.
* rf^
* UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20400
OFFICE OF
.. «. ~ ./w. THE INSPECTOR GENERAL
JUL 25 1988
MEMORANDUM
SUBJECT: Audit Report on Superfund Interagency
Agreements with the Corps of Engineers
Charles George Waterline Site
Audit Report No. M5BG8-11-0049-81533
FROM: Kenneth D. Hockman
Divisional Inspector General for Audit
Internal .Audit Division (A-109)
TO: Harvey Pippen, Director
Grants Administration Division (PM-216)
i
The Office of Inspector General requested the Auditor General
of the Army to perform an audit of design and construction
costs incurred and actions taken by the Corps of Engineers
(COE) under a Superfund interagency agreement. Attached is the
Army Audit Agency's (AAA) report of May 27, 1988, on the Charles
George Waterline Site in Tyngsboro, Massachusetts. Based on
the recommendations in the report and COE's response to the
report, the COE will correct its accounting records to properly
reflect project costs and will determine whether the architect-
engineer firm was liable for design error. COE's reponse to
the final audit report is due by July 26, 1988.
EPA can take an active role to assure that costs are being
charged properly. Accordingly, we are making the following
recommendations .
RECOMMENDATIONS
We recommend that the Director, Grants Administration Division:
1. Obtain a copy of the COE's accounting record adjust-
ments to ensure corrections were made.
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2. Correct EPA's financial management system as
appropriate for site specific costs based on the
COE's adjustments.
3. Obtain a copy of the COE's report on architect-
engineer's liability to determine if the question
of liability was resolved and documented adequately.
4. If the architect-engineer is liable and the COE
recovers damages from the engineer, ensure that
the recovered funds are deposited in the Trust Fund
and adjustments to EPA's accounting records are made
accordingly.
ACTION REQUIRED
In accordance with EPA Directive 2750, the Action Official is
required to provide this office with a copy of the proposed
determination on the findings within 90 days of the audit
report date. The Director, Grants Administration Division, is
the Action Official for this report.
Should your staff have any questions concerning this report,
please have them contact John Walsh on 475-6753.
Attachment
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APPENDIX
DISTRIBUTION OF REPORT
Chief, Financial and Administrative Management
Section, Office of Emergency and Remedial Response (WH-548D)
Director, Financial Management Division (PM-226)
Director, Procurement and Contracts Management
Division (PM-214)
Chief, Grants Information and Analysis Branch (PM-216F)
Regional Administrator, Region 1
Divisional Inspector General for Audit, Eastern Division
Regional Counsel, Region 1
Agency Followup Official (PM-208)
Agency Followup Official (PM-225)
Attn: Resource Management Division
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DEPARTMENT OF THE ARMY
OFFICE OF THE AUDITOR GENERAL
31OI PARK CENTER DRIVE
ALEXANDRIA. VIRGINIA 223O2 IS00
21 Kay 1988
Commander, U. S. Army Engineer Division, New England
Commander, U. S. Army Engineer District, Omaha
This is our report on the Audit of Superfund Construction
for the Charles George Waterline site at Tyngsboro,
Massachusetts. The audit was made from June 1987 through
March 1988 at your commands and was part of a multilocation
Audit of Superfund Construction.
Procurement practices used for both the design and
construction projects at the Charles George Waterline site
were in accordance with prescribed procedures for contracts
and contract modifications. Surveillance of the design and
construction contractors was adequate; but, design changes
identified during construction were not properly evaluated for
potential architect-engineer liability. Except for
receivables, accounting transactions for the design and
construction projects were generally recorded promptly and
accurately. The U. S. Army Corps of Engineers' direct and
indirect costs for the design effort of the Superfund project
were generally consistent with established procedures; however,
direct and indirect costs for the construction effort were not
fully consistent with established procedures. Actions to
implement the Army's Internal Control Program as it relates to
Superfund construction were adequate. The results of audit are
summarized in Part I of this report and the details are in
Part II. Copies of the report are being furnished to the
activities listed in the Annex.
<&> HKR
U The
OLD L. StPCART
The Auditor General
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AUDIT OF SUPERFUND CONSTRUCTION
CHARLES GEORGE WATERLINE SITE
TYNGSBORO, MASSACHUSETTS
CONTENTS
Page
Letter of Transmitted
PART I - SUMMARY
Preface 1
Objectives and Scope 2
Background 3
Observations and Conclusions 3
Command Reaction 8
Responsibilities and Resources 8
PART II - FINDINGS, RECOMMENDATIONS, AND
COMMAND COMMENTS
A - In-House Costs 11
B - Reimbursement Billings 17
C - Project Design 20
ANNEX - ACTIVITIES FURNISHED COPIES OF
THE AUDIT REPORT 23
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D. S. ARMY AUDIT AGENCY
ALEXANDRIA,VIRGINIA 22302-1596
AUDIT OF SUPKRFUND CONSTRUCTION
CHARLES GEORGE WATERLINE SITE
TYNGSBORO, MASSACHUSETTS
MW 88-6O2 27 MAY 1988
PART I
SUMMARY
PREFACE
The Comprehensive Environmental Response, Compensa-
tion, and Liability Act of 1980 (Public Law 96-510)
mandated the establishment of the Hazardous Substance
Response Trust Fund, which is commonly known as Superfund.
