UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
APR 16 1990
O f f iCE OF
SOLID WASTE AND EMERGENCY RESPONSE
MEMORANDUM
SUBJECT: Audit Report Summaries for Semiannual Report
to Congress
FROM : i ^jx- Thad Juszczak, DirectorcKo^*-"»^*-
"^ Resource Management stafr
TO: Henry Longest S
Bruce Diamond
Sylvia Lowrance
Walt Kovalick
The purpose of this memorandum is to transmit to you and
request your comments on the attached audit report summaries from
the Office of Inspector General. These summaries will appear in
the Semiannual Report to Congress. Your comments are due to this
office by April 19. 1990.
If you have any questions, please contact Jose Acevedo or
Johnsie Webster at 382-4510. We appreciate you prompt attention
to this matter.
Attachment
cc: Don Clay (w/o attachment)
Christian Holmes "
Mary Gade "
Jose Acevedo "
Johnsie Webster "
frinttd on KiCfcltd Paptr
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J UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
r WASHINGTON. D.C. 20460
APR I 3 1990
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Audit Report Summaries for Semiannual Report
to Congress
TO: See Attached List
The Office of Inspector General is required to provide a
semiannual report to Congress. In this report, we provide
summaries of some of the significant audits we have performed.
Attached are copies of report summaries relating to your
office which we plan to include in the next semiannual report.
These summaries are as close as possible to final versions that
will appear in the semiannual report to be issued to the
Administrator on April 30, 1990.
Should you or your staff have any comments regarding the
factual content of the report summaries, please submit your
comments in writing to Kenneth A. Konz, Assistant Inspector
General for Audit. To consider your comments, we must receive
them no later than April 20, 1990. We appreciate your prompt
attention to this matter.
Martin
\J
Attachment
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Attachment
Page 1 of 3
Addressees
F. Henry Habicht, II
Deputy Administrator (A-101)
Judith I. Gleason
Associate Administrator for Regional Operations and
State/Local Relations (H-1501)
Lewis Crampton
Associate Administrator for Communications and
Public Affairs (A-100)
Patrick H. Quinn
Associate Administrator for Congressional and
Legislative Affairs (A-103)
Timothy B. Atkeson
Assistant Administrator for International Activities (A-106)
William G. Rosenberg
Assistant Administrator for Air and Radiation (ANR-443)
James M. Strock
Assistant Administrator for Enforcement and
Compliance Monitoring (LE-133)
Don R. Clay
Assistant Administrator for Solid Waste and
Emergency Response (OS-100)
Charles L. Grizzle
Assistant Administrator for Administration and
Resources Management (PM-208)
J. Clarence Davies
Assistant Administrator for Policy, Planning, and
Evaluation (PM-219)
Erich W. Bretthauer
Assistant Administrator for Research and
Development (RD-672)
LaJuana S. Wilcher
Assistant Administrator for Water (WH-556)
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Page 3 of 3
Edward J. Hanley, Deputy Assistant Administrator
Office of Administration and Resources Management (PM-208)
David J. O'Connor, Director
Procurement and Contract Management Division (PM-214F)
Harvey G. Pippen, Director
Grants Administration Division (PM-216F)
David P. Ryan
Comptroller (PM-225)
John J. Sandy/ Director
Resource Management Division (PM-225)
Sallyanne Harper, Director
Financial Management Division (PM-226F)
Clarence Mahan, Director
Office of Research Program Management (RD-674)
James Hanlon, Director
Municipal Construction Division (WH-547)
Michael B. Cook, Director
Office of Drinking Water (WH-550)
Carroll G. Wills, Director
National Enforcement Investigations Center
Peter B. Nobert, Chief
Management Controls Branch (PM-225)
Thaddeus L. Juszczak Jr., Acting Director
Office of Program Management (OS-110)
David G. Davies, Director
Office of Wetlands Protection (A-104F)
Walter W. Kovalick Jr., Director
Office of Technology Innovation (OS-110)
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Page 2 of 3
Constantine Sidamon-Eristoff
Regional Administrator, Region 2
Edwin B. Erickson
Regional Administrator, Region 3
Greer C. Tidwell
Regional Administrator, Region 4
Valdas V. Adamkus
Regional Administrator, Region 5
Robert E. Layton, Jr.
