United States
Environmental Protection
Agency
Office Of
The Comptroller
Washington, D.C. 20460
November 1987
Financial Management Division — Superfund Accounting Branch
I • I
« I
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\
? UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
• WASHINGTON. DC. 20450
THE ADMINISTRATOR
To the States:
One of the major Federal initiatives during the last few years has been
to provide the States with opportunities for substantial and meaningful
involvement in national programs. In writing the Superfund legislation
in 1980, it was Congress's intention that the States would assume much of
the responsibility for cleaning up the nation's hazardous waste sites. The
recent reauthorization of Superfund has furthered those opportunities by
increasing the size of the Trust Fund and by defining a greater role for
the States.
In keeping with the new authorization, I am pleased to provide you
with this document. As Superfund cleanups rapidly increase over the
next few years and we near completion on many long-term projects, cost
recovery from Responsible Parties will become an ever important and
complex responsibility. The approach taken in this guidance is
innovative in that it recognizes and allows for the uniqueness of each
State and yet permits us to achieve national consistency in the way we
approach cost recovery. It is for this reason that I believe this document
will provide you with valuable guidance as you plan to participate in
future cost recovery actions.
Lee M. Thomas
EPA Administrator
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United States Office Of
Environmental Protection The Comptroller
Agency Washington, D.C. 20460 November 1987
Financial Management Division — Superfund Accounting Branch
TE U© L E1
E 111 L Ei 1E
©© UE 1© 1©E
TABLE OF CONTENTS
Pare
INTRODUCTION 1
A. Purpose 1
B. Scope 1
C. Intended Audience 1
D. Stmcture 1
E. References 2
F. The Legal Basis For Cost Recovery 2
1. General Legal Requirements 2
2. Records Required To Document Expenditures 3
3. Requirements For Documents Submitted As 3
Evidence
4. Requirement That Expenses Be “Reasonable and 4
Necessary”
5. Testing Of State Expense Records In Litigation 4
G. An Overview Of Cost Documentation Objectives 4
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Table of Contents
TABLE OF CONTENTS
(Continued)
Page Number
II. FINANCIAL MANAGEMENT GUIDANCE 11
A. Overview 11
1. State Superfund Financial Management Objectives 11
2. Accurate Site and Activity Specific Cost Information 11
3. Complete Site and Activity Specific Cost Information 11
B. Guidance 12
1. Superfund Accounting Objectives 13
2. Accounting For Direct Costs 15
3. Accounting For Indirect Costs 16
4. Accounting For Core Program Costs 16
5. Superfund Reporting Requirements 16
111. RECORDKEEPING GUIDANCE 18
A. Overview 18
1. State Superfund Recordkeeping Objectives 18
2. Inability Of Non-Centralized Recordkeeping 18
Systems To Meet Superfund Recordkeeping
Objectives
3. Active Site Filing 18
4. Recordkeeping Planning 19
B. Guidance 19
1. Establishing Site Files 19
2. Records To Be Retained In Site Files 20
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Table of Contents
TABLE OF CONTENTS
(Continued)
Pai e Number
3. Reconciling Site Files 24
4. Storage Media And Record Safety Procedures 24
5. Record Retention Requirements 24
APPENDICES
A. Planning For State Superfund Objectives 25
B. State Legal Responsibilities 29
C. EPA Audits 31
D. Where To Go For Further Infonnation 34
INDEX 36
Cover photos:
front cover: Hi/ton Head, South Carolina
back cover: Euclid Creek Park, Cleveland, Ohio
photos by N. Sin ge/is 1987
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Introduction
Page 1
I. INTRODUCTION
The Comprehensive Environmental Re-
sponse, Compensation, and Liability Act of 1980
(CERCLA) established the Hazardous Substance
Response Trust Fund (Superfund) to provide
monies for the identification, prioritization and
clean-up of the nation’s uncontrolled hazardous
waste sites. CERCLA, as amended by the Super-
fund Amendments and Reauthorization Act of
1986 (SARA), provides for the recovery of re-
sponse costs incurred by the Federal government
and states from responsible parties. Response
costs include expenses for investigatory, clean-up,
enforcement and administrative activities. When
EPA provides funds to a state to undertake the
response action, the state must document its ex-
penses so that EPA may later seek to recover those
costs. Although separate legal actions are possible,
generally the states and EPA cooperate and pursue
a joint cost recovery action against the responsible
party(ies).
The resulting need to document costs by site
to facilitate Superfund cost recovery actions cre-
ates a complex set of financial management and
recordkeeping problems. By pulling together all
state Superfund financial management and
recordkeeping guidance in a single, comprehen-
sive presentation, this handbook is designed to help
state agencies receiving Superfund monies to
understand and meet their site-specific financial
management and recordkeeping responsibilities.
A. PURPOSE
This handbook serves several purposes:
Establishes consistent and complete
guidance covering state Superfund ob-
jectives in two areas:
- Financial management of Superfund
expenditures
- Recordkeeping necessary for cost
recovery
• Provides a planning approach to meeting
Superfund financial management and
recordkeeping objectives
• Acquaints the states with their legal re-
sponsibilities and EPA’s audit require-
ments
• Provides guidance on where to go for
further information.
B. SCOPE
This handbook summarizes state Superfund
financial management and recordkeeping guid-
ance. Because it applies to all U.S. states and
territories, it is necessarily broad in scope, focusing
primarily on how states can develop financial
management and recordkeeping systems that sat-
isfy EPA cost recovery documentation needs. The
handbook provides a conceptual understanding of
EPA’s financial management and recordkeeping
objectives, so that state managers have a frame-
work for developing their own procedures to meet
those objectives.
C. INTENDED AUDIENCE
This handbook was written with the widest
possible audience in mind. It is intended for all
state personnel with Superfund-related responsi-
bilities, including staff outside the Superfund pro-
gram area who may have an important cost docu-
mentation role (for example, staff in the state
controller’s or treasurer’s office). Appendix A, on
financial management and recordkeeping plan-
ning, contains a section on identifying who should
both receive a copy of this handbook and be in-
cluded in the state’s planning process.
D. STRUCTURE
The handbook is divided into three chapters
and four appendices. The remainder of this chapter
explains the legal framework for cost recovery
actions, and provides an overview of EPA’s finan-
cial management and recordkeeping objectives for
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Introduction
Superfund. Chapter II details state financial man-
agement guidance for the Superfund program.
Chapter ifi provides guidance on the maintenance
and retention of supporting Superfund cost docu-
mentation - time sheets, travel vouchers, contractor
invoices and other records - in individual financial
site files.
Appendix A, “Planning For State Superfund
Objectives,” is intended for those states not cur-
rently meeting all of EPA’s Superfund objectives
and in need of help in developing a pkm to achieve
the objectives. Appendix B, “State Legal Respon-
sibilities,” provides information on documentation
and assistance that states are expected to provide
during litigation of a cost recovery case. Appendix
C, “EPA Audits,” describes the audit process and
the results of recent Agency audits of state Super-
fund programs. Appendix D, “Where To Go For
Further Information” is discussed below. A topical
index can be found on page 36 at the back of this
handbook.
K REFERENCES
While this handbook is intended to be the
primary source for state Superfund financial man-
agement and recordkeeping guidance, other EPA
manuals and directives contain procedural guid-
ance and background information on many of the
topics discussed here. In particular, State Partici-
pation in The Superfund Program provides guid-
ance on all phases of a state Superfund effort.
Appendix D is designed to help state managers
determine which reference materials cover the
topics in which they are interested.
State managers should not limit themselves
to consulting reference materials. EPA regional
staff, or Headquarters if necessary, should be con-
sulted for clarification or further detail on EPA
objectives. EPA Headquarters staff will work with
regional staff to answer fully any questions from
states on the topics discussed in this manual.
Page 2
F. THE LEGAL BASIS FOR COST
RECOVERY
The primary purpose of the financial man-
agement and recordkeeping objectives described
in this handbook is to facilitate Superfund cost
recoveries. Tax revenues, plus recoveries from
responsible parties, are the main sources of funds
for cleaning up hazardous waste sites, and the
amount of money that can be raised through taxes
is of course strictly limited. Recoveries have the
potential of playing a major role in replenishing the
Superfund, thereby providing funds for additional
clean-up work.
It is important for administrative and pro-
gram managers as well as their staffs to understand
the legal principles underlying the cost recovery
objectives outlined in this text. Management
should review all Superfund financial manage-
ment procedures to assess whether the expense
documentation their system produces satisfies the
legal standards outlined in this section.
The remainder of this section is divided into
five parts. The first part provides an overview of
CERCLA/SARA cost recovery cases and explains
the role of cost documentation in the cases against
responsible parties. The three following parts
detail the specific legal requirements that must be
met in order to document clean-up costs. The final
part of this section explains briefly how the
government’s expense claims are tested in litiga-
tion, a topic covered in more detail in Appendix B.
Examples are provided throughout to illustrate the
legal issues involved.