The Superfund, managed by the U. S. Environmental Protec-
tion Agency, was established to respond to emergency
hazardous conditions and to fund the cleanup efforts
required to remove or control hazardous waste substances in
instances when the responsible party cannot be identified
or will not perform the cleanup and the State will not
assume responsibility. In February 1982, the Environmental
Protection Agency and the U. S. Army Corps of Engineers
reached an agreement for the Corps to provide technical
assistance, contract for design and construction work, and
perform contract administration ±unctions when the Federal
Government assumes cleanup responsibility for hazardous
waste sites. The actual cleanup is accomplished by
contracting with private firms. Contract costs are paid by
the Corps and then reimbursed by the Environmental Protec-
tion Agency.
The public law establishing the Superfund requires the
Inspector General, Environmental Protection Agency to audit
Superfund as appropriate and requires Federal agencies to
cooperate with the Inspector General's efforts. The
Inspector General requested audit assistance from The
Auditor General of the Army in evaluating the Corps'
management of Superfund cleanup efforts. Representatives
of The Auditor General and the Inspector General decided
that an audit during 1987 of the Corps' involvement with
Superfund would evaluate the effectiveness of accounting,
procurement, and contract administration for selected
Superfund projects and evaluate the appropriateness of the
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Corps' in-house costs charged to the projects. This report
gives our audit results for the design and construction
projects for the Charles George Waterline site.
OBJECTIVES AND SCOPE
By agreement with the Environmental Protection
Agency, the mission of the Corps includes providing techni-
cal assistance for the construction of the Charles George
Waterline site, contracting for design and construction
work at the site, and performing the associated contract
administration functions. Specific audit objectives for our
review of the Charles George Waterline site were to deter-
mine whether:
- Contracts and contract modifications were awarded in
accordance with prescribed procedures and if procure-
ment practices ensured that services were received at
fair and reasonable prices.
- Surveillance of contractor performance was adequate to
ensure contract requirements were met and payments
made to contractors were proper.
- Accounting transactions (obligations, disbursements,
receivables, and collections) were promptly and accu-
rately recorded in the accounting records, and if any
rejected transactions were corrected and reentered in
a timely manner.
- Direct and indirect cost charges were consistent with
established Corps of Engineers procedures.
- Actions taken to implement the Army's Internal Control
Program, as it relates to Superfund construction, were
adequate.
The audit, performed from June 1987 through March
1988, was made in accordance with generally accepted
government auditing standards and, accordingly, included
such tests of internal controls as we considered necessary
in the circumstances. The audit was an integral part of
the multilocation Audit of Superfund Construction, and the
results will be included in an overall report to higher
management levels. Additionally, the results of audit will
be furnished to the Inspector General, Environmental
Protection Agency. Audit work was performed at Headquar-
ters, U. S. Army Engineer Division, New England; and at
Headquarters, U. S. Army Engineer District, Omaha. The
audit covered transactions that were representative of
operations current at the time of the audit.
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BACKGROUND
The Cannongate Condominiums in Tyngsboro,
Massachusetts, are located within 1,000 feet of the Charles
George Reclamation Trust Landfill. The wells that provided
water for the condominiums were taken out of service during
July 1982 because potential carcinogens were found in the
water. The Commonwealth of Massachusetts paid for
construction of an emergency overland pipeline system to
furnish water temporarily to the condominium complex. Tn&
Environmental Protection Agency and the Commonwealth of
Massachusetts had private firms evaluate several alterna-
tives for providing water on a permanent basis. Based on
the study results, the Environmental Protection Agency
decided that the best alternative was to construct a water-
line extending about 4 miles to the condominium complex
and neighboring residential homes from an existing water-
line which services the city of Lowell, Massachusetts. The
Environmental Protection Agency also decided that
construction of the waterline, referred to as the Charles
George Waterline, would be funded by the Superfund Trust
Fund. Other Superfund projects are planned for cleaning up
the Charles George Reclamation Trust Landfill.
To accomplish the Charles George Waterline project,
the Environmental Protection Agency made available to the
Corps about $3.5 million. The Omaha District awarded the
design contract for the waterline in March 1984 and the
construction contract for the waterline in June 1986. The
design contract was administered by the Omaha District and
the construction contract was administered by the New
England Division. The construction contract responsibility
was transferred to the New England Division following
contract award because the project site was located within
the New England Division's geographic boundary. Construc-
tion of the waterline was about 93-percent complete as of
31 October 1987.
OBSERVATIONS AND CONCLUSIONS
Contract and contract modifications for the Charles
George Waterline design were awarded in accordance with
prescribed procedures, and procurement practices ensured
that services were received at fair and reasonable prices.
The design project was advertised in the Commerce Business
Daily and 14 architect-engineer firms responded.
Preselection and selection boards evaluated each firm's
qualifications and ranked the firms for contract award.
Negotiations were held with the prospective firm selected,
and a government cost estimate was used to evaluate the
reasonableness of the bid proposal. A firm fixed-price
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contract, valued at $101,026, was awarded during March 1964
for route selection and concept design for the waterline.
