v>EPA
United Slate*
Environmental Protection
Agency
Office of
Solid Waste and
Emergency Response
March 20, 1986
March 20, 1986
OSWER/OERR/HSCD
DIRECTIVE NUMBER: 9375.1-04-9
TITLE: State Participation in the Superfund Remedial
Program Manual, Chapter 9, Audits of Response
Agreements
APPROVAL DATE:
EFFECTIVE DATE:
ORIGINATING OFFICE:
E FINAL
D DRAFT
LEVEL OF DRAFT
DA — Signed by AA or DAA
D B — Signed by Office Director
DC — Review & Comment
REFERENCE (other documents):
State Participation in the Superfund Remedial Program Manual
OSWER OSWER OSWER
VE DIRECTIVE DIRECTIVE Dl
-------
&EPA
United States Environmental Protection Agency
Washington, DC 20460
OSWER Directive Initiation Request
Interim Directive Number
9375. !-
Originator Information
Name of Contact Person , .
Debbie Swichkow>>
Mail Code
548-E
Telephone Number
382-2453
Lead Office
S OERR
D OSW
D OUST
D OWPE
D AA-OSWER
Approved for Review
Signature of Office Director
Date
Title
State Participation in the Superfund Remedial Program Manual, Volume I
Chapter 9, Audits of Response Agreements
Renumbered: Formerly 9375.1-2A-e
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 followupi
It is drawn from EPA Order 2750, Management of EPA Audit Reports and Followup Actions;
OIG Audit Guide EAG-3, CERCTA Cooperative Agreements; and Chapter 39, Audits, of
the Assistance Administration ManuaE(3/20/86, 42pp.)
•.«•>
Keywords: Superfund, CERCLA, remedial program, State participation, cooperative
agreements, audits
Type of Directive f/Wanua/, Policy Directive. Announcement, etc.)
Addendum to manual
Status
D Draft
Final
3® New
LJ Revision
Does this Directive Supersede Previous Directives)? |_) Yes JQJJ No
f "Yes" to Either Question, What Directive (number, title)
Does It Supplement Previous Directive(s)? XX I Yes | | No
9375.1-4 State Participation in the Superfund Remedial Program Manual, Volumel
Review Plan
CD AA-OSWER D OUST
D OERR D OWPE
D OSW D Regions
D OECM
D OGC
D OPPE
n
Other (Specify/
This Request Meets OSWER Directives System Format
Signature of Lead
Date
JUL 17 1986
Signature of OSWER Directives Offi
Oat*
EPA Fonn 1315-17 (10-86)
-------
£EPA
United States Environmental Protection Agency
Washington. DC 20460
OSWER Directive Initiation Request
Interim Directive Number
9375.1-4-9
Originator Information
Name of Contact Person
Debbie Swichkow
Mail Code
WH 548-E
Telephone Number
382-2453
Lead Office
H OERR
D OSW
D OUST
G OWPE
D AA-OSWER
Approved for Review
Signature of Office Director
Date
Title
State Participation in the Super fund Remedial Program Manual, Volume I
Chapter 9, Audits of Response Agreements
Renumbered: Formerly 9375.l72A-e
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 followupi
It is drawn fron EPA Order 2750, Management of EPA Audit Reports and Pollowup Actions;
OIG Audit Guide EAG-3, CERCLA Cooperative Agreements; aod Chapter 39, Audits, of
the Assistance Administration Manual" (3/20/86, 42pp.)
•«»
Keywords: Superfund, CERCLA, remedial program, State participation, cooperative
agreements, audits
Type of Directive (Manual. Policy Directive. Announcement, etc.)
Addendum to manual
Status
D Draft
3!S Final
New
LJ Revision
Does this Directive Supersede Previous Directives)? fl Yes XjCj No Does It Supplement Previous Directives)? X&J Yes LJ No
If "Yes" to Either Question, What Directive (number, title)
9375.1-4 State Participation in the Superfund Remedial Proqram Manual, Volume I
Review Plan
D AA-OSWER D OUST
D OERR D OWPE
D OSW D Regions
D OECM
D OGC
D OPPE
D
Other (Specify)
This Request Meets OSWER Directives System Format
Signature of Lead
Signature of CfSWER Directives Orfi
Date
JUL 17
Date
EPA Form 1316-17 (10-85)
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
- WASHINGTON. D.C. 20460
MAR 20 1966
Directive No.
9375.1-4-9
•J ? F ! C K O (-
SOLID WASTE AND EMERGfNC . KESPO'-ff
MEMORANDUM
SUBJECT: Addendum to the Manual: State Participation in the
Superfund Program -- ChapterTT~,Auditsof Superfund
Cooperative Agreements
FROM: Henry L. Longest II
Di rector
Office of Emergency arficT Remedi al Response
TO: Mailing List
Attached is Chapter IX, Audits of Superfund Cooperative
Agreements, to be added to the State participation manual a.s a
new chapter. This chapter explains the purpose and procedures
of an EPA audit, the State's responsibilities and the Regional
responsibilities for audit resolution and follow-up. It is
drawn from EPA Directive 2750, "Management of EPA Audit Reports
and Follow-up Actions;" OIG Audit Guide, EAG-3, "CERCLA Cooperative
Agreements;" and Chapter 38, "Audits," af the EPA Assistance
Administration Manual.
Chapter IX of the State participation manual was developed
in consultation with EPA's Office of the Inspector General (OIG),
as well as the Office of General Counsel, and the Grants
Administration Division. A draft was distributed for comment
on December 16, 1985, to Headquarters and Regional offices, as
well as the Association of State and Territorial Solid Waste
Management Officials. Comments on that draft as well as program
experience to date are reflected in this addendum. A discussion
of the substantive changes and clarifications to the draft as
requested by commenters follows.
EPA can audit response agreements pursuant to the authorities
of the Inspector General Act of 1978, CERCLA Section lll(k) and
40 CFR 30.540. The scope of this chapter has been limited for
clarity to a discussion of Cooperative Agreement audits only.
However, a Superfund State Contract (SSC) would also be subject
to audit in the rare instance that a State cost share is provided
-------
- 2 -
through State services rather than direct cash payment since
such expenditures under an SSC are subject to the requirements
of 40 CFR Parts 30 and 33. Further, this chapter does not
discuss audits of Federal procurement contracts for Federal-lead
projects. However, any State expenditures during a Federal-lead
project incurred under a Cooperative Agreement (i.e., management
assistance) are subject to the audit requirements discussed in
this chapter.
The text and exhibits have been restructured to reflect
the latitude in each Region for delegation of audit responsi-
bilities by the Action Official. The Remedial Project Manager
(RPM) is now identified as a point of contact who can provide
useful background information about the site response activities
and project administration. Regions may wish to develop further
internal guidance to detail the specific procedures used within
the Region consistent with EPA Directive 2750.
This final guidance clarifies the role of the State during
an EPA audit. The discussion of State self-audits has been
expanded and it has been noted that States may request EPA
audits through the Award Official. One commenter questioned
whether it was appropriate for a State to provide suggestions
to the auditors on audit emphasis. Since interim audits are
used as a corrective tool 1t may be useful for State officials to
Identify specific areas which they feel may cause future diffi-
culties or which have emerged as problem areas in other programs.
However, decisions on audit scope and emphasis are the prerogative
of the DIG.
One commenter suggested that the exit conference be held
before 016 issues a draft audit report in order to inform the
State of preliminary findings and clear up any misunderstandings.
