United States
Environmental Protection
Agency
EPA-350-K-96-001
February 1996
EPA Office of the
Inspector General
Report to Congress
-TU
IG
11
Fiscal 1995
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Office of Inspector General
The Inspector General Act of 1978, as amended, created Offices
of Inspector General (OIG) to consolidate existing investigative and
audit resources in independent organizations headed by Inspectors
General. For fiscal 1995, the EPA OIG received $44.5 million and
a funded staffing level of 447 FTE. The Inspector General (IG) is
appointed by, and can be removed only by, the President. The
mission of the OIG, as stated in the Act, is to:
Conduct and supervise independent and objective audits and
investigations relating to agency programs and operations.
Promote economy, effectiveness, and efficiency within the
agency.
Prevent and detect fraud, waste, and abuse in agency
programs.
Review and make recommendations regarding existing and
proposed legislation and regulations relating to agency
programs and operations.
Keep the agency head and the Congress fully and currently
informed of problems in agency programs.
To ensure objectivity, the Act provides the IGs:
Independence to determine what reviews to perform.
Access to all information necessary for the reviews.
Authority to publish findings and recommendations.
Who's Who
Inspector General
John C. Martin
Deputy Inspector General
Nikki L. Tinsley
ffice of Audit
enneth A. Konz
ssistant IG
ames O. Rauch
rincipal Deputy
issa R. Karpf
eputy for Acquisition &
Assistance Audits
rtichaei D. Simmons
eputy for Internal &
'erformance Audits
Office of Management
John C. Jones
Assistant IG
Office of Investigations
Allen P. Fallin
Assistant IG
Emmett D. Dashiell Jr.
Deputy Assistant IG
John T. Walsh
Director
Program Management Division
Michael J. Binder
Director
Resources Management Division
Kenneth D. Hockman, Policy & Resources Mgmt
Robert F. Eagen, Engineering & Scientific Assistance
Patricia H. Hill, ADP Audits and Assistance
Gordon C. Milbourn III, Special Projects & Reviews
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OIG Streamlining and Management
Improvements
Within the OIG
The EPA OIG embraced the concept of streamlining and reinvention
with decisive action for greater staff empowerment, operational
efficiency, improved work processes, and a more consultative
approach in working with the Agency.to promote economy,
efficiency, and effectiveness. The real challenge of our reinvention
and change was performing a rigorous examination of ways to
reduce costs, assess risks, identify customer needs, and measure
performance. We accomplished this successfully and identified
areas to further improve our own economy, efficiency, and
effectiveness by reducing our investment in administrative
functions while maximizing our application of resources to the
Agency's greatest needs.
Specifically, the EPA OIG continued the process of reinvention by
carefully examining the administrative functions and processes of
our organization. We particularly focused on administrative
activities that are performed at more than one location with an
emphasis on eliminating any unnecessary duplication. We also
examined all of our operational costs and expenses, looking for
opportunities and alternatives for savings. As a result, we are
restructuring our Headquarters organization and functional
responsibilities to accrue improved efficiency by reducing
Headquarters staff and reassigning personnel to our core audit and
investigative functions. Also, in response to other actions we
previously identified as needed to bring our streamlining initiatives
to fruition, OIG staff have begun conducting Team
Effectiveness/Team Leadership seminars. These seminars are
designed to help the OIG develop self-guided teams with a strong
emphasis on customer service.
Assisting the Agency
We also assisted the Agency in furthering its streamlining and
reinvention initiatives. For example, OIG efforts were instrumental
in EPA's development of performance measurement information for
inclusion in the Agency's fiscal 1994 financial statements, audited
during fiscal 1995. The OIG assisted one office in revising its
measures for a loan and grant program, and EPA used the results
of a performance audit of another program as a mechanism to
evaluate its performance, as required by the Government
Performance and Results Act. In addition, we are leading a
government-wide President's Council on Integrity and Efficiency
audit of computer application software maintenance which in EPA
resulted in the development of system performance indicators.
