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Regional Center for Environmental Information
US EPA Region III
1650 Arch St.
Philadelphia, PA 19103
Inspector General Division
Conducting the Audit:
Program Offices Involved:
Mid-Atlantic Audit Division
Philadelphia, PA
Office of Assistant Regional
Administrator for Policy
and Management
Philadelphia, PA
Hazardous Waste
Management Division
Philadelphia, PA
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
MID-ATLANTIC DIVISION
841 Chestnut Building
Philadelphia, Pennsylvania 19107-4431
(215) 566-5800
September 17, 1997
MEMORANDUM
U.S. EPA Region III • _
Regional Center for Environmental
laformation .
1050 Arch Street (3PM52)
fbfi'MelpIlia, PA 13103
SUBJECT:
Final Report of Audit on the
Maryland Department of the Environment (MDE)
Leaking Underground Storage Tank (LUST) Program
Report Number E3LLL7-03-0009-7100290
A
FROM:
TO:
Garl A. Jannetfi
Divisional Inspector General for Audit (3AIOO)
W. Michael McCabe
Regional Administrator (3RA00)
Attached is a copy of the subject report including the complete Region Sand
MDE responses. This audit report provides findings and recommendations
regarding MDE's administration of their LUST program. This report contains
important issues and recommendations.
This report contains findings that describe problems the Office of Inspector
General (OIG) has identified and corrective actions the OIG recommends. This
report represents the opinion of the OIG. Final determinations on matters in this
report will be made by EPA managers in accordance with established EPA audit
resolution procedures. Accordingly, the issues contained in this report do not
represent the final EPA position, and are not binding upon EPA in any
enforcement proceedings brought by EPA or the U.S. Department of Justice.
ACTION REQUIRED
In accordance with EPA Order 2750, you as the action official are required to
issue a final determination on the costs questioned and any other
recommendations in this report within 90 days of the final report date. Your
Report No. E3LLL7-03-0009-7100290
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response should address an recommendations, and include milestone dates for
corrective actions planned but not yet completed. Where you consider a
position on the report findings that differs from our recommendation, we would
appreciate the opportunity to discuss management's position before the
determination is issued to the grantee. A copy of 4he final determination should
be provided to our office when issued.
We have no objection to the release of this report to the public. Should you
have any questions about this report, please contact Carl A. Jannetti, Divisional
Inspector General for Audit, or MarkS. Phillips, Auditor-in-Charge, on (215) 566-
5800.
Attachment
Report No. E3LLL7-03-0009-7100290
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TABLE OF CONTENTS
Page
PURPOSE . ]
BACKGROUND 1
SCOPE AND METHODOLOGY 2
PRIOR AUDIT COVERAGE 4
RESULTS OF AUDIT 4
IMPROVEMENTS NEEDED IN THE REPORTING OF
PROGRAM ACCOMPLISHMENTS 6
RECOMMENDATIONS .9
DOCUMENTATION LACKING FOR LESS THAN FULL
COST RECOVERY SETTLEMENTS ... 13
RECOMMENDATION . 14
OTHER MATTERS 16
RECOMMENDATIONS . 17
APPENDIX A 18
MDE RESPONSES
APPENDIX B 28
REGION 3 RESPONSES
APPENDIX ••••• 38
DISTRIBUTION
Report No. E3LLL7-03-0009-7100290
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(This page was intentionally left blank.)
Report No. E3LLL7-03-0009-7100290
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PURPOSE
We have performed an audit of MDE's administration of its LUST program. The
purpose of our audit was to determine whether MDE had adequately
accounted for LUST Trust Fund monies and complied with the conditions in the
cooperative agreement (CA) received from EPA. Our specific objectives were
to determine whether MDE's:
~ Reporting procedures assured accurate and timely reporting of
LUST program performance data;
~ Accounting system and cost recovery procedures were adequate
to ensure recovery of LUST Trust Fund expenditures from responsible
parties (RPs);
~ Costs claimed were allowable, allocable, and reasonable; and
~ Resources were directed to high priority sites and were effectively
used to oversee the cleanup of LUST sites.
BACKGROUND
Congress passed Underground Storage Tank (UST) legislation in 1984 and 1986.
In 1984. the Hazardous and Solid Waste Amendments established the UST
program under Subtitle I of the Resource Conservation and Recovery Act. The
Superfund Amendments and Reauthorization Act (SARA) of 1986, Section 205,
amended the Solid Waste Disposal Act and established the LUST Trust Fund to
finance the cleanup of petroleum releases from USTs.
SARA authorizes EPA to provide LUST Trust Fund monies through CAs awarded to
states for the cleanup of leaking underground storage tanks. These agreements
between EPA and the states provide the basis for EPA's oversight and
management of LUST Trust Fund monies. The agreements identify the amount of
funds allocated to each state and establish LUST program performance
requirements. States may use LUST funds to pay costs for, site corrective actions,
enforcement actions against owners and operators (i.e., responsible parties),
cost recovery of LUST expenditures, and reasonable and necessary
administrative expenses directly related to these activities.
Region 3 awarded LUST CA No. LS003383-07 to MDE on September 19,1995. The
CA's purpose was to provide funding for MDE to conduct timely and
appropriate corrective actions at LUST sites, and implement cost recovery
procedures at sites where LUST Trust Fund monies had been expended fpr a
i Report No. E3LLL7-03-0GGS-710G29O
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cleanup. MDE submitted its financial status report (FSR) on December 20, 1996.
Total project costs were $1,556,631. This amount consisted of $1,321,601
authorized under the CA (EPA's share of $1,189,441 and MDE's share of
$132,160) and an additional $235,030 that came from MDE's cost recovery
account. The cost recovery account consists of funds used for performing
additional LUST activities, which MDE recovered from RPs.
To help the reader to obtain a proper understanding of the report, we defined
ineligible costs as:
Costs questioned by the OIG because they were incurred and
claimed contrary to a provision of a law, regulation, contract, grant,
cooperative agreement or other document governing the
expenditure of funds.
SCOPE AND METHODOLOGY
We conducted a performance and financial audit. Our survey began on
October 15,1996, and ended on March 17, 1997. Because of the survey, we
Wiated an audit on March 18, 1997. We completed fieldwork on May 30, 1997.
We conducted audit work at EPA Region 3 and MDE's office in Baltimore,
Maryland. The scope of our work was limited to activities under the LUSTCA.
To accomplish our objectives, we reviewed EPA and MDE policies and
procedures. We also interviewed responsible LUST program officials at EPA and
MDE. As criteria w® used the Code of Federal Regulations, Part 31; Office of
ManQgement and Budget (OMB) Circular A-87; Office of Solid Waste and
Emergency Response (OSWER) Directives 9610.10A and 9650.10A; and the
conditions in the C A.
We conducted a performance audit of selected elements of LUST CA No.
LS003383-07. We performed this audit according to Government Auditing
Standards (1994 Revision) for performance audits issued by the Comptroller
General.
We reviewed records maintained by MDE. The scope of the audit covered
reports and records prepared from October 1,1995 through September 30 1996
(FY 19%). The records reviewed included 1) MDE's and EPA's cooperative
agreement files, 2) LUST semiannual progress reports (Strategic Targeted
Activities for Resutts System - STARS), 3) MDE's LUST site files, and 4) MDE's LUST
Trust fund cost recovery records.
2 RePort No. E3LLL7-03-0009-7100290
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The site files that we reviewed were judgmentally selected. We selected sites
reported as cleanups completed in FY 1996. We selected sites completed
throughout the year and sites that reflected the various types of LUST cleanups
such as, tank pulls, soil contamination, and groundwater contamination.
The results of our performance audit are presented in the findings:
1) Improvements Needed in The Reporting of Program Accomplishments,
2) Documentation Lacking for Less Than Full Cost Recovery Settlements, and
3) Other Matters,
We also conducted a financial and compliance audit of the CA to determine if
the costs incurred and claimed by MDE were eligible, reasonable, and
allocable under the CA's terms and conditions and in accordance with laws
and regulations. The audit represents a final audit of costs claimed. This portion
of our review was conducted in accordance with the Government Auditing
Standards (1994 Revision) for financial related audits issued by the Comptroller
General of the United States. Accordingly, the audit included tests of the
accounting records and other auditing procedures as we considered
necessary. Other than the issues discussed in this report, no other significant
issues came to our attention that warranted'expanding the scope of our audit.
We obtained an understanding of MDE's internal control structure, used in
administering Federal financial assistance programs, to determine the nature,
timing, and extent of our testing. We relied on the Statewide Single Audit Report
for the State of Maryland for the fiscal year ended June 30,1995, to the extent
possible. We analyzed a sample of incurred costs and related internal controls
to assure compliance with federal statutory and regulatory criteria and with
MDE's policies and procedures. Because of the inherent limitations in any
system of internal accounting control, errors or irregularities may occur and not
be detected. Except for the questioned costs and issues discussed in this report,
no other issues came to our attention that would cause us to believe that MDE's
procedures were not adequate for our purposes.
To determine the reasonableness, allowability, and allocability of the costs
claimed under the CA, we tested a judgmental sample of the costs claimed.
