United Slates
EnvironmGnt3l Protection
Aqeru y
Washington UC 2046U
&EPA Office of
Inspector General
Report to Congress
to
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Office of Inspector General
The Inspector General Act of 1978 (P.L. 95-452) created
the Office of Inspector General to consolidate existing
investigative and audit resources in independent
organizations headed by Inspectors General.
The QIC's role is to review EPA's financial
transactions, program, and administrative activities,
investigate allegations or evidence of possible criminal
and civil violations, and promote economic, efficient,
and effective operations within the Agency.
The EPA Inspector General reports directly to the
Administrator and the Congress and has the authority
to:
Initiate and carry out independent and objective
audits and investigations,
Issue subpoenas for evidence and information,
Obtain access to any materials in the Agency,
Report serious or flagrant problems to Congress,
Select and appoint DIG employees, and
Enter into contracts.
The Inspector General is appointed by, and can be
removed only by, the President. This independence
protects the OIG from interference and allows it to
function as the Agency's fiscal and operational
watchdoq.
Office of Inspector General - Headquarters
Inspector General
John C. Martin
Deputy Inspector General
Donald E. Kirkendal!
Office of Audit
Ernest E. Bradley III
Assistant inspector General
Kenneth A. Konz
Deputy
Office of Management
and Technical Assessment
Roscoe R. Davis
Assistant Inspector General
Office of Investigations
John E. Barden
Assistant Inspector General
Oparations Staff
I James 0. Rauch
Director
I Technical Services Staff
Anna M, Virbick
Director
I Technical Assessment and
I Fraud Prevention Division
John C. Jones
I Director
I Administrative and Man-
' agement Services Division
Edwin N. Canady
Director
Divisional Inspectors General
Headquarters
Steven A. McNamara
Internal Audit 382^930
Region 1 and 2
Sanford Wolfe
Audit 264-5730
Robert M. Byrnes
Investigation 264-5730
All numbers are FTS
Region 3
Paul R. Gandolfo
Audit-597-8636
Keith G. Logan
Investigation 382-4934
Region 4, 6 and 7
Leslie M. Buie
Audit 257-3623
James F. Johnson
Investigation 257-3623
Region 5 and 7(lnvestigation)
Anthony C. Carrollo
Audit 353-2486
Deirdre M. Tanaka
Investigation 353-2507
Region 7(Audit), 8, 9, 10
Truman R. Beeler
Audit 454-7084
Jonathan P. Sweeney
Investigation 454-8151
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Profile of Activities and Results
Environmental Protection Agency
Office of Inspector General
AMOUNT
Total Fiscal 1984
Audit Operations
Questioned Costs* $113 Million
(expenditures which are not allowable)
Set-Aside Costs* $242 Million
(expenditures which are insufficiently
supported to determine their
allowability)
Sustained Costs for Recovery and Savings $63.1 Million
(costs which EPA management agrees
are ineligible and is committed to recover
or offset against future payments)
Cost Efficiencies or Deobligations $1.8 Million
(funds made available by implementing
recommendations in DIG internal and
management audits)
Recoveries from Audit Resolutions of $37.4 Million
Current and Prior Periods
(cash collections or offsets to future
grants)
EPA Audits Performed by the OIG 363
EPA Audits Performed by Another Federal 1,268
Agency, State Auditors, or Independent Public
Accountants
Audit Reports Resolved 1,382
(agreement by Agency officials to take
satisfactory corrective action)
Investigative Operations
Fines and Recoveries $629,860
Investigations Opened 261
Investigations Closed 338
Investigations Pending (9/30/84) 278
* Indictments/Convictions of Persons or Firms 25
Administrative Actions Taken Against EPA Employees 39
Fraud Detection and Prevention Operations
Debarments, Suspensions, Voluntary Exclusions, and 61
Settlement Agreements
(actions to deny persons or firms from participating
in EPA programs or operations because of
misconduct or poor performance)
Hotline Complaints Received 126
Hotline Complaints Processed and Closed 141
Proposed Legislative Items Reviewed 103
Proposed Regulatory Items Reviewed 124
* Questioned and set-aside costs are subject to reduction pending
further review in the audit resolution process.
