.rttO STAt
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Evaluation Report
EPA's Gulf Coast Oil Spill
Response Shows Need for
Improved Documentation and
Funding Practices
Report No. 11-P-0527
August 25, 2011
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Report Contributors:
Carolyn Copper
Chad Kincheloe
Angela Bennett
Anne Declerck
Abbreviations
ADA Anti-Deficiency Act
BP BP America Production Company
CBI Confidential business information
CERCLA Comprehensive Environmental Response, Compensation, and Liability Act
DWH Deepwater Horizon
EPA U.S. Environmental Protection Agency
EPM Environmental Programs and Management
TAP Incident action plan
IFMS Integrated Financial Management System
MOU Memorandum of understanding
NCP National Contingency Plan
NPFC National Pollution Fund Center
OCFO Office of the Chief Financial Officer
OIG Office of Inspector General
OPA Oil Pollution Act
PRFA Pollution Removal Funding Authorization
S&T Science and Technology
SCORPIOS Superfund Cost Recovery Package Imaging and On-Line System
SitRep Situation report
Cover photo: Deepwater Horizon platform fire. (EPA photo)
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail: OIG Hotline@epa.gov
phone: 1-888-546-8740
fax: 703-347-8330
online: http://www.epa.gov/oig/hotline.htm
write: EPA Inspector General Hotline
1200 Pennsylvania Avenue NW
Mailcode 8431P (Room N-4330)
Washington, DC 20460
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
11-P-0527
August 25, 2011
Why We Did This Review
We conducted this review to
determine whether the U.S.
Environmental Protection
Agency (EPA) has controls in
place to recover its Gulf Coast
oil spill response costs as
required and recommended by
policy and guidance.
Background
On April 22, 2010, the
Deepwater Horizon mobile
offshore drilling unit sank,
causing the largest oil spill in
U.S. history. The U.S. Coast
Guard, as lead agency for the
response, authorized EPA to
monitor and respond to
potential public health and
environmental concerns. To
do so, EPA collected and
managed environmental data,
oversaw waste management
activities, and provided
technical assistance. As of
December 31,2010, the
Coast Guard had authorized
EPA to spend approximately
$61.9 million on response
work. EPA bills its costs and
receives reimbursement from
the Coast Guard.
For further information,
contact our Office of
Congressional, Public Affairs
and Management at
(202)566-2391.
The full report is at:
www.epa.qov/oiq/reports/2011/
20110825-11-P-0527.pdf
Catalyst for Improving the Environment
EPA's Gull Coast Oil Spill Response Shows Need for
Improved Documentation and Funding Practices
What We Found
EPA needs additional management controls to track and recover its Gulf Coast oil
spill response costs. EPA needs controls to ensure documentation for its response
activities is consistent and provides a clear audit trail that links response costs to
authorized activities. While response costs were charged to a site code, we were
unable to determine the specific tasks associated with certain costs to ensure they
were related to authorized activities. Further, EPA needs controls in its billing
review to ensure that cost documentation packages are clear and complete.
EPA also needs to reach agreement with the Coast Guard regarding the sharing of
contractor-designated confidential business information; this impasse has affected
reimbursement of EPA's response costs. EPA contract costs represent over
67 percent of its total response costs. Until this matter is resolved, reimbursement
of EPA's response costs may be further delayed or denied, and EPA may be at risk
of incurring additional Anti-Deficiency Act (ADA) violations, beyond the one it
incurred in November 2010, as well as Prompt Payment rule penalties.
EPA needs a new approach to enable it to fund emergency responses to oil spills.
EPA had limited cash on hand to fund its response work. In an attempt to prevent
a cash shortfall and avoid an ADA violation, EPA received a cash advance of
$32 million from the Coast Guard in August 2010. Despite the advance, EPA
incurred an ADA violation in November 2010. EPA also temporarily charged non-
oil-spill appropriations, such as Superfund, and reprogrammed funds to fund its
response work. EPA's temporary charging to Superfund resulted in a purpose
violation because Superfund cannot be used for oil spill response. While EPA's
actions ultimately provided it with access to funds, the ADA and purpose
violations, coupled with the extra work required by EPA to find sufficient funds
during an oil spill disaster, indicate a need for a new funding approach.