There were five modifications, valued at $130,170, to the
design contract. Modifications were issued in accordance
with the Federal Acquisition Regulation and Engineer
Federal Acquisition Regulation Supplement. A government
cost estimate was used for each modification and negotia-
tion results were documented.
Contract and contract modifications for the Charles
George Waterline construction were awarded in accordance
with prescribed procedures, and procurement practices
ensured that services were received at fair and reasonable
prices. The construction contract was advertised in the
Commerce Business Daily and three prospective contractors
responded. A government cost estimate was used to evaluate
bid proposals received, and the lowest bid proposal
submitted by a responsive contractor was selected for
contract award. A firm fixed-price contract for about
$2.9 million-vis awarded during June 1986 for the construc-
tion project. There were five issued contract
modifications, valued at $93,766, as of 31 July .1087.
Modifications were issued in accordance with the Tcderal
Acquisition Regulation and Engineer Federal Acquisition
Regulation Supplement. A government cost estimate was used
for each modification that met the dollar criteria for an
estimate and the negotiation results were documented.
Surveillance of the design contractor's performance
was adequate to ensure that requirements were met and
payments made to the contractor were proper. All design
products required by the contract were submitted by the
contractor, and promptly reviewed by the Corps. Corps per-
sonnel verified that services were performed before giving
approval to 11 requests for progress payments received from
the contractor.
Surveillance of the construction contractor's perfor-
mance was generally adequate to ensure that the contract
requirements were met and payments made to contractors were
proper, but information on apparent design omissions
identified during construction was not properly assessed
for possible architect-engineer liability as required by
regulatory guidance. Corps inspectors made daily
observations of construction progress to ensure provisions
and specifications of the contract were being met.
Inspection reports were prepared, and deficiencies noted
were monitored until resolved. Monthly progress reports
were sent to the Environmental Protection Agency as
required by the interagency agreement. Cumulative progress
payments of about $1.8 million for the period September
1986 through June 1987 were proper except for about
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$143,000. The first progress payment for September 1986
included about $142,000 for mobilization expenses; however,
mobilization was not a line item of the contract or an
allowable expense for progress payments. Corps personnel
recognized the error and made an appropriate adjustment to
the fifth progress payment. The contractor received payment
of about $142,000 about 9 months too soon because of the
error concerning mobilization expenses. The contractor
was also paid $920 twice on the third progress payment for
pipe used for a stream crossing. An adjustment for this
double payment was made on the ninth progress payment.
During construction, changes were made and, in some
instances, design omissions were cited as the basis for the
changes. Information on the apparent design omissions was
not furnished to the design activity as required by regula-
tory guidance, and local guidance did not include
procedures for projects where design was accomplished by an
activity other than the construction division. Action was
needed to furnish information on apparent design omissions
to the design activity so the potential for architect-
engineer liability could be assessed and determinations
documented.
Except for receivables, accounting transactions for
the design and construction projects were generally
recorded accurately in the accounting records, but many
transactions were not recorded in a timely manner.
Rejected transactions were corrected and generally reen-
tered to the accounting records in a timely manner.
- Obligations of about $230,000 were recorded for the
design effort during March 1984 through September
1986, and obligations of about $3.3 million were
recorded for the construction effort during September
1984 through May 1987. An obligation for the
construction contract was accurately recorded for
about $2.9 million but it was recorded 6 months after
contract award. The design contract and modifications
to both the design and construction contracts were
obligated in the month issued. Labor, overhead, and
various small expenses such as supplies or vehicle use
were obligated in the month of the expense using
miscellaneous obligation documents. A reimbursable
order issued for the construction project was
obligated in the month the order was accepted. - Travel
was obligated in the month the travel -orders were
issued, but an obligation of $585 was recorded twice;
a correction was later made by Corps personnel.
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Disbursements of about $226,000 were recorded for the
design effort during March 1984 through September
1986, and disbursements of about $1.4 million were
recorded during September 1984 through May 1987 for
the construction effort. In total, 35 transactions
were recorded. Disbursements were made for construc-
tion and design contractor invoices, purchase orders,
travel vouchers, imprest fund purchases, and reimburs-
able order invoices. All but 1 of the 28 disbursement
transactions reviewed were promptly and accurately
recorded within 30 days of the approval for payment.
The other disbursement was recorded accurately 36 days
after approval for payment.
Receivables of about $290,000 were recorded for the
design effort during March 1984 through September
1986, and receivables of about $1.9 million were
recorded during September 1984 through May 1987 for
the construction effort. In total, 34 transactions
were recorded. The receivables were based on monthly
bills sent to the Environmental Protection Agency. Of
the 17 receivable transactions reviewed, 16 were
promptly and accurately recorded within the same month
that bills were sent to Environmental Protection
Agency for reimbursement. The other receivable
transaction, recorded during December 1986 for the
construction effort, overstated Corps earnings by
about $521,000; this amount was included in the
January bill sent to Environmental Protection Agency
for reimbursement. Monthly billings were suspended
during June 1987 to make up for the overbilling;
however, contract costs of about $1 million were not
billed after the overbilling was corrected. The
U. S. Treasury incurred interest costs that could have
been avoided had the billings been made. Action was
needed to bill the Environmental Protection Agency -for
contract costs not billed and to resume monthly
billings.