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Profile of Activities and Results
Fiscal 1995
(dollars in millions)
Audit Operations '
Questioned Costs (Ineligible, Unsupported and
Unnecessary/Unreasonable)
-Total' $167.2
- Federal Share $120.2
Recommended Efficiencies
(Funds be Put to Better Use)
-Total* $330.4
- Federal Share $330.2
Costs Disallowed to be Recovered
- Federal Share $120.3
(costs which EPA management
agrees are unallowable and
is committed to recover or
offset against future payments)
Costs Disallowed as Cost Efficiency
-Federal Share $18.0
(funds made available by EPA
management's commitment to
implement DIG recommendations)
Recoveries from Audit $89.9
Resolutions of Current and Prior
Periods (cash collections or offsets
to future payments)* *
EPA Reviews Performed/Issued by OIG 896
Investigative Operations
Fines and Recoveries (including civil) $4.3
Investigations Opened 177
Investigations Closed 153
Indictments of Persons or Firms 16
Convictions of Persons or Firms 13
Administrative Actions Taken against
EPA Employees 17
Fraud Defection and Prevention Operations
Debarments, Suspensions, and
Compliance Agreements 44
(actions to deny persons or firms from
participating in EPA activities
because of misconduct or poor
performance)
Hotline Cases Opened 42
Hotline Cases Processed and Closed 50
Legislative and Regulatory Items Reviewed 149
Personnel Security Investigations Adjudicated 696
* Questioned Costs and Recommended Efficiencies are subject to
change in the audit resolution process.
* * Information on recoveries is provided by thi EPA Financial
Management Division and is unaudited.
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Audit Activities
During this fiscal year, our audit efforts resulted in more than $330
million in recommended efficiencies, $167 million in questioned
costs, and nearly $90 million in Agency recoveries from audit
resolutions. The following represents some of our most significant
findings which resulted from audits and reviews performed by or
fortheOIG.
EPA $126 Million Short of Congressional User Fee Targets
The Agency had not identified all potential new user fees because
Agency personnel were not aware of updated Office of
Management and Budget requirements. Further, the Agency was
reluctant to use its existing statutory authority, collecting only $22
million of the congressionally directed $148 million in new user
fees for fiscal 1991 through 1 994. By not updating statutory caps
on Pre-Manufacture Notice (PMN) fees set in 1976, inflation
lowered the value of maximum fees EPA could charge for PMN
processing by 61 percent. If the Agency had requested a timely
adjustment for inflation to tee caps, it could have collected $4
million more in fiscal 1994 alone. In addition, program offices had
insufficient or outdated information to support fees charged. The
Agency generally agreed to take appropriate actions to resolve the
audit issues.
Improved Controls Needed to Track Hazardous Waste
The manifest system for controlling the movement of hazardous
waste did not always ensure that generators, EPA, or the states
track waste from generation to disposal. The system is self-
initiated and self-monitored with limited oversight by Federal and
state authorities. There are economic incentives for generators to
avoid the high costs of compliance with regulations for hazardous
waste shipped off site." Under certain conditions, new manifests
were created and, since there was no requirement to link original
and new manifests, the generators were unable to track the
disposition of their wastes. EPA instructions did not clearly state
when generators must obtain new identification numbers, which
resulted in inaccurate data on generators in EPA's data base. In
addition, the Agency's limited inspection resources were not
always used effectively, and some inspection reports were
inadequately documented. The Agency agreed to consider the
recommended 'actions.
Millions in Savings Possible Through Improved Subcontract
Competition and Oversight
Prime contractor actions in obtaining subcontracts, and the
Agency's review of these actions, did not ensure technically
competent subcontractors, reasonable prices, and effective
subcontract competition. Contracting officers routinely consented
to prime contractor requests for sole source subcontracts without
adequate justification. For just the five prime contracts reviewed,
we estimated that EPA could reduce costs by up to $55 million
through improved subcontract competition and oversight. Further,
for those same five prime contracts, subcontracts increased the
prime contractors' costs an estimated 27,9 percent, or $86.5
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million, without any identifiable vafue. Certain subcontractors
performed services for so long and so extensively that separate
prime contracts were justified. Also, EPA program managers used
prime contractors as subcontract brokers, avoided competition
requirements for direct Federal procurements, and noncompetitively
obtained the services of desired subcontractors through directed
subcontract awards. The Agency intends to reduce the scope of
selected prime contracts and award more prime contracts to
increase competition, which could reduce the need for extensive,
costly subcontracts.
