EPA-350-R-11-002
                                      March 2011
       U.S. ENVIRONMENTAL PROTECTION AGENCY
       OFFICE OF INSPECTOR GENERAL
                         Catalyst for Improving the Environment
American Recovery and
Reinvestment Act of 2009

Overview of EPA's Progress
After Two Years
  '**
     RECOVERY.GOV
                     and Reinvestment
                     WATER SUPPLY PROJECT

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                 To find out more about U.S. Environmental Protection Agency,
                       Office of Inspector General activities related to the
                       American Recovery and Reinvestment Act of 2009,
                                    visit our website at:
                         http://www.epa.gov/oiq/recovery.htm
Abbreviations

EPA          U.S. Environmental Protection Agency
OIG          Office of Inspector General
OMB         Office of Management and Budget
Cover photo:     A sign identifying water projects in New Hampshire funded by the American
                 Recovery and Reinvestment Act of 2009. (EPA OIG photo)
                          Printed on 100% recycled paper (minimum 50% postconsumer)

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Foreword
              February 17, 2011, marked the second anniversary of the enactment of the American
              Recovery and Reinvestment Act of 2009 (Recovery Act). This report summarizes efforts
              by the Office of Inspector General (OIG) of the U.S. Environmental Protection Agency
              (EPA) during the past year to monitor EPA's Recovery Act efforts, as well as to educate
              EPA, state, and other personnel on ways to protect against fraud, waste, and abuse.

              Outreach has been an important part of our efforts. We provided more than 125 briefings
              to over 3,900 personnel who are administering or receiving Recovery Act funds. In one
              instance, a locality terminated a $3.4 million contract after an engineer who attended one
              of our training courses contacted the OIG regarding potential fraud. We published a
              brochure, available in English and Spanish, Deterring Fraud, Waste & Abuse of EPA
              Funds, to alert the public to our ongoing efforts.

              We reported that EPA promoted competition for Recovery Act grants to the maximum
              extent possible for the National Clean Diesel Funding Assistance Program, and we noted
              a potential best practice related to a national request for applications and universal
              guidance for reviewers and selection officials. Also, EPA's controls for reviewing
              grantee and contractor recipient-reported data resulted in low error rates, although we
              noted that improvements could enhance data accuracy. In another report, we found that
              EPA's terms and conditions as well as process to award Recovery Act interagency
              agreements needed improvements. We conducted a number of site reviews focusing on
              whether specific grantees met Buy American, wage rate, financial management, and
              reporting requirements under the Recovery Act, and generally found no problems.

              The Agency continues to face several challenges related to the Recovery Act. The OIG
              identified EPA oversight of Recovery Act funds as a management challenge in 2009
              because of concerns  with meeting Recovery Act requirements, despite Agency steps to
              address them. EPA must obligate its oversight funds by the end of fiscal year 2011, but
              many Recovery Act  projects will not be completed by that time. The OIG remains
              concerned as to whether there will be sufficient oversight to ensure that projects are
              completed timely and environmental objectives are achieved. We will continue to
              dedicate significant efforts to ensure that EPA uses its Recovery Act funds wisely.
                                                         Arthur A. Elkins, Jr.
                                                         Inspector General

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
     March 2011
  Table of Contents
      EPA Provided $7.2 Billion Under the Recovery Act.
      OIG Provided $20 Million for Oversight and Review.
      OIG Notes Its Activities and Results to Date.
      OIG Conducts Outreach to Help Deter Fraud, Improve Efficiency	   2

      OIG Publishes Reports Assessing EPA Progress	   3
      Additional OIG Audits and Evaluations Underway.
      OIG Notes Continuing Challenges for the Agency	   8

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
                                                               EPA-350-R-11-002
                                                                    March 2011
 EPA Provided $7.2 Billion Under the Recovery Act
              President Obama signed the American Recovery and Reinvestment Act of 2009
              (Recovery Act) on February 17, 2009. The Recovery Act's purpose as it applies to the
              U.S. Environmental Protection Agency (EPA) is to promote economic recovery by creating
              jobs while also promoting a healthier environment. The Recovery Act provided EPA with
              $7.2 billion for six programs:

