TEXAS WATER COMMISSION
B. J. Wynne, III, Chairman

John E. Birdwell, Commissioner

Cliff Johnson, Commissioner
John J. Vay, Genera) Counsel

Michael E. Field, Chief Hearings Examiner

Brenda W. Foster, Chief Clerk
                          Allen Beinke, Executive Director
                             February 28,  1990
  'CERTIFIED MAIL
  RETURN RECEIPT REQUESTED
  rfr.  Mike Parker, Controller
  Espey Huston and Associates
  P.  O. Box 519
  Austin, Texas  78767

  Re:   Audit by Environmental  Protection Agency
       Highlands Acid Pits,  Cooperative Agreement V006454-01
       September 30, 1982 to September 30,  1989      /

  Dear Mr. Parker:

  40  CFR, Part 35, Subpart E,  Appendix D,  Paragraph 2.b(4) states  that
  under cost plus fixed fee  contracts "All  direct costs, overhead,  and
  other indirect costs claimed will  be audited to determine that they
  are  reasonable, allowable, and  properly supported by the consulting
  engineer's records.  In Amendment  No. 1,  dated June 27, 1988 to  the
  prime A/E Contract Article S.b.l.b states that the overhead "Rate
  shall be adjusted downward if the  final audited rate, based on
  federal procurement regulations, for the  period of the agreement,  is
  less than the provisional  rate."

  In  a letter dated January  15, 1988 the TWC advised Espey Huston  that
  $7,443 of questioned (i.e.,  disallowed)  costs on Phases I and II
  were being withheld from the accrued retainage of the Phase III
  (Remedial Action) of the Highlands Acid Pit site.

  This most recent audit has concluded that an additional $432.00  V
  in questioned (i.e., disallowed) costs are due from Espey Huston  and
  $1,312.00 in questioned (i.e.,  disallowed)  costs are due from your
  subcontractor Roy F. Weston, Inc.  (see Attachment A).

  The  performance of the subcontractor is  the responsibility of the
  prime - thus the Texas Water Commission hereby notifies Espey Huston
  that an additional $432.00 for  Espey Huston and an additional
  $1,312.00 for your subcontractor (Roy F.  Weston, Inc.) will be
  withheld from the retainage  accrued on the Highlands Acid Pit Site.
     : r>
                                             ,c 7o-»n inoi
                                                     ft,,,, r^A

-------
Thank you for your assistance in the resolution of this audit
dispute determination.

Sincerely,
Dick Ehlert
Program Administrator, Superfund
Hazardous and Solid Waste Division

RE/jdh

cc:  John DiFilippo Jr., P.E.
     Roy F. Weston, Inc.

-------
 Addendum to Attachment 1
Notes 2 and 3 of Highlands
 Acid Pits Audit Findings

-------
 Note 2 - Audited Overhead Rates

 Espey:

      EPA/OIG conducted an interim audit on  the  Highlands  Acid  Pit project  for
 the   period   July    4,   1983   to   September   30,    1986,   report    number
 E5bG7-06-0032-71762   issued   on   August  25,  1987.     That  report  presented
.questioned overhead  costs of 57,443  on  Phases  I  and II of the project.

      A Final Dispute  Determination  dated  January  15,  1988,  indicates that  the
 $7,443 is to  be disallowed  and  that EPA  is  accepting  the TWC's  proposal  to
 reclaim  the  disallowed  costs  from the  retainage  that  had   accrued   on   the
 Remedial  Action Phase, or Phase  III  of the Highlands  Acid Pit  Site.  The Texas
 Water Commission has  withheld the  retainage.

      During  our audit period we  determined that one additional  A/E invoice  had
 been  processed  that  was  likewise  subject  to  the  final   overhead  rates
 established  by the prior  audit.   Invoice  No.  85-11-0675 reflects  a  period  of
 performance  of October 1, 1985 to  December 21, 1985  and  reouested payment  in
 the amount  of 512,473.   The following computation  sets forth  an  additional
 $432 of questioned overhead  costs:

                                     Claimed        Accented       Questioned

      Direct  Labor                    $  2,523        $ 2,523        $

      Benefits  & Overhead  Rate         .2649          .2384
      Benefit  Cost                    $    668        $   601        $       67
      Direct  Labor  &  Benefits        $  3,191        $ 3,124

      Indirect Overhead        •       1.1911         1.0997
      Indirect Cost                  S 3,801        S 3,436        $      365

      Total Benefits & indirects     $ 4,469        S 4,037        S	432
     In  summary,  we  have  questioned $7,875  ($7,443  +  $432)  of  excess  Espey
overhead and provided for the reinstatement of $7,443 as discussed by Note 3.


