I
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Memorandum Report
Review of Hotline Complaint
Regarding Technical Assistance
Grant No. 1-97025201 Awarded to
the Basin Cleanup Coalition,
Coeur d'Alene, Idaho
Report No. 2004-P-00010
March 25, 2004
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Report Contributors: Robert Adachi
Kimberly Crilly
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
March 25, 2004
MEMORANDUM
SUBJECT: Report No. 2004-P-OOO10
Review of Hotline Complaint Regarding Technical Assistance Grant
No. 1-97025201 Awarded to the
Basin Cleanup Coalition
Coeur d'Alene, Idaho
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FROM: Michael A. Rickey
Director for Assistance Agreement Audits
TO: L. John lani
Regional Administrator
EPA Region 10
On July 23, 2003, the Environmental Protection Agency (EPA) Office of Inspector General
(OIG) received a complaint in connection with a technical assistance grant (TAG) awarded to the
Basin Cleanup Coalition (Coalition), Coeur d'Alene, Idaho. The complainant alleged that the
grant violated TAG requirements and that the Coalition was a "front"1 for the Coeur d'Alene
Chamber of Commerce (Chamber). In particular, the complainant alleged that:
The TAG was approved even though the Coalition did not have any members or a
board of directors;
• The Coalition was not a tax exempt organization approved by the Internal Revenue
Service; and
The Coalition is a creation of the Chamber.
The purpose of our review was to address the allegations made in the complaint and to determine
whether the Coalition was qualified to receive grant funds under the TAG regulations outlined in
1 In the complaint, the following statement was made concerning the Coalition: "This is nothing but a
front for the Chamber who is promoted by mining polluters, politicians and anti-superfund site advocates."
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40 Code of Federal Regulations (CFR) Part 35.4000, and the general grant regulations outlined
in 40 CFR Part 30.
We have no objection to the public release of this report. This report contains findings that
describe the problems the OIG has identified and corrective actions the OIG recommends. This
report represents the position of the OIG and the findings contained in this report do not
necessarily represent the final EPA position. Final determinations on matters in this audit report
will be made by EPA managers in accordance with established audit resolution procedures.
Results in Brief
Based on our review, the Coalition (1) was not a qualified TAG recipient because of the
potential conflicts of interest as defined in 40 CFR 30.42, and (2) did not meet the minimum
administrative and management capability requirements required by the CFR. The Coalition did
not have a sufficient membership to have a Board of Directors and, as a result, was unable to
enter into contracts to hire a technical advisor as required under the TAG. Also, the Coalition
was not eligible as a TAG recipient since it did not obtain tax exempt status. Further, we found
that the Coalition's intent was to enter into a contract with the Chamber that would have allowed
the Chamber to act as the grant administrator, and since the Coalition's incorporator was also the
Chamber's President and General Manager, this could have created a conflict of interest as
defined in 40 CFR 30.42. The Coalition also did not have an accounting or procurement system
as required by 40 CFR 35.4020 (a)(2), 40 CFR 30.21, and 40 CFR 30.44.
The results of the review were discussed with EPA Region 10 representatives on November 13,
2003. As a result of the meeting, on December 5, 2003, the Region notified the Coalition that
the TAG grant was being terminated. The quick response by the Region has resulted in $50,000
in Federal funds being put to better use, as well as the resolution of an improper award. To
ensure that future TAG grantees comply with Federal requirements, we recommend that the
Region improve its post award grant procedures to verify the assurances given on grant
applications.
Background
Grant No. 1-97025201 was awarded on April 24, 2003, and approved $25,000 in partial funding,
with total project costs of $62,500. The total Federal share of the project was to be $50,000,
with the Coalition providing $12,500 of matching funds. The purpose of the grant was to fund
the hiring of a technical advisor to assist the communities affected by the Superfund cleanup in
the Coeur d'Alene River Basin in understanding and participating more fully in the cleanup
process. The Basin covers four counties in Idaho and Washington State. The grant had a
project and budget period from May 1, 2003, to July 31, 2004.