              EPA programs receiving Recovery Act funds
                Clean Water State Revolving Fund
                Amount:
                Purpose:
                $4 billion
                To upgrade wastewater treatment facilities
                               $2 billion
                               To upgrade drinking water infrastructure
Amount:
Purpose:
                Amount:
                Purpose:
                $600 million
                Initiate and accelerate cleanup at National Priorities List sites
                Amount:
                Purpose:
                $300 million
                Accelerate emission reductions from diesel engines
                Amount:
                Purpose:
                Brownfields
                Amount:
                Purpose:
                $200 million
                Clean up contamination from underground storage tank petroleum leaks
               ^^
                $100 million
                Carry out revitalization projects at brownfields sites
                Source: EPA Recovery Act website, http://www.epa.gov/recoverv/basic.html.
 OIG Provided $20 Million for Oversight and Review
              The Office of Inspector General (OIG) is an independent office of EPA that detects and
              prevents fraud, waste, and abuse to help the Agency protect human health and the
              environment more efficiently and cost effectively. The Recovery Act provides the OIG
              $20 million through September 30, 2012, for oversight and review. The OIG has been
              assessing whether EPA is using Recovery Act funds in accordance with requirements and
              is meeting the accountability objectives as defined by the Office of Management and
              Budget (OMB). The OIG's objectives include ensuring that:

                  •   Funds are awarded and distributed in a prompt, fair, and reasonable manner.
                  •   The recipients and uses of funds are transparent to the public, and the public
                      benefits of these funds are reported clearly, accurately, and timely.

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
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                   •   Funds are used for authorized purposes and potential for fraud, waste, error, and
                      abuse are mitigated.
                   •   Projects funded under the Recovery Act avoid unnecessary delays and cost
                      overruns.
                   •   Program goals are achieved, including specific program outcomes and improved
                      results on broader economic indicators.
 OIG Notes Its Activities and Results to  Date
               Key OIG activities and results as of January 31, 2011, are highlighted below.
               OIG activities and results as January 31, 2011
                                      Activities and Results
                Total expenditures
                Total full-time equivalents used
                Awareness briefings, outreach briefings, and training sessions held
                Monetary results from questioned costs, cost efficiencies, settlements,
                fines, penalties, recoveries
                Individuals trained
                Completed final published audit/evaluation reports
                Unpublished work products
                Audits/evaluations in process
                OIG recommendations or risks identified for action, correction, or improvement
                Environmental and business actions taken, improvements made, or risks
                reduced in response to or influenced by OIG recommendations
                Recovery Act complaints received
                Investigations completed
                Investigations in process
                Convictions, indictments, and civil and administrative actions, as well as
                allegations disproved from OIG investigations
                Whistleblower reprisal allegations
   Cumulative
     results
   $10.1
    $3.4
million
  57.2
  128
million

 3,951
   22
   64
   30
   37
   23

   56
   18
   42
   20
                Source: EPA OIG.
 OIG Conducts Outreach to Help Deter Fraud, Improve Efficiency
               As part of our outreach efforts, the OIG's Forensic Audit Division has issued a brochure,
               Deterring Fraud, Waste & Abuse of EPA Funds, to alert the public to our ongoing efforts.
               To view and download the brochure, issued in both English and Spanish, go to
               http://www.epa.gov/oig/reports/2010/OIG forensics brochure.pdf
               The OIG's Office of Investigations has implemented a three-pronged approach—
               education, outreach, and investigations—to spread the word about the requirements of the
               Recovery Act and to deter and detect fraud schemes. A key goal is to educate