1. General Legal Requirements
In order to pursue a CERCLA cost recovery
action against a responsible party, the government
must be able to prove three points: first, that the
party was responsible for the release or potential
release of a hazardous substance; second, that the
work the government did at the site was necessary
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Introduction
Page 3
to remedy or prevent such a release of a hazardous
substance; and third, that the government can
accurately document the cost of the remedy or
prevention. This handbook will focus on the docu-
mentation a state must provide to government
attorneys during a recovery action to prove suc-
cessfully the cost of the remedy. Proof of respon-
sibility and proof of the necessity of the work done
are beyond the scope of this handbook.
2. Records Required To Document
Expenditures
Over the course of work on a site, a state
typically incurs costs in several categories: direct
labor by state personnel, travel, supply and equip-
ment costs, contractor costs, and administrative
and overhead (“indirect”) costs. A cost documen-
tation package submitted by a state must demon-
strate four points about each category of costs in
order to stand up in court:
• That the work or purchase was author-
ized by the state
• That the work or purchase was completed
• That the state was billed for the work or
purchase
• That the state actually paid for the work
or purchase
Together, these four points establish the
“history” of an expense item, and assure the court
of the validity of that expense.
Clearly, proving all four of these points for
each type of expense requires supporting records
from various sources. A detailed list of what types
of records should be retained for each category of
expense is provided in Chapter ifi; the aim of this
section is to provide state personnel with an under-
standing of why specific documents should be kept.
To illustrate the four requirements, some examples
are provided below:
Contractor costs require extensive documen-
tation. In order to demonstrate that the contractor’s
efforts were authorized, a copy of the contract
should of course be retained. But in this case, the
state’s authorization process begins with a Request
For Proposal (RFP) and detailed evaluations of
contractor bids; consequently, these should also be
retained. Similarly, proving that the agreed-upon
work was completed requires not just the state’s
final sign-off on the contract, but also technical
progress reports detailing contractor activity at
each stage of the project. Copies of contractor
invoices satisfy the requirement for billing records,
while records showing payment dates, amounts
and reference or check numbers would be required
to demonstrate payment of invoices’.
Employee labor costs are somewhat easier to
document. A list of staff assigned to work on a site,
with notation as to their titles, clearly establishes
state authorization for the work. Timesheets can
provide proof of the remaining points under most
circumstances. The timesheet itself constitutes a
bill; moreover, as a form designed to be put directly
into the state’s payroll system, it also provides
proof of payment as long as any subsequent correc-
tions are attached. The signature of the employee
and the employee’s supervisor provide cerrWca-
lion thathours on the timesheet were spent working
on the site.
3.
Requirements For Documents Submitted
As Evidence
Each document submitted as evidence or
kept on file to support costs claimed by the state
must meet a number of legal requirements speci-
1 A state’s contractors must be able to provide documentation
demonstrating authorization, completion, billing and pay-
ment for their own expenses, such as salaries, supplies and
equipment, subcontractors and so on. See Chapter HI for
details on documentation requirements for state contractors.
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Introduction
Page 4
fled in the Federal Rules of Evidence. These legal
requirements, designed to ensure the authenticity
and reliability of evidence, are as follows:
• The document must have been produced
at roughly the same time as the expense
was incurred.
• The document must be produced and
utilized in the normal course of business.
• An expert wimess must be provided if
requested to testify to the authenticity
and reliability of the document.
For example, a consistent pattern of employ-
ees filling out time sheets several weeks or months
after the fact would raise questions as to the relia-
bility of the state’s time records. Similarly, an
accounting report not normally produced and dis-
tributed to appropriate supervisory personnel
might not be accepted as evidence, because a
supervisor not familiar with a report could not
testify in court as to the reliability of the informa-
tion it contains.
4. Requirement That Expenses Be
“Reasonable And Necessary”
In addition to the above requirements, only
“reasonable and necessary” costs are recoverable.
Many of the recouls that a state must retain serve to
prove that costs are reasonable and necessary. For
example, travel authorization forms documenting
the purpose of staff trips should beretained in order
to prove that travel costs claimed by the state were
for reasonable and necessary trips.
Recent audits of states’ Superfund programs,
discussed more fully in Appendix C, have shown
that some states have awarded contracts in viola-
tion of EPA’s procurement regulations as stated in
40 C.F.R. Part 33, and, indeed, in violation of the
states’ own procurement standards 3 EPA’s pro-
curement regulations are designed to ensure that
competitive and cost-effective contractor services
and equipment are obtained by states. Violations
of the regulations make it difficult to demonstrate
that contractor costs or equipment purchases are
reasonable and necessary. Cost-plus-percentage-
of-cost contracts, improper bid evaluation proce-
dures and other violations of EPA’s procurement
regulations may result in the court disallowing
these claimed costs. Furthermore, if auditors dis-
cover improper procurement practices, claimed
contractor costs may be disallowed by EPA, dra-
matically increasing the state’s costs.
5.
Testing Of State Expense Records In
Litigation
A cost documentation package submitted by
a state in acost recovery action may be successfully
challenged by lawyers for the responsible party if
any of the standards described above are not met.
Opposing counsel can question state personnel
under oath on state recordkeeping, fmancial man-
agement, procurement practices and other topics.
They can require state managers to respond to
written questions on these subjects. In addition,
they have the right to examine all supporting ex-
pense records in order to search for inaccuracies,
inconsistencies and other flaws. Appendix B pro-
vides further information on the kinds of inquiries
a state may have to respond to in litigation and
describes state responsibilities for assisting Fed-
eral government lawyers in their handling of a cost
recovery case.
G.
AN OVERVIEW OF COST
DOCUMENTATION OBJECTIVES
This section provides a systematic overview
of all the financial management and recordkeeping
objectives discussed in this handbook. The term
“systematic” applies because successfully meeting
EPA’s Superfund objectives in these areas requires
coordinated action by staff in several functional
areas over a long period of time. In order to initiate
and maintain this kind of closely-coordinated ac-
tivity, staff and management need to be able to
view specific objectives as part of a larger process.
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Introduction
Page 5
The focus of this section is a four-page ex-
hibit depicting a hypothetical or “model” financial
management and recordkeeping system that meets
all EPA Superfund-related objectives, with an
emphasis on cost documentation for successful
cost recovery actions. The system depicted in the
exhibit is not “the answef’ to meeting the objec-
tives presented in this handbook. There is no one
answer applicable to all states; each state has devel-
oped or will develop its own system, according to
its own management, structure and internal proce-
dures. The aim of the exhibit, and of this section,
is simply to start managers thinking about financial
management and recordkeeping objectives in a
systematic way.
Six “functional areas” are used in the exhibits
on the following pages: Legal, Contracts Admini-
stration, Program Office, Recordkeeping, Ac-
counting Operations and Paying Agent. In many
states, several of these functions will be housed
within the same organization. For example, the
“Program Office” and “Contracts Administration”
may well be part of the same group. Or, “Contracts
Administration” and “Accounting Operations”
could be separate offices under the state
comptroller’s office. Whatever organization they
are part of, each of the six areas is likely to have a
different primary supervisor and hence, is treated
as a separate function.
Activities in the financial management and
recordkeeping model presented here generally
occur in three phases, which are described below.
Cost documentation is the “thread” which joins all
three phases, since cost documentation activities
begin the moment work starts at a site and do not
end until work is finished and the cooperative
agreement is closed out.
Initiation describes the initial steps taken
when work (other than a preliminary assessment)
begins at a site. Exhibit 1-1(a), the first of the four
exhibit pages, outlines the initiation phase.
financial management and recordkeeping activi-
ties that take place during work at the site. Phase
two is depicted in Exhibit 1-1(b) and 1-1(c), the
second and third exhibit pages.
Cost Documentation Package Preparation
begins when state program managers receive a
request from EPA or the state’s own legal staff for
a package detailing the state’s expenses at the site.
The key document in a cost documentation pack-
age is an up-to-date summary of costs. This sum-
mary, which should break out costs by category
(salaries, travel, supplies and equipment, etc.),
goes in the front of the package. The rest of the
package is divided into sections containing sup-
porting documentation for each of the cost catego-
ries listed in the summary. If there are a lot of
records in any one section, a “section summary”
should be included. For example, contractor costs
could be summarized with an exhibit listing the
total amount paid to each contractor. Reconcili-
ation of all the expense records in each section to
the cost summary is the final step in the preparation
of a cost documentation package. No cost docu-
mentation should be submitted to Federal or state
legal staff until the expense records in the package
reconcile exactly with the cost summary. Exhibit
1-1(d) on the fourth exhibit page describes the
process of preparing a cost documentation pack-
age.
Of course, the activities described in the
following exhibit fall out from specific guidance
detailed later in this handbook. Readers may want
to return to the exhibit after they have read the
remainder of the handbook; initially, however,
they should focus on trying to look at Superfund
financial management and recordkeeping func-
tions as an interrelated cost documentation system.