Regional Administrator, Region 6
Morris Kay
Regional Administrator, Region 7
James J. Scherer
Regional Administrator, Region 8
Daniel W. McGovern
Regional Administrator, Region 9
Thomas P. Dunne
Acting Regional Administrator, Region 10
E. Donald Elliott
General Counsel.(LE-130)
Patricia L. Thorne
Staff Assistant to the Administrator (A-100)
James R. Elder, Director
Office of Water Enforcement and Permits (EN-335)
Gerald A. Bryan, Director
Office of Water Compliance Analysis and
Program Operations (LE-133)
Henry L. Longest, II, Director
Office of Emergency and Remedial Response (OS-200)
Sylvia K. Lowrance, Director
Office of Solid Waste (OS-300)
Bruce M. Diamond, Director
Office of Waste Programs Enforcement (OS-500)
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EPA CONTRACTS ALLOW FOR AWARD FEES
EVEN WHEN WORK IS DEFICIENT
Problem
EPA rewarded Superfund contractors for work that was less than
satisfactory. Cost-plus-award-fee (CPAF) contracts tended to
reward all degrees of performance in an attempt to motivate
contractors to achieve excellence.
Background
Under a CPAF contract, the Government reimburses contractors for
all costs plus a base fee. An additional award fee amount i.s
paid by EPA based upon periodic evaluations of ongoing
performance in such areas as quality, timeliness, and cost
control. Consequently, the contractor assumes no cost risk, is
almost always assured a set percentage of costs in the form of
base fees, and can obtain additional income in the form of award
fees. As of June 2, 1989, there were 98 active Superfund
contracts.
We Found That
o The award fee process for 21 of the contracts, with a
potential worth of over $2.2 billion, provided for the payment
of award fees for practically any level of performance.
Although the payment of award fees for less than satisfactory
work does not conflict with contact provisions, we believe
payment of these fees will not accomplish the intent of the
award fee concept which is to motivate contractors to
excellence.
o Although contractor evaluations over a two year period were
considered less than outstanding, one contractor received
award fees of over $678,000 even though 85 percent, or over a
half million hours, were considered no better than
satisfactory. Thus, the contractor received almost 60 percent
of the available award fees for satisfactory work.
o Another contractor was paid over $71,000 in base and award
fees even though 60 percent of the work was marginal or
deficient. The contractor did not use any of the four
regional team managers identified in the firm's proposal; two
of the four teams did not showed up for work; a third team as
well as the Zone Management Office was replaced entirely; and
two years after contract award, half the teams still lacked
permanent managers. As a result, the contractor did not
fulfill the contract requirements and EPA did not receive the
services it requested.
o A third contractor received award fees despite having charged
the Government an unknown amount of costs that MMIM
unallowable under the contract.These cnargea includedt
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Envelopment of a computer system that was not fully
operational at the time the contract was awarded; an office
that was 20 percent over staffed; and labor and travel f\
expenses of corporate officials who were explj-citly prohibited r
from working on the contr_act_._
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PROJECT MANAGEMENT DEFICIENCIES HAMPERED THE RELIABILITY
AND ACCURACY OF 'EPA'3 SUPERFUND REPORTING SYSTEM
Problem
Program documentation, software changes, and testing needed to
assure the reliability, of EPA's Superfund Management Information
System were deficient. Insufficient controls and oversight made
jsuperfund information reports suspect and eroded user confidence.
Background
The Superfund Program is a multi-billion program established by
law to eliminate the significant hazards po^ed by uncontrolled
and abandoned hazardous waste sites. Superfund's management
information system, commonly referred to as CERCLIS is the
required and sole source of Superfund planning and accomplishment
data. CERCLIS is used in support of Superfund program, site, and
project management. It is also the primary data source in
Superfund strategic decision-making.
We Found That
-~*
Controls and oversight were limited for the initial CERCLIS
computer programming development, subsequent implementation, and
later programming changes.
^^
Essential documentation showing computer program design for the
. CERCLIS was poor. Such documentation would have included
tP—specific programming steps and rationale which would be useful to
future programmers when changing or modifying existing programs.
Without adequate documentation modifications to existing programs
may be more extensive; possibly requiring complete program
rewrites.
Lax controls over CERCLIS report programs allowed programmers to
change reports without approval. Also, users were not always
sure what version of the program was used, some of which would be
unreliable versions. As a result, reports produced could not be
relied upon to produce accurate information for management.
V*
New report programming or changes to old reports were done
without formal testing and acceptance procedures. CERCLIS
officials relied upon negative comments from report users as a
way of determining report acceptability — the presumption that
if they didn't hear anything, the reports were satisfactory.
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I
We Recommended That
The Assistant Administrator for the Office of Solid Waste
and Emergency Response:
regularly monitor the Office of Emergency and Remedial
Response's actions for improving the adequacy and
accuracy of program documentation;
— ensure that adequate library control procedures are
formally established and followed;
— improve documentation of changes to provide a trail that
can be used to verify that all changes are complete and
correct;
develop formal testing and quality assurance procedures
and monitor compliance with those procedures .
