Office of Inspector General
Report of Audit
Report of Audit on Region 3's
Billing of Superfund Oversight Costs
E5FFL7-03-0008-7100292
SEPTEMBER 22, 1997
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Mid-Atlantic Division
Philadelphia, PA
Inspector General Division
Conducting the Audit:
Region Covered: Region 3
Program Offices Involved: Office of Policy and Management
Hazardous Waste Management Division
Office of Regional Counsel
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF THE INSPECTOR GENERAL
'•£ MID-ATLANTIC DIVISION
_ xx_--. 1 841 Chestnut Building
°, \Ll|6i ^ Philadelphia, Pennsylvania 19107-4431
° (215)566-5800
September 22, 1997
MEMORANDUM
SUBJECT: Report of Audit on Region 3's
Billing of Superfund Oversight Costs
Audit Report E5FFL7-03-0008-7100292
FROM: Carl A. Jannetti
Divisional Inspector General for Audit (3AIOO)
TO: W. Michael McCabe
Regional Administrator (3RAOO)
Attached is our final audit report on EPA Region 3's Billing of Superfund Oversight
Costs. The overall objectives of this audit were to: (a) review what oversight costs
were being eliminated prior to billing; and, (b) determine why the Region sometimes
took extraordinary amounts of time to bill the oversight costs to the parties
responsible for cleaning up sites.
This audit report contains findings that describe problems the Office of Inspector
General (OIG) has identified and corrective actions the OIG recommends. This audit
report represents the opinion of the OIG. Final determinations on matters in the
audit report will be made by EPA managers in accordance with established EPA audit
resolution procedures. Accordingly, the findings contained in this audit report do not
necessarily represent the final EPA position, and are not binding upon EPA in any
enforcement proceeding brought by EPA or the Department of Justice.
ACTION REQUIRED
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In accordance with EPA Order 2750, you as the action official are required to provide
this office a written response to the audit report within 90 days. Your response
should address all recommendations, and include milestones dates for corrective
actions planned, but not completed.
We have no objection to the release of this report to the public. Should you have
any questions about this report, please contact Michael Wall or Anne Bavuso at 215-
566-5800.
Attachment
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EXECUTIVE SUMMARY
PURPOSE
BACKGROUND
RESULTSIN
BRIEF
We performed an audit on Region 3's billing of Superfund
oversight costs. The purpose of this audit was to: (a) review
what oversight costs were being eliminated prior to billing;
and, (b) determine why the Region sometimes took
extraordinary amounts of time to bill the oversight costs to the
parties responsible for cleaning up the sites.
The Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA) authorizes EPA to recover its
costs from responsible parties in order to help replenish the
Superfund Trust Fund. The law, as amended by the
Superfund Amendments and Reauthorization Act of 1986,
stipulates that EPA may help fund state government efforts to
remediate hazardous waste sites. Both EPA and the states are
to comply with the cost documentation requirements found in
the Code of Federal Regulations to ensure that the maximum
amount of cost is recovered.
Oversight costs are costs incurred by EPA or a state while
monitoring cleanup work being performed by responsible
parties at "Enforcement-lead" Superfund sites. Such costs can
include charges for personnel (salary, indirect costs, and travel)
as well as charges by contractors. EPA recovers these costs
through the use of enforcement documents, i.e., either a
Consent Decree (CD) or an Administrative Order on Consent
(AOC). An AOC is a legally-binding agreement between EPA
and the responsible parties; a CD is a similar document, except
that it is filed in court for a judge's approval.
Region 3 sometimes took extraordinary amounts of time to bill
responsible parties for oversight costs. In several instances
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these delays amounted to years, even though the bills were to
have been sent on an annual basis. In one instance, the bill
presented to the responsible party represented charges
generated over an eight-year period. According to regional
personnel, these delays occurred because oversight billings
were considered a low priority, and because of a reluctance by
regional Superfund program personnel to relinquish control of
the billings to regional financial personnel. As a result,
reimbursement to the Superfund Trust Fund was delayed, and
the responsible parties were afforded an opportunity to
challenge the charges, which in turn caused more delays.
The Region also experienced a problem in billing State of
Maryland oversight costs, which are paid by EPA through
State Cooperative Agreements. Under one such agreement the
State billed EPA $149,000 for a site in our review. However,
these oversight costs could not be billed to the responsible
party, because the State had destroyed employee time sheets
needed to support them.
