*  m  -  *
ISZy
           UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                         OFFICE OF INSPECTOR GENERAL
                            SOUTHERN DIVISION, SUITE 276
                            1375 PEACHTREE STREET, N.E.
                              ATLANTA, GEORGIA  30309
                                (404) 347-3623 AUDIT
                            (404) 347-2398 INVESTIGATIONS

                              February 22, 1989
                                                                     REGIONAL OFFICE:
                                                                     1445 ROSS AVENUE, SUITE 1200
                                                                     DALLAS, TEXAS  75202-2733
                                                                     (214) 655-6621 AUDIT
                                                                     (214) 655-6610 INVESTIGATIONS
MEMORANDUM
SUBJECT:
FRCM:
TO:
                 Audit Report No.  P5cGN8-06-0122-9300022
                 Report on Interim Audit of Arkansas Department of
                  Pollution Control and Ecology's
                 Grant No.  V006462-01
                 Michael D.  Siitmons
                 Acting Divisional Inspector General for Audit
                 Southern Division

                 John Fleeter
                 Assistant Regional Administrator for Management  (6M)
                 Region 6
Attached is a copy of  the  subject  report.   This report discloses that ADPCE
needs to further develop and  implement policies and procedures which will
ensure the accuracy of quarterly reports and eliminate inconsistencies which
impact the integrity of financial  and project records.

Personnel costs, along with applicable fringe benefits and indirect costs in
the amount of $6,601, were questioned because of different timesheets and
quarterly progress reports.

As the action official, you are required under EPA Directive 2750 to issue a
final detemination on the costs questioned within 150 days of the audit
report date.

Should your staff have any questions or need additional information, please
contact Robert Page or Dwight Murray at 347-3623.  Please refer to the audit
report number in all correspondence regarding this report.
cc:  Oiief, Resources Management Branch,  Region 6
co
c\j

I

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                       REPORT OP INTERIM AUDIT OF
         ARKANSAS DEPARTMENT OF POLLUTION CONTROL AND ECOLOGY'S
  ADMINISTRATION OF SUPERFUND COOPERATIVE AGREEMENT NUMBER V-006462-01
        WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
                 COMPENSATION, AND LIABILITY ACT OF 1980
           FOR THE PERIOD APRIL 1, 1985 THROUGH MARCH 31,  1988
Simmons, Rtetwy
& Company, P.C.
CwtMtod AiMe Acoowtfana

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                 ARKANSAS DEPARTMENT OF POLLUTION CONTROL AM) ECOLOGY
               INTERIM AIDIT OF ADMINISTRATION OF SUPERFUJD COOPERATIVE
                             AGREEMENT NUMBER V-006462-01


                                   TABLE OF CONTENTS

   —•-                                                                      Page

       Scope and Objectives                                                  1

  " ~  Sumroary of Audit Results                                              2

       Background                                                            4

       Auditors' Report on Multi-Site Cooperative Agreement
    :     V-006462-01 Awarded to the Arkansas Department of
         Pollution Control and Ecology                                       7

    .  Auditors' Report on Internal Control                                  9

       Auditors' Report on Compliance                                       11

       Findings and Recommendations                                         12

       Exhibit A - Statement of Costs Claimed, Accepted and
  .	    Questioned, Super fund Multi-Site Cooperative Agreement
  	     V-006462-01                                                        13

       EPA's Comments - Attachment A                                        16
f:' *,
       Simmons, Richey
       & Company, P.C.
       CwtMM PuMe Aceountwtt

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          ARKANSAS DEPARTMENT CF POLLUTION CONTROL AND ECOLOGY
        INTERIM AUDIT OF ADMINISTRATION OF SUPERFUND COOPERATIVE
                      AGREEMENT NLMBER V-006462-01
Scope and Objectives

We  performed  an  interim audit of the Arkansas Department  of  Pollution
Control and Ecology's (ADPCE) administration of its multi-site cooperative
agreement  with  the United States Environmental Protection  Agency  (EPA)
under   the  Comprehensive  Environmental   Response,  Compensation,   and
Liability Act of 1980 (CERCLA).  The primary objectives of our examination
were to determine whether:

(1) Costs  claimed under the cooperative agreement for the period April 1,
    1985 through March 31, 1988 are reasonable, allowable and allocable to
    the sponsored projects, and

(2) Controls  exercised  by  the state through its  financial  management,
    accounting,   procurement,   contract   administration  and   property
    management  systems  are  adequate  to provide  assurance  that  costs
    claimed  are  reasonable,  allowable and allocable  to  the  sponsored
    projects.

