UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
.^ OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Supplemental Report of Audit ofCRegion 4's
Superfund Indirect Cost Rate Under CERCLA
, for the Fiscal Year Ended September 30, 1983)
Audit Report No. P5EH8-11-0034 - 80633
FROM: Kenneth D. Hockman 7/^vov.tk .>rH<><|. topr.
Divisional Inspector General for Audit
Internal Audit Division (A-109)
TO: David P. Ryan
Comptroller
Office of the Comptroller (PM-225)
Attached are two copies of a supplemental report of audit of Region 4's
Superfund Indirect Cost Rate for the Fiscal Year Ended September 30,
1983. We have no objection to the further release of this report at your
discretion.
SCOPE AND OBJECTIVES
The firm of Tichenor and Eiche, Certified Public Accountants (CPA) previously
performed an audit of the Superfund Indirect Cost Rates for the Fiscal Years
ended September 30, 1984 and 1983. We transmitted the CPA's report to you
on March 18, 1987 (Audit Report No. P5E16-11-0020-70901). Due to questioned
and set-aside Personnel Compensation and Benefits costs (PC&B), the CPA did
not express an opinion on Region 4's Superfund Indirect Cost Rate for fiscal
1983. Subsequently, Region 4 personnel reviewed PC&B costs for fiscal 1983
and adjusted the previously reported amounts. The CPA audited the adjusted
PC4B costs for fiscal 1983 in accordance with generally accepted auditing
standards and the Standards for Audit of Governmental Organizations. Programs.
Activities, and Functions, issued by the U.S. General Accounting Office.
RESULTS OF AUDIT
The CPA accepted Region 4's Superfund Indirect cost rate of S59 for each
regional program hour charged to hazardous waste sites in fiscal 1983.
Additional details are contained in the attached CPA's report.
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ACTION REQUIRED
None. In accordance with EPA Directive 2750, you are the designated Action
Official for this report. Since the report contains no recommendations,
a formal written response is not required. We have closed out this audit
in the Audit Tracking and Control System.
Should your staff have any questions, please have them contact
Roland W. Cyr on 382-4930.
Attachment
cc: Tichenor and Eiche, CPAs
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DISTRIBUTION
Copies
A. Office of the Inspector General 5
Director, Audit Operations Staff (3)
Chief, Program Analysis Unit (1)
Divisional Inspector General for Audit
Southern Division (1)
B. Headquarters Offices
Comptroller (PM-225) 2
Director, Financial Management Division (PM-226) 12
Chief, Superfund Accounting Branch (PM-226) 1
Agency Follow-up Official (PM-225) 1
Attn: Resource Systems Management Division
Associate Enforcement Counsel for Hazardous Waste 1
Enforcement (LE-134S)
C. Region
Regional Administrator, Region 4 2
Audit Follow-up Coordinator 1
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I UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. O.C. 20460
MAY I 0 1989
MEMORANDUM THE INSPECTOR GENERAL
SUBJECT: Audit of Superfund Interagency Agreements
with the Corps of Engineers - Jibboom Junkyard
Site
Audit Report M5BFL9-11-0037-9100276
I I IA AJ *-4 I) \
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FROM: Kenneth D. Hockman /)9^vi«0v JJ no c*/*n^
Divisional Inspector General for Audit
Internal Audit Division (A-109)
TO: Harvey G. Pippen
Director, Grants Administration Division (PM-216F)
On July 1, 1988, my office sent a copy of the attached Army Audit
Agency report for information purposes to the Director, Office of
Administration and the Director, Office of Emergency and Remedial
Response. The report referred to apparent deficiencies in
project design which may have resulted in construction costs
increasing from $2 million to $4 million. At that time, I
indicated that EPA's Office of Inspector General would review
whether EPA contractor(s) contributed to the design deficiencies.
The Engineering and Science Unit (Unit) within the Office of
Inspector General has completed its review. The Unit found no
errors on the part of the architect/engineering (A/E) firm that
developed the feasibility study for EPA. The following paragraph
contains the Unit's conclusion:
There was no remedial investigation conducted for the
site, and at the direction of EPA Region 9 the A/E
utilized existing data for the site to prepare a final
feasibility study. The A/E for the final feasibility
study had no responsibility in determining the scope
and characteristics of contaminants at the site.
Therefore, the A/E cannot be held responsible for the
construction cost increases due to the additional
contamination and buried structures discovered during
the remedial action at the site.
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While the issue of contractor liability no longer concerns us,
we believe EPA will need to take action if the Agency seeks to
recover costs from a Potentially Responsible Party (PRP). Page
16 of the Army Audit Agency report states that a significant
amount of site work was performed without modifying the construc-
tion contract. This included the excavation and transportation
of approximately 5,700 tons of material, additional air monitor-
ing and perimeter sampling, and extended security and contractor
supervision. The Corps' contract close-out process has been
completed.
On May 2, 1989, Emil Knutti of the Office of Waste Programs
Enforcement indicated that EPA had not identified a PRP. Mr.
Knutti added, however, that if a PRP is identified, EPA's
recovery case would be strengthened if the Corps and its
construction contractor ratified the contract to reflect vari-
ations in estimated quantities. In responding to the audit
report, the Corps indicated that it would ratify the contract if
requested by EPA (see attachment B). Accordingly, we are making
the following recommendation.
RECOMMENDATION
If EPA plans to recover costs from a Potentially Responsible
Party for work at the Jibboom Junkyard site, we recommend that
the Director, Grants Administration Division request the Corps of
Engineers to ratify the Corps construction contract to cover all
variations in estimated quantities.
ACTION REQUIRED
In accordance with EPA Directive 2750, the action official is
required to provide this office with a copy of the proposed
determination on the findings within 90 days of the audit report
date. For corrective actions planned but not completed,
reference to specific milestone dates will assist this office in
closing this report.
Should your staff have any questions concerning this report,
please have them call John Walsh on 475-6753.