While the precise timing of this conference may vary it is
intended as a formal conclusion to audit work before issuance
of a final audit report. However, the audit process usually
entails ongoing interaction between the State and the auditors
and the State may request Informal conferences at any time.
The chapter has been revised to emphasize the formal nature of
the concluding exit conference and to discuss the other opportunities
when the State or Region may provide input to the process.
While the chapter does not discuss the formal dispute process
available to States, 1t has been noted that the State may
exercise this option under 40 CFR Part 30, Subpart L, after issuance
of the final determination by the Action Official.
The descriptions of criteria used by the auditors in determining
cost allowabllity have been clarified in response to comments.
For example, a major criterion is compliance with the technical,
regulatory and project management requirements of the Cooperative!
Agreement including the special conditions in effect at the
time the Cooperative Agreement is awarded. More precisely,
-------
- 3 -
the auditors use the terms and special conditions of the Cooperative
Agreement 1n effect at the time the funds are expended. It is
the responsibility of the RPM to ensure that the special conditions
and terms of the Cooperative Agreement are kept current with
any changes in policy, regulation or the project through the
amendment process. In addition, it is important that documentation
on informal changes and approvals executed between the EPA and
State be readily available for audit purposes.
The importance of cost and pro'ject documentation has been
given additional emphasis. If the State and Region maintain
their files properly throughout the project very little additional
organization is necessary to prepare for an audit. (See Appendix
U of the State participation manual, "Cost Documentation.")
The list of standardized audit tasks has been revised to show
that the auditors will evaluate the State's ability to document
costs on a site specific basis. The description of procurement
documents which need to be made available for audit and the
criteria used to evaluate the documentation of equipment
purchased with CERCLA funds has been clarified.
Additional information has been added to the final guidance
concerning the review and distribution of audit reports. It
has been noted that since draft audit findings are tentative,
the State and Region should not release draft.audit reports to
the public. Any public requests for draft audit reports should
be forwarded to the DIG. Final audit reports may be released
by either the 016, the State or the Action Official in accordance
with the provisions of the Freedom of Information Act. Specific
policies and procedures regarding coordination with the other
affected offices may be developed within each Region.
The chapter has been revised to clarify that comments on a
draft report by the State and/or Region, while strongly encouraged,
are not required. However, EPA Directive 2750 does specify
that any comments which are provided should be submitted to
the GIG within 30 days of the draft report distribution date.
In addition, during the formal exit conference the auditors
may request that the State or Region provide additional written
comments within two weeks of the exit conference.
We did not accept the recommendation that the Action
Official provide an initial determination to the State for
rebuttal prior to issuing a final determination letter. Since
many audits are non-controversial or may involve a small amount of
questioned and/or set-aside costs, we feel such a requirement
might place an unnecessary administrative burden on States and
EPA. An initial determination is usually issued when the Action
Official considers taking a substantially different position
or at the request of a State. The recommendation that the
-------
- 4 -
Action Official should forward a copy of the final audit report
to the State within 15 days of receipt rather than the report
date was not accepted since this deadline is established hy
EPA Directive 2750.
The chapter has been corrected to show that a final
determination letter must always be sent to the State within 150
days of the final audit report date unless a disagreement
between the Divisional Inspector General for Audits (OIRA) and
the Action Official has been referred to Office of the Assistant
Inspector General for Audits (OAIGA). The discussion of the
Action Official's response to notification by the DIG of an
inadequate final determination has a-lso been expanded.
-------
Date/
Addendum #
Topic
6/22/84 #1 Site Closeout
9/12/84 #2
9/28/84 #3
Minority and
Women's Business
Reporting
Changes to IG
Audit
Quality Assurance
Project Plan
Revised Letter of
Credit Procedures
Provision
CHANGES TO DATE
Instruction
New pages
New page
New pages
New page
. Change
"... which must
be sent within
120 days." to
"... which
must be sent
within 90 days."
. Add, as the
second sentence
in the para-
graph, "In
addition, the
Award Official
will send the
State a copy of
the final audit
report within 15
days of its
receipt."
. Change "The re-
sponse must be
dispatched with-
in 120 days..."
to "The response
must be dis-
patched within
90 days..."
. New pages
Replacement pages
9375.1-4
3/14/86
Revised Page iii
Location/Page
Appendix F, Pages F-22
and 23
Appendix H, Page H-23
Appendix P, Pages
P-37-P-47
Appendix F, Page F-24
Appendix C, Page C-12,
first complete paragraph
Appendix C, Page C-12
first complete paragraph
Appendix C, Page C-12
footnote
Appendix L, formerly
reserved
Appendix F, Pages F-3
through F-6
111
-------
CHANGES TO DATE (Continued)
Date/
Addendum #
12/10/84 14 Multi-Site Coop-
erative Agreements
Instruction
Replacement
pages
Replacement
pages
Replacement
pages
Replacement
pages
New pages
Replacement
page
New pages
Replacement
pages
New pages
Replacement
page
New page
Replacement
pages
New page
Change "...at
quarterly inter-
vals commencing
at the start of
the project." to
"...within 30
days of the end
of the Federal
fiscal quarter."
New pages
Replacement
pages
New pages
Replacement
pages
Replacement
pages
New pages
9375.1-4
3/14/86
Revised Page iv
Location/Page
Table of Contents, Pages
xiii through xvii
List of Exhibits, Pages
xvii and xix
List of Acronyms, Pages
a - through e
Pages
11-1
Chapter II,
through 6
Chapter II, Page II-7
and Exhibit II-2
Chapter III, Page 111-17
Chapter III, Pages
111-18 through 27 and
Exhibits 111-10 and
III-ll
Chapter IV, Pages
IV-5 through IV-7
Chapter IV, Pages IV-8
through IV-11
Chapter V, Page V-7 and
V-8
Chapter V, Page V-9
Appendix E, Pages E-l
through E-22
Appendix E, Page E-23
Appendix F, Page F-16,
Section K, indented
paragraph
Appendix F, Pages F-25
and F-26
Appendix J, Pages J-l,
J-2, and J-7
Appendix J, Pages J-8
and J-9
Appendix N, Pages N-l
through N-6
Appendix P, Pages P-l,
P-2, and P-47
Appendix P, Pages P-48
through P-51
iv
-------
Date/
Addendum I
1/4/85 15 Advance Match
CHANGES TO DATE (Continued)
Instruction
1/11/85 #6 Site Safety Plan
Guidance
8/2/85 #7 Obtaining Equipment
Under a CERCLA
Cooperative Agreement
9/17/85 18 Intergovernmental
Review Procedures
State Cooperative
Agreements for Pre-
Remedial Activities
12/18/85 19 Action Memorandum
Guidance
12/20/85 #10 Model Statement of
Work for a Remedial
Investigation/
Feasibility Study
12/20/85 #11 Site Safety Plan
Guidance
1/31/86 #12 Quality Assurance
Project Plan
3/5/86 #13 Superfund Supplement
Guidance
. New pages
. New pages
. New pages
. Replacement page
. Replacement pages
. New pages
Replacement pages
Replacement pages
Replacement pages
Replacement pages
Replacement pages
Replacement pages
Replacement pages
9375.1-4
3/14/86
Revised Page iva
Location/Page
New Appendix S, Pages
S-l through S-9
Appendix M, formerly
reserved
New Appendix T, Pages
T-l through T-15
Table of Contents, Pages
xiii through xix
List of Exnibits, Pages
xx and xxi
Appendix D, Pages D-l
through D-28
Appendix A, formerly
reserved
Table of Contents, Pages
xiii through xix
Appendix B, Pages
B-l through 3-9
Table of Contents, Pages
xiii through xix
Appendix E, Pages
E-l through E-21
Table of Contents, Pages
xiii through xix
Appendix M, Pages M-l
through M-28
Table of Contents, Pages
xiii through xix
Appendix L, Pages L-l
through L-12
Table of Contents,
Pages xiii through
xix
Appendix P, Pages P-l
through P-16
iva
-------
9375.1-4
3/14/86
Revised Page ivb
CHANGES TO DATE (Continued)
Date/
Addendum I Topic Instruction Location/Page
3/14/86 #14 Audits of Cooperative . Replacement pages . Table of Contents Pages
Agreements xiii through xx
. List of Exhibits, Pages
xx through xxii
. New pages . Chapter IX, Pages IX-1
through IX-24
ivb
-------
TABLE OF CONTENTS
9375.1-4
3/14/86
Revised Page xiii
LIST OF ACRONYMS AND ABBREVIATIONS
I. INTRODUCTION
A. Purpose of the Manual
B. Background — Key Terms
B.l Remedial Response
B.2 Remedial Response Agreements
B.3 State Assurances
B.3.a Cost-Sharing
B.3.b Off-Site Treatment, Storage,
or Disposal
B.3.C Operation and Maintenance (O&M)
B.4 State Credits
II
III
C. Overview of the Manual
CONCURRENT ADMINISTRATIVE EVENTS.