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Audit Activities
Distribution of Audit Reports
Issued by Type
'Total Audits Issued = 1,631
Superfund
68
Reports 4%
Internal and
Management
38 Reports
3%
Other Grants
and Contract
938 Reports
57%
Construction
587 Reports
36%
300
250
200
150
100
50
Questioned and Set-Aside Costs
by Type of Audit
ISIBj Set-Aside Costs
I Questioned Costs
Construction
Other grant &
contracts
Superfund
Examples of Siginificant Audits
The following represents examples of some of our
most significant types of findings, they should not be
considered representative of the overall adequacy of
EPA management.
EPA Regional Offices Awarded Grants to States that
Did Not Meet Financial Requirements
Three EPA Regional Offices awarded about $38 million
of Clean Water Act grants to six State agencies without
eissurance the grant financial requirements were met. In
addition, the six agencies did not accomplish a
significant portion of their grant objectives and did not
provide sufficient matching funds to earn grants.
Policies and procedures in Regions 3, 5, and 9 did not
ensure an effective system for awarding grants.
We recommended that the Regional Administrators of
Regions 3, 5, and 9 initiate controls to ensure that
financial and performance requirements are met by the
State agencies, and that grant funds awarded
improperly are
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EPA Unable to Resolve Delinquent Debts Promptly
EPA's Claims Office did not always resolve delinquent
debts promptly, and many records were inaccurate and
insufficient for effective management of the debt
resolution function. Many debts remained unresolved
for extended periods. As of January 1984, 108 debts
amounting to $2.1 million had not been resolved and 36
of these had been in the Claims Office for an average
of 15 months.
We recommended that the Deputy General Counsel
establish workload priorities, procedures, performance
standards, and better controls in the Claims Office.
Grantee Claims $13.7 Million for Treatment Plant
That Wasn't Fully Operational
The City and County of Honolulu, Hawaii, claimed $13.7
million for the Honouliuli Wastewater Disposal System
that had several component deficiencies which
prevented its full operation and use at the time of audit.
The plant would only operate at 50 percent of capacity
because all sewer lines had not been connected to it.
Also, $610,000 was claimed by the grantee for
chlorination and effluent screening facilities which were
idle and outside of the scope of the grant.
We recommended that the Regional Administrator,
Region 9, disallow and recover ineligible costs, review
the balance of the costs for eligibility and obtain written
technical confirmation of full facility operation before
closing the grant.
Bid Rigging and False Claims Chronic in
Construction Projects
Many contractors are defrauding the Government on
EPA construction projects. The OIG has identified a
pattern of bid rigging on $16 million of contracts for
wastewater treatment facilities. OIG auditors and
investigators working with the Department of Justice
antitrust attorneys uncovered evidence that bids had
been rigged on numerous Agency projects by as many
as 20 different contractors on one job. Often low bids
were set at $1 million or more over actual costs.
Seventeen persons or firms have been convicted to date
as work to identify bid riggers continues.
Region Unable to Account for $2.5 Million in
Property
The Denver Regional Office did not devote sufficient
resources to effectively manage or control an estimated
$2.5 million of property. Specifically, the Region did not
take physical inventories, tag property for identification,
or record $250,000 of property acquired during fiscal
1983. Also, the Region acquired and stored excessive
new property outdoors, which was ruined.
We recommended that the Regional Administrator,
Region 8, assign the necessary resources to maintain a
property management system including annual physical
inventories, identification of property, and recording
receipts and disposal actions.
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Extensive Overcharges Identified in Cleanup at
Drum Recycling Facility
EPA awarded $1.3 million in contracts for emergency
cleanup following a fire at the General Disposal
Company, a paint and chemical recycling facility in
Santa Fe Springs, California. The contractor, IT
Corporation, did not maintain an adequate accounting
system for the identification of individual project costs.
The contractor billed EPA $163,000 for ineligible costs
and $341,000 for questionable costs including duplicate
payments to vendors, charges in excess of actual
material and equipment rental costs and full cost for
items which the contractor received vendor discounts.
We recommended that the ineligible costs be
disallowed, the questioned costs be reviewed to
determine eligibility and that IT Corporation be advised
that their accounting system is inadequate for EPA
contracts.
Audit Resolution
Agency management has devoted increased attention
to audit follow-up by: stressing the need for timely
resolution of audits at meetings with Agency officials,
including the status of unresolved audits in the strategic
planning and management system, and by issuing an
EPA directive to assist managers in using audits as a
management tool.