Better Drinking Water Data Can Reduce the Risk of Diseases
and Illnesses
Although community, surface public water systems (PWS) serve a
small total population, they are more likely to report invalid water
quality test data. Nationwide, about 12 percent of PWSs reported
invalid or potentially falsified data at least once from 1991 to
1994. Operators at small PWSs often reported invalid data
because they lacked training or had malfunctioning equipment.
Some operators may have reported falsified data to cover up
problems at PWSs or to avoid additional requirements or corrective
actions. EPA and states placed low priority on reviewing records
for invalid or falsified data and did not believe falsification was
widespread. Without state or EPA officials reviewing the validity
of data, serious health risks could go undetected and negate EPA's
and the states' ability to prevent water contamination. The Agency
generally agreed with our recommendations but did not commit to
implement all of them because of budget concerns.
Despite Improvements, the Environmental, Safety and
Health Program at EPA Laboratories Remains Inadequate
The Agency's Environmental, Safety and Health (ESH) program at
laboratories, while improving, is inadequate to protect employees,
facilities, and the environment. All five of the EPA laboratories we
visited were rated inadequate and vulnerable to danger in at least
two of ten critical ESH elements, and one laboratory was rated
inadequate in nine of the teri. In addition, the ESH audit process
had many deficiencies, limiting its effectiveness. Agency
laboratory managers criticized the current process, citing problems
with the timeliness of reports, responsiveness to laboratory
comments on reports, and contractor expertise. We found many
of these concerns were valid and determined that there was no
established system to elevate them to the attention of top Agency
officials. The Agency is taking appropriate corrective actions.
Interagency Agreements Used Without Adequate Cost
Consideration
The Agency often executed Economy Act Interagency Agreements
(lAGs), rather than using its own procurement process, without
adequately considering the reasonableness of cpsts because it was
easier to do so. Despite statutory and Agency requirements for full
cost recovery, EPA did not bill other Federal agencies between $5
million and $23 million for indirect costs related to performing work
or furnishing materials. For disbursement lAGs, project officers
were generally not obtaining and reviewing cost information before
approving invoices for payment. Most project officers interviewed
acknowledged that they did not know the basis for the amounts
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invoiced by performing agencies, but approved the invoices
anyway. The Agency agreed to take corrective actions.
Lab Quality Assurance Program Saved Over $1.5 Million
The Risk Reduction Engineering Laboratory
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improve its quality assurance project plans (QAPP). Partly as a
result of this, hazardous waste cleanups at five DOD Superfund
sites in Region 9 were delayed up to 2Vi years, and $5.5 million in
data were rejected due to the poor quality of laboratory analyses.
At one DOD base, extensive laboratory fraud was found, and DOD
later determined that the laboratory involved had performed
analyses for 24 military installations in the Region since 1989. The
Region's remedial project managers were unfamiliar with DOD's
specific laboratory quality assurance procedures, and accepted
descriptions of them from DOD at face value. QAPPs were
typically not designed to detect poor laboratory work, and were not
always approved or fully implemented. In addition, Region 9 did
not effectively monitor compliance with QAPPs, perform sufficient
oversight to verify laboratory data quality, or ensure that QAPPs
were modified to correct deficiencies. The Agency identified ten
ongoing and planned corrective actions to improve data quality.
Higher Priority Needed for Reviews of Superfund Site
Remedies
A substantial increasing backlog of required five-year reviews of
Superfund site remedial actions exists due to the low priority
placed by Agency management. The completion of five-year
reviews is not a target in the Superfund Comprehensive
Accomplishments Plan nor a goal of regional and Headquarters
officials. In addition. Agency guidance did not require that the
reviews result in a final determination about the protectiveness of
remedies. Some reports did not contain any information regarding
the need for timely corrective action, rendering EPA unable to
adequately assure the continued effectiveness of remedies. Also,
Agency guidance for an abbreviated review does not require a
description of the conditions found at the site or adequate technical
data. The Agency agreed to give increased attention to the five-
year reviews and to make appropriate changes to the guidance.