In addition, the Region needs to amend its procedures for
distributing AOC's, because personnel responsible for tracking
them did not always know how many there actually were.
RECOMMENDATIONS We recOmmend that the Region 3 Administrator ensure that
oversight costs are billed in accordance with the enforcement
agreements signed with the responsible parties. We also
recommend that the Region 3 Administrator: (a) determine if
Maryland's Department of the Environment lacks time sheets
to support oversight charges at Superfund sites covered by
other cooperative agreements; and, (b) initiate sanctions if the
State does not adhere to required record-keeping criteria.
AGENCY We issued a draft report on July 8, 1997. We received a
COMMENTS AND response from Region 3 on August 25, 1997. We reviewed the
OIG response, held an exit conference with regional personnel on
EVALUATION September 10, 1997, and made changes to our report as
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warranted. However, we did not materially change our
position. The response can be found in its entirety in
Appendix A . Due to the length of the response, we addressed
the Region's comments on our findings and recommendations
at the end of each report Chapter.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY i
CHAPTER 1 1
INTRODUCTION 1
Purpose 1
Background 1
Scope and Methodology 2
Prior Audit Coverage 4
CHAPTER 2 5
DELAYED OVERSIGHT BILLINGS 5
Fiscal Year 1996 Delays 5
Site A 6
Site B 7
Site C 7
Site D 8
Sites Lacking Bills 9
Region 3 Took Steps to Mitigate the Problem 9
CONCLUSION 10
RECOMMENDATIONS 10
REGION 3 RESPONSE 11
DIG EVALUATION 11
CHAPTER 3 13
STATE COSTS NOT RECOVERABLE 13
Regional Awareness of the Condition 14
Sanctions Available to Region 3 14
CONCLUSION 15
RECOMMENDATIONS 15
REGION 3 RESPONSE 16
DIG EVALUATION 16
CHAPTER 4 17
AMENDING THE AOC DISTRIBUTION PROCESS 17
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RECOMMENDATION 18
REGION 3 RESPONSE 18
DIG EVALUATION 18
CHAPTER 5 19
OTHER MATTERS 19
RECOMMENDATIONS 20
REGION 3 RESPONSE 20
EVALUATION 20
APPENDIX A 21
Region 3 Response to Draft Audit Report E5FFL7-03-0008 21
APPENDIX B - DISTRIBUTION 33
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CHAPTER 1
INTRODUCTION
Purpose
We performed an audit of Region 3's billing of Superfund
oversight costs. The purpose of this audit was to:
(a) review what oversight costs were being eliminated prior to
billing; and, (b) determine why the Region sometimes took
extraordinary amounts of time to bill the oversight costs to
the parties responsible for cleaning up the sites.
Background
Superfund legislation
enables the Agency to
recover
oversight costs
Oversight costs are costs
incurred by EPA while
monitoring cleanup work
being performed by
responsible parties at
" Enforcement-lead"
Superfund sites. Such
costs can include charges for EPA personnel (salary, indirect
costs, and travel), as well as charges by EPA contractors or
state employees. The legislation authorizing Superfund
enables the Agency to recover oversight costs from the
responsible parties. Such recoveries are to be accomplished by
use of enforcement documents, i.e., either a Consent Decree
(CD) or an Administrative Order on Consent (AOC). An
AOC is a legally-binding agreement between EPA and the
responsible parties; a CD is a similar document, except that it
is filed in court for a judge's approval.
In Region 3, oversight costs are to be billed on either an
annual or on a non-annual basis, as stipulated by the site-
specific enforcement document. In the case of the "annuals,"
the Region is required to start assembling a bill on the yearly
anniversary of the signing of the agreement. In the case of the
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"non-annuals," the bill is to be generated either periodically,
or upon completion of the work stipulated in the agreement.
The billing process, which is time-consuming and laborious,
generally involves several steps. First, the Office of Superfund
Programs authorizes the Office of the Regional Comptroller to
initiate a bill. After reviewing the accounting system to verify
the financial accuracy of the costs, the Comptroller submits a
proposed cost package back to Superfund. There the package
is verified to ensure that the costs agree with the oversight
work actually performed. The package is then forwarded to
the Office of Regional Counsel (ORC) for confirmation that
the proposed costs are legally billable under the enforcement
document. Finally, after all three offices have agreed on its
content, the bill is presented to the responsible party for
payment.
