United States Office of the inscsctor General Seotember 198.9 Environmental Protection 401 M St. SW Agency Washington. OC 20460 &EPA ERA'S Office of the Inspector General Annual Superfund Report to the Congress for Fiscal 1988 ------- FOREWORD This is our second Annual Superfund Report to the Congress, covering fiscal 1988 activities. The Superfund Amendments and Reauthorization Act of 1986 (SARA) requires the Office of Inspector General (OIG) to annually audit the Superfund program and to provide an annual report to Congress on these required audits. The advent of the Superfund program created new and unique cost accounting requirements. EPA over the past several years has responded to these new requirements by significantly improving its ability to accurately account for and document Superfund costs. However, we found that the Agency still needs to take corrective action for fiscal 1988 in the areas of: (1) accounting for and controlling personal property; (2) allocating general support services costs; and (3) recording accounts receivable. In addition to reviewing Agency performance, we also take a proactive role assisting EPA management to prevent future problems. This includes review of draft documents and participation in EPA work group meetings. Superfund program areas with a particularly high level of OIG proactive work during fiscal 1988 included the removal program, technical assistance grants to citizens' groups and cooperative agreements with States. The EPA Administrator is required by SARA to submit to Congress an annual Superfund progress report on January 1 of each year covering activities during the prior fiscal year. EPA's first such report, due January 1, 1988, was submitted May 11, 1989. We are required by SARA to review that report for reasonableness and accuracy; and our report is to be included in the Agency report. We have summarized the results of our first such review in this report. We will continue to assist Agency management to deliver the most effective and efficient Superfund program through a comprehensive program of audits, investigations and fraud prevention. ohn C. Martin nspector General ------- TABLE OF CONTENTS Page Purpose 1 Background 3 Hazardous Substance Superfund 5 Cooperative Agreements 10 Remedial Investigations and Feasibility Studies 19 Other Internal and Management Audits 22 Financial and Compliance Audits 44 Assistance to EPA Management 46 Review of Agency's Superfund Progress Report 49 Exhibit I - Hazardous Substance Superfund Schedule of Obligations 51 Exhibit II - Hazardous Substance Superfund Schedule of Disbursements .54 Exhibit III - Superfund Audit Reports Issued During Fiscal 1988 57 Appendix A - Acronyms and Abbreviations 62 ------- PURPOSE This report is provided pursuant to Section lll(k) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, as amended. The Superfund Amendments and Reauthorization Act (SARA) of 1986 amended that section of CERCLA to add several annual requirements for the Inspector General of each Federal agency carrying out CERCLA authorities. These requirements include four audit areas and an annual report to Congress regarding the required audit work. This report covers fiscal 1988 audits of Superfund activities. The required four audit areas are discussed below. This report contains chapters on three of the four mandated areas where we performed reviews. We are also summarizing other Superfund audit work and assistance to EPA management which we performed during fiscal 1988. In addition to fulfilling the statutory requirements, the objectives of this report include providing the Congress with significant results of all of our Superfund audit work and a better understanding of how the Office of Inspector General is carrying out its purposes with respect to the Superfund program. Trust Fund CERCLA requires ". . .an annual audit of all payments, obligations, reimbursements, or other uses of the Fund in the prior fiscal year . . . ." We call this our Trust Fund audit and it constitutes a financial and compliance audit of EPA obligations and disbursements from the Hazardous Substance Superfund during the fiscal year. Claims CERCLA requires an annual audit to assure "... that claims are being appropriately and expeditiously considered . . . ." Since SARA did not include natural resource damage claims as allowable Fund expenditures, the only claims provided in CERCLA, as amended, are response claims. No claims were submitted during fiscal 1988. In future years, we will audit claims which are of sufficient size to be considered material. Cooperative Agreements CERCLA requires audits ". . . of a sample of agreements with States (in accordance with the provisions of the Single Audit Act) carrying out response actions under this title . . . ." We perform financial and compliance audits of cooperative agreements with States. In some instances, our audits also review program performance. In addition, we sometimes review EPA regional management of the cooperative agreement program. Due to the large number of cooperative agreements audited in recent fiscal ------- years, and the time needed to obtain audit services contracts, we completed only one audit of a Superfund response cooperative agreement and one other Superfund assistance audit in fiscal 1988. Several others were initiated in fiscal 1988, but not completed until fiscal 1989. Remedial Investigations/Feasibility Studies fRI/FSl CERCLA requires our "... examination of remedial investigations and feasibility studies prepared for remedial actions . . . ." Our RI/FS examinations provide a technical review of the adequacy of the studies to provide a sound technical basis for remedial action decisions. These examinations maybe done as part of audits of EPA management or as special reviews by our technical staff. At the time SARA was enacted, we had not performed any such examinations and our available technical resources for this purpose were limited. Only one report on RI/FS examinations was issued during fiscal 1988, although others were in progress. ------- BACKGROUND The "Superfund" program was established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), Public Law 96-510, enacted on December 11, 1980. The Superfund program was created to protect public health and the environment from release, or threat of release, of hazardous substances from abandoned hazardous waste sites and other sources where response was not required by other Federal laws. A Trust Fund was established by CERCLA to provide funding for responses ranging from control of emergency situations to permanent remedies at uncontrolled sites. CERCLA authorized a $1.6 billion program financed by a five-year environmental tax on industry and some general revenues. CERCLA requires that response, or payment for response, be sought from those responsible for the problem, including property owners, generators, and transporters. CERCLA was revised and expanded by the Superfund Amendments and Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted October 17, 1986. SARA reinstituted the environmental tax and expanded the taxing mechanism available for a five-year period. It authorized an $8.5 billion program for the 1987-1991 period. The Trust Fund was renamed the Hazardous Substance Superfund. The basic regulatory blueprint for the Superfund program is the National Oil and Hazardous Substances Contingency Plan (NCP), 40 CFR Part 300. The NCP was first published in 1968 as part of the Federal Water Pollution Control Plan, and has been substantially revised to meet CERCLA requirements. The NCP lays out two broad categories of response: removals and remedial response. Removals are relatively short-term responses and modify an earlier program under the Clean Water Act. Remedial response is long-term planning and action to provide permanent remedies for serious abandoned or uncontrolled hazardous waste sites. CERCLA recognized that the Federal Government can only assume responsibility for remedial response at a limited number of sites representing the greatest public threat. Therefore, EPA must maintain a National Priorities List (NPL), which must be updated at least annually. The NPL is composed primarily of sites which have been ranked on the basis of a standard scoring system, which evaluates their potential threat to public health. In addition, each state was allowed to designate its highest priority site, without regard to the ranking system. CERCLA section 104(c)(3) provides that no remedial actions shall be taken unless the State in which the release occurs enters into a contract or cooperative agreement with EPA to provide certain assurances, including cost sharing. At most ------- sites, the State must pay 10 percent of the costs of remedial action. Preremedial activities (preliminary assessments, site inspections), remedial planning (remedial investigations, feasibility studies, remedial designs), and removals may be funded at 100 percent by EPA. For facilities operated by a State or political subdivision at the time of disposal of hazardous substances, the State must pay 50 percent of all response costs, including removals and remedial planning previously conducted. CERCLA 104(d)(l) provides that if a State or political subdivision is determined to have the capability to respond to the issues addressed in the Act, they may be authorized to respond by use of a contract or cooperative agreement. As a result, most States have participated in some part of the Superfund program. CERCLA 104(d)(2) provides a remedy to the Federal Government for failure of a State or political subdivision to perform satisfactorily. The use of cooperative agreements is authorized by sections 104(c)(3) and 104(d) of CERCLA. Cooperative agreements allow a State or political subdivision to take, or to participate in, any necessary actions provided under CERCLA, given that the State or political subdivision possess the necessary skills and capabilities to do so. These actions are normally addressed in the cooperative agreement as performance goals and objectives. The agreement is also used to delineate EPA and State responsibilities for actions to be taken at the site, to obtain required assurances, and as a commitment of Federal funding. EPA uses the cooperative agreement as a means of encouraging State participation in Superfund activities such as the preremedial programs, State management assistance on EPA lead activities, and State lead sites. ------- HAZARDOUS SUBSTANCE SUPERFUND SCOPE AND OBJECTIVES We contracted with an independent public accounting (IPA) firm to perform an audit of EPA's portion of the Hazardous Substance Superfund (Trust Fund) for the fiscal year ended September 30, 1988. This audit included tests of the accounting records at EPA's 10 regional offices, 3 major laboratory facilities and Headquarters. The IPA also evaluated the internal accounting controls for Superfund at those locations and the National Enforcement Investigations Center (NEIC), including a review of electronic data processing (EDP) controls; and performed other auditing procedures that were considered necessary in the circumstances. Additionally, the IPA reviewed the status of findings and recommendations included in the prior audit report covering the fiscal year ended September 30, 1987. As part of the audit, the IPA selectively tested (using statistical samples) transactions which obligated and disbursed funds for Superfund activities. The objectives of this audit were to determine if: (1) The Schedules of Obligations and Disbursements were presented fairly in accordance with applicable laws, regulations and guidelines; (2) EPA management complied with laws and regulations which, if not followed, might have a material effect upon the Schedules of Obligations and Disbursements; and (3) EPA established an adequate system of internal accounting control to ensure the reliability of applicable financial management records. It was not within the scope of this audit to determine the allowability and allocability of the general support services cost pools that were accumulated and allocated to Superfund or to verify the bases for these allocations. Audit procedures for cost allocations were limited to reviewing methodologies, testing the mathematical accuracy, and verifying that the allocations were made in a timely manner. The review of EDP controls was limited to the source document and data entry controls on obligation and disbursement transactions. SUMMARY OF FINDINGS The advent of the Superfund program created new and unique cost accounting requirements which previously were not necessary. ------- EPA's accounting system, like those of most government agencies, was geared to account for costs on an appropriation basis. Therefore, EPA needed to enhance its existing accounting system. EPA over the past several years has responded to these new requirements by significantly improving its ability to accurately account for and document Superfund costs. In response to a prior audit report, which covered fiscal 1987 financial transactions, the Agency indicated that corrective action would be taken in the areas cited in that report. However, the corrective actions described were not scheduled to take place until after fiscal 1988. The IPA found that the Agency still needs to take corrective actions for fiscal 1988 in the areas of (1) accounting for and controlling personal property; (2) recording and managing accounts receivable; and (3) allocating general support services costs. FINDINGS 1. FINANCIAL RESULTS OF AUDIT During fiscal 1988, EPA obligated over $1.4 billion and disbursed over $790 million. The IPA questioned amounts that were recorded more than once, that did not agree with supporting documentation or for which supporting documentation was not available. In addition, they questioned costs for general support services improperly allocated to the Trust Fund. The financial results of this audit are summarized below and detailed in exhibits I and II. Total Accepted Questioned1 Fiscal 1988 $1,462,291,365 $1,462,200,219 $ 91,146 Obligations Fiscal 1988 $ 790,352,173 $ 790,120,106 $232,067 Disbursements The IPA recommended that EPA review and resolve the questioned transactions. 