Attachment
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APPENDIX
DISTRIBUTION OF REPORT
Director, Office of Emergency and Remedial Response (OS-200)
Director, Office of Program Management (OS-240)
Associate General Counsel, Solid Waste and Emergency
Response Division (LE-132S)
Director, Financial Management Division (PM-226)
Comptroller (PM-225)
Director, Procurement and Contracts Management
Division (PM-214)
Chief, Grants Information and Analysis Branch (PM-216F)
Regional Administrator, Region 9
Divisional Inspector General for Audit, Western Division
Regional Counsel, Region 9
Agency Followup Official (PM-208)
Audit Followup Coordinator (PM-208)
Attn: Program Operations Support Staff
Agency Followup Official (PM-225)
Attn: Director, Resource Management Division
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DEPARTMENT OF THE ARMY
OFFICE OF THE AUDITOR GENERAL
3101 PANK CCNTEM OftlVC
ALEXANDRIA. VINOINIA 223O2-I906
15 April 1988
Commander, U. S. Army Engineer District, Omaha
Commander, U. S. Army Engineer District, Sacramento
This is our report on the Audit of Superfund
Construction for the Jibboom Junkyard site at Sacramento,
California. The audit was made from June 1987 through
January 1988 at your commands and was part of a
multilocation Audit of Superfund Construction.
Procurement practices used for the design and
construction projects at the Jibboom Junkyard site were in
accordance with prescribed procedures for contracts and
contract modifications; however, contract modifications
were not issued for variations in estimated quantities
listed in the construction contract. Surveillance of the
design and construction contractors was adequate; but,
apparent design omissions identified during construction
were not properly assessed for potential architect-engineer
liability as required by regulatory guidance. Except for
obligations, accounting transactions were generally
recorded promptly and accurately. The U. S. Army Corps of
Engineers' direct and indirect costs for the Superfund
project were consistent with established procedures for the
design project but not for some costs of the construction
project. Actions to implement the Army's Internal Control
Program as it relates to Superfund construction were
adequate. The results of audit are summarised in Part I
and the details are in Part II of this report. Copies of
the report are being furnished to the activities listed in
the Annex.
The Auditor Gener
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AUDIT OF SUPERFUND CONSTRUCTION
JIBBOOH JUNKYARD SITE
SACRAMENTO, CALIFORNIA
CONTENTS
Page
Letter of Transmittal
PART I - SUMMARY
Preface 1
Objectives and Scope 2
Background 3
Observations and Conclusions 3
Command Reaction 8
Responsibilities and Resources 8
PART II - FINDINGS, RECOMMENDATIONS, AND
A - Project Design 9
B - Contract Modifications and
Obligations 15
C - In-House Costs 20
ACTIVITIES FURNISHED COPIES OF
AUDIT REPORT 23
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U. S. ARMY AUDIT AGENCY
ALEXANDRIA, VIRGINIA 22302-1596
AUDIT OF SUPERFUND CONSTRUCTION
JIBBOOM JUNKYARD SITE
SACRAMENTO, CALIFORNIA
MM 88-601 15 APRIL 1988
PART I
SUMMARY
PREFACE
The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (Public Law 96-510)
mandated the establishment of the Hazardous Substance
Response Trust Fund, which is commonly known as
"Superfund." The Superfund, managed by the
U. S. Environmental Protection Agency, was established to
respond to emergency hazardous conditions and to fund the
cleanup efforts required to remove or control hazardous
waste substances in instances when the responsible party
cannot be identified or will not perform the cleanup and
the State will not assume responsibility. In February
1982, the Environmental Protection Agency and the
U. S. Army Corps of Engineers reached an agreement for the
Corps to provide technical assistance, contract for design
and construction work, and perform contract administration
functions when the Federal Government assumes cleanup
responsibility for hazardous waste sites. The actual
cleanup is accomplished by contracting with private firms.
Contract costs are paid by the Corps and then reimbursed by
the Environmental Protection Agency.
The public law establishing the Superfund requires the
Inspector General, Environmental Protection Agency to audit
Superfund as appropriate and requires Federal agencies to
cooperate with the Inspector General's efforts. The
Inspector General requested audit assistance from The
Auditor General of the Army in evaluating the Corps'
management of Superfund cleanup efforts. Representatives
of the The Auditor General and the Inspector General
decided that an audit during 1987 of the Corps' involvement
with Superfund would evaluate the effectiveness of account-
ing, procurement, and contract administration for selected
Superfund projects and would evaluate the appropriateness
of Corps' in-house costs charged to the projects. This
report gives our audit results for the design and construc-
tion projects for the Jibboom Junkyard Superfund site.
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OBJECTIVES AND SCOPE
By agreement with the Environmental Protection Agency,
the mission of the Corps includes providing technical
assistance for the cleanup of the Jibboom Junkyard hazard-
ous waste site, contracting for design and construction
work at the hazardous waste site, and performing the
associated contract administration functions. Specific
audit objectives for our review of the Jibboom Junkyard
cleanup effort were to determine whether:
- Contracts and contract modifications were awarded in
accordance with prescribed procedures and if procure-
ment practices ensured that services were received at
fair and reasonable prices.
- Surveillance of contractor performance was adequate to
ensure contract requirements were met and whether pay-
ments made to contractors were proper.
- Accounting transactions (obligations, disbursements,
receivables, and collections) were promptly and accu-
rately recorded in the accounting records, and if any
rejected transactions were corrected and reentered in
a timely manner.
- Direct and indirect cost charges were consistent with
established Corps of Engineers procedures.
- Actions taken to implement the Army's Internal Control
Program, as it relates to Superfund construction, were
adequate.
The audit, performed from June 1987 through January
1988, was made in accordance with generally accepted
government auditing standards and, accordingly, included
such tests of internal controls as we considered necessary
in the circumstances. The audit was an integral part of
the multilocation Audit of Superfund Construction, and the
results will be included in an overall report to higher
management levels. Additionally, the results of audit will
be provided to the Inspector General, Environmental Protec-
tion- . Agency. Audit work was performed at Headquarters,
U. S: Army Engineer District, Omaha; Headquarters,
U. S;' Army Engineer District, Sacramento and its Valley
Resident Field Office. The audit covered transactions that
were representative of operations current at the -time of
the audit.
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BACKGROUND
The Associated Metals Company operated a metal salvag-
ing business from 1951 to 1965 on a 9-acre site in downtown
Sacramento, California. In 1965, the State of California
purchased the Associated Metals Company property for ease-
ment and construction of an interstate highway. Construc-
tion of the highway and an adjacent frontage road during
1967 covered all but about 2.7 acres of the Associated
Metals Company property. Based on information that the
site had been used for dismantling transformers, soil
samples were taken from the site during April 1981. The
soil samples showed extensive contamination from lead,
zinc, copper, and polychlorinated biphenyls (commonly known
as FCBs). The site, named Jibboom Junkyard after an
unofficial nearby landfill, was identified for Federal
cleanup by the Environmental Protection Agency because it
was near an intake pipeline for the city's municipal water
supply. The cleanup process involved the excavation and
offsite disposal of contaminated material in an approved
landfill facility.