A. Initiation of Enforcement Activities
Initiation of Forward Planning
Development of Site-Specific Schedules
Development of the Remedial
Accomplishments Plan (RAP)
E. Development of the Action Memorandum
F. Identification and Review of State
Credit Submissions
G. Intergovernmental Review
DEVELOPMENT OF COOPERATIVE AGREEMENT
APPLICATION PACKAGES
A. Completion of the Cooperative Agreement
Application Form
PAGE
a
1-1
1-2
1-3
1-4
1-4
1-5
1-5
1-6
1-7
1-7
1-7
II-l
II-2
11-2
II-5
II-5
II-5
II-6
II-7
III-l
III-2
DATE
12/10/84
12/10/84
Kill
-------
9375.1-4
3/14/86
Revised Page xiv
PAGE DATE
A.I Part IV - Project Narrative III-2
Statement
A.2 Part III - Project Budget III-3
A.2.a Allowable Costs III-4
A.2.b Enforcement Costs II1-5
A.2.C Calculation of State Cost Share III-5
B. Development of Cooperative Agreement II1-6
Provisions
B.I General Assistance Requirements II1-6
B.2 Superfund Program Requirements II1-7
B.2.a Provision of CERCLA II1-8
Section 104(c)(3) Assurances
B.2.b The National Environmental II1-9
Policy Act Of 1969 (NEPA)
B.2.c Quality Assurance/Quality IH-10
Control (QA/QC)
B.2.d Site Safety Plan Ill-ll
B. 2. e Expedi ted Procurement 111 -12
C. Completion of the Procurement System 111-12
Certification Form
D. Other Submissions II1-13
D.I Community Relations Plan (CRP) II1-13
D.I.a Draft Community Relations II1-13
Plan
D.l.b Complete Community II1-14
Relations Plan
D.2 Certification Letter 111-15
D.3 Intergovernmental Review Comments 111-15
E. Deviation Requests to Permit the II1-15
Allowability of Pre-Award Costs
F. Multi-Site Cooperative Agreements 111-17 12/10/84
F.I Activities That May Be Included 111-18
in Multi-Site Cooperative
Agreements
F.2 Intergovernmental Review II1-19
F.3 Contents of a Multi-Site Cooperative II1-20
Agreement
xiv
-------
F.3.a Cooperative Agreement
Application Form
F.3.b Multi-Site Cooperative
Agreement Application
Provisions
F.3.c Procurement System
Certification Form
F.3.d Certification and
Enforcement Letters
F.4 Accounting for Multi-Site
Cooperative Agreements
F.5 Administration of Multi-Site
Cooperative Agreements
F.5.a Project Management
F.S.b Project/Budget Periods
F.S.c Quarterly Reports
9375.1-4
3/14/86
Revised Page xv
PAGE
111-20
111-23
111-23
111-23
111-24
111-26
111-26
111-26
111-27
DATE
IV. DEVELOPMENT OF EPA-LEAD REMEDIAL PLANNING
AGREEMENTS
A. The Scope of Work for Remedial Planning
B. Documentation of Terms and
Responsibilities"
B.I EPA Responsibilities
B.2 State Responsibilities
B.3 General Terms
C. Other Submissions
•'• .-'v
C.I Community Relations Plan (CRP)
C.2 Intergovernmental Review Comments
D. Management Assistance Cooperative
Agreements
V. DEVELOPMENT OF SUPERFUND STATE CONTRACTS
A. Development of the Statement of Work (SOW)
B. Development of State Cost-Sharing Terms
B.I Calculation of the State's Cost Share
B.2 Negotiation of Payment Terms
C. Documentation of Other Terms and
Responsibilities
IV-1
IV-3
IV-3
IV-3
IV-4
IV-4
IV-5
IV-5
IV-6
IV-6 12/10/84
V-l
V-2
V-2
V-2
V-3
V-4
XV
-------
9375.1-4
3/14/86
Revised Page xvi
C.I EPA Responsibilities
C.2 State Responsibilities
C.3 General Terms
D. Other Submissions
D.I Community Relations Plan (CRP)
D.2 Certification Letter
D.3 Intergovernmental Review Comments
E. Multi-Site Superfund State Contracts
PAGE DATE
V-4
V-5
V-6
V-7
V-7
V-8
V-8
V-8 12/10/84
VI. EXECUTION OF REMEDIAL AGREEMENTS VI-1
A. Review of the Draft Agreement Vl-i
A.I Review of the Draft Cooperative VI-2
Agreement Application Package
A.2 Review of the Draft EPA-Lead VI-2
Submission
B. Final Regional Review and Preparation vi-2
of the Concurrence Package
C. Approval and Execution VI-4
VII. ADMINISTRATION OF REMEDIAL AGREEMENTS VII-1
A. Monitoring Financial Commitments VII-1
A.I State Drawdowns Under a Cooperative VII-2
Agreement
A.2 State Payment of Cost Share Under VI1-3
a Superfund State Contract
B. Monitoring Technical Commitments VII-3
B.I Monitoring Site Activities VII-4
B.2 Monitoring State Assurances and VI1-5
Compliance with Special Conditions
C. Coordinating EPA-Lead Remedial Agreements VI1-5
with Performance Agreements
D. Documenting Remedial Activity VI1-6
xvi
-------
VIII
D.I Regional Files
D.2 EPA Headquarters Files
D.3 State Files
E. Documenting Completion of Remedial
Implementation [RESERVED]
AGREEMENT MODIFICATIONS
A. Project Adjustments
A.I Adjustments to State-Lead Projects
A.2 Adjustments to EPA-Lead Projects
B. Initiation of Remedial Design and
Remedial Action
B.I Records of Decision (RODs)
B.2 Incorporating Remedial Design and
Remedial Action into an
Agreement Between EPA and the State
C. Initiation of Operation and Maintenance
IX. AUDITS OF COOPERATIVE AGREEMENTS
A. Types of Audits
A.I Interim Audits
A. 2 Final Audits
A.3 CERCLA Credit Audits
B. Scheduling the Audit and Preliminary
Activities
B.I Scheduling the Audit
B.2 Regional Preparation for the Audit
B.3 State Preparation for the Audit
C. Procedures for the Audit
C.I Entrance Conference
C.2 Audit Standards and Tasks
C.3 Draft Audit Report
C.4 Exit Conference
C.5 Final Audit Report
C.6 Findings and Recommendations Related
to EPA Administration
9375.1-4
3/14/86
Revised Page xvii
PAGE DATE
VII-6
VII-6
VII-7
VIII-1
VIII-1
VIII-1
VIII-2
VIII-3
VIII-3
VIII-6
VIII-7
IX-1
IX-3
IX-3
IX-6
IX-7
IX-7
IX-8
IX-8
IX-10
IX-11
IX-11
IX-13
IX-15
IX-18
IX-19
IX-19
3/14/86
XVll
-------
9375.1-4
3/14/86
Revised Page xviii
D. Resolution of Audit Findings and Follow-up
Actions
D.I Review of Final Audit Report and
Resolution of State Disagreements
D.2 Resolution of DIGA Disagreements
and Disputes
D.3 Issuance of the Final Determination
Letter
D.4 Review for Adequacy
E. Implementation of Corrective Actions
APPENDICES
Introduction to the Appendices
Appendix A - PA/SI Guidance
Action Memorandum Guidance
PAGE DATE
IX-20
IX-20
IX-21
IX-22
IX-23
IX-23
Appendix B -
Appendix C -
Appendix D -
Appendix E -