In a July 31, 1996 memorandum, EPA Headquarters
explained that the Administrator wished to reduce EPA
oversight activities at sites where quality work was being
performed by the responsible parties. The memorandum
suggested that the Regions "foster an improved relationship,
or recognize existing relationships, with cooperative parties,"
and stipulated that the Regions should: (1) evaluate all the
responsible party sites to identify where oversight could be
reduced; and, (2) at the time of annual billing, provide the
responsible parties with an estimate of the oversight costs for
the next year.
Scope and The initial focus of our review originated from an earlier audit,
Methodology during which the auditors questioned the Region's generosity
in eliminating oversight costs on bills to responsible parties.
Although during our survey we noted instances where some
EPA costs were eliminated, the amounts were either not
material or the rationale provided for dropping the costs was
reasonable. We did note, however, that Region 3 had
difficulty in obtaining documentation to support oversight
costs incurred by the State of Maryland. Moreover, the
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Region also had a problem in regard to the timeliness of its
billing of responsible parties for annual Superfund oversight
costs. This issue was repeatedly cited in annual reports on
internal controls submitted to the Regional Administrator by
the Office of the Comptroller, the Hazardous Waste
Management Division, and the Office of Regional Counsel for
Fiscal Years 1994 through 1996. These reports were prepared
in compliance with the Federal Managers' Financial Integrity
Act.
We performed this audit according to the Government Auditing
Standards (1994 Revision) issued by the Comptroller General
of the United States as they apply to economy and efficiency
program audits. Our review included tests of documents and
other auditing procedures we considered necessary.
To accomplish our objectives we interviewed Region 3
personnel within the Office of Superfund Programs, the Office
of the Regional Comptroller, and the Office of Regional
Counsel. These individuals included branch chiefs, finance
cost recovery specialists, program cost recovery specialists,
remedial project managers, and attorneys. We reviewed the
individual enforcement documents (AOC's and CD's),
Superfund oversight inventory reports, CERCLA enforcement
document distribution procedures, Superfund cost recovery
procedures, oversight billing reports, billing status reports,
three Maryland Cooperative Agreements, EPA contractor
reports on State reviews, Memoranda of Understanding
documents, cost summary packages, individual site files, and
15 of the 76 enforcement dockets for sites with annual billing
provisions during fiscal year 1996.
We reviewed the internal controls regarding the elimination of
oversight costs from bills, and we found that the Region was
unable to bill costs incurred by one State agency. We
reviewed the internal controls involving how bills were
authorized and assembled, and we recommended that action
be taken to formalize the process. We reviewed the internal
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controls involving how enforcement documents were tracked,
and we recommended amending the process. We did not
review the internal controls associated with the input of
information into the Region's Integrated Financial
Management System or any other automated recorded
system.
Our survey began on October 7, 1996 and ended on
December 9, 1996. As a result of the survey, we initiated an
in-depth review on December 10, 1996. We completed
fieldwork for the audit on June 18, 1997, and issued a draft
report on July 8, 1997. Region 3 provided a response on
August 25, 1997, and we held an exit conference with regional
personnel on September 10, 1997. Due to the length of the
response we addressed the Region's comments at the end of
each report Chapter. The response in its entirety can be
found Appendix A.
Prior Audit Past EPA Office of the Inspector General audit reports have
Coverage identified concerns with Agency delays in billing responsible
parties. These include:
Audit Report E9HHF2-11-0031, issued on September
30, 1992, which discussed one site in Region 6 where
the Agency delayed billing a responsible party for $ 1.1
million.
Audit Report E1SFG4-11-5015, issued on July 29,
1994, which found that Regions 3 and 6 were generally
billing oversight costs one month to two years late.
Audit Report E1SFB5-11-0008, issued on November
29, 1995, which discussed: (a) one site in Region 8
where the responsible party used a three-year delay in
billing to negotiate a reduction in the bill; and (b) one
site in Region 3 where there was a two-year billing
delay.
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CHAPTER 2
DELAYED OVERSIGHT BILLINGS
Fiscal Year 1996
Delays
In several instances
delays amounted to
years
Region 3 sometimes took
extraordinary amounts of time
to bill responsible parties for
oversight costs. In several
instances these delays
amounted to years, even though the bills were to have been
sent on an annual basis. In one instance, the bill presented to
the responsible party represented charges generated over an
eight-year period. According to regional personnel, these
delays occurred because oversight billings were considered a
low priority, and because of a reluctance by Superfund
program personnel to relinquish control of the billings to
financial personnel. As a result, reimbursement to the
Superfund Trust Fund which paid the costs was delayed. The
billing delays also afforded the responsible parties an
opportunity to challenge the charges, which in turn caused
more delays.