2. ACCOUNTING FOR AND CONTROLLING PERSONAL PROPERTY EPA needs to improve its accounting for and controlling personal property. The audit disclosed the Superfund interest in the property was not properly protected since: (i) items were not always recorded in EPA's management records; (ii) some items could not be 1 Questioned costs are costs that are unallowable under the provisions of applicable laws, regulations, or policies. ------- located; and (ill) annual physical inventories were not taken at all locations. The IPA identified 303 items of personal property that should have been included in EPA's Personal Property Accounting System (PPAS), but were not. The cost of this property exceeded $2.2 million. There were various reasons why EPA property purchases were not recorded in the property records. In some cases, receiving documents were not sent by contracting offices or custodial officers to EPA's property accountable officers (PAOs) when property was ordered or received. For example, the IPA found that Superfund property valued at $516,301 purchased by one location for another location had not been recorded in PPAS because documents were not forwarded to the PAOs. The IPA also discovered EPA could not locate 95 items of personal property selected for physical inspection. These items were valued at $321,307. No complete annual physical inventories or reconciliations were performed for fiscal 1988 at Regions 3, 4, 5, 6, 9, and 10; NEIC; and laboratories located at Narragansett, Rhode Island, and Duluth, Minnesota. Such physical inventories are required by Agency directives, and would have identified missing property. The IPA recommended that Agency management: o require the appropriate property accountable officers to retain copies of certifications that corrections of property records have been made, along with supporting documentation, for review by the auditors; o require that the auditors be provided with copies of the guidance to be issued on procedures for the reconciliation of property and accounting records; and o require custodial officers at Region 2 to sign Memorandums of Acceptance by Custodial Officers according to Agency policy, or change the Agency guidance to eliminate the requirement for a signed memorandum of acceptance. 3. ACCOUNTS RECEIVABLE A review of Superfund accounts receivable indicated that improvements were needed to ensure that: (1) all receivables are recorded in a timely manner; (2) action is taken to ensure collection of ------- debts; and (3) the dollar value of each receivable is recorded correctly in the Agency's Financial Management System (FMS). For the purposes of this report, accounts receivable are defined as moneys due EPA, such as refunds for overpayments of contracts, cooperative agreements or grants; repayment of travel advances; penalties; and cost recovery actions. A non-statistical sample of 40 collections totaling $37,470,396, out of a total collection universe of $61,059,052, disclosed that 24, totaling $25,928,734, were not recorded as receivables until after a check in payment was received. Generally, these receivables should have been recorded by the Headquarters finance office based on documents provided by others. To ensure more timely recording of receivables, Agency management shifted this responsibility to the regional finance offices for fiscal 1989. This measure, along with better procedures and close communication between the program and finance offices, should improve timeliness in recording receivables. Improvements were needed in collection actions to ensure that debtors promptly pay the Agency. The IPA noted that one regional finance office was not sending demand letters to debtors for receivables over 31 days old. Such demand letters are required by Agency directives. Additionally, the accounting report for the Headquarters finance office did not separate the current portion of installment receivables. Thus, it was misleading and ineffective in identifying when collection action was needed. The IPA found that incorrect amounts for accounts receivable were entered into FMS. An account receivable for $22,232 was incorrectly recorded as $222,232, resulting in an overstatement of accounts receivable of $200,000. In addition, the auditors noted that another receivable for $2,717,447 was entered three times, resulting in an overstatement of accounts receivable of $5,434,894. As a result, Superfund accounts receivable at Headquarters were overstated by $5,634,894, as of September 30, 1988. 4. ALLOCATION OF GENERAL SUPPORT SERVICES COSTS EPA needs to improve and implement clear and concise procedures for allocating general support services costs to ensure costs charged to Superfund represent actual benefits received. The IPA found that allocations of general support services costs as well 8 ------- as personnel support costs were not always made, and that the methodology used to allocate telephone expenses at Region 3 was not an authorized method. The IPA questioned $60,670 of obligations and $47,385 of disbursements, which were the differences between the unauthorized method used by Region 3 and the authorized method, which requires using full-time equivalent (FTE) ratios. Also, at Region 1, due to administrative ceiling limitations, $15,005 of allocable costs were not allocated to the Superfund appropriation. In addition, Cincinnati's Financial Management Center excluded 1,574 hours from their personnel support cost allocation to Superfund, amounting to approximately $16,932, due to ceiling limitations. From the IPA's analysis of Superfund ceiling limitations Agency-wide, it appeared that the Region 1 and Cincinnati costs could have been charged to Superfund. The IPA recommended that Agency management: o retain documentation supporting the adjustments to Region 3's cost allocations for review by the auditors; and o review the budgetary ceilings at Region 1 and Cincinnati to ensure that all appropriate Superfund support costs can be charged to Superfund in the future. AGENCY RESPONSE The final audit report was issued on September 22, 1989, Audit Report Number P1SFF8-11-0048-9100488. The Assistant Administrator for Administration and Resources Management has 90 days to act on the recommendations made in the report and to report to us on the status of these actions. In response to the draft audit report, Agency management indicated general agreement with our recommendations. Many of the problems identified were addressed through immediate or planned corrective actions. ------- COOPERATIVE AGREEMENTS In fiscal 1988, we issued an audit report covering two Superfund response cooperative agreements with the New Hampshire Department of Environmental Services. We also issued an audit report on a lead-in-soil demonstration project cooperative agreement with the Trustees of Health and Hospitals of the City of Boston, Inc. Several other Superfund cooperative agreement audits were initiated, but not completed, during fiscal 1988. A. NEW HAMPSHIRE DEPARTMENT OF ENVIRONMENTAL SERVICES Scope and Objectives We conducted an interim audit of the New Hampshire Department of Environmental Services Water Supply and Pollution Control Division administration of its cooperative agreements for remedial activities at the Nashua and Keefe sites. At the time of our audit field work, the State body administering the agreements was called the New Hampshire Water Supply and Pollution Control Commission. The primary objectives of our review were: 1. To determine the adequacy, effectiveness and reliability of procurement, accounting and management controls exercised by the State in administering its cooperative agreements; 2. To ascertain the State's compliance with provisions of the cooperative agreements and applicable EPA regulations and instructions; and 3. To determine the reasonableness, allocability and allowability of the costs claimed under the cooperative agreements through June 30, 1985. Findings 1. State Resident Engineer and On-Scene Coordinator Services Were Procured Without Competition The Commission awarded consulting engineer service agreements for resident engineer and on-scene coordinator services with current and former Commission employees in a manner that did not afford maximum free and open competition. The Commission awarded contracts with four engineers on a sole source noncompetitive basis. Three of the four engineers terminated their employment with the Commission on one day, and on the following day executed a contract with the Commission at a higher rate of pay. One of the engineers was rehired by the Commission at the completion of the contract period at the same annual salary 10 ------- paid when previously employed by the Commission to provide a continuation of the type of services provided under the contract. The Commission paid for health insurance, FICA taxes, mileage and vacations for the engineers under contract; benefits normally provided only to employees of the Commission. The Commission's contracting procedures violated applicable Federal and State regulations. As a result, we set aside $163,268 in costs claimed for EPA review. 2. Commission Needs to Perform Cost Analysis of Negotiated Change Orders The Commission had not documented the performance of cost analyses of contract change orders in excess of $10,000, as required by applicable Federal regulations. For one contract, a change order increased the contract price by 60 percent. For another contract, a change order increased the contract price by 46 percent. In addition, one of the change orders included an excessive pay rate for a Safety Officer. As a result, we set aside $565,211 in costs claimed for EPA review. 3. Commission Has Not Complied With Superfund Procurement Requirements There was no evidence that the Commission had evaluated its procurement system and certified that it met EPA procurement requirements or, in the absence of such a certification, allowed an EPA preaward review of proposed procurement actions. As a result, there were limited assurances that the Commission's procurements were made in accordance with applicable Federal regulations. The Commission's procurement system was certified in 1976 under EPA's construction grant regulations, but was never certified under regulations applicable to Superfund cooperative agreements. 4. Inadequate Property Management Standards The Commission did not maintain its property records in accordance with property management standards required by applicable EPA regulations. The Commission (i) charged equipment costs to site-specific cooperative agreements which were used in the general operations of the Commission; (ii) failed to maintain property records for all equipment; and (iii) made no periodic reconciliation of physical inventory to verify current use and continued need for property acquired with Federal funds. As a result, the Commission could not assure proper control and accountability over property purchased with Federal funds. 11 ------- Recommendations We recommended that EPA Region 1: o Instruct its staff to review the propriety of the Commission's actions in the execution of the sole source contracts with engineers. In performing this review, staff should require the Commission to provide their: 1. basis for contractor selection; 2. written justification for selection of the procurement method used rather than utilizing the Commission's pregualified list; and 3. basis for award cost or price, including cost or price analysis made as well as justification for the payment of benefits such as health insurance, FICA and vacations. A legal opinion should be requested as to whether the practice has violated any existing Federal or State law. Based upon the results of the review, any costs not properly incurred or deemed ineligible for other reasons should be reimbursed by the Commission to the Superfund account. o The Commission be instructed to award contracts only if the conform to prescribed Federal and State procurement procedures. EPA should closely monitor the Commission's compliance. o Instruct the Commission to perform a cost analysis of the change orders and provide justification for the amount of the costs charged under the agreement. Should the Commission be unable or unwilling to adequately support the costs as reasonable, EPA should disallow that portion which is not adequately supported as reasonable. o Instruct the EPA Regional Counsel to provide an opinion as to whether a recipient can segment its procurement system and certify its compliance with EPA regulations in a piecemeal manner. Should such a practice be deemed unacceptable, the Commission should be requested to provide the required certification for its entire procurement system. Should the Commission be unable or unwilling to provide such a certification, or until such time as such a certification is 12 ------- provided, the Commission should be instructed to provide all proposed procurements to EPA for preaward reviews as required by 40 CFR Part 33. o EPA staff review the adequacy of the improvements implemented by the Commission to its property management system to assure that: 1. Property records are current; 2. Superfund equipment purchases are in compliance with Federal property management standards; and 3. Proper credit was provided for the cost of equipment which was improperly charged to the Superfund cooperative agreements. Agency Response In response to the report, EPA Region 1: o Directed the New Hampshire Department of Environmental Services (NHDES) to comply with EPA regulations in all future procurements, and provide EPA with a copy of revised procedures for the procurement of engineering services consistent with those regulations. o Directed NHDES to provide all proposed procurements to EPA for pre-award reviews until the required certification of its entire procurement system is provided and reviewed and accepted by EPA. o Obtained documentation supporting change order costs. o Directed NHDES to credit the cooperative agreements for $28,701 in costs disallowed for inadequately documented miscellaneous purchases, fringe benefits for consultant engineers and ineligible property costs. o Agreed to review the NHDES1 property management system to insure proper control of property purchases and disposition, and instruct NHDES to conduct a physical inventory as required by EPA regulation. B. TRUSTEES OF. HEALTH AND HOSPITALS OF THE CITY OF BOSTON, INC. Scope and Objectives We conducted an interim audit of the administration of a lead-in-soil demonstration project cooperative agreement awarded to the Trustees of Health and Hospitals of the City 13 ------- of Boston, Incorporated. The Trustees have designated this project as the Lead Free Kids (LFK) program. Our audit covered the period May 27, 1987 to February 29, 1988. The objectives of the review were to determine whether the Trustees: 1. charged costs to the LFK program which were necessary, reasonable and eligible under the terms of the cooperative agreement; 2. were managing the LFK program in an efficient and effective manner; and 3. were meeting the program objectives established by the cooperative agreement. Findings 1. The Trustees Have Not Implemented the Lead-in-Soil Demonstration Program in a Timely Manner A project to determine the effect of lead contaminated soil on the blood levels of children had yet to be implemented due to the Trustees slow progress in developing a sound program design. The delay had been caused by conflicting expectations regarding the roles EPA and the Trustees were to play in designing the project, unsettled scientific issues, a change in program direction, and compliance with the Massachusetts Lead Law. As of September 1988, the Region 1 Administrator approved a design proposed by the Trustees. Both EPA and the Trustees needed to improve the management of this project through better communication and understanding of their responsibilities. EPA needed to be aggressive in ensuring that the Trustees fulfill their responsibilities rather than taking on the duties itself. The Trustees needed to be more aggressive in accepting and carrying out their responsibilities. The Trustees also needed to be flexible in adjusting to the changes of a demonstration project. 