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        U.S. ENVIRONMENTAL PROTECTION AGENCY
        OFFICE OF INSPECTOR GENERAL
                        Catalyst for Improving the Environment
Audit Report
      EPA Should Reduce
      Unliquidated Obligations Under
      Expense Reimbursement Grants
      11-P-0228

      May 16, 2011

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Report Contributors:                          Paul Curtis
                                             Meg Hiatt
                                             Alfred Falciani
                                             Bob Evans
                                             Carol Kwok
                                             Denise Patten
                                             Kevin Ross
                                             Phil Weihrouch
                                             Lynda Taylor
Abbreviations

DWSRF      Drinking Water State Revolving Fund
EPA         U.S. Environmental Protection Agency
ERG         Expense Reimbursement Grant
GDNR       Georgia Department of Natural Resources
NCDEFINR   North Carolina Department of Environment, Health, and Natural Resources
OIG         Office of Inspector General
SDWA       Safe Drinking Water Act
WDNR       Wisconsin Department of Natural Resources
   Hotline
   To report fraud, waste, or abuse, contact us through one of the following methods:
   e-mail:    OIGJHotline@epa.gov                  write:    EPA Inspector General Hotline
   phone:    1-888-546-8740                               1200 Pennsylvania Avenue NW
   fax:       703-347-8330                                 Mailcode 8431P (Room N-4330)
   online:    http://www.epa.gov/oig/hotline.htm                 Washington, DC 20460

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   ^
 I
 I
U.S. Environmental Protection Agency
Office of Inspector General

At   a  Glance
  11-P-0228
May 16, 2011
                                                               Catalyst for Improving the Environment
Why We Did This Review

The U.S. Environmental
Protection Agency (EPA)
oversees water program
assistance agreements. The
purpose of this audit was to
determine whether EPA has
adequately monitored obligations
on operator certification expense
reimbursement grants (ERGs).
Our objectives were to determine:
(1) the status of utilization of the
ERG funds,  (2) impediments
recipients faced in utilizing the
funds and what EPA has done to
facilitate reaching the target of
expending ERG funds by
December 2012, and (3) the
amount of ERG dollars that can
be deobligated.

Background

EPA achieves clean and safe
water goals by providing funds
through assistance agreements to
states, local governments, and
tribes under  the water program.
To comply with the provisions of
the Safe Drinking Water Act,
EPA awarded operator
              EPA Should Reduce Unliquidated Obligations
              Under Expense Reimbursement Grants
certification ERGs to states.
For further information,
contact our Office of
Congressional, Public Affairs and
Management at (202) 566-2391.

The full report is at:
www.epa.gov/oiq/reports/20117
20110516-11-P-0228.pdf
              What We Found
              We identified $6.6 million of potentially unneeded funds that could have
              been deobligated for three ERGs awarded by EPA Regions 4 and 5
              ($3.3 million for Georgia, $2.3 million for North Carolina, and $1.0 million
              for Wisconsin). Region 4 deobligated over $3.3 million in unneeded funds
              from the Georgia ERG and closed the grant in March 2011. According to
              Region 4, North Carolina signed an amendment on March 21,  2011, to
              extend the project period end date to January 1, 2012, to allow it to use the
              remaining $2.3 million. Region 5 deobligated about $2.2 million from the
              Wisconsin grant in February 2011. Region 5 responded that it  extended the
              grant ending period from June 30, 2011, to December 31, 2012, to allow
              Wisconsin to use the remaining funds.

              Since EPA began awarding ERG funds in 2001, we found that states are not
              adequately utilizing ERG funds to provide training and certification to water
              system operators in accordance  with the requirements of the operator training
              and certification program. States faced numerous impediments in spending
              the funds, such as staff shortages, global recession, hiring freezes, higher-
              priority water projects, and contractors not completing as much work as
              initially proposed.
              What We Recommend
              We recommend that the Regional Administrator, Region 4, direct the
              region's Water Protection Division Director to deobligate the $3.3 million of
              unneeded funds for Georgia and monitor North Carolina's spending of the
              $2.3 million of remaining funds through the end of the grant period and
              deobligate any unused funds. We also recommend that the Regional
              Administrator, Region 5, direct that region's Water Protection Division
              Director to continually monitor Wisconsin's spending of the remaining funds
              through the end of the grant period and deoligate any unused funds. While
              the regions responded that they disagreed with our recommendations,
              Region 5 did deobligate $2.2 million (Wisconsin) and Region 4 did
              deobligate $3.3 million (Georgia). However, Region 4 did not deobligate
              $2.3 million (North Carolina) as the OIG recommended.