As intended, the exhibit leaves much unsaid
about the specific procedures used to ensure that
the six functional areas do exactly what they are
supposed to, when they are supposed to. Proce-
dures for implementing a system that meets EPA’s
Superfund financial management and recordkeep-
Ongoing Activity represents the day-to-day
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Initiation Phase: An Example
Functional
Area
Activity
Legal
Contracts
Admin on
Reviews contract’
with 4OCFR fl
Part33 J
Ff for compliance I
Drafts cO fl C Charges contract
for work at development timj
to si . forwards
site
timeshects J
—
—
Awards contract
copies to
and forwards
[ recordkeeping
r
—0
—
—
Program
Office
Informs other
offices that
work will begin
at site
Informs
program staff
of site
identifier
Work
begins
Record-
keeping
—
0
site-specific
OpeflS
file and
original file
1 Retains Contract
timesheets in sit
...iif Administration
and original files
•
—
Retains copies
bid evaluation
of contract and
records
Accounting
Operations
4
identifier;
Generates site
informs other
offices
I charged to site
Loads time
into accounting
system
Paying
Agent
I
til
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Ongoing Activity: An Example
Functional
Area
Activity
Legal
Contracts
Administration
.
invoices from
Receives
contractor
—
with site
Codes invoices
identification
r
Program
Office
Record-
keeping
Program staff
records time and
travel by site
and activity
Approves bills;
provides tech.
1 information on
work done
Retains copies of
time and travel
ecords in site flu
and original file
[ Retains invoice
approval in site
file and original
file
—
0
— —
‘Retains copies ofl
payment records
in site file and
original file
Retains copies
of invoices in
site file and
original file
Accounting
Operations
4
Loads contract
costs by site
into accounting
system
Loads time and
site into
avel charged to
accounting
system
Paying
Agent
Pays contractor;
forwards proof
of payment
I
r u
F:
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Ongoing Activity: An Example
Activity
Functional
Area
Legal
Contracts
Administration
Program
Office
approval of
-
Receives 1
Federal I
indirect cost I
rate j
Obtains copy of
methodology
cost indirect cost
allocation
. - p
Produces
Adds indirect
summary
reports of all
direct cost base
costs for site
I Reconciles
documents
- summa with
P supporting
—
1 nsc of
r41 rawdown, SF2691
[ nsi
1 H
drawdown,
and original files
Requests
files SF269
and SF272
Record-
keeping
Accounting
Operations
—
Paying
Agent
I
00
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Cost Documentation Package Preparation Phase: An Example
Functional
Area
Activity
Legal
Reviews cost
package for
consistency and
completeness
Contracts
Administration
—
Program
Office
Initiates cost
documentation
package
preparation
0
Sends cost
package to
EPA
Record-
keeping
Accounting
Operations
Requests
up-to-date
cost su y
I
Forwards
cost
summa
Reconciles
summary with — —
documents
supporting
Is prepared to
provide
cost package
testimony on
Paying
Agent
1.
rxi
C D
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I ntrOduCtiOn Page 10
ing objectives can only be designed by the states
themselves. For managers who realize that their
states are not meeting those objectives, Appendix
A of this handbook may be helpful. It describes
how to initiate a planning process aimed at devel-
oping policies and procedures to follow the guid-
ance contained in this handbook.
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Financial Management Guidance
Page 11
II. FINANCIAL MANAGEMENT
GUIDANCE
This chapter provides guidance to state
management personnel charged with meeting
EPA’s objective of recording Superfund expenses
by site and activity. The Superfund program re-
quires state financial management and accounting
systems to track expenses by site and activity. This
is necessary to ensure that the state and EPA
together can effectively recover their respective
cost shares from responsible parties. In addition,
site and activity specific accounting information
provides a crucial check on the completeness of a
state’s Superfund expense records.
A. OVERVIEW
This initial section provides a general over-
view of the capabilities state accounting systems
should have, and discusses the role of accounting
and financial management systems in the cost
documentation process. The second section of this
chapter provides specific guidance on meeting site
and activity specific accounting and financial re-
porting objectives.
1. State Superfund Financial Management
Objectives
The state Superfund financial management
guidelines presented in this handbook are designed
to ensure that site and activity specific expenditure
information is available to state managers, ena-
bling them to file accurate drawdown requests,
Financial Status Reports (SF 269s) and Federal
Cash Transaction Reports (SF 272s); make site-
by-site budgeting decisions; and accurately docu-
ment site clean-up costs.
To achieve these goals, states are expected to
implement site and activity specific costing sys-
tems. An integral part of those systems are control
procedures to ensure that such accounting informa-
tion is:
• Accurate; that only costs attributable to a
site are charged
• Complete; that all costs attributable to the
state’s Superfund effort are recorded and
charged to individual sites and activities.
These two primary objectives are discussed further
below.
2.
Accurate Site And Activity Specific Cost
Information
State financial management departments
must ensure that site and activity specific account-
ing information is accurate. Audits of state Super-
fund financial management practices have shown
that many states have accuracy problems, includ-
ing:
• Inaccurate direct labor charging due to
clerical errors or questionable time re-
cording practices
• Incorrect application of indirect cost
rates
• Duplication of charges, for example,
where a cost included in the indirect rate
is also charged directly to a site.
There are two procedures to reduce or elimi-
nate the types of financial management problems
described above. First, state managers should
thoroughly review important fmancial manage-
ment procedures. Secondly, site and activity spe-
cific accounting reports should be reconciled peri-
odically to supporting cost records, e.g. timesheets,
vouchers and contractor invoices. EPA suggests
that such a reconciliation be performed at least
twice a year.
3.
Complete Site And Activity Specific Cost
Information
It is crucial for both program management
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Financial Management Guidance
Page 12
and Cost recovery purposes that accounting infor-
mation provided by a state’s financial management
department record all Superfund costs. In particu-
lar, staff who maintain files of supporting cost
documentation rely heavily on accounting infor-
mation to decide what expense records to obtain
and file. Site and activity specific expense reports
serve as a “roadmap” of the costs the state has
incurred. Expenses that do not show up in account-
ing reports cannot be adequately documented;
moreover, management will be unable to plan for
these expenses in its budgeting process.
Given the importance of recording all Super-
fund expenses, state managers should review their
financial management procedures to ensure that all
allowable costs as defmed in their agreement with
EPA are recorded by site and activity in their
accounting system. Guidance on conducting such
a review, which EPA calls a “Superfund Expense
Accounting Review”, is provided in Appendix A.
This overview simply outlines the review process
and provides some basic Superfund accounting
terminology used throughout this chapter and
Appendix A.
In reviewing Superfund accounting practices
and in reading the remainder of this handbook,
some distinctions between the various types of
costs a state accounting system must process
should be kept in mind:
• Direct costs are those expenses which are
or should be charged to sites using
timesheets, vouchers and other site and
activity specific records. The second
section of this chapter provides specific
guidance on which costs should be
charged directly to sites.
• Indirect costs are administrative and
overhead expenses that support a state’s
overall Superfund effort. Each state
negotiates an indirect cost rate annually
with EPA, Department of Health and
Human Services (HHS) or another Fed-
eral agency, under the terms of Office of
Management and Budget (0MB) Circu-
lar A-87. Each state’s rate agreement
differs in its terms, but typically the rate
includes common state charges for rent,
data processing, centralized financial
operations and other services, as well as
salary costs for top departmental manag-
ers.
Core Program Costs are Superfund
management and administration costs
that states do not charge directly to sites
or include in the cost base of the negoti-
ated indirect cost rate. Prior to the Super-
fund reauthorization legislation, these
general program administration costs
could not be funded by EPA because only
management and administration costs
directly charged to sites were allowable
under Cooperative Agreements (CAs).
SARA allows EPA to enter into CAs to
fund “overall implementation.. .and ad-
ministration of remedial efforts.” Cer-
tain management and administrative
costs that are not being charged directly
to sites and are not included in a state’s
indirect cost base may be funded through
a separate Core Program Cooperative
Agreement (CPCA).
Using these distinctions, state financial
managers can catalog their state’s Superfund costs
and assess whether they are completely accounted
for via direct, indirect or core program charges.
State financial managers should refer to Appendix
A and the second section of this chapter for specific
guidance on how their accounting systems should
record and report Superfund costs.
B. GUIDANCE
This section presents EPA’s accounting and
financial management guidance for states partici-
pating in the Superfund program. The first part of
the section describes how state accounting systems
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Financial Management Guidance
should record costs by site and activity, and pro-
vides suggestions on overcoming accounting sys-
tem software limitations. The three following parts
provide specific guidance on accounting for direct
and indirect costs by site and activity, and on
accounting procedures for core program costs.
Information on filing site and activity specific
Financial Status Reports and Federal Cash Trans-
action Reports for Superfund cooperative agree-
ments is provided in the last part of this section.
1. Superfund Accounting Objectives
The primary Superfund accounting objective
is that state accounting systems be capable of
producing reports for each Superfund assistance
agreement that break out costs by sire, then by
activity, and then by the object class categories
provided for in the state’s assistance agreement.
EPA has defined seven activities that should be
used in all cost reports submitted. The activities
and their EPA account codes are as follows:
J - Pre-remedial Activities
Page 13
In order to produce reports at such a level of
detail that are both accurate and complete, state
accounting systems should record site, activity and
expense class information with each accounting
entry for Superfund direct costs. States may use
their own accounting codes for tracking costs by
activity, but the EPA activity codes must be used
for drawdown requests and Financial Status Re-
ports (FSRs).