2. Need to Strengthen Administrative Controls The Trustees needed to exert greater administrative control over program activities. The Trustees had established procedures regarding procurement, payroll, inventory and reporting requirements; however, compliance had been limited in these areas. Without strong administrative controls in all areas, EPA had limited assurance that Federal funds were efficiently expended. We set aside $107,054 in consultant fees as a result of poor procurement practices and the need for further documentation 14 ------- of services provided. The administrative weaknesses are summarized below: a. Weak Procurement Practices. The Trustees had not assured that the LFK staff complies with the principles of open and free competition when obtaining consultant services. As a result, we set aside $107,054. The Trustees published a Request for Proposals (RFP) that did not contain all the necessary information to enable a prospective offeror to prepare a proposal, failed to provide sufficient time for preparation of a proposal, and did not contain all evaluation criteria with the relative importance attached to each criterion. Our review of the proposals indicated that qualified firms were rejected, while there was not documentation of the qualifications of the two selected firms. One firm began providing contracted services five days before the final date for submissions under the RFP. b. Poor Contract Management. The Trustees did not execute written contracts with the two consultants who received the largest consultant fees. Without an executed agreement, EPA had limited assurance that the consultants would provide all services agreed upon in accordance with Federal cost principles. For a third consultant, a contract was executed with the City of Boston's Office of Environmental Affairs rather than with the Trustees. c. Unsupported Consultant Services. Satisfactory evidence for justification of the work performed by one consultant was not provided by the Trustees. The consultant was hired to provide recruitment services. However, there is little evidence that the consultant provided all the recruitment duties per its bid proposal. In addition, this consultant provided community relations work and charged $16,625 for sending pamphlets and telephoning various community organizations. We have contacted some of these organizations and found that the organization staff had either not heard of the LFK program or received minimal information either by phone or pamphlet. The documentation provided did not support the costs. We set aside recruitment costs of $19,250 and community relations costs of $16,625. 15 ------- d. Lack of Control Over Payroll Recordkeepinq. The leave and attendance records maintained by the LFK staff could not be reconciled to the Trustees1 payroll records. The program staff did not follow the Trustees' personnel policies, nor did they obtain an exemption from these policies. As a result, some employees were overpaid. e. Property Management Records Not Maintained. The Trustees did not maintain property management records for equipment purchased with Federal funds. Without proper controls, EPA had limited assurance that assets were properly safeguarded and that equipment purchased for the program was not used for other activities. f. Non-Compliance With Reporting Requirements. The Trustees did not provide timely reports in accordance with various special conditions of the cooperative agreement. EPA cannot properly monitor the project's financial and operational activities without the agreed upon reports. g. Budgetary Controls Not Implemented. The Trustees' system to monitor budgets was not being used for this project. The Trustees' Compliance Manager advised us attempts to obtain a budget from the Project Manager were futile. Our review did not disclose any unauthorized expenditures; however, by not adhering to a system of controls, EPA had limited assurance that future expenditures will be controlled. Recommendat ions We recommended that EPA Region 1: o Clarify the roles and responsibilities EPA and the Trustees will assume, set deadlines for tasks, impose sanctions when warranted, and approve key program personnel who have been committed to specific tasks by the Trustees. o Instruct the Trustees to explain why the RFP was not more specific regarding selection criteria, why none of the twelve offerers were considered qualified, how the two selected consultants had considerable experience as opposed to the other offerers, and why a contract was awarded prior to the deadline for proposal submissions. EPA staff 16 ------- should review the Trustees' procurement actions during future monitoring visits. o Instruct the Trustees to award all contracts in accordance with Federal regulations, sign all contracts, ensure that services and costs are specifically defined in all contracts, ensure that amendments or change orders are issued for contract changes, and submit contracts over $10,000 for EPA review to assure compliance with all Federal regulations. o Require the Trustees to fully document the need for and use of consultant services for recruitment and community relations. EPA should determine ineligible those costs for which adequate documentation is not obtained or for which the charges were not reasonable. o Instruct the Trustees to document that LFK payroll records have been reconciled to the Trustees payroll records, adjust leave consistent with the Trustees Personnel Manual, develop an internal control system to assure accurate source documentation for payroll costs, and train LFK program staff in Trustees' personnel policies. o Instruct the Trustees to provide EPA with evidence that all equipment purchased with Federal funds is properly recorded for inventory, that mileage logs are utilized, and vehicle keys are properly safeguarded. o Instruct the Trustees to provide assurance they will meet reporting deadlines. o Ensure that the Trustees take appropriate actions to implement proper budgetary controls for this project. Agency Response In response to our final report, the Agency: o Amended cooperative agreement special conditions to define roles and responsibilities of EPA and the Trustees; set deadlines for tasks; incorporate sanctions, where appropriate; ensure that procurements are conducted properly and contracts properly executed; and implement proper budgetary controls. o Approved four key LFK project personnel. 17 ------- o Obtained documentation from the Trustees on recruitment and community relations activities conducted by a consultant, and the costs charged for them. o Disallowed $8,250 in consultant community relations charges. o Required the Trustees to submit future consultant invoices and proper support documentation for them. o Directed the Trustees to comply with their personnel policies in relation to the LFK project. o Required Trustees to maintain proper inventory records, mileage logs and vehicle key security. o Emphasized to Trustees their responsibility to submit required reports. The allowability of consultant recruitment charges was not yet resolved when this report was prepared. IS ------- REMEDIAL INVESTIGATIONS AND FEASIBILITY STUDIES While we had begun a number of examinations of remedial investigations/feasibility studies (RI/FSs), we issued only one report on such reviews during fiscal 1988. This report covered our reviews of two RI/FSs. The two reviewed were of the Pioneer Sand site in Pensacola, Florida and the Whitehouse Waste Oil Pits site in Whitehouse, Florida. Both RI/FSs were performed under cooperative agreements with the Florida Department of Environmental Regulation (FDER). Pioneer Sand Our review of the Pioneer Sand project files provided no evidence of technical problems related to the RI/FS. Whitehouse Waste Oil Pits Our technical review of the Whitehouse Waste Oil Pits project files found the RI/FS to be adequate. It satisfied the stated intent of the published program guidance and criteria and selected applicable alternative criteria for site remediation. The record of decision (ROD) for the Whitehouse site was signed on May 30, 1985. The selected remedy consisted of: o Construction of a slurry wall around the entire site; o Extraction and treatment of all contaminated groundwater; o Removal of contaminated sediments from the northeast tributary of McGirts Creek; and o Grading of the site surface and recapping the area with low permeability material. While the RI/FS was considered technically adequate, there were technical problems that delayed the entire remedial action process. Controversy surrounding the remedial alternative selected for the Whitehouse site was generated when the remedial design engineer indicated that the groundwater treatment process selected for the site was inappropriate. This resulted from a treatability study which determined that the removal of non- volatile organics utilizing carbon absorption was not feasible. In addition, results of the study indicated that the Operation and Maintenance (O&M) costs had been substantially underestimated due to the quantities of chemical additives required in the treatment process resulting in an increase in the sludge volume. Additionally, the reliability of the analysis of the shallow. aquifer performed by the U.S. Geological Survey was questioned because of problems encountered during the pumping test. Twenty- 19 ------- four months after the ROD was signed, the design engineer relayed three concerns to the U.S. Army Corps of Engineers, EPA and FDER which resulted in suspension of further design activities until additional studies were completed. These studies were to: o Provide additional chemical characterization of the groundwater, define the physical and chemical properties of the waste oil sludge, and determine the vertical and horizontal limits of the groundwater plume and the sludge; o Design, install and pump-test a test recovery well within the contaminated area to determine the aquifer contents and the time variations of contaminant concentrations in the groundwater; and o Investigate any "new cleanup technology" that might be employed at the site. When we inspected the site in September 1987, we observed numerous areas where the cap had eroded. We also noted two locations where the hazardous waste had broken through the cap. The FDER representative accompanying us stated the hot summer weather caused the cap to crack allowing the material to "boil up" through the cap. The information generated by the groundwater treatability study would have been more useful and effective had it been accomplished during the feasibility study. This would have resulted in less confusion and delays in determining the ultimate groundwater treatment process to be utilized, thus eliminating the delays encountered by additional water treatment studies. It was suggested by FDER that improvements in technology and cost breakthroughs in the field of hazardous waste cleanup be investigated to determine if a less costly remedial action was available to effect site cleanup. As of September 1988, more than three years after the ROD was signed, no decision had been made regarding final configuration of the remedial design. The treatability study performed by the Office of Research and Development found solidification to be an appropriate remedy; however, additional testing would be required. A treatability study for the Hume Extraction Process, a new technology, was planned to begin within the following month. Region 4 officials estimated a decision on the design configuration would be made by February 1989. 20 ------- Recommendations We recommended that EPA Region 4: o implement a high priority permanent site remedy and escalate their evaluation of the new technologies to be used at the Whitehouse site as required by SARA; and o establish a priority completion schedule and closely monitor additional studies to allow resumption of the remedial design so final remedial cleanup action can be accomplished. Aaencv Response EPA Region 4, responded that it agreed that a more permanent site remedy should be considered for the Whitehouse Waste Oil Pits site. Treatability studies for the most promising alternative would take about a year. EPA was to meet with FDER to make a decision whether to implement the present remedy or begin the treatability phase. Since EPA responded to the audit, it has contracted for additional feasibility study work. 21 ------- OTHER INTERNAL AND MANAGEMENT AUDITS In addition to reviews required by CERCLA, as amended, we reviewed other aspects of EPA's management of the Superfund program, as our resources permitted. Such reviews completed in fiscal 1988 are summarized below. A. REGION 4'S MANAGEMENT OF SIGNIFICANT SUPERFUND REMOVAL ACTIONS Scope and Objectives Our objective was to evaluate Region 4's effectiveness and efficiency in managing significant removal actions at Superfund sites. Specifically, we determined whether: 1. Sites were properly evaluated and classified as removals in accordance with the guidelines set forth in the National Contingency Plan. 2. Immediate removal was the most effective and efficient option at the time. 3. The cleanup method selected was appropriate for the site. 4. Actions taken mitigated the site hazards. 5. Environmental laws were adhered to during the removal action, or deviations therefrom were properly justified. 