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          r,       UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                WASHINGTON, D.C. 20460
                                                                  THE INSPECTOR GENERAL
                                      May 16,2011

MEMORANDUM

SUBJECT:   EPA Should Reduce Unliquidated Obligations Under
             Expense Reimbursement Grants
             Report No. ll-P-0228
                                              _
FROM:      Arthur A. Elkins, Jr.  »*
             Inspector General

TO:         Gwendolyn Keyes Fleming
             Regional Administrator, Region 4

             Susan Hedman
             Regional Administrator, Region 5
This is our report on unliquidated obligations under water program assistance agreements
conducted by the Office of Inspector General (OIG) of the U.S. Environmental Protection
Agency (EPA). This report contains findings that describe the problems the OIG has identified
and corrective actions the OIG recommends. This report represents the opinion of the OIG and
does not necessarily represent the final EPA position on the subjects reported.  Final
determination on matters in this report will be made by EPA managers in accordance with
established audit resolution procedures.

The estimated direct labor and travel costs for this report are $186,391.

Action Required

Recommendation 2, addressed to the Regional Administrator, Region 5,  is in a closed status for
reporting purposes; therefore, that Regional Administrator does not need to respond further to this
report. Recommendation 1, addressed to the Regional Administrator, Region 4, is still in an open
status. Therefore, in accordance with EPA Manual 2750, the Regional Administrator, Region 4, is
required to provide a written response to the findings and recommendations in this report within
90 calendar days of the report date. The response should include a corrective actions plan for
agreed-upon actions, including milestone dates. The response will be posted on the OIG's public
website, along with our memorandum commenting on the response. The response should be
provided as an Adobe PDF file that complies with the accessibility requirements of Section 508 of

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the Rehabilitation Act of 1973, as amended. The final response should not contain data that should
not be released to the public; if the response contains such data, the data for redaction or removal
should be identified. We have no objections to the further release of this report to the public. We
will post this report to our website at http://www.epa.gov/oig.

If you or your staff, have any questions regarding this report, please contact Paul Curtis at
(202) 566-2523 or curtis.paul@epa.gov. or Meg Hiatt at (513) 487-2366 or
hiatt.margaret@epa.gov.

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EPA Should Reduce Unliquidated Obligations                               11 -P-0228
Under Expense Reimbursement Grants
                    Table of Contents
 Purpose	    1
 Background	    1
 Scope and Methodology	    2
 Results of Review	    2
 Recommendations	    5
 Agency Comments and OIG Evaluation	    5
 Status of Recommendations and Potential Monetary Benefits	    6

 Appendices
 A  Details on Scope and Methodology	    7
 B   ERG Obligations by State and Region	    9
 C   Region 4 Response to Draft Report	   10
 D   Region 5 Response to Draft Report	   12
 E   Distribution	   14

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Purpose
             The purpose of this audit was to determine whether the U.S. Environmental
             Protection Agency (EPA) has adequately monitored obligations on operator
             certification expense reimbursement grants (ERGs). Our objectives were to
             answer the following questions:

                •   What is the status of utilization of the ERG funds?
                •   Are there impediments that recipients face in utilizing the funds and what
                    has EPA done to facilitate reaching the target of expending ERG funds by
                    December 2012?
                •   Are there ERG dollars that can be deobligated?
Background
             Section 1419 of the Safe Drinking Water Act (SOW A), 42 U.S.C. § 300g-8,
             provides that EPA shall reimburse the states through grants for the costs of
             training and certification of persons operating community and nontransient
             noncommunity water systems serving 3,300 persons or less. The SDWA requires
             states to adopt and implement a program for operator certification or face having
             20 percent of their Drinking Water State Revolving Funds (DWSRF) withheld.