What We Recommend
We recommend that EPA implement controls to ensure that documentation
supports authorized response activities and that response bills and supporting cost
documentation packages are clear and complete. We also recommend that EPA
reach an agreement with the Coast Guard on the confidential business information
issue. EPA should also seek new or additional emergency response funding
authority for oil spills. During the course of this review, EPA took action to seek
this authority. EPA disagreed with our first recommendation, but agreed with the
three remaining recommendations.
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.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
August 25, 2011
MEMORANDUM
SUBJECT: EPA's Gulf Coast Oil Spill Response Shows Need for
Improved Documentation and Funding Practices
Report No. ll-P-0527
FROM: Arthur A. Elkins, Jr.
Inspector General
TO: Bob Perciasepe
Deputy Administrator
Barbara Bennett
Chief Financial Officer
This is our report on the subject evaluation 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.
Final determinations on matters in this report will be made by EPA managers in accordance with
established resolution procedures.
The estimated direct labor and travel costs for this report are $305,261.
Action Required
Recommendation 4 is in a closed status for reporting purposes; therefore, you do not need to
respond further regarding this recommendation. The Agency disagreed with recommendation 1,
and this recommendation is unresolved with resolution efforts in progress. The Agency provided
an acceptable corrective action plan for recommendations 2 and 3, and these are still in an open
status. Therefore, in accordance with EPA Manual 2750 and ongoing resolution efforts, you are
required to provide a written response to recommendation 1, including a proposed corrective
action plan, within 90 calendar days of the report date. In addition, in your 90-day response you
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may update the OIG on the implementation status of the agreed-to corrective actions for
recommendations 2 and 3.
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 the Rehabilitation Act of 1973, as
amended. Please e-mail your response to Carolyn Copper at copper. carolyn@epa. gov. 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 Wade Najjum at
(202) 566-0827 or naiiurn.wade@epa.gov. or Carolyn Copper at (202) 566-0829 or
copper. carolyn@epa. gov.
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EPA's Gulf Coast Oil Spill Response Shows Need for 11 -P-0527
Improved Documentation and Funding Practices
Table of Contents
Chapters
1 Introduction 1
Purpose 1
Background 1
Noteworthy Achievements 3
Scope and Methodology 4
2 EPA Should Improve Controls to Document Response Activity 6
EPA Response Activity Does Not Provide a Clear Audit Trail 6
Conclusion 9
Recommendation 9
Agency Response and OIG Evaluation 9
3 EPA Should Improve Controls to Address Deficiencies in
Cost Documentation 11
Improvements Needed in EPA's Billing Review Process 11
Conclusion 13
Recommendation 13
Agency Response and OIG Evaluation 13
4 EPA at Risk Due to Impasse on Handling of
Confidential Business Information 14
Redacted CBI Needed for Reimbursement and Cost Recovery 14
Conclusion 16
Recommendation 16
Agency Response and OIG Evaluation 16
5 EPA Needs Additional Authority for Funding Future Responses 17
EPA Faced Funding Challenges in Its Oil Spill Response 17
Conclusion 20
Recommendation 20
Agency Response and OIG Evaluation 20
Status of Recommendations and Potential Monetary Benefits 21
-continued-
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EPA's Gulf Coast Oil Spill Response Shows Need for 11 -P-0527
Improved Documentation and Funding Practices
Appendices
A Details on Scope and Methodology 22
B Agency Response to Draft Report and OIG Comment 25
C Distribution 35
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Chapter 1
Introduction
Purpose
The purpose of our review was to evaluate U.S. Environmental Protection Agency
(EPA) management controls for ensuring EPA's costs for responding to the Gulf
Coast oil spill are tracked and recovered. Our objective was to determine whether
EPA has controls in place to recover its Gulf Coast oil spill response costs as
required and recommended by policy and guidance.