6. Responsible parties were identified and appropriately pursued to share in the cost of the cleanup. We selected two significant (costs of over $1 million) removal actions from nine on-going removals in Region 4 as of April 1987. These removals were at the Peak Oil site near Tampa, Florida and the General Refining site near Savannah, Georgia. In addition to work by our audit and engineering staffs, the EPA National Enforcement Investigations Center (NEIC) performed for us site investigations at both sites. Findings 1. Immediate Removal Authority Exceeded Region 4 continued unwarranted immediate removal activities after stabilizing the hazards at the General Refining and Peak Oil sites. At both sites, the on-scene 22 ------- coordinators (OSCs) took immediate actions to stabilize the site hazards. The hazards at General Refining were stabilized within one month with less than $50,000 expended. At Peak Oil, stabilization occurred within four months with less than $255,000 expended. In the case of Peak Oil, the site should have been referred to the region's remedial personnel for an extended evaluation and assessment. The General Refining site should have been considered for a planned removal or cooperative agreement with the State. However, instead of taking the proper action, Region 4 arranged for the mobilization, funding and testing of unproven cleanup technologies selected for the respective sites. The continuation of cleanup activities under the auspices of immediate removal was not justified and should not have been undertaken. The OSCs presented misleading reports and gained approval for work beyond the statutory dollar ($1 million) and time (6 month) limits allowed by the immediate removal authority. As a result, Region 4 expended $5.3 million over two years which exceeded the immediate removal authority. 2. Commercial Testing and Development Funded Region 4 funded commercial testing and development of two hazardous waste treatment prototypes: Shirco Infrared Systems1 infrared incinerator and Resources Conservation Company's Basic Extraction Sludge Treatment (BEST) unit. To fund the tests, Region 4 side-stepped several internal controls; such as permitting, delisting and contracting regulations. Region 4's selection of the two technologies was speculative and unsupported by scientific or engineering fact. Nonetheless, both prototypes were used to conduct full-scale operations at removal sites prior to evidence the manufacturer's performance claims were true. In selecting the technologies for testing. Region 4 did not apply appropriate funding and testing controls. As a result of the region's actions, the two commercial enterprises benefitted from tests costing the Superfund $5.3 million. The costs of the tests conducted should have been borne by the technology manufacturers; thus the funds expended were misused. 3. Incineration Did Not Meet Standards The prototype incinerator did not meet requirements set forth by the Toxic Substances Control Act, the Resource Conservation and Recovery Act and EPA's own policies. Region 4, by not following its own stated testing plan for the incinerator, allowed production-level operations to commence without first conducting required tests. The first formal test burn was conducted after five months of burning 2,257 tons of hazardous waste. Burning was then allowed to 23 ------- continue after formal tests indicated the prototype incinerator did not meet incineration standards. Consequently, PCBs and particulates (mainly lead) were released into the air and thousands of gallons of wastewater containing lead were sent to the local wastewater treatment plant. 4. Regional Cleanup Preempted State Action Region 4 preempted the State of Florida's planned cleanup of the Peak Oil site. Florida officials had notified the region of their intentions to conduct a removal at the Peak Oil site. The region initially indicated that time and budgetary constraints prevented EPA involvement. However, the region later became interested in the site. Due to confusing discussions and letters, the State delayed its plan to incinerate at Peak Oil under a false impression it needed an incineration permit. Region 4 never offered a contractual agreement for a State-lead cleanup, and eventually took over cleanup of the site. The region's actions discouraged the State's participation. If the State had funded all or part of the cleanup, the EPA could have used the Superfund money spent at Peak Oil on other Superfund sites. 5. Enforcement Action Incomplete EPA did not take adequate action to pursue a responsible party cleanup for the General Refining site. Regional personnel did not follow proper enforcement procedures after coming to a conclusion the responsible party was financially incapable of cleaning up the site. The decision to finance the cleanup with Superfund monies was based on verbal representations of indigence made by the responsible party. However, written correspondence from the responsible party is not as clear, since he states he would help in any way with site cleanup. Nonetheless, regional personnel started cleanup without first giving the responsible party an opportunity to respond to a legal notice. Further, the region continued to preclude responsible party involvement after evidence was available to indicate the responsible party may have had financial assets. As a result, EPA may have unnecessarily spent Superfund monies to clean up the site, as well as possibly lost any opportunity to recover treble damages from the involved responsible party. 6. Questionable Contracting Methods Contracting methods used to fund testing and development of unproven technologies did not follow established Agency procurement policies and procedures. For 24 ------- instance, delivery orders did not include total known costs or scope of work, and cost comparisons were not properly supported. Also, EPA personnel allowed contractors to start work prior (up to eight months) to signing delivery orders and did not subject the technology manufacturers to the competitive bidding process. As a result, several procurement procedures, which should have prevented the activities carried on at General Refining and Peak Oil after the stabilization of the site hazards, did not affect the projects at all. 7. Sites Remained Contaminated Lead and PCB still contaminated the General Refining and Peak Oil sites at the conclusion of our review. Post- treatment testing disclosed that the sites are not clear of the hazards which originally attracted the EPA's attention; cleanup efforts are still needed to dispose of on-site contaminated materials after the expending of $6 million. At both sites, the primary problem is waste piles which contain excessive levels of lead. The problems at both sites stem from EPA personnel misjudging the capabilities of the selected treatment technologies and the fact that neither technology worked as promised by the manufacturer. Three of four manufacturer-advertised merits of the BEST system proved inaccurate during actual use of the prototype. At Peak Oil, the OSC did not adequately address the problems associated with the site's lead contamination. The infrared incinerator was advertised as offering a permanent solution to the known lead hazard; a claim which EPA personnel discounted from the beginning. Nonetheless, the incinerator was used and lead remains a hazard at the site. Recommendations We recommended that EPA Region 4: o Establish and implement adequate controls to ensure that removals did not continue beyond limits established by CERCLA, as amended, and the National Contingency Plan. o Establish and implement a formal review process for proposed exemptions from statutory time and dollar limits to ensure that the conditions for the exemptions have been met. This process should include verification of site conditions where appropriate. o Ensure that adequate testing and independent verification is conducted whenever consideration is given to selecting a technology that has not been proven for the type of waste being treated. 25 ------- Establish and implement adequate internal controls to ensure that removal actions are conducted in accordance with applicable environmental standards. These controls should include frequent monitoring of affected media and treatment products, and provision for suspension of operations until needed corrective measures are implemented to the extent the immediacy of the hazard permits. Establish and implement adequate internal controls to ensure that state-funded response at removal sites are facilitated appropriately, and that Federal funds are reserved for sites where response by another party is not feasible. Establish and implement adequate internal controls to ensure compliance with Headquarters enforcement directives and guidance. This includes taking all appropriate measures to obtain response from potentially responsible parties and to provide the strongest possible basis for cost recovery. Establish and implement adequate internal controls to ensure that on-scene coordinators do not go beyond the limits of their authority by permitting contractors to begin work and incur expenses prior to obtaining the contracting officer's approval. Establish and implement standard documentation and filing procedures to ensure project files contain complete documentation of the history of site planning, authorizations and response actions taken. Establish and implement adequate controls to ensure that contract delivery order scopes of work prepared by regional personnel are clearly defined, avoid open- ended wording and require contractors to meet performance objectives for proprietary technologies. Establish and implement adequate controls to ensure that on-scene coordinators effectively monitor contractors to achieve treatment standards required by contractual terms. Take appropriate measures to ensure that the hazards remaining at General Refining and Peak Oil after prior removal activities are adequately addressed. 26 ------- Agency Response During the audit resolution process, EPA Region 4 indicated that it will: o Comply with new Agency procedures regarding the preparation and approval of action memorandums involving the statutory limits, and document supervisory review of the memorandums; o Incorporate available technological expertise in the decision process when identifying possible treatment/destruction technologies to determine their protectiveness, economies, degree of field provability, and impact on statutory limits; o Use, where appropriate, bench and field treatability studies and field demonstration results to develop the best technical evaluation of potential technology for a removal action; o Comply with new Agency procedures regarding approval levels required when considering the use of alternative technology at removal sites; o Maintain a strong and aggressive testing program to ensure that removal actions are conducted in accordance with applicable environmental standards; o Suspend response operations, where necessary, when environmental standards specified in contractual obligations are not met; o Comply with new Agency procedures regarding which environmental standards must be met in removal actions; o Pursue recovery of a portion of the funds awarded Haztech, as a result of the Haztech/Shirco litigation, due to failure of the incinerator to meet certain performance standards; o Reserve Federal funds only for those sites where response by responsible parties is not feasible; o Pursue cost recovery against the PRPs for the General Refinery site; o Aggressively use administrative orders and notice/access to information letters with PRPs; 27 ------- o Use site-specific competitive bidding, Pre-Qualified Offerers Procurement Strategy, or other appropriate bidding procedures to obtain specialized technologies; o Comply with new Agency procedures regarding standardized site files, establishment of on-scene coordinator administrative support positions, and use of the Removal Cost Management System; o Have regional contracting officers support the on-scene coordinators so that delivery orders and other documents involving contractor direction or performance are sufficiently clear and identify the objectives to be met, and contractual terms are met; and o Conduct additional cleanup activities at the General Refining and Peak Oil sites. The question of which environmental standards apply to the incinerator used at Peak Oil has not yet been resolved. The Audit Review Group is assisting in resolution of the audit. B. EPA'S UTILIZATION OF THE ZONE I FIELD INVESTIGATION TEAM Scope and Objectives We reviewed EPA's utilization of the Zone I Field Investigation Team (FIT) contract with the NUS Corporation. This contract provides for the performance of preliminary assessments (PAs), site inspections (Sis), Hazard Ranking System scoring, special studies and enforcement support for sites in EPA Regions 1, 2, 3 and 4. We evaluated FIT operations from the award of the contract on November 1, 1986 through December 31, 1987. Findings 1. FIT Program Management Agency management of the FIT program was deficient. The EPA project officer did not provide the required oversight. As a result, there were four somewhat diverse regional programs, rather than a single uniform FIT program. Coupled with this lack of centralized control, EPA Headquarters delayed taking action to correct problems in Regions 1 and 2 for almost a year. This lack of oversight contributed to a number of additional deficiencies in EPA's management of the FIT program, which are discussed in the remaining findings. 28 ------- 2. Award Fee Process EPA needs to improve implementation of the award fee process in order to better assess the adequacy of the work performed by NUS. In general, the process was not carried out uniformly among the regions; however, the most serious deficiencies occurred in Regions 1 and 2. We reviewed performance packages submitted for EPA evaluation over the first year of the contract and found that: o Rating packages generally covered the minimum number of hours required by EPA only be including large amounts of support tasks. o Ratings were overgenerous and did not comply with EPA guidance. o NUS was paid award fees for deficient work, as well as for work that was beyond the scope of the pre-remedial program. o EPA Headquarters planned to allow the rollover of unawarded fees. We believe this action is unwarranted because it will increase the total fees available. 