We selected items in each category of cost, i.e., personnel, fringe, and travel.
We reviewed the source documentation for all sampled transactions including
purchase orders, payment invoices, travel vouchers, and timeshe^ts. We also
tested transactions to determine MDE's compliance with federal laws,
regulations, and the LUST CA conditions. We reviewed MDE's compliance with
the CA's program and financial reporting requirements and interviewed MDI
personnel to determine whether policies and procedures were appropriately
implemented.
3 Report No. E3LLL7-03-0009-7100290
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The results of our financial and compliance audit are presented under the
heading Other Matters.
On June 25, 1997, we issued the draft report. We received a response from
Region 3 on July 31, 1997 and additional responses dated August 27, 1997 and
September 11, 1997. Additionally, we received a response from MDE on July 24,
1997 and additional responses dated July 31, 1997 and August 25, 1997. We
conducted an exit conference with Region 3 personnel on August 13, 1997 and
with MDE personnel on September 16, 1997.
We summarised the comments received from MDE and Region 3 after each
finding and recommendation. We included MDE's and Region 3's complete
responses as Appendixes A and B to this report. Because they were voluminous,
we did not include Region 3's attachments. These attachments are on file in our
office and are available upon request.
PRIOR AUDIT COVERAGE
There has been no prior audit coverage of MDE's LUST program. However, there
has been extensive OIG audit coverage of LUST programs in several other states.
This prior audit coverage was summarized in the August 6, 1996, OIG audit report
entitled Consolidated Report on EPA's Leaking Underground Storage Tank
Program (Report No. E1LLF5-10-0021-6100264).
RESULTS OF AUDIT
Improvements Needed In The Reporting Of Program Accomplishments
When reporting FY 1996 program accomplishments to EPA, MDE significantly
overstated the number of confirmed releases, cleanups initiated, and cleanups
completed under its LUST Program. This over reporting occurred during an
extended period, and as a result, we estimate that EPA erroneously paid MDE as
much as $1.4 million. MDE agreed that it needed to change its methodology for
reporting program accomplishments and has revised procedures to correct this
situation. We believe the erroneous reporting of program accomplishments is a
systemic problem and has been the subject of OIG reports issued over the past
several yedrs.
Documentation Lacking For Less Than Full Cost Recovery Settlements
MDE did not document the reason for accepting settlement amounts that were
less than full cost recovery. Cost recovery records show MDE did not recover all
costs on the three recovery cases completed in FY 1996. MDE did not recover
4
Report No. E3LLL7-03-0009-7100290
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$616,990 (47 percent) of the $1,304,490 of costs associated with the three sites.
Because the required documentation was not prepared and maintained, we
could not determine whether MDE effectively used LUST Trust Fund resources
When States do not recover cleanup costs from responsible parties, the State is-
1) relieving the RP of their financial obligation; 2) removing the financial
incentive to cleanup contamination; and 3) shifting the burden of cleanup costs
to the Federal government.
Information Was Reported Untimely
The STARS reports erroneously included LUST program data that occurred in
previous reporting periods. In our sample of 53 cleanups reported as completed
in FY 1996, we found 10 sites were completed in previous FYs. For these sites, the
actual cleanup work was performed before FY 1996 and the sites were formally
closed and reported in FY 1996. To provide EPA managers reliable information,
MDE must ensure that it reports LUST Program activity information timely and for
the proper reporting period. MDE personnel estimated that 732 or 21 percent of
open LUST cases, gs of April 1997, could be closed. These cases represent sites
where the actual cleanup work was completed and the case only needs to be
administratively closed out.
Questioned Costs
Our review of the total costs on MDE's FSR revealed that most costs were
eligible. However, we noticed several nonrecurring mistakes resulting in $7,883
of questioned costs. The effect of the questioned costs resulted in MDE having
an additional $7,883 available in their cost recovery fund to perform LUST
activities.
5
Report No. E3LLL7-03-0009-7100290
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IMPROVEMENTS NEEDED IN THE REPORTING
OF PROGRAM ACCOMPLISHMENTS
When reporting FY 1996 program accomplishments to EPA, MDE significantly
overstated the number of confirmed releases, cleanups initiated, and cleanups
completed under its LUST Program. This over reporting occurred during an
extended period, and as a result, we estimate that EPA erroneously paid MDE as
much as $1.4 million. MDE agreed that it needed to change its methodology for
reporting ,program accomplishments and has revised procedures, to correct this
situation. We believe the erroneous reporting of program accomplishments is a
systemic problem and has been the subject of OIG reports issued over the past
several years.
OSWER Directive 9650.1 OA, requires states with LUST CAs to submit semiannual
STARS progress reports showing LUST program activities. EPA Headquarters (HQs)
uses the information in these reports to; make nationwide funding
recommendations, report program progress to Congress, and report the results
of the program in the Agency's financial statements. Region 3 also uses the
STARS reports to monitor program progress.
STARS reports should include, among other statistics, the following performance
data: 1) number of confirmed releases, 2) number of cleanups initiated, and 3)
number of cleanups completed. EPA's FY 1996 Financial Statements provide the
Agency's definitions for the three major LUST program activities:
~ Confirmed releases are incidents where the owner/operator
identified a release from a petroleum underground storage tank,
reported the release to the state or other designated implementing
agency, and the implementing agency verified the release.
~ Cleanups initiated are confirmed releases at which the state or
responsible party (under state supervision) initiated management of
petroleum contaminated soil, removal of petroleum in monitoring
wells, or management or treatment of dissolved petroleum
contamination.
~ Cleanups completed are confirmed releases where the cleanup
has been initiated and where the state has determined that no
further cleanup actions are necessary to protect human health and
the environment.
Report No. E3LLL7-03-0009-7100290
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Each year, EPA apportioned the total funding available for the LUST Program
among the states. HQ's funding recommendations for states during FY 1994
consisted of a "base" amount, a "need" amount and a "bonus" amount. The
base amount was $300,000 per state. Fifty percent of the need amount was
based on the number of confirmed releases a state reported in FY 1993, and the
number of confirmed releases reported nationwide. The bonus amount of $4
million was based on each state's performance in FY 1993. HQs divided the
bonus among states that initiated a specified percentage of cleanups, or
completed a specified percentage of cleanups. While funding changed in
each year, HQs used the same methodology and the FY 1993 statistics to
compute the amounts each state received from FYs 1994 through 1997.
Our review of the FY 1996 accomplishments MDE reported to EPA via STARS,
disclosed that the MDE significantly overstated accomplishments. For example,
MDE reported that it completed 480 cleanups. We estimate that the cleanups
completed were overstated by nearly 50 percent. We reviewed the list of 480
cleanups completed and found MDE double counted 22 sites. This occurred
because the data system allowed a site previously marked closed to be
entered as closed a second time. From the remaining 458 sites (480-22), we
reviewed the state's files for a sample of 53 sites. This review disclosed 24 or 45
percent did not have a confirmed release and therefore should not have been
reported as a completed cleanup.
The 24 sites that had no confirmed release consisted of:
MDE assumed tank pulls had confirmed releases;
MDE counted Heating Oil Tanks that are not reportable;
Sites were cleaned up dnd counted in a previous fiscal year,
MDE received anonymous calls but could not find a release,
and;
Miscellaneous other situations where there was no evidence
of a confirmed release.
Based on the results of our review, we estimated that 206 (458 X 45 percent) of
the 458 reported cleanups completed were erroneously counted as such.
During the same fiscal year, MDE reported 878 confirmed releases in STARS.
Because our sample of 53 sites disclosed that 45 percent of the confirmed
releases were overstated, we estimated that only 483 should have been
10 Sites
3 Sites
3 Sites
2 Sites
6 Sites
7
Report No. E3LLL7-03-0009-7100290
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reported. MDE erroneously assumed all incidents resulted in a confirmed release
and reported them as such in STARS. This reporting procedure conflicted with
EPA's definition of confirmed releases that requires that the incident be
identified, reported, and verified.
MDE also reported 761 cleanups initiated in STARS. To calculate this number,
MDE estimated that 90 percent of the sites with confirmed releases, resulted in a
cleanup initiated. In actuality MDE wanted to report 790 cleanups initiated (878
X 90 percent), but a math error reduced the reported number to 761. In any
event, neither number represented the actual number initiated by the MDE.
MDE's reporting error occurred because the number of confirmed releases was
overstated by 45 percent, and MDE applied 90 percent to the overstated
number. Based on our audit results, MDE potentially could have reported about
430 (790 X 55 percent) cleanups initiated. In effect, MDE considered some
cleanups initiated even when there was no hazard to clean.
MDE acknowledged that the data reported in STARS was inaccurate and has
begun the following procedures to correct the situation:
~ Confirmed Releases Procedures have been revised which now
require inspectors to verify that a release has occurred.
~ Cleanups Initiated MDE now requires inspectors to certify whether a
cleanup has been initiated for every site.
~ Cleanups Completed The accurate identification of confirmed
releases should help ensure the accuracy of cleanups completed.