             Under ERGs awarded to states, EPA provided reimbursement for training and
             certification costs of persons operating community and nontransient
             noncommunity water systems serving 3,300 persons or fewer that are required to
             undergo training  pursuant to operator certification final guidelines. Each state was
             to receive an amount sufficient to cover the reasonable costs for training all such
             operators. EPA determined the amount each state received to cover the reasonable
             costs for training. Pursuant to 42 U.S.C. § 300g-8, the grants are first to be used to
             provide reimbursement for training and certification costs of persons operating
             community and nontransient noncommunity water systems serving 3,300 persons
             or fewer; when a state has been reimbursed all such costs, the state might, after
             giving notice to the EPA Administrator, use any remaining funds from the grant
             for any of the other purposes authorized for capitalization grants under the
             DWSRF. In using the remaining funds for the DWSRF, the state would have to
             provide 20 percent in matching funds. See 42 U.S.C.  § 300J-12.

             The total potential grant amount that EPA estimated was $134,330,540. EPA
             determined that 65,209 water systems constituted the inventory of eligible
             systems, based on the Safe Drinking Water Information System inventory as of
             July 2000. To allocate the funds, EPA developed percentages based on the ratio of
             each state's number of eligible systems to the total of 65,209 systems.

             Since the award of the ERGs, EPA has become  aware of the length of time some
             of the grants have been outstanding. EPA awarded some of the grants from
             September 2001 through August 2004. On March 10, 2009, the Director,
11-P-0228

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             Drinking Water Protection Division, Office of Water, issued a memorandum to
             the regional Drinking Water Program Managers setting an end date for the ERGs.
             The Director noted that some of the grants had been outstanding for 8 years. In
             consultation with regional offices, the Director established December 2012 as the
             project end date for the grants.
Scope and Methodology
             We conducted our audit from January 21, 2010, to March 11, 2011, in accordance
             with generally accepted government auditing standards issued by the Comptroller
             General of the United States. Those 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 conclusions based on
             our audit objectives.

             We selected for review 19 ERGs awarded by the following regions:

                •   Region 2 (grants to New Jersey, New York, Puerto Rico, and
                    U.S. Virgin Islands)
                •   Region 3 (grants to Maryland and West Virginia)
                •   Region 4 (grants to Georgia, Kentucky, Mississippi, North Carolina, and
                    Tennessee)
                •   Region 5 (grants to Illinois, Indiana, Michigan, Ohio, and Wisconsin)
                •   Region 9 (grants to Arizona, California, and Nevada)

             We selected our samples based on the largest percent and amount of unliquidated
             obligations. The sample included ERGs from regions whose unliquidated
             obligations were at least 10 percent of the total unliquidated obligation amount for
             all open ERGs. We also selected Region 3 because of concerns over the ERG
             grants the project officer expressed during the audit of unliquidated obligations
             under water program agreements. We interviewed EPA Water Protection Division
             project officers, ERG technical specialists, and state/territory officials for the
             19 agreements reviewed. We reviewed project files (e.g., awards, amendments,
             work plans, and annual plans) obtained from EPA program and state/territory
             officials. Appendix A contains further details on our scope and methodology.
Results of Review
             We identified $6.6 million of potentially unneeded funds that could have been
             deobligated for three ERGs awarded by EPA Regions 4 and 5 ($3.3 million for
             Georgia, $2.3 million for North Carolina, and $1.0 million for Wisconsin). As a
             result:

                 •   Region 4 deobligated over $3.3 million in unneeded funds from the
                    Georgia ERG and closed the grant in March 2011. According to Region 4,
11-P-0228

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                    North Carolina signed an amendment on March 21, 2011, to extend the
                    project period end date to January 1, 2012, to allow them to use the
                    remaining $2.3 million.

                 •   Region 5 deobligated about $2.2 million from the Wisconsin grant in
                    February 2011 with about $600,000 remaining. Region 5 responded that it
                    extended the grant ending period from June 30, 2011, to December 31,
                    2012, to allow Wisconsin to use the remaining funds.

             Since EPA began awarding ERG funds in 2001, many recipients have made
             minimal expense reimbursements for training and certification expenses for water
             system operators. We found that states are not adequately utilizing ERG funds to
             provide training and certification to water system operators in accordance with the
             requirements of the operator training and certification program. States faced
             numerous impediments in spending the funds, such as staff shortages, global
             recession, hiring freezes, higher priority water projects, and underperforming
             contractors.