Better Controls Needed Over Assistance Agreements
Grants Administration Division (GAD) personnel did not give
sufficient priority to managing assistance agreements or complying
with EPA policies and procedures. In each of the last two fiscal
years, GAD's grant specialists processed over 2,000 awards and
amendments with annual, values over $300 million. Similar to
GAD, project officers did not follow EPA's requirements for
managing assistance agreements. Most project officers did not
visit or correspond with recipients, review financial matters and
audit reports, notify GAD that projects were completed, or maintain
adequate documentation of actions to monitor recipient progress
and ensure that EPA received what it paid for. In some cases, the
project officers destroyed or lost the Agency's records. In addition,
EPA needs to close 5,000 inactive assistance agreements. By not
closing these agreements timely, the Agency could not ensure that
all technical work and administrative requirements were completed.
We estimated that by closing these agreements, $33 million of
unused funds may be used to pay for other projects or programs.
The Agency informed us that action was taken, to streamline the
processor closing agreements quicker, deobligate unused funds
and alleviate the backlog.
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Investigative Activities
During this^ fiscal year, our investigative efforts resulted in 16
indictments, 13 convictions' and $4.3 million of fines and
recoveries from persons or firms who defrauded the Agency.
Former Maryland Department of the Environment Chief
Fiscal Officer Ordered to Repay $1.2 Million
Rufus 0. Ukaegbu, former chief fiscal officer for the State of
Maryland Department of the Environment, Water Quality Financing
Administration (WQFA), was sentenced in October 1994 on Federal
charges to 41 months imprisonment and repaid the state
$100,000. In November 1994, Ukaegbu was sentenced on state
charges to 20 years imprisonment (10 years suspended), five years
probation, and was ordered to pay the remaining restitution of
$1,105,901. Ukaegbu used his position to cause the WQFA's
bank to generate fraudulent payment, authorizations in names
similar to legitimate contractors, but with addresses of bank
accounts that he controlled. The stolen funds were used to
purchase numerous automobiles and other personal items. This
case was investigated jointly by the EPA DIG, the FBI, and the
Maryland State Police.
Project Manager Sentenced; Convicted of Theft of Funds
James.Speer, project manager with Olympic View Environmental
Review Council (OVER-C), Kitsap County, Washington, was
sentenced to 66 months imprisonment and ordered to pay $57,221
in restitution as a. result of his earlier conviction of felony theft.
OVER-C was awarded an EPA technical assistance grant. Speer,
who had gained control of the organization's finances, wrote
OVER-C checks, obtained the board members' authorization
signatures, and then replaced the names of legitimate payees on
the check with his own name for amounts totalling over $86,000.
Speer had paid portions of legitimate expenses while holding back
funds for himself which allowed him to continue obtaining and
using additional Federal, state, and private funds. The investigation
was conducted by the EPA OIG and the Kitsap County Prosecuting
Attorney's Office.
Former Water Association Official Found Guilty
Brian Burns, a former program manager of the Northeast Rural
Water Association (NERWA), was convicted in July 1995 of felony
fraud, including false statements and wire fraud. NERWA was
funded by EPA and the U.S. Department of Agriculture (USDA) to
provide training and technical assistance in safe drinking water and
wastewater matters. Burns concealed and/or manipulated material
information provided to the National Rural Water Association,
NERWA's oversight organization, by misrepresenting his work on
daily time logs. Burns used Federal funds of approximately $7,000
to pay for an apartment, $10,000 in travel expenses for trips to
attend Harvard, and $30,000 in salary paid while attending school.
The case was investigated by the EPA OIG with the assistance of
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the IRS Criminal Investigation. Division and the USDA OIG.
Superfund Site Subcontractor Sentenced
After pleading guilty to theft of government property in January
1995, Robert Lestuk, president and owner of Unicon, Inc., was
sentenced in April 1995 to two years probation and 100 hours of
community service, and fined $2,000. Unicon agreed to make
restitution in the amount of $141,000. Unicon, a subcontractor
responsible for the installation of metal tank covers and a vapor
emission system at a New Jersey Superfund site, submitted false
certifications regarding hazardous materials training required by the
contract. The case was investigated jointly by the EPA OIG and
the DOD OIG-DCIS.