Weston, Inc.:

     The previously  mentioned  EPA/OIG interim audit also set-aside  533,998 of
Weston  overhead  billed  by provisional  rates  for  1984  and  1985.   The  Defense
Contract Audit  Agency  (DCAA)  issued  final  audited overhead  rates  for  these
years which  are  less than those proposed  by  Weston,  Inc.  We  also determined
that during the current  audit  period Invoice No.  85-11-0075 was  processed and

-------
increased   tn^
application of
follows:
    .laimed  overhead  to  $37,172  for  ;;: ';    riod.   The
    inal rates  results in 51,312 of ques;:   r.'••;•-.  ,verhead as
      Year

      1984
      1985

      Allowable

      Claimed

      Questioned
                 Direct
                 Labor

                 $12,386
                  15,563
                                                                     lowable
                                 124.44£
                                 131.38
 ;i5,413
 70,447

.35,860

 37.172

3 1,312
Summary:

     40  CFR,  Pa:
under  cost plus
indirect costs  ;
allowable  and
Additionally, .
No.  14-60063, .
be adjusted  de-
regulations,  v:. ,•
rate."   The ret'"..-
contract  and   :•;.
59,187 of overii..

     Consultant
35,
     Subpart  E,  Appendix  D,  Paragraph  2.b.(4)  states  that
i.xed fee  contracts "All  direct costs,  overhead, and  other
•i^iGd will be  audited  to determine that  they  are  reasonable,
;>?rly  supported  by  the  consulting  engineer's  records."
 .r.ent No. 1,  dated  June 27,  1988  to  the prime A/E  Contract
 o1  Article B.b.l.b.  to state that the  overhead  "rate  shall
;-d  if  the  final  audited  rate, based on  federal  procurement
:hc  period of  the  agreement,  is  less  than  the  provisional
  pursuant to  Appendix  D,  Amendment  No.   1  to the Prime  A/E
results  of  the  above  mentioned  audit,   we  are  questioning
 in  excess of  audit determined rates  as  follows:
     Espey - Prior Audit
           - Current Audit
     Weston (Subcontractor) '

     Total Questioned Overhead
                                               Questioned

                                                 $7,443
                                                    432
                                                  1,312

                                                 $9,187
TWC Comments

Audit Resoonse
Note 3 - Resolution of Prior Audit Questioned Overhead

     As  stated   earlier,   a  final   dispute   determination   set  forth   that
previously questioned  overhead  costs of the  prime  consultant would be  settled
by TWC's action of reclaiming the  questioned  amount from a retainage due  Espey
on a subsequent invoice.  This  audit determined that TWC properly withheld and
did not pay eligible A/E costs in settlement of the questioned amount.

-------
        Attachment 2



Letter to Roy F. Weston, Inc.

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                     TEXAS WATER COMMISSION
|B. J. Wynne, III, Chairman

John E. Birdwell, Commissioner

Cliff Johnson, Commissioner r
John J. Vay, General Counsel
Michael E. Field, Chief Hearings Examiner
Brenda W. Foster, Chief Clerk
                           Allen Beinke, Executive Director
                            February 27,  1990
 CERTIFIED MAIL
 RETURN  RECEIPT REQUESTED
 Mr.  John DiFilippo Jr., P.E.
 Roy  F.  Weston Inc.
 5599 San Felipe
 Suite 700
 Houston,  Texas  77056

 Re:   Audit by Environmental Protection Agency
       Highlands Acid Pits, Cooperative  Agreement V006454-01

 Dear Mr.  DiFilippo Jr., P.E.

 I have  enclosed as an attachment  a  letter to Espey Huston advising
 them of certain costs that have been questioned (i.e. disallowed) by
 the  Office of Inspector General (DIG)  of the Environmental
 Protection Agency on the above referenced Superfund site.  This
 audit finding includes $1,312.00  as questioned (i.e. disallowed)
 costs by Roy F.  Weston Inc.