To accomplish the cleanup, the Environmental Protec-
tion Agency made available to the Corps about $5.2 million.
The Omaha District awarded the design contract for the
cleanup effort in May 1985 using an existing indefinite-
delivery order type contract and awarded the construction
contract for the cleanup effort in July 1986. The design
contract was administered by the Omaha District and the
construction contract was administered by the Sacramento
District. The construction contract responsibility was
transferred to the Sacramento District following contract
award because the cleanup site was located within the
Sacramento District's geographic boundary. Cleanup of the
Jibboom Junkyard site was 99-percent physically completed
by May 1987.
OBSERVATIONS AMD CONCLUSIONS
The contract for the Jibboom Junkyard site cleanup
design was awarded in accordance with prescribed
procedures, and procurement practices ensured that services
were received at fair and reasonable prices. Delivery
order 7 to an existing indefinite-delivery contract was
issued during May 1985 in the amount of $46,209 for
preparation of final design documents for the Jibboom
Junkyard cleanup. There were no modifications issued for
the design effort. Services. for the indefinite-delivery
contract used for the design effort were advertised in the
Commerce Business Daily and 20 architect-engineer firms
responded. Preselection and selection boards evaluated each
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of the firm's qualifications and ranked three firms consid-
ered for contract award. Prior to negotiation, cost data
was obtained from the prospective firm selected and a
government cost estimate was used in evaluating the
reasonableness of the bid proposal.
Contract and contract modifications issued for the
construction project at the Jibboom Junkyard site were
awarded in accordance with prescribed procedures, and pro-
curement practices ensured that services were received at
fair and reasonable prices. However, contract modifications
were not issued for variations in estimated quantities
listed in the construction contract. Services for the con-
struction contract were advertised in the Commerce Business
Daily and six prospective contractors responded. A govern-
ment cost estimate was used to evaluate bid proposals
received and the lowest bid proposal submitted by a
responsive contractor was selected for contract award. A
firm-fixed price contract for about $2 million was awarded
during July 1986 for the construction project. There were
20 modifications valued at $389,424 awarded as of 31 July
1987 and one modification was pending. Modifications were
negotiated in accordance with the Engineer Federal Acquisi-
tion Regulation Supplement using government cost estimates
and cost or pricing data obtained from the contractor.
However, the construction contract was not modified to
increase the total contract price by about $1.6 million for
variations in estimated quantities paid. As a result, pay-
ments to the contractor exceeded the value of the contract
and contract documentation did not show the actual amount
of services covered by the contract. Use of contract
modifications for all variations in estimated quantities
would help to ensure proper documentation for recording
obligations as well as to ensure that payments to contrac-
tors are within the total contract price.
Surveillance of the design contractor's performance
was adequate to ensure that contract requirements were met
and payments made to the contractor were proper. Timely
reviews were made of design documents submitted by the
contractor. Corps personnel verified that services were
performed before giving approval for payment to five
requests for progress payments received from the
contractor. The architect-engineer contractor for the
Corps prepared the final design that included the statement
of work for the Superfund construction project. An
architect-engineer firm under contract to the Environmental
Protection Agency had prepared the final feasibility study
and other related documents that established the scope of
work for the Jibboom Junkyard hazardous waste cleanup. The
feasibility study provided a list of hazardous materials at
the site plus an estimate of the amount of material for
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excavation and disposal. The Corps design effort was based
on the Environmental Protection Agency feasibility study
and other related documents.
Surveillance of the construction contractor's perfor-
mance was adequate to ensure that contract requirements
were met and payments made to the contractor were proper.
But, information on apparent design omissions identified
during construction was not properly assessed for possible
architect-engineer liability as required by regulatory
guidance. Contract requirements were met for monitoring pay
quantity measurements and quality control, issuing
progress payments, maintaining entrance control, and
approving transporters. Corps personnel verified that con-
struction services were properly performed before giving
approval for payment to 12 requests for progress payments
received from the contractor. The construction contract,
initially awarded for about $2 million, grew to about
$4 million to cover work not identified by the design
effort. Also, a work stoppage of 2 weeks occurred due to a
shortage of funds. The design effort underestimated the
amount of material for excavation and disposal by about
100 percent and did not identify three types of hazardous
materials plus underground concrete structures that were
present at the site. The construction design prepared by
the Corps was based on information furnished by the
Environmental Protection Agency. Additional coordination
was needed to ensure that information on the apparent
design omissions would be furnished to the Corps design
activity and the Environmental Protection Agency so that
architect-engineer liability could be assessed for possible
cost recovery and lessons learned could be evaluated for
possible changes in methods on future projects.
Except for obligations, accounting transactions for
the design and construction projects were generally
recorded promptly and accurately in the accounting records.
Rejected transactions were corrected and reentered in a
timely manner.
- About $72,400 of obligations were recorded for the
design project from May 1985 through November 1986,
and about $4.2 million of obligations were recorded
for the construction project from March 1986 through
Nay 1987. Obligations were recorded late for over
70 percent of the cost of the construction contract,
obligations were understated by about $121,000 for
variations in estimated quantities, and an obligation
of $60,000 was recorded twice for a contract modifica-
tion. Sacramento District needed to issue guidance
reemphasizing the need to follow existing local proce-
dures for recording obligations timely and accurately.
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An obligation of about $46,200 for the design contract
was not recorded promptly after the issuance of the
delivery order. However, prior to our review the
Omaha District changed their procedures for obligating
delivery orders to indefinite-delivery contracts so
that future obligations will be recorded promptly with
the issuance of a delivery order for a design project.
About $52,000 of disbursements were recorded for the
design project from May 1985 through November 1986,
and about $3.5 million of 'disbursements were recorded
for the construction project from May 1986 through May
1987. In total, 41 transactions were recorded. Dis-
bursements were made for design and construction
contractor invoices, purchase orders, travel vouchers,
and reimbursable order invoices. All but 3 of the
19 disbursement transactions reviewed were promptly
and accurately recorded within 30 days of the approval
for payment. The three transactions not promptly and
accurately recorded were small dollar amounts not
having material impact.