•Appendix F -
Appendix G -
Appendix H -
A-l
B-l
9/17/85
12/20/85
Procedures for Developing and Processing C-l
CERCLA State Credit Claims
Procedures for Implementing Intergovern- D-l 9/17/85
mental Review
Model Statement of Work for State-lead E-l
Remedial Investigation/Feasibility Study
Projects
Sample Cooperative Agreement Application F-l
Provisions
Sample Cooperative Agreement Application G-l
Package
12/10/84
Sample Articles for Superfund State
Contracts and Other EPA-Lead Remedial
Agreements
Appendix I - Sample Superfund State Contract
Appendix J - Sample Certification Letters
H-l
1-1
J-l
12/10/84
xviii
-------
Appendix K -
Appendix L -
Appendix M -
Appendix N -
Appendix 0 -
Appendix P -
Appendix Q -
Appendix R -
Appendix S -
Appendix T -
9375.1-4
3/14/86
Revised Page xix
Sample Community Relations Plan Format
and Sample Plan (CRP)
K-l
Sample Quality Assurance/Quality Control L-l 1/31/86
Plan
Sample Site Safety Plan
Instructions for Using Superfund Letter
of Credit Account Numbers Under
Cooperative Agreements
Record of Decision (ROD)/Enforcement
Decision Document (EDD) Guidance
Superfund Supplement Guidance
Glossary of Terms
List of References
Advance Match Procedures
Obtaining Equipment for Use Under
a CERCLA Cooperative Agreement
M-l 12/20/85
N-l 12/10/84
0-1 1/17/86
P-l 3/5/86
Q-l
R-l
S-l 1/4/85
T-l 8/9/85
XIX
-------
9375.1-4
3/14/86
Revised Page xx
LIST OF EXHIBITS
Exhibit
Number TITLE
1-1 Site Chronology
1-2 Document Outline
II-l Concurrent Administrative Events
I1-2 Sample SOW for State-Lead Forward Planning
Activities
III-l Development of Cooperative Agreement Application
Packages
II1-2 Cooperative Agreement Application Package
Checklist
111-17 Figures for Use in Estimating Total State-Lead
Remedial Action Costs
III-4 Object Class Categories for Use in Completing
the Cooperative Agreement Application
III-5 Itemization of Object Class Categories:
Appropriate Level of Detail
III-6 State Cost-Share Calculations
II1-7 Summary of Requirements for Procurement Under
Assistance Agreements (40 CFR 1717)
II1-8 Summary of Superfund Program Provisions for
Cooperative Agreement Applications
II1-9 Methods for Expediting Procurement
I11-10 Examples of Options for Awarding and Managing
Multi-Site Cooperative Agreements
I11-11 Sample MSCA Obligation Document
IV-1 Development of Memoranda of Understanding
V-l Development of Superfund State Contracts
xx
-------
9375.1-4
3/14/86
Revised Page xxi
LIST OF EXHIBITS
Exhibit
Number TITLE
V-2 Figures for Use in Estimating Total EPA-Lead
Remedial Action Costs
V-17 State Cost-Share Calculations
VI-1 Execution of Remedial Agreements
VI-2 Agreement Review and Approval Process
VI-17 Suggested Format for the Decision Memorandum
VII-1 Administration of Remedial Agreements
VIII-1 Agreement Modifications
IX-l Audits of Cooperative Agreements
IX-2 Listing of Offices of the Divisional Inspectors
General for Audit
IX-3 Cooperative Agreement Audit Process
IX-4 Sample Cost Exhibit for Draft Audit Report
A-l Pre-Remedial Screening Process
A-2 CERCLA Information System (CERCLIS)
''- . • 'V
A-17 Application For Federal Assistance, Part III
Table 1 Sample Format for Pre-Remedial Program Report
Table 2 Sample Format for Work Hours Per Site (Pre-Remedial)
Table 17 Sample Format for Expense Report (Pre-Remedial)
Table 4 Sample Format for Site Additions and Substitutions
(Pre-Remedial)
Table 5 Revised Schedule of Pre-Remedial Accomplishments
C-l Overview of Procedures for Processing State
Credit Claims
xxi
-------
9375.1-4
3/14/86
Revised Page xxii
LIST OF EXHIBITS
Exhibit
Number TITLE
N-l Superfund Remedial Activities Code List for
Cooperative Agreements
N-2 Financial Status Report Form and Instructions for
Its Completion
T-l Sample Usage Charge Calculation
T-2 Accounting Example
. xxi i
-------
9375.1-4-9
3/14/86
New Page IX-1
IX. AUDITS OF COOPERATIVE AGREEMENTS
In signing an EPA/State CERCLA Cooperative Agreement,
the State has given EPA the right to audit that Agreement,
pursuant to the Inspector General Act of 1978 (PL 95-452),
CERCLA section lll(k), and 40 CFR Part 30.540. -This chap-
ter provides guidance on the conduct of such audits, the
resolution of audit findings, and audit follow-up ac-
tions. It does not discuss audit of Federal procurement
contracts.
EPA may audit a CERCLA Cooperative Agreement while the
Agreement is in effect, called an interim audit, or may
conduct a final audit at the completion of the Federally
funded activities. 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 elig-
ible, reasonable, allowable, and allocable to the project
under the terms of the Cooperative Agreement and applic-
able EPA and Federal regulations and directives; and to
determine whether controls exercised by the State through
its financial and project management,, accounting, procure-
ment, subagreement administration, and property management
systems are adequate to ensure that costs meet these
criteria.
States receiving EPA assistance or expending funds as
advance match are required to arrange for independent
financial and compliance audits and internal control re-
views every year.* When EPA conducts project audits, the
Agency, to the extent possible, will build on audit work
already performed by the State.
Audits are conducted under the supervision of the EPA
Office of the Inspector General (OIG); specifically, they
are the responsibility of the Office of the Assistant In-
spector General for Audits (OAIGA). The OAIGA also is
responsible for monitoring the adequacy of self-audits
conducted by State and local government recipients of Fed-
eral funds. The OIG will schedule an audit on its own
initiative or at the Superfund program's request. The
EPA regulations (40 CFR 30.510 and 30.540(b)), in
accordance with Office of Management and Budget (OMB)
Circular A-128 (superseding A-102, Attachment P) .