 The  TWC has notified Espey Huston that as the prime consultant to
 the  contract and responsible for  the subcontractors actions, that
 $1,312.00 will be withheld from the retainage of Espey Huston.

 Please  see note 2 of the attachment outlining Roy F. Weston's
 questioned (i.e.  disallowed) costs  in  the amount of $1,312.00.

 Thank you.

 Sincerely,
 Dick Ehlert
 Program Administrator
 Superfund and  Emergency Response Section
 Hazardous and  Solid Waste Division

 DE:sr

 cc:  Mr. Mike  Parker, Controller
      Espey Huston & Associates

-------
     ENVIRONMENTAL PROTECTION  AGENCY
           HIGHLANDS ACID PIT
    COOPERATIVE AGREEMENT V006454-01
         TEXAS WATER COMMISSION
SEPTEMBER 30, 1982 TO SEPTEMBER 30, 1989
            DECEMBER 1, 1989

-------
                            Texas Water Commission
                              Highlands Acid Pit
                       Cooperative Agreement V006454-01
                               TABLE  OF CONTENTS

                                                                 Page No.

Auditor's Report                                                    1

Report on Internal  Accounting Control                               3

Report on Compliance                                                4

Exhibit A         Texas Water Commission
                  Statement of Costs Claimed
                  and EPA Eligible Costs for the Period
                  September 30, 1982 through September 30, 1989     5

Schedule A        Texas Water Commission
                  Statement of Costs Claimed, Accepted, and
                  Questioned for the Period
                  September 30, 1982 through September 30, 1989     6

Notes to Schedule A                                                 7

Grantee Comments                                                   12

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SUITE 406
1221 BALTIMORE AVE.
KANSAS CITY, MO 64105
(816) 221-4559
CERTIFIED PUBLIC ACCOUNTANTS
McBRIDE, LOCK &'ASSOCIATES
                            INDEPENDENT AUDITOR'S REPORT
   Mr. Michael D. Simmons
   Acting Divisional Inspector General for Audits
   Southern Division, EPA, Suite 276
   1375 Peachtree Street, N.E.
   Atlanta, Georgia  30309

        We  have  audited the  Statement  of  Costs  Claimed  and  EPA  Eligible  Costs
   (Exhibit  A)  for  the  Texas  Water  Commission   (TWC)  under  the  Cooperative
   Agreement V006454-01  awarded  September 30, 1982, for the  period September 30,
   1982 through  September 30, 1989.  The agreement provided  for  performing site
   investigation  and feasibility  study,   remedial  design,  remedial  action,  and
   operation and  maintenance  at  the  Highlands Acid Pit in  Harris  County, Texas.
   This financial  statement  is the  responsibility  of the TWC's  management.  Our
   responsibility is  to express  an opinion  on  this financial  statement  based on
   our audit.  We did not  audit  the  financial  statement of the Site Investigation
   and  Feasibility  phase  or  the   Remedial  Design  phase  of  the  Cooperative
   Agreement, which  represent 6 percent and  4 percent,  respectively,  of the costs
   claimed  under  the  agreement.  Those  financial  statements  were audited by other
   auditors  whose  report  thereon   has  been  furnished  to  us,  and our  opinion,
   insofar  as it  relates to  the   amounts included  for  those  phases,  is  based
   solely on the report of the other  auditors.

        We  conducted our  audit  in  accordance  with  generally  accepted  auditing
   standards  and  governmental  auditing standards.   These standards  require that
   we plan  and perform  the audit to  obtain reasonable assurance about whether the
   financial  statements are  free  of material  misstatement.   An  audit  includes
   examining, on  a  test basis, evidence supporting  the  amounts and disclosures in
   the  financial  statements.  An  audit  also includes  assessing  the  accounting
   principles  used  and significant  estimates  made by  management,  as  well  as
   evaluating  the overall  financial  statement presentation.  We believe  that our
   audit  and the  report of  other auditors  provide a  reasonable basis  for our
   opinion.