Many states have developed accounting sys-
tems to track expenses by assistance agreement
number, which can readily be adapted to meet
Superfund site and activity specific accounting
objectives. For those states experiencing problems
accounting for Superfund direct costs on a site and
activity specific basis, Exhibit 11-1 on the follow-
ing page provides some possible solutions.
The primary problem with many site and
activity specific accounting systems reviewed by
EPA has been that they calculate direct charges to
sites using budgeted, “estimated” or average data,
rather than actual salary, travel and other costs.
Actual costs should be the basis for all reports of
direct site charges and accounting systems that
cannot report actual costs by site and activity
should be updated 2 .
N - Remedial Design
• R - Remedial Action
• E - Removal Action
• S - Operation and Maintenance’
• 3 - State Liaison.
(A core program cooperative agreement
represents an exception to the above procedures, in
that core program expenses are for the benefit of a
state’s overall Superfund program rather than any
one site. Consequently, recipients should track
core program expenses by object class category
only. For reporting purposes, all core program
expenses fall under EPA’s activity code 7, general
support and management.)
‘A state must assure EPA prior to initiating a remedial action
that it will assume responsibility for all future operation and
maintenance (O&M). EPA does not fund O&M of a
completed remedy. EPA will only fund that part of the
remedial action necessary to ensure that the installed rem-
edy is operational and functional, for a period up to one year.
EPA will fund up to 10 years of operation of such treatment
or measures involved with the restoration of contaminated
ground or surface water or until levels that assure protection
of human health and the environment are achieved, which-
ever occurs first. Both of these situations are considered part
of remedial action, and therefore, must be funded under the
“R” code.
2 A Core Program Cooperative Agreement could be used to
fund or help fund certain accounting system updates neces-
sitated by Superfund accounting requirements. It may also
be used for microcomputer systems and software to assist
states in meeting their Superfund accounting responsibili-
ties.
• L - Remedial Investigation/Feasibility
Study
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Financial Management Guidance Exhibit 11-1 Page 14
Suggestions For Solving
State Accounting System
Limitations
Possible
Limitations Solutions
State primary financial
reporting system cannot • Modify accounting software
accept site and activity to support additional data fields
specific data
• Use fields designated for another purpose
to record site and activity information’
• Develop in-house database to track
Superfund costs by site and activity
Other secondary accounting systems • Modify accounting software to
(e.g. payroll) cannot accept site and support additional data fields
activity specific data
• Use fields designated for another purpose
to record site and activity information’
• Develop in-house database to track
Superfund costs by site and activity
Difficult to transfer site-specific • Develop software to “down load”
data between primary financial from one system to another
reporting system and other systems
1 For example, one State uses the field designating the assistance agreement number to designate site
and activity instead. Since they know which site and activities pertain to which cooperative agreements,
they can simply print out expense reports for all sites under a given CA when filing a drawdown
request or Financial Status Report.
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Financial Management Guidance
Page 15
2. Accounting For Direct Costs
Superfund direct costs should be charged to
specific sites and activities on a regular basis.
Many states simply charge all direct expenses to
specific sites and activities as the outlays occur.
Some states, however, charge direct expenses to a
general purpose account and then make periodic
accounting entries to transfer charges from that
account to site/activity accounts. If such a proce-
dure is used, direct charges should be “backed out”
of general purpose accounts at least monthly, so
that the accounting entry is made at roughly the
same time the expenses are incurred. The follow-
ing sections provide detailed guidance on account-
ing for the major categories of direct costs.
a. State Salary Costs
Staff whose time is to be charged to specific
sites should fill out site-specific timesheets for
input of site and activity specific charges into the
accounting system. Once used to enter information
into the state’s accounting system, the timesheet
becomes the primary salary expense record to be
retained by the recordkeeping staff. Staff whose
salary is included in the Cost base for the state’s
indirect cost rate cannot charge any hours directly.
Other staff, however, may charge time directly to
either a CPCA or a site-specific CA, depending on
the nature of their work during a given time period.
For example, a staff member may charge 30 hours
to the CPCA during a pay period for general
administrative work and the rest of his or her time
to specific sites. This type of charging must, of
course, be backed up by time sheets which clearly
document the activities being charged to either a
CPCA or a site-specific CA.
b. Travel Expenses
All transportation, meal and lodging ex-
penses incurred traveling to and from sites or on
site-specific business should be recorded on a site
and activity specific basis 3 . It is essential that
employee timesheers and travel vouchers agree. If
an employee submits a voucher for travel to site X
and the employee’s timesheet doesn’t show any
time charged to site X for that day, both the salary
and the travel charges could be disallowed in an
audit. In addition, such inconsistencies make re-
covery of those costs difficult.
Expenses for travel to multiple sites should
be divided among the sites in a logical way and
charged directly. Depending on circumstances,
travel costs can be charged in several ways. Inmost
cases, apportioning the total travel cost between
sites based on the relative amount of time spent at
each site is acceptable. The state’s travel vouchers
should provide space for charges to multiple sites.
c. Equipment Costs
Equipment costs should be charged on a site-
specific basis. Detailed guidance on procedures
for equipment cost accounting, equipment pur-
chases and disposal of equipment is contained in
StareParticiparionln The Supeifund Program and
40 C.F.R. Part 30, EPA’s general requirements for
assistance recipients; this section simply outlines
equipment accounting procedures.
States have four options for acquiring the use
of equipment costing $10,000 or more:
• Lease the equipment using Superfund
money
• Procure a contractor to perform the task
using their own equipment
• Purchase the equipment with state funds
and charge EPA a usage rate for the
equipment
• Purchase the equipment with Superfund
money.
3 Program staff and senior management whose salary is
included in the state’s indirect cost rate should ensure that
none of their travel is charged directly to cooperative agree-
ments.
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Financial Management Guidance
The first two of these options are the easiest,
both from an administrative and accounting stand-
point. If a contractor is used, accounting proce-
dures are as described in the following section. If
equipment is leased, site charges should be gener-
ated each month for the sites on which the equip-
ment was used, based on relative amounts of time
the equipment was used at each site.
If the state purchases equipment, it should
develop a “usage rate” for the equipment based on
the estimated life of the equipment. If a piece of
equipment is expected to last 1,000 hours, and its
cost (purchase price plus estimated maintenance
less salvage value) equals $10,000, then the usage
rate is $10.00 per hour. States should set up a
voucher system to record by site the hourly usage
of each piece of Superfund equipment and then
apply the equipment usage rates to calculate direct
equipment charges. A similar procedure should be
used for equipment purchased with Superfund
money. (Administrative procedures for Federally-
funded equipment purchases are more complex
than for the other equipment options, however.
Before a state can purchase equipment with coop-
erative agreement funds, it must show that the
equipment could not be obtained through leasing,
contracting, or state purchase. Also, states must
keep an inventory of Superfund equipment, and
follow EPA instructions for acquisition and dispo-
sition of the equipment as detailed in State Partici-
pation in the Superfund Program.)
ci. Contractor Costs
Contractor costs must also be accounted for
on a site and activity specific basis. EPA requires
its contractors to submit invoices with costs broken
down by site and activity; states must do the same.
Contractor invoices should be organized in such a
way that state staff reviewing the invoices for
payment can quickly identify which charges apply
to which sites, and, if the contractor has not already
done so, mark the invoices with designated site
codes for input into the state accounting system.
3. Accounting For Indirect Costs
Page 16
Accounting for indirect costs by site and
activity is a straightforward process. Each rate
agreement will specify the “cost base” to which the
rate is to be applied. This information is usually
found under the heading “Basis for Application”;
typical examples of wording are:
• “Basis for application: Direct salaries
and wages plus applicable fringe benefit
costs.”
• “Basis for application: Total direct costs
including applicable fringe benefit costs
but excluding equipment and subcontract
costs.,’
The indirect cost rate should be applied to site
costs exactly as specified. Most state accounting
systems make this calculation automatically and
create indirect charge accounting entries for each
site and activity on a monthly basis. If indirect
charges have to be calculated manually for
drawdowns and FSRs, accounting reports detail-
ing site and activity costs by object class categories
will be helpful in calculating the correct “cost
base.”
4. Accounting For Core Program Costs
Core program costs do not need to be attrib-
uted to specific sites and activities for drawdown
purposes since they are charged directly to a sepa-
rate core program CA. For cost recovery purposes,
however, core program costs do need to be allo-
cated to sites and activities. Separate guidance will
describe state responsibilities in this allocation
process.
5. Superfund Reporting Requirements
Reporting requirements under Superfund
differ from those under other assistance programs
primarily in that financial reports must include site
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Financial Management Guidance Page 17
and activity specific expense information. EPA’s
Financial Status Report (SF 269) must be com-
pleted on a site and activity specific basis, and filed
• annually
• within 90 days of the completion of each
activity at a site
• within 90 days of the termination of the
cooperative agreement
The Federal Cash Transaction Report (SF 272) is
required quarterly and must list drawdown activity
by site.
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Page 18
Recordkeeping Guidance
ILL RECORDKEEPING GUIDANCE
State recordkeeping procedures for cost
documentation are receiving increased attention
due to the expansion of state participation in the
Superfund program. This chapter provides guid-
ance to state personnel charged with implementing
EPA’s objectives for the collection, filing and
retention of Superfund cost records. It discusses in
detail the recordkeeping approach adopted by
EPA, called active site filing.
