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Office of Inspector General
Report of Review
Final Report of Special Review on
EPA Agreements CR-815792-01 and X-816597-01
Awarded to the Center for Hazardous
Materials Research (CHMR)
E3CEP4-03-0268-6400064
June 20, 1996
SPA
350/
1996.15
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Inspector General Division
Conducting the Audit:
Program Office
Involved:
Mid-Atlantic Audit Division
Philadelphia, PA
Office of Grants and
Debarments
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TABLE OF CONTENTS
RESULTS OF REVIEW 2
RECOMMENDATION 2
EPA AND CHMR COMMENTS 2
ACTION REQUIRED 3
BACKGROUND 4
SCOPE AND METHODOLOGY 5
DISREGARDING PROCUREMENT REGULATIONS 7
RECOMMENDATIONS 9
CHMR FAILED TO SATISFY COST SHARING REQUIREMENTS 11
RECOMMENDATIONS 12
EXHIBIT A 13
ANALYSIS OF ALLOWABILITY OF EXPENDITURES
UNDER EPA AGREEMENT CR-815792-01
EXHIBIT B 17
ANALYSIS OF ALLOWABILITY OF EXPENDITURES
UNDER EPA AGREEMENT X-816597-01
APPENDIX 1
CHMR RESPONSES 19
APPENDIX 2
EPA EVALUATION 29
APPENDIX 3
DISTRIBUTION 30
Report No. E3CEP4-03-0268-6400064
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Report No. E3CEP4-03-0268-6400064
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
UJ
(S
OFFICE OF THE INSPECTOR GENERAL
MID-ATLANTIC DIVISION
841 Chestnut Building
Philadelphia, Pennsylvania 19107-4431
(215) 566-5800
Washington Branch Office:
2800 Crystal Drive
Arlington, VA 22202
(703) 308-8242
June 20, 1996
MEMORANDUM
SUBJECT:
Final Report of Special Review on
EPA Agreements CR-815792-01 and X-816597-01
Awarded to the Center for Hazardous Materials Research
Report Number E3CEP4-03-0268-6400064
FROM:
TO:
c
P. Ronald Gandolfo
Divisional Inspector General for Audit
Mid-Atlantic Audit Division (3AIOO)
Gary M. Katz, Director
Grants Administration Division (3903F)
We have completed a review of costs claimed under agreements
CR-815792-01 and X-816597-01 awarded to the Center for Hazardous
Materials Research {CHMR) . The purpose of the special review was
to determine whether CHMR had adequate accountability over EPA' s
funds and if the claimed costs were allowable, allocable, and
reasonable. We conducted our fieldwork from June 1994 through
October 1994 and from October 1995 through January 1996 at CHMR' s
office in Pittsburgh, Pennsylvania and Region 3 . Our review
covered $1,150,407 claimed under these agreements between
January 1, 1990 and September 30, 1993.
This report contains findings that describe problems - the- OIG
has identified and corrective actions the OIG recommends. This
special review report represents the opinion of the OIG. EPA
managers will make final determinations on matters in this
report, in accordance with established EPA audit resolution
procedures. Accordingly, the findings described in this special
review report do not necessarily represent the final EPA position
and are not binding upon EPA in any enforcement proceeding
brought by EPA or the Department of Justice.
Report No. E3CEP4-03-0268-6400064
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RESULTS OF REVIEW
Based on our review, except for the amounts questioned, the
costs claimed on the Financial Status Reports for the agreements
we reviewed were fairly presented in accordance with applicable
Federal requirements, as well as EPA regulations and the terms of
the agreements. The results of our financial analysis are
summarized below and presented in detail in Exhibits A and B.
Moreover, our review did disclose significant deficiencies with
CHMR's procurements and cost share contributions. We provided
details concerning these deficiencies in the findings
Disregarding Procurement Regulations and CHMR Failed to Satisfy
Cost Sharing Requirements.
Costs
Agreement
CR-815792
X-816597
Total
EPA Share
Incurred
$337,170
329.099
$666.269
Accepted
Costs Questioned
Ineligible Unsupported
$125,187 $211,060 $ 923
251.353 77.540 206
$288.600
$ 1.129
RECOMMENDATION
EPA should adjust the allowable costs in accordance with our
determination. In particular, CHMR should repay EPA $258,410.
SPA AND CHMR COMMENTS
On February 23, 1996 we issued a draft report and on
March 28, 1996, we received a response from the Agency.
Additionally, we received responses from CHMR on March 18, 1996
and May 2, 1996. CHMR's first response requested more details to
specifically identify questioned costs. Their second response
provided some additional documentation. On June 7, 1996 we
conducted an exit conference with CHMR personnel. They informed
us that a project manager had additional documentation related to
bids and price analysis for the contractor and equipment costs
questioned. These records will be provided to the Action
Official for consideration..
The comments received from EPA and CHMR are summarized after
each finding and applicable notes. EPA's and CHMR's complete
responses are included as Appendixes 1 and 2 to this report.
Because they were voluminous we did not include CHMR's
attachments. These attachments are on file in our office and are
available upon request. Names of contractors and employees have
been expunged from CHMR's responses.
Report No. E3CEP4-03-0268-6400064
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CHMR's response included a copy of their audited indirect
cost rates for the years ended 1990, 1991, and 1992. As a
result, we have accepted indirect costs for both agreements
except for those applied to questioned costs. In addition, CHMR
submitted timesheets, which allowed us to accept additional
direct labor costs.
ACTION REQUIRED
We ask that you provide us, within 90 days, a report on the
actions you have taken as a result of our recommendations. If
your proposed actions will not be complete, we ask that you
describe the actions that are ongoing and provide a timetable for
completions.
We have no objections to the further release of this report
to the public. Should you have questions about this report,
please contact P. Ronald Gandolfo, the Divisional Inspector
General for Audit in the Mid-Atlantic Division, or his Deputy,
Carl Jannetti on (215) 566-5800.
Attachment
cc: Center for Hazardous Materials Research
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
BACKGROUND
In August 1985, CHMR was incorporated as a nonprofit
subsidiary of the University of Pittsburgh Trust and began
operations in October 1986. In March 1993, the National
Environmental Technology Applications Corporation (NETAC) another
nonprofit subsidiary of the University of Pittsburgh Trust merged
into CHMR, and NETAC became a Center within CHMR. On
February 23, 1995 CHMR negotiated with the Trust and became an
independent not-for-profit entity.
