U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
Millions of Federal Dollars
Remain for Colonias Projects
Report No. 08-P-0184
June 23, 2008
-------
Report Contributors:
Andres Calderon
Randy Holthaus
Abbreviations
Board Texas Water Development Board
CWTAP Colonias Wastewater Treatment Assistance Program
EPA U.S. Environmental Protection Agency
FY Fiscal Year
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
Cover photo: Construction of a wastewater treatment plant in Tornillo, Texas, funded through
the Colonias Wastewater Treatment Assistance Program (photo courtesy of EPA
Region 6)
-------
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
08-P-0184
June 23, 2008
Catalyst for Improving the Environment
Why We Did This Review
We conducted an audit of the
Colonias Wastewater
Treatment Assistance Program
(CWTAP) because of the large
unliquidated obligation
balance in the program almost
a decade after the last grant
had been awarded. Our audit
objective was: Has the U.S.
Environmental Protection
Agency (EPA) provided the
oversight necessary to ensure
that the Texas Water
Development Board manages
CWTAP grants so that funds
are drawn properly and
projects are completed on
time?
Background
From Fiscal Years 1993
through 1999, EPA awarded
assistance agreements (grants)
totaling $300 million to the
Texas Water Development
Board for water infrastructure
improvements along the
border in poor, under-
developed, unincorporated
areas called colonias.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
Millions of Federal Dollars Remain
for Colonias Projects
To view the full report,
click on the following link:
www.epa.gov/oig/reports/2008/
20080623-08-P-0184.pdf
What We Found
Nearly 10 years after EPA Region 6 awarded the last CWTAP grant to the Texas
Water Development Board (the Board), $78 million still has not been spent. The
Region has taken some positive steps to address unliquidated obligations in the
CWTAP, such as working with the Board to establish a schedule for using the
remaining funds. However, Region 6's oversight of the program has been
hindered because work plans lacked project details and operating agreements did
not specify corrective actions.
If Region 6 does not improve its oversight of the program, the funds will probably
not be fully spent by the current CWTAP grant fund drawdown projection of
2010. Every delay in disbursing CWTAP funds reduces the purchasing power of
those grant dollars and delays needed improvements in public health and quality
of life.
EPA has taken action to address similar issues with more recent grants awarded
under the current U.S.-Mexico Border Program. In August 2007, the Office of
the Chief Financial Officer issued a policy to address funds administration and
provide guidance on appropriate monitoring targets. The goal of this policy is to
optimize project completion rates, clarify program oversight, and reduce
unliquidated balances related to the grant program. EPA needs to adopt a similar
process for the CWTAP program, to ensure that project delays will not further
delay disbursing federal funds and completion of projects.
What We Recommend
We recommend that the Regional Administrator for Region 6:
1. Amend the workplans and/or operating agreements for the open CWTAP
grants to include specific projects, schedules, and dollar amounts.
2. Develop and implement a policy, similar to what is contained in the Office of
the Chief Financial Officer's 2007 EPA Policy for the U.S.-Mexico Border
Program, which specifies a process for taking corrective actions when
projects are delayed.
EPA concurred with our recommendations and provided timeframes for taking
corrective actions.
-------
$
5
s
\
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MEMORANDUM
SUBJECT:
OFFICE OF
INSPECTOR GENERAL
June 23, 2008
Millions of Federal Dollars Remain for Colonias Projects
Report No. 08-P-0184
FROM:
TO:
Melissa M. Heist
Assistant Inspector General tor Audit
Richard Greene
Regional Administrator, Region 6
This is the final report on the subject audit conducted by the Office of Inspector General (OIG)
of the U.S. Environmental Protection Agency (EPA). This audit report contains findings that
describe problems the OIG has identified and corrective actions that the OIG recommends. This
audit report represents the opinion 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. We
would like to acknowledge the cooperation and assistance provided by your staff during the
audit.
The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - is $90,169.