In 1996, the regional components responsible for oversight
billings took informal measures to accelerate the process, and
the statistics for fiscal year 1996 and the first quarter of fiscal
year 1997 indicate that the number of annual bills generated
has increased. We believe that Region 3 should formalize the
procedures by which future oversight bills will be processed.
According to the Region's records, there were 76 enforcement
dockets for sites with annual billing provisions during fiscal
year 1996. Of this amount, 43 dockets were billed; 33 were
not (Note: there can be logical reasons why a docket is not
billed, e.g., there are no costs). We reviewed 15 of the 76
dockets and found:
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• 8 instances where the bills were delayed, in one case for
seven years.
• 3 instances where the responsible parties complained
that the billing delays adversely affected their ability to
verify the accuracy of what was being billed.
• 4 instances where the responsible parties requested
documents to support earlier bills, and it took the
Region between eight months and seven years to
provide the documents.
• 4 instances where no bills had ever been sent even
though costs were incurred as far back as 1988.
In an effort to determine the causes of the delays, we reviewed
the files of 5 of the 15 dockets in more detail. Four of the five
files are addressed below; the fifth file is addressed in Chapter
3 of this report.
Site A According to ORC and
Superfund program personnel,
this billing was delayed because
it was not a high priority. The
terms of the 1988 enforcement
Oversight Billing
Not a High Priority
document stipulated that the responsible party would
annually pay 2.25 percent of its site cleanup costs to EPA for
oversight. However, the Region did not send the first
oversight bill until May 1996, more than seven years after the
enforcement document became effective. This bill was for
$1,288,174, which represented EPA's actual oversight costs,
and the responsible party was informed that interest would
accrue at the rate of 5.85% on any amount unpaid in June
1996. Asserting that it only owed $203,192, the responsible
party requested documents to support EPA's figures. In
response, in October 1996, the Region requested access to
audit the records supporting this assertion. But the
responsible party declined because it wished to resolve the
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issue in a "less formal matter than an audit." As of April 30,
1997, the Region still awaited a detailed cost summary from
the responsible party. Thus, the $1,288,174 remains unpaid
and no interest has been assessed.
Site B In November 1991, the Region
sent a $109,172 bill for the first
year of oversight. In January
Responsible Party
Criticizes the Region
1992 the responsible party paid
the bill. However, the Region did not submit another bill
until August 1996, when it asked for payment of $524,602 for
the four-year, nine-month period ended March 1996. In
September 1996, the responsible party requested supporting
documentation and asked the Region:
Why it did not provide the annual accounts of
its oversight costs as it was required to under the
Consent Decree. Note, in particular, that
paragraph XXI9F of the Consent Order requires
EPA to "provide the Settlor with an estimate of
the amount of oversight costs for the next year."
Furthermore, it was contemplated by paragraph
XXI (B) of the Consent Decree that invoices for
oversight costs would be submitted on an annual
basis. However, despite the repeated inquiries
made by our project manager, [name deleted],
over the course of this project, we never received
either an estimate or annual invoice. As a result
of EPA's failure to submit the annual accounting
as required under the Consent Order, (and the
passage of five years since the first costs now
sought to be recovered were incurred), it has
clearly become more difficult to determine
whether the costs EPA now seeks to recover are
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accurate or limited to the costs recoverable under
the Consent Order.
Site C The enforcement document was
signed in July 1987. The first
oversight bill was for $10,483
Regional Attorneys
Contribute to Delays
and covered to the end of
December 1987. Although the responsible party agreed to
pay the bill, the Region was not sure whether it was paid. In
August 1989, the Region billed the responsible party $56,019
for oversight during the twelve-month period ended December
1988. Two weeks later the responsible party requested
documents to support the bill. However, the Region did not
comply with this request. According to a file memorandum,
"... the site passed thru a few ORC attorney assignments and
we never got our act together regarding dealing with the CBI
[Confidential Business Information] . . . ." In February 1996,
a "comprehensive" bill of $819,131 was sent to the
responsible party for the entire eight-year period. In April
1996, the responsible party questioned the Region's right to
recover the costs because of the lateness of the bill and
requested supporting documentation.
Site D The enforcement document was
effective in June 1989.
