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SEPA
United States Environmental Protection Agency
Washington, DC 20460
OSWER Directive initiation Request
Interim Directive Number
9375.1-2A-6
Originator Information
Name of Contact Person
Deborah Swi chkow
Mail Code
WH-548E
Lead Office
OERR
D OSW
D OUST
D OWPE
LJ AA-OSWER
Approved for Review
Signature of Office Director
Date
Title
IX Audits of Response Agreements
Summary of Directive
Explains purpose and procedures of an EPA audit, the State's role
in the decision-making process, and the Regional responsibilities
for audit resolution and follow-up. It is drawn from EPA Order
2750, "Management of EPA Audit Reports and Follow-up Action,"
DIG Audit Guide, EAG-3...CERCLA Cooperative Agreements, and
Audits, Chapter 38, of the Assistance-Administration Manual.
til
Type of Directive (Manual. Policy Directive. Announcement. etc.J
Chapter IX to State Participation in the
Superfund Remedial Program
Status
Final
Does this Directive Supersede Previous Oirectivelsi? [_J Yes
f "Yes" to Either Question. What Directive (number, title)
Does it Supplement Previous Directives)?
Review Plan
D AA-OSWER
Li
OSW
D OUST
D OWPE
LJ Regions
D OECM
D OGC
D OPPE
D
Other (Specify)
'his Request Meets OSWER Directives System Format
ure of Lead Office Directives Officer
Date
/{Signature of OSWER Directives Officer
EPA Form 1 315-17 (in.««il
Date
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\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
-? WASHINGTON, D.C. 20460
DEC I 6 --v--"-
OFFICE OF
SOLID WASTE AND E.MEPGENCV =>E£pO.-.cr
OSWER Directive 9375.1-2A-e
MEMORANDUM
SUBJECT: Audits of Superfund Response Agreements: Proposed
Addenda to State Participation in the
Superfund Remedial Program Manoal
FROM: ~;"Va m M o r e k a s , C h l'e f ; <^A»^CA. 1-v' XCuo1 >
State and RegionaT^Coordination Branch
Hazardous Site Control Division
TO: ADDRESSEES
When a State enters into a Superfund response agreement
EPA has a right to audit that agreement. The .objective of
an audit is to ascertain that State expeditures are within
the terms of the agreement and to determine whether or not
the management controls excercised by the State are adequate.
Further, EPA must ensure that corrective action is taken by
the Statp and that EPA is repaid for any disallowed costs.
In order to provide guidance to Regional Offices and
affected States we have drafted the attached Audits of Response
Agreement s chapter for inclusion in State Participation in the
Superfund Remedial Program Manual. This draft guidance
explains the purpose and procedures of an EPA audit, the
State's role in the decision making process and the Regional
responsibi1ites for audit resolution and follow-up. It is
drawn from EPA Order 2750, "Management of EPA Audit Reports
and Follow-up Actions," OIG Audit Guide, EAG-3 f.ERCLA
Cooperative Agreements, and Audits, Chapter 38, of the Assis-
tance Administration Manual. Your cooperation is needed in
reviewing this draft and providing comments prior to its
publication as part of the manual.
Audits may be performed at any time during the course
of a project and are always part of closeout procedures. EPA
may audit Cooperative Agreements, projects within a Multi-site
Cooperative Agreement (MSCA), advance match expenditures,
and verify credit claims. Other special purpose audits may
also be performed.
-------
The responsibility for scheduling and conducting EPA audits
rests with the Office of the Inspector General (016) within EPA.
Most audit work is done in the State's offices and includes a
thorough review of the State's accounting, procurement and
property management systems as well as a review of all costs
incurred as part of a project. The OIG will detail its findings
in an audit report which may recommend that certain expenditures
of Federal funds by a State be disallowed or suggest needed
corrective action.
The Regional Administrator, as the Action Official, has
ultimate responsibility for accepting or rejecting the audit
findings. This decision will be documented in a final deter-
mination to the State. This determination is legally binding
and, pending appeal pursuant to 40 CFR 30 Subpart L, the State
is then responsible for implementing the corrective actions
and arranging for repayment of any disallowed costs.
We would appreciate your written comments on the attached
draft by January 17, 1986. Please send them to: Chief, State
and Regional Coordination Branch (WH-548E) EPA, Washington,
O.C. 20460. If you have any questions please, contact
Jan Wine, Chief, State Programs Section, or Elizabeth Hall of
her staff at (202) 382-2443. Thank you for your interest
and assi stance.