CHMR provides technical assistance, education, training, and
applied research service to the public, EPA and other government
agencies, relating to the handling and disposal of hazardous
materials and waste. CHMR also engages in the acceleration of
the commercialization and use of priority environmental
technologies.
As of the beginning of our fieldwork, CHMR had received four
contracts and ten cooperative agreements and grants from EPA
totaling over $4.2 million. EPA awarded cooperative agreement
CR-815792-01 on September 7, 1989 and amended it five times. The
project period was January 1, 1990 to February 28, 1993. The
total amount authorized was $641,917, which included EPA's share
of $300,000 and $341,917 provided by CHMR. This agreement was to
develop and test the Acid Extraction Treatment System for
removing heavy metals from contaminated soils and solids. The
technology is based on a process that uses acid to remove
contaminants from soil.
EPA awarded grant number X-816597-01 on May 4, 1990 and
amended it three times. The project period was May 4, 1990 to
September 30, 1993. The total amount authorized was $441,083,
which included EPA's share of $335,000 and $106,083 provided by
CHMR. The agreement was to establish a comprehensive,
multimedia, statewide, pollution prevention outreach, technical
assistance, and education program in Pennsylvania. The program
was to leverage the continuing activities and expertise of
existing Pennsylvania organizations and provide focused
assistance to industry, government, and educational sectors ,o.f .
Pennsylvania.
To help the reader to obtain a proper understanding of the
report, key terms are defined below:
Costs Claimed
Costs identified by the grantee as
eligible for Federal participation on an
outlay report submitted to EPA.
Report No. E3CEP4-03-0268-6400064
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Costs Questioned
Special Review on Agreements Awarded to CHMR
Costs that are questioned by the OIG
because they were:
i. Ineligible. Incurred and claimed
contrary to a provision of a law,
regulation, contract, grant, cooperative
agreement, or other document governing
the expenditure of funds.
3. Unsupported. Not supported by adequate
documentation or approved by responsible
program officials.
SCOPE AND METHODOLOGY
We reviewed the costs claimed by CHMR for agreements
CR-815792-01 and X-816597-01 to determine if these costs were
allowable, allocable, and reasonable. We did not conduct this
review according to generally accepted government auditing
standards. Instead, we conducted a selected scope financial
review by following EPA's OIG Manual, Chapter 150. This review
included tests of the accounting records and other auditing
procedures we considered necessary.
To determine if CHMR's accounting procedures adequately
controlled funds for the cooperative agreements, we evaluated
documentation for:
• direct and indirect amounts received and expended for
the cooperative agreements included in our review, and
• time charges for salaries and wages.
To review various categories of costs, we selected
judgmental samples of costs and reviewed supporting documentation
such as invoices, contracts, time charges for salaries and wages,
travel vouchers, and other cost records. To evaluate these
costs, we used criteria contained in the Code of Federal
Regulations (CFR) Parts 30 and 33, Office o±. Management and_ -
Budget (OMB) Circulars A-110 and A-122, as well as the general
and special conditions in each agreement. We discussed
discrepancies, ineligible, or unsupported costs with CHMR and EPA
personnel. Exhibits A and B provide details concerning our
review of cost.
At CHMR we interviewed the President, Vice President,
Accounting Manager, accounting staff, scientists, and other CHMR
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
personnel involved with these agreements. We also reviewed
CHMR's procurement system to determine if it was in compliance
with Federal regulations and CHMR's own policies. In particular,
we sampled specific procurements to determine if CHMR obtained an
adequate number of bids or price quotes.
Our review did not evaluate CHMR's internal control system.
However, we did review the Single Audit reports prepared by
CHMR's Independent Auditors for fiscal years 1990 through 1995,
which included an assessment of CHMR's internal control system.
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
DISREGARDING PROCUREMENT REGULATIONS
All of the procurements, made by CHMR under the two
cooperative agreements reviewed, violated Federal regulations and
CHMR requirements because CHMR did not:
• Obtain adequate competition.
• Obtain price quotations or perform price analysis.
• Maintain adequate documentation.
• Provide an acceptable basis for not obtaining competition
or price quotations.
Because of these omissions, there was no assurance that CHMR
obtained the best prices for the items purchased. Moreover, CHMR
provided erroneous procurement certifications to EPA.
The Federal regulations affecting the procurements made
under these assistance agreements include, among others:
• OMB Circular A-110, Attachment 0 (1976) applies to
nonprofit organizations that make procurements for
sponsored programs (e.g., programs funded by the
Federal government).
* 40 CFR 33 implements the requirements of Attachment 0
for nonprofit organizations receiving funds from EPA.
• 40 CFR 33.105 states that recipients of EPA funds shall
use their own procurement policies and procedures if
these include applicable Federal, state, and local laws
and regulations.
• 40 CFR 33.230 mandates that there be maximum free and
open competition.
• 40 CFR 33.250 stipulates that records for procurements
more than $10,000 shall include: the basis for
contractor selection; the basis for award cost or price
(including a copy of the cost or price analysis);
documentation of negotiations,- and written
justification for rejecting bids.
• 40 CFR 33.290 requires a price analysis for
procurements over $10,000 that have fewer than three
bidders.
• 40 CFR 33.315 requires price or rate quotations from an
adequate number of qualified sources for procurements
under $10,000.
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
According to their procedures, CHMR personnel should have
obtained three bids for procurements over $5,000. This
requirement was more stringent than Federal regulations that
required competition, such as bids or price and cost analysis,
only for procurements over $10,000. However, CHMR procedures for
purchasing items costing less than $5,000 did not fulfill Federal
requirements. When purchasing these items, CHMR procedures
required price quotes only for first-time acquisitions. For
repeat purchases they could rely on past experience instead of
price quotes. Although these procedures were less stringent than
the Federal requirements, CHMR certified to EPA that their
procurement system complied with Federal procurement regulations.
The cooperative agreements that EPA awarded to CHMR required
CHMR to comply with Federal procurement regulations, or to use
their own procedures if as stringent as the Federal regulations.