However, the Region did not bill
for oversight until November
1995, when it requested the
Responsible Parties
Challenge Costs
responsible party to pay $312,399 for a five-year period ended
August 1994. On December 28, 1995, the responsible party
requested supporting documentation asserting that:
Their ability to evaluate the claims for oversight
costs has been prejudiced by EPA's not having
submitted its claim as provided in the Consent
Order.
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Sites Lacking Bills
Region 3 Took
Steps to Mitigate
the Problem
EPA did not submit any requests for oversight
costs (not to mention an accounting of such
costs) until November 21, 1995, six-and-a-half
years after EPA's oversight activities began and
more than a year after they ended.
Due to the passage of time [the responsible
party's engineer] . . . lacks the institutional
memory necessary to provide effective assistance
to the [responsible party] in evaluating EPA's
oversight costs ....
Upon receiving the supporting documents in April 1996, the
responsible party challenged $185,525 of the $312,399 billed.
The challenged amount represented indirect costs incurred by
EPA's contractor, which were billed to the Agency as a direct
charge. However, the responsible party asserted that it did
not have to pay for the contractor's indirect costs, because the
enforcement document stated that oversight charges would
not include indirect costs. As a result, EPA settled for only
$19,472 of the $185,525 incurred.
There were four enforcement documents, going back as far as
1987, under which no bills were sent. According to regional
personnel, three of these documents had no bills because
billing for oversight was considered a low priority. Moreover,
because the responsible party that was liable under two of the
documents has since filed for bankruptcy, any collection of
costs is further jeopardized. The fourth document was
superseded and should have been deleted from the Region's
list nine years ago.
There are three major Region 3 components in the oversight
billing process. The Office of Regional Counsel (ORC) sends
the enforcement document to the Office of the Comptroller
and to the Office of Superfund Programs. The Office of the
Comptroller: (a) records costs; (b) verifies costs to supporting
documents, such as time sheets and travel claims; and, (c)
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establishes the accounts receivable. The Office of Superfund
Programs also verifies the charges by ensuring that they
accurately reflect which EPA employees and contractors
"oversaw" the responsible party's work on the site. The Office
of Regional Counsel verifies that the costs being billed are
billable under the terms of the enforcement document. After
these actions, the three offices meet to finalize the bill before
it is sent to the responsible party for payment. However,
there was no formal stipulation as to how long this entire
process is to take, which may, in part, explain why it
sometimes took years.
As seen in several of the examples, the process apparently
worked with several of the earlier enforcement documents; at
the end of the first year the Region billed the oversight
charges and the responsible parties paid the bills. However,
according to regional Superfund personnel, in 1990, priorities
shifted from collecting costs on existing documents to
negotiating entirely new agreements. Also, the Office of the
Comptroller was unable to even initiate the billing process
until authorized by the Office of Superfund Programs, which
was hesitant to do so because it questioned whether financial
personnel had sufficient knowledge of the site histories.
However, in 1996, in an effort to address the backlog of
unbilled oversight costs, the Office of Superfund Programs
informally gave the Office of the Comptroller carte blanche
authorization to initiate 1995 bills.
CONCLUSION Region 3 knowingly allowed oversight billings to become
backlogged, despite the fact that it had executed legal
documents with the responsible parties. As a result,
Superfund Trust Fund reimbursements were delayed for years.
Also, had the Region abided by the agreements it signed it
might have remedied problems earlier. For example, had the
Region billed for "SITE D" oversight when initially due,
instead of waiting five years, it might have resolved the issue
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RECOMMENDATIONS
of "indirect costs" and saved a large portion of the $166,053
($185,525-$19,472) it failed to recoup from the responsible
party. Annual billings might also influence the responsible
parties to make payments without argument, or, at the very
least make it easier for EPA to provide supporting documents
and settle any complaints in a timely fashion. Finally,
although the Region has taken informal measures to reduce
the oversight billing backlog, we believe that even more can be
done.
We recommend that the Region 3 Administrator:
1) Ensure that oversight costs are billed in
accordance with the enforcement agreements
signed by the Region, e.g., on their anniversary
date.
2) Formalize the procedures by which future
oversight bills will be processed by the three
offices involved, and specify within these
procedures exactly how long it should take these
offices to initiate, assemble, and issue an
oversight bill.