About $72,400 of receivables were recorded for the
design project from May 1985 through December 1986,
and about $3.9 million of receivables were recorded
for the construction project from April 1986 through
May 1987. In total, 29 transactions were recorded.
The receivables were based on monthly bills sent to
the Environmental Protection Agency. Of 12 trans-
actions reviewed, 11 were promptly and accurately
recorded within the same month that the bills were
sent to the Environmental Protection Agency for
reimbursement. Problems with an update of computer
software caused a 2-month delay in recording the other
transaction reviewed.
About $72,400 of collections were recorded from May
1985 through January 1987 for the design project, and
about $1.6 million of collections were recorded for
the construction project from March 1986 through May
1987. All nine collection transactions reviewed were
promptly and accurately recorded within 3 workdays
after receipt of the check.
A total of 15 rejected transactions occurred from May
1985 through November 1986 for the design project, and
8 rejected transactions occurred from February 1987
through June 1987 for the construction project. All
10 rejects reviewed were corrected promptly and reen-
tered to the accounting records within the same month
that the rejects occurred.
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Direct and indirect Corps costs charged to the Jibboom
Junkyard cleanup were consistent with established Corps
procedures for the design project but were inconsistent for
some costs of the construction project. About $26,200 of
Corps costs were incurred for the design project through
November 1986 and about $153,600 of Corps costs were
incurred for the construction project through Hay 1987.
According to Engineer Regulation 37-2-1O, in-house expense
such as labor, travel, supplies, and reimbursable orders
that can be directly related to a specific Corps project
should be charged to the specific project. Overhead and
indirect costs are then charged to the project based on a
predetermined rate applied to actual direct labor hours
incurred. Fifteen Corps personnel charged direct labor
hours to the design project and 21 Corps personnel charged
direct labor hours to the construction project. The five
personnel reviewed for the design project performed tasks
that benefited the Jibboom Junkyard design project. About
$23,700 for Corps expenses of labor and district overhead
was improperly charged to the construction project for
13 personnel who had not performed services in support of
the project. Cost transfers were made from flood central
projects to the Superfund construction project for which
accumulated costs were under the budgeted amount. Action
was needed to transfer the improper labor and district
overhead costs to the appropriate flood control projects.
Travel and reimbursable work charged to the design and con-
struction projects were expenses that directly benefited
the projects. The only overhead and indirect costs charged
to the projects were amounts based on direct labor hours.
Overhead and indirect costs charged to the Jibboom Junkyard
Superfund site projects were based on the same allocation
method that was used for all reimbursable work performed by
the Corps.
Actions taken to implement the Army's Internal Control
Program, as it relates to Superfund construction, were
adequate. Superfund functions were not designated as a
separate assessable unit, but rather the various aspects of
Superfund functions were included in several assessable
units. No DA or Corps published internal control check-
lists specifically for Superfund functions were available
at the time of our review. Both Omaha District and
Sacramento District required key managers with Superfund
responsibilities to have internal control responsibilities
in their job descriptions and performance standards. Omaha
District completed 10 internal control checklists during
the 19 month period ending June 1987 and 10 were in
progress at the time of our audit. Sacramento District
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FOR THE COMMANDER,
U. S. ARMY ENGINEER DISTRICT, SACRAMENTO
A - PROJECT DESIGN
FINDING
Design of the cleanup effort for the Jibboom Junkyard
Superfund site underestimated the amount of material
requiring excavation and disposal by about 100 percent, did
not identify three additional types of hazardous materials
present, and did not consider the presence of underground
concrete structures at the site. As a result, the cost of
the construction contract, initially awarded for about
$2 million, increased to about $4 million to cover the work
not identified during project design. Additionally, a work
stoppage of 2 weeks resulted due to a shortage of funds
for the construction contract cost increase. The U. S. Army
Engineer District, Omaha contracted with an architect-
engineer firm to develop construction plans and specifica-
tions based on information obtained from documents
furnished by the U. S. Environmental Protection Agency. A
different architect-engineer firm under contract with the
Environmental Protection Agency prepared some of the docu-
ments furnished to the Omaha District. Procedures used to
investigate apparent design omissions and problems identi-
fied during the cleanup were not in accordance with
regulatory guidance, and local implementing procedures did
not cover instances where design was accomplished by an
activity other than the construction district. Therefore,
architect-engineer liability was not properly assessed for
possible cost recovery and lessons learned were not
evaluated by the design activity for possible changes in
methods on future projects. Also, unit costs of the con-
struction contract may have been lower due to efficiencies
in larger quantities and increased competition had the
scope of*work been reasonably determined during design.
DISCUSSION
1. Background. Architect-engineer contractors are respon-
sible for the professional quality, technical accuracy, and
coordination of all services required under their
contracts. An architect-engineer firm may be liable for
government costs resulting from errors and deficiencies in
designs furnished under its contracts. When a modification
to a construction contract is required because of an error
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or deficiency in the services provided under an architect-
engineer contract, the Federal Acquisition Regulation
requires that the potential for liability of the architect-
engineer be evaluated. Procedures and responsibilities
within the U. S. Army Corps of Engineers for investigating
and pursuing possible architect-engineer liability are
included in Engineer Regulation 715-1-10. The U. S. Army
Engineer District, Sacramento has a local written procedure
that covers assessing possible architect-engineer
liability. Lessons learned concerning design problems
should also be furnished to the design activity so that
changes in methods can be considered for future design
projects.
2. Construction. The scope of work needed to clean up
the Jibboom Junkyard Superfund site was significantly
understated by the design.
a. Contract Award. The initial construction con-
tract was awarded for about $2 million. About $1.6 million
of the award price was for the excavation, disposal, and
related work for an estimated 6,000 tons of contaminated
material. Chemicals present at the site according to the
description in the construction contract which was based on
the design were lead, zinc, and copper in concentration
levels above acceptable State and Federal limits, and
polychlorinated biphenyls (commonly known as PCBs) in con-
centration levels that did not exceed State and Federal
limits. The estimate of the amount of contaminated
material and the specific chemicals present at the site was
obtained from the documents provided to the Corps by the
Environmental Protection Agency.
b. Site Cleanup. During the actual cleanup,
11,910 tons of contaminated material (twice the estimate)
were excavated and removed from the site. Asbestos,
cadmium, and polynuclear aromatics pesticides were encoun-
tered during cleanup. These hazardous materials were not
shown on the construction contract statement of work as
present at the site. The construction contractor was
highly concerned about the unexpected discovery of asbestos
at the site because of the potential adverse impact on the
health and safety of his workers. Buried concrete struc-
tures' .were also encountered at the site that were not shown
on the'contract plans and specifications. The presence of
concrete made excavation at the site more difficult and
costly. The value of the construction contract grew by
about $2 million, to a total of about $4 million, to cover
the additional work.