Regarding the problem of double counting, MDE has revised their
case tracking database to preclude this situation from occurring in
the future.
Based on need, MDE received $4.6 million from Region 3 for FYs 1994 through
1997. Half of the need amount was awarded to states, such as Maryland,
based on confirmed releases. Because we found 45 percent of cleanups
completed did not have a confirmed release, we estimated that Region 3
should not have awarded $1 million to MDE because MDE's "need" was
overstated.
Moreover, we estimated that MDE received $400,000 between FYs 1994 through
1997, for bonuses that they may not have earned. The bonus portion of the
funding recommendation was divided among states that met certain
percentages of cleanups initiated or cleanups completed. As stated previously,
we found that the number of cleanups initiated and cleanups completed was
8
Report No. E3LLL7-03-0009-7100290
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inaccurate. Because an accurate accounting could not be determined, it is
questionable whether MDE should have received any ot the $400,000 bonus
funding.
EPA plans to change the funding allocation formula for FY 1998. In allocating FY
1998 funds, HQs will:
~ use the most recent data available for all factors;
~ include an incentive and reward for State Program Approval; and
~ place more emphasis on completing cleanups.
Aside from these changes, the new allocation formula still places heavy
emphasis on confirmed releases, cleanups initiated, and cleanups completed.
The erroneous reporting of program accomplishments is a systemic problem with
the Agency. An OIG report issued August 6, 1996 entitled Consolidated Report
on EPA's Leaking Underground Storage Tank Program, cited six other states for
similar reporting inaccuracies. It is essential that the STARS data is accurate so
that states receive their equitable share of the funding. Therefore, it is
imperative that MDE take immediate action to ensure correct STARS data is
submitted to EPA.
RECOMMENDATIONS
We recommend that the Regional Administrator:
1. Review MDE's new procedures to determine if they will result in
accurate STARS reporting of cleanups completed, confirmed
releases, and cleanups initiated.
2. Perform program reviews of all the state LUST programs within
Region 3 and make appropriate adjustments to the funding levels
to correct any inequities that resulted from inaccurate reporting of
program accomplishments.
MDE RESPONSE
MDE has implemented needed improvements in the way program
accomplishments are counted. These changes were implemented for FY 1997.
We believe the newly implemented procedures will track closures more
accurately.
9 Report No. E3LLL7-03-0009-7100290
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MDE is committed to maintain accurate reporting by ensuring that the data in
the STARS is a true picture of the MDE program.. Some of the new procedures
will include: the use of the new tank closure form with the method of detection
of the confirmed release included; the counting of the actual closed case files;
periodic review of inspectors' cases to determine project status; and annual
random sampling of the program's data to assure quality.
MDE strongly disagrees with the recommendation to adjust the amount
awarded to Maryland, and believes it is not justified, and would jeopardize the
MDE's ability to adequately address potential oil contamination. MDE believes
that it did not erroneously receive $1.4 million because Region 3 does not
allocate monies solely based on program accomplishments, but utilizes other
factors which qualified Maryland for the funds it has received. MDE does not
believe that the amount of funds received would have significantly changed if
the information it reported was correct. Additionally, this recommendation was
not made for similar findings in the Consolidated Audit Report.
The draft report stated that 45 percent of the reported confirmed releases
should not have been reported. MDE disagrees because in Maryland any
amount of oil discharged is reportable. At the removal of non-upgraded
systems, staff always finds some degree of contamination. However minimal the
spills may be, MDE factually lists them as confirmed releases. MDE recognizes
that in some past cases inspectors may have not documented the small
amounts of oil spilled. To properly document the confirmed releases, MDE
changed the applicable forms to include an entry that records a release if it has
been found. Further, if you remove the 10 tank pull.cases, only 26 percent (14
out of 53 total) would have had reporting issues, instead of the 45 percent
reported by the OIG.
MDE does not find the recommendation to review and correct previous STARS
reports appropriate because the alleged 45 percent overstatement may be less
than 17 percent and the substantial amount of resources necessary to make this
correction would not offset any minor benefits received.
REGION 3 RESPONSE
The Region has confirmed with EPA Headquarters that MDE's new procedures
wl more accurately document confirmed releases. Moreover, the Region does
not believe there is good reason to have MDE review past data. The effort
associated with such a task would be better invested in addressing current
releases.
10
Report No. E3LLL7-03-0009-7100290
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Region 3 points out that the OIG's consolidated audit report did not require a
retroactive, h,stor,cal overhaul of STARS data. The administrative difficulty of
nnp because such a recommendation is different from
the one recommended by the consolidated audit prompted Region 3 to '
suggest that prospective corrective action is the appropriate course.
Region 3 is committed to evaluate MDF'c np»w r,r^«^i _r
t_ +•««•_¦ , , lut s new Procedures regarding the
verification of confirmed re eases to ensure • • , .
... D . 0 . . .IU ensure proper documentation is included in
case files. Region 3 is also committed to review MDE's STARS data on a
continuing basis to ensure that MDE consistently follows EPA's definitions. The
Region has comm., ted to conduct program reviews of all Region 3 states to
identify how prevalent the national issues are in Region 3 states. Protocols to
perform these reviews are currently under development and are awaiting
conclusion of this audit before they are finalized and employed.
Region 3 agrees with MDE's contention that our sample is not representative for
the confirmed releases and cleanups initiated. They contend the OIG findings
are an cessment of only 53 case files in relation to a total universe of
almost 10.000 confirmed releases. These 53 sites, represented only about 0 5
percent of the entire universe of confirmed release case files Region 3
disagrees with the conclusion that Maryland should not have received up to
$1.4 million of LUST grant funds. If Maryland did receive excess funds, they were
not used for ineligible activities. The audit supports that nearly all costs were
eligible.
If Maryland did overstate the number of confirmed releases and influenced the
calculation of the State's share of the national grant award budget, it would not
necessarily directly impact what Region 3 offers to Maryland as an annual grant
award amount. State allocations are combined to give each Region a total
allocation. Then, the Region has discretion to distribute grant funds across the
regional states as it deems appropriate.
Region 3 contends Maryland continues to lead other Region 3 states in cost
recovery amounts, facility inspections, confirmed releases, and cleanups
completed even if these numbers are adjusted downward because of reporting
inaccuracies.
OIG EVALUATION
As a result of our audit, MDE has implemented numerous needed improvements
in the way program accomplishments are reported. Thus, we concur with MDE's
and Region 3's proposed actions regarding the recommendation to ensure
accurate STARS reporting.
li
Report No. E3LLL7-03-0009-7100290
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MDE and Region 3 now agree that our sample of cleanups completed was a
fair and representative sample. Moreover, we believe that the 45 percent.error
rate of cleanups completed that we found, using FY 1996 data, can be applied
to confirmed releases and cleanups initiated. The use of FY 1996 data should
typify MDE LUST program accomplishments because Maryland had a LUST
program for more than ten years.
Regarding our sample being 0.5 percent of the entire universe of confirmed
releases, we would point out that we reviewed 12 percent (53 of 458) of the
cleanups completed in FY 1996. Moreover, FY 1996 data is representative of the
MDE LUST Program.
We could not verify MDE's contention that there is always contamination during
tank pulls because it was not documented. Nevertheless, we concur with MDE's
completed and planned corrective actions regarding documenting tank pulls
more throughly.
We have revised our recommenaations regarding the recoupment of $1.4
million from MDE, We considered the Region's planned program reviews of all
LUST programs in Region 3 states as an acceptable alternative to our
recommendation. Accordingly, we revised our recommendation to require.
Region 3 to make appropriate adjustments to correct any inequities in funding
levels after the proposed program reviews are completed. It should be noted
that if the program reviews indicate a state accurately reported program
accomplishments, that state may have unfairly received less funding in past
years. This should be considered when future funding allocations are made.
Also, it should be noted that the STARS statistics used for funding allocations are
cumulative; therefore, although data reporting may now be accurate, the
cumulative data remains inaccurate.
12
Report No. E3LLL7-03-0009-7100290
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DOCUMENTATION LACKING FOR
LESS THAN FULL COST RECOVERY SETTLEMENTS
MC»E d'd not document the reason for accepting settlement amounts that were
less than full cost recovery. Cost recovery records show MDE did not recover all
Jlv 6 reS°Vfe<.u CaQSeS comP|eted in FY 1996. MDE did not recover
$616,990 (47 percent) of the $1,304,490 of costs associated with the three sites.
Because the required documentation was not prepared and maintained, we
could not determine whether MDE effectively used LUST Trust Fund resources.
When Statesxlo not recover cleanup costs from responsible parties, the State is:
1) relieving the RP of their financial obligation; 2) removing the financial
incentive to cleanup contamination; and 3) shifting the burden of cleanup costs
to the Federal government.
The Solid Waste Disposal Act states that whenever costs have been incurred by
the Administrator, or by a state undertaking corrective action or enforcement
action with respect to the release of petroleum from a tank, the RP will be liable
to the Administrator or the state for such costs. OSWER Directive 9610.1 OA
requires states to develop a cost recovery program, and allows them to use
recovered funds to pay for future cleanups. This directive also requires states to
establish a cost accounting system to support cost recovery claims in q judicial
action, and provide evidence that costs claimed are reasonable and
necessary. The directive also specifies that the basis for any compromise or
termination should be adequately supported. The policy allows states to reach
compromised settlements when it is more cost effective to negotiate a
settlement rather than pursing litigation.
