United Slates EnvironmGnt3l Protection Aqeru y Washington UC 2046U &EPA Office of Inspector General Report to Congress to ------- 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 ------- 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. ------- 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 ------- 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. ------- 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. ------- 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 ------- 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. ------- 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. ------- 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. ------- |