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
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              stakeholders and provide resources to help them use funds appropriately. We provided
              Recovery Act-specific fraud training and presentations to Agency personnel; state, tribal,
              and local officials; contractors; and grant recipients. As of January 31, 2011, we had
              provided 128 briefings across the country to over 3,900 personnel who are administering
              or receiving Recovery Act funding. In addition, we developed and distributed
              professional fraud awareness and education materials, including pamphlets,  postings,
              briefings, and webinar broadcasts. As an example of a positive outcome from our
              briefings, an engineer who attended an OIG Recovery Act session from a western locality
              contacted the Office of Investigations when allegations  of fraud related to a  Recovery
              Act-funded project came to the engineer's attention. Upon subsequent contact and
              reviewing additional information, the locality terminated the contract and avoided
              expending approximately $3.4 million in Recovery Act funds.

              The OIG has  participated in Agency workgroups and committees, and commented on the
              Agency's Recovery Act Risk Mitigation Strategy (stewardship plan) to assist it in
              developing strategies and establishing controls to implement the Recovery Act. Also, the
              OIG is using  EPA financial systems to monitor EPA awards and recipient draws of
              Recovery Act funding. In some cases, the OIG contacted EPA and/or the recipient to
              assess the support for the funds requested; the OIG will continue its vigilant monitoring
              of reimbursement requests. Further, the OIG conducted unannounced site visits of
              Recovery Act funding subrecipients to determine whether subrecipients are  complying
              with requirements; such visits will continue.
 OIG Publishes Reports Assessing EPA Progress
              The OIG has published audit and evaluation reports assessing whether EPA is using its
              Recovery Act funds in accordance with applicable requirements and is meeting the
              accountability objectives defined by OMB. The complete reports can be accessed at
              http://www.epa.gov/oig/recovery.htm. Report summaries follow.
                EPA Maximized Competition for Recovery Act Grants under the National Clean
                Diesel Funding Assistance Program (10-R-0082, March 23, 2010)
              EPA promoted competition for Recovery Act grants to the maximum extent possible for
              the National Clean Diesel Funding Assistance Program. EPA achieved three important
              goals in promoting competition for Recovery Act grants under the program:
              (1) competition was fair and impartial, (2) all applicants were evaluated only on criteria
              established in the announcement, and (3) EPA made an effort to mitigate the risk of any
              applicant receiving an unfair competitive advantage. We identified a potential best
              practice in that EPA issued a national request for applications and universal guidance for

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
      March 2011
              reviewers and selection officials; we noted that this practice should be considered for
              other grant programs.
                EPA Should Improve Its Contractor Performance Evaluation Process for
                Contractors Receiving Recovery Act Funds (10-R-0113, April 26, 2010)
              Because EPA did not complete contractor performance evaluations in a timely manner and
              with complete information, the Agency risked providing funds to contractors with a history
              of cost control and performance issues. In July 2009, EPA decided to obligate
              approximately $211 million in Recovery Act funds to Superfund contractors. Evaluations
              are required within 95 business days after each 12 months of contract performance. EPA
              had not completed in a timely manner 83 percent of the required performance evaluations
              for contractors awarded Recovery Act funds. On average, EPA completed the evaluations
              109 business days late. At the time of our review, EPA had awarded $109 million in
              Recovery Act funds to contractors with cost control and performance issues. We
              recommended that EPA develop a system to monitor and verify the timeliness of
              performance evaluations, revise quality assurance plan requirements, maintain reports in an
              electronic system that contracting officers can access, and require contracting officers to
              consider annual performance evaluation results. EPA agreed with our recommendations.
                Response to Congressional Request on Signage Requirements for Projects
                Funded by the Recovery Act (10-X 0175, August 2, 2010)
              EPA required most Recovery Act recipients to post signs indicating the projects were
              funded through the Recovery Act. In response to a June 24, 2010, congressional request
              for information from various OIGs on Recovery Act recipient signage requirements, we
              found that: (1) EPA developed two forms of guidance that discuss the need for recipients
              to display a Recovery Act logo; (2) the terms and conditions sections of EPA's assistance
              agreements generally require Recovery Act fund recipients to post identifying signs,
              logos, or emblems; and (3) the Diesel Emissions Reduction Act and Leaking
              Underground Storage Tank program offices relaxed the requirement that recipients post
              Recovery Act signs, logos, or emblems. As of July 2010, EPA did not have information
              on the total cost of posting signs, logos, or emblems related to the Recovery Act;
              recipients are not required to report this information.
                EPA Effectively Reviewed Recovery Act Recipient Data but Opportunities for
                Improvement Exist (10-R-0234, September 27, 2010)
              EPA's controls for reviewing grantee and contractor recipient-reported data pursuant to
              the Recovery Act resulted in low error rates. However, improvements could enhance data
              accuracy. The Recovery Act provides that use of Recovery Act funds should be
              transparent and reported clearly and accurately. For the recipient-reported data fields that