3. Excessive Support Charges Overall, Zone I statistics indicated that the FIT offices spent less than half their time on their primary mission, i.e., preliminary assessments, site inspections and Hazard Ranking System scores. Most of the non-primary mission charges related to support activities such as training, equipment maintenance, program management, general technical assistance and quality assurance. We concluded that some of the projects were of questionable value to the Government, and that EPA must redirect the focus of the FIT offices to their primary mission, the pre-remedial program. 4. Site Inspection Variations Disparities existed in the fiscal 1987 site inspections (Sis) performed in the four regions. The definition of what constituted an SI, the methods used to select sites and the actual format of the SI reports depended upon regional preference. SI reports in two of the regions contained toxicological assessments, while the other two regions considered such assessments to be premature. Region 1 Sis were the most peculiar. Because FIT 1 did not actually visit 75 percent of the sites, the Sis did not conform to either the FIT contract or the National Contingency Plan. Moreover, it took EPA Headquarters over a year to formally 29 ------- issue guidance, during which time NUS charged the Agency an estimated $4.7 million for 158,000 FIT hours spent on SI projects. 5. Obtaining Required Professional Staffing EPA needs to ensure that the personnel assigned to each FIT office satisfy contract staffing requirements. We found that the managers at two FIT offices did not have the experience required by the contract. 6. Improving TDD Administration Procedures for the preparation of Technical Directive Documents (TDDs) need improvement. The four regions reviewed did not always comply with contract requirements and EPA guidance concerning the use of TDDs. We found several areas requiring improvement such as work initiated without TDDs, amendments to TDDs not processed and Acknowledgement of Completion forms not completed. It is essential that TDDs are processed in accordance with contract provisions to ensure that the contractor has a clear understanding of the work requirements. In view of the significant value of this contract, in excess of $125 million, it is also essential that the services required, due dates, priority, estimated costs and reporting requirements are clearly defined before work is initiated. The lack of clear and complete TDDs could adversely affect the recovery of costs under CERCLA. Recommendations We recommended that EPA: o Assure that the Project Officer more aggressively manages and directs overall zone activities under the NUS contract, more closely monitors regional FIT operations and initiates corrective measures to rectify problems as they arise. o Increase the minimum reporting requirement for FIT hours from 60 to 80 percent. o Assure that Regional Project Officers rate contractor performance in accordance with EPA guidance; and reserve award fees principally for work related to the FIT primary mission, granting no award fees for deficient work. o Decide on a single rating system, and employ it uniformly throughout the four regions. 30 ------- o Assure that Regional Project Officers authorize no more than 20 percent of FIT hours as support, eliminate non- TDD charges, assure that contract invoices are reconcilable to individual TDDs and direct NUS to charge FIT support hours in a uniform fashion. o Assure that regions select SI candidates in accordance with the Agency's Pre-Remedial Strategy for Implementing SARA and perform Sis in accordance with the National Contingency Plan; and decide whether Sis should include toxicological assessments. o Obtain the resumes of all current and future FIT office managers to assure that they satisfy the educational and experience requirements of the contract. o Assure that TDDs are administered in accordance with the FIT Zone Contracts Management Guide. Agency Response EPA has indicated it has taken or is taking a number of actions consistent with our recommendations, including: o Naming a separate Project Officer for each FIT contract, to enable each Project Officer to devote efforts within one FIT zone. o Incorporating specific performance requirements relating to sound contract management in the performance standards of each Project Officer and Deputy Project Officer. o Conducting an in-depth review of FIT contract operations in each region at least once a year. o Requiring corrective action plans from the contractor in response to the findings of the Performance Evaluation Board (PEB). o At least annually, produce and distribute to all pre- remedial personnel site assessment policy, priority and guidance documents. o Having all Regional Project Officers attend PEB meetings and meet the following day to discuss the PEB process and to identify issues and make recommendations. o Limiting FIT support hours to no more than 20 percent. 31 ------- o Directing NUS to charge support hours in a consistent and uniform fashion. o Directing NUS to document support project files to demonstrate hours charged are reconcilable to services rendered. o Through a memorandum to the regions, establishing the objective of focusing the FIT contract on pre-remedial activities. o Using guidance documents and conferences to reiterate the importance of selecting SI candidates in accordance with the Agency's Pre-Remedial Strategy for Implementing SARA. o Obtaining the resumes of all FIT office managers, carefully evaluating them to determine qualifications and issuing approval letters for each office manager. o Documenting changes in key personnel and the basis for decisions approving key personnel. C. MANAGEMENT OF THE TECHNICAL ASSISTANCE TEAM BY REGION 3 Scope and Objectives The purpose of this audit was to evaluate how effectively EPA Region 3 managed the Technical Assistance Team (TAT) contract. This contract provides technical support for the emergency response program for Zone I covering four regions. The contract has a potential value of $120 million and is ongoing until September 30, 1990. We primarily reviewed TAT documentation for calendar year 1987, but also reviewed documentation from 1988 in selected instances. During this audit, we: 1. Examined the TAT contract and EPA policy and regulations regarding the program; 2. Performed a review of the documents, records and reports issued under the TAT contract; and 3. Visited several removal sites. Findings 1. Improvement Needed in the Utilization of Contractor Personnel Improvement is needed to ensure that professional contractor personnel are not used to perform administrative 32 ------- type duties. We found that during 1987 approximately 6,100 hours of administrative work, costing about $187,000, were provided by engineers, scientists and geologists. They performed such tasks as file organization, referencing, indexing and working in the Regional Response Center (RRC). The TAT contract does not provide for the use of professional level personnel to provide this administrative support. We believe these contract personnel should be utilized more efficiently to perform higher priority tasks which are in the TAT members' field of expertise and in conformance with the requirements of the contract. Region 3 personnel stated that the use of TAT personnel for administrative support duties was due to a lack of sufficient EPA personnel available to perform these tasks. 2. Contractor Monitoring Needs Improvement Region 3 needs to improve its monitoring of the contractor's performance. The primary responsibility for monitoring the contractor's performance is that of the Deputy Project Officer (DPO). However, we found that the DPO did not: (1) ensure that required management reports were accurate and useful, (2) maintain a current log showing the status of Technical Directive Documents (TDDs), (3) conduct regional contractor office reviews as required by EPA guidance, and (4) determine the accuracy of the contractor's invoices. In order to ensure that the contractor is progressing satisfactorily in implementing assigned tasks and in meeting planned financial and programmatic objectives, it is necessary for EPA to regularly monitor contractor performance. Adequate monitoring would also assist in an early identification and prevention of potential problems that otherwise may adversely affect the smooth operation and implementation of the program. We believe that the lack of adequate monitoring was partially attributable to the fact that the DPO was not available on a full-time basis to direct the efforts of the contractor, who incurred costs of $4.4 million under the contract in 1987. 3. Improper Use of Contractor Staff for Personal Services Region 3 did not comply with the Federal Acquisition Regulation (FAR) and the provisions of the TAT Users' Manual by improperly using contractor staff for personal services. According to the FAR, personal services occur when contractor personnel appear, in effect, to be Government employees. We found that Region 3 directed professional level contractor personnel to work in the RRC, under EPA supervision, doing routine administrative tasks, which makes them appear to be EPA employees. Region 3 officials informed us that due to a shortage of EPA administrative 33 ------- support personnel, they used contractor staff to assist in the operations of the RRC. We believe that the use of contractor personnel to work in the RRC performing administrative tasks under the direct supervision of EPA constituted prohibited personal services. 4. Technical Direction Needs Improvement Region 3 needs to improve its technical direction of the TAT contractor. The principal mechanism for directing the contractor is by issuance of a Technical Direction Document (TDD). The TDD should provide the contractor with a clear understanding of the services that are required. In our review of the administration of TDDs we found several problems, including: (1) inadequate preparation, (2) delayed processing, and (3) insufficient direction. We believe that these deficiencies stem from the fact that the DPO was not available on a full-time basis to properly issue and manage technical direction. Similar deficiencies were cited in both an OIG survey report, dated April 18, 1984, and the results of a review of Region 3 by EPA Headquarters Emergency Response Division, dated October 29, 1984. The absence of clear, complete work authorizations, impedes efficient management of the contractor by the region. Also, EPA may not be in a position to hold the contractor accountable or establish a record of the tasks it directed the contractor to perform. A future consequence of incomplete TDDs is that the Agency may not have complete records to recover cleanup costs under Superfund. 5. Improved Evaluation Procedures Needed Evaluation procedures need to be followed to ensure that the award fees paid to the contractor are justified. For the first two rating periods ending September 30, 1987, the contractor received over 80 percent of the maximum award fee available ($59,152 of $73,480) for demonstrated performance in Region 3. Our review disclosed that Region 3 did not: (1) substantiate evaluations as to how and why a rating was meritorious or deficient, and (2) ensure that Acknowledgement of Completion/Performance Observation Reports were submitted within ten days of the task being completed. We believe these conditions occurred because the region did not place a high priority on these evaluations. Lack of sufficient support for contractor ratings and late submission of Acknowledgement of Completion Reports were also noted in a management review performed by Headquarters Emergency Response Division in 1984. We believe that these problems demonstrated that Region 3 did not adequately perform the evaluation process in order to justify the award fee paid. 34 ------- 6. Unqualified TAT Personnel Assigned to EPA The contractor did not always provide personnel who possessed the necessary education and experience as required by the contract. We examined the resumes of all 40 contractor personnel who were assigned to Region 3. Our review identified four employees who did not possess the required qualifications. Consequently, EPA was overbilled approximately $14,414 for these unqualified contractor personnel and did not receive the experienced technical assistance needed to respond to removal and prevention activities. 7. Procedures for Special Projects Should Be Followed Region 3 did not follow procedures to properly administer and manage the issuance of TDDs for special projects. These TDDs should be utilized to provide EPA, during emergency removal activities, with specialized resources not routinely available from the contractor. Our review for the nine month period ending September 30, 1987, encompassed 22 TDDs with estimated costs of $130,461. This review disclosed the following: (1) the procurement of services not allowed by the contract, and (2) a lack of proper review and authorization. We believe that this condition resulted because of the lack of adequate oversight and control by the DPO. Improvement in the areas cited above is essential to ensure that only authorized purchases are made and proper approval is obtained in accordance with prescribed procedures. Recommendations We recommended that EPA: ; o Discontinue the use of professional level contract personnel to perform administrative duties, and utilize them to perform essential tasks requiring their expertise. o Aggressively monitor and track TAT project performance, including periodic site visits to the contractor and maintaining complete and accurate records and logs. o Require the contractor to provide accurate management reports. o Ensure that sufficient documentation is available for regions to verify the accuracy of contractor's invoices. Consider modifying the contract to require the provision of additional supporting documentation. 35 ------- o Discontinue use of the TAT contractor personnel for personal services and establish procedures to preclude such future use. o Improve overall technical direction provided to the contractor by appointing a full-time DPO and directing the DPO to ensure that work authorizations are clear and complete. o Ensure that evaluations are properly supported to provide substantive comments which substantiate the ratings given. o Direct the DPO to ensure that Acknowledgement of Completion/Performance Observation Reports are prepared within ten days of task completion, and follow up with the contractor if they are not received in that timeframe. o Obtain and review resumes from the contractor, and if necessary, amend the contract and Users' Manual to include a review requirement. o Determine whether any overcharges resulted from the contractor billing for services performed by unqualified contractor personnel and recover any overcharges. o Ensure that the contractor does not proceed with work on a special project until a TDD is issued and all required approvals are obtained. Agency Response In its response to the final report, the Agency agreed to take the following corrective actions: o Phase out use of the TAT in the Regional Response Center. o Upgrade the computerized TDD tracking system to help in making the appropriate review and cost comparison. Under the revised system, a weekly or bi-weekly summary of the costs and hours on TDDs will be sent to regional users. The region is asked to review these carefully, and notify the DPO and the contractor of any discrepancies. o Continue to perform periodic reviews at the TAT office and document these to show areas reviewed and the results. 