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3. Administration and Noncompetitive Acquisition.
Increased administrative effort and a form of noncompeti-
tive acquisition occurred because the scope of work was not
reasonably estimated for the construction contract.
a. Funds. Additional fund authority had to be
requested and received from the Environmental Protection
Agency before additional contractor work was allowed to
occur. The initial interagency agreement between the Corps
and the Environmental Protection Agency for the cleanup had
to be modified six times to provide increased fund
authority for the site. The contractor was directed to
stop work for a 2-week period during March 1987 due to
insufficient funds. The contractor requested reimbursement
for overhead costs of about $35,000 during the work stop-
page period. At the time of our review, a contract modifi-
cation for this expense was being processed but had not
been finalized. The expense for the contractor's overhead
costs during the work stoppage would probably not have
occurred had the scope of work been reasonably determined
since fund availability would have been obtained before
construction start.
b. Contract Modifications. Through July 1987,
20 contract modifications were processed and issued valued
at about $390,000 and expenses of about $1.6 million were
also incurred for variations in estimated quantities not
shown on contract modifications. Administrative effort was
required to process each modification and to request funds
to cover the modifications and variations in estimated
quantities. This administrative effort would probably not
have been required had the scope of work been reasonably
determined during design.
c. Type of Acquisition. The additional work- not
covered in the design was acquired on a noncompetitive
basis from the construction contractor. Unit costs for the
construction contract (awarded on a competitive basis) may
have been lower had the scope of work been reasonably
determined during design because of increased potential
contractor interest due to a larger contract value and
efficiencies inherent in larger quantities.
4. Reviews. The potential for architect-engineer
liability was not properly assessed and documented for the
apparent design omissions. Of the 20 contract modifications
issued, 4 valued at about $250,000 specifically cited
insufficient field investigation as the reason for the
changes. Other contract modifications also could have been
caused by design omissions. The construction contractor,
in a letter to the contracting officer's representative on
11
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the unexpected discovery of additional chemical ha Is
the site, stated that it would seem unlikely that t j;
ence of asbestos was not detected during design.
a. Design. Design for the cleanup of the Jib.'
Junkyard Superfund site was based on architect-engi:
services provided by two firms. The Environmental Pro
tion Agency contracted with an architect-engineer fin
develop the final feasibility study and other related d
ments that included a list of hazardous materials at
site plus an estimate of the amount of material for exc
tion and disposal. The results of this effort
provided to the Corps of Engineers and the Omaha Dist
contracted with a different architect-engineer firi
develop the final design that included plans and speci.1
tions and a statement of work for the construction pro
The Corps' final design was based on information ir
feasibility study and other documents to include the •
and final Pre-Design Studies (both prepared bj
architect-engineer firm) and the Record of Decision a:
amendment to the Record of Decision obtained from the
ronmental Protection Agency. In accordance with
interagency agreement, the Corps' architect-eng
contractor did not perform site surveys or other
investigations and this was not required by the c
contract.
b. Evaluations. The potential for «. A:
engineer liability was not assessed by Omaha Distrid
Corps' design activity, for the apparent design omis:
According to Engineer Regulation 715-1-10, when con
tion is accomplished by a district different tha
design activity, the design activity has responsibili
investigating and, if warranted, pursuing arch
engineer liability. The construction district
responsibility for providing all necessary informati
cooperating fully with the design activity. Sacr
District has local written guidance that covers ass
possible liability but the guidance does not provide
dures for when the design activity is outsid
Sacramento District. Information on apparent desigr
sions and problems was provided orally to Omaha D:
and the Environmental Protection Agency by the Sac:
District. But, Omaha District personnel did no
assessments for possible architect-engineer liabil
lessons learned based on the oral information provid
addition to being able to assess for possible lia
specific information on design omissions might
design activities with lessons learned concerning p
that could be avoided on future designs if chai
methods were made.
12
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c. Documentation. Conclusions reached on the poten-
tial for architect-engineer liability were not documented
and included in the contract files. Engineer
Regulation 715-1-10 requires that a written determination
be made for all apparent design omissions covering the
extent of liability and the appropriateness of pursuing
recovery action. The written determinations are to be
included in the contract file. Sacramento District person-
nel told us that design omissions and problems for the
Jibboom Junkyard Site were not the fault of the Corps'
architect-engineer; but, this conclusion and the rationale
for this conclusion were not' documented. Personnel at
Omaha District did not make any liability reviews, so
results were not documented and included in either the
architect-engineer or construction contract files. Also, a
Corps conclusion was not provided to the Environmental Pro-
tection Agency.
RECOMMENDATIONS AND COMMAND COMMENTS
A-l Provide Omaha District with complete information on
apparent design omissions and construction changes for the
Jibboom Junkyard Superfund site. Request Omaha District to
provide the information to the Environmental Protection
Agency, if appropriate, after reviews are made for possible
architect-engineer liability and lessons learned.
Command agreed and stated that information on apparent
design omissions and construction changes for the Jibboom
Junkyard Superfund site will be provided to the Omaha Dis-
trict by third quarter FY 88. Command also stated that the
Environmental Protection Agency had an on-site Project
Manager who was fully aware of all contract modifications
and the basis for the modifications. The Army auditors
should consider contacting the Environmental Protection
Agency's auditors to ensure that the Environmental Protec-
tion Agency is properly assessing; possible architect-
engineer liability. It seems that Environmental Protection
Agency's procedures and actions are of primary concern here
and not the Corps'.
U. S. Any Audit Agency Evaluation. This audit was
requested by the Inspector General, Environmental Protec-
tion Agency and the results of audit will be furnished to
the Environmental Protection Agency's auditors. The purpose
of this audit was to determine if the Corps carried out its
responsibilities.
A-2 Revise the local written guidance covering reviews for
architect-engineer liability to include procedures for when
the design activity is outside the District.