The following table shows the amounts not recovered for each of the three sites
completed in fiscal year 1996.
Not Recovered
Cqse
Totql Co$ts
Settlement
Amount
Percent
A
$454,000
$ 50,000
$404,000
89
B
488,900
315,000
173,900
36
C
361,590
322.500
39.090
11
SI.304.490
$687r 500
$616,990
4Z
While MDE did not recover $616,990 (47 percent) of the $1,304,490 of costs
associated with the three sites, it believed the best possible settlements were
reached considering the circumstances of each case.
13 Report No. E3LLL7-03-0009-7100290
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MDE personnel stated the judge for case "A" was very anti-environmental
and he "strongly pressured" MDE to accept the RP's offered settlement of
$50,000. MDE personnel stated the judge lead^them to believe if the case
proceeded to trial, MDE would not receive more than $50,000. However, MDE s
files did not document this information.
There was a judgement, in case "B" for $321,977. The judgement did not
include litigation and interest costs. Subsequently, MDE entered a settlement for
$315,000. MDE personnel stated they settled for that amount so the RP: 1) would
not appeal the judgement; and 2) would cooperate fully with the monitoring
wells, and dismantling the recovery units.
For case "C," MDE entered a settlement for $302,500 and obtained a promissory
note for on additional $20,000. There was no documentation evidencing the
reason MDE did not recover the remaining $39,090, or 11 percent of the total
costs.
MDE personnel agreed that they should have documented their rationale for
accepting the settlement amounts.
IfCOMMENDATION
We recommend that the Regional Administrator require MDE to document the
basis for all future settlements that are for amounts less than full cost recovery.
MDE RESPONSE
Concerning Cdse "A," the OIG did not review the complete record. MDE
personnel informed the OIG that the Assistant Attorney General's file on Case
"A" was archived offsite. MDE offered to retrieve the file, but the OIG did not
request it. MDE subsequently retrieved the file. It substantiated the inability of
the RP to pay the full cost recovery amount, and the Maryland Court's
disposition towards the low settlement accepted by the Department.
MDE hqs completed drafting new cost recovery procedures, which are currently
b#ing reviewed-by Region 3. These procedures will require proper
documentation in all future cost recovery settlements where the MDE achieves
less than full cost recovery.
REGION 3 RESPONSE
EPA received a copy of MDE's draft cost recovery procedures on July 17,1997.
These procedures indicate that all decisions shall be documented in writing and
14 Report No. E3LLL7-03-0009-7100290
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include the rationale for the decisions made., EPA's comments on the draft cost
recovery proce ures will request that MDE emphasize in its procedures that
decisions to accept less than full cost recovery shall be documented.
OIG EVALUATION
Regarding Case A, we were aware of the archived file, but MDE personnel
stated that the information regarding the rationale for accepting less than full
cost recovery would not be in that file. In any event, MDE needs to document
its rationale for accepting less than full cost recovery, and we concur with MDE's
and Region 3's proposed actions.
15 Report No. E3LLL7-03-0009-7100290
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OTHER MATTERS
Information Was Reported Untimely
The STARS reports erroneously included LUST program data that occurred in
previous reporting periods. In our sample of 53 cleanups reported as completed
in FY 1996, we found 10 sites that were completed in previous FYs. For these
sites, the actual cleanup work was performed before FY 1996, but the sites were
formally closed and reported in FY 1996. For example, one case could have
been closed in June 1990, but was not closed until August 1996. Another case
could have been closed in February 1993, but was not closed until August 1996.
To provide EPA managers reliable information, MDE must ensure that they report
LUST Program activity information timely, and for the proper reporting period.
MDE personnel agreed untimely case closures were a problem. They cited
Bmited resources, and stated in the past they have given compensatory time to
inspectors to close cases administratively. MDE personnel estimated that 732 or
21 percent of LUST cases open, as of April 1997, could be closed. These cases
represent sites where the actual cleanup work was completed and the case
only needs to be administratively closed out.
Questioned Cosh
Our review of the total costs on MDE's FSR disclosed that most costs were
eligible. However, we noted several nonrecurring mistakes that resulted in
$7,883 of questioned costs. The questionable costs are described as follows:
~ Costs of $5,933 were ineligible because MDE erroneously inflated
amounts on the FSR when compiling figures from their accounting
records.
~ Contractual expenditures of $1,950 were ineligible because they
we're for State projects and were not allocable to the LUST CA.
OMB Circular A-87 requires that in order for the cost to be allocable,
it must benefit the CA.
The effect of the questioned costs results in MDE having an additional $7,883
qyaftafole in their qost recovery fund to perform LUST activities. MDE personnel
agreed that the FSR was incorrect and stated they would determine the
€*p0icable corrective action.
16
Report No. E3LLL7-03-0009-7100290
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RECOMMENDATIONS
We recommend that the Regional Administrator should instruct MDE to:
1. Administratively close all cases in a timely manner for which the
cleanups have been completed.
2. Adjust their cost recovery balance to reflect the $7,883 available to
perform additional LUST activities.
MDE RESPONSE
MDE recognizes that there may be some administrative backlog of closed
cases. This backlog is to some extent the result of the amount of work assigned
to each inspector. The 21 percent figure was an estimated "worst-case"
scenario and should not be construed as an actual representation of the
current gap. MDE determined that a 90-day gap could exist at any one time
and has given this guidance to their staff to reduce and eliminate any delays
outside the 90-day period. This 90-day period is needed to complete supervisory
concurrence on the case and for issuance of "No Further Action" or "Notice of
Compliance" letters to the site owners. The Department is also considering
various procedures from other states to further streamline its procedures.
MDE is pleased that all costs were found eligible with the exception of $7,883
(0.5 percent of the total project costs). The "nonrecurring" mistakes were the
result of a spreadsheet error and miscoding an expense. The Department will
reinforce its existing accounting procedures.
REGION 3 RESPONSE
MDE has implemented new procedures to streamline site closure procedures.
EPA agrees with MDE that there will always be some delay between when a
case is technically closed and when loose ends are tied up to be able to
actually close out a file administratively. During program reviews, EPA will ensure
that MDE is committed to minimizing this gap. Also, MDE has addressed the
questioned costs by transferring $7,883 to the LUST cost recovery account from
Maryland's Oil Fund.
OIG EVALUATION
The 21 percent figure used was conservative. In calculating the 21 percent, we
assumed all cases opened after June 1994 did not need to be closed and thus
were not a problem. Nevertheless, we concur with the proposed actions.
17 Report No. E3LLL7-03-0009-7100290
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Report No. E3LLL7-03-0009-7100290
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appendix a
OF 9
a.-™.- mmmoo ¦ I.n».o,^i0, .:\:c,
Parris N. Glendeninc — _____
Governor Jane T. Nishida
Secretary
August 25, 1997
The Honorable W, Michael McCabe
Regional Administrator (3RA00)
U.S. Environmental Protection Agency
Region III
84-1 Chestnut Building
Philadelphia PA 19107-44.31
Dear Administrator McCabe:
This letter is to provide further information in follow-nn
1997 in response to the June 25, 1997 draft OIG Reoort nf a W earl,er co™ments of July 24,
Number E3LLL7.03-0009). Rep0rt of Audlt <"> Maryland's LUST program (Report
After further reviewing the list of the 480 reported clean.m« tk»
FY 96, the Department has determined that 99 (21%) werp fr« »u « Pro9ram completed during
were from "non-marketers." Therefore, the audit's samDle of i T , marketer" sect°r and 381 (79%)
marketers (79%) appear to be a representative I™ '5 °1 %) and A2
However, the points we noted relative to Maryland's stat.rtn^ ,anUpf comp,etBd" category.
#1, page 2 of MDE's Comments) remain valid. Therefore th^r^T ^gu,atory dafinitions of spMis (Issue
26%, instead of the 45% figure in the draft OIG Reoort is a ment 81,11 malnta5ns th^t only
marketer case files with reporting issues. ' 6 accurate ^presentation of non-
The marketer/ non-marketer issue would remain valiri ^ lL
categories {i.e., confirmed release and cleanups initiated) W» K 6 ° -°r tW° acconiP,;shTinent
going LUST responsible party cleanups and P^ut .of th. on-
marketers. Thus, any overstatement of accomplishments fnr r fre m eters ®nd 33% are non"
would fall below 26%, as opposed tc the 45% "across the boaH"re'eases and cleanups initiated
ross tne board assumed in the draft OIG Report.
Therefore, the Department believes that it would h* ,
report a percentage range as possible overstatements as opposed *** o'G ReP°rt to
review, we believe that approximately 20% to 26% of reoortpH a V 'r 9ure" ®ase<1 on our
inadvertently overstated for FY 96. ccomphshments may have been
If you have any questions, please feel free to call me at (410) 631-3304.