Action Required
In accordance with EPA Manual 2750, we are closing this report on issuance in our tracking
system. You should track progress of your corrective actions in the Management Audit Tracking
System. In addition, we request that you provide us with the amended workplans and the written
agreement with the Board as you complete the corrective actions.
If you or your staff have any questions regarding this report, please contact me at 202-566-0899
or heist.melissa@epa.gov; or Janet Kasper, Director, Assistance Agreement Audits, at
312-886-3059 or kasper.janet@epa.gov.
-------
Millions of Federal Dollars Remain 08-P-0184
for Colonias Projects
Table of Contents
Chapters
1 Introduction 1
Purpose 1
Background 1
Noteworthy Achievements 2
Scope and Methodology 2
2 Region 6 Needs to Improve the Timeliness of CWTAP Fund
Disbursements 3
CWTAP Funds Remain Undisbursed 3
Region 6 and the Board Cite Various Reasons for
Delaying Disbursements 4
CWTAP Grant Disbursement Rates and Schedules Prone to Delay 4
Grant Workplans Missing Project Details 5
Corrective Actions for Delays not Specified 5
Recommendations 6
Agency Response and OIG Comment 6
Status of Recommendations and Potential Monetary Benefits 7
Appendices
A Details on Scope and Methodology 8
B Unliquidated Balance in the CWTAP 9
C Agency Response 10
D Distribution 12
-------
08-P-0184
Chapter 1
Introduction
Purpose
We conducted an audit of the Colonias Wastewater Treatment Assistance
Program (CWTAP) because of a large unliquidated obligation balance in the
program. Our audit objective was to answer the following question: "Has EPA
provided the oversight necessary to ensure that the Texas Water Development
Board manages CWTAP grants so that funds are drawn properly and projects are
completed on time?"
Background
EPA Region 6 awarded five assistance agreements (grants) totaling $300 million to
the Texas Water Development Board (the Board) under CWTAP between Fiscal
Years (FYs) 1993 through 1999. The grant funds, combined with State funds, were
to be used for constructing water1 infrastructure projects along the Texas border
with Mexico in poor, underdeveloped areas called colonias. Colonias projects can
also be financed through EPA's current U.S.-Mexico Border program.
A colonia is a residential area along the border that may lack some of the most
basic living necessities, such as drinking water and sewer systems, electricity,
paved roads, and safe and sanitary housing. Outhouses and septic tanks are often
the only available means of sewage disposal. Pollutants from both the United
States and Mexico contaminate shared waters due to inadequate sewage
treatment. The lack of wastewater infrastructure and access to potable water is of
great concern because of potentially serious consequences for public health and
the effect on quality of life.
As of September 2007, 41 colonias projects were completed or still under
construction (see Table 1.1). When the remaining projects are completed, EPA
projects adequate water facilities for more than 150,000 residents.
Table 1.1: Status of Colonias Projects
Project Status
Constructed and operating
Constructed and in close-out
Under construction
Total
No. of
Projects
24
5
12
41
Colonias
Affected
153
32
220
405
Residents
Affected
72,314
14,633
69,813
156,760
Source: EPA Region 6 as submitted to the Office of the Chief Financial Officer (data as of
September 2007).
1 For purposes of this report, "water" includes drinking water and wastewater.
-------
08-P-0184
Noteworthy Achievements
Region 6 has been working with the Board on unliquidated obligations2 since
April 2006. Region 6 met with the Board to discuss this issue on several
occasions and established a schedule for using the grant funds. In December
2007, the Region 6 Director for the Water Quality Protection Division sent a letter
to the Board recommending a goal of $27.4 million in grant disbursements during
FY 2008.
