OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Quick Reaction Report
Cost and Lobbying Disclosure Issues
Under EPA Grant Numbers X98981901
and XP97914901 Awarded to the
City of Fallen, Nevada
Report No. 2007-2-00040
September 26, 2007
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Report Contributors: Robert Adachi
Janet Lister
Eileen Collins
Janet Kasper
Abbreviations
CFR Code of Federal Regulations
EPA U.S. Environmental Protection Agency
Grantee City of Fallen, Nevada
OIG Office of Inspector General
OMB Office of Management and Budget
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
September 26, 2007
MEMORANDUM
SUBJECT: Cost and Lobbying Disclosure Issues Under EPA Grant Numbers
X98981901 and XP979 14901 Awarded to the City of Fallen, Nevada
Report No. 2007-2-00040
FROM: Melissa M. Heist
Assistant Inspector General for Audit
TO: Wayne Nastri
Regional Administrator
EPA Region 9
This report contains time-critical issues the Office of Inspector General (OIG) identified and
recommends recovery of the Federal funds drawn down by the recipient and also a determination
of compliance with disclosure of lobbying activity. This report represents the opinion of the OIG
and does not necessarily represent the final position of the U.S. Environmental Protection
Agency (EPA). EPA managers will make final determination on matters in this report.
Action Required
In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to provide us
your proposed management decision for resolution of the findings contained in this report before
any formal resolution can be completed with the recipient. Your proposed decision is due in
120 days, or on January 24, 2008. To expedite the resolution process, please email an electronic
version of your proposed management decision to kasper.janet@epa.gov.
We have no objections to the further release of this report to the public. The report will be
available at http://www.epa.gov/oig. If you have any questions, please contact Janet Kasper,
Director, Assistance Agreement Audits, at (312) 886-3059 or at the email above.
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Purpose
During our audit of Special Appropriation Act Projects the following conditions came to our
attention which we believe require your immediate attention. The City of Fallen, Nevada
(grantee) did not meet the Title 40 Code of Federal Regulations (CFR) Part 31 requirements for
financial management. The grantee also did not disclose any lobbying activity to EPA even
though the grantee contracted with three lobbyists.
Background
Grant number X98981901 was awarded on June 27, 2001. The grant provided Federal assistance
of $973,900 for studying arsenic in drinking water and designing a treatment plant. The grant
was subsequently amended to provide total EPA funds of $1,073,900. The $1,073,900
represents EPA's contribution of 100 percent of eligible project costs. There was no matching
requirement.
Grant number XP97914901 was awarded on July 24, 2002. The grant provided Federal
assistance of $5,785,740 for the design and construction of a drinking water treatment plant to
reduce levels of naturally occurring arsenic in the groundwater supplies which service the City.
The EPA participation of $5,785,740 represents 55 percent of all eligible project costs. The
grantee was responsible for the remaining 45 percent of all eligible project costs.
Scope and Methodology
We performed our audit in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States, with the exception of gaining a complete
understanding of internal controls as required under Section 7.16 and gaining an understanding
of information control systems as required under Section 7.23. We did not obtain a complete
understanding of the internal control system since the limited nature of our review focused on the
source documents that support costs claimed under the grants. We also did not test the
recipient's grant drawdown process or test the recipient's process for entering information into
its accounting system. Instead, we relied upon the grantee's schedule of revenues and project
costs. The schedule was reconciled to the grantee's source documents but was not part of the
official accounting system. We did not obtain an understanding of information control systems
since the review of general and application controls was not relevant to the assignment
objectives. Instead, we relied on relevant output data, including general ledger reports, cash
disbursements and detailed cost ledgers and verified information in the reports to source
documentation. We conducted our field work between February 26, 2007, and May 31, 2007.
We made site visits to the grantee and State of Nevada and performed the following steps:
• Conducted interviews of grantee and State of Nevada personnel;
• Obtained and analyzed the grantee's electronic accounting files, source documents, bank
statements, cancelled checks, and invoices;
• Obtained and analyzed EPA grant drawdowns, Drinking Water State Revolving Fund
loan draws, State Assembly Bill 198 grant draws, and other related financial data; and
• Obtained and reviewed State of Nevada project files.
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Findings
The grantee did not meet the Title 40 CFR Part 31 requirements for financial management. In
particular, the grantee:
• claimed pre-award costs in excess of the eligible amount; and
• did not support amounts matching costs claimed under EPA grants.
As a result, EPA will need to recover $350,916 under grant number XP97914901. The grantee
also did not disclose any lobbying activity to EPA, even though the grantee contracted with three
lobbyists.