Ird W. Collins, Director
Waste Management Administration
RWC:ijm
cc; Mr. Carl A. Jannetti ^
Ms. Maria P. Vickers
jfTTVacr* 1-800-735-2258
"Together We Can Clean Up"
6
"•eyeted Faper
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APPENDIX A
PAGE 2 OF '9
x jr r^vr1 MARYLAND DEPARTMENT OF THE ENV IRONMENT
MLJF 2500 Broening Highway • Baltimore Maryland 21224
(410)631- 3000 • 1- 800-633-6101 • http:// www. mde. state, md. us
Parns N. Glendening Jane T. Nishida
Governor Secretary
July 31. 1997
The Honorable W. Michael McCabe
Regional Administrator (3RA00)
U.S. Environmental Protection Agency
Region Ml
841 Chestnut Building
Philadelphia PA 19107-4431
RE: Correction to MDE's Comments on
Draft Report of Audit on LUST Program
Report Number E3LLL7-03-0009
Dear Administrator McCabe:
Enclosed please find corrected page 1 of MDE's comments on the above-referenced
report. This page should replace the same page in the comments enclosed in my July 24.
1997 letter to you. The correction changes the dollar amount, on line 3 of the first
paragraph, from $7,833 to $7,883. This correction is made as a result of an error in the
draft OtG report, pages 5 and 12.
Specific questions related to this correction may be directed to Mr. Horacio
Tablada, Administrator of the Oil Control Program, at 410-631-3386, or to me at 410-631-
3304.
Richard W. Collins, Director
Waste Management Administration
RWC:ht
Enclosure
cc: Mr. Carl A. Jarinetti
Divisional Inspector General for Audit
19
"Together We Can Chan Up"
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APPENDIX A
PAGE 3 OF 9
...«= »»hstr Management Administration
of the Maryland Department of the Environment (MDE)
on Draft Report of Audit on MDE's
Leaking Underground Storage Tank (LUftTl Program
Report Number E3LLL7-03-0009
financial Audit
The Department is pleased that the OIG found the Department's financial
riT48U?98 weretr/'r t <* «» audi,. Maryland's costs of
Tho ¦ Wl ,he minor exceP''on of $7,883 (0.5% of the total
rmiscodtg W6re ,he result °< a spreadsheet erro' and
proTe^^e^which^e designed ^o p^e^nt^te'inTdTenent*5 intern®| accounting
charges to federal grants. '"advertent misplacement of ineligible
Recommendation, The draft OIG Report recommends (Recommendation #2
a^ionilLVs^
this amount to the LUST cos, recovery accoum fromThe Mary,a™ o" D*ast"er ®
Containment, Clean-Up and Contingency Fund.
Reporting of Program AccomnlkhmfiriT,.
The Department previously recognized, and has implemented, needed
improvements ,n the way confirmed releases, cleanups initiated, and cleanups closed
are counted (i.e utilizing the actual case file instead of the inspectors" Daily Activity
^nges were reviewed by the OIG and were implemented for federal FY
1997. (The audit period was federal FY 1996.1 We believe that the newly
implemented case-tracking procedure will track closures more accurately The
Department recognizes the need to maintain and report data that Is reflective of actual
circumstances.
Concerning the appropriation of funding. EPA Headquarters grants the LUST
appropriation to its Regions based in part on states' accomplishments. However, it is
up to individual Region's discretion to determine grant amounts to the states on a
yearly basis While EPA Region III considers program accomplishments, it is not the
only or final determining factor. The Department does not believe that the amount of
funds received by Maryland would have significantly changed.
The OIG draft report goes on to state that 45% of the reported confirmed
releases should not have been reported. The Department disagrees with this statement
for the following reasons: 20
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APPENDIX A
PAGE 4 OP 9
_ _ MARYLAND DEPARTMENT OF THE ENVIRONMENT
jyj J )p 2500 Broening Highway • Baltimore Maryland 21224
(410) 631- 3000 • 1- 800 -633-6101 • http:// www. mde. state, md. us
Parris N. Glendening Jane T. Nishida
Governor Secretary
July 24, 1997
The Honorable W. Michael McCabe
Regional Administrator (3RA00)
U.S. Environmental Protection Agency
Region HI
841 Chestnut Building
Philadelphia PA 19107-4431
Dear Administrator McCabe:
Enclosed please find general comments on the June 25, 1997 Draft Report of Audit on the
Maryland Department of the Environment's Leaking Underground Storage Tank (LUST) Program.
Maryland is proud of its tank program that over the years has been acknowledged by your office
as a model for inspections in the country. These comments are provided in the spirit of
partnership with EPA Region III, as your office prepares a response to the Office of Inspector
General draft report in accordance with Regional R3-12750.
Overall, we valued the audit as a learning opportunity for our staff and as such have
already implemented various procedures which directly relate to some of the issues raised by
the Office of Inspector General (OIG). Since the enclosed comments provide clarification on
issues raised by the OlG, the Department respectfully requests that they be included as an
appendix in the final Report of Audit.
Specific questions related to this letter may be directed to Mr. Horacio Tablada.
Administrator of the Oil Control Program, at 410-631-3386, or to me at 410-631-3304. Thank
you for allowing us to comment on this draft. We especially would like to thank the OIG staff for
their time and guidance on several of the issues discussed.
Waste Management Administration
RWC:ht
Enclosure
cc: Mr. Carl A. Jannetti
Divisional Inspector General for Audit ^
«-r L,_ uu tin"
-------
Comments by the Waste Management AcminisTrc~ior»
of the Maryland Department of the Fnvironment fMDE''
on Draft Renort of Audit on MDE's
Leaking Underground Storage Tank (LUST) Program
Report Number E3LLL 7-03-0009
appendix a
PAGE 5 OF 9
Financial Audit
The Department is pleased that the OIG found the Department's financial
procedures to be adequate for the purpose of the audit. Maryland's costs of
$1,548,798 were found eligible with the minor exception of $7,833 (0.5% of the total
project cost). The "nonrecurring" mistakes were the result of a spreadsheet error and
of miscoding an expense. The Department will reinforce its existing internal accounting
procedures which are designed to prevent the inadvertent misplacement of ineligible
charges to federal grants.
Recommendation'. The draft OIG Report recommends (Recommendation #2,
page 13) to adjust the cost recovery account to reflect the $7,883 available to perform
additional LUST activities. The Department has addressed this matter by transferring
this amount to the LUST cost recovery account from the Maryland Oil Disaster
Containment, Clean-Up and Contingency Fund.
ppnortino of Program Accomplishments
The Department previously recognized, and has implemented, needed
improvements in the way confirmed releases, cleanups initiated, and cleanups closed
are counted (i.e., utilizing the actual case file instead of the inspectors' Daily Activity
Form). These changes were reviewed by the OIG and were implemented for federal FY
1997. (The audit period was federal FY 1996.) We believe that the newly
implemented case-tracking procedure will track closures more accurately. The
Department recognizes the need to maintain and report data that is reflective of actual
circumstances.
Concerning the appropriation of funding, EPA Headquarters grants the LUST
appropriation to its Regions based in part on states' accomplishments. However, it is
up to individual Region's discretion to determine grant amounts to the states on a
yearly basis. While EPA Region 111 considers program accomplishments, it is not the
only or final determining factor. The Department does not believe that the amount of
funds received by Maryland would have significantly changed.
The OIG draft report goes on to state that 45% of the reported confirmed
releases should not have been reported. The Department disagrees with this statement
for the following reasons:
22
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APPENDIX A
PAGE 6 OF 9
1. Anv amount of oil snilleri is a release: In tne Slate of Maryland, by law and
regulation, anv amount of oil discharged is 3 reportable amount (Environment
Article § §4-401 (d) and 4-410(a), Annotatea Code of Maryland, and Code of
Maryland Regulations 26.10.02.01 A). At the removal of non-upgraded-systems,
staff always find, some degree of contamination. Hoyvever minimal the spills may
be, this Department factually lists them as confirmed releases. We recognize that
in some past cases inspectors may not have documented, in the Tank Removal
Form, small amounts of oil spilled. To properly document the confirmed releases
and remain consistent with this approach, the Department changed its Tank
Removal/Abandonment Form and its Leak Summary & Tank Closure Form in the
spring of 1997 to include an entry that records a release if it has been found. A!!
field staff has also been instructed to record the method of detection (i.e., field
instrumentation, visual, picture, smell, or laboratory analysis) in the forms. These
forms will be reprinted in the Fall and will have the method of detection already
pre-printed in the forms.
2. Cases reviewed were not representative of the program: The OIG draft report
states on page 2 that the site files were "judgmentally" selected. It should be
noted that most of the reviewed site files were from the "non-marketer" industry
sector, which represents only 20% or less of Maryland's tank population. Of the
458 Maryland case files, the Department staff believes that the OIG chose to
review 49 "non-marketer" and only 4 "marketer" files, A more representative
sample would have been to select 11 files (20%) from the "non-marketer" sector
and 42 files (80%) from the "marketer" sector. Another approach to consider
would have been to select a true random sample. From such a random sample,
conclusions could have been drawn on the total population at a satisfactory
confidence level.