Collections of about $283,000 were recorded for the
design effort during March 1984 through September
1986, and collections of about $1.3 million were
recorded during September 1984 through May 1987 for
the construction effort. In total, 27 transactions
were recorded. Of 10 collections reviewed, 8 were
promptly and accurately recorded within 3 workdays
after receipt of the check. The other two collec-
tions were recorded accurately 4 and 30 workdays,
respectively, after receipt of the checks.
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- A total of 26 rejected transactions occurred during
March 1984 through September 1986 for the design
effort, and 117 rejected transactions occurred during
January through June 1987 for the construction effort.
Of the 25 rejected transactions reviewed, 15 were
corrected in the same month, 7 were corrected in the
next month, and 3 were corrected 2 or more months
after the reject occurred.
Direct and indirect Corps costs charged to the design
project were generally consistent with established Corps
procedures. As of September 1986, in-house costs were about
$64,000.. According to Engineer Regulation 37-2-10, in-house
expenses such as labor, travel, supplies, and reimbursable
orders that can be directly related to a specific Corps
project should be charged to the specific project. Overhead
and indirect costs are then charged to the project based on
a predetermined rate applied to actual direct labor hours
incurred. Of about $21,000 of in-house costs reviewed,
about $20,650 was appropriately charged as expenser that
directly benefited the Charles George Waterline design
effort. Reviewed costs included expenses for labor, travel,
reproduction, supplies, and reimbursable work. Costs of
about $350 for labor, associated overhead, and indirect
expenses of one Corps employee were incorrectly charged to
the project because of a coding error. We advised the
finance office of the discrepancy. The only overhead and
indirect costs charged to the design project were amounts
based on direct labor hours. Overhead and indirect costs
charged to the Charles George Waterline design effort were
based on the same allocation method and rates used for all
projects performed by the Omaha District.
Direct and indirect Corps costs charged against the
construction project were not fully consistent with estab-
lished Corps procedures. As of July 1987, in-house costs of
about $248,000 were charged to the project. Actual
expenses and obligations exceeded the amount authorized in
the interagency agreement by about $45,000 and $57,000
respectively, when the project was only 75-percent
complete. Although in-house costs exceeded the amount
authorized, total funds authorized by the interagency
agreement were not exceeded. Rather than requesting
additional fund authority from the Environmental Protection
Agency, expenses totaling about $34,000 were transferred
from the project to an indirect cost account and later
absorbed by other reimbursable work. New England Division
needed to request an amendment to the interagency agreement
for additional fund authority to complete the project.
The actual direct and indirect expenses transferred from
the project should be charged back to the project.
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Conversely, inappropriate costs totaling about $18,400 for
labor and travel were charged to the project and billed to
the Environmental Protection Agency. The inappropriate
charges resulted in funds intended for the Superfund
project being used to finance other Corps- missions.
Periodic reviews of accumulated obligations and expenses
versus authorized ceilings were needed. Also, action was
needed to transfer the inappropriate charges to the correct
account and to require Corps personnel working on Superfund
projects to sign their timesheets attesting that Superfund
charges are valid. The only overhead and indirect costs
charged to the construction project were amounts based on
direct labor hours and were based on the same allocation
method and rates used for all projects performed by New
England Division.
Actions taken to implement the Army's Internal Control
Program, as it relates to Superfund construction, were
adequate. Superfund functions were not designated as a
separate assessable unit but rather the various aspects of
Superfund functions were included in several assessable
units. No DA or Corps internal control checklists published
specifically for the Superfund functions were available at
the time of our review. Both Omaha District and New England
Division required key managers with Superfund responsibili-
ties to have internal control responsibilities in their job
descriptions and performance standards. Omaha District
completed 10 internal review checklists during the
19 months ending June 1987; 10 more were in progress at the
time of our review. New England Division completed four
internal control checklists during the 19 months ending
June 1987 and eight were in progress. Some of these check-
lists related to aspects of Superfund functions.
COMMAND REACTION
The Commander, U. S. Army Engineer Division, New
England, agreed with the findings and stated that correc-
tive actions had been or would be taken on all
recommendations. Detailed command comments are presented
after each recommendation in Part II of this report. The
Ariry's official position on the findings, recommendations,
and command comments will be established when the official
command-reply process prescribed by AR 36-2 is completed.
RESPONSIBILITIES AND RESOURCES
By agreement, the Corps of Engineers is responsible
for managing the design and construction of Federal cleanup
sites paid for by the Environmental Protection Agency with
money from the Superfund trust fund. Design work is managed
within the Corps' Missouri River Division and construction
8
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is managed by the Corps' district or division with
jurisdiction over the geographic location of the cleanup
site. The Environmental Protection Agency authorized
$295,682 for the design of the Charles George Waterline;
$230,622 was for the contract and $65,060 was for the
Corps' in-house costs. For the construction project,
$3,471,914 was authorized; $3,268,614 was for the contract
and $203,300 was for Corps' in-house costs. Engineering,
construction, contracting, and resource management person-
nel are directly involved in carrying out Superfund
functions at the performing Corps' districts or divisions.