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
      March 2011
               OMB identified as being a major concern for significant reporting errors, we identified
               errors in 3 percent of recipient entries. Also, because EPA's reference guide was not
               specific for some key data fields, the way in which to report was open to interpretation.
               We recommended that EPA develop an Agency-wide threshold for identifying significant
               errors, clarify the reference guide to reduce the varying interpretations, and adopt a policy
               to investigate all differences in award amounts. EPA agreed with the findings and
               provided corrective actions plans or acceptable alternatives.
                EPA's Contracts and Grants Workforce May Face Future Workload Issues
                (11 R-0005, October 25, 2010)
              EPA should ensure that it has sufficient contracts and grants staff to perform both
              Recovery Act and non-Recovery Act activities. EPA emphasized Recovery Act activities,
              resulting in non-Recovery Act activities being delayed or not completed. EPA
              management and oversight resource allocations were not always based on workforce
              analyses of the actual resources needed to accomplish Recovery Act activities. We
              recommended that EPA establish procedures to review the metrics for Recovery Act and
              non-Recovery Act contract and grant activities, and prepare action plans for any measure
              that did not meet its goal in 2010. We also recommended that EPA develop and
              implement organization-wide performance measures. EPA agreed with the
              recommendations.
                EPA's Terms and Conditions as Well as Process to Award Recovery Act
                Interagency Agreements Need Improvement (11-R-0016, November 16, 2010)
              EPA did not clearly describe its responsibilities in the terms and conditions of the
              Recovery Act-funded interagency agreements we reviewed. EPA stated that doing so was
              unnecessary because its role was clearly defined in EPA policy and guidance. However,
              by not clearly defining its responsibilities within Recovery Act interagency agreements
              and  supporting documents, EPA did not effectively establish accountability for
              implementing those agreements. Further, although EPA's decision memoranda and
              matrices for EPA Recovery Act interagency agreements met the requirements set forth in
              EPA policies, additional detail would be beneficial. EPA could improve its processes by
              considering the cost and level of effort associated with the procurement, management,
              and  oversight of construction contracts for all Superfund cleanup contracting delivery
              options. We recommended that EPA amend the terms and conditions for Recovery Act
              interagency agreements, and prepare a program evaluation of levels of effort and the cost
              of the processes associated with procuring, managing, and overseeing Superfund
              construction contracts. EPA concurred with most of our recommendations and agreed to
              take corrective action.