             According to EPA's Final Additions to the Final Guidelines for the Certification
             and Recertification of the Operators of Community and Nontransient
             Noncommunity Public Water Systems (Federal Register/Vol. 66, No. 75, April 18,
             2001), "After a state has reimbursed all costs pursuant to section 1419(d)(l), the
             state may, after notice to the Administrator of EPA, use any remaining funds from
             the grant for any of the other purposes authorized for capitalization grants under
             section 1452 of the SDWA."

             Details on what we found by state follow.

             Georgia (in Region 4)

             We determined that the Georgia Department of Natural Resources  (GDNR) had
             $3.3 million of unliquidated obligations remaining on its ERG available for
             deobligation as of November 18, 2010. EPA awarded the ERG grant to GDNR on
             April 29, 2003, and the project period ends June 30, 2011. GDNR experienced
             delays in spending ERG funds due to staffing shortages (an unfilled vacancy in
             the grant assistant position). We found that GDNR has spent a total of $280,000
             under its operator training and certification program out of $3.6 million awarded.
             After we issued our draft report on March 11, 2011, Region 4  initiated corrective
             action on March 17, 2011, to deobligate over $3.3 million in unneeded funds from
             the Georgia ERG and closed the grant.

             North Carolina (in  Region 4)

             As of November 18, 2010, the North Carolina Department of Environment,
             Health, and Natural Resources (NCDEFINR) had approximately $3.8 million of
             unliquidated obligations remaining on its ERG, of which we determined that
11-P-0228

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             $2.3 million was available for deobligation. NCDEHNR received the ERG award
             on January 15, 2003, and the project period ended January 1, 2011. NCDEHNR
             experienced delays in spending ERG funds due to state spending constraints.
             After we issued our draft report on March 11, 2001, North Carolina signed an
             amendment to extend the project period end date to January 1, 2012, to allow
             them to use the remaining $2.3 million.

             Wisconsin (in Region 5)

             As of November 18, 2010, the Wisconsin Department of Natural Resources
             (WDNR) had approximately $2.9 million of unliquidated obligations remaining
             on its ERG potentially available for deobligation. WDNR received the ERG
             award on September 4, 2003. WDNR experienced delays in spending ERG funds
             because of limited staff resources, a hiring freeze, project complexities, and
             technological issues. Wisconsin's ERG totaled $4.1 million, and the state declared
             in its Technical Performance Report, dated September 28, 2007, that it had largely
             met the goal of training and certifying operators of small water systems. On
             September 30, 2009, WDNR estimated that total grant expenditures would be
             $3.1 million, or 76 percent of the funds. In  response to our inquiries, WDNR said
             it will request that the remaining amount, estimated at about $1 million
             ($4.1 million minus $3.1 million), be transferred with its 20 percent match to the
             DWSRF. Region 5  and WDNR agreed that WDNR did not need the $1 million.
             Subsequently they determined that Region  5 could deobligate about $2.2 million,
             and Region 5  did so on February 15, 2011.  In its response, to our draft report,
             Region 5 stated that the grant ending period would be extended to December 31,
             2012, to allow WDNR to use the remaining funds (approximately $600,000).
             Region 5 further stated it will closely monitor the activities planned under the
             remaining project period, and if activity appears to stall it will work with the state
             to deobligate additional funds at that time.

             Results for Other States

             Other states have not spent all of the funds  awarded on their grants. For example,
             as of November 18, 2010, New Jersey had used only $353,116 of the $2,673,880
             obligated in 2002, and Maryland had used $519,279 of the $2,109,343 obligated
             in 2003. However, we found that both states intend to spend the remaining funds
             by the December 2012 deadline. To expedite spending the remaining ERG funds,
             we found that:

                •  Some  states are looking to extend grant periods to December 2012.
                •  Some  states spent funds to develop  databases and information systems.
                •  New Jersey and Ohio plan to establish internships to use remaining funds.
                •  Some  states plan to award contracts to spend the remaining funds.
                •  California increased operator participation in the program and developed
                    additional training courses.
11-P-0228

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Recommendations

             We recommend that the Regional Administrator, Region 4:

                 1.   Direct the region's Water Protection Division Director to deobligate the
                    $3.3 million of unneeded funds for Georgia and monitor North Carolina's
                    spending of the remaining funds through the end of the grant period and
                    deobligate any unused funds to the DWSRF.