Attachment
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ADDRESSEES
Superfund Regional Branch Chiefs, Region 1-X
Regional Counsels, Region 1-X
Regional Grants Management Contact, Regions 1-X
Office of Inspector General
Mike Simmons, 016 (A-109)
Eastern Audit Division
Eastern Audit Division, Boston Suboffice
Eastern Audit Division., Puerto Rico Suboffice
Mi d-Atlant i c Dffi ce
Northern Audit Division
Southern Audit Division
Southern Audit Division/Da 11 as Suboffice
Western Audit Division
Western Audit Division/Seatt1e Suboffice
Western Audit Division/Sacramento Suboffice
Internal Audit Division
Karen Clark, OGC (LE.-132G)
Stan Fredericks, FMD (PM-226)
ASTSWMO (B. Simcoe)
Fred Meadows, GAD (PM-216)
Tim- Fields , ERD (SE-384E)
Tony Di eCi due, OWPE
Russ Wyer, HSCD _
Hal Snyder, DIB
Paul Nadeau , R ACS
Tom S'neckel Is, RAB
SRCB Staff
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DSl.'ER Directi va 9375.1-ZA-e
11/15/85
IX. AUDITS OF- RESPONSE AGREEMENTS
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DRAFT
11/15/85
IX. AUDITS OF RESPONSE AGREEMENTS
In signing an EPA/State CERCLA response agreement, the
State has given EPA the right to audit that agreement.
This chapter provides guidance on the conduct of such
audits; it does not discuss audit of Federal contracts.
• EPA may audit a CERCLA response agreement while the
project conducted under that agreement is ongoing, called
an interim audit, or may conduct a final audit at the
completion of the project. In either case, the general
objectives of an EPA audit are twofold: to determine
whether the costs the State has claimed under the
agreement are reasonable, allowable, and allocable to the
project, and to determine whether controls exercised by
the State through its financial management, accounting,
procurement, subagreement administration, and property
management systems are adeguate to ensure that costs
IX-l
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DRAFT
11/15/85
claimed meet these criteria. EPA regulations (40 CFR
30.510 and 30.540(b)), in accordance with Office of
Management and Budget (OMB) Circular A-128 (formerly
A-102, Attachment P), also require States receiving EPA
assistance or expending funds as match under a Superfund
State Contract (SSC) to arrange for independent financial
and compliance audits and internal control reviews.
Audits are made under the supervision of the Office of
the Inspector General (OIG) in EPA Headquarters;
specifically, they are the responsibility of the Office of
the Assistant Inspector General for Audits (OAIGA)^ OIG
will schedule an audit on its own initiative or at the
Superfund program's request. The Divisional Inspectors
General for Audits (DIGAs) deal directly with State and
Regional staff to schedule the audit, resolve any
questions or problems, and provide advice, as necessary.
Actual audit work may be performed by employees of the
OIG, an independent public accounting firm under contract
to EPA to perform audits, or by auditors associated with
another Federal agency.
Most of the audit work conducted will take place in
the State offices and will include a thorough review of
IX-2
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DRAFT
11/15/85
the State's accounting, procurement, and property
management systems as well as all costs incurred on a
project. Audit findings will recommend which costs
claimed should be questioned as not EPA's responsibility;
that is, are not reasonable, allowable, and allocable.
The audit report will detail these findings and will
recommend corrective actions that either EPA or the State
can implement to avoid such disallowed expenditures in the
future. When EPA conducts project audits, the Agency to
the extent possible will build upon State organization-
wide audits. . •
EPA's audit process is designed to ensure th.at the
State has an adequate opportunity to provide input into
the decision-making process. In general, a draft audit
report which details audit findings will be prepared for
.comment by the State. State comments will be incorporated
into the report, as appropriate, and a final report will
be sent to the Regional Administrator (RA) . The RA, as
the Action Official, will have ultimate responsibility for
rejecting or accepting the audit findings, and will issue
a final, binding determination of the audit disposition to
the State. The State, then, will be responsible for
implementing corrective actions to remedy cited
deficiencies.
IX-3
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DRAFT
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This chapter describes the types of audits that may be
conducted during a project and after its completion, as
well as the steps to perform the audit and to conduct
follow-up activities. These include:
Scheduling the audit and preliminary activities
Procedures for the audit
rt "'
Resolution of audit findings and follow-up actions
Implementation of "corrective actions.
•
Each of these steps, as well as the types of audits, is
discussed in a separate section of this chapter. Exhibit
IX-l, on the following pages, identifies specific
responsibilities for each phase of the response agreement
audit process.
IX-4
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DRAFT
11/15/85
EXHIBIT IX-1
AUDITS OF RESPONSE AGREEMENTS
ACTIVITY
1 .