It is important to note that the cost documen-
tation objectives described in this chapter apply to
both the state and the state’s contractors. States are
encouraged to move their contractors toward adop-
tion of the recordkeeping approach outlined in this
chapter through the use of specific language in all
procurements.
A. OVERVIEW
Effective recordkeeping procedures are es-
sential to cost recovery. This overview describes
the objectives state recordkeeping functions are
expected to meet and outlines some of the reasons
for EPA’s adoption of active site ffling as the way
to meet those objectives. Suggestions on
recordkeeping planning are also provided.
1. State Superfund Recordkeeping
Objectives
The recordkeeping guidance presented here
has two objectives: first, a complete set of ex-
pense-related records for each site, and second,
timely access to those site records. As discussed in
the introduction to this handbook, incomplete
documentation of cleanup expenditures seriously
weakens a cost recovery action. Similarly, EPA,
Department of Justice (DOJ) and state legal staff
need speedy access to state expense records to
pursue cost recovery actions effectively.
2. Inability Of Non-Centralized
Recordkeeping Systems To Meet
Superfund Recordkeeping Objectives
Active site filing, described in detail below,
was developed in response to numerous cost docu-
mentation problems encountered at EPA. Expense
records could not be obtained quickly enough to
meet litigation schedules, and they were frequently
incomplete. The problems resulted from several
factors:
• Records were stored in numerous loca-
tions, making retrieval a time-consuming
task involving coordination with each
location.
• Superfund expense records were co-
mingled with other expense records.
• Records were not stored in a standard
order. Timesheets from one region might
be ordered by pay period and employee
name, while another region would order
them by section and employee number.
• Required expense records were some-
times not retained due to confusion over
who was responsible for their retention.
The problems described above are a by-prod-
uct of not having a centralized recordkeeping sys-
tem for Superfund expense records. Active site
files and standard agency-wide filing procedures
were developed to centralize the location and stan-
dardize the format of Superfund expense records.
3.
Active Site Filing
Active site filing is a simple, straightforward
process. A unique file or set of files should be set
up for each site. As money is spent on the site,
expense records are generated, and photocopies of
the expense records are placed in the active site
files. The originals of expense records should be
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Recordkeeping Guidance
filed in separate “Superfund original document
files.” In some states, expense records must be
returned to the state treasury or a central record
storage site. In such cases, it is advisable to store
Superfund records separately from other state rec-
ords, in order to prevent them from being disposed
of when other state records are “purged”, since the
retention requirementsforSuperfund originals are
exactly the same as for the site files themselves.
(Retention requirements and microfilming stan-
dards for Superfund originals are discussed at the
end of this chapter.) EPA has found that the most
effective way to protect Superfund original records
from accidental disposal is to store them separately
from other records.
Where expense records contain charges to
more than one site, multiple photocopies should be
made, one copy for each site-specific file. In order
to facilitate quick retrieval of Superfund expense
documents, the site files should all be arranged in
the same way. Filing procedures should be docu-
mented, to ensure that records are filed correctly. A
list of the expense records that should be copied for
site files is provided in the second section of this
chapter, along with requirements for how long the
originals and copies should be retained.
Effective site filing is facilitated if:
• The site files are under centralized con-
trol, since they are likely to be better
organized if only a few staff members
have day-to-day responsibility for updat-
ing them.
• Staff responsible for maintaining site
files have access to detailed site-specific
accounting reports as a check on the
completeness of their files (see “Recon-
ciling Site Files” in the next section).
4. Recordkeeping Planning
A recordkeeping system to meet the objec-
tives described in this chapter cannot be developed
Page 19
without some advance planning. Detailed guid-
ance on recordkeeping planning is provided in
Appendix A of this handbook; this section simply
discusses some of the basic points that should be
considered. In developing a Superfund record-
keeping system, state managers need to decide:
• Who should be responsible for collecting
and filing records in the site and original
files?
• Which departments generate the expense
documents that recordkeeping staff need
to pull and copy for site files and then
store in original files?
• How dorecordkeeping staff get access to
original expense documents for copying?
• How should the expense records be or-
dered in the site files?
• What arrangements should be made for
cost-effective and safe long-term storage
once activity at the site has ceased and the
files are no longer being updated?
• What measures should be taken to ensure
that the site files and original files are
protected from fire, water and other
damage?
B. GUIDANCE
This section provides guidance for the devel-
opment of active site files. It discusses what types
of documents should be retained in active site files,
how the files should be ordered, how long the files
should be retained, and procedures for periodic
reconciliation of expense records.
1. Establishing Site Files
As discussed in the previous section, active
site filing involves the maintenance of a separate
set of files for each site and procedures for copying
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Recordkeeping Guidance
onginal expense records and filing the copies in the
site files.’ in order to minimize the copying burden
on the states, EPA has designated certain expense-
related records, primarily documents that apply to
multiple sites, as exempt from site filing. Exhibit
ifi- ion the following page lists those documents to
which a state’s recordkeeping staff should have
ready access. An in-depth description of the docu-
ments that should be kept in site files follows in the
next section.
In addition to the general objective that states
maintain active site ifies, there are two specific ob-
jectives state recordkeeping systems are expected
to meet:
All site files should be arranged in the
same way and states should develop a
single “filing protocol” for Superfund
site files. Records for the various types of
costs should be kept in the same order, for
example, the site file might begin with
employee timesheets, followed by em-
ployee travel costs, followed by contrac-
tor invoices, and soon. Within each cost
category, records should be filed the
same way in each site file. For example,
employee timesheets might be filed by
pay period, division and employee num-
ber. Each state will have its own filing
protocol; what is important is that docu-
ments be filed in a consistent order in all
site files.
Page 20
Regional Financial Management Office
is allowed 30 calendar days to compile a
cost documentation package detailing
state and regional expenses, so a state
would be expected to respond to EPA’s
cost documentation request within that
time frame.
2.
Records To Be Retained In Site Files
This section discusses in general terms what
types of documentation should be copied and filed
in active site files. In addition, notation is made as
to what documents should be readily accessable to
recordkeeping staff. State managers responsible
for Superfund expense recordkeeping should read
carefully Section B of the introduction to this
handbook, “The Legal Basis For Cost Recovery,”
in order to understand the rationale behind the
guidelines provided in this section.
Records documenting the following areas
should be retained for cost recovery purposes:
• Payroll
• Travel
Contractor Services
• Supplies and Equipment
• Indirect Costs
• State recordkeeping systems must be
able to provide EPA’s regional offices
with complete site-specific expense
documentation within deadlines set by
each regional office. Typically, an EPA
‘While charges to core program cooperative agreements axe
not site-specific, the same t es of documentation neces-
sary for a site-specific CA (payroll, travel, etc.) should be
retained in support of core program charges. Therefore, it
may be helpful to think of a CPCA as a “site,” and set up a
“core program cooperative agreement file” for photocopies
of all core program expense records.
• Core Program Costs.
Each category of records is discussed more com-
pletely below. Exhibit 111-2 on page 23 summa-
rizes those records that should be retained in site
files.
a.
Payroll
Records that show time or attendance of
individuals at specific sites should be copied and
retained in site files. Subsequent adjustments to
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Recordkeeping Guidance Exhibit 111-1 Page 21
Summary of Documents Required,
But Not in Site Files
AREA OF COST
DOCUMENTATION REQUIRED
Payroll • Position titles of staff
• Salary of staff (annual or hourly rate)
• Methodology for determining fringe benefit rate
• Authorization
Contractor • Proposal
Services • Contractor cost data (EPA form 5700-41)
• Cost price analysis of proposal and record of
negotiations
• Proposal evaluations
• Contract
• Work orders and change orders
• Reports on contractor work
• Audits of contractor
Supplies and • Type(s) of materials and supplies furnished
Equipment • Type(s) of equipment
• Contracts
• Leases
• Purchase orders
• Receiving reports
• Explanation of “usage rate” calculation
Indirect Costs • Rate agreement
• Rate documentation package
CA and • Cooperative Agreement
Amendments • Amendments
Core Program • All documentation described for categories above.
Costs
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Recordkeeping Guidance
Page 22
any timesheet should be photocopied and clipped
to the copy of the timesheet in each site file.
Recordkeeping staff should also have available
documentation on the position titles and salaries of
the staff who worked on that site.
If the state’s accounting system does not
calculate fringe benefit charges automatically,
each site file should contain worksheets showing
how fringe benefit charges were calculated for that
site. If an allowable fringe benefit rate is not
specified in the state’s negotiated indirect cost rate
agreement, the methodology the state uses for
allocating fringe benefit costs to sites should be
documented (copies of that documentation do not
need to be kept in individual site files). In addition,
notation should be made of which state official
approved the fringe benefit allocation methodol-
ogy.
b. Travel
The following records relating to travel ex-
penses should be retained in site files: travel au-
thorizations (containing site names) that document
the purpose of the trip; travel vouchers submitted
by employees showing starting point and destina-
tion, transportation method, and the number and
names of persons traveling; receipts provided by
employees showing actual costs incurred (only
major receipts need to be included in site files -
hotel, airline, car rental, etc.); and proof that the
travel vouchers were paid (for example, a report
generated by the state treasury showing checks
issued).
c. Contractor Services
A state should be able to document com-
pletely its relationship with its contractors. Site
files should contain:
Contractor invoices (contractors should
break out costs by site and activity)
• Proof of payment of the invoices.