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Review of Hotline Allegations
The TAG was approved even though the Coalition did not have any members or a board of
directors.
As of October 29, 2003, the Coalition had nine members, of which only two had paid their
membership dues, consisting of:
• two members from Shoshone County, Idaho
• four members from Kootenai County, Idaho
• three members from Spokane County, Washington
There were no members from Benewah County, Idaho.
Consequently, the Coalition did not have a board of directors, since it did not have a sufficient
membership from each of the four counties to elect a board based upon its by-laws. According
to Article III, Section 2 of the Coalition's by-laws:
The members of Basin Clean up Coalition shall elect a twelve member Board of
Directors. There will be 3 Board members elected from each of the four counties in the
Basin (Shoshone, Benewah, Kootenai and Spokane Counties). The Directors from each
county must be members in good standing of the Basin Clean-up Coalition and reside in
the county. Board members will be elected solely by the Coalition members residing in
the County the Board member wishes to represent.
Without a board of directors, the Coalition was unable to enter into any contracts to hire a
technical advisor, as required under the terms and conditions of the grant.
The Coalition was not a tax exempt organization approved by the Internal Revenue Service.
The Coalition was not designated as a tax exempt organization as defined in Section 501(c)(3) of
the Internal Revenue Code. Under 40 CFR 35.4045, the Coalition was required to be a nonprofit
organization before it could receive money. Although the Coalition was incorporated in the
State of Idaho, the Coalition did not obtain its nonprofit tax exemption. Therefore, the Coalition
was not eligible to receive funds under the TAG. We were told that the Coalition did not intend
to obtain the tax exempt designation unless the Coalition was assured of its continued existence
and was able to operate the grant.
The Coalition is a creation of the Coeur d'Alene Chamber of Commerce.
While we could not determine whether the Coalition was the "creation" of the Chamber, the
Coalition and the Chamber do have common characteristics. The Coalition incorporator is also
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the President and General Manager of the Chamber. The Coalition and the Chamber share the
same address.
Of greater significance was the intent of the Coalition to enter into a contract with the Chamber
that would have enabled the Chamber to act as the grant administrator in spite of the Region's
notification that such an arrangement was prohibited. On June 11, 2003, the TAG grant Project
Officer notified the Coalition that the Chamber could not administer the grant and that the
Coalition would need to hire a grant administrator. Also, we believe that there would be a
conflict of interest since the Coalition incorporator and the Chamber's President and General
Manager are the same individual. Title 40 CFR 30.42 defines the conflict of interest as:
... No employee, officer, or agent shall participate in the selection, award, or
administration of a contract supported by Federal funds if a real or apparent conflict of
interest would be involved. (Emphasis added) Such a conflict would arise when the
employee, officer, or agent, any member of his or her immediate family, his or her
partner, or an organization which employs or is about to employ any of the parties
indicated herein, has a financial or other interest in the firm selected for award.
On October 29, 2003, Coalition representatives advised us that they still intended to have the
Chamber administer the grant, and did not agree that any real or apparent conflicts of interest
existed.
Compliance with General Grant Regulations
The Coalition did not meet the minimum administrative and management capability
requirements of 40 CFR 35.4020 (a)(2), 40 CFR 30.21, and 40 CFR 30.44. In particular, the
Coalition did not have an accounting system or procurement system, despite assurances in its
grant application that the systems were in place. In the grant application dated December 12,
2002, the Coalition completed the Survey of Recipient's Management Systems. In the survey,
the Coalition stated that it had:
• established project accounting records to record the applicable grant costs;
• responded affirmatively to all other questions relating to their accounting system;
established a time distribution system, supported by employee timecards;
established formal travel procedures;
established formal procurement procedures, including controls to assure that
unacceptable contract types are not utilized; and
• responded affirmatively to all other questions relating to their procurement system.
On October 29, 2003, the Coalition provided the following response to OIG inquiries concerning
the Coalition's accounting and procurement practices:
There are no accounting and procurement practices per sefor the BCC since it is
coming into existence. My assumption has been that we would utilize
procurement procedures required by the EPA. Accounting will be done
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according to Generally accepted accounting procedures for nonprofit
organizations which we (the Chamber) uses [sic] for our books and for those of
other associations which we manage.