Scheduling the Audit
and Preliminary
Activities
STATE:
RPM:
X
en
2. Procedure for Audit
ACTION
OFFICIAL:
STATE:
RPM:
Organize State files
Ensure relevant material is available
Prepare list of key project personnel
Work with auditors to clarify program
procedures
Organize Regional files
Ensure relevant material is available
Assist in preparing letter requesting
audit, if applicable
Travel to State with auditors, if
required
Submit audit request
Sign Assistance Audit Request form
Participate in entrance conference
Provide information to auditors, as
requested
Review draft audit report and prepare
comments
Assist in resolving disputes, as
necessary
Participate in entrance conference
Provide information to auditors, as
requested
Review draft audit report and prepare
comments for signature by the Action
Official as indicated in the
transmittal letter
Consult with DIGA and Regional Counsel
on audit reports
Consult with State on audit report
findings and provide information on
potentially controversial points
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DRAFT
11/15/85
EXHIBIT IX-1
AUDITS OF RESPONSE AGREEMENTS
ACTIVITY
Assist State in preparing comments on
draft audit report
Forward copy of audit report to SRCB,
if policy/procedural issues are raised
Monitor status of reports and inform AO
of any delays or disputes
ACTION
OFFICIAL:
X
Resolution of Audit
Findings and Follow-up
Actions
STATE:
RPM:
ACTION
OFFICIAL;
Review draft audit report
Request extension of draft audit report
review period, if necessary
Sign final audit report and transmit
copy to State within 15 days of the
report date
Assist in resolving disputes
Provide additional information to AO,
Inform State of potentially
controversial issues/determinations
Assist in audit disputes resolution, as
necessary
Negotiate with IG staff to resolve
disputes
Monitor status of reports and inform AO
of delayed or disputed reports
Draft final determination letter for
AO's signature
Issue initial audit determination to
the State, if necessary
Provide copy of all final
determinations to DIGA for review
Revise final determination letter, as
required
Issue adequate final determination to
State
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DRAFT
11/15/85
EXHIBIT IX-1
AUDITS.OF RESPONSE AGREEMENTS
ACTIVITY
Implementation of
Corrective Actions
STATE:
RPM :
ACTION
OFFICIAL:
Implement corrective actions as
instructed
Monitor status of State implementation
of corrective actions
Report on status of audit follow-up
quarterly to HQ follow-up official
Forward copy of final determination
letter to Servicing Finance Office
Ensure State has implemented corrective
actions
X
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DRAFT
11/15/85
A. TYPES OF AUDITS
Audits may be conducted at any time during an on-going
project or at the completion of a project/response
agreement period of performance. The former type are
called interim audits, while the latter are called final
audits. This section briefly discusses each of these
types of audit. Other, special purpose audits include
credit claims cost verification (see Appendix C of this
manual) and pre-award audits covering financial and
technical aspects of assistance applications and proposed
subagreements; credit claims audits are also discussed in
thi%s section.
A.1 Interim Audits
An interim audit may be conducted during any phase of
an on-going project to determine whether the costs charged
to EPA under the response agreement are allowable. Thus,
it will entail a thorough review of State cost
documentation and project files, and also will usually
include examination of the State's accounting,
procurement, and property management systems.
IX-8
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DRAFT
11/15/85
EPA may schedule an interim audit of agreements which
cover particularly complex projects, such as multi-site -
Cooperative Agreements (MSCAs), or when problems,
inaccuracies, discrepancies, or other complications with
response agreement administration are noted. Appropriate
points for an interim audit include the following:
Indications or allegations of fraud, waste, or
mismanagement are noted
Six months to one year after the award of 'an MSCA
to ensure that the State can appropriately
segregate and account for costs on a
site-specific basis
Instances where the State has an interest in
significantly expanding its involvement in the
Superfund program or has reguested a major
amendment to an existing project
High staff or management turnover
Previous audits of the State have indicated
significant management problems
IX-9
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uRAFT
11/15/85
Quarterly reports and other deliverables are not
received en time or reports indicate problem areas
Disbursements do not accurately reflect project
progress
Receipt of a credit claim for CERCLA section
104(c)(3)(C) costs
Non-compliance or inattention to program
requirements of quality assurance/quality control
plans, site safety plans, contractor oversight,
community relations plans, and other guidance, or
to the provisions' of the response agreement
At the conclusion of one activity, such as a
remedial investigation/feasibility study, at a
site.
The interim audit is a corrective tool. Therefore, when
improvements are needed, the interim audit final report
will contain recommendations for corrective actions that
EPA and/or the State can take in order to avoid disallowed
expenditures in the future. For efficiency, when an
IX-10
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DRAFT
11/15/85
interim audit is requested for one project within a State,
other individual agreements within the State or other
projects under the same MSCA may be scheduled for
concurrent audit.