Under the two cooperative agreements reviewed, CHMR completed
more than 100 procurements valued at about $500,000. We reviewed
50 of these with a combined value of $255,000 and found that CHMR
disregarded both Federal regulations and their own procurement
procedures. For all 50 there was no evidence that CHMR obtained
competition, such as bids or price quotations, as required by
their procedures and EPA regulations.
Three of 50 procurements cost more than $10,000 each and
totaled $180,000. For these three, CHMR's records lacked the
documentation required by 40 CFR 33.250 such as: bids from three
vendors; evidence of cost or price analysis,- the basis for
contractor selection; written justification for rejecting bids;
or justifications for not obtaining competition. It appears that
this occurred because obtaining a specific contractor was the
priority, rather than obtaining competition.
For example, without obtaining bids or justifying a sole
source procurement, CHMR originally planned a $70,000 contract
with contractor "A" to produce a video. CKMR's workplan for this
video listed a specific contractor "A" employee that would manage
the project. This workplan also listed contractor "B" as a
subcontractor. However, before awarding the contract to
contractor "A", the prospective manager .left contractor "A" to
become an independent consultant. CHMR still wanted this person
as the manager, but did not want to award a prime contract to an
individual. As a result, they awarded contractor "B" a $70,000
contract, and the independent consultant, former prime contract
manager, became the subcontractor. It was interesting that this
manager was a former EPA employee.
The remaining 47 procurements we reviewed, cost less than
$10,000 each and had a combined value of $75,000. For these
procurements CHMR did not obtain price or rate quotations from an
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
adequate number of qualified sources as required by 40 CFR
33.315.
Responsible CHMR personnel acknowledged they did not obtain
supporting documentation for bids, price quotes, cost analysis,
and justification for the lack of competition. CHMR personnel
said they made purchases totaling $35,900 from NETAC, because
CHMR assumed they would give them the lowest prices. Another
company received a $10,254 contract based on recommendations from
EPA Headquarters and Region 3. Purchases totaling over $5,000
were made from another contractor that guaranteed quick results
and had a good reputation.
Because all of the procurements we reviewed violated several
Federal and internal CHMR requirements, we considered all
$505,914 expended for procurements as ineligible. We cannot
verify CHMR's reasons for selecting certain contractors and
circumventing regulations. However, we can state, there was no
assurance that CHMR obtained the best prices. Without this
assurance EPA should not participate in the cost of these
procurements. Consequently, it was necessary for us to consider
the costs of these procurements as ineligible.
RECOMMENDATIONS
We recommend that the Director of Grants Administration
Division (GAD) should:
1. Attempt to find out if the prices paid by CHMR were
reasonable. To accomplish this, GAD should require CHMR to
obtain the information required by 40 CFR Part 33. If CHMR
paid reasonable prices, GAD should consider providing CHMR
with a waiver from 40 CFR Part 33. If a reasonableness
determination cannot be made, then EPA should recover costs
for the procurements awarded under assistance agreements
X-816597-01 and CR-815792-01.
2. Not rely on CHMR's certification of their procurement system
unless the Agency is assured of compliance with 40 CFR
Part 33.
3. Not provide additional Federal funds without assurance that
procurements are processed according to Federal regulations.
CHMR'S RESPONSE
CHMR's initial response stated that their procurement system
followed Federal regulations and supporting documentation would
be provided. In their subsequent response, CHMR explained why
some of the contractors were selected.
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Special Review on Agreements Awarded to CHMR
PIG COMMENTS
Our position remains unchanged because the additional
information CHMR provided was considered inadequate. CHMR did
not provide copies of bids, costs analyses, or sole source
justifications.
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
CHMR FAILED TO SATISFY COST SHARING REQUIREMENTS
CHMR did not satisfy the cost sharing requirements for the
two assistance agreements included in this review. In these
agreements, EPA specified a cost share of the project costs that
CHMR must contribute. EPA expressed CHMR's cost share both as a
percentage and dollar amount of the approved allowable project
costs. See details below.
Agreement
CR-815792-01
X-816597-01
Cost Share %
Required
53%
24%
Cost Share Amount
$341,917
$106,083
EPA Regulation 40 CFR 30.307 specifies that cost sharing may
be satisfied with cash or in-kind contributions. Additionally,
contributions must be verifiable from the recipient's records and
included in the approved budget. These costs must also be
allowable under the appropriate cost principles, which is OMB
Circular A-122.
The Financial Status Report (FSR) for agreement CR-815792-01
showed that CHMR contributed $417,475 to this project, well above
the $341,917 required. We reviewed $140,180 of CHMR's
contributions and found that $86,520 were ineligible because
these costs were for discounts. As a standard practice, CHMR
erroneously used vendor discounts as their cost share, instead of
extending the benefit for these discounts to EPA. This practice
violated OMB Circular A-122 Attachment A, which specifies that
recipients must credit all purchase discounts, relating to an
allowable cost, to the Government.
As an example, one CHMR purchase request indicated their
intent to procure laboratory analysis for $30,025. Handwritten
notes on this purchase request, indicated CHMR would receive a 42
percent discount of $12,750 to be used as their cost share.
Subsequently, CHMR charged the entire $30,025 to the agreement,
even though they paid the vendor only $17,275. It is also
noteworthy that, CHMR claimed this $12,750 discount twice,
resulting in an erroneous cost share of $25,500.
Other facts concerning the discounts CHMR claimed as their
cost share should be noted. First, many discounts were evidenced
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
only by the handwritten notes of CHMR personnel. Secondly, as
previously discussed in our finding on procurement, CHMR did not
obtain bids or price quotes for purchases. Consequently, we
could neither verify the receipt of these discounts from the
recipient's records, nor substantiate the fair market value of
the items purchased. Thirdly, we reviewed only part of the
$417,475 claimed by CHMR as their cost share. As a result, the
EPA must find out if CHMR claimed additional discounts or other
ineligible amounts as their cost share before closing assistance
agreements awarded to CHMR.
The FSR for Agreement X-816597-01 also showed that CHMR did
not fulfill EPA's cost share requirements. For this agreement,
CHMR contributed only $98,068, or $8,015 less than the amount
required by EPA.