Our  audit  for  the  period  April 1, 1985 through  March  31,  1988  was
performed in accordance with generally accepted auditing standards and the
"Standards  for Audit of Governmental Organizations, Programs, Activities,
and  Functions"  promulgated  by  the Comptroller General  of  the  United
States.   The  Environmental  Protection   Agency's  OIG  Manual  entitled
"EAG-3—-CERCLA  Cooperative  Agreements"  was  also   used  as  a   guide.
Accordingly, our examination included such tests of the accounting records
and  such  other  auditing procedures as we considered  necessary  in  the
circumstances.
                                   -1-
Simmons, Rlclwy
& Company, P.C.
CwlMtod PuMe Accountants

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Summary of Audit Results

The  results of our audit indicate that, except for the matters  discussed
in  the following paragraphs, costs claimed were reasonable,  allowable and
allocable  and  controls  exercised  by the state  through  its  financial
management,  accounting,  procurement,  contract and  property management
systems  were  generally  adequate  to   ensure  that  costs   claimed  are
reasonable, allowable and allocable to the sponsored projects.

Personnel Costs

The  state's  accounting  system accumulates direct labor  hours,   related
costs  and other costs by specific function and site.  Direct salaries are
traceable  to  timesheets  signed  by  the employee  and  attested  to   by
supervisors.   However,  during our examination of the quarterly  progress
report  packages submitted by the state to EPA and correspondence  from EPA
program  personnel related thereto, we noted inconsistencies between hours
reported by site and the narrative descriptions of work performed  by site.
The  primary  inconsistency relates to hours being reported  for  specific
sites for which narrative justification was not included.  We believe this
inconsistency  lessens the credibility of the time records as evidence   to
support  related  costs  claimed.  Accordingly, we have  questioned costs
totaling  $6,601 including direct salaries plus applicable fringe   benefit
and indirect costs claimed.

Questioned  costs are costs claimed which we have concluded should not   be
reimbursed  by  EPA as part of project-eligible expenditures because they
are  not  allowable under the provisions of applicable laws,  regulations,
policies, cost principles or terms of the cooperative agreement.

Indirect Cost and Fringe Benefit Rates

Indirect  costs claimed from July 1, 1986 through March 31, 1988 are based
on provisional rates.  ADPCE is currently negotiating with the Cost Policy
and  Rate Negotiation Section of the Planning and Cost Advisory Branch  at
EPA  to  establish a final indirect cost rate for 1987 and will do so  for
1988  following  close-out  of  fiscal year 1988.   Fringe  benefit  costs
claimed  from  October  1, 1987 through March 31, 1988 are  based  on  the
actual  fringe benefit rate for the year ended September 30, 1987;   final
fringe rates will not be determined and costs claimed adjusted until after
September  1988.   Allowable  costs under the  cooperative  agreement  may
increase or decrease based on the final negotiated indirect cost rates for
1987  and  1988  and determination of the actual fringe benefit  rate  for
1988.
                                   -2-
Simmons, Rfcfwy
& Company, P.C.

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   Qther Matters


   (a) ADPCE  did not consistently submit, on a quarterly basis,  the required
       quarterly  Minority  and  Women's   Business  Enterprise   utilization
       reports,  as required by the cooperative agreement.

   (b)  Earlier  in the project period,  Federal Cash Transactions  Reports were
       submitted late.