             We recommend that the Regional Administrator, Region 5:

                 2.   Direct the region's Water Protection Division Director to continually
                    monitor Wisconsin's spending of the remaining funds through the end of
                    the grant period and deobligate any unused funds to the DWSRF.

Agency Comments and OIG Evaluation

             In a memo dated April 14, 2011, Region 4 stated that it did not concur with the
             proposed recommendations for Georgia and North Carolina. Region 4 stated it did
             not concur because it signed an amendment with North Carolina extending the
             project period end date to January 1, 2012, and initiated the process to deobligate
             $3.3 million from the Georgia ERG. We commend Region 4 for actions taken to
             deobligate unneeded funds of over $3.3 million from the Georgia ERG and
             extending the project period for the North Carolina ERG. The OIG agrees that
             extending the grant period through January 1, 2012, would allow North Carolina
             additional time to use the $2.3 million remaining on the ERG. Region 4 should
             continue to monitor North Carolina's use of the remaining funds through the grant
             end date and take actions to deobligate and redirect any remaining funds to the
             DWSRF.

             In a memo dated April 8, 2011, Region 5 stated it did not concur with our
             recommendation to deobligate $1 million from Wisconsin's ERG. However,
             Region 5 deobligated approximately $2.2 million and extended the project end
             date to December 31, 2012. We commend  Region 5 for actions taken to
             deobligate unneeded funds and reduce the  available funds to about $600,000 for
             use through December 31, 2012. The OIG agrees that extending the grant period
             through December 31, 2012, would allow Wisconsin additional time to use the
             remaining ERG funds. Region 5 also committed to continue to monitor
             Wisconsin's use of the remaining funds through the grant end and take actions to
             deobligate and redirect any remaining funds to the DWSRF.
11-P-0228

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                     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
        5   Direct the region's Water Protection Division       0      Regional Administrator,                 $3,300
            Director to deobligate the $3.3 million of unneeded              Region 4
            funds for Georgia and monitor North Carolina's
            spending of the remaining funds through the end of
            the grant period and deobligate any unused funds
            to the DWSRF.

        5   Direct the region's Water Protection Division       C      Regional Administrator,   2/15/2011       $2,200
            Director to continually monitor Wisconsin's                    Region 5
            spending of the remaining funds through the end of
            the grant period and deobligate any unused funds
            to the DWSRF.
  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
11-P-0228

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                                                                         Appendix A
               Details on Scope and Methodology
We obtained the universe of all ERGs from the Office of the Chief Financial Officer's Las Vegas
Finance Center, which accounts for grant expenditures. The Las Vegas Finance Center used the
Agency's Financial Data Warehouse to select the agreements starting with the identifier "CT"
(operator certification expense reimbursement grants) in the agreement number. The selected
universe consisted of all ERGs awarded as of March 10, 2010. Our universe consisted of
53 agreements with total obligations  of $119,583,344. Of that amount, $46,104,904 was
outstanding (unliquidated).

We excluded ERGs in certain regions because they had unliquidated obligation amounts that did
not meet the criteria or because we had reviewed the ERGs during preliminary research and
found no reportable issues. To select regions for review, we identified the regions with the most
unliquidated obligations. We selected Regions 2, 3, 4, 5, and 9 using that criterion. The
population of these agreements numbered 38. To select agreements for review, we identified
those states and territories with the largest amounts of unliquidated obligations for the selected
regions. We selected 19 ERGs, with  $58,686,821 in total obligations and $29,031,674 in
unliquidated obligations as of November  18, 2010, from the following states/territories; a
breakdown of the obligations is in appendix B:
   •   Arizona
   •   California
   •   Georgia
   •   Illinois
   •   Indiana

Prior Reviews
Kentucky
Maryland
Michigan
Mississippi
Nevada
New Jersey
New York
North
Carolina
Ohio
Puerto Rico
Tennessee
West Virginia
Wisconsin
U.S. Virgin Islands
We researched prior EPA Office of Inspector General (OIG) and U.S. Government
Accountability Office reports related to the assistance agreements. We noted five pertinent
EPA OIG reports, as listed in table A-l.