Now, Region 6, the Office of Water, and the Office of the Chief Financial Officer
(OCFO) are working together to address unliquidated obligations. Region 6 and
the Office of Water prepared a report for OCFO on Texas colonias grants
providing information on (1) all completed and ongoing projects, associated costs
(EPA and non-EPA), project start and completion dates, and disbursed amounts;
(2) all non-construction related expenses, recipients of non-construction funds,
and a justification for each non-construction expenditure; and (3) management
initiatives and oversight processes. OCFO received this report on November 23,
2007, and the first monthly report on February 28, 2008.
Scope and Methodology
To answer our objective, we reviewed EPA's CWTAP grants to the Board,
reviewed the amounts paid to the Board for grant expenses, and interviewed EPA
and Board managers and staff members. We visited Board offices in Austin,
Texas, in September 2007, and reviewed a sample of project files. We performed
our work in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States. We conducted our field
work from September to December 2007. For additional details on scope and
methodology, see Appendix A.
Unliquidated obligations represent the difference between the amount obligated in the federal grants and the total
amount of outlays against those obligations.
-------
08-P-0184
Chapter 2
Region 6 Needs to Improve the Timeliness of
CWTAP Fund Disbursements
Nearly 10 years after EPA Region 6 awarded the last CWTAP grant to the Texas
Water Development Board (the Board), $78 million still has not been spent. The
Region has taken some positive steps to address unliquidated obligations in the
CWTAP, such as working with the Board to establish a schedule for using the
remaining funds. However, Region 6's oversight of the program has been
hindered because work plans lacked project details and operating agreements did
not specify corrective actions. If Region 6 does not improve its oversight of the
program, the funds will probably not be fully spent by the current CWTAP grant
fund drawdown3 projection of 2010. Every delay in disbursing CWTAP funds
reduces the purchasing power of those grant dollars and delays needed
improvements in public health and quality of life.
CWTAP Funds Remain Undisbursed
Between FYs 1993 and 1999, EPA awarded five grants totaling $300 million to
the Board. Region 6 and Board staff stated that the Board used the first-in first-
out method for drawing federal funds. This means that the Board drew down
funds for work completed on projects from the oldest grant first before drawing
down any funds from the next oldest grant. As a result, none of the construction
funds associated with the last CWTAP grant awarded (C480001-07) have been
spent. The only drawdowns for the FY 1999 grant were for the $2 million EPA
allowed for administrative expenses. As of December 31, 2007, the Board had
not disbursed $78,252,634 in CWTAP funds. Table 2.1 provides a summary of
CTWAP funds not disbursed, while Appendix B provide further details.
Table 2.1: CWTAP Funds Not Disbursed
Grant Number Project Period Unliquidated Balance
C480001-05 10/01/1996-09/30/2008 $15,019,505.69
C480001-06 01/01/1999-12/31/2008 $15,233,128.11
C480001-07 01/01/1999-12/31/2008 $48,000,000.00
Total $78,252,633.80
Source: EPA's Integrated Financial Management System
' The term "drawdown" represents the money EPA has paid to the Board for disbursements under the grants.
-------
08-P-0184
Region 6 and the Board Cite Various Reasons for
Delaying Disbursements
Region 6 and Board managers and staff members cited many factors for the slow
pace of disbursements:
• Slow adoption of model subdivision rules.
• Large increases in construction costs between the time projects were designed
and communities were ready to break ground.
• Complexities of working with multiple funding sources.
• Poorly organized colonias tend to lack access to resources.
According to Region 6 and Board staff, the Board was using State funds first to
pay for wastewater projects, and then using federal grant funds. This method
contributed to delays in using federal funds. In 2006, Region 6 instructed the
Board to spend federal money committed to projects before spending State funds
to increase the disbursement rate.
CWTAP Grant Disbursement Rates and Schedules Prone to Delay
According to a Region 6 Branch Chief, since April 2006, Region 6 has increased
oversight of the disbursement rate of the CWTAP program because of the
pressures within the Agency to address unliquidated obligations. In August 2006,
the Director of Region 6's Water Quality Protection Division and members of his
staff visited the Board to discuss the unliquidated obligations issue in the CWTAP
and other funds. As a result of that visit, the Board issued a report on
December 7, 2006, entitled Comprehensive Plan - Addressing Unliquidated
Obligations. This plan was intended to address the unliquidated obligations issue
in the CWTAP and other EPA-funded programs. The plan contained a
disbursement schedule for the CWTAP, which showed that all of the funds would
be disbursed by December 31, 2008.