        The Statement of  Costs  Claimed  and  EPA Eligible  Costs  (Exhibit  A) was
   prepared  on   the basis   of  regulations  and  criteria  established  by  the
   Environmental  Protection  Agency  relating  to   EPA/State  Cooperative  Agreements
   under  the  Comprehensive Environmental  Response,  Compensation and Liability Act
   (CERCLA)  of  1980 (PL  96-510).   Accordingly,  Exhibit A  is  not intended  to
   present  financial  position  and  results  of operations   in   conformity with
   generally  accepted accounting principles.

        As  part  of  our examination,  we  determined  the  allowability  of  costs
   claimed  as  EPA eligible under the project in  accordance with the provisions of
   the  cooperative  agreement  and applicable Federal regulations.  Schedule A sets
   forth  the  costs  which we  questioned  in this regard and includes an explanation
   of the reasons such  costs  were  questioned.

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     In our  opinion,  based upon our  audit and the  report  of other  auditors,
subject to  the  affects  on  Exhibit  A of EPA's  ultimate  resolution  of  the
questionable expenditures  referred to  in  the preceding  paragraph,  Exhibit  A
fairly presents  the  financial  information regarding  the  costs claimed as  EPA
eligible  on  the  basis   described  above  and  financial   provisions  of  the
cooperative agreement.

     This   report  is  intended  for  use  in   connection  with  the  cooperative
agreement  to which it refers and should not be used for any  other purpose.
                                        McBride, Lock & Associates
                                        Kansas City,  Missouri
December 1, 1989

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SUITE 406
1221 BALTIMORE AVE.
KANSAS CITY, MO 64105
(816) 221-4559
CERTIFIED PUBLIC ACCOUNTANTS
McBRIDE, LOCK &'ASSOCIATES
                        REPORT ON INTERNAL ACCOUNTING CONTROL


   Mr. Michael D. Simmons
   Acting Divisional Inspector General for Audits
   Southern Division, EPA, Suite 276
   1375 Peachtree Street, N.E.
   Atlanta, Georgia  30309


        We  have  audited the  Statement of  Costs Claimed  and EPA  Eligible  Costs
   (Exhibit  A)  for  the  Texas   Water  Commission   (TWC)  under  the  Cooperative
   Agreement V006454-01  awarded  September 30, 1982,  for  the period September 30,
   1982  through  September  30,   1989,  and have  issued our  report  thereon  dated
   December 1, 1989.

        We  conducted our  audit  in  accordance  with  generally accepted  auditing
   standards and Government Auditing  Standards,  issued by the Comptroller General
   of the  United States.  Those standards require that  we  plan  and  perform the
   audit  to obtain  reasonable  assurance about  whether   the  statement  of  costs
   claimed  is  free  of  material  misstatement.   The  Environmental  Protection
   Agency's OIG  Manual  for CERCLA Cooperative Agreements, dated  August 1985, was
   also used as a guide for our  examination.

        Solely to assist us in planning  and  performing our audit, we made a study
   and  evaluation   of   the  internal  control   structure,   as   related   to  the
   cooperative  agreement,  of   the   Texas  Water  Commission.    That  study  and
   evaluation  was  limited  to a  preliminary review  of the  system to obtain  an
   understanding of  the  control  environment and  the  flow of transactions through
   the accounting  system.   Because the audit could  be performed  more efficiently
   through  analysis  and  substantive  audit  tests,  thus  placing  very  little
   reliance on the  internal  control   structure,  our study and evaluation did not
   extend  beyond  this  preliminary review phase.  Accordingly, we  do  not express
   an opinion  on  the  internal  control   structure  taken  as  a  whole.  Also,  our
   examination, made in  accordance with  the  standards mentioned  above, would not
   necessarily disclose  material  weaknesses in  the  internal control  structure.
   However, during  our  examination we did not  become aware  of any conditions  we
   believe  to be material weaknesses.