In addition, procurement or recordkeeping staff
should have available the following records for
each contractor doing Superfund work:
d.
• The contractor’s proposal/bid
• The contractor’s cost data, submitted as
part of its proposal (usually on EPA Form
5700-41)
• Cost/price analysis of proposals received
and record of negotiations
• Other documents relating to the state’s
evaluation of contractor proposals
• The contract/statement of work
• Work orders and change orders
• Quarterly technical progress reports
• State audits of the contractor.
Supplies and Equipment
Each site file should contain equipment pur-
chase invoices, contractor invoices, or equipment
lease bills for all equipment used at the site. Proof
of payment records should also be provided in site
files (for example, a report generated by the state
treasury showing checks issued). if EPA was
charged a “usage rate” for equipment, hourly rec-
ords of equipment use at the site should be included
in the site file.
The state should also have available docu-
mentation on the type of materials or supplies
purchased for use on the site and copies of purchase
orders, receiving reports, leases and contracts for
supplies. For purchased equipment that is shared
between multiple sites, a “usage rate” is developed
for each piece of equipment (see Chapter II), and
• Project officer approval of each invoice
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Recordkeeping Guidance Exhibit 111-2 Page 23
Summary of Documents Required in Site Files
AREA OF COST DOCUIVIENTATION REQUIRED
Payroll • Time attendance records
• Time attendance amendments
• Worksheet showing fringe benefit calculations
(if not calculated by accounting system)
Travel • Authorizations (including purpose of trip)
• Vouchers showing:
Starting point and destination
Transportation method
Number and names of persons on trip
• Receipts, (airline, hotel, etc.)
• Proof of payment 1
Contractor • Contractor invoices
Services • Project officer approval of invoices
• Proof of payment I
Supplies and • Invoices 1
Equipment • Proof of payment
• Hourly records of equipment use
Indirect Costs Worksheet showing calculations (if not calculated by accounting
system)
Core Program • All documentation described for categories above.
Costs
1 Proof of payment must be documented for each expense charged to a site. Generally, a copy of a
payment schedule which includes the check number and the amount is sufficient.
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Recordkeeping Guidance
the state should have a written explanation of how
the usage rate was developed for each piece of
equipment used on a Superfund site.
e. Indirect Costs
If the state’s accounting system does not
calculate indirect charges automatically, site files
should contain copies of worksheets used to make
indirect cost calculations. Recordkeeping staff
should also have available a copy of each year’s
indirect cost rate agreement (a one to three page
document), as well as the package the state pre-
pares to document its annual indirect cost rate
proposal.
f. CA and Other Amendments
Recordkeeping staff should have access to
copies of the state’s cooperative agreements and
amendments to those agreements.
g. Core Program Costs
If a state has entered into a Core Program
Cooperative Agreement with EPA, recordkeeping
staff should have available a copy of the agreement
and any amendments. In addition, a “core program
cooperative agreement file” should be set up for
timesheets, travel vouchers, equipment informa-
tion and invoices, and all other relevant records
described above.
3. Reconciling Site Files
To ensure that all active site files are com-
plete, the files should be periodically reconciled
with summary reports produced by the state ac-
counting system. This procedure will identify
needed records not included in the site files. In
order to make reconciliation and subsequent copy-
ing of missing documents a manageable task, EPA
recommends that active site files be reconciled to
accounting system reports at least twice a year.
_______ ____ Page 24
4. Storage Media And Record Safety
Procedures
States should store active site files in loca-
tions as secure as possible from fire, water and
other damage. Once activity has ceased at a site,
similar provisions must be made for safe long-term
storage of site files. At this time, microfilm copy-
ing of inactive site files and original expense rec-
ords is allowed by EPA, provided the microfilming
meets certain technical standards (see Appendix D
for references).
5. Record Retention Requirements
The state and its contractors are required to
retain the documents described in this chapter for a
minimum of three years after submission of a final
FSR for a site, after which the state and its contrac-
tors must obtain written permission from the ap-
propriate regional site project officer before dis-
posing of any of the records described in the
chapter.
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APPENDICES
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Appendix A
Page 25
APPENDIX A
PLANNING FOR STATE SUPERFUND
OBJECTIVES
This appendix is intended to assist state
managers in developing a plan to meet the Super-
fund fmancial management and recordkeeping
objectives described in this handbook. Effective
planning to meet those objectives involves four
steps:
1. Identify key players who should be involved
in the planning process; put together a group
to work on planning.
2. Conduct a detailed assessment of state finan-
cial management and recordkeeping prac-
tices to determine how well the state cur-
rently meets Superfund objectives in those
areas.
3. Using the results of the assessment, develop
procedures to bring state practices in line
with EPA financial management and
recordkeeping objectives.
4. Document the new procedures in a handbook
or manual to which all employees can refer.
Each of these steps is discussed in detail below.
A. Identify Key Players
Typically, one or two staff members in the
state’s Superfund program and financial manage-
ment areas are assigned the task of bringing the
state into compliance with EPA objectives. These
staff members are unlikely to have the authority
and knowledge to develop a new set of financial
management and recordkeeping procedures en-
tirely on their own. For this reason, a planning
group made up of staff from several Superfund-
related areas is an ideal way to approach the plan-
ning process.
In order to put together a planning group, it is
necessary to identify the “functional areas” that
should be represented in the group. Exhibit I-i
may be helpful in this context; it provides an
example of a set of procedures to meet Superfund
financial management and recordkeeping objec-
tives. In the example, there are six “functional
areas” with Superfund responsibilities:
Legal
• Contracts Administration
• Program Office
• Recordkeeping
• Accounting Operations
Paying Agent.
In this example, representatives from each of
the six functional areas would be included in the
planning group because each area has a Superfund
responsibility.
State managers putting together a planning
group should ask themselves which divisions,
bureaus, sections or offices would logically have
responsibility for meeting the various financial
management and recordkeeping objectives de-
scribed in this handbook. In some cases, there may
not be a formally established functional area; for
example, there may not be a recordkeeping section
per Se. Still, there is probably someone whose
responsibilities include Superfund expense
recordkeeping; essentially, that person represents
the recordkeeping section.
Once the relevant functional areas have been
defined, managers leading the state’s financial
management and recordkeeping effort should re-
cruit suitable staff members from each functional
area. Ideally, each representative would be some-
one with authority who still has day-to-day super-
visory responsibility over the functional area. (For
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Appendix A
Page 26
example, a senior manager of a functional area
undoubtedly has authority, but he or she may not be
close enough to day-to-day operations to contrib-
ute substantially to the development of proce-
dures.)
B. Conduct An Assessment Of State
Practices
The planning group’s first task should be to
conduct a detailed assessment of the state’s Super-
fund financial management and recordkeeping
practices. This handbook and the references listed
in Appendix D should provide the tools necessary
to determine whether state financial management
and recordkeeping procedures meet EPA’s objec-
tives. EPA audits of these areas, if any have been
done, will also be useful in the assessment.
This section provides guidance on one im-
portant aspect of a state fmancial management and
recordkeeping assessment: ascertaining whether
the accounting system tracks and reports on all
allowable Superfund costs, as discussed in the
overview to Chapter II. EPA recommends that
states conduct a “Superfund Expense Accounting
Review” as part of its overall assessment of finan-
cial management and recordkeeping practices.
The suggested steps in a Superfund Expense
Accounting Review are as follows:
1. Determine all types of allowable costs that go
into the state’s Superfund effort. A checklist
similar to the hypothetical example provided
in Exhibit A-i on the following pages may be
helpful. The exhibit organizes costs by state
departments and subdivisions of those de-
partments, but states should use whichever
format suits their situations.
2. Determine whether the Federal cost share of
each allowable expense is currently being
charged to a site-specific CA or a core pro-
gram cooperative agreement (see Chapter H
for an explanation of these cost categories).
When the planning group begins work on
developing new procedures, it should make a de-
termination on how the state’s accounting system
should record and report any allowable costs that it
currently does not.
C. Develop Financial Management And
Recordkeeping Procedures
The planning group should use this hand-
book, other references and EPA audit reports as
sources for suggestions on specific procedures to
meet Superfund financial management and
recordkeeping objectives. In addition, EPA re-
gional office staff can answer specific questions
raised by the planning group and provide sugges-
tions on procedures based on practices in their
regional office.
D. Document The New Procedures
After new financial management and
recordkeeping procedures have been developed, it
is important to document the procedures in a man-
ual or pamphlet for employees to use. The docu-
mentation should cover:
• The purpose of the procedures
• Responsibilities of the functional areas
assigned to implement the new proce-
dures
• Filing procedures and protocols
• Document flows and sources
• Reconciliation procedures and how often
they should be performed
• Methods for updating the procedures in
response to new state or EPA initiatives.