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Command agreed and stated that Sacramento District Office
Memorandum 715-1-3 will be revised by 30 June 1988 to
include procedures for architect-engineer liability reviews
in instances when the responsible design activity is
located outside the District. Copies of Sacramento Dis-
trict Form 84, Request for Approval of Contract Modifica-
tion, for the Jibboom Junkyard Superfund site will be sent
to the Omaha District Project Manager for review and
completion of the architect-engineer liability part on the
back side of the form. This procedure is currently being
used on the Celtor Chemical Works (Hoopa) Superfund site.
The Commander, U. S. Army Engineer District, Omaha also
provided comments on the finding and recommendations and
stated that:
- Omaha District personnel performed the design assign-
ment in accordance with the Environmental Protection
Agency guidance and intent. During the design period,
there were no discussions dealing with a Corps'
responsibility to secure additional field data. The
Environmental Protection Agency representative main-
tained that the site had been investigated 6 times and
that about 99 soil samples had been obtained and
analyzed. The amount of contaminated material ulti-
mately removed merely proves that the unknown hazards
on the site may not have been properly identified,
even if additional field work had been authorized.
Contamination within the site varied immensely.
- Omaha District personnel believe that the Environmen-
tal Protection Agency decided to accept the site
information available rather than spend thousands of
dollars performing additional field work. Unfortu-
nately, this decision led to the construction cost
exceeding the original low bid by more than
100 percent. This is unfortunate but understandable
based on the data available at the time the decision
was made.
- The Omaha District will conduct a review for possible
architect-engineer liability after receipt of informa-
tion on apparent design omissions and construction
changes from the Sacramento District.
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FOR THE COMMANDER,
S. ARMY ENGINEER DISTRICT, SACRAMENTO
B - CONTRACT MODIFICATIONS AND OBLIGATIONS
FINDING
The construction contract for the Jibboom Junkyard
Superfund site was not modified to increase the total con-
tract price by about $1.6 million for variations in
estimated quantities paid. As a result, payments to the
contractor exceeded the total value of the contract and
contract documentation did not show the actual amount of
services covered by the contract. In addition, obligations
were not recorded in accordance with regulatory guidance
for the construction contract. Obligations of $185,445
were recorded improperly, obligations of $246,614 were not
recorded, and obligations of about $3 million were not
recorded in a timely manner because of lack of coordination
within the Sacramento District between personnel of the
Construction-Operations Division and personnel of the
finance and accounting office. Therefore, the balances of
funds available for future obligations and monthly reports
of funds obligated were inaccurate due to the way obliga-
tions were recorded for the contract.
DISCUSSION
1. Background
a. Contract. The Jibboom Junkyard Superfund site
construction contract included three line items of work
that were identified as subdivided items and estimated
quantities were shown for the lines. The first subdivision
of each line reflected the minimum amount of work expected
and the second subdivision reflected an additional
estimated quantity. A variations in estimated quantities-
subdivided items clause was included in the contract. This
clause, discussed in the Engineer Federal Acquisition Regu-
lation Supplement, is used when costs to perform units of
work are expected to go down as the quantities go up. Bid
items are subdivided so the contractor can distribute
indirect costs in the bid price to the first subdivision.
The clause does not allow the government to request an
equitable adjustment to the unit price when actual quanti-
ties are significantly greater than the total subdivided
items. Contract modifications are issued to cover changes
in requirements after contract award. Basic policy and
procedures for processing contract modifications are
included in the Federal Acquisition Regulation and the
Engineer Federal Acquisition Regulation Supplement.
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b. Recording Obligations. Each government agency is
directed by law to establish and maintain an adequate sys-
tem of accounting and internal controls over obligations,
accrued expenditures, applied costs and outlays. The Corps
uses the finance and accounting subsystem of the Corps of
Engineers Management Information System to record account-
ing transactions for site-specific funds provided by the
Environmental Protection Agency for Superfund work. Guid-
ance for recording obligations is provided in AR 37-21 and
Engineer Regulation 37-2-10. With minor exceptions,
obligations incurred shoqgfcd be charged immediately against
the applicable fund.
2. Contract: Modification
a. Variations in Quantity. Variations in estimated
quantities occurred for the Jibboom Junkyard Superfund con-
struction contract, but the contract value was not modified
to cover about $1.6 million for variations that were paid.
Variations in quantities occurred for excavation and trans-
portation of 5,910 tons of contaminated material,
additional air monitoring and -perimeter sampling, and
extended security and contractor supervision. Only 220 of
the 5,910 ton variation was covered by '• contract modifica-
tion. Personnel of the Sacramento District's Construction-
Operations Division stated that contract modifications were
not needed because the contract, as written, allowed for
variations and the only change was in the amount of work
performed. We believe thats^the use of contract modifica-
tions for all variations in estimated quantities would
ensure proper documentation for recording obligations as
well as help to ensure^ayments to contractors are within
the total contract price.
b. Obligations. Obligations totaling $372,059 for
variations in estimated quantities were not properly
recorded on the accounting --^records. The District used a
local forn covering, variation*, liv- estimated quantities for
fund control purpose*4. The fora *was -Initiated by
Construction-^peratieaa^Dibrision, pe*eafliii'e^-:.j|pufe«iater- for-
warded to the finance and accounting office- for" recording
obligations. The form, however/ was not signed by the con-
tracting officer. There were four local forms prepared for
the variations in estimated quantities for the Jibboom
Junkyard Superfund site and a cumulative dollar amount was
shown on the forms. The forms showed the following:
16
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Form Cumulative
Number Date Amount
10 8 December 1986 $ 125,445
10R 3 February 1987 597,815
10R3 5 March 1987 1,443,407
10R4 22 April 1987 1,690,021
Obligations totaling $1,568,852 were recorded for the
variations in estimated quantities. Correct amounts were
recorded for form numbers 10 and 10R3, but $125,445 too
much was recorded for form 10R because the total rather
than the difference between forms 10 and 10R3 was recorded.