The Commander, U. S. Army Corps of Engineers is responsible
for ensuring that action is taken on the recommendations
addressed to the New England Division.
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PART II
FINDINGS. RECOMMENDATIONS. AND COMMAND COMMENTS
FOR THE COMMANDER,
U. S. ARMY ENGINEER DIVISION, NEW ENGLAND
A - IN-HOUSE COSTS
FINDING
In-house costs for the Charles George Waterline
construction project were not properly recorded and
managed. As of 31 July 1987, when the project was about
75-percent complete, recorded expenses and obligations
exceeded the amount authorized in the interagency agreement
by about $45,000 and $57,000 respectively, but had not
exceeded total funds authorized by the interagency
agreement. U. S. Army Engineer Division, New England had
not established effective procedures for monitoring costs
and estimating future needs to complete the work. Rather
than requesting additional fund authority from the
U. S. Environmental Protection Agency, appropriate charges
totaling about $34,000 were transferred from the project to
an indirect cost account. As a result, other reimbursable
work in the New England Division absorbed costs incurred in
support of the waterline project. At the same time,
inappropriate costs totaling about $18,400 for labor and
training were charged to the waterline project and billed
to the Environmental Protection Agency. Division personnel
did not sign their timesheets att-s'-ting to the validity of
Superfund labor charges. Also, the cost for general
training courses was charged apparently because the
project had available funds at the time of the training.
The inappropriate charges resulted in funds intended for
the Superfund project being used to finance other New
England Division missions.
DISCUSSION
1. Background. Each government agency is directed by law
to establish and maintain an adequate system of accounting
and internal control over obligations, accrued
expenditures, applied costs, and outlays. The U. S. Army
Corps of Engineers uses the finance and accounting
subsystem of the Corps of Engineers Management Information
System to record accounting transactions for site-specific
funds provided by the Environmental Protection Agency for
Superfund work. Engineer Regulation 37-2-10 provides
guidance concerning the accounting treatment of the Corps'
in-house costs for Superfund work. The general rule is that
11
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costs which directly apply to a specific project should be
charged to that project. The interagency agreement between
the Corps and the Environmental Protection Agency for the
Charles George Waterline construction project gives an
authorized ceiling for in-house costs. Engineer
Regulation 1110-2-500 provides guidance for requesting
changes to Superfund interagency agreements.
2. Recorded Costs. Actual in-house costs for the Charles
George Waterline construction project exceeded the ceiling
authorized by the interagency agreement, but had not
exceeded total funds authorized. Instead of requesting the
additional needed fund authority, in-house costs incurred
in direct support of the waterline were transferred to an
indirect account that was allocated to all reimbursable
construction work being performed by New England Division.
a. Authorized Ceiling. The ceiling for the Corps'
in-house costs was exceeded before the construction of the
waterline was complete. The interagency agreement provided
$203,300 for the Corps' in-house costs. As of 31 July
1987, when the project was about 75-percent complete,
recorded in-house expenses totaled $247,864, or about
$45,000 over the ceiling; recorded obligations totaled
$260,729, or about $57,000 over the ceiling. In-house
costs will continue until the project is completed during
1988. Recorded in-house expenses over the authorized ceil-
ing as of 31 July 1987 were billed to the Environmental
Protection Agency and reimbursed from the Superfund trust
fund.
b. Monitoring of Costs. New England Division had
not established effective procedures for monitoring the use
of in-house fund authority or estimating the need for addi-
tional authority. Personnel of the New England Division's
Construction Division told us that some reviews were made
of accumulated direct labor costs and associated indirect
and New England Division overhead costs. However, there was
no set schedule for the reviews, such as at certain comple-
tion points during the project. Other in-house expenses
such as laboratory costs and reimbursable orders to other
Corps elements were not monitored. As a result, personnel
of the Construction Division did not know the actual total
of in-house costs incurred. Periodic estimates of in-house
funds needed to complete the waterline were also not made.
Without such estimates and periodic reviews o.f accumulated
obligations and expenses against authorized ceilings for
Superfund work, personnel did not have sufficient informa-
tion for controlling in-house expenses and requesting
additional fund authority when necessary.
12
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c. Cost: Transfer. In-house costs of about $34,000
were transferred from the construction project's account
during September 1987 to an indirect cost account. The
costs represented direct labor plus associated indirect
costs and New England Division's overhead costs for five
Corps personnel who had performed work in support of the
construction project. Construction Division personnel
assumed that the in-house cost ceiling of the interagency
agreement was a not-to-exceed limit that could not be
changed; therefore, an amendment to increase the ceiling
was not requested. The cost transfer was an attempt to
reduce recorded expenses below the authorized ceiling; but
because the total amount of in-house costs were not known
and only labor expenses were considered, the transfer made
did not meet the intended objective. Costs charged
against the indirect costs account were allocated to all
reimbursable construction projects being performed; there-
fore the transfer of about $34,000 of expenses resulted in
other reimbursable work absorbing costs incurred in support
of the waterline construction project.
d. Aaendaent. An amendment to the interagency
agreement should have been requested if the in-house cost
ceiling was insufficient to cover the Corps' actual cost to
manage the project. Guidance on requesting amendments to
Superfund interagency agreements is included in Engineer
Regulation 1110-2-500. The timely request for an amendment
by New England Division and a favorable response by the
Environmental Protection Agency would have negated the need
for a cost transfer due to an authorized ceiling being
exceeded.