RECOMMENDATIONS
We recommend that the Director of GAD:
1. Instruct CHMR that discounts are not reimbursable costs and
that benefits for discounts should be credited to EPA as
required by OMB A-122.
2. Review all cost share amounts claimed to ensure that CHMR
contributes eligible and allowable expenditures that equal
the amounts specified in the cooperative agreements.
3. Require CHMR to eliminate discounts and other ineligible
amounts claimed as their cost share under all assistance
awards.
CHMR'S RESPONSE
CHMR was confident that after reviewing all costs they had
satisfied their cost sharing requirement for both cooperative
agreements.
SPA'S RESPONSE
Our position remains unchanged because CHMR did not provide
additional information.
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
EXHIBIT A
ANALYSIS OF ALLOWABILITY OF EXPENDITURES
FOR THE PERIOD JANUARY 1, 1990 TO FEBRUARY 28, 1993
UNDER EPA AGREEMENT CR-815792-01
AWARDED TO CENTER FOR HAZARDOUS MATERIALS RESEARCH
AUDITOR'S OPINION
Costs Questioned
Costs
Category Incurred
Personnel $ 74,531
Fringe/
Overhead 53,839
Contracts 350,550
Travel 8,382
Equipment 64,389
Other 6,101
Indirect/
G&A 159,590
Total $717. 382
Federal
Share 47% $337, 170
Payments
To Date
Balance
Due EPA
Accepted
$ 74,
53,
7,
4,
125r
$266,
$125,
...2.9.9.,
$174,
531
839
0
312
0
897
777
356
187
993
806
Ineligible
$ 0
0
350,488
483
64,389
117
33,587
$449,064
$211,060
Unsupported
$ 0
0
62
587
0
1, 087
226
$ 1,962
$ 923
Note
1
2
3
4
5
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
Note 1: Contractual costs amounting to $350,488 were ineligible
because these services were not procured in accordance
with Federal regulations. For more details concerning
this finding and CHMR's response see the finding
Disregarding Procurement Regulations.
We classified $62 as unsupported because CHMR was
unable to support that the meals charged to the
cooperative agreement were accompanied by a meeting.
OMB A-122 Attachment A specifies that only meals
associated with meetings are allowable. CHMR did
provide a receipt for the meals charged to the
cooperative agreement, but they did not have
documentation that a meeting was held.
CHMR'S RESPONSE
CHMR did not contest the $62 unsupported meal charge.
PIG COMMENTS
We concur with CHMR's comments concerning the meal
charge. Our position remains unchanged regarding the
procurements made by CHMR. See page 10 for details.
Note 2: We questioned $483 as ineligible and $587 as
unsupported. The $483 was ineligible as follows:
a) CHMR claimed $379 for a rental car
and we determined $216 was
applicable to EPA. We questioned
the remaining $163 in accordance
with OMB Circular A-122 Attachment
A. This reference provides that a
cost is allocable to a particular
cost objective in accordance with
the relative benefits received.
CHMR'S RESPONSE
Ineligible Costs $162.
Although CHMR recalculated the travel expenses they
continued to claim $379 for the rental car.
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Special Review on Agreements Awarded to CHMR
PIG'S RESPONSE
After reviewing CHMR's response, we recalculated the
rental car based on the fact that the trip was for
business and pleasure and the employee failed to
allocate the rental car.
b)
Ineligible costs of $227 represents
the difference between the
unallocable airfare claimed and the
unclaimed nights lodging.
Ineligible Costs $227
c)
$93 was for costs associated with
attending a baseball game. OMB
Circular A-122 Attachment B
specifies that costs related to
social activities are unallowable.
Ineligible Costs $93
Total Ineligible Costs $483
CHMR'S RESPONSE
CHMR did not contest the $93 charge.
PIG'S RESPONSE
We concur.
d) $587 of travel was unsupported because CHMR
did not retain receipts for several items
such as a plane ticket, meals, and supplies.
CFR 30.500 (a) states that recipients must
maintain official records for each assistance
award and these records must contain time
records and other supporting data.
CHMR'S RESPONSE
CHMR did not submit copies of some receipts related to
the travel and stated that the $33 was not paid for by
EPA funds. CHMR did not contest $87 of the $587
que^st ioned.
Report No. E3CEP4-03- 0268-6400064
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Special Review on Agreements Awarded to CHMR
PIG'S RESPONSE
The $587 remains unsupported because we did not receive
supporting documentation.
Note 3: Equipment costs of $64,389 were ineligible because
these items were not procured in accordance with
Federal procurement regulations. For more details
concerning this finding and CHMR's response see the
finding Disregarding Procurement Regulations.
Note 4: We determined that $117 was ineligible and $1,087 was
unsupported. The $117 was ineligible because CHMR did
not procure these items according to Federal
procurement regulations. For more details concerning
this finding and CHMR's response see the finding
Disregarding Procurement Regulations.
The $1,087 was questioned as unsupported because CHMR
did not retain receipts for several items such as
photocopies, postage, facsimile, and phones. CFR
30.500(a) states that recipients must maintain official
records for each assistance award and these records
must contain time records and other supporting data.
CHMR'S RESPONSE
CHMR did not respond to this finding.
PIG* S RESPONSE
Our position remains unchanged.
Note 5: We questioned indirect costs of $33,813 ($33,587
ineligible and $226 unsupported) because they were
applicable to the amounts questioned in Notes 1 to 4.
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Special Review on Agreements Awarded to CHMR
ANALYSIS OF ALLOWABILITY OF EXPENDITURES
FOR THE PERIOD MAY 4, 1990 TO SEPTEMBER 30, 1993
UNDER EPA AGREEMENT X-816597-01
AWARDED TO CENTER FOR HAZARDOUS MATERIALS RESEARCH
AUDITOR'S OPINION
EXHIBIT B
Costs Questioned
losts Costs
!ateaorv Incurred
'ersonnel $ 80,747
'ringe/
iverhead 119,880
tontracts 90,887
'ravel 17,433
>ther 9,434
iverhead/
I&A 16,576
latch 98,068
'otal $433.025
'ederal
:hare 76% $329,099
'ayments
'o Date
ialance
lue EPA
Accepted
$ 80,
119,
17,
9,
5,
98,
$330,
$251,
334,
$ 83,
747
880
0
433
188
412
068
728
353
957
604
Ineligible Unsupported
$ 0 $ 0
0 0
90,887 0
0 0
0 246
11,139 25
0 0
$102,026 $ 271
$ 77,540 $ 206
— .