A.2 Final Audits
Final audits may be conducted on completed projects to
determine whether costs charged to EPA under the agreement
covering that project were allowable. They also will
verify that any remaining funds have-been deobligated or,
in the case of an MSCA, have been transferred to another
site. The final audit also is performed to ensure that
the project(s) completed under the agreement meets all
agreed-upon conditions and that desired results have been
achieved.
Audit of a Superfund response agreement may be
scheduled upon State submission of the final Financial
Status Report (SF-269) for the project. Agreements may be
audited when any of the following occur:
IX-11
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DRAFT
11/15/85
Cooperative Agreements are terminated or closed
out
Projects within an MSCA are completed (interim
audits of other projects within the same MSCA can
be conducted at the same time)
SSCs are being converted to Cooperative
Agreements to provide EPA's cost share for
operation and maintenance.
Other occasions may arise when an audit is appropriate.
A.3 CERCLA Credit Audits
CERCLA section 104 (c)(3)(C) provides that States may
be given credit for eligible costs of response actions
taken at a site during the CERCLA credit period:
January 1, 1978, through December 11, 1980. CERCLA credit
audits are conducted to verify that the costs the State is
claiming under this provision meet the Agency criteria,
and, thus, may be applied to the State1 s* cost share during
remedial action at the site for which they were incurred.
IX-12
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DRAFT
11/15/85
Such audits may be performed at any time after a State has
submitted a credit claim. Audits of large claims usually
will be initiated before the remedial action is- begun;_
audits of small claims usually will be concurrent with
interim or final project audits for the remedial action.
For additional details on the submission and processing of
CERCLA credit claims, see Appendix C of this manual.
B. SCHEDULING THE AUDIT AND PRELIMINARY ACTIVITIES
The OAIGA, -within EPA, is responsible for scheduling
audits of Superfund response agreements on its own
'initiative or after receiving a request from the program.
After the audit has been scheduled but before it can
begin, however, several preliminary activities are
necessary to obtain background information and organize
files. Procedures for requesting and scheduling, as well
as descriptions of preparatory activities, are contained
in this section.
IX-13
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"Sx
Aud*ts can
otei
ce of
When
audit
r
- •-«-.* ^- —
sh
-14
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DRAFT
11/15/85
EXHIBIT IX-2
LISTING OF OFFICE OF THE DIVISIONAL
INSPECTORS GENERAL FOR AUDITS
Office of the Inspector General
Eastern Audit Division
Environmental Protection Agency
90 Church Street, Room 802
New York, New York 10007
(FTS)'264-5730
(Regions I and II)
Office of the Inspector General
Eastern Audit Division/
Boston Suboffice
Environmental Protection Agency
150 Causeway Street
Boston, Massachusetts 02114
(FTS) 223-0940
Office of the Inspector General
Eastern Audit Division/
Puerto Rico Suboffice
Environmental Protection Agency
Federico Deg'etau Federal Building
Chardon Street
Hato Rey, Puerto Rico 00918
(309) 753-4672
Office of the Inspector General
Mid-Atlantic Office
Environmental Protection Agency
841 Chestnut Street, 10th Floor
Philadelphia, Pennsylvania 19107
(FTS) 597-0497
(Region III)
Office of the Inspector General
Northern Audit Division
Environmental Protection Agency
10 West Jackson Boulevard,
4th Floor
Chicago, Illinois 50604
(FTS) 353-2486
(Region V)
Office of the Inspector General
Southern Audit Division
1375 Peachtree Street, N.E.,
Suite 276
Atlanta. Georgia 30309
(FTS) 557-3623
(Regions IV, VI, and VII)
Office of the Inspector General
Southern Audit Division/
Dallas Suboffice
Environmental Protection Agency
1100 Commerce Street
Dallas, Texas 75242
(FTS) 729-2854
Office of the Inspector General
Western Audit Division
Environmental Protection Agency
211 Maine Street, Room 220
San Francisco, California 94105
(FTS) 454-7084
(Regions VIII, IX, and X)
Office of the Inspector General
Western Audit Division/
Seattle Suboffice
Environmental Protection Agency
1111 3rd Avenue, Suite 350
Seattle, Washington 98101
(FTS) 399-1273
Office of the Inspector General
Western Audit Division/
Sacramento Suboffice
Environmental Protection Agency
801 I Street, Room 466
Sacramento, California 95814
(FTS) 460-1076
Office of the Inspector General
Internal Audit Division
Environmental Protection Agency
401 M Street, S.W.
Washington, D.C. 20460
(FTS) 382-4930
IX-15
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DRAFT
11/15/85
audit. The request also should be sufficiently detailed
to explain the circumstances which make an audit necessary
and, when appropriate, indicate the date the Region needs-
the audit report.