Background
On April 22, 2010, the mobile offshore drilling unit Deepwater Horizon (DWH),
leased by BP America Production Company (BP), sank after an explosion.
Following the explosion, and until the well was sealed in September 2010, the
well released several thousand barrels of crude oil a day into the Gulf of Mexico.
This is the largest oil spill in U.S. history. The U.S. Department of Homeland
Security declared the spill a "Spill of National Significance."1
National Contingency Plan and Federal Response
The National Contingency Plan (NCP) outlines the organizational structure and
procedures for preparing for and responding to discharges of oil and releases of
hazardous substances, pollutants, and contaminants, and the Oil Pollution Act
(OPA) authorizes funding for responses to oil releases under the Oil Spill
Liability Trust Fund. The federal government uses the trust fund for removal
costs, and monitoring, administrative, and operational and personnel costs for
implementation and enforcement of the OPA. The U.S. Coast Guard led the
federal response to the oil spill as the federal on scene coordinator.
The U.S. Coast Guard National Pollution Fund Center (NPFC) administers the
trust fund. NPFC designated two BP subsidiaries and five other companies as
responsible parties for DWH oil-spill-related claims. The federal on scene
coordinator has obligated $589 million of funding advanced by the Oil Spill
Liability Trust Fund, of which $554 million had been expended through
September 30, 2010. NPFC obligates funds to other federal, state, and local
government agencies via approved Pollution Removal Funding Authorizations
(PRFAs) or Military Interdepartmental Purchase requests that provide
reimbursable funding authority. After NPFC authorizes reimbursement, it pays
1 A "Spill of National Significance" is a spill that, due to its severity, size, location, actual or potential impact on the
public health and welfare or the environment, or the necessary response effort, is so complex that it requires
extraordinary coordination of federal, state, local, and responsible party resources to contain and clean up the
discharge.
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the government agencies from the trust fund for their actual expenditures. NPFC
has billed the responsible parties for the Deepwater Horizon oil spill $518 million,
as of September 30, 2010. The billed amounts encompass actual Coast Guard
expenditures and funds obligated by the federal on scene coordinator to other
federal, state, and local government agencies. All the obligations and expenditures
and are considered billable and fully collectible from the responsible parties as of
September 30, 2010.2 According to the Government Accountability Office,
BP has paid the NPFC $518.4 million as of October 12, 2010.
EPA provided support as authorized by the Coast Guard. EPA's support function
included monitoring and responding to potential public health and environmental
concerns. EPA collected and managed environmental data; took air, water, and
sediment samples to determine potential risks to public health and the
environment; and provided oversight on waste management activities and other
general oversight and technical assistance.
Funding of EPA Response Activities
Because EPA served in a support role, it received PRFAs from the Coast Guard
that defined EPA's response activities. The PRFAs authorized EPA to provide
support to the Coast Guard. PRFAs are based on a statement of work and a cost
estimate.
EPA received PRFAs for its response work that occurred or was coordinated in
Regions 4 and 6 and EPA headquarters. The Coast Guard amended PRFAs
beyond the initial authorizations as additional cleanup funding or activities were
necessary. Because of some lag time in the approval process, EPA PRFAs and
subsequent amendments were generally retroactive. As of December 31, 2010,
EPA's PRFAs show approximately $61.9 million in authorized response costs.3
EPA submits bills to the Coast Guard for reimbursement from the trust fund for
its PRFA-authorized response costs.
EPA's 1996 memorandum of understanding (MOU) with the Coast Guard for use
of the trust fund outlines requirements for EPA bills and cost documentation. The
MOU provides that EPA shall produce a comprehensive written record supporting
all expenditures and costs incurred in each removal. NPFC implementing
guidance4 states that documentation provided should support a clear audit trail for
reimbursement. This documentation will support reimbursement of EPA costs.