        This  report  is   intended for use  in  connection  with  the  cooperative
   agreement to which it refers  and should not be used for any other purpose.
                                           McBride, Lock & Associates
                                           Kansas City, Missouri
   December 1, 1989

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SUITE 406
1221 BALTIMORE AVE.
KANSAS CITY, MO 64105
(816) 221-4559
CERTIFIED PUBLIC ACCOUNTANTS
McBRIDE, LOCK &'ASSOCIATES
                                REPORT ON COMPLIANCE
   Mr. Michael D. Simmons
   Acting Divisional Inspector General for Audits
   Southern Division, EPA, Suite 276
   1375 Peachtree Street, N.E.
   Atlanta, Georgia  30309

        We  have  audited  the  Statement of  Costs Claimed  and EPA  Eligible Costs
   (Exhibit  A)  for  the  Texas  Water  Commission   (TWC)   under  the  Cooperative
   Agreement  V006454-01  awarded September 30,  1982,  for  the period September 30,
   1982  through  September  30,  1989   and  have  issued  our  report   thereon dated
   December 1, 1989.

        We  conducted our  audit in  accordance  with  generally  accepted auditing
   standards  and Government Auditing  Standards, issued by the Comptroller  General
   of  the  United States.  Those  standards require that  we plan and  perform the
   audit  to  obtain  reasonable  assurance about whether  the  statement  of costs
   claimed  is  free  of  material  misstatement.   The  Environmental   Protection
   Agency's  OIG  Manual  for  CERCLA  Cooperative Agreements,  was also  used  as  a
   guide for  our examination.

        Compliance  with  laws,  regulations,  contracts, and  agreements   applicable
   to  the  Texas  Water Commission  is  the responsibility of  TWC's management.  As
   part of  obtaining reasonable assurance about whether  the statement  of  claimed
   costs is free of  material  misstatement, we performed tests of TWC's  compliance
   with  certain   provisions   of  laws,  regulations,  contracts,  and  agreements.
   However,  our  objective was  not to  provide  an  opinion  on  overall   compliance
   with such  provisions.

        The results  of our tests  indicate that, with respect to the items  tested,
   the  Texas  Water Commission,  complied,  in  all  material  respects,   with  the
   provisions  referred to in  the preceding paragraph.  With respect to  items not
   tested,  nothing  came  to our attention  that caused us to believe  that TWC had
   not complied, in  all material respects, with  those provisions.

        This  report  is  intended  for use  in  connection  with  the  cooperative
   agreement  to which it  refers and should not be used for any other purpose.
                                           McBride, Lock & Associates
                                           Kansas City, Missouri
   December  1,  1989

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                                                                Exhibit A
                            TEXAS WATER COMMISSION
                              Highlands Acid Pit
               Statement of Costs Claimed and EPA Eligible Costs
         For the Period September 30, 1982 through September 30, 1989
                       Cooperative Agreement V006454-01
Project Phase

Site Investigation and
  Feasibility Study

Remedial Design

Remedial Action

Operation and Maintenance
  Claimed
 Accepted
Questioned
$

5

394,715
228,800
,791,215
49,877
$ 388,088
226,240
5,791,068
49,838
$ 6,627
2,560
147
39
Total Claimed

Retainage Not Paid and
  Used as Credit Against
  Questioned Overhead Costs

Total Project Costs


Federal Share
$6,464,607
     7.443

$6.472.050
$6,455,234
     7,443

$6.462.677
                $5,877,842
 $ 9,373
 $ 9,373
                 $ 9.354
     See Schedule  A-l  for a  detail  statement of  costs claimed,  accepted  and
questioned.

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                                                               Schedule A
                            TEXAS WATER COMMISSION
                              Highlands Acid Pit
              Statement of Costs Claimed,  Accepted and Questioned
         For the Period September 30, 1982 Through September 30, 1989
                       Cooperative Agreement V006454-01
Description

Salaries

Release Time

Total Salaries

Fringe Benefits

Travel

Equipment

Supplies

Contractual

Construction

Other

Indirect Expense

Total Claimed

Add:  Retainage Not
      Paid and Used
      As Credit
      Against
      Questioned
      Overhead
                                                    Questioned as not

$

$








Claimed
125,153
20,261
145,414
32,349
16,044
418
740
781,914
5,419,350
389
67,989
Accepted
$ 125
20
$ 145
32
16


111
5,419

67
,153
,205
,358
,341
,044
418
740
,727
,350
389
,867
Eligible
$ -0-
56
$ 56
8
-0-
-0-
-0-
9,187
-0-
-0-
122
Supported
$ -0-
-0-
$ -0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Necessary
$-0-
-0-
$-0-
-0- .
-0-
-0-
-0-
-0-
-0-
-0-
-0-
$6,464,607  $ 6,455,234    $9,373    $  -0-
     7.443
7,443
-0-
-0-
Total Project Costs $6,472,050  $ 6,462.677    $9,373    $  -0-
Federal Share

Federal Funds
  Received

Balance Due EPA
            $ 5,877,842*


              5.880,498

            $     2,656
                              $-0-
 -0-

$-0-
* This amount should not be  construed  as being the final  determination  of the
  Federal  share  of accepted  eligible  costs.   The amount may  vary  depending
  upon the resolution by EPA of questioned costs of $ 9,373.