The written request for an audit should be accompanied
by an "Assistance Audit Request" (EPA Form 5700-29) signed
by the RA.
B.2 Regional Preparation for the Audit
While most of the audit work will be performed in the
State, prior to commencing field work the auditors will
conduct an in-depth interview with the RPM and will review
EPA's project files. This generally will be accomplished
at the time of the Regional entrance conference. As the
Regional program staffmember primarily responsible for the
response agreement, the RPM will need to work directly
with the auditors and State and Regional personnel to
ensure that all relevant material is available and ready
for review and to explain Superfund program procedures to
auditors, as required.
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DRAFT
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The RPM should be prepared to provide relevant
background information, including any issues observed
concerning the State's administration and implementation
of the Cooperative Agreement or SSC, suggestions for
improving the State's process, and a discussion of the
status of required reports and work products. The RPM
also should ensure that EPA's project files are up-to-date
and available for review. Specifically, the auditors will
want to review:
A copy of the Cooperative Agreement or SSC,
including all applications and amendments
Correspondence or memoranda concerning problem
areas
Quarterly and final reports for the
proj ect/agreement
Documentation of informal agreements and
amendments.
As needed, the RPM should be available to travel to the
State with the auditors.
IX-17
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DRAFT
11/15/85
Copies of quarterly and technical reports, as
well as any other documents specified by the
Cooperative Agreement or SSC
A list of all equipment and supplies purchased
for the the Superfund project
Copies of Financial Status Reports (SF-269)"
Copies of Federal Cash Transaction Reports
(SF-2-72) -
Subagreement files, including memoranda of
subagreement negotiation
Correspondence relating to activities under the
response agreement.
The State also should provide to the auditors a list of
key personnel working on the project and their functional
responsibilities. One of these individuals should be
designated as the liaison between State staff persons,
auditors, and the EPA Regional office.
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DRAFT
11/15/85
C. PROCEDURES FOR THE AUDIT
Once the audit has been scheduled and background
information obtained from the Region, audit work can
commence. General steps in the audit process are
presented graphically in Exhibit IX-3, on the following ;
page, and are described briefly in this section.
C.1 Entrance Conference
Prior to beginning field work in the State, the
auditors will hold separate entrance conferences with
State and Regional personnel. The primary purpose of
these conferences is to introduce the audit team, explain
the scope and nature of the audit, and obtain any
suggestions on the audit emphasis. Other topics that will
be covered include the schedule for completing the audit,
provisions for accessing records and project information,
and the audit team's space and equipment requirements.
During the State entrance conference auditors also will
conduct an in-depth interview with the State Project
Officer (SPO) for the project/agreement, to obtain
additional relevant, background information.
IX-20
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EXHIBIT IX 3
RESPONSE AGREEUENT AUDIT PROCESS
siEiil •
OAMA
MOI1F1ES STATE/
REOIONOFAUUT
N,
SIATEOROANI/ES
FILES. DEVELOPS
LIST Of KEY
PERSONNEL
AUMIGHS HOLD
ENTRANCE
COW SHE NCE WITH
SIATE
1
Auonons
REVIEW
STATE
FILES
OAKiA ISSUES
DRAFT AUDIT
REPORT
SIAItyHtOlO"
REVIEW AND
COUUENT
AUOnOHSHOLO
EJQT CONK HENCE
tMTH
tTATEAEaiON
s
X
I
INinAL OETERUINA
ON SENT TO SIATE
FOR NAI.ADUIMSmAIOR)
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DRAFT
11/15/85
C.2 Audit Standards and Task
The EPA audit itself will be performed in accordance
with several publications. These include:
Standards for Audit of Federal Governmental
Organizations, Programs, Activities, and
Functions, Comptroller General of the United
States, February 1981
OIG Audit Guide EAG-3 — CERCLA Cooperative
Agreements, EPA Office of'the Inspector General,
June 1985
Audit, Chapter 38 of the Assistance
Administration Manual, U.S. EPA Grants
Administration Division, December 1984.
Criteria that will be used to determine the allowability
of costs and the adequacy of the State's administrative
procedures will be drawn from the following sources:
IX-22
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DRAFT
11/15/85
The response agreement, including all amendments
and documentation
CERCLA
40 CFR Part 300, National Oil and Hazardous
Substances Pollution Contingency Plan (NCP)
40 CFR Part 30, General Regulation for Assistance
Programs
40 CFR Part 33, Procurement Under Assistance
Agreements
OMB Circular A-102, Attachments N (Property
i
Management Standards) and O (Procurement
Standards)
"Letter of Credit - Treasury Financial
Communication System Recipients Manual," U.S. EPA
Office of the Comptroller
"State Participation in the Superfund Remedial
Program," OERR, February 1984, as amended.