REGION 3 RESPONSE:
RECOMMENDATION 1
Since 1995, the Region has improved the process of expediting oversight
billings, inclusive of (1) the Office of the Comptroller to initiate anniversary bills and
(2) development and enhanced management of the Superfund Oversight Billing
Tracking System. Thus, the Region is reasonably assured that oversight costs are
billed in accordance with the Region's signed enforcement agreements.
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RECOMMENDATION 2
The Region monitors and evaluates oversight billing performance based on a
Headquarters' criteria which measures oversight billings reliably prepared within 120
calender days of the anniversary date, or within the time frame specified in the
current decree or administrative order of consent, or as directed by the program
office.
OIG EVALUATION:
RECOMMENDATION 1
We recognized the fact that the Region had taken action to reduce its
oversight billing backlog. However, in light of the years of delays that occurred in the
past, we believe that regional management should ensure that future bills are sent in
accordance with the agreements signed by the Region.
RECOMMENDATION 2
In our draft report we had recommended that the Region establish a formal
criterion as to how long it should take to assemble an oversight bill, and to include
this criterion as a means by which to measure performance. In response to the draft,
the Region explained that it already had such a criterion, namely a 120 day time
frame provided by EPA Headquarters. However, during the audit we were informed
that the Headquarters 120 day time frame was not an evaluation criterion, but rather
a tool to gather data to support the Agency's financial statement. We were also
informed that the 120 day time frame only applied to "Finance;" it did not include
the delays caused by the "Program." Thus, we now recommend that the Region
formalize its billing procedures and include the "Program" within these procedures.
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CHAPTER 3
STATE COSTS NOT RECOVERABLE
Region 3 experienced problems
State Costs Not Billed "
I billing a responsible party for
to Responsible Party I r,, , ,,c. . f
r } r oversight, because the State or
Maryland destroyed employee
time sheets. As explained in Chapter 2, we reviewed the files
of five sites in detail in order to learn why billing delays
occurred. Although in all five cases the delays were
attributable to internal regional issues, there was an additional
condition regarding the fifth site, whose cleanup was being
overseen by the State of Maryland's Department of the
Environment.
Under the terms of a Multi-Site Cooperative Agreement, the
State would assist EPA in overseeing responsible party
cleanups. The State oversight costs would be paid for by EPA,
which in turn would include these costs in annual bills to the
responsible parties. However, in the case we reviewed the
Region was unable to bill $149,000, because the State had
destroyed the time sheets needed to verify the costs. The
Region only learned of this problem in 1995. However, if
Region 3 had billed the responsible party in accordance with
the enforcement document, it would have learned of the
situation years earlier and been able to take corrective action.
We believe that the Region should now avail itself of the
sanctions available in accordance with the terms of the
cooperative agreement with the State.
The enforcement document for this fifth site was signed in
April 1988. The Region billed the responsible party for two
years of oversight in December 1990 and received payment in
August 1991. The Region did not send another bill for
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oversight until December 1996, when it requested the
responsible party to pay $299,000 for a six-year period ended
October 1995. However, excluded from this bill was an
additional $149,000 that had been paid by EPA to the State.
According to regional personnel, they could not bill these
costs to the responsible party because the State of Maryland
was unable to provide documentation to support the costs.
Consequent to our questioning this exclusion in 1997,
regional personnel informed us that they had "revisited" the
issue, learned of the existence of some backup records, and
hoped to bill a portion of the costs sometime in the future.
Regional Awareness In December 1994, a Region 3 contractor conducted a "Cost
of the Condition Recovery Review" of the Maryland Department of the
Environment. On March 8, 1995, the contractor reported two
deficiencies. First, the State was destroying cost records
rather than keeping them for the minimum requirement of 10
years. Second, the State did not have a clear audit trail of
costs by site, operable unit, or by activity. As a result of these
deficiencies, the contractor concluded that it would be
difficult for the State to provide documentation to support
the amounts it had charged EPA for oversight. Moreover,
these deficiencies were also noted in the 1996 Hazardous
Waste Management Division Assurance Letter to the Regional
Administrator, submitted in accordance with the Federal
Managers' Financial Integrity Act.
In June 1996, EPA's contractor conducted a follow-up on the
March 1995 "Cost Recovery Review." The contractor found
that although Maryland had made good progress toward
retaining time sheets, it still did not segregate costs among
operable units. Moreover, we have since learned that EPA has
other cooperative agreements with Maryland where the State
is assisting in managing responsible party sites. Thus, the
deficiencies noted above will impact on the recovery of
oversight costs on these sites as well.