   (c)  The  project narrative  statement included  in the grant application was
       incorporated  into the  cooperative  agreement by reference  as a special
       condition.   ADPCE  did not conply  with specific provisions  requiring
       EPA  project  officers'  approval   of   the  quality  assurance/quality
       control  plan  prior  to beginning  certain site work.   Certain  costs
       incurred  prior  to submission of the plan were questioned in 1986  by
      EPA  program  personnel.  Although  these costs were later excluded  by
      ADPCE  from  costs claimed, EPA's observation disclosed the  Auditee's
      failure  to  comply  with the special conditions  of  the  cooperative
      agreement.
Simmons, Richey
& Company, P.C.
CwtMtod PuMte Aeeountw
                                   -3-

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ggcfrground

The  SUperfund program was established by the Comprehensive  Environmental
Response,  Condensation,  and Liability Act of 1980 (CERCIA),  Public  Law
96-510,  enacted on Deceirber 11, 1980.  The Superfund program was   created
to  protect  public health and the environment from release,  or threat  of
release,  of hazardous substances from abandoned hazardous waste sites and
other  sources  where response was not required by other Federal  law.   A
Trust  Fund  was  established by CERCIA to provide funding  for responses
ranging  from  control of emergency situations to provision  of permanent
remedies  at uncontrolled sites.  CERCIA authorized a $1.6 billion program
financed  by  a five-year environmental tax on industry and  some   general
revenues.   CERCIA  requires  that response, or payment for  response,  be
sought  from those responsible for the problem, including property owners,
generators, and transporters.

CERCIA   was  revised  and  expanded  by  the  Superfund  Amendments  and
Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted October 17,
1986.   SARA  reinstituted the environmental tax and expanded  the  taxing
mechanism available for a five-year period.  It authorized an $8.5 billion
program  for  the  1987-1991  period.   The Trust  Fund  was  renamed the
Hazardous  Substance  Superfund.  The basic regulatory blueprint  for the
Superfund Program is the National Oil and Hazardous Substances Contingency
Plan  (NCP), 40 CFR Part 300.  The NCP was first published in 1968 as part
of  the  Federal Water Pollution Control Plan, and has been  substantially
revised  to  meet  CERCIA  requirements.   The  NCP  lays  out  two  broad
categories  of  response:   removal and remedial response.   Removals are
relatively  short-term responses, and modify an earlier program under the
Clean  Hater  Act.  Remedial response is long-term planning and action   to
provide permanent remedies for serious abandoned or uncontrolled hazardous
waste sites.

CERCIA   recognizes   that  the  Federal   government  can   only   ensure
responsibility  for  remedial  response  at  a  limited  number  of  sites
representing the greatest public threat.  It therefore requires a National
Priority  List (NPL) which must be updated at least annually.  The NPL  is
composed  primarily  of  sites which have been ranked on the  basis  of  a
standard  scoring system, which evaluates their potential threat to public
health.   In  addition,  each state was allowed to designate  its  highest
priority site, without regard to the ranking system.

CERCIA Section 104 (c) (3) provides that no remedial actions shall be  taken
unless  the  state in which the release occurs enters into a  contract  or
cooperative  agreement  with EPA to provide certain assurances,  including
cost  sharing.  At most sites, the state must pay 10 percent of the  costs
of remedial action.  Preremedial activities  (preliminary assessments, site
inspections),  remedial  planning   (remedial  investigations,  feasibility
studies,  remedial designs), and removals may be funded at 100 percent  by
EPA.   For facilities operated by a state or political subdivision at  the
time  of disposal of hazardous substances, the state oust pay at least  50
percent  of  all response costs, including removals and remedial   planning
previously conducted.
Simmons, Rteh«y
& Company, P.C.
                                   -4-

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CEPCLA Section 104(d)(i) provides that if a state or political subdivision
thereof  is  determined  to have the capability to respond to  the  issues
addressed  in  the  Act,  they may be authorized to respond by  use of   a
contract  or  cooperative  agreement.   As  a  result,  most  states have
participated  in  some  part  of the Superfund  program.   CERCIA  Section
104 (d) (2)  provides  a remedy to the Federal government for failure of   a
state or political subdivision to perform satisfactorily.

Cooperative Agreement V-006462-01 entered into with the ADPCE, as modified
through  Amendment Number Three, involves state participation in:  (a) one
state-lead  remedial  investigation/feasibility  study (RI/FS)  site,   (b)
non-specific  preliminary assessment/site investigation (PA/SI) sites, and
(c)  nine  specific management assistance (MA) sites, of which  ADPCE  was
actively  involved in seven through March 31, 1988.  Amendment Four to the
agreement was executed after March 31, 1988.