This increased effort has successfully stimulated the
resolution of audit reports, especially those over six
months old, reversing a previous trend. Agency
management resolved 1,382 audits, sustaining $63.1
million of questioned costs, and recovering $37.4
million from audit resolutions of current and prior years.
Unresolved Audits Over Six Months Old
as of the End of the Four Prior Periods
250
'200
150
100
-50
3/83
9/83
3/84
9/84
The Agency resolved 34 of the 125 audit reports over six
months old. Our office has received and is reviewing an
additional 40 responses to audit reports over six months
old.
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Management Improvements
Our office has taken several significant actions to
improve its own economy, efficiency, and effectiveness
including (1) forming a task force to identify future
detection priorities, (2) executing a memorandum of
understanding to create an Inspector General Division in
the Office of General Counsel, (3) establishing an
automatic data processing unit, (4) obtaining changes in
the Agency's Delegation of Authority system to assure
the administrative independence of the OIG, (5)
providing more training to staff members, (6) expanding
and refining the policy issuance system, and (7)
conducting management assessment reviews to assure
the quality of OIG operations.
Hotline Activities
Increased by 50 Percent in 2nd Half of Fiscal 1984
Hotline Complaints
Received by Semiannual
Reporting Period
Source of Hotline
Complaints Received
FY '84 Total = 126
EPA
Employees
42
Complaints
1st Half FY '84 2nd Half FY '84
6 Complaints
Hotline complaints found to be valid result in corrective
administrative or prosecutive action
An example follows:
Disregard for Standards of Conduct
Based on complaints to the OIG Hotline and directly to
the OIG's Office of Investigations and on information
reported in news articles, the Office of Inspector
General determined that employees at EPA's Research
Triangle Park (RTP), North Carolina, disregarded the
Agency's Standard of Conduct by attending parties and
luncheons given by contractors, promoting commercial
sales to other employees, and soliciting gifts from
contractors. As a result of our findings, administrative
actions have been initiated to improve employee
adherence to the Standards of Conduct.
If you are aware of any fraud, waste or
mismanagement, please contact the EPA Inspector
General Hotline or the appropriate Divisional Inspector
General.
Information is confidential.
Caller may be anonymous.
Cash awards available for cost saving disclosure.
Call can be made from anywhere toll free.
800-424-4000/202 (or 8 if FTS) 382-4977
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The Committee has undertaken projects in two
significant areas: permits and employee awareness.
The permits group is addressing the various permit
issuance processes within EPA to determine if generic
permits might offer improvements in program
effectiveness. A standing committee was established
on Employee Awareness in an effort to increase
employee participation in the Agency's management
improvement efforts.
Personnel Security Program Makes Rapid Progress
The Personnel Security Program, which was transferred
to the Office of Inspector General in October 1983, has
made significant improvements and progress in
reducing the case backlog and ensuring that
employment of personnel complies with Agency
regulations and national security requirements. During
the second half of fiscal 1984, the review of personnel
investigations identified integrity violations resulting in
the removal of three employees, the reprimand of one
employee, and the repayment of a defaulted student
loan by another.
Suspension and Debarment Activities
EPA's policy is to do business only with contractors,
grantees, and persons who are responsible, honest, and
who comply with applicable rules and regulations. EPA
enforces this policy by suspending or debarring any
organization or person for acting improperly, having a
history of substandard work, or willfully failing to perform
on EPA or other Federally funded activities. Suspensions
and debarments deny participation in Agency programs
and activities to those who represent a risk of abuse to
the Government. In fisal 1984, 61 debarment or
suspension actions were taken. Examples follow:
The A.C. Lawrence Leather Company, Danvers,
Massachusetts, and five of its officers and employees
were convicted of storing and disposing hazardous
wastes without a permit, filing false statements with
EPA that concealed the use of hazardous wastes, and
illegally discharging raw waste into the Asheulot River
in New Hampshire. In connection with their EPA
research grant, they were also convicted of filing false
claims and mail fraud. The company and all five officers
and employees were debarred from participation in EPA
programs for the maximum (three years) period allowed
under EPA regulations.