Since issuing the plan, the Board has revised the funds disbursement schedule
twice. The March 2007 schedule showed that all of the CWTAP funds should be
disbursed by March 31, 2010. Three months later, in June 2007, the Board
revised the schedule again to show that all of the CWTAP funds would be
disbursed by June 30, 2010. The Board revised the schedule because the pace of
drawdowns did not keep up with projections, and since the June 2007 revision,
they still have not kept up. The schedule projected an unliquidated balance of
$72.3 million on December 31, 2007, but the unliquidated obligation balance on
December 31, 2007, was actually $78.3 million - a $6 million difference. The
schedule will have to be revised again if the pace of actual drawdowns continues
to not keep up with projections.
At the end of April 2006, the unliquidated balance was $104 million. From May
2006 through December 2007 (20 months), nearly $26 million had been
-------
08-P-0184
disbursed. At that pace, it would take another 5 years to spend the remaining
amount of money (i.e., until December 2012), thereby missing the current
projected deadline of June 2010.
Grant Workplans Missing Project Details
Region 6's oversight of the CWTAP grants was hindered by not having detailed
workplans. Office of Management and Budget Circular A-102 states that in
program narrative statements for grant applications, agencies are to require
recipients to define the objectives and need for assistance, establish expected
completion dates, and identify costs. The CWTAP workplan described the
purpose of the funds and what projects would be eligible for funding. The
workplan referenced an operating agreement that included specific requirements
regarding eligible use of funds, grant payments, reporting requirements, fiscal
controls, and oversight. Neither the workplan nor operating agreement identified
specific projects that would be funded or schedules for completing the projects.
Without that information, EPA did not have a basis for evaluating progress the
Board made in completing projects. The Board provides information on project
status, completion dates, and disbursements in monthly status reports to Region 6,
but the information is not included in the workplans.
Corrective Actions for Delays Not Specified
Region 6 did not take action when programmatic conditions related to
disbursements were not met in the last CWTAP grant awarded (Grant Number
C480001-07). That grant's award document included a schedule for disbursing
funds. The award document identified, by quarter of the fiscal year, the amount
of funds the Board was expected to draw down under the grant. The Region 6
project officer stated that he reviewed monthly reports to assess the progress of
projects and drawdowns. However, while the grant was awarded in 1998, it was
not until 2006 that EPA began to address noncompliance with the award condition
on drawdown of funds.
Region 6 and the Board have set goals for disbursing the remaining funds for the
grants, but EPA has not imposed any corrective action plans on the Board when
delays occur. The Region 6 Director of the Water Quality Protection Division
stated that when goals are not met then EPA must change its oversight. The
Board established a plan for using funds in 2006, and revised that plan twice in
2007. No mention was made of what actions would be taken if the disbursement
schedule was not met. Region 6 issued a letter to the Board in December 2007
with a goal of $27.4 million in disbursements during FY 2008, but it did not
identify what would happen if that goal was not met.
EPA has taken action to address similar issues with grants awarded for the current
U.S.-Mexico Border Program. In August 2007, EPA issued a policy that was
designed to address funds administration and provide guidance on appropriate
-------
08-P-0184
monitoring targets to optimize project completion rates, clarify program
oversight, and reduce unliquidated balances related to the grant program. The
policy defined stalled projects and required that corrective action plans be
developed, including:
(1) construction milestones leading to project completion,
(2) projected disbursements associated with those milestones,
(3) quantification of the benefited population,
(4) the number of new drinking water and wastewater connections supported
by the project, and
(5) potential disruptions to the completion schedule and mitigation strategies.