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
      March 2011
                Leaking Underground Storage Tank Recovery Act Grants Contained
                Requirements but Priority Lists Need More Oversight (11-R-0018,
                November 23, 2010)
              We found three management control deficiencies in the Leaking Underground Storage
              Tank Recovery Act grants we reviewed: (1) EPA had not clarified to states whether
              municipally owned leaking underground storage tank sites would be eligible for
              Recovery Act funds, (2) EPA had no plan to deobligate unspent Recovery Act funds from
              grant recipients, and (3) EPA in many instances did not use state data to ensure that
              grants comply with site priority requirements of the Solid Waste Disposal Act, as
              amended. EPA corrected the first two deficiencies by spring 2010 through additional
              guidance to the regions. We recommended that EPA ensure that the Solid Waste Disposal
              Act site priority requirement is consistently incorporated into the terms and conditions of
              future Leaking Underground Storage Tank Trust Fund grant agreements.  The Agency
              agreed with our recommendation.
                EPA Can Improve the Use of Financial Monitoring Reviews for Recovery Act
                Superfund Contracts (11 R-0081, January 31, 2011)
              EPA is implementing the monitoring functions established in the contracts functional
              area of the EPA Recovery Act stewardship plan, which should help ensure a high degree
              of accountability in the investment of Recovery Act funds. However, program staff are
              not always aware of the results of the financial monitoring reviews and, therefore, cannot
              use them as a management tool for Superfund projects funded by the Recovery Act.
              Program staff are at risk of approving ineligible invoiced costs because they do not know
              about financial monitoring review cost-related issues that impact contract costs being
              billed. We recommended that EPA revise policies and procedures to ensure that financial
              monitoring review reports are distributed timely. EPA agreed with our recommendation
              and implemented the corrective action on October 22, 2010.
                Numerous Site Reviews of Recovery Act Projects Conducted
              As part of OIG efforts to ensure that EPA is spending its Recovery Act funds in
              accordance with requirements, we conducted a number of site reviews. These reviews
              focused on whether the grantee met Buy American, wage rate, financial management,
              and reporting requirements under the Recovery Act. We issued the following reports on
              site reviews over the past year:

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
 EPA-350-R-11-002
       March 2011
                                Project/Location                    Report No.
                Water Distribution System                              10-R-0079
                Village of Buckeye Lake, Ohio
                Water Main Extension Project, Manchester Water Works     10-R-0080
                City of Manchester, New Hampshire
                Ultraviolet Treatment/Chlorine Disinfection Facility Project    10-R-0132
                City of Bremerton, Washington
                High-Rate Water Treatment Facility                      10-R-0147
                City of Newark, Ohio
                Sewer Pump Station Rehabilitation and Improvements       11-R-0014
                Town of Ball, Louisiana
                Clean Water State Revolving Fund Projects                11-R-0082
                City of Long Beach, California
                Sewer System Improvement Projects                     11-R-0083
                City of Parma, Ohio
March 10, 2010

March 17,2010

May 26, 2010

June 16, 2010

November 9, 2010

February 1, 2011

February 2, 2011
               Our site reviews found no problems with respect to Recovery Act requirements, except
               for the site review at the City of Long Beach, California. During that review, we found
               that a contractor did not fully comply with federal and state prevailing wage
               requirements, resulting in underpayments. We recommended that EPA require the
               California State Water Resources Control Board to verify that the city is implementing
               controls to ensure compliance with prevailing wage requirements.
 Additional OIG Audits and Evaluations  Underway
               In addition to our site visits, the OIG has initiated the following audits and evaluations to
               determine whether EPA and funding recipients manage projects effectively and meet
               Recovery Act objectives.

                  •   EPA's Recovery Act Targeting Criteria. The programs targeted by EPA's
                      portion of Recovery Act dollars address location-specific, community-based public
                      health and environmental needs. According to EPA plans, these programs were
                      carefully chosen for both their ability to put people to work now and for their
                      environmental value. Investing in these areas will assure  that job creation,
                      economic growth, and environmental benefits accrue at the local level as well as
                      nationwide. We are evaluating the effectiveness of EPA's existing funding
                      processes and organizational structures in meeting Recovery Act goals.