The documentation will also assist with NPFC's cost recovery on behalf of the
trust fund.
Department of Homeland Security FY 2010 Annual Financial Report.
3 Headquarters PRFAs were as of October 31, 2010.
4
NPFC Instruction 16451.2, Technical Operating Procedures for Resource Documentation under The Oil Pollution
Act of 1990.
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EPA used its available cash from its Oil Spill appropriation along with any
reimbursements received from the Coast Guard for previous oil spill work
performed to pay for its PRFA-authorized activities. For those PRFA activities
pending approval for funding, EPA temporarily charged other non-oil-spill
appropriations: Hazardous Substance Trust Fund (Superfund), Environmental
Programs and Management (EPM), and Science and Technology (S&T). EPA
also reprogrammed existing Oil Spill and EPM funds.
On August 3, 2010, EPA signed an MOU with the Coast Guard NPFC for a cash
advance of $32 million. The MOU allowed for an advance of funds to ensure that
EPA had cash available in the Agency account to pay expenses. EPA provided
billing summaries and detailed cost documentation packages at a later date to
support the expenses to liquidate the advance.
EPA's Reimbursable Costs
As of March 3, 2011, EPA had spent just over $46.2 million in payroll, travel,
miscellaneous, and contract costs (table 1). Payroll represents payroll costs
(exclusive of indirect costs) of EPA response personnel. Travel represents travel
expenses incurred by EPA response personnel. Miscellaneous represents costs for
small purchases, such as office supplies. Contracts represent costs for EPA
contractors employed in the response effort, as well as additional support services
provided to EPA through interagency agreements with other federal agencies.
Table 1: EPA's reimbursable oil spill response costs3 as of March 3, 2011
Region 4
Region 6
HQ EOCb
Total
Payroll
$4,147,448
4,346,551
3,908,896
$12,402,895
Travel
$1,204,445
871,369
335,386
$2,411,200
Miscellaneous
$138,713
116,086
4,927
$259,726
Contracts
$5,907,440
21,499,763
3,746,718
$31,153,921
Total Costs
$11,398,046
26,833,769
7,995,927
$46,227,742
Source: Office of Inspector General (OIG) analysis of EPA data.
a Data do not include EPA's indirect costs.
b Headquarters Emergency Operation Center.
Noteworthy Achievements
In response to the Gulf Coast oil spill, EPA developed a number of documents to
strengthen its management controls and ensure accountability of its response
funds. These documents include:
• EPA's Deep Water Horizon/BP OH Spill Stewardship Plan (finalized
October 25, 2010)—EPA developed this plan to ensure that resources
utilized for the oil spill support the Agency's mission and comply with
EPA guidance. The plan considers internal controls and possible areas
of risk related to contracts and acquisitions, contract property,
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purchase cards, personal property, interagency agreements, payroll and
travel, and budget execution.
DWH Tracking and Spending Guidance—As EPA's oil response
activities evolved, EPA developed a series of four guidance documents
during May through August 2010. These documents helped EPA
ensure appropriate tracking of its response costs and maintain fiscal
integrity. We identify these guidance documents in appendix A.
Specific Headquarters and Regional Guidance on Charging to
DWH Oil Spill Response—Headquarters, Region 4, and Region 6
each developed guidance to help ensure appropriate charging of
payroll-related DWH response costs. We identify these guidance
documents in appendix A.
Scope and Methodology
We conducted this evaluation from July 2010 to May 2011 in accordance with
generally accepted government auditing standards. Those standards require that
we plan and perform the evaluation to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our
objectives. We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our evaluation objective.
To gain an understanding of EPA's management controls to track and recover its
Gulf Coast oil spill response costs, we met with managers and staff in EPA's
program offices in headquarters, Washington, DC; the Cincinnati Finance Center,
in Cincinnati, Ohio; Region 4, in Atlanta, Georgia; and Region 6, in Dallas,
Texas. We also reviewed guidance issued by the Agency for tracking and
monitoring its oil spill response costs.