It is not surprising to find recording problems in the nonmarketer case files. The
matketer sector have releases easily documented by tank-testing failure results,
visual inspections, or field instrumentation results. By virtue of the larger volume
of product handled, soil contamination is very obvious at marketer sites. Our
experience has shown, however, that contamination is also found at tank
remoyals of non-marketers. While contamination found at non-marketers is less
obvious, it still remains a confirmed release under State's rules and must be
reported as such.
Therefore, of the 24 sites listed on page 7 of the draft OIG report, 16 of these 24
cases could have not been found in the marketer sector. Those 16 include the 10 tank
pulls, the 3 heating oil tanks, and at least 3 of the 6 miscellaneous sites. By removing
these cases, only 15% (8 out of 53 total) of the marketer sector case files would have
had reporting issues. Further, if you remove the 10 tank pull cases, only 26% (14 out
of 53 total) of the non-marketer sector case files would have had reporting issues,
instead of the 45% reported by the OIG. Therefore, the Department does not agree
with the 45% overstatement presented in the draft report. Only through auditing, or
23
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APPENDIX A
PAGE 7 OF 9
random sampling, of the full 453 case iiies couia an accurate assessment of any
possible overstatements be attained.
Recommendations'. The draft OIG report recommends (Recommendation #3,
page 9) that EPA adjust the amount awarded to MDE in future years to remedy the
alleged past excesses in funding MDE has received. The Department strongly disagrees
with this recommendation and believes it is not justified or warranted and would
jeopardize the Department's ability to adequately address potential oil contamination in
the State, affecting the environment and public health of those impacted by the
contamination. The Department strongly believes that it did not erroneously receive
$1.4 million because EPA Region III does not allocate monies soleiy based on program
accomplishments but utilizes other factors which qualified Maryland for the funds it has
received. Additionally, this recommendation was not made for similar findings tn other
states and Regions in the August 6, 1996 OIG Consolidated Report on EPA's LUST
Program, t
The draft OIG Report also recommends (Recommendation , page 9) that EPA
instruct MDE to review and correct all previous STARS information to reflect accurate
cumulative totals. The Department does not find this recommendation appropriate
because the alleged 45% overstatement may, in fact, only be less than 17% {26% of
the 20% non-marketers and 15% of the 80%marketers) and the substantial amount of
resources necessary to make this correction would not offset any relatively minor
benefits.
The draft OIG Report recommends (Recommendation #2, page 9) that EPA
ensure that MDE's new procedures will result in accurate STARS reporting. MDE is
committed to maintain an accurate reporting method to EPA by ensuring that the data
in the STARS is a true picture of the program in Maryland. Some of the new
procedures will include: the use of the new tank closure form with the method of
detection of the confirmed release; the counting of the actual closed case files; periodic
review of inspectors' cases to determine project status; and annual random sampling of
the program's data to assure data quality.
Documentation in Cost Recovery Settlements
Maryland has always been in the forefront in cost recovery cases and has
exercised its discretion in pursuit of such cases in accordance with EPA OSWER
Directive 9610.10A. This directive specifically provides States with flexibility and
discretion in determining which costs to pursue and how much effort to d»v©te in the
pursuit of these costs. The Department is dependent on the use of cost recovery
funds. As stated on page 2 of the draft report, the Department has used its cost
recovery account to supplement the State's LUST Cooperative Agreement. The State
has been prompt and aggressive in seeking cost recovery. In some cases, full and
detailed documentation of the settlement process has not been recorded due to the
privileged nature of information utilized and disclosed by parties in the course of
24
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APPENDIX A
PAGE 8 OP 9
litigating and settling cost recovery cases. The Administration anc its counsel
recognize that, in seeking cost recovery, the LUST program's objectives and the pubiic
interest are best served, and the Department's human resources best utilized, in
considering the cost-effectiveness of prolonged cost recovery actions, i.e.,
supplementing the LUST Cooperative Agreement with a negotiated settlement in a
timely manner, versus engaging limited resources in expensive and time consuming
litigation for a remaining small percentage of arguably cost-recoverable expenditures.
Concerning Case "A", the OIG auditor did not review the complete record. The
Department's staff informed the auditor that the Assistant Attorney General's file on
Case "A" was archived offsite at the State's warehouse in Jessup, Maryland. The
Department offered to retrieve the file from the archives,'but the auditor did not request
it. Although the auditor was not able to review the entire record, the Department has
subsequently retrieved the file which substantiates the inability of the responsible party
to paiy the full cost recovery amount and the Maryland Court's disposition towards the
low settlement accepted by the Department.
Recommendation: The draft OIG Report recommends that EPA require MDE to
document the basis for all future settlements that are for amounts less than full cost
recovery. The Department has completed drafting new cost recovery procedures,
which are currently being reviewed by EPA Region III. These procedures will establish
proper documentation in all future cost recovery settlements where the Department
achieves less than full cost recovery.
Information Reported Untimely
The Department recognizes that there may be some administrative back log of
closed cases (e.g., cases that are technically or programmatically closed but have not
been closed administratively}. This backlog is to some extent the result of the amount
of work assigned to each inspector. The auditor commented during his visit that he
vwas very impressed with the case load carried by the inspectors.
MDE personnel recall discussing a potential gap between cases "technically"
closed but not "administratively". However, the 21% figure given was an estimated
"worst-case" scenario and should not be construed as an actual representation of the
Current gap. The staff has determined that a 90-day gap could exist at any one time
and has given this guidance to the field staff and managers to reduce and eliminate any
delays outside the 90-day period. This 90-day period is needed to complete
supervisory concurrence on the case and issuance of no further action or notice of
compliance letters to the site owner.
fimommenciation: The draft OIG Report recommends (Recommendation #1, page
13) that MDE administratively close all cases in a timely manner for cleanups which
have actually been completed. The Department has implemented monthly review
25
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APPENDIX A
PAGE 9 OF 9
meetings between supervisors and field inspectors to review potential closed cases. A
90-day gap between actual and administrative closure will be considered acceptable.
The Department is also considering various procedures from other States to further
streamline the closure procedures. Our efforts will be directed toward minimizing this
gap.
26
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(This page was intentionally left blank.)
27
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APPENDIX B
PAGE 1 OF 9
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION III
841 Chestnut Building
Philadelphia. Pennsylvania 19107
SUBJECT: Draft Report of Audit on Maryland Department of the
Environment's (MDE) Leaking Underground Storage SEP I | J997
Tank (LUST) Program
FROM: , W. Michael McCabe
Regional Administrator (3RA00)
A-
TO: Carl A. Jannetti
Divisional Inspector General for Audit (3AI00)
Thank you for the opportunity to review and comment on tne report. The Region has
reviewed the report findings and recommendations and has prepared a detailed response which is
attached.
In summary, the Region has found that the draft audit report is essentially accurate, but
have some serious concerns about the fact that items presented in the report are not representative
of MDE's entire LUST program operations.
The Region's response is based on the Office of RCRA Programs' comments dated July
31 and August 27. In addition, MDE on July 24 and August 25, responded and their comments
were reviewed by the program and referenced in their response.
We hope that you find our comments useful. If you should have any questions on this
matter, please contact Robert Reed at 6-5270.
Attachments
28
Celebrating 25 Years of Environmental Progress
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APPENDIX B
PAGE 2 OF 9
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION Ul
841 Chestnut Building
Philadelphia, Pennsylvania 19107.
SUBJECT:
FROM:
TO:
Supplemental Response to Draft Report on Maryland
Department of Environment (MDE) Leaking
Underground Storage Tank (LUST) Progr
Report Number E3LL7-03-009
t 7 1291
Maria Parisi Vickers, Associate DirectorA
Hazardous Waste Management Divi^ion\ »
Office of RCRA Programs (3HW03
Robert G. Reed, Jr., Chief
Grants & Audit Management Branch (3PM70)
This memorandum will supplement the Office of RCRA Programs' response of July 31,
1997, to the Office of Inspector General's (OIG) Draft Report of the Audit captioned above.
Following submission of our response, members of your staf£ members of OIG staff and
members of my staff and I have had discussions among ourselves and with staff of Maryland's
Department of the Environment (MDE) to clarify some of the issues in the Draft Report. A
conference call was held on August 13, 1997 among all parties mentioned except MDE staff
During that conference call three major issues were discussed:
1. OIG staff described the sampling methodology used in the audit;
2. All parties explored the means by which corrective action could be achieved in the
area of data management; and
3. How future funding of MDE1 s LUST Program would be affected.
Turning to the first issue, the OIG*s discussion of sampling methodology satisfies this
Office that the audit's sample of marketers and non-marketers appears to be a representative
sample for the "cleanups completed" category. That discussion has persuaded MDE as well who
has submitted additional comments on the Draft Audit Report. (Attached here and incorporated
by reference is a letter dated August 25,1997, submitted to EPA Regional Administrator
W. Michael McCabe by MDE's Waste Management Administration Director, Richard W.
Collins.) However, Mr. Collins goes on to point out that:
29
Celebrating 25 Years of Environmental Progress
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APPENDIX B
PAGE 3 OF 9
The marketer/non-marketer issue would remain valid for the other two accomplishment
categories (i.e., confirmed release and cleanups initiated). We have reviewed the printout
of the ongoing LUST responsible party cleanups and have determined that 67% are
marketers and 33% are non-marketers. Thus, any overstatement of accomplishments for
confirmed releases and cleanups initiated would fall below 26%, as opposed to the 45%
"across the board" assumed in the draft OIG Report.