No amount was recorded for form 10R4 when $246,614 should
have been recorded. We could not determine why an obliga-
tion was not recorded for form 10R4 but the omission was
not identified by Construction-Operations Division person-
nel and the finance and accounting office due to a lack of
coordination or reconciliation.
c. Payments. Total payments made to the contractor.
exceeded the total contract price as shown on contract
documentation. According to the payments clause of the
contract, the government will pay the contractor the price
as provided in the contract. About $3.9 million had been
paid to the contractor as of the 12th progress payment,
made during June 1987, but the price shown on contract
documentation was only about $2.4 million. The difference
was funds for variations not included in contract modifica-
tions (about $1.6 million), less unliquidated obligations
for amounts shown on the contract (about $100,000), and
retained amounts ($6,500). Unless estimated quantities
are adjusted to actual amounts, contract documentation will
be incomplete because the actual contract price will not be
shown. The use of modifications would provide a maximum
total contract value.
3. Contract Obligations. Untimely obligations were
recorded for over 70 percent of the construction contract
dollars and an obligation was recorded twice for a contract
modification. We considered an obligation untimely when it
was not recorded in the same month that the liability
occurred. Recorded obligations for the construction
project .totaled about $4.2 million as of 31 May 1987.
Obligations of about $3 million had not been recorded in a
timely manner. The largest untimely obligation was about
$2 million for the initial construction contract awarded
during July 1986 but not recorded in the financial records
until November 1986. The untimely obligations resulted from
lack of coordination between personnel of the Construction-
Operations Division and the finance and accounting office.
17
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Also, an obligation of $60,000 was recorded twice for con-
tract modification number 14. The first obligation was
recorded during January 1987 when a request was being pro-
cessed for approval of the modification and the second
obligation was recorded during April 1987 after the modifi-
cation was issued. The duplicate obligation had not been
detected and corrected as of 30 June 1987. Balances of
funds available for future obligations were overstated and
reports of monthly funds obligated were understated due to
the way obligations were recorded for the contract. Proper
accounting for obligations is necessary at all times for
fund control to prevent actual expenditures from exceeding
authorized expenditures and to ensure accurate monthend
financial reports.
RECOMMENDATIONS AND COMMAND COMMENTS
B-l Issue a contract modification to cover all variations
in estimated quantities on the Jibboom Junkyard Superfund
site construction contract.
B-2 Direct that contract modifications be issued for all
variation amounts in estimated quantities on future
Superfund site construction contracts having a variations
in estimated quantities clause.
Command did not agree with Recommendations B-l and B-2 and
stated that no Federal Acquisition Regulation or other
regulatory authority has been cited showing a need or
requirement for such a modification action. The
recommended action for modification is, therefore, based on
the auditor's opinion as to the need for additional
documentation. However, the variation in quantity is
already authorized by the Special Clause 11, Variations in
Estimated Quantities, to the contract. Unit prices and
variations in quantity are allowed by the Federal Acquisi-
tion Regulation 12.402, 12.403, and 36.207. Not only is
authority already provided in the contract, but the Con-
tracting Officer, Authorized Representatives of the
Contracting Officer, and the Resident Contracting Officers
signed the progress payments and final payments as
required. A modification would be redundant, increase
administrative costs, make project management more diffi-
cult, and could increase the contract cost because a
modification may allow the contractor to renegotiate higher
unit prices. The variations in estimated quantities
clause has been consistently administered by this District
for years and is adhered to by other Corps Districts. The
recommendation would be acceptable only after a clear
demonstration that a valid need or requirement exists for
18
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the modification and that the requirement outweighs any
negative impact. The auditors should address this finding
to Headquarters, Corps of Engineers since other Corps Dis-
tricts may be affected.
U. S. Any Audit Agency Evaluation. The total dollar value
of the contract increases or decreases when variations
occur in the estimated quantities. This changes the terms
of the contract (total value) and a modification to the
contract is required. Part 43 of the Federal Acquisition
Regulation states that modifications are used to reflect
other agreements of the parties modifying the terms of con-
tracts. If modifications are not issued for variations,
the contract has no maximum authorized total value. Issu-
ing contract modifications for variations provides a
control over the total dollars authorized since a maximum
amount is specified and this ensures that funds are avail-
able before the government creates a liability. Modifica-
tions should be periodically issued to increase the
authorized ceiling as new estimates of the quantities above
the ceiling are determined. The need for modifications for
variations in estimated quantities was discussed with the
Principal Assistant Responsible for Contracting, Headquar-
ters, Corps of Engineers. The Principal Assistant agreed
with our conclusion that formal modifications are appropri-
ate for variations in estimated quantities.
B-3 Make a review of the accuracy of obligations recorded
for the Jibboom Junkyard Superfund site construction con-
tract. Adjust the obligations recorded based on the
review.
Command agreed and stated on 9 December 1987 that the obli-
gations had been reviewed. The program management and
finance and accounting records were reconciled and neces-
sary adjustments were made.
B-4 Issue guidance reemphasizing the need to follow local
existing procedures for recording obligations promptly and
accurately.
Command agreed and stated that Operating Manual 37-1-1,
Administrative Control of Funds, was issued on 5 October
1987. The manual reemphasizes timely and properly
recording of obligations and clarifies the responsibilities
of the finance and accounting staff and the program
directors.
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FOR THE COMMANDER,
U. S. ARMY ENGINEER DISTRICT, SACRAMENTO
C - IN-HOUSE COSTS
FINDING
About $23,700 was improperly charged to the Jibboom
Junkyard Superfund construction project for Corps of Engi-
neer expenses of labor and district overhead. Improper
cost transfers were made from flood control projects to
the Superfund project. District procedures and controls
were not adequate to preclude the cost transfers. As a
result, funds obtained from the Superfund Trust Fund were
used improperly for support of the District's flood control
mission.
DISCUSSION
1. Background. Engineer Regulation 37-2-10 provides
guidance concerning the accounting treatment of the Corps'
in-house costs incurred in support of its various projects.
The general rule is that costs which directly attribute to
a specific project should be charged to that specific
project. The Corps budgets for and receives funds from the
flood control and coastal emergencies appropriation for its
flood control projects. Interagency agreements between the
Environmental Protection Agency and the Corps are estab-
lished to provide funding for Superfund projects managed by
the Corps.
2. Costs. About $23,700 was improperly charged to the
Jibboom Junkyard Superfund construction project for Corps
expenses of labor and district overhead. About $153,000
was charged to the Jibboom Junkyard project for in-house
expenses through 31 May 1987. Improper charges were about
15 percent of the total.
a. Labor. Labor was charged to the Superfund
construction project for 13 District personnel who had not
performed services in support of the project.