To determine how EPA funded its response, we obtained and reviewed temporary
charging and reprogramming data from the Agency, MOUs between EPA and the
Coast Guard, and PRFAs issued to EPA.
To determine whether EPA's response costs support and align with its PRFA
activities, we judgmentally selected a sample of transactions from individual cost
documentation packages submitted to the Coast Guard. EPA submitted three
packages on October 14, 2010, one each for Regions 4 and 6 and EPA
headquarters. These represented the first detailed cost documentation packages that
EPA was required to submit based on the cash advance MOU. We took our sample
from cost documentation packages submitted for Bill #4 for Regions 4 and 6, and
Bill #3 for headquarters. The sample represented approximately $2.9 million, or
51 percent, of the total costs submitted in the October 14, 2010, cost packages.
We used the sample to evaluate EPA's compliance with cost documentation
requirements described in the cash advance MOU with the Coast Guard.
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We also reviewed various Agency-generated reports with response activity
details, including situation reports (SitReps) and incident action plans (lAPs), in
an effort to link Agency payroll to authorized PRFA activities for the
judgmentally selected pay period #20 (June 20 through July 3, 2010). We
reviewed a snapshot of data provided by Regions 4 and 6 from their Asset Tracker
database, an Agency Incident Command database tool.
Appendix A provides further details on our scope and methodology.
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Chapter 2
EPA Should Improve Controls to
Document Response Activity
EPA did not consistently generate documentation that captured its response
activities across Regions 4 and 6 and headquarters. In addition, the documentation
the regions generated does not provide a clear audit trail between the work it
performed and what it billed the Coast Guard. A clear audit trail is needed to
show that response costs relate to PRFA-authorized activities. EPA does not have
guidance that requires documentation to identify costs billed to a specific activity.
EPA guidance, Tracking Spending for the BP Gulf of Mexico (Deepwater
Horizon) Oil Spill, issued May 18, 2010, provides that EPA track its response
costs (reimbursable and nonreimbursable) with the designated oil spill site
accounting code. However, use of the site code only indicates that work relates to
the site; it does not identify the specific PRFA activity conducted. While all costs
we reviewed were charged to the site code and may be appropriate, we were
unable to determine the specific tasks underlying certain costs to ensure they were
related to authorized activities. Without a clear audit trail, the Coast Guard could
delay or deny reimbursement of these costs.
EPA Response Activity Does Not Provide a Clear Audit Trail
Although EPA established various controls to track its Gulf Coast oil spill
response costs as required and recommended by relevant Agency guidance, EPA
has not implemented controls to ensure that it consistently generates response
activity documentation that provides a clear audit trail linking response work
performed to work billed. EPA's 1996 MOU with the Coast Guard provides that
EPA shall produce a comprehensive written record supporting all expenditures
and costs incurred. Further, NPFC guidance provides that documentation should
support a clear audit trail for reimbursement. Our review of a sample of EPA's
billings showed that the information EPA submitted to the Coast Guard in its cost
documentation packages does not clearly demonstrate that the costs billed relate
to authorized PRFA activities. In addition, our review of EPA's response activity
documentation showed that EPA did not consistently generate documentation
across Regions 4 and 6 and headquarters that would clearly link its response work
to billed costs.
Controls to Track Activities
EPA relied on existing controls to ensure proper charging and billing of costs for
reimbursement, including established controls over its systems to track employee
time, travel, and contract costs. In addition, EPA and the regions developed
additional guidance and implemented new controls to track its response costs.
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In particular, EPA established an accounting code within its financial
management system for recording and tracking costs associated with its oil-spill-
related activities.
EPA's cost documentation packages provided to support each bill sent to the
Coast Guard dealt with financial activity categories (e.g., travel, payroll,
contracts, miscellaneous, and interagency agreements). The packages did not
include information on response activities. EPA generally provided information
on response activities to the Coast Guard (exclusive of the billings and cost
documentation packages) in the form of SitReps. In some instances, EPA
provided weekly lAPs. These reports and plans described activities EPA would
conduct and/or conducted under the PRFAs, providing the operational period and
identifying EPA staff and contractors performing the work.