Former Employee Pleads Guilty in American Express Scam
Jean Stafford, a former EPA secretary, pleaded guilty to fraud in
August 1995 after an investigation disclosed a scheme to traffic in,
use, and cause to be used at least eight fraudulently obtained
American Express government travel cards. The case was initiated
based on information that an unknown EPA employee had obtained
an EPA American Express government credit card by using false
identification and charged over $10,000 in goods and services
over a three week period. As a result, the Agency's Financial
Management Division instituted a retail block on all Headquarters
American Express accounts to prohibit purchases in retail facilities.
The case was investigated jointly by the EPA OIG, Secret Service,
and the Postal Inspection Service.
Firm and President Sentenced
T. Head and Company, Inc., known as THI, and Toney Head, Jr.,
the firm's owner, president, and chief executive officer, were
sentenced in October'1994 after being convicted of filing 41 false
claims. Head was sentenced to four months imprisonment in a
work release program, four months home confinement, two years
probation, and ordered to pay restitution of $18,515 and a $2,000
special assessment. In addition, Head and THI agreed to pay
$100,000 to settle a civil False Claims Act case. THI was fined.
$10,000 and ordered to pay an $8,000 special assessment. THI,
a subcontractor on an EPA contract, was to establish and monitor
national accounts for shipping laboratory samples of hazardous
waste and other materials. Head directed former THI employees to
falsify the number of hours these employees worked on the EPA
contract to inflate numerous THI invoices submitted to EPA, by
approximately $70,000.
Three Public Health Officers Guilty of Hiding Interest in EPA
Contractor
Scott R. Rippey and William D. Watkins, Commissioned Officers of
the U.S. Public Health Service assigned to the U.S. Food and Drug
Administration (FDA) in Rhode Island, and William Burkhardt III, an
FDA employee, pleaded guilty to knowingly filing false confidential
statements of employment and financial interests. All three
willfully failed to disclose their controlling ownership and
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employment interest in Biosearch Limited, New England Scientific,
and Biological Analytical Laboratories (BAD. BAL received
contracts and funds from EPA for work on the Narragansett Bay
Project through one of the defendants and used equipment and
supplies from the FDA. Each defendant was fined $500 plus a $25
assessment. The case was investigated jointly by the EPA 01G,
U.S. Department of Health and Human Services DIG, and the Postal
Inspection Service.
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Fraud Prevention Activities
Suspension and Debarment Activities
EPA's policy is to do business only with contractors and grantees
who are honest and responsible. EPA enforces this policy by
suspending or debarring contractors or grantees, or individuals
within those organizations, from further contracts or assistance for
acting improperly, having a history of substandard work, or willfully
failing to perform on EPA or other federally-funded activities. Both
procurement and nonprocurement debarments or suspensions by
one agency are effective in all agencies.
In fiscal 1995, 44 debarment, suspension, or compliance
agreement actions were taken, based on the work of the OIG,
including the following:
Mr. Self was convicted of dumping hazardous waste in diesel
automobile tanks and ordering the falsification of documents
regarding its disposal. In addition, he was responsible for
illegal discharge of oil, grease, and industrial wastewater into
the Salt Lake City sewer system in violation of the Clean
Water. Act, Clean Air Act, and Resource Conservation and
Recovery Act.
On November 21,1 994, EPA debarred Stanley L. Peters and
Stanley L. Peters and Associates, Inc., for three years. On
January 31, 1995,.AET Collaborative Inc., of which Mr. Peters
was president, was debarred for three years. A joint OIG and
FBI investigation resulted in criminal charges that Mr. Peters
had received kickbacks from Nebraska schools for his
assistance in obtaining Asbestos School Hazardous Abatement
Act grants/loans from EPA. He was convicted of conspiracy
to defraud for submitting false and fraudulent claims, and theft
of government funds: Dean Curtis, a co-conspirator, was
debarred effective October 31, 1994..
On July 3, 1995, EPA suspended William. R. Maxon, site
manager, and Craig V. Wright, site foreman, of Riedel
Environmental Services, Inc. (RES) at the Sharon Steel
Superfund site. EPA's investigation substantiated that Maxon
and other RES employees stole approximately $2,000 worth of
copper from the site and that Maxon used RES equipment and
employees to do personal work at his residence while charging
the costs to the EPA contract.