In spite of the assurances given in their grant application, the Coalition did not have the
accounting or procurement systems in place as required under 40 CFR 35.4020 (a)(2), 40 CFR
30.21, and 40 CFR 30.44. Title 40 CFR 35.4020 (a)(2) requires TAG grantees meet the
minimum administrative and management requirements found in 40 CFR 30.21. Title 40 CFR
30.21 outlines the standards for financial management systems required of all grant recipients.
Title 40 CFR 30.44 outlines the procurement procedures required of all recipients.
To ensure that future TAG recipients comply with Federal regulations, the Region needs to
improve its award procedures for newly formed organizations. In particular, the Region should
use advanced monitoring procedures, as outlined in EPA Order 5700.6, Policy on Compliance,
Review and Monitoring, on all newly formed grant recipients. Advanced monitoring is the
process by which a recipient's compliance with applicable administrative and financial statutes,
regulations, conditions, and policies is evaluated. This can take place through the use of on-site
or off-site evaluations. This is significant for TAG grantees, since the TAG program allows
potential grantees to be newly formed organizations. Such organizations may not have the
administrative and management capability at the time of grant award that is usually found in
established nonprofit organizations. To protect the Government's interest, the Region needs to
perform either an on-site evaluation or a desk review prior to making an award to newly formed
grantees. If problems are noted, the Region could withhold the grant award until corrective
action is complete or include special award conditions.
Recommendation
We recommend that the Regional Administrator follow national policy for management of
awards to new recipients. Presently, EPA's draft policy requires using advanced monitoring, as
outlined in EPA Order 5700.6, on newly formed grantees, prior to the grant award.
Since Region 10 and the Coalition agreed to our suggestion to terminate the grant by mutual
consent, no recommendation on that issue is necessary.
Region 10 Response and OIG Comments
We issued a draft report to the Region on February 3, 2004. The Region provided a response on
March 8, 2004. A copy of the Region's response is included as Appendix A of this report. The
exit conference with the Region was on March 9, 2004.
The Region agreed with the need to perform advanced monitoring on newly formed grantees but
not within the recommended 60 day timeframe mentioned in the draft report. The timing of such
reviews is the subject of draft national policy currently under development and the Region wants
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to be consistent with national grant policy. We agree with the Region and reworded our
recommendation accordingly. For applicants without prior Federal awards, as was the case for
the Coalition, the draft policy will require the Region to perform administrative and
programmatic reviews before the grant award.
The Region stated that it would implement the new policy through a memorandum to the TAG
project officers and the Grants Unit Manager which would be provided to the OIG by March 31,
2004. During the exit conference, it was agreed that Region would withhold the issuance of the
memorandum pending guidance from EPA Grants Administration Division.
The Region also questioned our conclusion that the Coalition was not eligible under 40
CFR35.4045 because it was not designated as a tax exempt organization under the Internal
Revenue Code. We understand the question and believe that the regulation is confusing. State
law describes the requirements for incorporation and can vary from state to state. The term
"nonprofit" refers to the tax status for certain types of organization and is controlled by U.S.
Internal Revenue Code and not state law. Since the regulation requires that an eligible TAG
recipient "must incorporate as a nonprofit corporation," the recipient must meet the requirements
of both the incorporating state and the Internal Revenue Code.
Scope and Methodology
We conducted this review from September 5, 2003, through January 30, 2004. Our review was
conducted in accordance with the attestation standards outlined in Chapter 6 of the Government
Auditing Standards. A review is substantially less in scope than an examination, the objective of
which is the expression of an opinion. Accordingly, we do not express such an opinion. To
accomplish our objectives, we:
conducted interviews with the complainant and the Coalition;
• reviewed relevant documentation provided by the complainant and the Coalition;
• reviewed the Region's grant files and project officer files; and
• conducted interviews with regional personnel involved with the grant.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to this
report within 120 calendar days of the date of this report. We have no objections to the further
release of this report to the public. Please refer to the audit report number on all related
correspondence. We will be pleased to provide additional accounting counsel and audit services
which may be required in connection with this report and the implementation of our
recommendations. For your convenience, this report will be available at
http://www.epa.gov/oig/publications.htm.