Report No. E3CEP4-03-0268-6400064
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Special Review on Agreements Awarded to CHMR
Note 1: We considered all $90,887 of contractual expenditures
as ineligible because CHMR did not procure the
equipment and services according to Federal
regulations. For more details concerning this finding
and CHMR's response see the finding Disregarding
Procurement Regulations.
Note 2: The $246 considered unsupported were for miscellaneous
expenses for which receipts were not available. CFR
30.500 required that official records for each
assistance award must be maintained.
CHMR'S RESPONSE
CHMR did not respond to this finding.
PIG'S RESPONSE
Our position remains unchanged.
Note 3: We questioned $11,164 ($11,139 ineligible and $25
unsupported) of indirect costs questioned that were
applicable to the amounts questioned in Notes 1 and 2.
Report No. E3CEP4-03-0268-6400064
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CHMR
Center for Hazardous Materials Research
University of Pittsburgh Applied Research Center
320 William Pht Way - Pittsburgh, PA 15238
(412) 826-5320 - Fax (412) 826-5552
APPENDIX 1
PAGE 1 Of 10
March 18, 1996
Mr. P. Ronald Gandolfo
Divisional Inspector General for Audit
Mid-Atlantic Audit Division
United States Environmental Protection Agency
841 Chestnut Building
Philadelphia, PA 19107-4431
RE: Draft Report of Special Review on EPA Agreement Nos.
CR-815792 (CHMR No. C48-265, 300-1838) and
X-816597-01 (CHMR No. 400-1402)
Dear Mr. Gandolfo: " ;..-
' V* **',.'
We are responding to your letter dated February 23, 1996, which provided the
subject draft report and requested any comments addressing its factual accuracy.
We appreciate the opportunity to provide these comments to EPA's Office of
Inspector General. CHMR has always had.an excellent relationship with EPA and
endeavored to support the Agency fully "in "fulfilling its mission. Therefore, we have
taken very seriously the alleged problems identified in the draft report and
conducted our review accordingly. ~ ' . -
Overall Comment "'•'••--
We cannot adequately address the factual accuracy of all questioned costs in the
draft report because most have not been specifically identified. In addition, time
has not yet permitted us to fully resolve certain key issues identified in the draft
report (i.e., our indirect rates). Nevertheless, the results of our investigation
indicate that the combination of using supported actual indirect rates for the
periods in question with supported explanations for all currently questioned costs
will result in no balance being due to EPA.
In moving forward from here, you may expect full and open cooperation from
CHMR's management and staff in resolving the issues to EPA's satisfaction.
Further points are addressed below as they are introduced in the Report.
1.
Disregarding Procurement Regulations
EPA Statement (top of page 71: All of the procurements., made by CHMR under
the two cooperative agreements reviewed, violated Federal regulations and CHMR
requirements because CHMR did not: obtain adequate competition; obtain price
quotations or perform price analysis; maintain adequate documentation; nor
provide an acceptable basis for not obtaining competition or price quotations.
19
Education & Training Programs
320 William Pitt Way - Pittsburgh, PA 15238
(412)826-3915 - Fax (412) 826-3947
UPMC Environmental Hearth & Safety Office
200 Lothrop Street - Pittsburgh. PA 15213-2582
(412)647-6409 - Fax (412) 647-0381
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Mr. P. Ronald Gandolfo
March 18, 1996
Page 2.
APPENDIX 1
PAGE 2 Of 10
CHMR Response: Management believes that the procurement system followed by
CHMR was consistent with Federal regulations affecting procurements under OMB
Circular A-110 and 40 CFR 33. Where required, we can provide documentation on
competitive bids received, price analyses performed, or justification for not
obtaining competition. Much of this information for one of the agreements is
contained in files that were maintained by •••••, whom the auditors did not
taik to. In all instances where CHMR procures goods or services, whether Federal
funds are used or not, it is our policy to objectively evaluate each purchase in
accordance with requirements and award it to the lowest, responsive, and
responsible bidder that we believe is best qualified using alt the information at our
disposal.
Procurements over $10,OOO to partners, team members, or subcontractors {such
as , UMBBt and^JB) identified in a proposal are justified in that document.
VVandflBHMhad existing and directly relevant working relationships with
CHMR. MM was the only organization in the world having experience with the
AETS technology. NETAC was CHMR's sister organization under the University of
Pittsburgh Trust and the only organization at the University's Applied Research
Center whose mission was to assist environmental technology development.
Regarding the $70,OOO subcontract t
was the organization always planned to pr
identified in the proposal,,
duce a video under subcontract tol
based on prior working relationships with MM project manager. When the
prospective MR manager left ••L no suitable replacement existed within 1BI
who could manage the project. The subcontract was awarded instead directly to
419 with participation of the project manager as a subcontractor. This action
maximized cost-effectiveness and applicable project experience. In addition, final
charges were less than $70,000. The previous work experience of the manager
was directly relevant to assuring that the video would meet the requirements of
the project.
Although a $10,254 contract was awarded to a firm based on recommendations
from EPA, the work ultimately performed was originally estimated to cost over
$21,OOO. Based on price negotiations with CHMR. the contractor agreed to
conduct the work for less cost, and the savings were passed on to EPA.
EPA Statement (on oaae 8): CHMR procedures for purchasing items costing less
than $5,000 did not fulfill Federal requirements.
CHMR Response: CHMR recognizes that 40 CFR 33.315(b) requires recipients to
obtain price quotations from an "adequate number of qualified sources" for simple
procurements. Our policy is in compliance with this generally stated requirement,
and we believe we have complied with the regulation as stated. Further, CHMR
feels that many small purchases are exempt from this regulation because costs are
either obtained from established catalog or market prices from vendors, or are
defined as "micro-purchases" and our purchasing decisions are based on
reasonableness.
20
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APPENDIX 1
PAGE 3 of 10
Mr. P. Ronald Gandolfo
March 18, 1996
Page 3.
EPA Statement: Because all of the procurements reviewed violated several Federal
and internal CHMR requirements, we considered all $505,914- expended for
procurements as ineligible.