IX-1
-------
9375.1-4-S
3/14/86
New Page IX-2
Divisional Inspectors General for Audits (DIGAs) deal
directly with State and Regional staff to schedule the
audit, resolve any questions or problems, and provide ad-
vice, as necessary. Actual audit work may be performed by
employees of the OIG, by an independent public accouncing
firm under contract to EPA to perform audits, or by audi-
tors associated with another Federal agency.
Most of the audit work conducted will take place in
the State's offices and will include a thorough review of:
the State's accounting, procurement, and property manage-
ment systems; all costs incurred on a project; and compli-
ance with the terms of the Cooperative Agreement. Audit
findings will identify the costs claimed which may not be
EPA's responsibility and, therefore, are questioned (i.e.,
are not reasonable, allowable, allocable or eligible) and
the costs which cannot be given unqualified acceptance and
must be set aside. The audit report will detail these OIG
findings which may recommend that certain State expendi-
tures of Federal funds be disallowed and/or may suggest
needed corrective actions.
EPA's audit process is designed to ensure that the
State has an adequate opportunity to provide input into
the decision-making process. At the conclusion of the
field work, a draft audit report which details preliminary
audit findings will be prepared for comment by the State.
State comments will be incorporated into a final report,
as appropriate. This final report will be sent to the EPA
Action Official for audit response who is usually the
Regional Administrator (RA) as the Award Official, or
his/her designee. The Action Official, pursuant to the
provisions of EPA Directive 2750, will have responsibility
for rejecting or accepting the audit findings and will
issue a final, binding determination of the audit dispo-
sition to the State. In most Regions, the duties of the
Action Official, as the term is used throughout this
chapter, may be delegated to several offices and/or indi-
viduals. The State, then, will be responsible for imple-
menting corrective actions to remedy cited deficiencies,
pending any appeal exercised under 40 CFR Part 30, Subpart
L, and for arranging for repayment of any disallowed costs
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:
IX-2
-------
9375.1-4-9
3/14/86
New Page IX-3
Scheduling the audit and preliminary activities
Procedures for the audit
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-1, on the following pages, identifies specific respon-
sibilities for each phase of the Cooperative Agreement
audit process.
A. TYPES OF AUDITS
Audits may be conducted at any time during the period
of performance of the Cooperative Agreement or as part of
the close-out activities. The former type are called in-
terim audits, while the latter are called final audits.
This section briefly discusses each of these types of
audit. Other, special purpose audits include CERCLA
credit cost verification (see Appendix C of this manual)
and pre-award audits covering financial and technical as-
pects of assistance applications and proposed
subagreements.
A.I 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 Cooperative Agreement are allowable and
whether the State is complying with the terms of the
Agreement. Thus, it will entail a thorough review of
State cost documentation and project files, and also us-
ually will include examination of the State's accounting,
procurement, and property management systems.
EPA may schedule interim audits of agreements that
cover particularly complex projects, such as multi-site
Cooperative Agreements (MSCAs), or when problems, inaccur-
acies, discrepancies, or other complications with Coopera-
tive Agreement administration occur. 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 segre-
gate and account for costs on a site-specific
basis
IX-3
-------
9375.1-4-9
3/14/86
New Page IX-4
EXHIBIT IX-1
AUDITS OF COOPERATIVE AGREEMENTS
ACTIVITY
STATE ROLE
ACTION OFPICIAL/DESIGNEE ROLE
Schedule Audit
and Preliminary
Activities
Procedures for
Audit
X
3.
Resolve Audit
Findings
Ensure that relevant material
is available
Prepare list of key project
personnel
Participate in entrance
conference
Provide information to
auditors, as requested
Review draft audit report and
prepare comments, as appropriate
Consult with audit team, DI6A
and Action Official on audit
report findings
Assist in resolving disagree-
ments as necessary
Participate in exit conference
Assist in resolving disputes
on audit issues
Provide additional information
to Action Official, as necessary
Respond to initial audit deter-
mination, if appropriate
Submit audit request
Work with auditors to clarify program
procedures
Ensure that relevant material is
available
Participate in entrance conference
Provide information to auditors, as re-
quested
Review draft audit report and prepare
comments, as appropriate
Request extension of draft audit report
review period, if necessary
Consult with the audit team, DIGA, Re-
gional Counsel and State on audit
report findings
Assist State in preparing comments on
draft audit report, if needed
Assist in resolving disagreements, as
necessary
Participate in exit conference
Forward copy of final audit report to
State within 15 days of report date
Forward copy of audit report to Head-
quarters, if significant policy or
procedural issues are raised
Monitor status of audit reports to
avoid delays or disputes
Inform State and DIGA of potentially
controversial issues/determinations
Negotiate with DIGA staff to resolve
differences, as necessary
-------
9375.1-4-9
3/14/86
New Page IX-5
EXHIBIT IX-1 (Continued)
AUDITS OF COOPERATIVE AGREEMENTS
ACTIVITY
STATE ROLE
ACTION OFFICIAL/DESIGNEE ROLE
3. Resolve Audit
Findings (cont'd)
Ui
4. Implement Corrective
Actions
Implement corrective actions,
as instructed
Transmit initial audit determination
and supplementary analysis to the
State, if necessary
Consult with DIGA on proposed final
audit determination
Provide copy of proposed final audit
determination to DIGA, if questioned
costs are $100,000 or more
Issue final audit determination to the
State within 150 days
Provide copy of all final audit deter-
minations to DIGA for review
Monitor status of State implementation
of corrective actions
Report quarterly on status of audit
follow-up to HQ office
Forward copy of final audit determina-
tion to Servicing Finance Office
-------
9375.1-4-9
3/14/86
New Page IX-6
Instances where the State has an interest in
significantly expanding its involvement in the
Superfund program or has requested a major amend-
ment to an existing project
High staff or management turnover
Previous audits of the State have indicated sig-
nificant management problems
Quarterly reports and other deliverables are not
received on time or reports indicate problem areas
Disbursements do not accurately reflect project
progress
Requests for verification of CERCLA section
104(c)(3)(C) credits
Non-compliance or inattention to the requirements
of quality assurance/quality control plans, site
safety plans, contractor oversight, community
relations plans, and quarterly reports, or to the
other provisions of the Cooperative Agreement
At the request of the State to resolve poten-
tially questionable cost issues, or to ensure
that appropriate corrective actions will be
undertaken early in project implementation
At the conclusion of one activity, such as a re-
medial investigation/feasibility study, at a site.
The interim audit is used as a corrective tool. There-
fore, 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 future disallowed expenditures. For efficiency,
when an interim audit is scheduled for one project within
a State, other individual agreements with 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 activities
or Agreements to determine whether costs the State charged
to EPA under the Cooperative Agreement were allowable.
They also will verify that any remaining funds have been
IX-6
-------
9375.1-4-9
3/14/86
New Page IX-7
deobligated or, in the case of an MSCA, have been trans-
ferred to another site. The final audit also is performed
to ensure that the project(s) completed under the Cooper-
ative Agreement meets all agreed-upon conditions and that
desired results have been achieved.
Audit of a Superfund Cooperative Agreement may be
scheduled upon State submission of the final Financial
Status Report (SF-269) at the conclusion of the activity.