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                            TEXAS WATER COMMISSION
                              Notes to Schedule A
Note  1 - Release, Fringe and Indirect Rates
                T--
      The  $186 of ineligible  questioned costs,  comprised of  a  combination of
release, fringe  and  indirect rate  overcharges,  is the result of applying final
rates to  the direct labor charges  for  the fiscal year ended  August 31, 1988.
The   following   computations  detail  the  questioned  costs   pursuant  to  OMB
Circular A-87, Attachment A, Sections A(l) and F(2)(a)(2):
Description
            Negotiated
Personnel      Rate      Allowable   Claimed   Questioned
Release - Phase III   $4,284
          Phase IV     1,120

Total Release Time
              14.75*
              14.75
$  632
   165
$  676
   177
$ 44
  12

  56
Fringe - Phase III     4,916
         Phase IV      1,285

Total Fringe Benefits
              22.74
              22.74
 1,118
   292
 1,124
   294
   6
  _2

   8
Indirect - Phase III   4,916
           Phase IV    1,285

Total Indirect Expense
              52.15
              52.15
 2,563
   670
 2,660
   695
  97
  25

 122
Total Ineligible Questioned Cost
                                                  $186
TWC Comments
     No comment was made.
Audit Response

     Questioned costs of $186 should be returned to the EPA.

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Note 2 - Audited Overhead Rates

Espey:
               r-
     EPA/OIG conducted an  interim audit on the  Highlands  Acid Pit project for
the   period   July   1,    1983   to   September    30,    1986,   report   number
E5bG7-06-0032-71762  issued  on   August  25,   1987.     That  report  presented
questioned overhead costs of $7,443 on  Phases I  and II of the project.

     A Final Dispute  Determination dated January  15,  1988, indicates that the
$7,443 is  to be disallowed  and  that  EPA is  accepting  the TWC's  proposal  to
reclaim  the disallowed  costs  from  the retainage  that  had  accrued   on  the
Remedial Action Phase, or Phase  III of the  Highlands  Acid Pit Site.  The Texas
Water Commission has withheld the  retainage.

     During our audit period we  determined  that  one additional A/E invoice had
been  processed  that  was   likewise   subject  to  the  final  overhead  rates
established  by the  prior audit.   Invoice  No.  85-11-0675 reflects  a  period of
performance  of October  1,  1985 to  December  21,  1985 and  requested payment in
the  amount of $12,473.   The  following computation  sets  forth  an additional
$432 of questioned overhead costs:

                                    Claimed        Accepted       Questioned

     Direct Labor                   $ 2,523        $ 2,523        $

     Benefits & Overhead Rate         .2649          .2384        	1

     Benefit Cost                   $   668        $   601        $       67

     Direct Labor & Benefits        $ 3,191        $ 3,124        $

     Indirect Overhead               1.1911         1.0997
     Indirect Cost                  $ 3.801        $ 3.436        $      365

     Total Benefits & Indirects     $ 4,469        $ 4,037        $      432
     In  summary,  we have  questioned $7,875  ($7,443  +  $432)  of  excess  Espey
overhead and provided for the reinstatement of $7,443 as discussed by Note 3.