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Appendix A Exhibit A-i Page 27
State Expense Accounting
Checklist: An Example
Costs are eligible under this
Cost Category Method of Charging 1
1. Department of Environmental Protection
Director 2 Indirect
Deputy Director Indirect
Rent, telephone, electricity, etc. Indirect
DP and other centralized services 3 Indirect
Bureau of Waste Management
Bureau Chief Indirect
Deputy Indirect
Secretaiy / Clerical Indirect
DP and other centralized services Indirect
Division of Emergency and
Remedial Response
Division Head Indirect
Deputy Division Head Indirect
DP and other centralized services Indirect
Remedial Response Section And
Emergency Response Section
Section Heads Direct or Core 4
Deputy Section Heads Direct
Remedial Project Manager Direct
Secretarial / Clerical Direct or Core
DP and other centralized services Indirect
Personal Computers and software (general use) Core
Equipment Direct
Contractor Costs Direct
Footnotes:
1. Method of charging travel to Superfund will coincide exactly with method of charging labor, i.e.
direct, indirect, or core.
2. For the purposes of this example, the functional areas used in Exhibit I-i are under three State
departments: Program Office, Contract Administration, and Recordkeeping are part of the State’s
Department of Environmental Protection; Accounting Operations and Paying Agent are under the
Department of Treasury; Legal is its own department.
3. Includes charges for services supplied on a statewide basis: data processing (computer time and
report generation), financial services (payroll and other payment services), security, mailroom operations
and so on.
4. Core program charging is an optional method of capturing a stat&s Superfund costs. In this exhibit,
we highlighted some of the areas that are eligible under Core Program CAs. These CAs must be applied
for and negotiated separately, however. Allowable expenses under CPCAs are decided on a case-by-case
basis.
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Appendix A Exhibit A-i (continued) Page 28
Checklist (cont.)
Costs are eligible under this
Cost Category Method of Charging
Recordkeeping Group Costs
Project Officers Core
Secretarial / Clerical Core
Personal Computers and software
for use in recordkeeping Core
Contracts Administration Division
Section Head Indirect
Deputy Section Head Indirect
Project Officers Direct
Secretarial I Clerical Direct
DP and other centralized services Indirect
Personal Computers and software
for use in tracking Superfund contracts Core
2. Department of Treasury
Accounting Operations Division
Project Officers Indirect
Secretarial / Clerical Indirect
State Payments Division
Project Officers Indirect
Secretarial I Clerical Indirect
3. Legal Department
Legal Staff Direct or Indirect
Secretarial / aei-ical Direct or Indirect
DP and other centralized services Direct or Indirect
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Appendix B
APPENDIX B
STATE LEGAL RESPONSIBILITIES
As noted in the introduction, state expense
claims can be questioned in litigation. Unless both
parties “stipulate” in advance the correctness of the
state’s expense claims, which is extremely un-
likely, legal counsel for the responsible party is
entitled to review the evidence for a state’s claims,
while the government’s lawyers are allowed to
introduce documents and testimony in proof of
those claims. Information on the state’s expense
claims can be included in the court record in four
ways:
State responsibilities in each of these areas are
described below.
A. Interrogatories
Interrogatories are a written set of questions
submitted by either party in a lawsuit to the oppos-
ing party. Unless improper under applicable legal
rules, the questions must be answered. In a cost
recovery case, questions directed to state
recordkeeping and fmancial management staff
generally will be directed toward identifying the
nature of documents submitted in the state’s cost
recovery package and the process used to compile
that package. State, EPA or DOJ legal staff litigat-
ing a cost recovery case can provide guidance to
state financial management and recordkeeping
staff in responding to interrogatories.
B. Affidavits
Affidavits are written statements of fact
based on personal knowledge that are made under
Page 29
oath. State financial management and recordkeep-
ing staff may be asked by state, EPA or DOJ legal
staff to prepare affidavits that can be used as
evidence to support elements of the state cost
documentation package.
C. Depositions
A deposition is typically an oral question and
answer session, completed under oath, that is ad-
missible as evidence in court. In a cost recovery
action, the potentially responsible parties may
depose state financial management or recordkeep-
ing staff. Attorneys for the responsible party will
want to question state staff in order to highlight any
weaknesses in the cost documentation package.
Witnesses for the cost documentation por-
tion of a CERCLA/SARA recovery case are typi-
cally asked detailed procedural questions about
how the state calculated various types of costs. if
the cost documentation provided to the court falls
short in any of the areas discussed elsewhere in this
handbook, the witness will be asked about those
points. For example, if the responsible party’s
legal counsel noted that employee timesheets were
frequently filled out well after the fact, the state
witness would probably be asked what procedures
are in place to ensure that employees record time
accurately. If state accounting system reports
appeared inconsistent or incomplete, a witness
might be asked to describe how the accounting
system tracks costs by site. Or, if the state were
unable to provide bid evaluation records due to a
recordkeeping deficiency, a witness might be
asked about state compliance with Federal pro-
curement regulations.
Cost records that meet the requirements dis-
cussed in this handbook section make the witness’
job easier. Effective preparation is also important.
The witness should be thoroughly familiar with the
portion of the cost documentation package on
which he or she is to testify, especially the more
complex parts of the package, such as the method-
ology for calculating equipment usage rates, or
procedures used in preparation of cost summaries.
• Interrogatories
• Affidavits
• Depositions
• Expense documents.
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Appendix B
Page 30
Any state employee scheduled to be deposed
should be accompanied by a state, EPA or DOJ
lawyer, and all state activities in connection with a
cost recovery case should be coordinated through
Regional Legal Counsel.
D. Expense Documents
Lawyers for the responsible party are entitled
to review all state expense records that are not
protected by a legal privilege. If the state receives
a request for production of documents, it must
comply. Certain types of personal and business
information are protected by law in many states,
however. To protect such information, a state may
try to exclude documents containing protected in-
formation from the package to be delivered to
opposing legal counsel, or it may block out sensi-
tive information contained in the documents, a
process called “redacting.” The following types of
information are often protected from public disclo-
sure under state law:
1. Personal Information
In general, non-business information pro-
vided by individuals that is contained in state
records may be protected from disclosure under
state law. The following list, which is not all-
inclusive, identifies the kind of information that
may have to be removed from documents given to
opposing legal counsel:
• Social security numbers
• Credit card numbers
• Type of credit card
• Home addresses
• Home telephone numbers
• Non-business calls on personal tele-
phone bills
• Vacation and sick leave balances
• Timecard or timesheet comments
• Coded information on the front of time-
cards.
2. Business Information
Information that would allow a competitor to
deduce a state contractor’s actual costs is protected
in many states. Invoices and cost data submitted
with proposals typically fall into this category,
although other documents may also.
• Drivers license numbers
• Comments on travel vouchers
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Appendix C
Page 31
APPENDIX C
EPA AUDITS
In signing an EPA/state cooperative agree-
ment, the state gives EPA the right to audit that
agreement, pursuant to the Inspector General Act
of 1978 (PL 95-452), CERCLA Section 111(k),
and 40 CFR 30.540. This appendix provides guid-
ance on how EPA auditors review state financial
management and recordkeeping procedures, and
the problems encountered in recent Superfund
Cooperative Agreement audits.
EPA may audit a Superfund CA while the
agreement is in effect, called an interim audit, or
may conduct a final audit at the completion of the
Federally funded activities. In either case, the
objectives of an EPA audit are twofold: first, to
determine whether the costs the state has claimed
under the agreement are allowable and allocable to
the project under the terms of the CA and appli-
cable EPA and Federal regulations; and second, to
determine whether controls and procedures devel-
oped by the state in its financial and project man-
agement, recordkeeping, accounting, procure-
ment, subagreement administration and property
management systems meet EPA and other Federal
requirements.
This appendix will concentrate on the issues
concerning the states’ ability to provide respon-
sible accounting, timely and accurate reporting,
and effective procedures for indirect cost alloca-
tion, contractor procurement and equipment pur-
chases. A detailed discussion of audit procedures,
schedules, tasks, findings and resolutions is ad-
dressed in State Participation in the Supeifund
Pro gram.
A broad range of financial and administrative
areas are audited periodically for compliance with
Federal requirements. This appendix will discuss
only those areas where requirements are specific to
Superfund CAs. For further information on the
categories discussed below, refer to the appropri-
ate chapter of this manual or the Assistance Ad-
ministration Manual. Additional information on
audit procedures is found in Chapter 38 of the
Assistance Administration Manual and OIG Audit
Guide EAG-3 of CERCLA Cooperative Agree-
ments. Detailed audit procedures and findings are
provided below for the following areas:
A. Procurement
States are required to provide auditors with
proof that they have complied with the require-
ments found in 40 CFR Part 33, “Procurement
Under Assistance Agreements.” Under these
Federal regulations, states are required to use the
process of formal advertisement and competitive
bids for procurement awards to the greatest extent
possible. In addition, states are prohibited from
entering into cost-plus-percentage-of-cost type
contracts. Recent EPA audits have noted several
instances of non-compliance with procurement
requirements, due mostly to a lack of familiarity
with the requirements on the part of state contracts
administration staff. The audits have also noted
that the methodology used for awarding contracts
is often poorly documented or not documented at
all.