Table A-1: Prior EPA OIG reports related to assistance agreements
Report No.
2007-2-00003
08-2-0099
08-P-0265
09-N-0150
10-P-0081
Title
Information Concerning Superfund Cooperative Agreements
with New York and New Jersey
Followup on Information Concerning Superfund Cooperative
Agreements with New York and New Jersey
EPA Should Continue Efforts to Reduce Unliquidated
Obligations in Brownfields Pilot Grants
EPA's Unliquidated Obligations for Grants
EPA Needs Procedures to Address Delayed Earmark Projects
Date
October 30, 2006
March 4, 2008
September 16, 2008
May 1,2009
March 22, 2010
Source:  OIG analysis.
11-P-0228

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Internal Control Structure

In planning and performing our audit, we reviewed management controls related to our audit
objectives. We examined EPA's fiscal year 2009 Federal Managers' Financial Integrity Act
Annual Assurance Letters issued by the Regional Administrators and Assistant Administrators
for the various EPA program offices to identify any weaknesses pertaining to the unliquidated
obligations under assistance agreements. In addition, we examined EPA's Office of Management
and Budget Circular A-123 reviews of internal controls to identify any weaknesses related to
unliquidated obligations under assistance agreements. EPA identified no material weaknesses in
its Circular A-123 reviews related to assistance agreements. We did not review the internal
controls over EPA's Integrated Financial Management System, Financial Data Warehouse, or
Office of the Chief Financial Officer Reporting and Business Intelligence Tool from which we
obtained information, but relied on the review conducted during the audit of EPA's fiscal
year 2009 financial statements.
11-P-0228

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                                                                         Appendix B
              ERG Obligations by State and Region
                    State
         Total obligations
Region    as of 11/18/10
             Unliquidated
              obligations
            as of 11/18/10
             New Jersey
             New York
             West Virginia
             Georgia
             Kentucky
             Mississippi
             North Carolina
             Tennessee
             Illinois
             Indiana
             Michigan
             Ohio
             Wisconsin
             Arizona
             California
             Nevada
   2
   2
             Puerto Rico            2
             U.S. Virgin Islands       2
             Maryland               3
$2,673,880
$6,715,600
                $735,420
                $620,000
               $2,109,343
               $1,437,900
               $3,613,198
                $665,400
               $2,404,000
               $5,739,200
                $920,800
               $3,753,300
                1,695,000
               $6,213,000
               $4,577,300
               $4,136,480
               $1,874,600
               $8,058,700
                5743,700
              $58,686,821
$2,320,764
$3,426,607
                  $268,055
                  $603,811
                $1,590,064
                  $857,046
                $3,332,813
                   $78,672
                  $316,067
                $3,713,071
                  $194,116
                  $854,270
                  $339,239
                $1,257,283
                $3,144,295
                $2,860,952
                  $532,634
                $3,248,101
                   $93,814
               $29,031,674
             Source: OIG analysis and data provided by EPA.
11-P-0228

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                                                                          Appendix C


                Region 4 Response  to Draft Report

                   UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                        REGION 4
                                ATLANTA FEDERAL CENTER
                                   61 FORSYTH STREET
                               ATLANTA. GEORGIA 30303-8960

                                   APR1 42011

MEMORANDUM

SUBJECT:   EPA Region 4 Response to Draft Audit Report:
             EP A Should Reduce Unliquidated Obligations Under
             Expense Reimbursement Grants
             Project No. 2010-1183

FROM:      Gwendolyn Keyes /s/
             Regional Administrator

TO:          Melissa Heist
             Assistant Inspector General for Audits

       This is the response to the March 11, 2011, draft report issued by the Office of Inspector
General on unliquidated obligations under water program assistance agreements.

       The information included in the draft audit report regarding the unliquidated obligations
remaining available for deobligation from the Operator Certification Expense Reimbursement
Grants (ERGs) for Georgia ($3.3 million) and North Carolina ($2.3 million) was accurate as of
November 18, 2010, based on the audit conducted during spring 2010. However, we do not concur
with the proposed recommendation to deobligate $3.3 million for Georgia and $2.3 million for North
Carolina based upon the corrective actions that have been initiated by Region 4 as  outlined in the
Attachment (Status of Region 4 Recommendations).