Although not provided to the Coast Guard, EPA used its Asset Tracker database
as a resource tool for tracking and monitoring resources. Asset Tracker allows the
regions to keep track of the personnel resources needed in the regional offices and
in the field. It lists the position, location, title of position, and dates that person
will be in that position. The regions also used Asset Tracker as a tool in the
review of its travel costs. According to EPA, its response activity documentation,
in conjunction with its cost documentation, provides a complete picture of EPA's
response work undertaken and billed. EPA also stated that the Coast Guard could
use the documentation to prepare its cost recovery packages.
OIG Sample Results
We reviewed a judgmental sample of payroll, travel, miscellaneous, and contract
costs to determine whether the response costs EPA billed support and align with
its authorized PRFA response activities. Our review showed that EPA charged its
response costs against the designated site accounting code as required by Agency
guidance. However, none of the supporting documentation for payroll and
miscellaneous costs contained in the cost documentation package we reviewed
linked the costs billed to a specific PRFA activity. Only 35 percent of travel costs
reviewed included some description that would link the travel to PRFA activities.
Only 36 percent of the contract costs reviewed included a delivery/task order
number that we could potentially link to a PRFA activity.
Payroll
For payroll, the supporting information in the cost documentation package
included employee timesheets. The timesheets provided a name and, in most
cases, a title such as environmental scientist, environmental engineer, scientist, or
chemist. There was no supplemental information or documentation provided with
the package that addressed how the costs link to the authorized PRFA activities.
To determine this link, we reviewed a judgmental sample of supplemental
information that included SitReps from Regions 4 and 6 and headquarters. We
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also reviewed selected lAPs for Region 6 (lAPs were not prepared for Region 4
and headquarters). In addition, we reviewed a snapshot of data provided by
Regions 4 and 6 from their Asset Tracker database.
We were able to link the Regions 4 and 6 SitReps and the Region 6 lAPs to
PRFA-authorized activities. However, the SitReps we reviewed for headquarters
did not contain enough details to link the work performed to the authorized
activities. We were only able to identify a portion of EPA staff from the
Regions 4 and 6 SitReps and lAPs and link these staff to time charges billed for
the applicable period. The Regions 4 and 6 SitReps and lAPs did not account for
many of the EPA staff billed for reimbursement. The headquarters SitReps did not
identify any EPA staff. As such, we were unable to link the payroll charges billed
to response activities.
Although our review of Asset Tracker was limited, we believe this resource may
be a useful tool, along with the SitReps and lAPs, for linking EPA work
performed to work billed. EPA managers reported that they could provide
documentation linking costs to a specific response activity with additional effort.
Based on our analysis of documentation provided by Regions 4 and 6, we agree
with managers in those regions that, with additional effort, EPA could potentially
link its payroll costs to PRFA activities. Because of the limited data for
headquarters, we could not determine a potential link between work performed
and work billed.
Travel
For travel, the information contained in the cost documentation package identified
the employee, location, and general purpose of the trip, e.g., DWH oil spill, oil
spill support, etc. However, only 35 percent of the vouchers included some
description that would link the travel to a PRFA activity. As with payroll, we
believe Asset Tracker may be a useful tool in linking travel to authorized PRFA
activities.
Miscellaneous
Miscellaneous costs provided no description of the item purchased, purpose for
the purchase, or activity related to the purchase. EPA did not include any
additional documentation that would help link these cost to authorized PRFA
activities.
Contracts
Some contractor invoices (36 percent) provided delivery order/task order
numbers. The Coast Guard could use these numbers, along with additional
contract information, to determine the activities performed. The remaining
64 percent of contract invoices did not provide any information or documentation
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that would identify the work performed. Resolution of the confidential business
information (CBI) issue, as discussed in chapter 4 of this report, may provide
further clarification of contractor activities.