On March 7, 1995, EPA approved a compliance agreement
with PRC Environmental Management, Inc. (PRC EMI), in
which PRC EMI agreed to reimburse EPA $300,000 for
damages resulting from its submittal of premature bills for
subcontractor costs. PRC EMI also agreed to implement
several remedial measures to ensure that its future
performance and administration of Federal contracts and
assistance agreements comply fully with all applicable laws
and regulations.
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Personnel Security Program
The Personnel Security Program is one of the Agency's first lines
of defense against fraud, using background investigations to review
the integrity of EPA employees and contractors. During fiscal
1995, 696 investigations were reviewed and adjudicated.
Appropriate actions were taken where needed.
Hotline Activities
The'OIG Hotline Center opened 42 new cases and. completed and
closed 50 cases during fiscal 1995. Of the 50 cases closed, 11
resulted in environmental, administrative, or prosecutive action.
We also referred 5,278 callers to the appropriate program office,
state agency, or other Federal agency for assistance.
The following are examples of corrective action resulting from calls
to the DIG Hotline Center:
A complainant alleged various environmental concerns,
including spills from oil drums, erosion, and possible
degradation of a wetland. The North Carolina Division of Land
Resources required the company to clean up the environmental
damage found.
A complainant alleged that an EPA employee obtained travel
advance funds without authorization by forging a supervisor's
signature. An inquiry determined that the employee had
obtained funds without authorization on four separate
occasions.. Three of the four advances were repaid to the
imprest fund before the employee became aware of the
inquiry. The fourth repayment was made by the employee
after being confronted by management. The employee
received a 60-day suspension.
A complainant alleged that an oil company in Ford, Virginia,
was operating in violation of EPA regulations. Inspections of
the company's facilities disclosed that the company had failed
to prepare, certify, and implement Spill Prevention, Control,
and Countermeasures plans. The company was issued a
notice of non-compliance and given a grace period of 120 days
to achieve compliance.
A complainant alleged that an EPA employee failed to charge
leave and used a government travel card for personal
expenses. An inquiry substantiated the allegations. As a
result, the travel card was cancelled and the employee
received a formal letter of reprimand and was required to repay
124 hours of annual leave.
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Divisional Inspectors General
Audit
Headquarters Headquarters Audit Division
Edward Gekosky
Financial Audit Division
Melissa M. Heist
Regions 1 & 2 Eastern Audit Division
Paul D. McKechnie
Region 3
Mid-Atlantic Audit Division
Paul R. Gandolfo
Regions 4 & 6 Southern Audit Division
Mary M. Boyer
Region 5
Northern Audit Division
Anthony C. Carrollo
Regions 7 & 8 Central Audit Division
Bennie S. Salem (Acting)
Regions 9 & 10 Western Audit Division
Truman R. Beeler
(703} 308-8222
(202) 260-1497
(617) 565-3160
(215) 597-0497
(404) 331-6099
(312) 353-2486
(913) 551-7824
(415) 744-2445
Headquarters
Regions 1, 2
& 3
Investigations
Washington Field Division
Adrienne R. Rish (Acting)
Eastern Investigations
Division
Thomas L. Papineau
Regions 4, 5, Western Investigations
6, 7, 8, 9 & 10 Division
Ailverdes Cornelious
(703) 308-8282
(617) 565-3925
(404) 331-6016
If you are aware of any fraud, waste, or mismanagement, please
contact the EPA Inspector General Hotline or the appropriate
Divisional Inspector General.
Information is confidential.
The Hotline may be reached at (202) 260-4977.
Remember:
Act Like It's Your Money- It Is!
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MAKE A WORLD
OF DIFFERENCE!
REPORT FRAUD. WASTE, OR ABUSE TO THE
INSPECTOR GENERAL
HOTLINE
INFORMATION IS CONFIDENTIAL
202-260-4977
L-S-F,.SV]RO^MCftTALPROTF.CTlON ACENCY OFFICE OF THE INSPECTOR GENERAL 9 UJI M STR£tTS..W. WASHINGTON, O.C. M-UO
V>EPA INTERNET: *Bl«ti.john
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