Weston, Inc.:

     The previously mentioned  EPA/OIG interim audit also set-aside  $33,998 of
Weston overhead  billed  by provisional  rates  for  1984  and  1985.  The  Defense
Contract Audit  Agency  (DCAA)  issued  final  audited overhead  rates  for  these
years which  are  less  than those proposed  by  Weston,  Inc.  We  also  determined
that during the current  audit  period Invoice No.  85-11-0675 was  processed and

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increased  the  total  claimed  overhead  to  $37,172  for  this  period.   The
application of DCAA's  final  rates results in $1,312  of  questioned overhead as
f ol1ows:

                                    Direct         Final           Allowable
     Year                           Labor          Rate           Overhead

     1984      T                     $12,386        124.44X         $15,413
     1985                            15,563        131.38           20,447

     Allowable                             '                        $35,860

     Claimed                                                        37.172

     Questioned Overhead                                           $ 1,312
Summary:

     40  CFR,  Part 35,  Subpart E,  Appendix D,  Paragraph  2.b.(4)  states  that
under  cost  plus fixed  fee contracts  "All  direct  costs,  overhead,  and  other
indirect costs claimed  will  be audited to  determine that  they are reasonable,
allowable  and  properly  supported   by the consulting  engineer's  records."
Additionally, Amendment No.  1, dated June  27,  1988 to the prime  A/E Contract
No. 14-60063, revised Article  5.b.l.b.  to  state that  the  overhead "rate  shall
be adjusted downward  if the final  audited  rate, based on  federal procurement
regulations,  for  the period  of the  agreement,  is  less  than  the provisional
rate."   Therefore, pursuant to Appendix  D, Amendment  No.   1  to the  Prime  A/E
contract and  the  results of  the  above  mentioned  audit,  we  are questioning
$9,187 of overhead in excess of audit determined rates  as follows:

     Consultant                                                   Questioned

     Espey - Prior Audit                                            $7,443
           - Current Audit                                             432
     Weston (Subcontractor)                                          1,312

     Total  Questioned Overhead                                      $9,187
TWC Comments

     Agreed  with  finding  and  will   withhold   the   questioned   amount  from
retainages due the A/E.

Audit Response

     Questioned costs of $9,187 should be returned to the EPA.


Note 3 - Resolution of Prior Audit Questioned Overhead

     As  stated  earlier,   a   final   dispute  determination  set   forth  that
previously questioned  overhead  costs  of the prime consultant would be settled
by TWC's action of reclaiming the questioned amount from a  retainage due Espey
on a subsequent invoice.  This audit  determined  that  TWC properly  withheld and
did not pay eligible A/E costs in settlement of the questioned amount.

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     For  report presentation  purposes  the amount  in question  remains  as a
reported cost on the  final  FSRs  for Phase I ($6,627)  and  Phase II (816) which
is  reflective  of closeout  submissions  by TWC.  At  a  later date,  TWC reduced
Phase  III  reported costs   by  $7,443 ($6,627  + $816)  thereby  offsetting  the
disallowance.   Since  the offset is  not presented on  Phase III  cost reports,
the  audit report  has  adjusted  the  presentation  of  total  claimed  costs  to
incorporate  the   recognition  of   offset,  thereby   netting  to   zero   the
disallowance.

     The only audit exception  taken  to  this methodology is that the previously
questioned costs have  a federal  share of  100%  and current reinstatement costs
incorporate  a  90% federal  share.   These  procedures result in a 10%  loss  of
federal share to  EPA  in the amount  of  $744.  This  loss is  recaptured by this
report as discussed and presented by Note  5.

TWC Comments

     No comment.

Audit Response

     The costs remain questioned as presented by Note 5.
Note 4 - Federal Share

            Federal
Phase    Participation

I            100%
II           100
III           90
IV            90

Total Claimed

Note 3 - Phase III
  Cost - 90% Federal

Total Project Costs
 Accepted

$  388,088
   226,240
 5,791,068
    49,838
     7,443
  Federal
   Share

$  388,088
   226,240
 5,211,961
    44,854
     6.699
Questioned

$ 6,627
  2,560
    147
     39
$6,455,234    $5,871,143     $ 9,373
$6,462,677    $5,877.842     $ 9,373
Federal
 Share

$ 6,627
  2,560
    132
	35

$ 9,354
                             $ 9,354
Note 5 - Balance Due EPA
            Description
      Note 3 - Reinstatement at lessor federal share:
               Questioned at 100% Federal Share
               Reinstated at 90% Federal Share

      Federal Share Due EPA

      Note 1 - Release, Fringe & Indirect at 90%
      Note 2 - Questioned overhead at 100% ($9,187 less $7,443)
      Total Due EPA
                                           Balance
                                           Due EPA
                                           $ 7,443
                                            (6,699)

                                           $   744

                                               168
                                             1,744

                                           $ 2,656
                                      10

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TMC Comments

      Agreed  with  finding  and  will   withhold  sufficient  funds  from  the
retainages due the A/E.