Old Midland Products (State-Lead RI/FS Site)

The  Old  Midland Products Company operated a sawmill and wood  preserving
plant  from  1969 to 1979 in Yell County, Arkansas about 1/2 mile east   of
Ola.   In July 1984, the site was added to the super fund list of hazardous
waste sites based on prior inspections and test results.

The  Agreement  provided  for  up  to  $820,000,  including  $736,970  for
contractual  services, to complete the RI/FS and obtain the report.  As of
March  31, 1988, the report had been completed and the state and EPA were
in the process of determining which remedial action would be undertaken.

           Astance (M/A) Sites
The  original  scope  of  work included  ADPCE 's  request  for  management
assistance for Old Midland and the five EPA-lead sites indicated below.
CeciJ
This site covers 4.5 acres near Newport, Arkansas.  It was privately-owned
and  unpermitted.  Leachate from the sandy soils contain heavy metals  and
organic  compounds.   The primary concern was the potential for runoff  to
contaminate the shallow aquifer under the site and nearby Village Creek.

Qirley Oil Pj.t

This privately owned and operated 3.3 acre site, located one mile north of
Edmondson,  Arkansas,  was  used  between 1970 and 1976  for  disposal  of
sludges  from the refining of waste oil.  The sludges contained  chromium,
lead, and low levels of PCB's.
Simmons, Rtetey
& Company, P.C.
CcrtMtod PuMte j
                                   -5-

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This  site, located twelve miles southeast of Fort Smith, is an  abandoned
industrial and solid waste landfill and surface inpoundment used from 1970
to  1979  to  dispose  of sludges  and  industrial  wastes.   Contaminants
included heavy metals and organics.

Mid South Wood Products

This  57 acre site in Mena, Arkansas was purchased by the company in 1978.
Wxd processing operations conducted from 1967 to 1977 by the former owner
resulted  in surface waters being contaminated with PCP, creasote, arsenic
and chromium.  Subsurface contamination was considered highly probable.

Vertac. Inc.

As  a result of inadequate waste disposal methods and production controls,
solid,  surface  waste  and general ground water on this 92 acre  site  in
Jacksonville,  Arkansas  were  contaminated by  insecticides,  herbicides,
chlorinated  phenals  and  dioxin.  The Federal District Court  ordered  a
remedy  consisting of surrounding the waste burial areas with slurry walls
and  French Drains, improving caps for existing burial areas, draining and
closing a contaminated pond and covering contaminated ditches.

Amendment  Number  3 to the agreement provided funding for two  additional
sites  not  included  in  the organizational  statement  of  work.   These
included:  (1) Arkwood, Inc.  and (2) Frit Industries.

Non-Specific PA/SI Sites

The  original  project narrative summary included five PA/SI  sites.   Ten
additional sites were subsequently added.  PA/SI site costs are claimed as
one  activity on the Financial Status Reports, although ADPCE  accumulates
costs separately for each site.  Based on discussions with the EPA project
officer,  all  but  one  (Pinecrest Lumber) of these  15  sites  had  been
finalized.
                                   -6-
Slmmons, Rtehey
& Company, P.C.
CwtHtod PutoUe Accountant*

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Simmons, Rlchey
& Company, P.C.
      Public Accountants

1447 Peachtree Street, NE
Suite 700
Atlanta, Georgia 30309
(404) 876-6227

Memben: Georgia Society of CPA'i
    American Injntute of CPA'i
 Ms. Kathryn M. Kuhl-Inclan
 Division of Inspector General  for Audits
 EPA, Southern Division
 1375 Peachtree Street, N.E.
 Suite 276
 Atlanta, Georgia  30309

 Dear Ms. Kuhl-Inclan:

 We have examined the costs  incurred and claimed by the Arkansas Department
 of  Pollution  Control  and Ecology (ADPCE)   under  Cooperative  Agreement
 Number  V-006462-01  for the period April 1, 1985 through March 31,  1988.
 Our  examination  was made  in  accordance with generally accepted  auditing
 standards  and  the "Standards for  Audits of  Governmental  Organizations,
 Programs,  Activities  and  Functions." The audit included  tests  of  the
 accounting  records  and such  other auditing procedures as  we  considered
 necessary in the circumstances. The Environmental Protection Agency's OIG
 Manual  "EAG-3—CERCLA Cooperative  Agreements" was also used as a guide in
 our examination.