Unallowable Pre-Award Costs
The grantee claimed $556,558 in excess of the approved pre-award amount under grant number
XP97914901. The grant award approved $372,890 in pre-award costs; however, the grantee
claimed $939,448 in pre-award costs. Title 40 CFR 31.20 (b)(5) requires the grantee to meet
applicable Office of Management and Budget cost principles and the grant terms when claiming
costs under EPA grants. Office of Management and Budget Circular A-87 Attachment B,
Section 31 defines pre-award costs as those costs incurred prior to the effective date of the
award, which are necessary and allowable only to the extent that they would have been allowable
if incurred after the date of the award and only with the written approval of the awarding agency.
The Federal share of the excess pre-award costs totaling $311,607 is questioned, as calculated
below:
Total Amount of Pre-Award Costs Claimed $ 939,448
Amount of EPA Approved Pre-Award Costs 372,890
Excess Pre-Award Costs Claimed $ 566,558
Federal Share ($566,558 x 55 percent) $ 311,607
Unsupported Matching Costs
At the time of our field work, the grantee could not locate supporting documentation for $32,162
in matching costs for grant number XP97914901. Title 40 CFR 31.24 (a)(l) and (b)(6) require
matching costs to be verifiable from the grantee's records. Any reduction in the grantee's
matching costs will mean that the proportionate EPA grant must be reduced because the grant
will be undermatched. Without adequate supporting documentation to demonstrate that claimed
costs are allowable, $32,162 in matching costs is questioned as well as the allocable Federal
share of $39,309, computed as follows.
Unsupported Matching Costs $ 32,162
Total Amount Costs (100 percent = $32,162/45 percent matching share) $ 71,471
Federal Share of Claimed Costs ($71,471 - $32,162) $ 39,309
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Undisclosed Lobbying Activity
The grantee did not disclose any lobbying activity to EPA, even though the grantee contracted
with three lobbyists. The grantee is required to disclose all instances of lobbying activity,
regardless of the source of funds used to pay for those activities. The lack of full disclosure of
lobbying activity is a material misrepresentation to the Federal Government and is subject to a
civil penalty of not less than $10,000 and not more than $100,000 for each such failure.
Title 31, U.S. Code, Section 1352 prohibits use of Federal funds for lobbying activities and
requires recipients to file a written declaration containing the name of any registrant under the
Lobbying Disclosure Act of 1995 who has made lobbying contacts on behalf of the recipient. It
requires a certification that the person making the declaration has not made, and will not make,
any prohibited payment for lobbying activities.
The items certified to in the Certification Regarding Lobbying form are:
1. No Federal funds were paid to any person to influence Government officials in
connection with the awarding or modification to any Federal contract, grant, loan or
cooperative agreement.
2. If any funds other than Federal appropriated funds were used to influence or attempt to
influence Government officials in connection with the Federal contract, grant, loan, or
cooperative agreement, the undersigned shall complete and submit Standard Form LLL,
"Disclosure Form to Report Lobbying, " in accordance with its instructions.
This certification is a material representation of fact upon which reliance was placed when
this transaction was made or entered into. Submission of this certification is a prerequisite
for making or entering into this transaction imposed by section 1352, title 31, USC. Any
person who fails to file the required certification shall be subject to a civil penalty of not less
than $10,000 and not more than $100,000 for each such failure.
The grantee did not disclose any lobbying activity, even though the grantee had contracts with
three lobbyists: the Furman Group, R&R Partners, and Energy Source. The Furman Group
provided government relations and other consulting services related to the City's infrastructure
development needs. R&R Partners provided government and public affairs services that
included monitoring legislative issues. Energy Source provided services to the grantee in
connection with regulatory proceedings relating to electric operations, electric energy, and
electric departments. A grantee official stated that the Furman Group was involved with the
drinking water treatment plant development and was most likely involved with helping the
grantee obtain the EPA grants. The contracts to Energy Source and the Furman Group were
entered into before either grant was awarded. The dates of contract awards and the funds from
which the lobbyists were paid are detailed below:
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Table 1: Schedule of Lobbyist Contracts and Funds Used
Lobbyist
Energy Source
Furman Group
R&R Partners
Date of Contract Award
Septembers, 1998
March 11, 1998
February 17,2003
City Fund Account
Used to Pay Lobbyist
Electric Enterprise Fund
Electric Enterprise Fund
Water Funds
Source: City of Fallen, Nevada
Recommendations
We recommend that the Regional Administrator, EPA Region 9:
1. Recover $350,916 under grant number XP97914901 consisting of:
a. $311,607 in unallowable pre-award costs, and
b. $39,309 allocable to unsupported matching costs.
2. Determine whether the grantee complied with Title 31, U.S. Code, Section 1352 in the
lobbying disclosures made under grant numbers X98981901 and XP97914901. For those
instances where it is determined the grantee did not disclose lobbying activity, the Region
should refer the matter to the Department of Justice for further action.