36 ------- o Review the invoice procedures on TAT and other contracts to identify a better mechanism for DPOs to verify reasonableness of contractor vouchered costs. o Include more detailed statements of work in TDDs. o Appoint a full-time DPO to administer the contract. o Remind EPA personnel of the need for additional comments supporting the numerical performance ratings. o Reiterate to the contractor its responsibility to submit timely Acknowledgement of Completion/Performance Observation Reports. All necessary EPA personnel will be advised of their responsibility for prompt evaluation. o Develop a mechanism to review other than key personnel on the TAT contract. o Discuss the instances of overcharges for unqualified personnel with the DPO and the contractor, and take appropriate action. o Develop specific guidelines on the preparation of special project TDDs and make provisions for alternates to approve the TDDs during absences of the DPO. D. RESOLUTION OF SUPERFUND CONTRACT AUDIT REPORTS Scope and Objectives We evaluated EPA's Procurement and Contracts Management Division (PCMD) resolution of ten audit reports that addressed costs claimed and questioned under emergency cleanup services contracts. The ten audit reports were selected from a universe of 25 audit reports issued between October 1, 1985 and June 15, 1987. Our audit objectives were to: 1. determine whether contracting officers made appropriate decisions to resolve issues addressed in the audit reports; 2. identify the areas of disagreement between the auditors and contracting officers concerning questioned or set- aside costs; and 3. reconcile differences between the auditors and contracting officers. 37 ------- We audited costs claimed for "notice to proceed" contracts where EPA authorized a contractor to begin work before negotiating a detailed contract, and for delivery orders under emergency response cleanup services (ERGS) contracts. These audits were to determine the allowability of costs claimed, verify the quantities billed and determine contractor compliance with contract terms. Findings 1. More Communication Needed Between Contracting Officers and Auditors Contracting officers accepted $134,789 of questioned and set-aside costs based on additional supporting documentation provided by the contractor, but not made available to the auditors during their field work. Although auditors were in the best position to determine if this information adequately supported questioned or set-aside costs, contracting officers often relied on this information without obtaining feedback from the auditors on the adequacy and accuracy of the documentation. Also, contracting officers ignored cost information provided by the auditors in arriving at a fair and reasonable price for provisional rate equipment. Auditors did not receive 12 of the 18 pre- negotiations memorandums in our sample before final negotiations were held with the contractor. More communication between contracting officers and auditors would have ensured that contracting officers and auditors agreed on the resolution of questioned and set-aside costs, and that contracting officers entered negotiations in the best possible negotiation position. 2. Negotiation Memorandums Need To Be Written More Carefully and Completely Twelve of the 18 post-negotiation memorandums we reviewed were either incomplete or contained errors. As a result, the negotiation memorandums did not adequately document the results of negotiations. The primary purpose of a negotiation memorandum is to document how the contracting officer determined or negotiated the final cost of a delivery order or contract. These memorandums may be used in cost recovery cases or as a precedent in future contract negotiations. Therefore, memorandums should be carefully written so that readers can clearly understand how the final cost was negotiated. Problems with negotiation memorandums were partly caused by PCMD hurrying to complete the negotiations for several audit reports before the end of fiscal 1987. 38 ------- 3. Improvements in EPA Contractor's Accounting System Not Made in a Timely Manner The Agency paid one EPA contractor $141,082 for handling and general and administrative expenses without assuring that the amount was fair and reasonable. Auditors questioned or set-aside these costs because the contractor's accounting system could not support the costs. PCMD was not aggressive in requiring the contractor to improve its accounting system even though they were aware of deficiencies in the system since November 1983. Despite these deficiencies, PCMD continued to make awards to the contractor, and as of September 30, 1987, the Agency had more than $72 million obligated against open contracts with the contractor. The contractor recently made improvements in its accounting system. 4. Contractors Took Advantage of Ambiguous Contract Clauses The Agency paid $42,047 more for labor under ten delivery orders and one notice to proceed contract than they would have been required to pay had the contracts been better worded. Contractors billed the Agency at labor rates that exceeded the straight time rate even though they did not pay their employees the overtime or holiday premium. Auditors questioned the difference between the premium rate billed to the Agency and the rate paid to the employees. However, the Agency's legal counsel decided that since the contract language was ambiguous the contractors did not have to pay the premiums as a precondition to billing the Agency at the premium rates. PCMD personnel told us that since they cannot recover the premium costs, they are asking contractors to pay the applicable employees and to submit certifications that employees were paid. Recommendations We recommended that EPA: o Encourage the contracting officers to (a) discuss with the auditors differences between the audit recommendations and PCMD's pre-negotiation position; and (b) obtain feedback from the auditors on additional supporting documentation provided by the contractor. o Develop a negotiation memorandum format that will assist contracting officers in presenting the results of negotiations in a clear and orderly manner. o Expand the Quality Assurance Staff's annual contract review to include a special review of a sample of 39 ------- negotiation memorandums. The special review should concentrate on determining if the negotiation memorandums are accurate and clearly explain the rationale for resolving questioned and set-aside costs. o Require contracting officers to obtain documentation to support a sample of the certifications made by each contractor that employees were paid overtime premiums before they accept the costs for the overtime premiums. Agency Response In its response to the final audit report, EPA agreed with all the recommendations and proposed the following corrective actions: 1. PCMD will issue a memorandum to contracting officers strongly encouraging more dialogue with auditors on significant differences between the prenegotiation position and the auditor's recommendations. 2. A revised negotiation summary format was prepared and incorporated into the PCMD Acquisition Handbook on October 24, 1988. The PCMD Quality Assurance Staff will evaluate the results of the use of the new format for any major deficiencies. 3. PCMD will obtain the recommended documentation in support of the overtime premiums paid. More recent ERCS contracts contain a requirement that the contractor actually pay employees overtime premiums. E. UNANNOUNCED ON-SITE REVIEWS OF REMOVAL ACTIONS Background CERCLA authorizes removal actions at hazardous waste spills and sites, whether or not they are on the National Priorities List (NPL). In contrast to long-term remedial response, removals are generally short-term time-critical actions needed to abate a threat. They are not subject to the detailed planning process used for remedial actions, and the work is generally directed on a day-to-day basis by a Federal official. The on-scene coordinator (OSC) is the Federal official designated to coordinate and direct Federal response at a site. Implementation of removal actions is usually done under one of a number of Emergency Response Cleanup Services (ERCS) contracts. The OSC is normally assisted by a Technical Assistance Team (TAT) contractor to monitor the 40 ------- response, develop the workplan and document the cleanup costs. The OIG has been performing unannounced on-site audits of removal actions for several years. During fiscal 1988, we issued three reports of such audits. The removals audited were at the Cam-Or site in Westville, Indiana; the Del Norte County Pesticide Storage Area site in Crescent City, California; and the Bossert Manufacturing Facility site in Utica, New York. Scope and Objectives These reviews normally include a site visit of 1-3 days while a removal is in progress. While at the site, auditors observe conditions, review documentation and interview personnel. There is usually follow up work at the EPA regional office to review documentation that is not at the site and to interview appropriate personnel. The objectives of each review were to determine: o Adequacy of the OSC compliance with prescribed directives and guidance governing removal actions; o Adequacy of the OSC's controls in monitoring the cleanup work and on-site spending; and o Adequacy of the technical assistance provided by the TAT contractor. Cam-Or Site At the Cam-Or site in Westville, Indiana, we found that OSC guidance, project monitoring and technical assistance were generally adequate to control and monitor the removal action. However, some project management procedures need improvement. TAT employees at this site were used extensively for recordkeeping duties resulting in higher than necessary costs to EPA and a reduced level of technical support. The OSC also approved charges of $19,954 for components of a water treatment system that were either never used or had not yet been assembled for use. Site controls were not always adequate because (1) the OSC did not record his own presence on the entry and exit logs; and (2) unauthorized individuals could gain access to the site through an opening in the fence. In response to the draft report, EPA Region 5 indicated it was taking action to correct the conditions noted. The region agreed that the recordkeeping workload needed to be decreased for both OSCs and TAT professionals, and assigned 41 ------- some Agency positions to administrative support functions. The region agreed that the OSC should document the disallowed charges for the non-operational water treatment system components on the contractor invoice and would request that the contracting officer not pay the disputed charges. The region also agreed that the security service should patrol the site, including the fence opening, and that entry and exit logs should be completed. In the final report, we requested EPA Region 5 to provide documentation to support the completion of the planned corrective actions. In response, EPA Region 5 provided further information on its actions. Del Norte County Pesticide Storage Area Site At the Del Norte County Pesticide Storage Area site in Crescent City, California, we found that the OSC conducted the on-site activities in a reasonable manner and generally in compliance with applicable EPA guidance. However, the OSC failed to question costs billed directly by the ERGS contractor which are included in the contractor's indirect costs. These costs were for small tools, equipment maintenance items and general office supplies. Region 9 had not received formal training on the contract and the OSC was unaware that these costs were not allowable direct charges. We recommended that EPA Region 9 assure that all regional OSCs receive training on the ERCS contract provisions. This training was provided during the first quarter of fiscal 1988 by the EPA contracting officer. Bossert Manufacturing Facility Site At the Bossert Manufacturing Facility site in Utica, New York, we found that the OSCs generally had complied with prescribed directives and guidance, and had control in monitoring the cleanup work and site spending. We also noted that the TAT contractor provided adequate technical assistance. However, we found a few areas that needed improvement: o The OSC did not attend daily site safety meetings, although the OSC is responsible for establishing site safety standards and making determinations on all site health and safety issues. o In some instances, EPA Region 2 did not act timely to certify the ERCS contractor's invoices. In two cases, we found delays of 15-21 days in OSC certification of invoices. In one case, there was an additional delay 42 ------- of 22 days in transmitting the certified invoice to the finance office. o The ERCS contractor did not submit Daily Cost Reports to the OSC by noon the following workday, as contractually required, during our on-site visit. TAT staff reported that such delays were common and caused difficulties in determining the accuracy of equipment charges. o Some labor and transportation costs claimed on Daily Cost Reports were not supported by site entrance/exit logs or project logs. In response to the draft report, EPA Region 2 began express mailing invoices to OSCs in the field and increased the use of computers to accelerate the certification of contractor invoices. In the final report, we recommended that EPA Region 2: (1) direct that OSCs attend daily site safety meetings; (2) provide OSCs with administrative assistance to expedite the processing of invoices; and (3) reemphasize to OSCs the importance of assuring timely and accurate Daily Cost Reports. In response to the final report, EPA Region 2 agreed: (1) that OSCs need to attend daily site safety meetings; (2) to evaluate the results of efforts to expedite the processing of invoices; and (3) that OSCs need to take action if Daily Cost Reports are delayed extensively or otherwise reflect poorly on the overall management of the removal action. 