                  •   Recovery Act Diesel Emission Retrofit Program. Diesel engines emit large
                      amounts of nitrogen oxides, particulate matter, and air toxics, which contribute to
                      serious public health problems. Diesel emissions come from a variety of on-road
                      and non-road engines, such as those used for freight, ports, transit, construction,
                      agriculture, and energy production. The Recovery Act provided EPA with
                      $300 million for grants to reduce diesel emissions in accordance with the 2005
                      Diesel Emissions Reduction Act, particularly in poor air quality areas, and to

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American Recovery and Reinvestment Act of 2009:
Overview of EPA's Progress After Two Years
EPA-350-R-11-002
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                     promote economic recovery. As of February 17, 2011, we were conducting two
                     reviews of this program. One review involves evaluating the effectiveness of
                     Recovery Act grants in funding diesel retrofits and associated emissions
                     reductions. The other review is addressing whether EPA successfully uses its
                     grants management tools to identify and mitigate project delays.

                     EPA and State Recovery Act Clean Water State Revolving Fund Projects:
                     The Recovery Act provided $4 billion to Clean Water State Revolving Fund
                     programs to assist with upgrading wastewater treatment facilities. The objective
                     of our audit is to determine whether EPA and states are sufficiently overseeing
                     Recovery Act Clean Water State Revolving Fund projects to ensure  that project
                     goals and Recovery Act requirements are met. We are focusing on how states
                     oversee projects and how EPA oversees states.
 OIG Notes Continuing Challenges for the Agency
              The OIG identified EPA oversight of Recovery Act funds as a management challenge in
              2009 because of concerns with meeting Recovery Act requirements, despite Agency steps
              to address them. At that time, the OIG believed that EPA might not have sufficient,
              trained staff to award and monitor grants and contracts. Now that Recovery Act funds
              have been awarded, the OIG remains concerned that there will be sufficient oversight to
              ensure that projects are completed timely and environmental objectives are achieved.

              The Recovery Act allowed EPA to use a percentage of the funds to oversee Recovery Act
              activities. In total, EPA received $71.5 million for management and oversight. As of
              February 17, 2011, EPA had only expended about 50 percent of these funds.

              While EPA must obligate its oversight funds before the end of fiscal year 2011, many
              Recovery Act projects will not be completed by that time. For example, as of
              February 10, 2011, 307 Recovery Act grants had budget end dates after September 30,
              2011. Approximately 52 percent of Recovery Act grants are expected to remain open into
              fiscal year 2012.

              Reports the OIG issued in the past year have pointed to opportunities to improve EPA's
              oversight. As noted above, we reported on the following issues:

                  •    EPA contracts and grants workforces may not have sufficient resources to
                      monitor contracts and grants for both Recovery Act and non-Recovery Act
                      activities.
                  •   EPA did not clearly describe its responsibilities in the terms and conditions of
                      Recovery Act-funded interagency agreements.

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American Recovery and Reinvestment Act of 2009:                                    EPA-350-R-11-002
Overview of EPA's Progress After Two Years                                               March 2011

                  •   EPA staff that review contractor invoices were not aware of findings in EPA
                      financial monitoring reviews that could impact the allowability of costs claimed
                      by contractors.

               EPA relies on state agencies to properly monitor subrecipients' use of funds. Recovery
               Act awards contained new conditions requiring additional monitoring and oversight.
               Depending on the amount of their expenditures, subrecipients may be required to conduct
               an audit required by the Single Audit Act. As of January 31, 2011, the OIG had reviewed
               and sent to EPA 64 single audits with findings and recommendations relating to
               Recovery Act funds. Many of the organizations were subrecipients, rather than recipients.
               The recipients are responsible for ensuring that the issues are resolved.

               Given the number and scope of projects funded by the Recovery Act,  effective oversight
               will be a challenge for EPA and its state partners.

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Report fraud, waste or abuse

e-mail: OIG_Hotline@epa.gov
write: EPA Inspector General Hotline
   1200 Pennsylvania Avenue NW
   Mailcode 8431P (Room N-4330)
   Washington DC 20460
fax: 703-347-8330 • phone: 1-888-546-8740
www.epa.gov/oig/hotline.htm
It's your money
It's your environment

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