3. Inappropriate Charges. About $18,400 was improperly
charged to the Charles George Waterline construction
project for Corps' expenses relating to labor and travel,
including the cost of general training. Improper charges
were about 7 percent of the recorded in-house expenses as
of 31 July 1987. The inappropriate charges resulted in
funds provided by the Environmental Protection Agency for
the waterline project being used to finance other New
England Division missions.
a. Direct: Labor. Labor was charged to the waterline
construction project for four Corps personnel who had not
performed services in support of th-^ construction project.
We interviewed 11 of 19 individuals who had direct labor
charged to the project and determined that 2 had never
worked on the project. The value of their direct labor and
the associated indirect and New England Division overhead,
about $3,900, should not have been charged to the project.
After we discussed the inappropriate labor charges with the
13
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project manager, two other individuals were identified who
had not worked on the project but had about $7,900 of their
direct, labor and associated indirect and division overhead
charged to the project. A cost transfer was initiated by
the waterline project manager during September 1987 to
reduce the recorded in-house costs by about $11,800 for the
inappropriate labor charges of the four individuals. In
our Audit Report MW 86-605, Superfund Management, dated
24 April 1986, we recommended that all employees performing
work on Superfund projects sign their timesheets.
Headquarters, Corps of Engineers agreed and reported that
the recommendation had been implemented. Timesheets for
Corps personnel working on the waterline project were
prepared and signed by timekeepers; the employees had not
signed the timesheets. A signature by the employee attest-
ing that Superfund charges were correct may have prevented
the inappropriate charges to the waterline project.
b. Travel. Travel costs were charged to the water-
line construction project for 11 trips that did not
specifically benefit the project. According to Engineer
Regulation 37-2-10, costs that cannot be d-r^ctly
associated with a specific project should be charged co an
indirect or overhead account. The interagency agreement
for the waterline project also states that reimbursement is
to be for actual costs incurred. During July 1986 through
May 1987, travel costs for 18 trips totaling about $4,200
were charged to the project. We reviewed the appropriate-
ness of 12 of these charges and found that 11, totaling
about $3,200, were for travel to general training courses
such as contract negotiating, network analysis, and
manpower distribution. Although the 11 travel charges may
have provided some benefit to the waterline project, the
training was not technical training in direct support of
the project. The expenses should have been charged to an
indirect or overhead account. Corps personnel said the
expenses were charged to the waterline project because the
project had available funds at the time of the training.
Documentation was not retained on the other six expenses
for travel so we could not review them for appropriateness
of charges to the waterline construction project.
c. Labor During Training. Along with the travel
expenses, labor costs of about $3,400 for the employees'
time while attending the general training were charged to
the waterline project. The expenses should have been
charged to an indirect or overhead account because the
labor costs did not directly support the waterline
construction project.
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RECOMMENDATIONS AND COMMAND COMMENTS
A-l Issue local written guidance:
- Establishing a requirement for periodic reviews of
accumulated obligations and expenses against autho-
rized ceilings for Superfund work. Specify that the
reviews cover all costs, not just direct labor and
associated indirect and overhead costs. Also, require
that periodic estimates be made of the amount of funds
needed to complete the work.
- Reemphasizing the requirement for charging in-house
expenses to Superfund projects and the need for
requesting amendments to Superfund interagency agree-
ments when required.
Command agreed and stated that the Construction Division's
Quality Assurance Branch was directed on 19 February 1988
to establish procedures to track and review all costs for
Superfund projects. Emphasis will be placed on ensuring
that all costs associated with a project are charged to the
proper accounts. Accumulated project costs will be
reviewed on a quarterly basis and project cost tracking
will begin within one month after receipt of the
contractor's work schedule for the construction project.
The quarterly reviews will consider the amount of funds
needed to complete the project and, when appropriate,
additional funding or a change in an authorized ceiling
will be requested from the Environmental Protection Agency.
A-2 Determine the total amount of in-house costs incurred
to date for the Charles George Waterline construction
project and estimate the cost needed to complete the
project. Compare this total to the ceiling authorized for
in-house costs by the interagency agreement and request an
amendment to the interagency agreement for the difference.
Move the in-house costs of about $34,000 transferred from
the project during September 1987 back to the project.
Command agreed and stated that all costs, current and pro-
jected, associated with the Charles George Waterline
construction project will be determined and corrected. A
change to thd interagency agreement will be coordinated
with the Environmental Protection Agency by fourth quarter,
FY 88.
A-3 Require Corps personnel who work on Superfund projects
to sign their timesheets attesting that the time charged to
Superfund projects is valid.
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Command agreed and stated that personnel who work on
Superfund projects were directed on 19 February 1988 to
sign-their timesheets in order to support the validity of
time charges.