 As  part  of  our  examination, we  determined the  allowability  of  costs
 claimed  under the cooperative agreement in accordance with the provisions
 of the agreement and applicable Federal regulations.  Exhibit A sets forth
 the  costs we questioned in this regard and includes an explanation of the
 reasons  such costs were questioned.  The indirect cost rates for 1987 and
 1988  had not been approved in final as of March 31, 1988, and the  actual
 1988 fringe benefit rate cannot be  determined until after year end.  Costs
 claimed  may  increase  or  decrease once final indirect  cost  and  fringe
 benefit rates are determined.

 The  Statement  of Costs Claimed, Accepted and Questioned  (Exhibit A)  was
 prepared  on the basis of regulations and criteria established by the U.S.
 Environmental   Protection  Agency  relating   to  Superfund   Cooperative
 Agreements  pursuant to Public Lav 96-510.  Accordingly, Exhibit A is  not
 intended  to  present  financial position and results  of  operations  in
 conformity with generally accepted  accounting principles.

 In  our  opinion,  subject  to  the effects, if any, on Exhibit A  of  EPA's
 ultimate resolution of questioned  expenditures, final approval of indirect
 cost  rates and determination  of the 1988 fringe benefit rate referred  to
 in  the  second preceding paragraph, Exhibit A presents fairly  the  costs
 claimed by the ADPCE under  the cooperative agreement with EPA on the basis
 described above.
                                     -7-

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 This  report  is  intended   for  use in   connection  with  the  cooperative
 agreement to which it refers and should  not be used for any other purpose.
 May 24, 1988
Simmons, Richey
& Company, P.O.
CwWtod PuMte AoeowntMt*
                                   -8-

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      Simmons, Rlchey
      & Company, P.C.
      Cartlftod Public Accountants

      1447 Peachtree Street, HE
      Suite 700
      Atlanta, Georgia 30309
    1  (404) 876-6227
_i-i.  ::  Memben: GsorgM Sociwy of CPA't
    ;       American taintute of CPA's
        Ms.  Kathryn M.  Kuhl-Inclan
        Division of Inspector General for Audits
        EPA, Southern Division
        1375 Peachtree  Street, N.E.
        Suite 276
        Atlanta, Georgia  30309
                    AUDITORS'  REPORT ON INTERNAL ACCOUNTING CONTROLS
        Dear Ms.  Kuhl-Inclan:

        We have examined the costs incurred and claimed by the Arkansas Department
        of  Pollution  Control  and Ecology (ADPCE)  under  Superfund  Cooperative
        Agreement Number V-006462-01 with the Environmental Protection Agency from
        April  1, 1985 through March 31, 1988, as presented in Exhibit A,  and have
        issued our report thereon dated May 24, 1988 (see page 7).

        As  part  of our examination, we reviewed the system of internal accounting
        controls   to the extent we considered necessary to evaluate the system  as
        required   by  generally  accepted  auditing standards  for  financial  and
        compliance  audits  contained  in the U.S.   General  Accounting   Office's
        "Standards  for Audit  of Governmental Organizations, Programs,  Activities
        and  Functions"  (1981  revision).  For purposes of this  report,   we  have
        classified the significant internal accounting controls into the following
        categories:

                    Disbursements
                    Payroll
                    Procurements
                    Contractor Performance and Billings
                    Management of Federal Cash
                    Property Management

        Our study included all of the control systems listed above.  The study was
        limited  to a preliminary review of the system to obtain  an  understanding
        of  the  established  controls  and the flow of transactions  through  the
        accounting  system.   Studies  and evaluations performed  by  the   State's
        Legislative  Auditors   in connection with their audits of ADPCE for  state
        Fiscal Years  1986 and 1987 were reviewed as a part of  our  study.   Our
        study  established a basis for reliance on the grantee's  accounting system
        in  determining the nature, timing and extent of other auditing procedures
        necessary for expressing an opinion on costs claimed.
                                           -9-

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The  objective  of internal accounting controls is to provide  reasonable,
but  not  absolute, assurance that the (1) assets are safeguarded  against
loss  from  unauthorized use or disposition and (2) financial records  are
reliable  for preparing financial statements and maintaining accountability
for  assets.  The concept of reasonable assurance recognizes that the cost
of a system of internal accounting controls should not exceed the benefits
derived  and  also  recognizes  that   the  evaluation  of  these  factors
necessarily requires estimates and judgments by management.

