was actually signed by the
Regional Administrator on February 4, 1997, which is the date reflected in GICS.
With respect to WVRSA, grant number 434-01, the final deobligation action was
completed on May 13, 1994 and posted in IFMS on May 18, 1994. As discussed under
Chapter 2, EPA Headquarters had negotiated a payment settlement on a BFG which
allowed WVRSA to pay it within 10 years from the issue date. The BFC expires in 1998.
Until such time as the BFC has been satisfied, EPA cannot begin to process the closeout
for this grant. It should also be noted that all of the unliquidated obligations were
deobligated, resulting in a zero unliquidated balance. As stated in Amendment No. 3 (i.e.,
C340434-01-3, attached), "Since a negotiated settlement was reached to collect a debt
owed to EPA on this project, the amount being deobligated reflects all of the unliquidated
obligations which appear in the grant. Therefore, once the debt is collected by EPA, the
project will then be closed out."
« On Page 37, the OIG states that "Specifically, the grant specialist must receive complete
and accurate closeout packages from the two Water Branches." Closeout packages are
not forwarded from the two Water Branches. For New York State, NYSDEC prepares
the closeout packages, for New Jersey, the grants specialist does the complete
preparation.
Again, as noted elsewhere in these comments, the Region has historically either met or
exceeded its annual commitment for project closeouts as follows.
Fiscal Year Target Actual
1993 79 80
1994 74 79
1995 32 ' 32
1996 38 42
The report should acknowledge this fact.
93
-------
OIG Recommendation (page 3 9)
"We recommend that the Regional Administrator instruct the Grants and Water Branch
programs offices to review the construction grant completion/closeout strategy and:
3-1 Determine the additional resources or actions needed to expedite the process.
Consider temporarily detailing personnel with construction grant knowledge to
help current personnel and assigning an individual to coordinate program offices
activities.
3-2 Initiate regular program meetings to discuss (i) actions initiated or to be initiated,
(ii) specific closeout problems, (Hi) projects in OIG inventory, (iv) missing or
incomplete files, (v) State activities, (vi) revised targeted dates and justifications,
and (vii) OIG audit results. Regular, communications and coordination will be
beneficial in accelerating closeouts.
3-3 Give a higher priority to more timely closing out the remaining Step i and 2 grants
and deobligate unneeded funds."
Region II Response to Recommendations
3-1 Since the Region is on target to meet its FY 1997 closeout commitments, the dedication
of additional resources to our grant completion/closeout strategy is not necessary.
3-2 The Region feels that there is already excellent coordination among those involved in
construction grant management. As discussed above, the Region will develop a strategy
addressing missing files.
3-3 We have reduced the inventory of Step I and Step 2 projects to a minimum. This
inventory now includes five projects remaining for Puerto Rico, eight projects remaining
«for New Jersey and twelve New York, projects, all of which will be closed out once audit
issues associated with related Step 3 projects are resolved.
9A
-------
Chapter 4 - Audit Resolution Process was Untimely
The OIG report concludes that Region II's audit resolution process is untimely. While we
acknowledge that a number of resolutions have taken longer than the targeted 180 days, our audit
resolution rate compares favorably to that of other Regions, as reported semiannually to the
Congress. Attachment I shows the total number of audit resolutions outstanding for more than
180-days for each EPA Region and the entire Agency for the past five years. The figures
reported for Region II for each period in the semi-annual reports from 1992-1997 represent the
following percentages of the Agency-wide total of outstanding audit resolutions:
Fiscal
Year Spring Fall
1992 3% 7%
1993 5% 4%
1994 3% 6%
1995 2% 2%
1996 3% 4%
1997 4% 6% projected
In addition, the following factors, which contribute to the length of the audit resolution process in
Region II, should be recognized in the report:
* the number, magnitude and complexity (mega audits) of the audits issued to Region II;
the enormous dollar amounts reviewed and questioned in Region II audits;
the complexities caused by the diverse issues raised in each audit; and
* only one State (New York) is fillly delegated and provides proposed audit resolutions.
The above notwithstanding, the report should be updated to reflect that the backlog of audits has
been reduced with the issuance of determination letters for Oakwood Beach and PRASA-
Bayamon, and the anticipated resolution of two (possibly three) additional audits by
September 30, 1997. This will leave only two pending audits, one of which (NYC-Coney Island)
is awaiting NYSDEC review, and the other for which a determination will be issued in the first .
quarter of FY 1998.
The OIG also should note that Region 11 is working with NYSDEC to increase the State's
Section 205(g) Management Assistance Grant from its original request of $800,000 to $1.1
million. The additional funds are needed to enable the NYSDEC to maintain a higher level of
staffing than originally requested because of the additional work created by specialty law firms.
The State's formal request, dated April 23, 1997, was submitted during the survey phase of OIG's
evaluation. New Jersey has also requested an increase of $ 1.68 million for its 205(g) grant.
These additional funds will assure adequate funding of its delegated role of managing projects up
to administrative completion through FY 2000.
95
-------
QIG Recommendation (page 42)
"We recommend that the Regional Administrator instruct ORC and Water Programs
Branch personnel to analyze its audit resolution process to determine the bottlenecks that
are slowing the process down. In addition, a higher priority needs to be placed on timely
resolution of audit reports, and to deobligate funds of $5,468,448 associated with the 10.
issued FDLs."