IX-23
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DRAFT
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Although audits differ depending upon their scope and
purpose and on the complexity of the project/agreement
being reviewed, the auditors will perform generally
standardized tasks. These include the following:
Obtain background information from the RPM
Evaluate the State's s-ystem for accounting for
site-specific costs
Evaluate non-contractual costs -incurred and
r epb r t ed
Evaluate costs incurred and reported by the Stare
for contractual services
Determine whether the controls being used to
ensure the appropriateness of contractor
performance and billing are 'adequate
Determine whether subagreements are being awarded
in compliance with applicable Federal procurement
procedures
IX-24
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DRAFT
11/15/85
presents a preliminary, tentative description of the
auditing team's findings.
A finding is defined as a written explanation of an
area audited, including proposed recommendations, and may
•
concern either non-monetary or monetary recommendations.
Non-monetary recommendations are an explanation of any
changes needed to 1) improve the economy, efficiency, or
effectiveness of operations and procedures, or 2) achieve
compliance with applicable laws, regulations, guidance, or
special, terms and conditions contained in the response
agreement. Monetary recommendations concern costs
incurred by the State in the performance of the
project/agreement, and fall into the following general
categories:
Accepted costs, which are those that the auditors
have concluded are allowable under the terms of
the agreement or applicable law, regulation,
policies, or cost principles, and were properly
charged to the response agreement
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DRAFT
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Questioned costs, which are those that the
auditors have concluded EPA is not responsible
for funding
Set-aside costs, which are those that, at the
time of audit, cannot be either questioned or
accepted without further information,
evaluations, or approvals from the State or EPA.
In general, an audit report contains the following
elements:
A cost exhibit, presenting the monetary findings
(by object class costs claimed by the State and
classified as"either accepted, questioned, or
set-aside, as defined above). The exhibit should
also include notes explaining the conditions and
criteria for classifying costs as questioned or
set-aside and, in the latter case, should
indicate actions needed to resolve the set-aside
costs and estimate when resolution is likely to
IX-27
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DRAFT
11/15/85
occur. Exhibit IX-4, on the following pages,
presents an example of a cost exhibit for a
credit claim "audit report.
A discussion of the adequacy of the State's
accounting, procurement, subagreement
administration, and property management systems
A discussion of problem areas examined or noted
Recommendations for remedying -any deficiencies
noted.
.The State and the RPM will receive copies of the draft
audit report -for comment, unless findings are immaterial
(e.g., the percent of total costs which are questioned is
negligible) or confidential. Since draft audit findings
.are tentative and subject to change, the State and Region
should consider the draft to be confidential and, thus,
should not release it as a public document. However, if
significant policy or programmatic issues are raised in
IX-28
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DRAFT
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EXHIBIT IX-4
SAMPLE COST EXHIBIT FOR DRAFT AUDIT REPORT
Summary of CERCLA Credit Period Costs Claimed and
Results of the EPA Audit for XYZ Site
Audit Findings
Description Amount Claimed
Enforcement Activities
Water Supply and
Pollution Control
Commission 331,265
Bureau of Solid
Waste Management 864
Office of the
Attorney General 4,460
Subtotal - Enforcement S36,'589
Drum Removal Activities
Water Supply and
Pollution Control
Commission/Office of
the Attorney General 3400,000
TOTAL
Accepted Questioned
$14,904
864
-0--
$15,768
$16,361
-0-
4,460
320,821
Motes
Mote 1
Mote 2
Mote 3
Note 4
3420.321
Mote 1
Represents $16,361 questioned from in-house analysis of ground and
surface water samples. The Commission originally provided estimates o:
the costs incurred using comparable outside laboratory analytical fees.
Based on these estimates, the in-house costs of analyzing samples have
been calculated for this site, and we have accepted those costs.
Questioned costs were determined as follows:
Number of Samples for XYZ Site
Average Cost per Sample
Costs of XYZ Site Samples
Costs Claimed
Costs Questioned
648
23
314,904
331,265
316,361
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Note 2
Costs representing salary, travel, and indirect costs of agency
personnel who performed sample monitoring and compliance inspections
have been accepted based on additional information submitted by the
auditee.
Note 3
Represents $4,460 relating to personnel costs for an assistant
attorney general (computered at $25 per hour, not on the basis of
actual salary), travel costs, and sheriff fees. 'These costs are
questioned because they pertain to legal research in support of
litigation, which is unallowable according to EPA guidance issued
December 15, 1982, by the Director, 'Office of Emergency and Remedial
Response.