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Sanctions Available According to the cooperative agreement we reviewed, the
to Region 3 State was subject to the general administrative requirements
found in the Code of Federal Regulations (CFR), specifically
40 CFR Part 30. As explained in the "Cost Recovery Review,"
the State was also subject to 40 CFR Part 35, Subpart O
under which the State was required to: (a) retain all financial
records for 10 years unless otherwise directed by the EPA;
and, (b) obtain written approval before destroying any
records. Under 40 CFR Part 35.6270 the State was required
to maintain a record keeping system that: (a) enables site
specific costs to be tracked by site, activity, and operable unit;
and, (b) provides sufficient documentation for cost recovery
purposes. Under 40 CFR Part 30, if the State does not
comply with all of the terms and conditions of the assistance
agreement, EPA may: (a) withhold payment; or, (b) withhold
or terminate the assistance agreement for cause. Finally,
according to the Cooperative Agreement:
Failure on the part of the recipient to comply
with the conditions may cause the unobligated
portion of the Letter of Credit to be revoked and
the payment method changed to a reimbursable
basis.
CONCLUSION Generally, when responsible parties receive a bill for oversight,
they request Region 3 to supply documentation to justify the
amount being billed. On some sites, State agencies assist EPA
in providing oversight under cooperative agreements. In
regard to the site in our review, the Region delayed billing the
responsible party for a period of six years. In 1995, an EPA
contractor reported that Maryland's Department of the
Environment had destroyed employee time sheets and did not
properly track costs. Thus, in 1996, the Region was unable to
bill the responsible party for the $149,000 it had already paid
to the State. Although a follow-up review indicates the State
has initiated corrective measures, we believe that Region 3
should determine how much it has paid the State for non-
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recoverable costs at other sites under other cooperative
agreements with Maryland.
RECOMMENDATIONS We recommend that the Region 3 Administrator:
1) Determine if Maryland's Department of the
Environment lacks time sheets to support oversight
charges at Superfund sites covered by other
cooperative agreements. By doing so now, the Region
might be able to find backup records such as those that
were found for the site discussed in our finding.
2) Initiate sanctions against the State of Maryland's
Department of the Environment if it does not adhere to
the record-keeping and retention criteria stipulated by
the Code of Federal Regulations.
REGION 3 RESPONSE:
RECOMMENDATION 1
Working with EPA's finance staff, the Maryland Department of the
Environment (MDE) has submitted a corrective action plan to reconcile differences
between the EPA draws and the reported EPA grant expenditures. The State has also
purchased an electronic imaging and filing system to scan and file current and prior
Superfund cooperative agreement documents. Finally, the Region has scheduled a
follow-up review of the MDE financial management and record-keeping practices in
the first quarter of Fiscal Year 1998.
RECOMMENDATION 2
The Maryland Department of the Environment has made significant progress
to correct previous deficiencies. However, the Region will take appropriate action if
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a future 1998 review discloses record-keeping and financial management deficiencies
in the cooperative agreements.
OIG EVALUATION:
RECOMMENDATION 1
In our draft report, we explained that Region 3 experienced problems billing a
responsible party for one site, because the State of Maryland had destroyed employee
time sheets. We recommended that the Region determine the effect of the State's
record-keeping deficiencies for the other Superfund sites covered by other cooperative
agreements with Maryland. The Region's response indicated that the State had
initiated corrective action in general. However, we still believe that the Region
should determine how much the destruction of time sheets affected the other sites
and whether backup records exist.
RECOMMENDATION 2
The Region's action should achieve the intent of this recommendation. No
further action is required.
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CHAPTER 4
AMENDING THE AOC DISTRIBUTION PROCESS
Region 3 needs to establish a bona fide distribution process
for its Administrative Orders on Consent (AOCs). During our
review, we noted that the personnel responsible for tracking
AOCs did not always know how many orders there actually
were. Specifically, these individuals were unaware of the
existence of five AOCs for one site. Although four of these
orders were effective as of July 1993, they were not added to
the regional tracking system until November 1996, more than
three years later. According to regional personnel, the four
orders were "recently located." However, we also found a fifth
order for the same site about which the Region had been still
unaware. Effective May 1995, this AOC was only added to
the tracking system in December 1996, when we brought it to
the Region's attention. These lapses occurred because,
although the AOC distribution process designates to whom
the document should be distributed, it does not designate
precisely who should actually distribute the document. As a
result, the Region was tardy in billing the responsible parties
for oversight costs of $223,000. During our review, the
Region billed $132,718 under the four orders and collected
$ 122,606 within two months of the billings. A bill for
$90,277 is currently in preparation on the fifth order.