CHMR Response: CHMR can provide the necessary justifications for virtually all of
the questioned procurements to assure EPA that reasonable prices were paid. In
this process, we will need to tie the $505,914 identified as "ineligible" to specific
vendors so that we can provide justification and/or documentation for incurred and
claimed costs. To accomplish this, we will need the assistance of EPA's auditors
as to the specific individual sources for their figures.
2.
CHMR Failed to Satisfy Cost Sharing Requirements
EPA Statement (too of page 10): CHMR did not satisfy the cost sharing
requirements for the two cooperative agreements included in this review. f
CHMR Response: Once the analysis of our indirect rates for the period prior to
July 1992 is completed by our independent auditor, CHMR will be in a position to
demonstrate that we satisfied the requirement of EPA Regulation 40 CFR 30.307
for cost sharing with a combination of cash and in-kind contributions from our
partners, team members, and subcontractors.
CHMR was only able to identify $15,841 of the $86.520 of ineligible costs due to
"vendor discounts". CHMR will need the assistance of EPA to identify the costs
they allocated as ineligible. Our staff now recognize that discounts are not
reimbursable costs and that benefits for discounts should be credited to EPA.
After all other applicable in-kind contributions are credited, CHMR's match
requirements can be met without use of discounts.
3.
Other Matters
EPA Statement (bottom ofjjage 11): A special condition in one of the assistsnce
agreements provided that "indirect costs will not constitute an allowable cost until
an indirect cost rate is negotiated".
CHMR Response: CHMR has diligently, but unsuccessfully, pursued the
acceptance of our indirect rates by EPA since 1989. In particular, CHMR advised
the Rate Negotiation Section by letter in July 1992 of amended rates and
specifically called out the applicability of the rates to the two assistance
agreements in question.
We appreciate that EPA does not have the resources to meet its OMB A-122
responsibility to non-profit organizations to negotiate and approve indirect COST
rates. Starting in July 1992, we contracted with our external auditing firm to
review and prepare an independent opinion of our annual indirect rates and EPA
21
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APPENDIX 1
PAGE 4 Of 10
Mr. P. Ronald Gandolfo
March 18, 1996
Page 4.
has been willing to accept those rates. To expedite resolution on this issue, CHMR
has contracted with our independent auditor to provide EPA with a schedule of
indirect cost rates for fiscal years ending June 1990, June 1991, and June 1992.
We believe the results will be more than adequate to compensate for the specific
indirect amounts currently questioned by EPA.
4. Comments on Notes to Exhibit A
ANALYSIS OF ALLOWABILITY OF EXPENDITURES UNDER
EPA AGREEMENT CR-815792-01 (CHMR No. C48-265 & 3OO 1838)
CHMR Response to Auditor Notes
NOTE 1: CHMR has identified the source of the labor costs claimed and canr
provide EPA with copies of the timesheets and related payroll
information to verify the unsupported charges.
NOTE 2: CHMR will provide EPA with supporting documentation for the
Schedule of Indirect Cost rates for the time periods in question.
NOTE 3: CHMR can provide required justifications for the ineligible contract
costs identified by EPA as $350,488.
CHMR does not contest the unsupported $62 meal charge.
NOTE 4: a) CHMR can investigate the ineligible rental car charge as
appropriate under OMB Circular A-122 Attachment A, but will need
assistance from EPA in identifying the source document for the
charges claimed.
b> CHMR does not contest the identified unallowable charge which
was mischarged to the project by staff.
CHMR would like the opportunity to investigate further the $617 of
unsupported travel charges with the assistance of EPA by identifying
the source document(s) for the charges claimed.
NOTE 5: CHMR can provide required justification for the ineligible equipment
costs of $64,389 identified by EPA but will need assistance from EPA
to identify their sources for that specific amount.
NOTE 6: $117 was noted as ineligible and $1,087 as unsupported. If EPA will
assist us by identifying the source documents for these charges,
CHMR believes we can provide the necessary documentation to
demonstrate the validity of the claims.
22
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APPENDIX 1
PAGE 5 of 10
Mr. P. Ronald Gandolfo
March 18. 1996
Page 5.
NOTE 7: See response to Note 2.
5. Comments on Notes to Exhibit B
ANALYSIS OF ALLOWABILITY OF EXPENDITURES UNDER
EPA AGREEMENT X-816-597-01 (CHMR No. 400-1402)
CHMR Response to Auditor's Opinion
NOTE 1: CHMR will provide EPA with supporting documentation for the
Schedule of Indirect Cost rates for the time periods in question.
NOTE 2: CHMR can provide required justification for the contract costs r
identified as ineligible but will need assistance from EPA to identify
their sources for that specific amount.
NOTE 3: CHMR does not contest the $246 miscellaneous charges but would
appreciate EPA's assistance in identifying the source. CHMR will then
attempt to locate the necessary documentation requested by EPA.
NOTE 4: See Response to Note 1.
CHMH would appreciate receiving additional specific information regarding the total
costs being questioned, so that we can all proceed expeditiously. You may be sure
that individual instances of violations do not represent the policy of the
organization or our commitment to continue improving our performance so that
EPA receives good value for its funds. Because of the length of time that has
passed since the end of these projects and the current workload of our staff,
CHMR requests that EPA grant us additional time for our staff to work with your
auditors in resolving these issues.
If you have any questions you may call me at (412) 826-5320, ext. 203,_pr Diane
Ragan, Vice President of Administration at ext. 21 T.'We respectfully await your
response.
Sincerely,
Edgar Berkey, Ph.D.
President
cc: Diane Ragan
23
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CHMR
Center for Hazardous Materials Research
U«w»n*y of PJtUbutgh Appted nnuMncti Canter
320WHBamf»i«Way - PjRfbuigli, PA 15238
(412) 826*320 - Fax (412) 826-5552
APPENDIX 1
PAGE 6 Of 10
May 2, 1996
Mr. P. Ronald Gandolfo
Divisional Inspector General for Audit
Mid-Atlantic Audit Division
U.S. Environmental Protection Agency
841 Chestnut Building
Philadelphia. PA 19107-4431
Dear Mr. Gandolfo:
In response to your letter of April 11, 1996 we have sent via overnight mail under
separate cover supporting information concerning:
CHMR's Indirect costs for Fiscal Years 1990, 1992, 1992, as
determined by our independent auditor, eVJMHMHBalong with a
Table summarizing the period of performance, rates used, and audited
rates (Attachment A). This information indicates that our actual
indirect rates for the periods In question were higher than the rates
used.