Therefore, the Department believes that it would be more appropriate for the OIG Report
to report a percentage range as possible overstatements as opposed to a single figure.
Based on our review, we believe that approximately 20% to 26% of reported
accomplishments may have been inadvertently overstated for FY'96.
The second issue, the nature of corrective action to be taken in the area of data
management, embraces two out of the three recommendations in the Draft Report as they appear
on page 9:
1. Instruct MDE to review and correct all previously reported STARS information to
reflect accurate cumulative totals for cleanups completed, confirmed releases, and
cleanups initiated.
2. Ensure that MDE's new procedures will result in accurate STARS reporting of
cleanups completed, confirmed releases, and cleanups initiated.
We will not reiterate the position already stated in our July 31, 1997 response except to
point out that the nature of the corrective action recommended in the OIG's national audit of the
LUST Program was prospective: that audit did not require a retroactive, historical overhaul of
STARS data. The obvious administrative difficulty of reviewing 10,000 case files, and the fact
that such a recommendation would single out Maryland for corrective action different from, and
more burdensome than, the corrective action recommended by the OIG's National Audit prompt
us to suggest that prospective corrective action is the appropriate course.
Finally, on the third issue discussed — recoupment of funds - we again emphasize our
position that it is in the interest of the environment and the public we serve to have MDE continue
to implement what is an excellent LUST program and not jeopardize that quality by decrease of
funding in order to recoup funds which were spent on LUST grant-eligible activities. Again,
corrective action in this area should be prospective and we point that this position, too, is
consistent with the OIG's National Audit.
30
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APPENDIX B
PAGE 4 OP 9
Also attached here for your reference and review is Chapter 4 of the Consolidated Report
on EPA's Leaking Underground Storage Tank Program, Audit Report No. EILLF5-10-0021-
6100264 August 6, 1996. That Chapter examines the same data reporting requirements as the
instant audit and found that among the six States audited, data points were generally overstated
from 7 to 47 % (see pages 33-44).
Attachments (2)
cc: Martin Pinto (3AI00)
John Bocelii (3PM70)
Robert Picollo (3PM70)
TomVoltaggio (3DA00)
Randy Pomponio (3HW03)
Abe Ferdas (3HW00)
Richard Collins, MDE
Horocio Tablada, MDE
Bill Lienesch, OUST
31
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APPENDIX B
PAGE 5 OF 9
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION III
841 Chestnut Building
Philadelphia, Pennsylvania 19107-4431
MEMORANDUM
SUBJECT: Response to Draft Report of Audit on
7/31/97
Maryland Department of the Environment's (MDE)
Leaking Underground Storage T~' " T "
Report Number E3LLL7-03-00
FROM: Maria Parisi Vickers, Associate DiVa€taf \
Hazardous Waste Management Divtsiqn \
Office of RCRA Programs (3HW031 ^
TO:
Robert G. Reed, Jr., Chief
Grants and Audit Management Branch (3PM70)
The purpose of this memorandum is to respond to the Office of Inspector General's (OIG) Draft
Report of Audit on the Maryland Department of the Environment (MDE) LUST Program. Pursuant to
your memorandum of July 2, 1997 and a ten-day extension to respond grants by John Bocelli of your
staff to John Humphries of my staff; I am submitting this response on behalf of the Office of RCRA
Programs, so you can prepare a response to the OIG on behalf of the Regional Administrator. The
purpose of the audit was to "determine whether MDE had adequately accounted for LUST Trust Fund
monies and complied with the Cooperative Agreement (CA) conditions." We have to our
comments, MDE's response to the Draft Audit Report, which was submitted directly to the Regional
Administrator on July 24, 1997. We suggest that the OIG honor MDE's request to include their
comments, which serve to clarify the issues presented in the Draft Audit Report, as an Appendix to the
OIG's final report. In addition, we request that the Office of RCRA Program's comments be included in
the OIG's final report as an Appendix.
As requested, the Office of RCRA Programs addressed the factual accuracy of the data presented
in the Draft Audit Report, and then provided comments on the conclusions and recommendations
included in the Report. Although the Draft Audit Report is essentially accurate, in light of the
methodology employed in the audit, the Office of RCRA Programs has serious concerns about the
conclusions and recommendations presented in the Report. We are concerned about the fact that site
files were "judgmcntally" selected in the audit process. The Draft Report is not totally clear on the
parameters of that selective judgment, but EPA and MDE believe that underground storage tanks owned
by non-marketers of petroleum are overrepresented. Since MDE asserts that non-marketers represent
20% or less of the State's total UST universe, conclusions and recommendations presented in the report
seem to have been inappropriately extrapolated, from an unrepresentative sample of program 4b&l, to
represent MDE's entire LUST program operations.
Factual Accuracy:
On page 11, first paragraph, last sentence, "The file did not document this information." EPA
believes this statement is not totally accurate (see page 4 of MDE's response) and suggests a change be
made to reflect that although "the" file reviewed did not contain the relevant documentation, other
Maryland records could have been produced to provide the necessary documentation.
32
Customer Service Hotline: 1-800-438-2474
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APPENDIX B
PAGE 6 OF 9
On Pages 5 and 12. there are two inconsistent references to the total amount ol ineligible
expenditures under the FY 96 Cooperative Agreement, i.e., $7,833 and S7.883 The correct figure should
be $7,883.
NOTE. Maryland also inadv ertently made the same t\pographical error on page 1 of their July 24, 1997
response to the OIG Draft Audit Report. MDE has been notified and assures EPA the correct amount
($7,883) will be transferred to the LUST cost recovery account to rectify the ineligible cost expenditures.
Conclusions and Recommendations:
Reporting of Program Accomplishment
Instruct MDE to review and correct all previously reported STARS information to reflect
accurate cumulative totals for cleanups completed, confirmed releases, and cleanups
initiated.
As stated in MDE's response on pages 1 and 3, the Department recognized the need for, and has
already implemented, improvements in the way confirmed releases, cleanups initiated, and cleanups
completed are confirmed, counted and reported. These changes were reviewed by the OIG case auditor,
Mr. Mark Phillips, and have been implemented for federal FY 97. The State contends the inaccurate
records are more the result of poof documentation than misrepresentation of the facts. The Regional
Office has consulted with the Headquarters Office of Underground Storage Tanks (OUST), and OUST
has confirmed that some tolerance is allowed in the variation of program data among the states (see
attached June 27,1996 Comments on "Consolidated Report on EPA's LUST Program, Draft Report
Number E3PLF5-10-0021" from Elliot Laws, Assistant Administrator for OSWER to Michael Simmons,
Deputy Assistant IG for Internal & Performance Audits at pages 57 • 59).
Since MDE has implemented a procedure to better document their program data in the future,
Region III has confirmed with EPA Headquarters that MDE's new procedures will more accurately
document confirmed releases/and the effort to revisit nearly 10,000 case files would be substantial, the
Office of RCRA Programs does not believe there is good reason to go back and have Maryland review,
confirm and document past data. The time and effort associated with such an administrative task would
be better invested in addressing current releases from underground storage tanks.
Ensure that MDE's new procedures will result in accurate STARS reporting of cleanups
completed, confirmed releases, and cleanups initiated.
The Office of RCRA Programs is committed to review and evaluate MDE's new procedures
regarding the "verification" of a confirmed release to ensure proper documentation is included in case
files. EPA is also committed to review Maryland's STARS data on a continuing basis to ensure that
Maryland consistently follows EPA's definitions. In fact, as a result of the national OIG audit of the
LUST program, the Office of RCRA Programs has committed to conduct program reviews of all Region
IH states to identify how prevalent the national issues are in Region III states. Protocols to perform these
reviews are currently under development and are awaiting conclusion of the OIG audit in Maryland
before they are finalized and employed in other Region III states.
33
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APPENDIX B
PAPP "7 A|7 Q
Adjust the amount awarded to MDE in future years to remedv the past excesses in funding
MDE has received.
The Region is concerned about the OIG's claim that confirmed release numbers were
overestimated by 45% based on the sample of "judgmentally selected" cases reviewed, and the
subsequent extrapolation of that figure to represent the entire population of LUST facilities.