B. Financial Recordkeeping and Reporting
Audits in this area are concerned primarily
with the states’ accounting procedures for assign-
ing costs directly to specific sites, and applying the
state’s negotiated indirect cost rate correctly. State
accounting system internal controls are also exam-
ined, as are state financial reporting practices.
• Procurement
• Financial Recordkeeping and Reporting
• Letter of Credit Drawdowns
• Indirect Cost Allocation
• Property Management.
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Appendix C
Page 32
Site-specific accounting procedures have
been the subject of several critical audit reports.
The audits found state accounting procedures in-
adequate to record and accumulate costs and inca-
pable of properly distiibuting personnel and fringe
benefits charges. The procedures used to record
and report employee time and fringe benefits often
did not accurately represent the actual time worked
at a particular site. Unacceptable recordkeeping
practices allocated employee indirect time as direct
time expense in one case and transferred labor
costs between agreements in another. Also, audits
disclosed that some states are not separating allow-
able and unallowable costs in accounting records.
C. Letter of Credit Drawdowns
Audits of letter of credit (LOC) drawdown
procedures focus on whether states have written
procedures to determine drawdown amounts and
whether they maintain complete records of
drawdown activity. Specifically, states are re-
quired to keep a LOC payment schedule for indi-
vidual CAs. The LOC payment schedule must
contain the existing balance, the drawdown date
and amount authorized, additional funding (if the
CA is amended) and the new beginning balance.
The drawdown voucher, or request for funds,
should reconcile with the General Ledger. The
drawdown amount should be supported by site-
specific computer summaries and expense records.
State managers may find the Letter of Credit -
Treasury Financial Communications System
Recipient’s Manual useful in understanding LOC
requirements (see Appendix D for reference infor-
mation).
Audit findings indicate that increased man-
agement attention must be focused on the LOC
system and written LOC procedures. Audits dis-
closed that states failed to submit financial reports
and drawdown vouchers in a timely manner and
to calculate properly the drawdown amount. Other
problems cited in connection with drawdown pro-
cedures include: states using an incorrect account
number for activities at a particular site; states not
properly calculating their cost share at the time of
the drawdown; and states drawing down more than
the amount incurred for the completion of an activ-
ity.
D. Indirect Cost Allocation
EPA audits of state indirect cost practices are
concerned primarily with whether the state’s nego-
tiated indirect cost rate is being correctly applied.
Audits have disclosed that some states have misap-
plied the rate, while others have not used the
approved rate at all in calculating Superfund indi-
rect charges. (For example, some state environ-
mental protection departments have simply calcu-
lated the percentage of their total funding coming
from Superfund and charged that percentage of
their indirect costs to Superfund CAs.)
E. Property Management
EPA’s property management requirements
are explained in Chapter 26 of the Assistance
Administration Manual, “Property Management,”
and Chapter 27, “Real Property Acquisition.”
These chapters are based on the property manage-
ment requirements contained in 40 C.F.R. Part
30.531. The major requirements are that states
maintain accurate property records for Superfund
equipment and property, documenting:
• Property identification information
• Acquisition data and cost
• Percentage of cost paid by the Federal
Government
• Holder of title (state or Federal Govern-
ment).
In addition, states are required to contact EPA for
instructions on disposal of unneeded property and
to pay EPA its share of the proceeds of a sale of
property. Audits of state property management
practices have shown that many states have failed
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Appendix C Page 33
in some or all of these requirements. In particular,
states frequently do not maintain an accurate prop-
erty listing and often fail to record equipment
purchases.
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Appendix D
APPENDIX D
WHERE TO GO FOR FURTHER
INFORMATION
This appendix provides state managers with
information on available reference materials. The
appendix lists and gives a brief synopsis of the EPA
and other Federal reference materials that could be
useful to state managers.
The references listed below contain informa-
tion that state managers can use to develop their
approach to the financial management and
recordkeeping guidance presented in this hand-
book. Some of the manuals do not specifically
address state guidance, but they contain useful
background information. Most of the references
listed can be obtained through the EPA’s regional
offices or by contacting EPA Headquarters di-
rectly. Materials published by other government
agencies can be obtained by calling the agency
directly. Legal references can be obtained through
state legal departments. Suggested reference
sources are as follows:
A. Office of Management and Budget
Circular A-87
This circular discusses procedures for indi-
rect cost allocation and submission of state indirect
cost allocation plans for Federal approval. It pro-
vides methods of calculating indirect cost rates and
obtaining EPA approval for those rates.
B. 40 Code of Federal Regulations (C.F.R.)
Part 30
This part of 40 CFR contains the EPA general
requirements for assistance recipients.
C. 40 C.F.R. Part 33
This part of 40 CFR contains the EPA pro-
curement requirements for subagreements that
Page 34
states award under their cooperative agreement.
D. Federal Rules of Evidence
The body of rules relating to the admissibility
of documents as evidence in Federal court pro-
ceedings is called the Federal Rules of Evidence,
and can be found under Title 28 of the United States
Code (28 U.S.C.).
E. Letter of Credit - Treasury Financial
Communication System (LOC - TFCS)
Recipient’s Manual
This EPA manual discusses the requirements
for establishing a Letter of Credit and amending it
if necessary. Also, procedures for drawing down
the necessary funds are explained. A section on
Financial Status Reporting is also included.
F. State Participation In The Superfund
Program
This EPA manual provides detailed guidance
on most state Superfund program and fmancial
requirements.
G. Financial Management Procedures For
Documenting Superfund Costs
This EPA manual, known as the Blue Book,
provides complete information on Superfund le-
gal, accounting, financial management and
recordkeeping requirements. The Blue Book was
written for the ten EPA regional fmancial manage-
ment offices and can be used for general back-
ground information on Superfund financial man-
agement and recordkeeping requirements.
H. Assistance Administration Manual
This EPA manual describes specific require-
ments for all EPA assistance recipients. Key chap-
ters are as follows:
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Appendix D Page 35
• Chapter 19- Recipient Record Require-
ments
• Chapter 20 - Accounting And Internal
Management
• Chapter 21 - Procurement Under Assis-
tance Agreements
• Chapter 22- Cost and Price Analysis
• Chapter 26- Property Management
• Chapter 27 - Real Property Acquisition.
L Resource Management Directive System
2550 D
This EPA manual provides agency-wide
policies and procedures for the Superfund pro-
gram.
J. Hardcopy Standards Set
The American National Standards Institute
sets technical standards for microfilming of rec-
ords that should be followed by states wishing to
microfilm Superfund expense documents. The
complete set of microfilm standards, called the
Hardcopy Standards Set, is available from:
Association For Information And Image
Management
Suite 1100
1100 Wayne Avenue
Silver Spring, MD 20910
(301) 587-8202
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Index
Page 36
Accounting
- systncapabilitiesforSuperfund 11,12
- overcoming system limitations 13, 14
- paying for system revisions 13
- jroceduresfor 13,15-17
- bysite 13
- by activity 13
- by object class categozy 13
Active site files - see also,’Recordkeeping”
- contents 20-24
- background on 18
- filing procedures 18-20
- micrefllming 24, 35
- howlongtoretain 24
Activities, description of 13
Affidavits 29
Audits
timing 31
authority for 31
procedures for scheduling 31
topics covered 3 1-33
CERCLA
- reauthorization I
- cost recov y 1
Confidential Information
- general procedures for protecting 30
- types of information protected 30
Contractor Costs
- accounting for 16
- keeping records of 22
- how conu actors should invoice 16
Core Program Cooperative Agreements
- purpose 12
- what theycanbe wed for 12-13,27-28
- accounting for expenses under 16
- keeping records of expenses under 24
Depositions 29-30
Direct Costs
- description of 12
- categories of 15-16
- accounting for 15
- keeping records of 22
Equipman
- accounting for 15
- keeping records of 22-24
- options for acquiring 15-16
- storage and disposition requirements 16,32
Financial Reporting
- typesofreportsrequired 16-17
- frequency of reporting 16-17
Fmancial Reporting (continued)
- reporting costs by site 16-17
Fringe Benefit Costs
- as part of indirect cost agreement 22
- accounting for 22
- keeping records 22
Indirect Costs
- development of negotiated rate 12
- Office of Management and Budget Circular A-87 12
- accounting for 16
- keeping records of 24
Inteirogatories 29
Labor Costs
- accounting for 15
- keeping records of 22
Materials - see “Equipment”
Microfilming
- when permitted 24
- technical standards 35
Original Expense Records - see “Recordkeeping”
- filing procedures 18-19
- microfilming 24
- how long to retain 24
Payroll - see “Labor Costs”
Privacy Act - see “Confidential Information”
Procurement
- requirements under EPA regulations 31
- improper practices 4,31
- importance to cost recovery 4
Reconciliation
- procedures 5,11,24
- importance to cost recovery 5
Recordkeeping
- importance for cost recoveiy 3
- procedures 19-24
- acceptable storage media 24
- retention requirements 24
- planning for 19, 25-26
Record retention - see “Recordkeeping”
Redacting 30
References 34-35
SARA 1
Travel Costs
- accounting for 15
- keeping records of 22-23
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