• Supporting documentation addressing Note 1, Attachment A of
your letter dated February 23,1996. As we were unable to
know which hours you were specifically questioning, we
included copies of thnesheets lor the entire project period for
which BRA funds were used. CHMR considers original
timesheets submitted by employees and approved by their
supervisors as documentation required by OMB A-122
(Attachment B).
j • Copies of supporting documentation (Attachment C) for many of the
charges questioned in your Attachment B. As we stated earlier.
CHMR does not contest the $87.08, as it was mischarged to the
project by one of our staff. The $33.37 charge questioned in Task 7
was not paid for by EPA funds.
The remainder of this tetter addresses some of the larger issues of contractual
procurement and ineligible match, and is meant to supplement our previous letter
to you dated March 18, 1996.
qQNTRACTUAL
The proposal CHMR submitted to EPA for the Acid Extraction Treatment System
(AETS) dated January 16, 1989 addressed to •JHVBMpMBHe* identified the
members of the team that would assist CHMR in developing AETS, namely M
and NETAC and cited the unique strengths that these members would bring to the
team. Both organizations out of pocket costs were included In the overall
$705,247 estimated budget for the project.
Education & Training Program*
32DW*amPisWay - PmsbUTjh, PA 15238
(412)626-9915 - fiat <«12) 828-3947
UPMC EnvtrefMiMntal NMldl * SMMy Offk»
200LolhrapSm»t - MtaburgH. PA 16213-2582
(412) 647-6409 - Fax(412)647-0981
24
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*S v V -
* Uii f
P003
APPENDIX 1
PAGE 7 of 10
Mr. P. Ronald Gandolfo
May 2, 1996
Page 2.
As I indicated in my letter to you of March 18, 1996,1HB(a Dutch applied
research organization) was the only organization in the world having experience
with the AETS technology. A Memorandum of Understanding (MOU) between the
U.S. EPA and The Ministry of Housing. Physical Ptannlng/and Environment of the
Netherlands was signed by Lee ThoniSlh Paris on June 17, 1986 wfth the intent
of maintaining and enhancing bilateral cooperation in the field of environmental
affairs. Article II states that EPA and the Ministry would provide each other with
information on environmental issues and on significant policy, research and
economic and regulatory elements. We believe that this addresses tfift jssue of
«sWcontriouticTOXOum*l as.jroatdv Article V of that MOU Agreerjgem states
•Unless otherwise agreed, there shall be no exchange of funds, each side providing
resources adequate to carry out Its responsibilities... ;Nerfinancfal commitment can
be made without concurrence of appropriate authorities on each $kJe.*4Be¥ was a
true partner on the AETS project. They contributed knowledge and time, and they
introduced us to a potential commercializing entity, ••••£, who in turn
contributed money to the project.
In our proposal to EPA, WBwas identified as a non-Federal source of support to
the project (p.28) arel tte detailed fonteatfeh of direct costs In thalwoWtinder
"Contractual Services" Included •§ to 1, tern 6). In a letter dated March 10,
1989 to CHMR from ssVeVVVHsV Chief. Emerging Technologies Section.
Superfynd Technology Demonstration Divfeion. EPA requested we issue a
formalized agreement tofleV for their services. eW participation in this project
for direct costreimbursernerrt is covered in CHMR's purchase orders 001692 and
O03O16. •••••• EPA Site Demonstration and Evaluation Branch, informed
CHMR in a letter dated May 21,1990. that EPA's Office of International Activities
(after reviewing •••» participation on this project) concluded that because ail
experimental work would be conducted in the US, and sleW was only to provide
consulting services. State Department clearance was not needed. This letter also
references MBPcosts being included in the original proposal, "so they are
covered."
In summary, CHMR paid a total tdWof $56,933 (*29t915 end S11,085 in Year
1 and f£l,933 in Year 2 for Task 5 activWes)rAddJtioraJ JseWrpartiapation in the
success of this project was $47,080 for which there was no charge, but done by
eVMIln the spirit or the MOU. It is therefore, inaccurate to term this as a "vendor
discount". In out final financial analysis of this project, we did not include the
$10,283-45 (43% CHMR Indirect on the 429,915) as part of CHMR's match to
this project (Item 21). In fact, we excluded any and all mark up of pass through
costs for the entire project period from any kind of matching funds. ~
••••••••^•fewas used during Year 2 as a temporary help service firm
to provide as-needed intermittent technical engineering skills. CHMR could not
justify the regular recruitment and hiring of full-time engineers to perform some of
the tasks required. We believe this decision provided a cost benefit to EPA as
there were no associated fringe benefits, overhead, or G&A costs applied. The
25
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APPENDIX 1
PAGE 8 of 10
Mr. P. Ronald Gandolfo
May 2, 1996
Page 3-
total payments were *16,98O.O7 from August 1992 through February 1993, and
we believe they are fully justified by project requirements. Their services were
procured through our normal procurement arrangements with temporary agencies
and not through issuance of a purchase order.
and
_ ., a minority firm, were used for analytical services. CHMR
had intended to usefleWMHPM for the project, and identified this firm and
their costs in our propose! to EPA. Subsequent conversations and specific quotes
from HeWas well as information concerning their capabilities ted us to use three
other firms. In addition, we discussed and received bids from ••••
(October, 1991) VMHMBHMHNOctober 1991} and
_ (August 1991) and based on cost analyses, awarded the
analytical work to ••aVfeMHaVBaVI andBBK Total funding was
$5,387.70. $30,689.43, and * 1.368.00. respectively. We agree with EPA that
these firms can ba classified as "vendors", and we have removed any discounts
extended by them to this .project es match in our recalculation of project costs.
Items 49 and SO of your April 11,1996 latter have already been addressed by me
in my totter dated March 18, 1996. Upon HBverlflcatk)ri of charges. EPA is correct
that 170,000 was paid directly to «•••*•>• As we pointed out, however,
•••••I would have been a sub-contractor to, fli (who was a subcontractor
to CHMR} on Grant 816597-01. These firms wejejpcluded as part of the team
and their costs included in the proposal submitted to cTtt in September 1989.