Not a 4
Represents 5400,000 questioned relating to drum removal and other
cleanup activities provided by responsible parties in June 1981, at
no cost to the State other than personnel costs. The State's claim
represents a "value" of State-induced actions. taJcen by responsible
parties, based 'on an estimate of what incurred cost would have been
had a contract be'en issued to remove the hazardous materials.
(1) Section 104(c)(l) authorizes Fund financial activities only if
responsible parties cannot or will not provide the necessary remedy;
(2) section lQ4(c)(3) requires CERCLA credits to be for direct
out-of-pocket costs; and (3) the same section requires the
expenditures or obligations to be incurred within the period
January 1, 1978, to December 11, 1980. The above claim does not meet
any of these criteria.
$400,000
TOTAL COSTS QUESTIONED
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the draft report, the RPM should forward a copy to the
Chief, SRCB* in EPA Headquarters for assistance.
State and Regional comments on the draft audit report
are required, by EPA Order 2750, to be provided to the
DIGA within 30 days of the draft report's distribution
date. Should an extention be required, it may be
requested by the Action Offici-al for approval by the DIGA;
extensions of up to 30 days, are approved automatically.
Comment on the draft report should be considered an
important part of the resolution process- since the time
•
period for resolution of the final report is less
flexible. Written comments will be considered in the
preparation of the final audit report and, where possible
The correct address is:
Chief, State and Regional Coordination Branch
Hazardous Site Control Division (WH-548E)
U.S. Environmental Protection Agency
401 M Street, S.W.
Washington, D.C. 20460
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will be included as an appendix to it. Comments too
lengthy for inclusion'will be available in the appropriate
DIGA office.
C.4 Exit Conference
Auditors will hold a formal exit conference with
involved personnel at- the completion of audit field work,
or after comments on the draft audit report have been
received. Meetings will occur separately with State and
Reaional staffmembers. An exit conference is" conducted -to
"* •
discuss the audit findings, conclusions, and
recommendations and to identify and/or resolve any
misunderstandings that might have arisen during the
audit. Improvements or corrective actions initiated
during the course of the audit will be identified.
Regional and State personnel will be informed to submit
any requests for external audit reports to the DIGA for
release in accordance with the provisions of the Freedom
of Information Act. Auditors also may request State or
Regional staff members to make additional written comments
on the draft audit report; if so, these comments should be
submitted to the DIGA within two weeks.
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C.5 Final Audit Report
A final audit report then will be prepared, taking
into consideration written comments that were received on
the draft audit report. This report will be used by the
Action Official in making the final determination of audit
disposition. The format for the final report will be
similar to that of the draft report, with the addition of
an appendix containing written State and OIG comments on
the draft report whose length permit reproduction. After
the final report's preparation, the DIGA will transmit it
directly to the Action Official; the Action Official must
send a copy of this report to the State within 15 days of
the report date, and also should forward a copy to SRCB in
EPA Headquarters. Potentially controversial findings
should be highlighted in the Action Official's transmittal
memorandum to the State to allow preparation of a response
or proactive implementation of corrective action.
C.6 Findings and Recommendations Related to Z?A
Adminstration
An audit of a response agreement primarily examines
the State's performance under that agreement. EPA
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oversight and adminitrat ion, however, also are evaluated
in the course of the audit. Findings and recommendations
on EPA deficiencies will be addressed by the OIG in a
separate report or letter to the responsible EPA official.
D. RESOLUTION OF AUDIT FINDINGS AND FOLLOW-UP ACTIONS
The final audit report is developed to provide advice
to the RA, as the Action Official, in making a final audit
determination for each of the IG's findings. The Action
Official, then, can reject or sustain these audit
findings. The Action Official's determination will be
reported in a letter to the State, including a description
of corrective actions that the State will be required to
implement and a total of the disallowed costs for which
the State must reimburse EPA. While the final decision
made by the Action Official is binding on the State, EPA's
audit resolution process is designed to ensure full
participation by the State and OIG. The State and OIG,
therefore, have an opportunity to provide additional input
or clarification on outstanding issues.
This section discusses the process used to resolve
audit discute and to issue an audit determination to the.
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State. For additional guidance on this subject, refer to
EPA Order 2750, "Management of EPA Audit Reports and
Follow-up Actions," issued in June 1984, which establishes
responsibilities and procedures for processing audit
reports and follow-up actions.