Cooperative Agreements may be audited when they are ter-
minated or closed out or when projects within an MSCA are
completed; interim audits of other projects within the
same MSCA can be conducted at the same time. Other occa-
sions may arise when an audit is appropriate.
A.3 CERCLA Credit Audits
CERCLA section 104(c)(3)(C) provides that States shall
be given credit for eligible costs of response actions
taken at a site during the CERCLA credit period: Jan-
uary l, 1978, through December 11, 1980. CERCLA credit
audits are conducted to verify that State credit costs
under this provision meet the Agency criteria, and, thus,
may be applied to the State's cost share during remedial
action at the site for which they were incurred. Such
audits may be performed at any time after a State has sub-
mitted a summary of credit costs. Audits of large credits
usually will be initiated before the remedial action is
begun; audits of small credits usually will be concurrent
with interim or final project audits for the remedial ac-
tion. For additional details on the submission and pro-
cessing of CERCLA" credit^, see Appendix C of this manual.
B. SCHEDULING THE AUDIT AND PRELIMINARY ACTIVITIES
The OAIGA, within EPA, is responsible for scheduling
audits of Superfund Cooperative Agreements on its own ini-
tiative or after receiving a reguest from the program.
After the audit has been scheduled but before it can be-
gin, however, several preliminary activities are necessary
to obtain background information and organize files. If
the State and EPA have been maintaining their files prop-
erly throughout the course of the response activity, mini-
mal additional organization will be necessary at the time
of the audit. Procedures for requesting and scheduling
audits, as well as descriptions of preparatory activities,
are contained in this section.
IX-7
-------
9375.1-4-9
3/14/86
New Page IX-8
B.1 Scheduling the Audit
Audits can be scheduled by the OAIGA on its own initi-
ative or at the request of the Office of Solid Waste and
Emergency Response (OSWER)* or the Award Official for the
agreement. States may request audits through the Award
Official.
When Regional personnel determine that an audit is
appropriate, the Award Official should submit directly to
the appropriate DIGA a written request to verify expendi-
tures. Exhibit IX-2, on the following page, provides a
list of DIGAs and the EPA Regions for which they are re-
sponsible. This request should identify any specific con-
cerns, such as letter of credit drawdowns, equipment pur-
chase, or contract administration, which the audit should
address. If there are several Cooperative Agreements or
projects included in the request, the Region should indi-
cate its priorities for audit. The request also should be
sufficiently detailed to explain the circumstances that
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 "Assis-
tance Audit Request" (EPA Form 5700-29) signed by the
Award Official or his/her designee.
B.2 Regional Preparation-for the Audit
While most of the audit work will be performed in the
State's offices, prior to commencing field work the audi-
tors will conduct an in-depth interview with the Remedial
Project Manager (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
staff member primarily responsible for the Cooperative
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.
Other EPA Headquarters offices that have an interest
in requesting audits of Superfund Cooperative Agree-
ments should coordinate such requests through the
Office of the Assistant Administrator for Solid Waste
and Emergency Response (AA/SWER).
IX-8
-------
9375.1-4-9
3/14/86
New Page IX-9
EXHIBIT IX-2
LISTING OF OFFICES OF THE DIVISIONAL
INSPECTORS GENERAL FOR AUDITS
Office of the Inspector General
Internal Audit Division (A-109)
Environmental Protection Agency
401 M Street, S.W.
Washington, D.C. 20460
(FTS) 382-4930 or (202) 382-4930
Regions I and II
Office of the Inspector General
Eastern Audit Division
Environmental Protection Agency
150 Causeway Street
Boston, Massachusetts 02114
(FTS) 223-0940 or (617) 223-0940
Office of the Inspector General
Eastern Audit Division/NY Suboffice
Environmental Protection Agency
90 Church Street, Room 802
New York, New York 10007
(FTS) 264-5730 or (212) 264-5730
Region III
Office of the Inspector General
Mid-Atlantic Office
Environmental Protection Agency
841 Chestnut Street, 10th Floor
Philadelphia, Pennsylvania 19107
(FTS) 597-0497 or (215) 597-0497
Region V
Office of the Inspector General
Northern Audit Division
Environmental Protection Agency
10 West Jackson Boulevard, 4th Floor
Chicago, Illinois 60604
(FTS) 353-2486 or (312) 353-2486
Regions IV, VI and VII
Office of the Inspector General
Southern Audit Division
Environmental Protection Agency
1371 Peachtree Street, N.E.,
Suite 276
Atlanta, Georgia 30309
(FTS) 257-3623 or (404) 881-3623
Office of the Inspector General
Southern Audit Division/
Dallas Suboffice
Environmental Protection Agency
1100 Commerce Street
Dallas, Texas 75242
(FTS) 729-2854 or (214) 767-2854
Regions VIII,. IX and X
Office of the Inspector General
Western Audit Division
Environmental Protection Agency
211 Main Street, Room 220
San Francisco, California 94105
(FTS) 454-7084 or (415) 974-7084
Office of the Inspector General
Western Audit Division/
Sacremento Suboffice
Environmental Protection Agency
801 I Street, Room 466
Sacramento, California 95814
(FTS) 460-1076 or (916) 551-1076
Office of the Inspector General
Western Audit Division/
Seattle Suboffice
Environmental Protection Agency
1111 3rd Avenue, Suite 350
Seattle, Washington 98101
(FTS) 399-1273 or (206) 442-1273
IX-9
-------
9375.1-4-9
3/14/86
New Page IX-10
The RPM should be prepared to provide relevant back-
ground information, including any issues observed concern-
ing the State's administration and implementation of the
Cooperative Agreement, suggestions for improving the
State's process, and a discussion of the status of re-
quired reports and work products. The RPM also should
ensure that EPA's Cooperative Agreement/project files are
up-to-date and available for review. Specifically, the
auditors will want to review:
A copy of the Cooperative Agreement, including
all applications and amendments
Correspondence or memoranda concerning problem
areas
Quarterly and final reports for the Agreement/
project
Documentation of informal agreements and
amendments.
The RPM should be available to provide any necessary
assistance to the auditors.
B.3 State Preparation for the Audit
The DIGA will inform the State of the approximate date
of the audit. Most of the information that the auditors
will need should be readily available if the State has
been documenting costs as required by 40 CFR Part 30 and
as recommended by the Superfund program guidance (see
Appendix U of this manual for further details). Upon re-
ceipt of the notification letter, however, the State
should ensure that all records pertaining to the Coopera-
tive Agreement are up-to-date and accessible.
Types of management records that the State should re-
view before the audit begins include the following:
Accounting books and records covering the receipt
and disbursement of funds; time and attendance
records; travel; other project costs such as
equipment and training; and cost share, as
applicable
Bank account records and cancelled checks
IX-10
-------
9375.1-4-9
3/14/86
New Page IX-11
Copies of quarterly and technical progress re-
ports, as well as any other documents specified
by the Cooperative Agreement
A list of all equipment and supplies purchased
for the Superfund project and, for final audits,
a copy of the equipment disposal report
Copies of Financial Status Reports (SF-269)
Copies of Federal Cash Transaction Reports
(SF-272)
Procurement documents including contract files,
payment and receiving documents, subagreement
files, and memoranda of contract and subagreement
negotiation
Correspondence relating to activities conducted
under the Cooperative 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.