43 ------- FINANCIAL AND COMPLIANCE AUDITS The OIG is responsible for conducting and supervising independent and objective audits relating to the programs and operations of Superfund. In order to carry out this responsibility the OIG performs financial and compliance audits of EPA contractors and assistance recipients. Each of the Public Laws authorizing EPA to award assistance agreements and contracts provides that the Agency shall have the authority to audit and examine the books and records of the recipients receiving Federal funds. The provisions regarding audits are also clearly spelled out in the general provisions of each EPA contract or agreement. Our primary audit objectives are to determine; (1) whether the controls exercised by the recipients through their accounting, procurement, contract administration, and property management systems are adequate to account for costs claimed; and (2) costs claimed are reasonable, allowable, and allocable, in accordance with applicable laws and regulations, to the sponsored project. While the OIG is responsible for all audits of EPA contracts and assistance agreements, we can elect to have the audits performed by in-house staff, independent public accounting firms, or another Federal, State or local audit agency. During fiscal 1988, our Superfund financial and compliance audits were performed as follows: Audits Performed by OIG Staff 4 Audits Performed by Independent Public Accountants 9 Audits Performed by Another Federal Agency 58 A listing of all Superfund audit reports issued by the OIG during fiscal 1988 is contained in exhibit III. During fiscal 1988, our audits of Superfund contracts, cooperative agreements, and interagency agreements resulted in the following questioned and set-aside costs: o Contracts Total Costs Audited $1,903,989,641 Total Costs Accepted $1,602,296,556 Total Costs Questioned $ 68,408,526 Total Costs Set-Aside3 $ 233,284,559 Questioned costs are costs that are unallowable under the provisions of applicable laws, regulations, or policies. 3 Set-aside costs are costs that cannot be accepted without additional information or evaluations and approvals by responsible Agency officials. 44 ------- o Cooperative Agreements Total Costs Audited $ 11,762,333 Total Costs Accepted $ 10,885,515 Total Costs Questioned4 $ 769,764 Total Costs Set-Aside5 $ 107,054 o Interaaency Agreements Total Costs Audited $ 15,873,249 Total Costs Accepted $ 15,148,720 Total Costs Questioned6 $ 43,440 Total Costs Set-Aside7 $ 681,089 Audits of contracts and assistance agreements have played a major role not only in yielding financial benefits to the Agency, but also in improving Agency management. With the increased size of the program and as more sites are actually cleaned up, we expect to devote significant resources to auditing EPA contractors and agreement recipients. These audits also play an integral part in supporting EPA's cost recovery actions. 4 Questioned costs are costs that are unallowable under the provisions of applicable laws, regulations, or policies. 5 Set-aside costs are costs that cannot be accepted without additional information or evaluations and approvals by responsible Agency officials. 6 Questioned costs are costs that are unallowable under the provisions of applicable laws, regulations, or policies. 7 Set-aside costs are costs that cannot be accepted without additional information or evaluations and approvals by responsible Agency officials. 45 ------- ASSISTANCE TO EPA MANAGEMENT In addition to performing audits and investigations, the Office of Inspector General (OIG) responds to EPA management requests for OIG input in the development of regulations, manuals, directives, guidance and procurements. These are proactive efforts to prevent problems that would be reflected in later negative audit findings or investigative results. The OIG reviews and comments on draft documents prepared by Agency offices. In some instances, we designate an OIG staff person to attend meetings of an EPA work group to provide input. Fiscal 1988 was an active year for OIG preventive assistance to EPA management in the Superfund area. Technical Assistance Grants The EPA Administrator requested that the OIG work closely with the Superfund office in its efforts to develop the technical assistance grants program to groups of persons affected by Superfund sites. Because these grants will be awarded to small groups without grants experience or much administrative structure, the Administrator recognized that this program presented special management challenges. In response to this request, in fiscal 1988 the OIG continued to participate in work group meetings and review draft program documents, including the regulation itself. Cooperative Agreements As the cooperative agreements section of this report indicates, we have been conducting Superfund cooperative agreement audits for several years and have frequently found significant deficiencies. For some time, Agency management has involved the OIG in the development of guidance to improve management of cooperative agreements.* In fiscal 1988, the Agency developed a regulation on Cooperative Agreements and Superfund State Contracts for Superfund Response Actions, published in fiscal 1989. The OIG assisted this effort through active participation in workgroup meetings and review of drafts. In addition, OIG staff made a presentation and led workshops at a conference on State Administration of Superfund Response Agreements sponsored by EPA and the Association of State and Territorial Waste Management Officials. Coordination with Other Agencies Since EPA was given the responsibility of managing the Hazardous Substance Superfund (Trust Fund), EPA's OIG took on the task of informing the Federal OIG community (as well as appropriate audit organizations) of the mandated audit requirements. The Superfund Amendments and Reauthorization Act of 1986 requires "... the Inspector General of each department, 46 ------- agency or instrumentality of the United States which is carrying out any authority. . ." (emphasis added) under SARA to conduct an annual audit of uses of the Superfund. In July 1987, we formed a work group comprised of representatives from a number of OIGs or audit officials of those Federal departments or agencies which have been given significant Fund-financed responsibilities by statute or Executive Order 12580. The objectives of our work group are to: o clarify the statutory requirement; o coordinate schedules and reports under the mandatory annual audit requirement; o discuss funding mechanisms for the mandatory audit work; and o discuss program areas of concerns or audit findings. The objectives are carried out through meetings held three or four times a year with the full work group as well as individual contacts as needed. We continue to work with other OIG's and audit officials to resolve Superfund accounting and control problems. We coordinated these activities with administrative and program offices at EPA to ensure that an effective audit product would result. Through our work group contacts, we played a key role in getting recordkeeping and accounting guidance out to other Federal agencies who receive Trust Fund monies. We organized and participated in an audit results panel discussion held during a nationwide conference on Superfund interagency agreements and cooperative agreements. The intention of this panel discussion was to increase awareness of the OIG's role in controlling and managing Superfund expenditures by all Federal agencies. Through these activities we hoped to ensure consistent audit coverage as well as better accountability and control over Trust Fund spending. Superfund Orientation Course As Superfund spending increases and the program continues to expand and develop, the OIG has recognized a need to ensure that its auditors and investigators who review Superfund have a good understanding of the program. Therefore, we have developed a special orientation course explaining the key aspects of the Superfund program, including: o Superfund and related legislation and regulations; o the removal, remedial and enforcement components of the Superfund program; 47 ------- o organizational structure and functions of EPA offices delegated specific Superfund responsibilities; and o the OIG's role and responsibilities concerning Superfund and the type of Superfund audits the OIG performs. The orientation course will be given to all OIG employees and OIG audit services contractor employees who are or will be involved in Superfund audits. The course will also be offered to other Federal OIGs and audit organizations who are performing audits in their respective agencies. The course was designed in fiscal 1988 and will be offered beginning in fiscal 1989. 48 ------- REVIEW OF AGENCY'S SUPERFUND PROGRESS REPORT Section 301(h) of CERCLA, as amended by SARA, requires that, "On January 1 of each year the Administrator of the Environmental Protection Agency shall submit an annual report to Congress of such Agency on the progress achieved in implementing this Act during the preceding fiscal year." The provision also requires seven specific areas to be included in the report. The Inspector General is required to review this report "... for reasonableness and accuracy and submit to Congress, as a part of such report a report on the results of such review." The first Annual Report was due to Congress on January 1, 1988, covering fiscal 1987 activities. The report was not submitted to Congress until May 11, 1989. Our review of the report was submitted on April 6, 1989, to the Administrator (Audit Report No. E1S4*7-11-0037-9100236). Most of our audit work for this review was conducted during fiscal 1988. Some of the areas presented in the Annual Report were reasonable and accurate. However, the information in other important areas of the report was not reasonable and accurate, and some information was not as complete as it could have been. Program accomplishment figures were frequently inaccurate because the Agency used Headquarters information systems which were not reliable to prepare its report. Many of their figures did not agree with the corresponding information secured from regional information systems, and significant portions of the regional claims were not supported by valid source documents. In addition, the Annual Report showed only delays in the status of remedial investigation/feasibility studies and remedial actions which occurred since January 1, 1987, while the statute required that all delays from previously published schedules for completion be shown. The statute required EPA to provide "An estimate of the amount of resources. . . to complete the implementation of all duties. . . under this Act." However, EPA only provided fiscal 1987 through fiscal 1989 budget figures. We also did not believe the level of detail provided in feasibility study descriptions was adequate to enable the reader to fully understand and appreciate EPA's decision-making process. Because some official Agency definitions of terms may differ from common understandings of them, the reader may believe more on-site work was done at a greater number of facilities than actually occurred. For example, the Agency defines the "start" of some key activities as a financial transaction - when funds are obligated to perform the activity. On-site work may not begin until months after the "start" is recorded. 49 ------- In addition to the findings summarized above, our audit report included the following comments on the Annual Report preparation process: The process used to prepare the Annual Report was not fully effective. Although this report was due to Congress January 1, 1988, the report was not completed until January 1989. Since this is the first time the report was prepared, some problems were expected. However, the problems which we identified in our report seem to have been much greater than they should have been. Part of the reason that the Annual Report encountered such difficulties is that the report coordinator's resources were limited. Also, at his grade level (GS- 13), he was not in a position of authority from which to command action on the part of other organizations whose input was vital. For example, as of March 1988, the report coordinator was still uncertain of the sources and accuracy of many of the accomplishments figures in the report. Despite our repeated requests for detailed information over a period of four months, he was unable to secure the information from the Agency offices responsible for compiling it. Further, the coordinator had different figures for the same accomplishments, depending on which information systems he used. This should not be the case six months after the end of the fiscal year, and is a further reflection on the reliability of the Agency's information systems. OSWER officials stated that the main information system, CERCLIS, has been improved for fiscal 1988. These officials believe that the use of the improved CERCLIS will enhance the accuracy of the fiscal 1988 Annual Report, as well as decrease its preparation time. However, this system will also contain information that is not reliable, unless steps are taken to ensure that regional input to CERCLIS is accurate and complete. 