Audit Response
    	        r-

      Amount should be returned.
Note 6 - Prior Audit Disallowances

      As previously discussed, EPA  conducted  an  interim audit on the Highlands
Acid Pit  project for the  period July  1, 1983  to  September 30,  1986,  report
number E5bG7-06-0032-71762  issued on August  25, 1987.   That  report presented
questioned  and  set-aside  costs  of  $87,000.   The  current  audit  position
pertaining to each disallowance is presented below:

       Prior
       Audit                     Prior Audit               Current Audit
     Description           Questioned     Set-Aside   Resolved     Questioned

Note 1 - Indirect Costs      $    -        $19,996    $19,996        $
Notes 2 & 3 - A/E Overhead    7,443              -          -         7,443
Note 4 - A/E Subcontractor   	^         59,561     58,288         1.273

Total                        $7,443        $79,557    $78.284        $8.716
TWC Comments

     Agreed with finding.

Audit Response

     Resolution should be effected  as  outlined by Audit Responses  to  Notes  1,
2, 3, 4 and 5.
                                      11

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GRANTEE COMMENTS

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                     TEXAS WATER  COMMISSION
B. J. Wynne, HI, Chairman
John E. Birdwell, Commissioner
Cliff Johnson, Commissioner *
John J. Vay, General Counsel
Michael E. Field, Chief Hearings Examiner
Brenda W. Foster, Chief Clerk
                           Alien Beinke, Executive Director



                            February 28, 1990


 Mr.  Charles H.  McBride
 McBride, Lock  & Associates
 Suite 406
 1221 Baltimore  Avenue
 Kansas City, MO  64105

 Re:   Environmental Protection  Agency
        Highlands Acid Pit
      Cooperative Agreement VO06454-01
        Texas Water Commission
      September  30, 1982 to September 30, 1989
        Your December 1, 1989 Report

 Dear Mr. McBride:

 The  Superfund Section of the Texas Water Commission would like  to
 offer the following comments in  reply to your  above-referenced  audit
 report in your  letter of January 30, 1990.

 A.    Independent Auditors Report

      No comment.

 B.    Report on  Internal Accounting Control

      No comment.

 C.    Report on  Compliance

      No comment.

 D.    Schedule A,  Statement of  Costs Claimed, Accepted and Questioned

           Note  1  Release, Fringe and Indirect  Rates

           No Comment

           Note  2;   Audited Overhead Rates

           See Attachment 1.  (Letter to Espey  Huston and Associates)
           See Attachment 2.  (Letter to Roy F. Weston Inc.)
       P. O. Box 13087 Capitol Station • 1700 North Congress Ave. • Austin, Texas 78711-3087 • Area Code 512/463-7830

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          Note 3;  Resolution of Prior Audit Questioned Overhead

          No comment.

          Note 4;  Federal Share
               T.
          No comment.

          Note 5;  Balance Due EPA

          No comment (see note 2).

          Note 6;  Prior Audit Disallowances

          No comment (see note 2).

Thank you for the opportunity to offer our comments to the draft
report of the tentative report material of your audit review dated
December 1, 1990.  The Superfund Section feels that the recovery of
the overpayments to Espey Huston and Roy F. Weston, Inc. will
effectively address the concerns as it pertains to the consultant
contract deficiencies.

Sincerely,
Ja,mejs A. Feeley, ChieJ
Superfund and Emergency Response Section
Hazardous & Solid Waste Division

DE/jdh

Attachments

cc:  Jack Carrington, Audit Manager, Office of Inspector General,
          U.S. Environmental Protection Agency, 1455 Ross Avenue,
          Room 2750, Dallas, Texas  75202-2733
     Dan Eden, Director, Hazardous & Solid Waste Division
     Randy Cunningham,  Fiscal Services
     Jim Fowler, Internal Audit

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        Attachment 1

Repayment of Questioned Cost
 Espey Huston and Associates
   Roy F. Weston, Inc.

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