C. PROCEDURES FOR THE AUDIT
Once the audit has been scheduled and background in-
formation obtained from the Region, audit work can com-
mence. 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 audi-
tors will hold separate entrance conferences with State
and Regional personnel. The primary purpose of these con-
ferences 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 in-
clude: the schedule for completing the audit, provisions
for accessing records and project information, and the
audit team's space and equipment requirements. The audi-
tors also will conduct an in-depth interview with the
IX-11
-------
PHASE
PHASE II
(Max. 150 Days)
PHASE III
1
OOA
NOTIFIES STATE/
RBQIONGFMJOfr
9375.1-4-9
3/14/86
New Page IX-12
HO
OAI
AO
S>AKEAOOUARTB»
OfBCtOfTHt*
AcnoHomcw.
OM OBI8W. HOB AUDITS
-- OfnONALSTEPa
EXHIBIT IX-3
COOPERATIVE AGREEMENT AUDIT PROCESS
-------
9375.1-4-9
3/14/86
New Page IX-13
State Project Officer (SPO) for the project or Cooperative
Agreement to obtain additional, relevant, background in-
formation.
C.2 Audit Standards and Tasks
The EPA audit itself will be performed in accordance
w,ith several publications. These include:
Standards for Audit of Federal Governmental
Organizations, Programs, Activities, and Func-
tions, 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 Administra-
tion Manual, U.S. EPA Grants Administration Divi-
sion, 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:
The Cooperative Agreement, including all amend-
ments, special conditions, and terms, and sup-
porting documentation
Comprehensive Environmental Response, Compensa-
tion, and Liability Act of 1980 (CERCLA)
40 CFR Part 300, National Oil and Hazardous Sub-
stances Pollution Contingency Plan (NCP)
40 CFR Part 30, General Regulation for Assistance
Programs
40-CFR Part 33, Procurement Under Assistance
Agreements
Assistance Administration Manual, U.S. EPA Grants
Administration Division, December 1984
Letter of Credit - Treasury Financial Communica-
tion System Recipients Manual, U.S. EPA Office of
the Comptroller
IX-13
-------
9375.1-4-9
3/14/86
New Page IX-14
State Participation in the Superfund Program,
OERR, February 1984, as revised.
Although audits differ depending upon their scope and
purpose and on the complexity of the activity or Coopera-
tive Agreement being reviewed, the auditors will perform
generally standardized tasks. These include the following:
Obtain background information from the RPM
Determine whether the State is complying with the
provisions of the Cooperative Agreement
Evaluate the State's system for accounting for
site-specific costs and ability to document these
costs
Evaluate non-contractual costs incurred and
reported
Evaluate costs incurred and reported by the State
for contractual services
Determine'whether the controls being used to en-
sure the appropriateness of contractor perform-
ance and billing are adequate
Determine whether -subagreements are being awarded
in compliance with applicable EPA procurement
procedures
Determine whether letter of credit drawdowns are
being handled in accordance with Federal
requirements
Determine whether the State is complying with EPA
property and equipment management requirements,
including the special requirements of CERCLA for
equipment (see Appendix T)
Determine whether all required financial and
technical reports are being completed and sub-
mitted in a timely manner.
Additional tasks may be performed, depending upon the
needs of the Agreement/project at hand.
IX-14
-------
9375.1-4-9
3/14/86
New Page IX-15
C.3 Draft Audit Report
The results of the auditors' field work are summar-
ized, for State and program comment, in a draft audit re-
port prepared and issued by the OIG. This draft report
states the purpose and scope of the audit and 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 Cooperative
Agreement. Monetary recommendations concern costs in-
curred by the State in the performance of the Agreement/
project, and fall into the following categories:
Accepted costs, which are those that the auditors
have concluded are allowable under the terms of
the Agreement or applicable law, regulation, pol-
icy, or cost principles, and were properly
charged to the Cooperative Agreement
Questioned costs, which are t.hose that the audi-
tors have concluded are not allowable and, there-
fore, 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, evalua-
tions, or approvals from the State or EPA.
In general, an audit report contains the following
elements:
A cost exhibit, presenting the monetary findings
(costs by object class and classified as either
accepted, questioned, or set-aside, as defined
above). The exhibit also should 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 esti-
mate when resolution is likely to occur. Exhibit
IX-4, on the following pages, presents an example
IX-15
-------
EXHIBIT IX-4
SAMPLE COST EXHIBIT FOR DRAFT AUDIT REPORT
Summary of CERCLA Credit Period Costs Submitted and
Results of the EPA Audit for XYZ Site
Audit Findings
Description
Amount Submitted Accepted Questioned Set Aside Notes
Enforcement Activities
Water Supply and
Pollution Control
Commission
Bureau of Solid
Waste Management
Office of the
Attorney General
Subtotal - Enforcement
Drum Removal Activities
Water Supply and
Pollution Control
Commission/Office of
the Attorney General
TOTAL
$31,265
864
4,460
$36,589
$14,904
-0-
-0-
$14,904
$16,361
-0-
4,460
$20,821
-0-
864
-0-
$864
$400,000
-0-
$14.904
$400,000
$420.821
-0-
Note 1
Note 2
Note 3
Note
Note 1
Represents $16,361 questioned from in-house analysis of ground and
surface water samples. The Commission originally provided estimates of
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 $ 648
Average Cost per Sample $ 23
Cost of Samples (Accepted) $14,904
Costs Claimed $31,265
Costs Questioned $16,361
IX-16
-------
9375.1-4-9
3/14/86
New Page IX-17
EXHIBIT IX-4
SAMPLE COST EXHIBIT FOR DRAFT AUDIT REPORT (Cont'd)
Note 2
Represents $864 in costs for salary, travel, and indirect costs of
agency personnel who performed sample monitoring and compliance
inspections which have been set aside pending receipt of additional
information to be submitted by the auditee.
Note 3
Represents $4,460 relating to personnel costs for an assistant
Attorney General (computed 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.
Note 4
Represents $400,000 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 taken by responsible
parties, based on an estimate of what incurred cost would have been
had a contract been issued to remove the hazardous materials.
(1) Section 104(c)(l) authorizes Fund-financed activities only if
responsible parties cannot or will not provide the necessary remedy;
(2) section 104(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.
IX-17
-------
9375.1-4-9
3/14/86
New Page IX-18
of a cost exhibit for a credit verification
audit report.
A discussion of the adequacy of the State's
accounting, procurement, subagreement administra-
tion, and property management systems.
A discussion of problem areas examined or noted.
Recommendations for remedying any deficiencies
noted.
The State and the Action Official 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. Confidential
findings within the report are those that relate to con-
fidential investigative matters or confidential business
information, either of which is uncommon in Cooperative
Agreement audit reports. If significant policy or pro-
grammatic issues are raised in the draft report, a copy
should be forwarded to the AA/SWER.
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. Any public requests for draft audit re-
ports should be forwarded to the DIGA.
The State and Region are strongly encouraged to pro-
vide comments on the draft audit report. These comments
must be submitted to the DIGA within 30 days of the draft
report's distribution date. If an extension is needed, it
may be requested by the Action Official for approval by
the DIGA; extensions of up to 30 days are approved auto-
matically. State and -Regional comments on the draft re-
port should be considered an important part of the resolu-
tion 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, 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
EPA's audit process is designed to ensure that the
State has an adequate opportunity to provide input into
the decision-making process. Auditors will inform the
IX-18
-------
9375.1-4-9
3/14/86
New Page IX-19
State of preliminary findings as the audit progresses and
may hold informal meetings with involved personnel to dis-
cuss these findings. Before issuance of the final audit
report, a formal exit conference may be held at the com-
pletion of audit field work, or after comments on the
draft audit report have been received. Meetings may occur
separately with State and Regional staff members.