Grantee's and Region 9 Comments
On September 13, 2007, the OIG held an exit conference with the grantee to obtain the grantee's
comments on the factual accuracy of the draft report. During the exit conference, the grantee
provided additional information in connection with the unsupported drawdowns questioned in
the discussion draft. Based upon the additional information, the drawdowns have been accepted
and the recommendation eliminated. On September 17, 2007, the OIG held an exit conference
with Region 9 representatives to obtain the Region's comments on factual accuracy of the draft
report. The following reflects the grantee's and Region's comments:
Unallowable Pre-Award Costs
The grantee said that it had pre-award costs far in excess of the pre-award costs allowed by the
grant. However, the grantee did not use the proper timeframes for determining allowable
preaward costs. The grantee is prepared to amend its request to appropriately allocate
expenditures and will work with the Region during audit resolution to clear up this issue.
The Region is willing to work with the grantee during audit resolution to resolve this issue. The
Region stated that it would consult with the OIG to ensure any costs requested during audit
resolution have not been claimed under any other funding source, such as other Federal or State
grants and loans.
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Unsupported Matching Costs
The grantee said that it researched this issue of unsupported matching costs and it discovered that
it had never requested or received the draw for $32,161 from the State Assembly Bill 198 grant.
The grantee requested that the OIG consider additional unreimbursed costs under EPA grant
number X98981901 (specifically drawdowns 8 and 9) as support for the $32,161 in matching
costs for grant number XP97914901.
The Region is willing to work with the grantee during audit resolution to resolve this issue. The
Region stated that it would consult with the OIG to ensure any costs requested during audit
resolution have not been claimed under any other funding source, such as other Federal or State
grants and loans.
Undisclosed Lobbying Activity
The grantee recognized that the lobbyists should have been disclosed. The grantee stated the
nondisclosure was an oversight. The contract with the Furman Group was intended to help the
grantee obtain Federal funds and the grantee held public meetings where anyone could attend.
The grantee is willing to work with EPA to do whatever is necessary to resolve this problem.
The Region said it would like its Office of Regional Counsel to confer with the OIG Office of
Counsel regarding the lobbying disclosure issue, to address such matters as who should make the
referral to the Department of Justice and how much discretion EPA has in making the referral.
OIG Response
Unallowable Pre-Award Costs
The OIG concurs with the grantee that this issue should be addressed during audit resolution.
We will assist the Region to ensure any costs requested during audit resolution have not been
claimed under any other funding source, such as other Federal or State grants and loans.
Unsupported Matching Costs
Our position remains unchanged. Since the grantee had never requested nor received the
$32,162 in funds from its State grant, the grant was undermatched. The grantee also needs to
ensure that the additional costs being claimed have not reimbursed from other funding sources,
such as other Federal or State grants and loans.
The grantee's request that costs claimed under one grant be applied to another grant cannot be
accepted until the Region reviews the costs to ensure the amounts claimed are within the scope
of the project funded under grant number XP97914901. We will assist the Region to ensure any
costs requested during audit resolution have not been claimed under any other funding source,
such as other Federal or State grants and loans.
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Undisclosed Lobbying Activity
Our position remains unchanged. The Region needs to refer any lobbying disclosure violations
to the Department of Justice.
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Status of Recommendations and
Potential Monetary Benefits
POTENTIAL MONETARY
RECOMMENDATIONS BENEFITS (in $OOOs)
Planned
Rec. Page Completion Claimed Agreed To
No. No. Subject Status1 Action Official Date Amount Amount
Recover$350,916undergrantnumberXP97914901 0 Regional Administrator, 01/24/08 $351
consisting of: EPA Region 9
a. $311,607 in unallowable pre-award costs, and
b. $39,309 allocable to unsupported matching costs.
Determine whether the grantee complied with 0 Regional Administrator, 01/24//08
Title 31, U.S. Code, Section 1352 in the lobbying EPA Region 9
disclosures made under grant numbers X98981901
and XP97914901. For those instances where it is
determined the grantee did not disclose lobbying
activity, the Region should refer the matter to the
Department of Justice for further action.
1 0 = recommendation is open with agreed-to corrective actions pending.
C = recommendation is closed with all agreed-to actions completed.
U = recommendation is undecided with resolution efforts in progress.
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Appendix A
Distribution
Regional Administrator, Region 9
Director, Office of Wastewater Management, Office of Water
Director, Office of Wastewater Management - Municipal Services Division, Office of Water
Director, Office of Grants and Debarment
Director, Grants and Interagency Agreements Management Division
Agency Followup Official (the CFO)
Agency Followup Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Region 9 Audit Followup Coordinator
Region 9 Office of Regional Counsel
Region 9 Public Affairs Office
Acting Inspector General
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