Region II Response
.Region II has been reviewing its audit resolution process and is committed to timely resolution of
audits. It is for this reason that we have reduced our backlog, as discussed above. The OIG
includes the Office of Regional Counsel (ORC) in its recommendation regarding analysis of the
audit resolution process. In general, ORC does not participate in the audit resolution process.
96
-------
Chapter 5 - Lengthy Disputes/Appeal Process Delayed Closeouts
The report fails to acknowledge that in August 1992 the Region created two disputes
positions in the program division to facilitate more timely resolution (currently these
positions are in the Construction Grants Section in the Water Programs Branch). Since
that date, 51 disputes have been resolved, 17 remain to be resolved.
There are numerous factors that contribute to the lengthy disputes/appeal process.
Among these is EPA's policy to ensure that all grantees have been given every
opportunity to submit additional information to support their claims. On page 46, the
OIG lists the "months in process" to resolve appeals. This list does not take into account
grantee requests to submit additional information. For example, at a meeting held in
December 1993, Rockland County asked that all of its projects currently under review, be
put on hold while the County determined the applicability to each grant of its proposed
alternate system for direct and indirect costs. It was not until a May 1996 meeting (even
though their study was submitted to the Region a year earlier) that the County confirmed
the grants to which the direct and indirect cost issues applied. Additional information on
some of the grants was also submitted at that time.
On page 45, the OIG states "ORC must also issue bimonthly status reports indicating the
appeal date, summary of issues and status and anticipated date for Regional
Administrator's (RA) decision." On page 47, the report continues "Although the
procedures require ORC issue bimonthly status reports indicating information and target
dates, reports were not always issued on a bimonthly basis and were discontinued in
October 1996." ORC and WPB had agreed that, because the status of the disputes was
not progressing as expected, and because ORC. had little control over the production of
WPB memoranda upon which the dispute resolution schedule ultimately depended, it was
an inefficient use of ORC's time to maintain this status report. However, to the extent
that the recommendation on page 52 advises ORC to resume issuance of these status
reports, Region II agrees that ORC will resume issuance of the bimonthly status reports
containing the required information.
On page 51, the report provides: "Adtracs also did not account for the 15 reconsideration
cases returned to Region 2 for resolution. When they were returned to the Region, the
attorney should have completed a form for revised information to be inputted in to the
system." The Region had been informed by EPA Headquarters that Adtracs can not
accommodate information on grants disputes that are before the Region for
reconsideration. To the extent that the cited recommendation suggests that this
information be included in Adtracs, ORC will inquire as to whether Adtracs can be revised
to accommodate the additional list. In the interim, ORG will continue to include in its
bimonthly status report a list of cases for which there has been a Request for
Reconsideration.
97
-------
No Informal Conferences or Chronological Logs Section (page 50V
It is unclear as to what impact the auditors are claiming that ORC's failure to maintain complete
logs of actions and documentation of meetings and conversations has had in delaying the dispute
resolution process.
OIG Recommendation (page 52)
"We recommend that the Regional Administrator instruct ORC and Water Programs
Branch personnel to implement a joint plan to accelerate the dispute resolution process.
This effort must certain {sic} a greater commitment by both offices to eliminate the case
backlog. Increased Water Branch actions are clearly needed to provide complete and
timely program memoranda, and dates can not be constantly revised. In addition, ORC
must initiate timely informal conferences, maintain adequate files with chronological logs
of actions, .and adequately document all meetings and conversations."
Region II Response
Region n has made considerable progress in reducing the inventory of appeals under dispute with
51 resolved and 17 remaining to be resolved. In response to the QIC's comments, we will review
our current inventory to determine the extent to which these can be resolved more expeditiously.
A'.
98
-------
APPENDIX!
COE
DECA
DEPP
EPA
FDL
FMD
FMFIA
FTA
FTE
FY
GAB
GCMB
GIGS
IFMS
NYCDEP
NJDEP
NYSDEC
OIG
OMB
ORC
WCB
WMD
WPB
ABBREVIATIONS
U.S. Army Corps of Engineers
Division of Enforcement and Compliance Assistance
Division of Environmental Planning and Protection
Environmental Protection Agency
Final Determination Letter
Financial Management Division
Federal Managers' Financial Integrity Act
Federal Transit Administration
Full Time Employee
Fiscal Year
Grants Administration Branch
Grants and Contracts Management Branch
Grants Information Control System
Integrated Financial Management System
New York City Department of Environmental Protection
New Jersey Department of Environmental Protection
New York State Department of Environmental Conservation
Office of Inspector General
Office of Management and Budget
Office of Regional Counsel
Water Compliance Branch - Caribbean Section
Water Management Division
Water Programs Branch - Construction Grants Section
99
-------
[This page intentionally left blank]
100
-------
APPENDIX 3
REPORT DISTRIBUTION
Office of Inspector General
Acting Inspector General (2441)
Assistant Inspector General for Audit (2421)
Deputy Assistant Inspector General for
Acquisition and Assistance Audits (2421)
Divisional Inspector Generals
Regional Office
Regional Administrator
Assistant Regional Administrator for Policy and Management
Director, Division of Enforcement and Compliance Activities
Director, Division of Environmental Planning and Protection
Office of Regional Counsel
Audit Coordinator
EPA Headquarters Office
Comptroller (3301)
Agency Follow-up Official (3304)
Associate Administrator for Regional Operations
and State/Local Relations (1501)
Director, Grants Administration Division (3903R)
Director, Office of Wastewater Management (4201)
Headquarters Library (3404)
ioi
-------
------- |