Conclusion
EPA took a number of needed actions to ensure that it had sufficient resources to
respond to the Gulf Coast oil spill and that it had controls to track and document
its response costs. However, EPA needs to do more to assure that the Coast Guard
will reimburse its costs. Consistent and complete documentation that details
response activities and links them to authorized PRFA activities will provide a
clearer audit trail than currently exists.
Recommendation
We recommend that the Chief Financial Officer:
1. Implement controls to ensure that EPA consistently generates response
activity documentation that provides a clear audit trail linking response
work performed to response work billed.
Agency Response and OIG Evaluation
The Office of the Chief Financial Officer (OCFO) provided Agency comments.
We reviewed OCFO's comments, met with OCFO officials to discuss the
comments, and made changes to the report where appropriate. Appendix B
provides the full text of OCFO's response and the OIG's comments.
EPA disagreed with recommendation 1. The Agency believes that the necessary
controls needed to track EPA's DWH response costs to EPA's three PRFA's are
in place. The Agency stated that DWH guidance established the accounting codes
to track costs associated with the three PRFAs which were assigned to the Agency
for response work. The Agency asserts that through this guidance, a structure was
put in place to provide an audit trail for all costs related to each of the PRFAs and
that the PRFAs did not require billing by subcategory, so the Agency did not set
up account codes to track lower than PRFA spending. The Agency believes the
use of the PRFA account code along with the Agency controls in place prior to
making payments indicate that the costs were correctly applied. In a meeting to
discuss their comments, an Agency manager stated that the cost benefit of
implementing the recommendation needs to be considered. There is concern about
putting resources into tracking costs at an activity level when the Coast Guard has
not yet asked for information at this level. However, Coast Guard guidance
entitled Technical Operating Procedures for Resource Documentation under the
Oil Pollution Act of1990, which is listed in Appendix 1 of EPA's 1996 MOU
with the Coast Guard, provides that documentation should support a clear audit
trail.
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In our opinion, the use of the account code only shows that work relates to the
site, it does not identify the specific PRFA activity conducted and does not
provide a clear audit trail. When the OIG looked at additional information to
identify specific PRFA activities conducted in order to link billed activity with
authorized PRFA tasks, such as the SitReps and lAPs for payroll as suggested by
the Agency, we were unable to link the billed response activity to PRFA
authorized activities because a clear audit trail did not exist. We also found that
SitReps and lAPs were not consistently generated among EPA Regions 4 and 6
and headquarters.
Recommendation 1 is unresolved with resolution efforts in progress.
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Chapter 3
EPA Should Improve Controls to Address
Deficiencies in Cost Documentation
EPA needs to improve its billing reviews to ensure clarity and completeness of its
cost documentation packages prior to submittal to the Coast Guard. Coast Guard
NPFC guidance provides for documentation that supports a clear audit trail. In
addition, EPA's cash advance MOU with the Coast Guard outlines specific
documentation required to support EPA's bills for its cash advance. Our review of
a sample of EPA's billings and supporting cost documentation packages identified
examples of required documentation that was missing. We also identified
instances in which EPA needed to provide explanation or clarifying
documentation. As a result, we were unable to determine whether EPA should
have billed the applicable costs for reimbursement. These conditions create risk
that Coast Guard may delay or deny reimbursement for some of EPA's response
costs possibly as much as $32 million.
Improvements Needed in EPA's Billing Review Process
EPA relied on its existing controls to ensure proper charging and billing of costs
for reimbursement. However, EPA should improve its review of its cost
documentation packages to ensure the information clearly supports its billed
response costs. Further EPA needs to strengthen its controls to ensure that cost
documentation is complete and complies with the documentation requirements of
the cash advance MOU. We found examples of missing and incomplete
information that required clarification or additional documentation.