       Corrective actions have been taken to deobligate funds in the Georgia ERG and roll them
back into the State's Revolving Fund. In the case of North Carolina's ERG, Region 4 granted a one
year no cost extension. The extension was granted to allow North Carolina sufficient time to
complete two major tasks under their ERG workplan. One task is the development of software and
purchase of hardware for electronic testing. The second task is the development of software for
online payment of operator fees. North Carolina was not able to complete these tasks within the
original grant project period primarily due to several freezes on spending mandated by the Governor.

       If you or your staff have any questions regarding this response, please contact Jim Giattina at
(404) 562-9470.

Attachment
11-P-0228                                                                            10

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               Status of Region 4 Recommendations
                         RECOMMENDATIONS
Rec.
No.
1

2


Subject
Direct the Region 4
Water Protection
Division Director to close
the GA ERG & rollback
the remaining funds
($3.3 million) into the
DWSRF.
Direct the Region 4
Water Protection
Division Director to grant
a 1 - year, no cost
extension for the NC
ERG to allow state to
spend the remaining
funds ($3.6 million). NC
accepted & signed the
amendment.
Status
1

2


Action Official
Regional
Administrator,
Region 4
Regional
Administrator,
Region 4


Completion
Date
See
Comments

NC signed
amendment
on 3/21/11;
Project
Period End
Date
01/01/12;
Comments
GA requested closure &
rollback on 3/5/1 1 . R4
Grants PO sent close out
request to R4GMO 3/21/11.
Closeout & deobligation will
be processed by R4 GMO.
Extension was awarded for
the original amount ($5.7
million) on 3/15/11


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                                                                         Appendix D

                Region  5 Response to Draft Report
                  UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                       REGIONS
                              77 WEST JACKSON BOULEVARD
                                 CHICAGO, IL 60604-3590
                                  APR 08 2011
                                                                 REPLY TO THE ATTENTION OF:
MEMORANDUM

SUBJECT:    Region 5 Response to OIG Draft Report "EPA Should Reduce Unliquidated
             Obligations Under Expense Reimbursement Grants"

FROM:       Susan Hedman /s/, Regional Administrator

TO:          Melissa Heist
             Assistant Inspector General
             Office of the Inspector General

Thank you for the opportunity to review your draft report EPA Should Reduce Unliquidated
Obligations Under Expense Reimbursement Grants, Project No. 2010-1183.

Region 5 does not concur with your recommendation to deobligate $1 million from Wisconsin's
Expense Reimbursement grant, as this action is not necessary or even possible. In December
2010, Region 5 and the Wisconsin Department of Natural Resources (WDNR) concluded that some
of the remaining grant funds would not be needed for expense reimbursement and would not be spent
by December 2012, EPA's target program end date. The agencies agreed to deobligate $2.2 million
from the Expense Reimbursement grant and to re-direct these funds to Wisconsin's Drinking Water
State Revolving Fund (DWSRF) program, as allowed and recommended by EPA guidance. EPA also
agreed to change the Expense Reimbursement grant end date from June 30, 2011 to December 31,
2012 to allow WDNR additional time to complete those activities.

On February 15, 2011, EPA deobligated $2.2 million from the Expense Reimbursement grant and
extended the end date for the Expense Reimbursement grant to December 31, 2012, which is
consistent with EPA's target end date for the program. Wisconsin plans to apply for these funds when
the state applies for a fiscal year 2011 DWSRF grant.

As of March 25, 2011, the available funds remaining on the Expense Reimbursement grant are less
than $600,000. Region 5 and Wisconsin believe there is still a need for these remaining funds and
that they will be used over the next 21 months. The state will use the remaining funds to build a
sustainable operator training infrastructure and update its criteria for operator certification. Thus, we
believe no further action to remove funds from this grant is warranted. We will closely monitor the
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activities planned under the remaining project period. If activity appears to stall, we will work with
the state to deobligate additional funds at that time.
11-P-0228                                                                                    13

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                                                                        Appendix E

                                 Distribution
Office of the Administrator
Regional Administrator, Region 4
Regional Administrator, Region 5
Assistant Administrator for Administration and Resources Management
Agency Followup Official (the CFO)
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Grants and Interagency Agreements Management Division,
       Office of Administration and Resources Management
Director, Water Protection Division, Region 4
Director, Water Protection Division, Region 5
Comptroller, Resource Management Division, Region 5
Audit Followup Coordinator, Region 4
Audit Followup Coordinator, Region 5
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