What Action Was Taken
The Assistant Administrator for the Office of Solid Waste
and Emergency Response agreed with the findings in our December,
1989 report and has implemented all recommended actions. The
final audit report no. (01001187) was issued on March 12, 1990.
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-^ MILLIONS OWED SUPERFUND
TRUST FUND NOT PROMPTLY COLLECTED
x-
Problem
Superfund managers did not inform EPA Financial Management
Offices of amounts due from potential responsible parties
resulting in delayed collections.
Background
Annual audits of the Trust Fund have consistently reported that
amounts due as a result of cost recovery actions were not timely
recorded. Such reports warned the Agency that a large number of
unrecorded receivables precludes the ability to manage
receivables and collections/ and could result in a material
amount of lost interest. In response/ the Agency instituted
measures to ensure methodical and systematic transfer of
Superfund receivables to the regions/ provided training and
issued interim procedures to improve controls over Superfund
receivables.
We Found That
•' »
Agency-wide controls over Superfund receivables had not improved/
however, and resulted in lost interest to the Trust Fund. EPA
Headquarters/ Regions 3, 4 and 5 were not timely recording monies
owed on the Agency's financial management system. For fiscal
1989/ $5.3 million of $5.9 million or 90 percent of the costs to
be recovered/ were not recorded in a timely manner as accounts
receivable. Accounts receivable were not recorded because: (1)
settlement documents were not forwarded to the Financial
Management Office/ (2) the Department of Justice failed to
promptly send Judicial orders to EPA/ and (3) the Financial
Management Office did not timely record receivables for amounts
due. Thus, the Agency's control over monies owed the Superfund
Trust Fund was greatly reduced.
Further/ EPA was not promptly collecting cost recovery amounts
due the Superfund Trust Fund. This resulted from delays in: (1)
sending billing data to responsible parties (2) responsible
parties paying amounts due, (3) responsible party requests for
further documentation and/or dispute of cost billed, and (4)
notifying responsible parties of the due date for payment. By
taking prompt actions to collect amounts owed from responsible
parties/ the Government could have invested these monies at an
earlier date. Delays in collecting amounts owed resulted in lost
interest to the Superfund Trust Fund of at least $103,856. This
occurred primarily because the regions did not have a tracking
system for sending billings to responsible parties and payments
were not promptly collected.
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pn/-r>mmended That '
Deputy Administrator ensure that the Assistant Administrators
for (1) Administration and Resources Management/ (2) Solid Waste
and Emergency Response/ and (3) Enforcement and Compliance
Monitoring/ the General Counsel/ and the Regional Administrators
work together on the resolution of our findings. Appropriate
action should be taken to ensure that:
^)C o Regional Administrators and Offices of Regional
Counsel have established and implemented
administrative procedures and internal controls
over the flow of documents and information
affecting Superfund receivables.
Accounts receivable are timely recorded for all
cost recovery amounts owed.
Guidance on tracking and collecting reimbursement
°^ oversight costs has been fully implemented and
procedures have been established to ensure that
oversight billings are promptly sent to
responsible parties.
What Action Was Taken
The audit report (report no. 0100207) was issued to the Deputy
Administrator on March 28/ 1990. A response is due by June 26,
1990.
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REGION 8 ACTIONS RESULT IN MORE EFFECTIVE
ADMINISTRATION OF SUPERFUND COOPERATIVE AGREEMENTS
A September 1987, review of Region 8's administration of
Superfund Cooperative Agreements (CAs) concluded that the Region
needed to more effectively manage its Superfund CAs. The review
disclosed that pre-remedial and remedial work were not performed
timely and effectively. The audit also noted a need for
increased Regional involvement with States and improved Regional
procedures. Finally, the review disclosed a need for improved
monitoring of the financial management of cooperative agreement
recipients. The audit included 10 recommendations for corrective
actions that the Region agreed to implement.
Our followup review disclosed that the Region had initiated
action on each of the recommendations. The Region's response to
the original audit was very positive and resulted in visible
improvements in their Superfund program. However, their actions
were not always timely nor fully effective. Additional emphasis
was still needed in overseeing State pre-remedial activities,
achieving the pre-remedial program goals established in SARA,
monitoring recipient's cooperative agreement activities, and
tracking agreed to corrective actions.
The followup report recommended additional actions management
should take to improve the operations of the program.