EPA needs to adopt a similar process for the CWTAP program to ensure that
project delays will not further delay disbursement of federal funds and
completion of projects.
Recommendations
We recommend that the Regional Administrator for Region 6:
1. Amend the workplans and/or operating agreements for the open CWTAP
grants to include specific projects, schedules, and dollar amounts.
2. Develop and implement a policy, similar to what is contained in the OCFO's
2007 EPA Policy for the U.S.-Mexico Border Program, which specifies a
process for taking corrective actions when projects are delayed.
Agency Response and OIG Comment
EPA Region 6 concurred with both recommendations. Region 6 stated that it was
going to meet with Board staff to amend the workplans for the remaining three
CWTAP grants with unspent funds to specify projects, provide funding amounts,
and establish schedules. Region 6 also pledged to develop an agreement with the
Board establishing formal measures for project progress and completion.
Region 6 plans to complete both tasks within 90 days of the issuance of this final
audit report. The full text of the Agency response is in Appendix C.
We agree with Region 6's proposed corrective actions and timeframes for
completing them.
-------
08-P-0184
Status of Recommendations and
Potential Monetary Benefits
POTENTIAL MONETARY
RECOMMENDATIONS BENEFITS (in SOOOs)
Planned
Rec. Page Completion Claimed Agreed To
No. No. Subject Status1 Action Official Date Amount Amount
Amend the workplans and/or operating agreements 0 Regional Administrator, 9/22/08
for the open CWTAP grants to include specific Region 6
projects, schedules, and dollar amounts.
Develop and implement a policy, similar to what is 0 Regional Administrator, 9/22/08
contained in the OCFO's 2007 EPA Policy for the Region 6
U.S.-Mexico Border Program, which specifies a
process for taking corrective actions when projects
are delayed.
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
-------
08-P-0184
Appendix A
Details on Scope and Methodology
We performed our work in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States. These standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objectives.
We performed audit field work from September to December 2007. We analyzed the laws,
regulations, and guidance pertaining to grants awarded to the Board. We reviewed internal
controls related to planning, organizing, directing, and controlling program operations. We also
reviewed controls for measuring, reporting, and monitoring program performance. We gained an
understanding of internal controls through performing the procedures outlined below.
• We interviewed managers and staff members at EPA Region 6 in Dallas, Texas. We
assessed the Performance Standards for the project officer and grants specialist to
determine the tasks they were responsible for related to the program. We reviewed
documentation of Region 6 Water Quality Protection Division managers and staff
members communicating with the Board on the importance of quickening the pace of
drawdowns from the CWTAP grants. We reviewed the Texas Colonias Grants Report
(November 21, 2007, version) submitted to the OCFO.
• With regard to the grants, we examined EPA's grant files, and reviewed award
documents, amendments, work plans, decision memoranda, and operating agreements.
We researched the funds available for these grants through EPA's Integrated Grants
Management System, Integrated Financial Management System, and various grant award
documents.
• We visited the State office in Austin, Texas, interviewed Board personnel, and reviewed
a judgmental sample of project files, an internal auditor report, and the Board's outlay
retrieval procedure. The Board appears to have adequate controls in place to mitigate the
risk of inappropriate drawdowns. During our visit, we saw evidence related to how the
Board draws down funds, including an outlay checklist and a payments routing slip. We
also saw multiple signatures from personnel in different departments on documents, such
as contract initiation forms and grant closing information sheets.
-------
08-P-0184
Appendix B
Unliquidated Balance in the CWTAP
From FYs 1993 through 1999, EPA awarded five grants to the Board for the CWTAP totaling
$300 million. The project period represents the amount of time EPA expects the recipient will
need to complete the projects. The term "drawdown" represents the money EPA has paid to the
Board for disbursements under the grants. The unliquidated balance is the money EPA awarded
to the Board but the Board has not spent as of December 31, 2007 (that is, the difference between
the award amount and the drawdowns).