Steve D. Rothrock and his company, Rothrock
Construction Company, Murrells Inlet, South Carolina,
were debarred from doing business with, EPA for three
years on May 17, 1984. The debarments followed the
conviction of Rothrock and his company for violating
section 1 of the Sherman Act (15 U.S.C. 1). In the
spring of 1983, Rothrock and his company pled guilty to
charges that they and co conspirators submitted collusive,
noncompetitive bids to the North Carolina Sewer District
Commission. The collusive bids were submitted to have
one of the conspirators receive an award of $3,647,697
to work on an EPA-funded sewer project.
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Embezzlement of Government Funds
An unannounced audit of an EPA imprest fund by
regional staff on March 30, 1984, revealed a $3,343
shortage in the fund entrusted to Vertie Lee Rogers, an
EPA travel clerk and cashier. During a subsequent
investigation by the OIG, Rogers admitted embezzling
the money. Rogers resigned from EPA, effective April
6, 1984, and made restitution to the imprest fund fqr
$3,343. Vertie Lee Rogers pled guilty to the charge and
was sentenced to two years probation and ordered to
perform 200 hours of community service.
Perjury, False Statements
A former EPA consultant, David B. Twedell, was
sentenced on January 23, 1984, to one year in prison
after pleading guilty to fabricating his academic
credentials. As a geologist for JRB Associates, McLean,
Virginia, Twedell supervised test drillings at Love Canal
and other hazardous waste sites and appeared in court
as an expert witness for the Government while working
on a number of major EPA projects between December
1979 and November 1981. He claimed to have a Ph.D.
and a B.S. in geology from the University of Houston
where in fact, he was dismissed for academic failure
within only a few semesters.
Fraud Prevention
and Resource Management
Actions to Prevent Bid Riggings
Audit and investigative reviews conducted in one
region over the past three years identified numerous
anti-trust violations and an environment where
bid-rigging may be a "way of life" for many contractors.
We have initiated an anti bid-rigging program and
suggested several ways the Agency can take more
aggressive steps in attacking the bid-rigging problem.
These are training of EPA and State officers, requiring
certifications of noncollusive bidding, and requiring the
retention and analysis of bid records.
To improve the ability of Government officials to
detect and prevent bid-rigging, EPA's Office of Inspector
General worked jointly with the Antitrust Division of the
U.S Department of Justice in developing and presenting
seminars titled "Efforts to Prevent Bid-Rigging." These
seminars were presented to 417 participants including
149 non-EPA employees in all ten regions.
Committee on Integrity and Management
Improvement Initiated at EPA
The Administrator has expressed his commitment for
increasing coordination and participation in the Agency's
fraud prevention efforts by establishing an Agency
committee which advises the Administrator on policy
matters associated with minimizing occurrences of
fraud, waste, and mismanagement in EPA programs
and activities.
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Investigative Activities
Total Investigations Open
As Of September 30, 1984 = 278
Profile of Pending Active
Investigations By EPA Unit
Research 2%
Administration 11 %
Fraud
(False Claims and
Statements)
67%
. External Affairs 1 %
.OIG-Personnel Security 3%
Enforcement 1%
Solid Waste 4%
Air 1%
Toxics 2%
Multiprogram 8%
Profile of Pending Active Investigation
By Category of Investigation
Theft or Abuse of Government
Property 9%
Antitrust 5%
Other 6%
Personnel Securit'. 7%
Administrative and Privacy
Act Violations 4%
Conflict of Interest 4%
Selected Prosecutive Actions
Conspiracy, False Statements - Skullduggery in the
Sewer
David Wirt, his wife Judith, and their son Gordon,
owners and executive officers of Municipal and
Industrial Pipe Service, pled guilty to defrauding the
Government on sewer projects. Each was fined
$10,000 and sentenced to prison. The 47 count
indictment charged the Wirt's with a 10-year scheme to
defraud the Federal Government on sewer projects by
failing to perform tests and repairs that they were paid
for while distorting and fabricating test reports. The
scheme involved several states and three foreign
countries.
Contractor Misrepresents Itself as a Minority
Business
Murray Paving Company, Inc., of Whitesboro, New
York, pled guilty to a five count charge of mail fraud
after fraudulently receiving EPA subcontracts on a
sanitary sewer project in Whitestown, New York. The
subcontracts were supposed to go to a minority
business enterprise in compliance with Federal funding
requirements. Murray Paving Company misrepresented
its status as a minority business enterprise, to three
different prime contractors to obtain the $180,000 of
subcontracting work.
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