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EPA'S LAX ENFORCEMENT DELAYED ACTION TO DEAL
WITH SERIOUS PUBLIC HEALTH HAZARDS AT THE
BUNKER HILL SUPERFUND SITE
Problem
Region 10 failed to take aggressive and effective actions against
the owners of the Bunker Hill Superfund Site that would enforce
the Superfund regulations.
Background
The Bunker Hill Superfund Site was listed on the National
Priorities List in September 1983, and consists of about 21
square miles in northern Idaho. The site includes several towns
with a population of about 5,000; a lead and zinc mine, a smelter
complex, and a 160 acre central impoundment area. Mining
operations began about 1885, and the first smelter opened in
1917. Operations from the mines and smelters have resulted in
substantial damage to the environment, particularly from lead and
other heavy metals.
We Found That
The evidence indicates that the Regional Administrator took
extraordinary measures to prevent or delay the normal and proper
activities required to enforce the Superfund regulations. As a
result, EPA failed to take timely enforcement action against the
owners of the site. This failure ad serious consequences:
The smelter complex within the Superfund site was allowed to
deteriorate to the point that in October 1989, it was
declared a public health hazard by the Agency for Toxic
Substance and Disease Registry;
:— The owners of the site transfereed their assets to newly
formed corporations through various stock and property
transfers. As a result, collections for Superfund cleanup
activities are going to be substantially more difficult; and
— The uncontrolled salvage operations may have resulted in
contaminated equipment and material being sold to, in some
cases, uninformed buyers. For example, an unknown quantity
of lead contaminated railroad ties have disappeared from the
site.
What Action Was Taken
The Deputy Administrator, EPA directed the Assistant
Administrator for Enforcement and the Acting Region 10
Administrator to review all pending enforcement actions and give
priority attention to the Bunker Hill site and any health risks
associated with it.
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CALIFORNIA'S FINANCIAL MANAGEMENT
OF STRINGFELLQW COOPERATIVE AGREEMENT NOT ACCEPTABLE
Problem
The California Department of Health Services-Toxics Substances
Control Program (DHS) has not developed an acceptable financial
management system to account for Superfund costs at the
Stringfellow site. As a result, it has claimed $2,149,415 of
ineligible force account and contract costs, and $1,639,269 of
unreasonable contract costs. The same financial management
deficiencies were brought to DHS' attention in two previous audit
reports issued in 1981 and 1985.
We Found That
EPA awarded a cooperative agreement to DHS on July 28, 1983, to
assist in the Remedial Investigation, Initial Remedial Measures,
and Remedial Actions at the Stringfellow hazardous waste site' in
Glen Avon, California. The initial agreement was awarded in the
amount of $2,772,234; subsequent amendments have increased the
agreement to a Federal share of $21,467,917.
The financial management review concluded that the State
Department of Health Services had not established the financial
management procedures necessary to effectively administer the
Stringfellow cooperative agreement. DHS financial management did
not comply with the requirement of 40 CFR 30.340-2, and therefore
DHS did not qualify as a responsible grantee. A significant
portion of the costs questioned were directly related to the
financial management deficiencies.
The financial management deficiencies included: (i) a lack of
written procedures for preparation and review of the Financial
Status Report; (ii) the devotion of insufficient resources to the
Financial Status Report claiming process; (ill) an absence of
coordination between the accounting and program sections; (iv) a
lack of a systemic method for the resolution of prior audit
findings; (v) a failure to use the official accounting system for
project accounting; (vi) a lack of a centralized filing system;
(vii) inadequate letter of credit procedures; (viii) unacceptable
timekeeping procedures; (ix) a failure to prepare an indirect
cost rate proposal; (x) a lack of an accurate accounting of
advance match costs; and (xi) inadequate use of audit resources.
The problem with the unacceptable timekeeping procedures was
brought to DHS's attention in two prior audits conducted by our
office in 1981 and 1985.
We have questioned $2,149/415 of the costs included in the
grantee's Financial Status Report for the period July 28, 1983,
the date of the cooperative agreement award/ through
September 30, 1988, as ineligible for Federal participation. The
costs questioned included:
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- $1,028,292 of force account costs that: (i) were not
supported by adequate source documentation; (ii) could
not be reconciled with the official State accounting
records; and (iii) were claimed in excess of the actual
labor costs incurred.
$955,387 of contract costs that: (i) were previously
determined ineligible by EPA; (ii) pertained to
unapproved change orders; (iii) duplicated costs
previously claimed; and (iv) were not supported by
adequate source documentation.
$165,736 drawn down in excess of the actual amount
claimed.