A-4 Transfer the inappropriate expenses for travel, total-
ing about $3,200, and labor, totaling about $3,400,
during general training from the Charles George Waterline
construction project to proper indirect or overhead
accounts.
Command agreed and stated that the cost transfer will be
completed by fourth quarter, FY 88.
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FOR THE COMMANDER,
U. S. ARMY ENGINEER DIVISION,NEW ENGLAND
B - REIMBURSEMENT BILLINGS
FINDING
New England Division did not properly bill the
Environmental Protection Agency for contract costs incurred
for the Charles George Waterline construction project. The
January 1987 billing included about $521,000 for contract
costs not yet incurred. Monthly billings were suspended
during June 1987 to correct the overbilling. However, after
the overbilling was corrected, contract costs of about
$1 million were not billed. Billings were not resumed
because a new individual became responsible for the
billings, and that individual did not know the status of
corrective action for the overbilling or when to resume
billings. Untimely billings resulted in $4,800 of needless
interest expenses for the U. S. Treasury.
DISCDSSIOH
1. Background. Interagency agreements between the Envi-
ronmental Protection Agency and the Corps are established
to provide the necessary funding for Superfund projects
managed by the Corps. An agreement, such as the one for
the Charles George Waterline project, provides the Corps
with program authority for a specified timeframe. As costs
are incurred, the Corps establishes an account receivable
and bills the Environmental Protection Agency for the
amount spent. The Environmental Protection Agency
reimburses the Corps with a check from the Superfund trust
fund for deposit to the U. S. Treasury. The New England
Division operates on an accrual basis of accounting.
Estimates are recorded in the accounting records at the
beginning of each month for expected contract and in-house
costs. The estimates are then reversed when corresponding
actual costs are recorded. The automated accounting system
used by New England Division generates a bill to the Envi-
ronmental Protection Agency around the 15th of the month
for costs recorded against Superfund projects during the
previous month.
2. Billings. Billings were not properly sent to the
Environmental Protection Agency for contract costs
incurred for the Charles George Waterline construction
project. New England Division paid the construction con-
tractor a total of about $2.9 million through 30 November
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1987; however, only about $1.9 million of these costs were
billed to the Environmental Protection Agency as of
31 December 1987.
a. Early Billings. About $521,000 was billed on the
January 1987 billing for contract costs that had not yet
been incurred. Contract costs were overstated because an
estimate of costs recorded at the beginning of the period
was not reversed when actual costs were recorded. The
automated accounting system included both the estimated and
actual costs on the billing sent to the Environmental
Protection Agency, and New England Division received
reimbursement for the billing during April 1987. Corps
personnel identified the overbilling during June 1987 and
decided that monthly billings for contract costs would be
suspended until accumulated actual costs exceeded the total
amount billed.
b. Late Billings. About $1 million was not billed
during the months after contract costs were recorded. With
the ninth progress payment to the contractor during August
1987, accumulated actual costs exceeded the total amount
billed. But, billings for contract costs were not resumed
and no billings were submitted during the period September
through December 1987. Progress payments to the contractor
during this period exceeded the total amount billed by
about $1 million. A new individual became the accountant
in the Civil Funds Section of New England Division's
Finance and Accounting Office during the fall of 1987. The
new accountant did not know the status of corrective action
for the overbilling or have an understanding of when bill-
ings should be resumed.
3. Funds. Improper billings for the construction con-
tract costs resulted in interest costs to the U. S.
Treasury that could have been avoided.
a. Honey Froa the Trust Fund. The U. S. Treasury
had the use of money from the Superfund trust fund earlier
than provided by the interagency agreement for the contract
c^sts billed too early. About $521,000 received during
April 1987 was available too soon.
Number of Months
Amount' Available Too Soon
$452,730 3
68.180 4
$520.910
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b. Use of Appropriated Funds. Appropriated funds
were used longer than necessary for contract costs that
were not billed.
Number of Months
Amount Longer Than Necessary
$370,915 4
191,141 3
254,960 1
138.908 1
$955.924
When the Corps pays for incurred costs with appropriated
funds, the U. S. Treasury has to borrow and incur interest
until reimbursement is received from Superfund trust fund.
Using an annual rate of 7 percent and assuming a consistent
number of days for collection of billings sent to the Envi-
ronmental Protection Agency, about $14,300 in interest
accrued for contract costs not billed. This amount was
offset, however, by about $9,500 in interest avoided to the
U. S. Treasury due to the inappropriate early billing.
RECOMMENDATIONS AND COMMAND COMMENTS
B-l Determine the total amount of contract costs incurred
for the Charles George Waterline construction project that
have not been billed and submit a billing to the
Environmental Protection Agency.
B-2 Resume monthly billings to the Environmental Protec-
tion Agency for contract costs incurred for the Charles
George Waterline construction project.
Command agreed with Recommendations B-l and B-2 and stated
that billings were aggressively worked and monthly billings
to the Environmental Protection Agency were resumed in
March 1988.
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FOR THE COMMANDER,
D. S. ARMY ENGINEER DIVISION, NEW ENGLAND
C - PROJECT DESIGN
FINDING
Procedures used to investigate potential design
omissions for the Charles George Waterline construction
project were not in accordance with regulatory guidance.