D.1 Review of Final Audit Report and Resolution of State
Disputes
The Action Official should carefully review the
contents of the final audit report to determine
disposition of the findings. Before a final determination
'is issued the State should be given an opportunity to
provide input into EPA's decision-making process. Any
decisions to sustain costs which have been questioned or
set aside by the auditors must be based on findings that
have been made available to the State for review and
response; the report transmittal memorandum, therefore,
must highlight potentially controversial decisions. If
the Action Official considers taking a position which the
State may not find acceptable, every effort should be made
to come to agreement before the final determination is
issued. If appropriate, the Action Official should issue
an initial determination and ask the State for any
rebuttal. This initial determination and any supplemental
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analysis should be sent to the State as soon as possible
but at least within 45 days of the final report date.
Non-monetary findings should be resolved through
negotiation. These negotiations should involve
appropriate State personnel, the RPM, a senior grants
specialist, and an Agency attorney. When appropriate,
audit staff members should be consulted. The DIGA also
should be consulted early in the resolution process if
there is a need to clarify the findings and
recommendations of the audit. •
The results of any negotiation or rebuttal by the
State should be confirmed in the letter of final
determination.
D.2 Resolution of DIGA Disputes
If the Action Official considers taking a position
which differs from the auditors'.recommendation in the
final audit report, the findings in guestion must be
discussed with the DIGA. The Office of Regional Counsel
also should be consulted if the difference is based on an
interpretation of law, regulation, guidance, or EPA
authority.
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When the questioned costs in the final audit report
total at least $100,000, the Action Official cannot issue
a final determination until all differences are resolved:
To this end, the Action Official must provide a proposed
final determination to the DIGA within 90 days. If the
DIGA agrees with the proposed final determination, it must
notify the Action Official within 15 days. The Action
Official then can proceed to issue the final determination
letter to the State.
If the DIGA does not-accept the Action Official's
position, the final determination must be withheld until
the dispute is resolved. The DIGA has 15 days to resolve
any differences. At that time it must either accept the
Action Official's position and close out the audit report
or notify OAIGA of the disagreement. Once the matter has
been referred, OAIGA has 45 days to resolve the issue with
the RA as the Action Official. At that time, it must
either accept the Action Official's position or refer the
dispute to the Audits Resolution Board (AR3) for a
decision. AR3 decisions on disputes concerning specific
audit findings represent EPA's final position and must be
reflected in the final determination. If the DIGA and
OAIGA do not take any action within 60 days of the Action
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the legal and/or other basis for the position
should be stated. All questioned and set aside
costs must either be sustained and, therefore,
disallowed or accepted as allowed.
Identify the actions the State must take to be in
compliance with EPA regulations and policies.
Confirm and explain EPA/State agreements reached
during the resolution process.
Identify any amounts due to EPA because of
disallowed costs.
Provide standard payment instructions (see Grants
Administration Manual, Chapter 38, subparagraph
8f(3)).
If the final determination places any
requirements on the State, notify the State of
its dispute rights. Requests for review must be
submitted within 30 days of the date of the
decision (see 40 CFR Part 30, Subpart L and
Chapter 35, Grants Administration Manual).
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Additional elements may be included, as required.
D. 4 Review For Adecruacy
When a final determination is issued to the State a
dated copy should be provided to the DIGA. The DIGA will
review all final determinations to determine whether or
not they are adequate. To be adequate, a final
determination must address each of the findings made in
the audit report and explain EPA's position. Adequate
responses will close out the audit report and the Action
Official will be notified to that effect. The DIGA must
notify the Action Official of an inadequate response
within 15 days and must clearly identify why the report is
considered incomplete or inaccurate. The Action Official
then must issue a revised final determination; the audit
response will not be considered adequate until the RA has
done so .
E. IMPLEMENTATION OF CORRECTIVE ACTIONS
The Action Official is responsible for ensuring that
any corrective actions required by the final determination
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are implemented. There are several steps that the
Regional office can take to ensure State compliance with
required corrections. These- include:
Require the State to develop a written,
corrective action plan as part of the final
determination and to periodically report or
progress
Re-audit the response agreement, as appropriate,
to determine whether corrective actions have been
instituted
Add special terms and conditions to the response
agreement to require compliance with corrective
actions or clarify EPA requirements.
The Region should consider audit findings and State
good-faith efforts to comply with them before awarding
additional funds or subsequent Cooperative Agreements.
To obtain reimbursement for disallowed costs, the
Region must immediately forward to its Servicing Finance
Office a copy of the final determination letter which
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sustained questioned or set-aside costs. The amounts due
must be recorded in toe Financial Management System as
accounts receivable as of the date of the final audit
determination. The Financial Management Office has full
responsibility for all billings, offsets, or other
acceptable financial adjustments for CERCLA credit claim
costs and sustained gxiestioned or set-aside costs.
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