Grant
Number
C480001-02
C480001-04
C480001-05
C480001-06
C480001-07
Totals
Award
Date
12/22/92
01/20/95
03/05/96
12/18/98
12/18/98
Project Period
12/22/1992-
09/30/2005
02/01/1995-
09/30/2007
10/01/1996-
09/30/2008
01/01/1999-
12/31/2008
01/01/1999-
12/31/2008
Award
Amount
$50,000,000
$100,000,000
$50,000,000
$50,000,000
$50,000,000
$300,000,000
Drawdowns
(as of
12/31/2007)
$50,000,000
$100,000,000
$34,980,494.31
$34,766,871.89
$2,000,000
$221,747,366.20
Unliquidated
Balance
(as of
12/31/2007)
$0
$0
$15,019,505.69
$15,233,128.11
$48,000,000
$78,252,633.80
Source: EPA's Integrated Financial Management System
-------
08-P-0184
Appendix C
Agency Response
May 28, 2008
MEMORANDUM
SUBJECT: Draft Audit Report (4/28/2008):
Millions of Federal Dollars Remain For Colonias Projects
Assignment No. 2007-0990
FROM: Richard E. Greene
Regional Administrator (6RA)
TO: Janet Kasper, Director of Assistance Agreements Audits
Office of Inspector General (IA-13J)
Thank you for providing the opportunity to comment on the Office of Inspector General's
(OIG) Draft Audit Report: Millions of Federal Dollars Remain For Colonias Projects
(4/28/2008). We appreciate the OIG's acknowledgement of program achievements in the draft
audit report. Attached please find our response to the draft audit report recommendations.
Should you have any questions regarding these comments, please contact
Miguel I. Flores, Water Quality Protection Division Director at (214) 665-7101, or have your
staff contact Susan Spalding at (214) 665-8022.
Attachment
10
-------
08-P-0184
Response to Recommendations Prepared by Region 6 Water Quality Protection Division
OIG Audit Report: Millions of Federal Dollars Remain for Colonias Projects
April 28, 2008
Proposed OIG Recommendations:
1. Amend the workplans and/or operating agreements for the open CWTAP grants to
include specific projects, schedules, and dollar amounts.
Action Official: Region 6 Administrator
Response: Concur. Region 6 staff has scheduled a meeting with the Texas Water
Development Board (TWDB) staff on May 29, 2008 to initiate coordination in our
effort to amend the workplans for the three active grants CWTAP III, IV and V. The
workplans and/or operating agreements will be revised to identify specific projects,
funding amounts and schedules for each of these three active grants.
Timeframe for Implementation: Region 6 will implement this recommendation
within 90 days from issuance of the final report.
2. Develop and implement a policy, similar to what is contained in the OCFO's 2007
EPA Policy for the U.S.-Mexico Border Program, which specifies a process for
tracking corrective actions when projects are delayed.
Action Official: Region 6 Administrator
Response: Concur. Region 6 agrees that preparation of such an agreement will
benefit the program in its expeditious use of CWTAP funding and implementation to
complete active projects under construction. Region 6 staff has scheduled a meeting
with the Texas Water Development Board (TWDB) staff on May 29, 2008 to discuss
and draft an agreement that will identify necessary measures to ensure timely project
execution, project completion and minimize project delays.
Timeframe for Implementation: Region 6 will implement this recommendation
within 90 days from issuance of the final report.
11
-------
08-P-0184
Appendix D
Distribution
Office of the Administrator
Regional Administrator, Region 6
Deputy Director, Office of Wastewater Management, Office of Water
Director, Water Quality Protection Division, Region 6
Chief, Assistance Programs Branch, Water Quality Protection Division, Region 6
Agency Follow-up Official (the CFO)
Agency Follow-up Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Audit Follow-up Coordinator, Region 6
Audit Follow-up Coordinator, Office of Water
Office of General Counsel
Deputy Inspector General
12
------- |