As forflK CHMR was instructed by EPA personnel that this firm was to be used
•6s the subcontractor for the Task 11. We believe this constituted pffor approval
for awarding the contract. We conducted price negotiations, and as I stated, the
savings were passed onto EPA and not included as any match.
EQUIPMENT
One of the conditions of our AETS Cooperative Agreement was to include a private
sector organization which was interested in taking the technology beyond research
and development into demonstration and eventual commercializations operations.
••AM, bv, of the Netherlands was that critical partner. CHMR entered into
agreement with ••••ft prior to the start of this project, in wbich^MHeW
agreed to provide cash funding of $114,844,07 as match to this project. Much of
the costs that have been questioned incurred for equipment, supplies and
chemicals paid for with these funds. No equipment for this project was purchased
with Federal monies.
Items 1 and 2 are incorrectly identified as equipment. These were for supplies
purchased by NETAC as direct costs, for which they were reimbursed.
Items 5 and 6 were paid from the
I funding.
26
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i»3
APPENDIX 1
PAGE 9 of 10
Mr. P. Ronald Gandoifo
May 2, 1996
Page 4.
Items 3 and 4 were purchased end paid for by NETAC as part of their in-kind,
OTHER --"-••
Item 45 was a technical publication
OMB Circu!ar-A122 from
001724).
jrchased as an allowable direct cost under
ISBN 0471027040 (P.O. No.
EPA funds were not used to pay for Items 46 and 47.
ATTACHMENT p
For the $310.4O questioned cost, we have determined that the CHMR employee
incurred costs during the same week for EPA and another client. Our staff
incorrectly appropriated the costs by having EPA pay for lodging and the other
client pay for the airfare. We have recalculated EPA's charges and they are
included with this letter.
MATCH
Cash and in-kind contributions from CHMR's major team players have already been
addressed in other sections of this letter. All contributions are verifiable and were
identified and approved in the budgets. CHMR has reviewed every cost incurred,
credited EPA with all vendor discounts, recalculated the indirect costs', and is
confident that we have satisfied our cost sharing requirements on both grants. As
you re-analyze CHMR's match on the AET project, it may be helpful to reiterate
here that costs were collected under various tasks. For Assistance-Mo. 815792,
Year 1 match costs were collected In Tasks 3 and 6. Year 2 costs were collected
in Task 7. -~T
We would be happy to provide program summaries based on our recalculations.
Our position is that after adjusting for questioned costs and match that cannot be
Supported, and applying our actual indirect cost rates, we have more than satisfied
the financial requirements of both projects. Accordingly, we believe no money is
due EPA. If we can be of any further assistance, or cooperate with you in any
way as you conclude your final report, please don't hesitate to call.
Sincerely,
Edgar Berkey, Ph.D
President
Attachment
27
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APPENDIX 1
PAGE 10 of 10
EPA GRANT NO. CR815792-01
Add Extraction Treatment System
CHMR No. C48-26S, C41 -1838
TRAVEL EXPENSES-
Day
Data
Location
Breakfast
Lunch
Dinner
Lodging
Airfare (50%)
Car Rental
Auto
Airport Parking
Misc.
Total EPA Charges $555.64
Friday
6/12/92
to Blrtta.MN
1.05
5.09
49.92
280.00
Mon
3.96
49.92
19.32
5.67
$78.89
5.45
10.51
49.92
Butte
5.85
1Z42
16,70
49,92
3?aso
31.00
20.76
6-91
$72.79
$596.80
$1,244.12
Trip to Butte, MN to select obtain, and arrange for transport 900lbs of contaminated soils
from the Silver Bow Creek Superftmd Site. Coordinated through EPA Region and
approved by the AET Project Officer I
28
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UNITED STATES ENVIRONMENTAL PR
WASHINGTON. O.C. 20460
MAR 2 8 1996
MEMORANDUM
SUBJECT:
Draft Report of Special Review on
Agreements CR-815792-01 and X-8165
the jefenter for B**a3RJous Material
FROM:
TO:
M. Katz, Director
/Grants Administration Divisfon
OFFJCEOF
ADMNISTRATION
MHO RESOURCES
MANAGEMENT
£PA Cooperative
7-01 Awarded to
Research (CHMRJ
(3903F)
P. Ronald Gandolfo
Divisional Inspector General for Axldit
Mid-Atlantic Audit Division (3AIOO)
I have reviewed the above-referenced dr*
and have the following comments.
o On Page 7, Paragraphs 4 and 5: the
discussion about the
requirements of 48 CFR 6.301 should be deleted. The
sections of 40 CFR Part 33, which ire also cited, are
the applicable procurement requirements.
Page 14, Note 4a) : The reference to the "'remaining
$189" for a rental car appears to 1: e incorrect. It
looks like the amount should be $lSi
total of $282 ineligible Travel in
Exhibit A are thus also incorrect.
Page 15, Note 7; The amounts SI05
AGENCY
APPENDIX 2
PAGE 1 of 1
ft Special Review
It appears the
Note 4a) and
805 and $33,813 for
o
indirect costs are inconsistent with Exhibit A.
I
Page 18, Note 4: The amounts $11,134 and $2,569
disagree with Exhibit B. !
The report is well written and concise.
us in responding to it.
This helps CHMR and
Please call Jeff Meetre on (202) 260-9959 if you have any
questions. •
cc: Mark Phillips, OIG j
29
W
(Ml SO* racyeM «»*r
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APPENDIX 3
PAGE 1 of 1
DISTRIBUTION
Office of Inspector General
Headquarters Office (2421)
EPA Headquarters Office
Director, Grants Administration Division (3903F)
Agency Followup Official (3101), Attention: Assistant
Administrator for Administration and Resources Management
Agency Followup Coordinator (3304), Attention: Director,
Resources Management Division
Audit Liaison for Grants Administration Division (3903F)
Associate Administrator for Congressional and Legislative
Affairs (1301)
Associate Administrator for Communications, Education,
and Public Affairs (1701)
Headquarters Library (3404)
Auditee
Center for Hazardous Materials Research
30
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