(1) Cost Transfers. During February 1987, two
cost transfers were processed moving 1,029 labor hours from
District flood control projects to the Jibboom Junkyard
Superfund construction project. The labor hours were for
13 personnel assigned to a field office of the Sacramento
District and represented about $16,800 of labor expense for
the period 25 January through 7 February 1987. The reason
for the transfers on the documentation was erroneous labor
charging; but a detailed explanation was not given.
20
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Through discussion with personnel at the field office and
review of time reporting records, we determined that six
personnel had never performed any services for the Jibboom
Junkyard construction project and the remaining seven had
not performed services for the project during the period
25 January through 7 February 1987. The cost transfers
were initiated by personnel of the District's Construction-
Operations Division and the initiator signed for the
Division Chief on the transfer authorizations. We dis-
cussed the cost transfers with the initiator and found that
there was no information available showing that the labor
charges were erroneous. District procedures and controls
were not adequate to prevent the improper cost transfers to
the Superfund project.
(2) Reason for Transfer. Command personnel gave
the following explanation for the transfers made. The
project was the first of its kind in the Sacramento
District and it was not charged its full share of in-house
costs. In-house costs were only 3.8 percent of direct
costs while the expected charge should have been about
7 percent. In-house costs on civil works projects average
about 10 percent and a 10-percent rate for this type of
work was considered fair and reasonable and was agreed to
by the Environmental Protection Agency. The administration
of numerous cost codes by timekeepers, the one-hour time
charge rule, and this being a new project resulted in
administrative undercharges. The transfer was made to
correct for undercharges to the Superfund project because
of some probable timekeeping errors in handling labor cost
codes. Personnel probably should have been charging the
Superfund project but had not.
(3) Interagency Agreement. The interagency
agreement for the Jibboom Junkyard cleanup effort states
that reimbursement to the Corps is to be based on actual
expenses incurred, and specific documentation supporting
the costs is to be maintained. By signing the agreement,
the Corps agreed to comply with the terms of the agreement.
The percentage rates mentioned by command for in-house
costs (paragraph 2a(2)) are maximum allowable ceilings or
targets that may or may not be the actual expenses
incurred. Costs charged to the project must be for actual,
supportable expenses.
b. Overhead. Inappropriate overhead costs were also
charged as a result of the cost transfers for labor. The
automated accounting system of the Corps is programmed to
add costs for District overhead based on direct labor
charges. At the time of the cost transfer, a 41-percent
21
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rate for district overhead was applied to labor charges.
Therefore, about $6,900 for District overhead was
improperly charged to the construction project.
3. ReiBburseaent. Funds provided by the Environmental
Protection Agency for Superfund work were improperly used
for the district's flood control mission because of the
cost transfers. The automated accounting system generates a
bill to the Environmental Protection Agency around the 15th
of the month for expenses charged against Superfund
projects during the previous month. Labor expenses trans-
ferred to the Jibboom Junkyard Superfund construction
project were billed to the Environmental Protection Agency
during March 1987, and later reimbursed to the Corps from
the Superfund Trust Fund. The expenses for flood control
should have been paid by the appropriation for flood con-
trol and coastal emergencies.
RECOMMENDATIONS AND COMMAND COMMENTS
C-l Transfer the improper labor and district overhead
charges totaling about $23,700 from the Jibboom Junkyard
Superfund project to appropriate flood control projects.
Return the $23,700 to the Environmental Protection Agency.
Command agreed and stated on 9 December 1987 that the
actual, invalid transferred amount of $22,210.79 has been
corrected and returned to the Environmental Protection
Agency.
C-2 Strengthen the controls over procedures for processing
cost transfers affecting Superfund projects. Specifically
require:
- Detailed reasons for each transfer and supporting data
that shows the transfer is proper.
- An approval by an individual other than the initiator
before a cost transfer is made.
Command agreed and stated that the Resource Management
Office will reissue, by third quarter FY 88, existing 1984
instructions as policy requiring specific documentation and
approval procedures for cost transfers.
22
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ANNEX
Copies of this report are being furnished to the following
activities:
Inspector General, U. S. Environmental Protection Agency
Assistant Secretary of the Army (Civil Works)
Assistant Secretary of the Army (Financial Management)
The Inspector General
Director of the Army Staff
Chief of Public Affairs
Deputy Chief of Staff for Personnel
Deputy Chief of Staff for Logistics
Chief of Engineers
Commanders
U. S. Army Corps of Engineers
U. S. Army Criminal Investigation Command
U. S. Army Engineer Division, Missouri River
U. S. Army Engineer Division, South Pacific
Sixth Region, U. S. Army Criminal Investigation Command
Commandant, U. S. Army Logistics Management College
This report is not to be released outside the Department of
the Army for 60 days. After that period has elapsed, the
report may be released in accordance with the procedures
prescribed in Army Regulation 340-17 and Department of the
Army Memorandum 36-1. However, the results of audit will
be furnished to the Inspector General, U. S. Environmental
Protection Agency, who requested this audit.
23
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ATTACHMENT B
CEAO (CESPK-M/18 May 1988) 1st End Mr. Bandy/las/272-0061
SUBJECT: USAAA Audit Report No. MM 88-601, Superfund Construction,
Jlbboon Junkyard Site, Sacramento, California
HQUSACE, MASH DC 20314-1000 1 ! JUL 1988
TO: Secretary of the Aray, Inspector General; ATTN: SAIG-PA
1. This Command concurs with the Sacraaento District's response except for the
additional facts, and revised position In Recommendation B-2 stated below.
Recommendation B-l: Command agrees that a Modification should have been
Issued during the closeout process to cover all variations In estimated
quantities on the Jlbboom Junkyard contract that were not covered In modifi-
cations previously Issued. However; Coaaand does not believe that Issuing a
modification at this juncture would serve any meaningful purpose, unless
requested by the customer - EPA, since the contract has already been
finalized. Guidance will be Issued requiring future Superfund contracts to be
modified during the closeout process, as recommended.
Recommendation B-2: The revised Command position Is that In addition to
obligating cost overruns on a Miscellaneous Obligation Document (DA Fora 3717)
and notifying the contractor accordingly, a modification will be Issued during
closeout to reconcile the total contract cost to the Individual line Items for
all future Superfund contracts.
2. The report did not contain any reportable monetary benefits. In our
opinion, there Is no need to classify or protectively mark any portion of this
report or responses thereto.
8EORGE K. MITHERS. JR.
Major General, USA
Deputy Commander
I
£7-60*
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