If you or your staff have any questions regarding this report, please contact me at (312) 886-
3037 or Robert Adachi at (415) 947-4537.
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Appendix A
Region 10 Response
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 10
1200 Sixth Avenue
Seattle, WA 98101
Reply To
Attn Of: RA-140
Mr. Michael Rickey
Director for Assistance
Agreement Audits
Office of the Inspector General
US EPA, Region 5
77 West Jackson Boulevard
Chicago, Illinois 60604-3507
Re: Grant No. 1-9702520I/Basin Cleanup Coalition
Dear Mr. Rickey:
We have reviewed the draft report regarding the technical assistance grant awarded to the
Basin Cleanup Coalition. EPA Region 10 concurs with comment to the recommendation: "the
Regional Administrator, EPA Region 10, improve post award procedures by performing
Advance Monitoring, as outlined in EPA Order 5700.6, on newly formed grantees, within 60
days of the grant award."
Region 10 recently submitted our plan for post-award monitoring to EPA Headquarters.
The FY 2004 Regional Plan encourages each program office to provide post award monitoring
for all newly formed grantees, and by doing so, this provides early and effective guidance to the
grantees. Therefore, we are in full agreement with the recommendation that the newly formed
technical assistance grant recipients be subject to post award monitoring. However, in light of
ongoing national policy making regarding non-profit organizations and pending
recommendations from the General Accounting Office (GAO) to EPA regarding the timing of
post award monitoring, we suggest that the timing of the monitoring not be restricted to within
60 days of award. Instead, we propose that the Region conduct post award monitoring after the
first draw down of funds by the grant recipient. We will review this policy when national
guidance and GAO recommendations are finalized to ensure that we are consistent with those
recommendations.
Region 10 will adopt the recommendation to perform advanced monitoring for newly
formed organizations which received CERCLA technical assistance grants (TAGs). This policy
will be implemented through a memorandum to the TAG project officers and the Grants Unit
Manager. A copy of this memorandum will be provided to the OIG by March 31, 2004 to fulfill
this recommendation.
f Printed on Recycled Paper
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Accuracy:
1) Under the recommendations section, the draft report states that EPA terminated the grant.
The grant was terminated by mutual consent of the grantee and EPA on 11/25/03.
2) Under the review of Hotline Allegations, the report states that the grantee had not obtained
tax exempt status and therefore was not eligible to receive funds under the TAG program. The
TAG regulations at 40 C.F.R. 35.4045 specifically refer to filing incorporation papers for non-
profit status with the appropriate state agency, and make no mention of obtaining IRS 501(c)(3)
(tax exempt) status. Region 10 has shared this concern with the national TAG program.
Thank you for this opportunity to comment. If you should have any questions, please
contact Marianne Deppman Acting Community Relations and Outreach Unit Manager at
206-553-1237.
Sincerely,
L. John lani
Regional Administrator
cc: Robert Adachi, IG auditor
Freya Margand, TAG Coordinator
Carol Cowgill, OGC
Jane Souzon, RIO, ORC
Armina Nolan, RIO Grants Unit
Michael Gearheard, Director,
Office of Environmental Cleanup
Michelle Pirzadeh, Director,
Office of Ecosystems & Communities
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Appendix B
Distribution
EPA Region 10
Office of Management Programs, Grants Administration Unit
Office of Environmental Cleanup
Audit Followup Coordinator
Office of Communication, Education and Change
Headquarters Office
Director, Office of Grants and Debarment (3901R)
Director, Grants Administration Division (3903R)
Agency Audit Followup Coordinator (2724A)
Associate Administrator for Congressional and Intergovernmental Relations (1301 A)
Associate Administrator, Office of Public Affairs (1101 A)
Office of Inspector General
Inspector General (2410)
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