First, Maryland believes the ten (10) tank pull cases reviewed were a question of documentation
not an error in reporting, because MDE's experience has shown tank pulls routinely show some
evidence of a release As a result, only 14 cases, or 26%, of the files reviewed would potentially
have inaccuracies against reported data. In addition, as the audit report states, the site files
reviewed were "judgmentally selected" and Maryland has reported that all but 4 of the cases
reviewed represented a non-marketer facility. There is a likelihood that the characteristics of
marketer and non-marketer operations are distinct enough to suggest findings in one "Universe
may not represent the other (see page 2 of MDE response). For example, the 3 heating oil tanks
noted as misrepresented data in the cases reviewed would not typically occur in the marketer
universe, because gasoline stations, unlike non-marketers, would rarely have heating oil tanks on
the premises. Maryland estimates that non-marketers represent 20% or less of the State's total
UST universe, therefore extrapolating the estimated 45% error in reporting across the entire
LUST universe is misrepresentative. The State estimates that the rate of misrepresented data in
the marketer universe is no greater than 15% (see pages 2 and 3 of MDE's response). Therefore,
the potential combined error rate, considering a modified error rate for non-marketers, would '
more likely be 17%, substantially lower than 45%.
Not only was the sample of 53 FY 96 case files unrepresentative, the recommendation to
recover up to S1.4 million from Maryland is based on an assessment of only 53 case files in
relation to a total universe of almost 10,000 confirmed releases reported over a number of years,
even accounting for the OIG's estimated 4.5% "double counting" error. This sample of 53 sites,
represented only about 0.5% of the entire universe of confirmed release case files at the time.
Although for reasons noted below, Region III does not believe any grant funds should be
recovered from Maryland, the OIG should have assessed a larger number of randomly selected
case files in order to better support a more representative and defensible grant recovery amount.
The Office of RCRA Programs disagrees with the conclusion that Maryland should not
have received up to $1.4 million of LUST grant funds for fiscal years FY94 through FY97,
because of inaccuracies in program data Maryland reported to EPA. The Office also disagrees
with the recommendation to adjust Maryland's future grant awards to "remedy the past
excesses" in funding. First, and most importantly, if Maryland did receive "excess" funds, they
were not used for ineligible activities. The audit supports that, except for $7,883 of ineligible
costs mistakenly charged to the LUST Cooperative Agreement and promptly rectified by
Maryland, all LUST grant funds were applied to eligible program costs.
Second, if Maryland did overstate the number of confirmed releases and influenced the
calculation of the State's share of the national grant award budget, it would not necessarily
directly impact what Region III offers to Maryland as an annual grant award amount. State
allocations are combined to give each Region a total allocation. Then, using the state-based
allocation figures, the Regional Administrator has discretion per 40 CFR Part 35 (35.120,
35.125(b), 35 141(a) and 35.143(a)) to distribute grant funds across the Regional states as
appropriate - state-based allocations are not entitlements for respective states
34
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APPENDIX B
PAGE 8 OF 9
Third, ihe application of Regional discretion in setting grant award amounts for states is a
part of the distribution process for allocating grant funds. Headquarters recognizes t at t e ata
used in the national grant allocation formula is not perfect (see Elliot Law s memoran um ci e
above), and expects Regions tc use a variety of factors to determine state-speci c gran
allocation amounts In fact, the Region does use its discretion to distribute grant n s among
Region III states based on a variety of factors that can modify allocation igures erive om t e
national distribution formula For example, from time-to-time the Region consi ers provi ing
additional funding for particular, non-recurring heeds of the states, like the esta is en o
computer-based tracking systems, the purchase of field and laboratory equipment, etc., to
enhance state capabilities. In other instances, if a particular state is unable to mate grant n s,
either a Headquarters allocation or supplemental grant funds resulting from previous year
carryover, the Region will routinely offer any excess grant funds to those states t at can mat(^
and spend available grant dollars effectively. Maryland has traditionally been a ^at®t 1 cou
accept a substantial percentage of available Regional grant funds, and, as such, as ui t a strong
infrastructure for their underground storage tank program.
Maryland continues to significantly lead other Region III states in cost recovery amounts,
facility inspections, and confirmed releases and cleanups completed even i these num ers are
adjusted downward because of reporting inaccuracies. Based on-the above, t e ce o
Programs does not support the recovery of any grant funds from Maryland, because o
inaccuracies in reporting program data. Essentially, grant funds were applied to eligi e E
LUST program costs to achieve effective program implementation. We note that the national
audit of the LUST program did not recommend recovery of grant funds from states due to
inaccurate reporting of program data. We believe that there is no reason to apply a different
rationale here and single out Maryland for recoupment.
Ultimately, the discretion to set equitable grant funding levels among Regional states
rests with the EPA Regions. Even before the OIG's Draft Audit Report was released, the
Regional distribution of LUST funds was a topic on the May 14 and 15, 1997, All States
Meeting agenda. As EPA grant funding levels stabilize and state program costs continue to
escalate, the need for the Region to be particularly discerning in the distribution of grant funds is
heightened. The Office of RCRA Programs informed the states at the May meeting that during
FY 98 it would be assessing how LUST grant funds are allocated across the states. The states
were invited to participate in the process to provide input, and the states declined the invitation,
leaving the responsibility solely with the Region. The Office has every intention to continue to
exercisfe its discretion to allocate grant funds to the states in a responsible and equitable manner.
Documentation in Cost Recovery Settlements
We recommend that the Regional Administrator require MDE to document the basis for all
future settlements that are for amounts less than full cost recovery.
EPA received a copy of MDE's draft cost recovery procedures on July 17,1997. These
procedures indicate that "all decisions regarding the specific site shall be documented. The
documentation shall be in writing and state the rationale for the decisions made. The documents will be
maintained in the files of the Oil Control Program (OCP)." EPA's comments on MDE's draft cost
recovery procedures will request that MDE emphasize in its procedures that "every decision for all sites
where the Department achieves less than full cost recovery shall be documented."
35
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APPENDIX B
PAGE 9 OF 9
Information Reported Untimely
Administratively close all cases in a timely manner for which the cleanups have been
completed.
MDE has implemented new procedures, as discussed on page 4 of their response, to streamline
site closure procedures. EPA agrees with MDE that there will always be some gap between when a case
is technically closed and when loose ends are tied up to be able to actually close out a file
administratively. MDE's response discusses establishing new procedures to set expectations for timelv
closure of cases which should eliminate extensive lapses in reporting site closures.
In addition, EPA's own method of collecting state program data does not promote timely
reporting. State STARS report data is due to EPA every six months by the 5th working day following
March 31st and September 30th. This reporting time frame does not always allow site closures that are
"technically" completed towards the end of one reporting period to be reported in the appropriate cycle,
because administrative details cannot be completed soon enough. Consequently, the next time data can
be updated is during the next reporting cycle, six months later.
During program reviews, EPA will ensure that MDE is committed, within the LUST Cooperative
Agreement, to direct their efforts towards minimizing the gap between the time when a case is technically
closed and when a case file is administratively closed.
Questioned Costs
Adjust their cost recovery balance to reflect the $7,883 available to perform additional
LUST activities.
The Department has addressed this matter by transferring $7,883 to the LUST cost recovery
account from Maryland's Oil Fund (see page 1 of MDE's response). Also see the clarifying "note" on the
first page of this memorandum.
The Office of RCRA programs notes that greater than 99% of MDE's expenditures in FY 96 were
LUST-eligible costs. Maryland has committed to reinforce their existing internal accounting procedures
tq further decrease the percentage of ineligible costs charged to LUST grant funds in the future.
EPA recognizes MDE's tank program as one of the best in the country. The State's inspection
program has been held up as a model for other states nationwide. The constructive manna- in which
MDE has addressed the issues in the Draft Audit Report is an example of the State's commitment to work
as a partner with EPA. We anticipate that MDE will cooperate with EPA in the future to continuously
improve Maryland's underground storage tank program
If you have any questions regarding EPA's comments on the OIG's Draft Audit Report af$he
MDE's LUST Program, please do not hesitate to contact me at 215-566-3149 or John Humphries, Chief,
State Programs Branch at 215-566-3372.
Attachments (2)
cc: John Bocelli
Robert Picollo
Abe Ferdas
Richard W. Collins (MDE)
Horacio Tablada (MDE)
Bill Lienesch (OUST)
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37
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DISTRIBUTION
APPENDIX C
PAGE 1 OF 1
Headquarters
Office of Inspector General - Headquarters (2410)
Agency Audit Follow up Coordinator (3304)
Agency Audit Followup Official (3101)
Associate Administrator for Congressional and Legislative Affairs (1301J
Associate Administrator for Communication, Education, and Public Aftairs (1701)
Associate Administrator for Regional Operations & State / Local Relations (1501)
Director, Grants Administration Division (3903F)
EPA Library (3404)
EPA Region 3
Regional Administrator (3RAOO)
Director, Hazardous Waste Management Division (3HWOO)
Associate Director, Office of RCRA Programs ^3HW03)
Assistant Regional Administrator, Office of Policy and Management (3PMOO)
Chief, Grants & Audit Management Branch (3PM70)
Acting Director, (Proposed) Waste & Chemicals Management Division (3RA00)
Director, Office of External Affairs (3EAOO)
Regional Library (3PM52)
Other
Maryland Department of Environment
Office of Inspector General - Divisional Offices
General Accounting Office
38
Report No. E3LLL7-03-0009-7100290
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