50 ------- EXHIBIT I UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. HAZARDOUS SUBSTANCE SUPERFUND SCHEDULE OF OBLIGATIONS (NOTE 1) FISCAL YEAR ENDED SEPTEMBER 30, 1988 Description Total Accepted Questioned Personnel Compensation $ 93,138,167 $ 93,138,167 $ Personnel Benefits 15.859.492 15.859.492 - The accompanying notes are an integral part of this schedule. Total Personnel Compensa- tion & Benefits 108.997.659 108.997.659 = Travel and Transportation of Persons 9,178,351 9,178,351 Transportation of Things 596,886 596,886 Rent, Communications and Utilities 18,220,192 18,159,522 60,670 Printing and Reproduction 838,868 838,868 Other Contractual Services 1,084,809,993 1,084,809,858 135 Supplies and Materials 3,105,565 3,102,990 2,575 Equipment 15,275,588 15,247,822 27,766 Land and Structures 35,175 35,175 Grants, Subsidies and Contributions 221,093,417 221,093,417 Insurance Claims and Indemnities 139.671 139.671 = Total Non-Personnel Com- pensation & Benefits 1.353.293.706 1.353.202.560 91.146 GRAND TOTALS $1,462,291,365 $1,462,200,219 $ 91,146 51 ------- EXHIBIT I (CONTINUED) UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. HAZARDOUS SUBSTANCE SUPERFUND NOTES TO SCHEDULE OF OBLIGATIONS FISCAL YEAR ENDED SEPTEMBER 30, 1988 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Schedule of Obligations was prepared by the EPA Financial Management Division based on financial information contained in the Financial Management System for the fiscal year ended September 30, 1988. EPA's policy is to prepare this schedule in accordance with accounting policies and procedures that are legislatively established and promulgated through various Federal and EPA policy and procedural standards, which is a comprehensive basis of accounting other than generally accepted accounting principles. This schedule is not intended to present either the financial position or the financial results of operations in conformity with generally accepted accounting principles. Obligations, as presented in this Exhibit, were reported by EPA's Financial Systems Branch in a Superfund Control Totals Report from information contained in the Financial Management System "Allotment File" for the current fiscal year appropriation. The total obligations from this report, amounting to $1,462,291,365, were reconciled with the totals reported by EPA to the Office of Management and Budget for the appropriation 68-20X8145 for the period ended September 30, 1988. Obligations - Nonpayroll Obligations are amounts of orders placed, contracts awarded, services received, travel performed and similar transactions during a given period that will require payments during the same or future periods. Such amounts include disbursements for which obligations had not been previously recorded and actual disbursements to liquidate those obligations. The term "obligation" includes both obligations that have matured (legal liabilities) and those that are contingent upon some future performance, such as providing services or furnishing materials. Obligations represent funds obligated against the current fiscal year's appropriation, including carry-over authority for appropriations from prior years. Obligations are recorded for budgetary purposes by appropriation at the time they are incurred. 52 ------- EXHIBIT I (CONTINUED! Obligations - Payroll Payroll obligations are based upon actual personnel compensation and benefits recorded monthly in the payroll subsystem (paymerge file) plus accruals generated at month-end. Personnel compensation and benefits obligations amounted to $108,977,659, which, based on EPA policy, were recorded as obligations for budgetary accounting purposes. Administrative Expense Ceiling Funding for the Superfund program is achieved through a separate annual, no-year appropriation. The legal limitation set by Congress on the Superfund appropriation requires the Agency to stay within an administrative expense ceiling. Congressional intent was to limit intramural expenses to ensure that the primary function of the Superfund of cleaning up hazardous waste sites was protected. Agency policy is that the legally binding administrative expense ceiling placed on the Superfund appropriation be managed by the Office of the Comptroller through a distribution of specific ceilings to the individual Responsible Planning and Implementation Officers. Public Law 100-202 provided funding to carry out the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, with $1,128,000,000 for fiscal 1988, to be derived from the Hazardous Substance Superfund, consisting of $888,900,000 as authorized by the Superfund Amendments and Reauthorization Act of 1986, and $239,100 as a payment from general revenues to the Hazardous Substance Superfund, with all of such funds to remain available until expended. The law also provides no more than $182,400,000, or 16.2 percent of total funding, to be available for administrative expenses. Our analysis of the administrative expenses for the year indicated that the Superfund program obligated $156,352,780, or 10.7 percent of total obligations, for these administrative expenses, as defined by Agency policy. The Agency defined administrative expenses to include all object classes in the Schedule of Obligations except Other Contractual Services, Land and Structures, and Grants, Subsidies and Contributions. These amounts are within the dollar limitation set by Congress, and are 85.7 percent of the administrative expense ceiling of $182,400,000. 53 ------- EXHIBIT II UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. HAZARDOUS SUBSTANCE SUPERFUND SCHEDULE OF DISBURSEMENTS (NOTE 1) FISCAL YEAR ENDED SEPTEMBER 30, 1988 Description Total Accepted Questioned Personnel Compensation $ 92,327,130 $ 92,291,205 $ 35,925 Personnel Benefits 15.634.232 15.634.232 - Total Personnel Compensa- tion & Benefits 107.961.362 107.925.437 35.925 Travel and Transportation of Persons 8,748,723 8,748,723 Transportation of Things 539,955 539,955 Rent, Communications and Utilities 17,981,557 17,934,177 47,380 Printing and Reproduction 772,665 772,665 Other Contractual Services 561,475,786 561,475,786 Supplies and Materials 3,139,237 3,113,990 25,247 Equipment 17,392,761 17,383,599 9,162 Land and Structures 3,975 3,975 Grants, Subsidies and Contributions 72,196,826 72,082,473 114,353 Insurance Claims and Indemnities 139.326 139.326 - Total Non-Personnel Com- pensation & Benefits 682.390.811 682.194.669 196.142 GRAND TOTALS $790,352,173 $790,120,106 $232,067 The accompanying notes are an integral part of this schedule. 54 ------- EXHIBIT II (CONTINUED! UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. HAZARDOUS SUBSTANCE SUPERFUND NOTES TO SCHEDULE OF DISBURSEMENTS FISCAL YEAR ENDED SEPTEMBER 30, 1988 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Schedule of Disbursements was prepared by the EPA Financial Management Division based on financial information contained in the Financial Management System for the fiscal year ended September 30, 1988. EPA's policy is to prepare this schedule in accordance with accounting policies and procedures that are legislatively established and promulgated through various Federal and EPA policy and procedural standards, which is a comprehensive basis of accounting other than generally accepted accounting principles. This schedule is not intended to present either the financial position or the financial results of operations in conformity with generally accepted accounting principles. Disbursements, as presented in this exhibit, were reported by EPA's Financial Systems Branch in a Special Superfund Audit Report from information contained in the Financial Management System Allotment File. The total disbursements from this report, amounting to $790,352,173, were reconciled with the totals reported by EPA to the Office of Management and Budget for appropriations 68-20X8145 and 68-2068145 for the period ended September 30, 1988. Disbursements - Nonpayroll Disbursements represent the amount of cash outlays made to liquidate obligations. They represent funds disbursed during the current fiscal year against either prior years' or current year's appropriations. Nonpayroll disbursements are recorded on the cash basis of accounting. Disbursements - Payroll Personnel compensation and benefits disbursements amounted to $107,961,362, which represented personnel compensation and benefits during fiscal 1988 on an accrual basis. 55 ------- EXHIBIT II (CONTINUED! Property and Equipment and Depreciation EPA's policy is to capitalize property and equipment with a cost greater than $5,000 and a useful life of two years or greater. However, disbursements for equipment recorded in this Exhibit are presented on a cash basis as an operating expense, without adjustment for capitalized items. No depreciation was calculated or recorded for purposes of this schedule. 56 ------- EXHIBIT III 1 OF 5 SUPERFUND AUDIT REPORTS ISSUED DURING FISCAL 1988 O INTERNAL AND MANAGEMENT AUDITS Final Report Number 89019 80028 81917 80608 80612 80611 80633 80838 81927 81966 81949 81554 80664 80330 89000 Description RI/FS REVIEW, WHITEHOUSE SITE, FL FY86 CONSOLIDATED TRUST FUND FY87 TRUST FUND REG. 3 FY84 TRUST FUND SUPPL. REG. 4 FY83 TRUST FUND SUPPL. REG. 3 FY84 INDIRECT COST RATE REG. 4 FY83 INDIRECT COST RATE COOPERATIVE AGREEMENTS CAPPING REG. 4 SIGNIFICANT REMOVALS ZONE 1 FIELD INVESTIGATION TEAM REG. 3 TECHNICAL ASSISTANCE TEAM CONTRACT AUDIT RESOLUTION REMOVAL VISIT, BOSSERT SITE, NY REMOVAL VISIT, CAM-OR SITE, IN REMOVAL VISIT, DEL NORTE SITE, CA Audit Control Number E5EH7040293 P5EH7110022 P5EH8110030 P5EH8110035 P5EH7110034 P5EH8110036 P5EH8110034 E5EE8090018 E5EH7040181 E5EH7030273 E5EH7030290 E5EH7110043 E5EH7020217 E5EH7050566 E5E47090225 Date Report Issued 9/30/88 10/ 7/87 9/21/88 2/16/88 2/16/88 2/16/88 2/17/88 3/29/88 9/26/88 9/30/88 9/28/88 7/29/88 2/23/88 12/10/87 12/30/87 57 ------- EXHIBIT III 2 OF 5 SUPERFUND AUDIT REPORTS ISSUED DURING FISCAL 1988 o COOPERATIVE AGREEMENTS Final Report Number 81914 81968 Auditee NEW HAMPSHIRE DEPT. ENV. SERVICES TRUSTEES HEALTH HOSP. BOSTON, MA Audit Control Number E5BH6010025 E5BG8010110 Date Report Issued 9/21/88 9/30/88 58 ------- EXHIBIT III 3 OF 5 SUPERFUND AUDIT REPORTS ISSUED DURING FISCAL 1988 o INTERAGENCY AGREEMENTS Final Audit Date Report Control Report Number Auditee Number Issued 80781 ARMY COE-AIDEX SITE, IA M5BG8110040 3/18/88 81533 ARMY COE-CHARLES GEORGE SITE, MA M5BG8110049 7/25/88 81583 INTERNAL REVENUE SERVICE-FY84-87 M5BG8110051 8/ 4/88 80571 NAT'L BUREAU OF STANDARDS, DOC M5BH8110032 2/ 5/88 80803 DEPARTMENT OF TRANSPORTATION M5BH8110027 3/22/88 59 ------- EXHIBIT III 4 OF 5 SUPERFUND AUDIT REPORTS ISSUED DURING FISCAL 1988 o CONTRACT AUDITS Final Report Number Auditee 81563 A.T. KEARNEY INC., IL 81609 A.T. KEARNEY INC., IL 81653 ACUREX CORP., CA 81651 BAKER/TSA INC., PA 81652 BAKER/TSA INC., PA 81634 BATTELLE MEMORIAL INSTITUTE, OH 81816 BECHTEL ENVIRONMENTAL INC., CA 81455 BMI, OH 81525 BMI, OH 81608 CAMP, DRESSER & MCKEE, VA 80465 DONOHUE AND ASSOCIATES, WI 81422 DPRA INC., MN (FORMERLY POPE-REID) 81607 EARTH TECHNOLOGY CORP., VA 80343 ENGINEERS INT'L, IL 81479 ENV. TOXICOLOGY INT'L INC., WA 81424 FLUOR DANIEL INC., TX 81456 GARD INC., IL 81435 GEO/RESOURCE CONSULTANTS INC., CA 81436 GEO/RESOURCE CONSULTANTS INC., CA 81437 GEO/RESOURCE CONSULTANTS INC., CA 81712 GOVERNMENT FINANCE RESEARCH, IL 81483 HARDING LAWSON ASSOCIATES, CA 81711 HARZA ENVIRONMENTAL SERVICES, IL 81564 HARZA ENVIRONMENTAL SERVICES, IL 81421 HAVENS AND EMERSON, OH 81230 HAZTECH CORP., GA-PEAK OIL SITE 80836 HAZTECH CORP., GA-GEN. REF. SITE 81541 HAZTECH CORP., GA 81423 HDR ENGINEERING INC., MN 80298 HUBBLER, ROTH & CLARK, MI 81514 IT CORP., NM 81507 JACOBS ENGINEERING GROUP, CA 81551 JACOBS ENGINEERING GROUP, CA 81857 JACOBS ENGINEERING GROUP, CA 81447 K.W. BROWN & ASSOCIATES, TX 81448 K.W. BROWN & ASSOCIATES, TX 81568 KELLOGG CORP., CO 80299 LIFE SYSTEMS INC., OH 81626 MAECORP INC., IL 81425 MCCLELLAND ENGINEERS, TX Audit Control Number D9AT8050519 D9AT8050520 D9AT8090217 D9AT8050539 D9AT8050540 D9AT8050538 D9AT8090332 D9AT8050470 D9AT8050512 D9AT8050527 D9AT8050231 D9AT8050465 D9AT8050537 D9ATS050170 P9AT8100075 D9AT8060169 D9AT8050471 D9AT8090181 D9AT8090182 D9AT8090183 D9AT8050556 D9AT8090191 D9AT8050558 D9AT8050526 D9AT8050464 E9CT8040141 E9CT7040281 P9AT8040255 D9AT8050467 D9AT8050159 D9AT8060188 D9AT8090194 D9AT8090197 D9AT8090333 D9AT8060175 D9ATS060176 P9AT8080099 D9AT8050154 P9AT8050481 D9AT8060168 Date Report Issued 8/ 1/88 8/ 5/88 8/12/88 8/12/88 8/12/88 8/10/88 9/ 7/88 7/ 8/88 7/22/88 8/ 5/88 1/20/88 6/29/88 8/ 5/88 12/16/87 7/14/88 6/30/88 7/ 8/88 7/ 6/88 7/ 6/88 7/ 6/88 8/25/88 7/14/88 8/25/88 8/ 1/88 6/29/88 6/ 7/88 3/29/88 7/26/88 6/29/88 12/ 2/87 7/21/88 7/20/88 7/28/88 9/13/88 7/ 6/88 7/ 6/88 8/ 2/88 12/ 3/87 8/ 9/88 6/30/88 60 ------- EXHIBIT III 5 OF 5 Final Report Number 81913 81513 81657 81677 89002 81203 81526 80009 81493 81467 80174 81263 81936 81505 81506 81562 81418 81674 81391 81434 81884 81390 81527 80246 SUPERFUND AUDIT REPORTS ISSUED DURING FISCAL 1988 o CONTRACT AUDITS (Continued) Auditee MED-TOX ASSOCIATES INC., CA MIDWEST RESEARCH INSTITUTE, MO MIDWEST RESEARCH INSTITUTE, MO MORRISON KNUDSEN ENG. INC., ID OH MATERIALS CORP., OH OH MATERIALS CORP., OH PMA INC., MI PRC ENVIRONMENTAL MANAGEMENT, IL PTI ENVIRONMENTAL SERVICES, WA RESEARCH TRIANGLE INSTITUTE, NC RQAW ASSOCIATES, IN S&D ENGINEERING SERVICES, NJ S-CUBED, CA SCIENCE APPLIC. INT'L CORP. SCIENCE APPLIC. INT'L CORP. SCIENCE APPLIC. INT'L CORP. SOUTHERN RESEARCH INSTITUTE TERRACON CONSULTANTS EC INC TETRA TECH INC., CA TETRA TECH INC., CA URS CONSULTANTS INC., CA URS CONSULTANTS INC., CA WESTON GEOPHYSICAL, PA WW ENGINEERING & SCIENCE, MI CA CA CA AL IA Audit Control Number D9AT8090340 D9AT8070167 D9AT8070188 D9AT8100094 P9AX7050708 P9AH7050655 D9AT8050510 D9AT7050780 P9AT8100074 H9AT8040332 D9AT8050085 P9AT8020161 D9AT8090345 D9AT8090192 D9ATS090193 D9AT8050525 D9AT8040323 P9AT8070149 D9ATS090177 D9AT8090180 D9AT8090337 D9AT8090178 D9AT8050511 D9AT8050139 Date Report Issued 9/20/88 7/21/88 8/15/88 8/22/88 4/13/88 6/ 1/88 7/22/88 10/ 3/87 7/15/88 7/12/88 ll/ 5/87 6/ 9/88 9/27/88 7/20/88 7/20/88 8/ 1/88 6/29/88 8/22/88 6/24/88 7/ 6/88 9/19/88 6/24/88 7/22/88 11/20/87 61 ------- APPENDIX A: ACRONYMS AND ABBREVIATIONS BEST CERCLA CERCLIS CFR COE DOC DPO EDP EPA ERCS FAR FDER FICA FIT FMS FTE I PA LFK NCP or National Contingency Plan NEIC Basic Extraction Sludge Treatment Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended Comprehensive Environmental Response, Compensation, and Liability Information System, the Superfund management information system Code of Federal Regulations Corps of Engineers Department of Commerce Deputy Project Officer electronic data processing Environmental Protection Agency Emergency Response Cleanup Services Federal Acquisition Regulation, 48 CFR Chapter 1 Florida Department of Environmental Regulation Federal Insurance Contributions Act Field Investigation Team EPA's Financial Management System Full-time equivalent independent public accounting firm Lead Free Kids National Oil and Hazardous Substances Contingency Plan, 40 CFR Part 300 EPA's National Enforcement Investigations Center 62 ------- NHDES NPL O&M GIG OSC PA PAO PCB PCMD PEB PPAS RFP RI/FS ROD RRC SARA SI TAT TDD Trust Fund New Hampshire Department of Environmental Services National Priorities List operation and maintenance Office of Inspector General On-Scene Coordinator Preliminary Assessment Property Accountable Officer polychlorinated biphenyl EPA's Procurement and Contracts Management Division Performance Evaluation Board EPA's Personal Property Accounting System Request for Proposals Remedial Investigation/Feasibility Study Record of Decision Regional Response Center Superfund Amendments and Reauthorization Act of 1986 Site Inspection Technical Assistance Team Technical Directive Document or Technical Direction Document Hazardous Substance Superfund 63 ------- |