We have also identified an additional $1,639,269 of costs which
we have classified as unreasonable costs, pending further review
by EPA of: (i) the adequacy of the laboratory testing
procedures; and (ii) the reasonableness of equipment rental
charges. There were indications that the proper laboratory
testing procedures were not used to analyze samples take from the
Stringfellow site. There were also indications of improprieties
in the charging of equipment rentals under the project.
We Recommended That
The Regional Administrator, Region 9:
- Disallow the $2,149,415 of ineligible costs questioned
and recoup the amount previously paid to DHS.
- Review the reasonableness and necessity of the $1,639,639
of contract costs for laboratory samples and equipment.
Suspend all payments to OHS for its direct labor, fringe,
and indirect costs under the Stringfellow cooperative
agreement until it has corrected its labor charging
deficiencies.
- Advise DHS of its failure to meet the minimum standards
necessary to qualify as a responsible grantee.
- Require DHS to take the necessary actions needed to
correct the finanical management deficiencies noted in
the report, and to bring them in compliance with the
requirements for a responsible grantee.
What Action Was Taken
The audit report (0300037) was issued to the Regional
Administrator, Region 9, on March 30, 1990. A response to the
audit report is due June 30, 1990.
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IMPROVEMENTS NEEDED IN OVERSIGHT OF POTENTIAL
RESPONSIBLE PARTY CLEANUPS
Problem
Region 2 was not adequately overseeing Potential Responsible
Party (PRP) activities to assure timely completion of Superfund
cleanups and compliance with settlement requirements.
Background
The Superfund law requires EPA to establish an enforcement
program which either seeks voluntary compliance with
administrative orders or court ordered compliance by the parties
responsible for causing the public health risk. While this
requirement has been in place for years, the Agency has increased
its emphasis on enforcement. The number of settlements are
expected to dramatically increase and the ability of EPA to
adequately oversee PRP activities will become increasingly
important.
We Found That
The initiation of Superfund cleanup work was unnecessarily
delayed; stipulated penalties were not being assessed for
noncompliance with settlement milestones; improvement was needed
in the oversight of Technical Enforcement Support (TES)
contractors; and oversight costs were not being recovered from
PRPs.
The approval of documents required prior to initiating field work
on Remedial Investigation/Feasibility Studies, or other work
phases took between 6 to 36 months. This lengthy review process
occurred because EPA lacked definitive review and approval
timeframe guidelines. An understaffed and overworked project
management corps contributed to this problem. As a result,
Superfund cleanup actions were significantly prolonged (up to
several years), increasing the potential for adverse public
health effects and further environmental degradation.
The Region refrained from taking aggressive enforcement action by
not assessing PRPs as much as $1,157,500 in penalties for two of
the 13 cases we reviewed. The Region limited its actions to
verbal negotiations or warning letters, and had only sought
penalties in extreme instances. As a result, there was no
inducement for PRPs to comply with compliance order requirements.
Furthermore, the Region did not effectively monitor TES
contractor workplans and reports; conduct and document field
oversight reviews; or give emphasis to project manager training.
This resulted in contractor work stoppages and unnecessary
delays, and no assurance that TES tests or records were reliable
or accurate.
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Xiao, the Region had not sought to recover costs from PRPs for
cleanup oversight as stipulated in settlement documents because
of the low priority given to enforcing this settlement
requirement. The Region had not recovered at least $627,711 for
the Superfund Trust Fund that could have been invested and
earning interest, thus lessening the amount available for future
appropriation.
We Recommended That
The Regional Administrator, Region 2:
o Develop guidelines which set specific timeframe deadlines
for Regional review and approval of PRP submissions.
o Develop an automated tracking system to monitor specific
post-settlement milestone dates.
o Require the Emergency and Remedial Response Division, to
work with the Office of Regional Counsel to aggressively
pursue stipulated penalties when PRPs are not in
compliance with settlement requirements. If stipulated
penalties will not be assessed, this decision should be
documented and approved by appropriate divisional
managers.
o Initiate action to: (1) improve the monitoring of TES
contractors' workplan submittals and reports and
compliance with milestone dates; (2) expedite the
Regional review and approval system for TES deliverables;
and (3) develop specific timetables and minimum
requirements for periodic field oversight reviews,
quality assurance audits, and contractor's office
reviews.
o Establish an effective system for the timely recovery of
oversight costs for PRP-lead Superfund sites.
o Initiate action to collect the $627,711 in oversight
costs identified in our report.
What Action Was Taken
The audit report E1SJC9-02-0055-0100230 was issued to the
Regional Administrator, Region 2, on March 29, 1990. A response
to the audit report is due on June 27, 1990.
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