Construction Division personnel at New England Division
decided that there was no possibility of architect-engineer
liability. Therefore, information pertaining to potential
liability was not provided to the responsible activity for
review, and documentation supporting liability determina-
tions was not included in the contract files. Information
on apparent design omissions was not furnished to the
responsible design activity because local implementing
procedures did not cover instances where design was accom-
plished by an activity other than the New England Division.
As a result, proper liability determinations were not made
for construction contract changes totaling about $76,000
and a complete record of the architect-engineer's perfor-
mance was not maintained for use in evaluating the firm for
future services.
DISCUSSION
1. Background. Architect-engineer contractors are
responsible for the professional quality/ technical
accuracy, and coordination of all services required under
their contracts. An architect-engineer firm may be liable
for government costs resulting from errors and deficiencies
in designs furnished under the firm's contracts. When a
modification or change to a construction contract is
required because of an error or deficiency in the services
provided under an architect-engineer contract, the Federal
Acquisition Regulation requires that the potential for
liability of the architect-engineer be evaluated and the
results documented in the contract file. Procedures and
responsibilities within the Corps of Engineers for investi-
gating and pursuing possible architect-engineer liability
are included in Engineer Regulation 715-1-10 and local
procedures are included in New England Division Engineer
Regulation 1180-1-11.
2. Evaluation. The potential for architect-engineer
liability was not assessed by the proper activity for
possible design omissions at the Charles George Waterline
site. As of 31 July 1987, the construction contract had
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seven changes issued or pending valued at about $187,000.
Of the changes initiated by New England Division, four
valued-at about $76,000 specifically cited design omissions
as the reason for the change. For example, one construction
change involved materials and dimensions for a culvert
different from those specified in the plans. Lack of an
onsite review during design was given as the reason for the
change.
a. Documentation. New England's Construction Divi-
sion personnel told us that they had evaluated each change
and had determined that no potential liability existed.
Determinations made on the potential for architect-engineer
liability were not documented and included in either the
architect-engineer or construction contract files, and per-
sonnel at the U. S. Army Engineer District, Omaha, the
design activity, did not make any liability reviews so a
final conclusion was not documented. Engineer
Regulation 715-1-10 requires that a written determination
be made for all apparent design omissions covering the
extent of liability and the appropriateness of pursuing
recovery action. In addition, the results of investigations
should be reflected in the architect-engineer performance
evaluation and considered when selecting future design
contractors. Without documentation, architect-engineer
firms may not be held accountable for their mistakes.
b. Coordination. According to Engineer Regulation
715-1-10, when construction is accomplished by an activity
different than the design activity, the design activity has
responsibility for investigating and pursuing architect-
engineer liability. The construction activity has
responsibility for providing all necessary information and
cooperating fully with the design activity. New England
Engineer Division Regulation 1180-1-11 does not address the
situation where different activities perform the design and
construction efforts. Omaha District, the design activity,
was aware of construction contract changes and acted as a
liaison between the architect-engineer firm and the
construction activity. But Omaha District did not have all
information necessary to assess for potential liability.
Personnel at the design activity are in a better position
to investigate for potential liability because they have a
more thorough knowledge of the design issues affecting the
project.
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RECOMMENDATIONS AND COMMAND COMMENTS
C-l Provide Omaha District with complete information on
potential design omissions for the Charles George Water-
line site. Request written documentation on the
determinations be returned to the New England Division for
inclusion in the construction contract file.
Command agreed and stated that all contract modifications
indicating design deficiencies for the Charles George
Waterline construction project will be forwarded during
third quarter FY 88 to the Omaha District for investigation
of possible architect-engineer liability.
The Commander, U. S. Army Engineer District, Omaha also
provided comments on the finding and recommendations and
stated that, after receipt of documentation from the New
England Division, a review will be conducted for possible
architect-engineer liability on actions considered to be a
result of design errors.
C-2 Revise New England Division Engineer Regulation
1180-1-11 to include procedures for architect-engineer
liability review in instances when the design activity is
outside the division.
Command agreed and stated that procedures for architect-
engineer liability review in instances when the design
activity is located outside the division will be included
in a fourth quarter, FY 88 revision of New England Division
Engineer Regulation 1180-1-11.
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ANNEX
Copies of this report are being furnished to the following
activities:
Inspector General, U. S. Environmental Protection Agency
Assistant Secretary of the Army (Civil Works)
Assistant Secretary of the Army (Financial Management)
The Inspector General
Director of the Army Staff
Chief of Public Affairs
Deputy Chief of Staff for Personnel
Deputy Chief of Staff for Logistics
Chief of Engineers
Commanders
U. S. Army Corps of Engineers
U. S. Army Criminal Investigation Command
First Region, U. S. Army Criminal Investigation Command
Commandant, U. S. Army Logistics Management College
This report is not to be released outside the Department of
the Army for 60 days. After that period has elapsed, the
report may be released in accordance with the procedures
prescribed in Army Regulation 340-17 and Department of the
Army Memorandum 36-1. However, the results of audit will
be furnished to the Inspector General, U. S. Environmental
Protection Agency, who requested this audit.
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