Because  of  inherent  limitations in any system  of  internal  accounting
control,  errors  or  irregularities  may nevertheless occur  and  not  be
detected.   Also,  projection  of any evaluation of the system  to  future
periods  is  subject  to the risk that procedures  may  become  inadequate
because of changes in conditions or that the degree of compliance with the
procedures may deteriorate.

Our  study  and evaluation made for the limited purpose described  in  the
second paragraph would not necessarily disclose all material weaknesses in
the  system.   Accordingly, we do not express an opinion on the system  of
internal accounting control of the ADPCE taken as a whole or on any of the
categories  of controls identified in the second paragraph.  However,  our
study  and evaluation disclosed the conditions described in the  "Findings
and  Recommendations" section under "Personnel Costs" and "Other  Matters"
which we believe are material.

This  report is intended solely for use in connection with the cooperative
agreement to which it refers and should not be used for any other purpose.
 y,
             />
May 24, 1988
                     /
                                  -10-
Slmmons, Rtehey
& Company, P.C.

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       Simmons, Rlchey
       & Company, P.C.
       Certified Public Accountants

       1447 Peachtree Street, NE
       Suite 700
       Atlanta, Georgia 30309
    •4;  (404) 876-6227

   H— |-  Membcn: Georgia Society of CFA'i
    i'       American Inatnua of CPA'l
--M-4   .
        Ms. Kathryn M. Kuhl-Inclan
        Division of Inspector General for Audits
        EPA, Southern Division
        1375 Peachtree Street, N.E.
        Suite 276
        Atlanta, Georgia  30309
                             ACDITORS1  REPORT CM COMPLIANCE
        Dear Ms. Kuhl-Inclan:

        We have examined  the costs incurred and claimed by the Arkansas Department
        of  Pollution  Control  and Ecology (ADPCE)  under  Superfund  cooperative
        agreement Number  V-006462-01 with the Environmental Protection Agency from
        April  1, 1985 through March 31, 1988, as presented in Exhibit A, and have
        issued our report thereon dated May 24, 1988 (see page 7).

        In  connection  with  the examination referred to above, we  selected  and
        tested  transactions  and  records to determine  ADPCE's  compliance with
        applicable  Federal  laws and regulations and with the provisions   of  the
        Agreement,  noncompliance with which could have a material effect on costs
        claimed  (Exhibit  A).

        The  results of our  tests indicate that, for the transactions and   records
        tested,  ADPCE  complied  with  the laws  and  regulations   and  agreement
        conditions  referred  to above, except as described in the   "Findings  and
        Recommendations"  section under "Personnel Costs" and "Other Matters."  Our
        testing  was more limited than would be necessary to express an opinion on
        whether  the ADPCE administered the projects in compliance in all material
        respects with applicable laws and regulations.  Regarding transactions  and
        records  that  were  not tested by us, nothing came to  our  attention   to
        indicate  that the ADPCE had violated laws and regulations or  cooperative
        agreement conditions beyond those conditions referred to above.

        This  report is intended for use in connection with the agreement to which
        it refers and should not be used for any other purpose.
                              /         '     '/
        May 24, 1986          '

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                      FINDINGS AND RECOMMENDATIONS
Personnel Costs
As  was  disclosed  during an interim program review  conducted  by  EPA's
program  personnel, inconsistencies existed between hours reported by  the
ADPCE for effort expended by its personnel and the narrative discussion of
work  performed  included in the quarterly progress reports.  In  February
1988  the  auditee  eliminated  from program  costs  claimed  those  costs
relating  to the discrepancies identified by EPA during the interim review
except  for  costs relating to the Gurley Oil and Mid-South MA sites.   We
examined  the quarterly progress reports from June 1986 through March 1988
noting  additional  discrepancies  between  hours reported  and  the  work
performance   narratives.    Accordingly,    costs    related   to   these
inconsistencies  have  been questioned for the purpose of this  report  as
follows:

                                                 Appli-    Appli-
                                                 cable     cable
                        Quarter         Direct   Fringe   Indirect
                    _   Ended   Hans.  Labor   Benefits    Cost    Total
Site/Funct ion
Gurley Oil MA            12/85     50
Gurley Oil MA            9/87       4
Mid-South MA             12/85     40
Mid-South MA             3/86      82
Mid-South MA             9/87      13
American Lantern PA/SI   6/87      67
American Lantern PA/SI   9/87       3
Industrial Waste MA      6/87       8
Fordyce Wood PA/SI       3/88       4
For purposes of the above computations, we utilized the hours reflected in
the  quarterly  timesheet summaries, which in some instances  differ  from
hours reflected in the quarterly progress reports (see below).
                                    ?  703
                                        59
                                       557
                                     1,129
                                       192
                                       825
                                        45
                                       118
                                    	48
$








421
35
334
676
113
505
27
72
29
$1,269
104
1,006
2,038
338
1,471
80
210
85
                                                                       01
Other  inconsistencies  noted  during  our review
reports, which did not result in questioned costs,
                                               of  quarterly  progress
                                               include the following:
1.  In every instance where hours were reported, the total hours reflected
    in  the  quarterly progress reports were less than those reflected  in
    the computerized timesheet summarizes.

2.  Activities  for specific sites were reported for some months where the
    time summaries included  in the quarterly reports reflected  no  hours
    expended for the specific sites.
Simmons, Richey
& Company, P.C.
                                  -12-
      PuWte Accountants

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 Recoimendat ion

 We recommend that  the Regional Administrator instruct the ADPCE to develop
 and  implement policies and procedures which will ensure the accuracy  of
 quarterly reports  and  eliminate inconsistencies which  may  impact  the
 integrity of financial and project records.

 Indirect Cost and  Fringe Benefit Rates

 It  is   ADPCE's policy to make appropriate adjustments to cumulative  cost
 claimed  where,  upon  obtaining EPA approval of indirect cost  rates  and
 determination of  the  actual  fringe benefit  rates,  differences  occur
 between  rates for interim purposes and final rates.  The EPA Cost  Policy
 and  Rate Negotiation Section has given approval to final  indirect  cost
 rates  of 59.96% and 64.75% for the state fiscal years ended June 1986 and
 June 1985,   respectively.  In November 1987, ADPCE submitted  revised  FY
 1988 provisional  and  FY  1987  actual   rates  of  59.08%  and  61.22%,
 respectively, to  EPA for approval.  As of May 24, 1988, audit  fieldwork
 completion  date,  approval  of  the  1987 rate  had  not  been  received.
 Approval  of  the  final 1988 rate cannot be obtained until the  year  has
 ended and actual rates are submitted.

 ADPCE's  fringe  benefit rate determinations are based on  Federal  fiscal
 year data.    Actual rates through September 1987 have  been  applied  to
 direct  salaries claimed through September 1987.  For purposes of 1988, the
 1987 actual rates are being used until year end, at which time the actual
 rate can be  computed and appropriate adjustment made.

 Inasmuch  as this  is an interim, rather than final, audit, no indirect  or
 fringe   benefit  costs claimed have been set-aside.  Once  final  indirect
 cost rates are approved and the actual fringe rate for 1988 is determined,
 cost claimed to date may increase or decrease.

 Recommendation

 We recommend that  the Regional Administrator instruct ADPCE to ensure that
 such adjustments  as may be required, once final rates are determined, are
 made.   Additionally, upon final close-out and audit, indirect and  fringe
 benefit  costs will need to be examined to ensure that  approval of  final
 indirect  cost rates  is obtained and determination of  fringe   rates  has
 occurred  for all  periods encompassed by the Agreement and that such rates
 are used in  computing final cumulative claimed costs.
                                   -13-
Simmons, Richey
& Company, P.C.

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           Other Matters

           (a) During  our  examination, we noted that certain required reports  were
               not  submitted when due.  During state fiscal years 1986 and 1987, the
               required   quarterly   Minority  and   Women's   Business   Enterprise
               utilization  reports were not submitted for some quarters, as required
               by the terms of the cooperative agreement.  Additionally, Federal Cash
               Transaction Reports relating to quarters earlier in the project period
               were submitted late.