The Office of Regional Counsel issued the CERCLA
Administrative and Unilateral Order Procedures, which provides
that AOCs are to be distributed to the Office of the
Comptroller and the Office of Superfund Programs. However,
this document does not stipulate who should distribute the
orders. According to the ORC Docket Clerk, the orders are to
be distributed by either the site Remedial Project Manager, or
by the Attorney who negotiated the order. However, there is
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nothing in writing to require such distribution. Apparently, in
the five instances noted above, no one forwarded the orders.
Thus the responsible parties were not billed until years after
they should have been.
RECOMMENDATION We recommend that the Region 3 Administrator have the
AOC distribution process amended to require that a specific
individual, e.g., the ORC Docket Clerk, be tasked to send a
copy of each AOC to the Office of the Comptroller and as well
as to the Office of Superfund Programs.
REGION 3 RESPONSE
The Region is in the process of issuing procedures which will clarify the office
responsible for distribution of all copies of CERCLA orders. In addition, ORC has
recently begun providing a list of issued CERCLA administrative orders to Finance.
OIG EVALUATION
During the exit conference we clarified that the Region intends to assign this
responsibility to a specific individual. We ask that a copy of the procedures be
provided to our office.
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CHAPTER 5
OTHER MATTERS
On October 2, 1995, the Administrator announced several
new Superfund reforms including an initiative to encourage
and reward cooperative parties by reducing EPA oversight
activities. In a July 31, 1996 memorandum, EPA
Headquarters provided examples of oversight monitoring
activities that should be considered for reduction depending
upon site circumstances. These examples included items such
as reducing the number of field visits to observe routine
activities or taking fewer split samples at the site. The
memorandum also:
• Referred to a list of 100 sites with cooperative and
capable parties, where the Regions had already reduced
oversight or had plans to reduce oversight.
• Explained that EPA's overall goal is for a nationwide
25% reduction in oversight costs over the next year at
these 100 sites.
• Stipulated that effective immediately, the Regions
should evaluate all sites to identify where oversight
could be reduced without reducing protection.
• Required that responsible parties receive an estimate of
oversight costs for the next year, at the time of annual
billing.
At the time of our review, almost 20 months after the
Administrator's announcement, the Region had yet to
determine at which sites it would attempt to reduce oversight,
or to provide any responsible parties with an estimate of
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future oversight costs. In conversations we were informed by
regional personnel that the Region is still working to refine its
list of sites and hoped to have it completed by the end of June
1997.
RECOMMENDATIONS We recommend that the Region 3 Administrator ensure that
the list of sites designated for reduced oversight is finalized.
REGION 3 RESPONSE
The Office of Superfund has developed a working list of sites where the
responsible parties meet the "technically competent" and "cooperative" criteria in the
current Reduced Oversight policy. Region 3 is working with other regions and
Headquarters to modify the guidance implementing the Administrator's 1995
Reduced Oversight Reform. One area under consideration is the provision of
oversight cost estimates. In the meantime, the Region plans to meet periodically with
potentially responsible parties to solicit their input on the Region's oversight plans.
OIG EVALUATION
We request that a copy of the final list of the sites designated for reduced
oversight be provided to our office. In our draft report, we had recommended that
the Region annually provide responsible parties with oversight cost estimates, in
accordance with the July 31, 1996, Headquarters memorandum. Based on the
Region's response and arguments presented at the exit conference, we concurred that
this issue merited further consideration by the Agency.
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APPENDIX A
Region 3 Response to Draft Audit Report E5FFL7-03-0008
With Region 3 Program Offices' and
Maryland's Department of the Environment Comments Attached
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APPENDIX B DISTRIBUTION
HEADQUARTERS
Director, Financial Management Division (2733F)
Agency Audit Followup Coordinator (3304)
Agency Audit Followup Official (3101)
REGIONAL OFFICE
Regional Administrator (3RAOO)
Director, Office of Policy and Management (3PMOO)
Director, Hazardous Waste Management Division (3HWOO)
Regional Counsel, Office of Regional Counsel (3RCOO)
Chief, Grants & Audit Management Branch (3PM70)
OFFICE OF INSPECTOR GENERAL
Headquarters Office (2421)
Divisional Offices
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