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 or comment period. Improvements
or corrective actions initiated during the course of the
audit will be identified. As a result of the discussions
in the exit conference, auditors 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 no later then two weeks after the
formal exit conference.
C.5 Final Audit Report
A final audit report 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 any written comments on the draft
report whose length permit reproduction. The final report
will be sent to the responsible Action Official, who must
forward a copy of this report to the State within 15 days
of the report date, and also should forward a copy to the
Office of the AA/SWER 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 expedited implementation of
corrective action. The OIG or Action Official should
respond to public requests for final audit reports in
accordance with the Freedom of Information Act and imple-
menting regulations.
C.6 Findings and Recommendations Related to EPA
Administration
A Cooperative Agreement audit primarily examines the
State's performance under that Agreement. EPA oversight
and administration, however, also are evaluated in the
course of the audit. The OIG may address findings and
recommendations on EPA deficiencies in a separate report
or letter to the responsible EPA official.
IX-19
-------
9375.1-4-9
3/14/86
New Page IX-20
D. RESOLUTION OF AUDIT FINDINGS AND FOLLOW-UP ACTIONS
The final audit report is developed to provide advice
to the Action Official for making a determination on each
of the OIG's findings. The Action Official, then, can
reject or sustain these audit findings. The Action Offi-
cial's determination is reported to the State in a letter
that includes 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 disagreements and disputes and to issue an audit
determination to the State. For additional guidance on
this subject, refer to EPA Directive 2750, "Management of
EPA Audit Reports and Follow-up Actions," issued on April
20, 1984, which establishes responsibilities and pro-
cedures for processing audit reports and follow-up actions.
D.1 Review of Final Audit Report and Resolution of State
Disagreements
The Action Official should review thoroughly the con-
tents 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 sus-
tain costs that 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. Sustained
costs are those gXiestiorifed or set aside costs which the
Action Official concludes are not allowable. The report
transmittal memorandum, therefore, must highlight poten-
tially controversial decisions. If the Action Official
considers taking a position that the State may not find
acceptable, every effort should be made to come to agree-
ment before the final determination is issued. If appro-
priate, the Action Official may issue an initial determi-
nation and ask the State for any rebuttal. This initial
determination and any supplemental analysis should be sent
to the State as soon as possible but at least within 45
days of the final report date.
IX-20
-------
9375.1-4-9
3/14/86
New Page IX-21
Non-monetary findings should be resolved through dis-
cussions prior to issuing the final determination. These
discussions should involve appropriate State personnel,
the RPM, a senior grants specialist, an Agency attorney
and, if appropriate, the Action Official or his/her
designee. The DIGA or audit staff members 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 these discussions or any rebuttals by
the State should be confirmed in the letter of final
determination, discussed later in this chapter. After the
final determination letter is issued, the State may re-
quest review through the formal dispute resolution pro-
cedures under 40 CFR Part 30, Subpart L; these rights also
are described in Chapter 35 of the Assistance Administra-
tion Manual. This request for review must be submitted
within 30 days after the final determination letter is
issued by the Action Official.
D.2 Resolution of DIGA Disagreements and Disputes
If the Action Official considers taking a position
that differs from the auditors' recommendation in the
final audit report, the findings in question must be dis-
cussed with the DIGA before the determination can be
issued to the auditee. The Office of Regional Counsel
also should be consulted if the difference is based on an
interpretation of law, regulation, guidance, or EPA
authority.
When the Federal share of questioned costs in the
final audit report totals at least $100,000, the Action
Official cannot issue a final determination until all dif-
ferences are resolved. To this end, the Action Official
must provide a proposed final determination to the DIGA
within 90 days of the final audit report date. If the
DIGA agrees with the proposed final determination, he/she
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, he/she will attempt to resolve the differences
within 15 days; if these attempts are unsuccessful, the
DIGA will notify the OAIGA of the disagreement. The
DIGA's transmittal to the OAIGA will include the Action
Official's response and a brief statement of the reasons
IX-21
-------
9375.1-4-9
3/14/86
New Page IX-22
for disagreement; "a copy also should be forwarded to the
Action Official. Once the matter has been referred, the
OAIGA has 45 days to resolve the issue with the help of
the DIGA, the Action Official, and affected Headquarters
officials. At that time, it must either accept the Action
Official's position or refer the dispute to the Audits
Resolution Board (ARB) for a decision. ARB 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 give the re-
quired notice and make the ARB referral within the respec-
tive 15-day and 45-day periods, the audit will be con-
sidered resolved and the Action Official may proceed to
issue the final determination to the State.
D.3 Issuance of the Final Determination Letter
The Action Official must submit the final determi-
nation letter to the State within 150 days of the final
audit report, unless a disagreement between the Action
Official and the DIGA has been referred to the OAIGA.
This letter must be sent by certified mail, return receipt
requested. A dated copy should be provided to the DIGA,
the Servicing Finance Office, and to the Office of the
AA/SWER in EPA Headquarters.
Determination letters should accomplish the following:
Specify the Agency's final-position on a_Ilr find-
ings and recommendations. As appropriate, the
legal and/or other basis for the position should
be stated. All questioned and set aside costs
must be either .sustained and, therefore, dis,- ...
allowed, or accepted as allowed.
Identify the actions the State must take to be in
compliance with EPA regulations and policies and
the terms of the Cooperative Agreement.
Confirm and explain EPA/State agreements reached
during the resolution process.
Identify any amounts due to EPA because of dis-
allowed costs.
Provide standard payment instructions (see
Assistance Administration Manual, Chapter 38,
subparagraph 8f(3)).
IX-22
-------
9375.1-4-9
3/14/86
New Page IX-23
If the final determination places any require-
ments on the State, notify the State of its dis-
pute rights under 40 CFR Part 30, Subpart L.
Additional elements may be included, as required.
D.4 Review For Adequacy
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 determi-
nation 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 identify clearly why the report is considered
incomplete or inaccurate. The audit response will not be
considered adequate until the Action Official has issued a
revised final determination that corrects the deficiencies
or he/she has convinced the DIGA that the deficiencies
cited are immaterial or that the recommendations have been
addressed otherwise.
E. IMPLEMENTATION OF CORRECTIVE ACTIONS
The Action Official must establish a system to monitor
the disposition of sustained findings on active projects,
and is responsible for ensuring that any corrective ac-
tions required by the. final determination are imple-
mented. There are several steps that the Action Official
can take to ensure State compliance with required cor-
rections. These include:
Require the State to develop a written, correc-
tive action plan as part of the final determina-
tion and to report periodically on progress
Request re-audit of the Cooperative Agreement, as
appropriate, to verify whether corrective actions
have been instituted
Add special terms and conditions to the Coopera-
tive Agreement to require compliance with cor-
rective actions or to clarify EPA requirements.
The Region should consider audit findings and State good-
faith efforts to comply with them before awarding addi-
tional funds or subsequent Cooperative Agreements. Com-
plete documentation of the audit should be retained in the
official Cooperative Agreement file.
IX-23
-------
9375.1-4-9
3/14/86
New Page IX-24
To obtain reimbursement for disallowed costs, the
Region must immediately forward to its Servicing Finance
Office a copy of the final determination letter sustaining
guestioned or set-aside costs. The amounts due must be
recorded in the Financial Management System as accounts
receivable as of the date of the final audit determina-
tion. The Financial Management Office has full responsi-
bility for all billings, offsets, or other acceptable
financial adjustments for CERCLA credit costs and
sustained questioned or set-aside costs.
IX-24
------- |