           (b) The  project  narrative statement was incorporated by reference  as  a
               special condition of the grant.  ADPCE did not comply with the Section
               2.4  provisions  thereof, which stipulate:  "No fieldwork shall  occur
               until  a  QA/QC  plan has been approved by the EPA  project  officer."
               During  their review of the quarterly progress reports, EPA  personnel
               had questioned $27,181 in related costs claimed through September 1986
               (prior  to  the  date the Quality Assurance/Quality Control  Plan  was
               submitted  by ADPCE to EPA for approval).  The $27,181 was included in
               ADPCE's February 1988 reduction of cost claimed.
_	  Recommendat ion
u —  ....
           We recommend that the Regional Administrator instruct ADPCE to develop and
           implement policies and procedures to ensure that appropriate personnel are
           fully  cognizant of special conditions of the agreement and that they  are
           complied with.
           EPA's Comments on Findinas
           EPA's comments have been appended to this report as Attachment A.  The EPA
        -  state  coordinator indicated clarification from the state has been  sought
           regarding inconsistencies in past quarterly reports.  The coordinator also
           indicated that guidelines call for submission of MBE/WBE reports only when
           the procurement cycle begins.

        —  Addition?! Auditors* ComiRn1
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Tt-+
                                         EXHIBIT
      Simmons, Richey
      & Company, P.C.
      C«ftm«d Public Accountants

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                                                              Exhibit A
           ARKANSAS DEPARTMENT CF POLLUTION CONTROL AND ECOLOGY
            SUPERFUND COOPERATIVE AGREEMENT NUMBER V-006462-01
             SUMMARY OF COSTS CLAIMED,  ACCEPTED AND QUESTIONED
            FOR THE PERIOD APRIL 1,  1985 THROUGH MARCH 31,  1988
                                   EPA-Eligjble Costs
 Cost Category
 Personnel
 Fringe benefits
 Travel
 Equipment
 Materials and supplies
 Contractual services
 Other direct costs
 Indirect costs
Claimed
(Note 1)

$139,811
  26,848
   1,354
     168
  10,304
 642,836
     639
  83.222

$905,182
Accepted
(Note 2)

$136,135
  26,135
   1,354
     168
  10,304
 642,836
     639
  81.010
Questioned
  $3,676
     713
Notes
   3
   3
   2.212

     ,601
 Note 1.  The  cost claimed consists of cumulative expenditures reported on
          the Financial Status Report (SF269)  through March 31, 1988.

 Note 2.  These  amounts  should  not  be  construed  as  being  the  final
          determination  of accepted eligible costs.  The amounts may  vary
          depending  upon  the  final resolution by EPA of  the  $6,601  of
          questioned  costs, approval of final indirect cost rates for 1987
          and 1988, and determination of the actual fringe benefit rate for
          1988.

 Note 3.  The  direct  labor, fringe benefit and indirect costs  questioned
          result  from inconsistencies noted in quarterly progress  reports
          submitted  to  EPA.   Refer  to the Findings and Reconmendations,
          Personnel Costs, section of this report for further discussion.
                                  -15-
Slmmons, Rlchey
& Company, P.C.
CwtHtod PuMte Accountants

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                                          JAN * *  I3°3         ATTACHMENT A

  - <<9*'.> f—                                                            EPA/REGION IV
 » ^^ ,
           UNITED  STATES  ENVIRONMENTAL  PROTEC

                                      REGION VI
                               1445 ROSS AVENUE, SUITE 1200
                                  DALLAS, TEXAS 75202
MEMORANDUM

December 15,  1988

                                                                       DEC I" W8
SUBJECT:  ADPC&E Audit Report f>006462-01 (Multi-Site Cooperative Agreement)
  Comments^ N
FROM:  /   Roh*pJ*4fTrtjl Arkansas State Coordinator
       v   AWW RemediaT Sect ion

TO:       Ben Chavez, 6M-PG

I have reviewed the draft audit report on Arkansas's Multi-Site Cooperative
Agreement (MSCA) IV-006462-01.  Page 2 of the report notes inconsistencies
in past quarterlys.  I have also noted theses descrepancies and have contacted
the State for clarification.

On page 3, the audit points out that ADPC&E did not consistently submit
their MBE/WBE quarterly reports.  However, guidelines call for submission
of MBE/WBE Reports only when the procurement cycle begins.
                                       -16-

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