OIG Sample Results
We reviewed a judgmental sample of payroll, travel, miscellaneous, and contract
costs to determine whether the response costs EPA had billed met Coast Guard
NPFC and MOU cost documentation requirements. Within the sample, we
observed missing documentation for payroll, miscellaneous, and contract charges.
We also found instances in which EPA needed to provide clarification and/or
additional information to supplement the already-provided documentation.
Clarification and/or additional information was needed for some payroll, travel,
and contracts costs.
Payroll
For the payroll charges we reviewed, 25 of 53, or 47 percent, required either
explanation or additional documentation. For example, EPA billed costs with no
corresponding payroll hours. In addition, EPA split costs, with some costs billed
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to Region 4 and some to Region 6, without explanation in the cost package. In
one case, five timesheets were missing from the cost documentation. These
examples demonstrate that in some cases the cost documentation did not provide a
clear audit trail.
Travel
For travel vouchers we reviewed, 12 of 34, or 35 percent, required additional
explanation. We found examples of split costs, with some costs billed to Region 4
and some to Region 6, cross-funding between the DWH site code and other
programs such as Superfund, and split payments between the traveler and the
traveler's credit card. In all instances, EPA provided no explanation with the
detailed cost documentation.
Miscellaneous
For miscellaneous costs, 100 percent of the 20 vouchers we reviewed required
additional documentation. None of the vouchers included receipts or invoices to
support the cost. Although not included as part of the cost documentation
package, EPA explained that it could obtain the supporting documentation from
the employee if requested.
Contracts
For contract costs, 19 of 27, or 70 percent, of the invoices reviewed required
additional documentation or explanation. We found examples of contract
vouchers that were missing invoices and invoices in which EPA had redacted
CBI. In addition, some vouchers had invoices that included charges for other EPA
work, not only the BP spill. In all instances, EPA provided no explanation in the
detailed cost documentation.
Coast Guard Review of Cost Documentation Packages
On November 1, 2010, EPA received comments from the Coast Guard on its
review of the same billings included in our sample. The Coast Guard comments
were similar to our independent findings. The Coast Guard requested additional
explanation or description from EPA, along with additional supporting
documentation for various costs including payroll, travel, miscellaneous, and
contracts. According to EPA, in April of 2011, the Coast Guard accepted EPA's
payroll and travel documentation, but requested more specific cost documentation
to support the $32 million in contractor and miscellaneous invoices. Because the
Coast Guard's review of contractor and miscellaneous invoices is still in process,
it cannot be determined that the Coast Guard has denied any costs for
reimbursement or requested repayment of any advanced funds.
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Conclusion
While EPA has established charging and billing processes, it could do more to
ensure that the Coast Guard reimburses its response costs and does so in a timely
manner. EPA cost documentation packages need to be clear and complete to
comply with the Coast Guard NPFC and cash advance MOU cost documentation
requirements and to avoid the risk that Coast Guard may delay or deny
reimbursement for some of EPA's response costs, possibly as much as $32
million.
Recommendation
We recommend that the Chief Financial Officer:
2. Implement controls to ensure that bills and supporting cost
documentation packages submitted to the Coast Guard are clear and
complete, and comply with cost documentation requirements.
Agency Response and OIG Evaluation
OCFO provided Agency comments. We reviewed OCFO's comments, and met
with OCFO officials to discuss the comments. Appendix B provides the full text
of OCFO's response and the OIG's comments.
The Agency agreed with recommendation 2 and provided an acceptable corrective
action plan. The Agency stated it is in negotiations with the Coast Guard to
establish a protocol for future sites that will include a new cost documentation
procedure that ensures EPA provides the Coast Guard with the necessary
documentation to support the EPA billings. This recommendation is open with
agreed-to corrective actions pending.
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Chapter 4
EPA at Risk Due to Impasse on Handling of
Confidential Business Information
EPA and the Coast Guard have reached an impasse on the handling of contractor
CBI. Although EPA submitted required invoices in its cost documentation
packages to the Coast Guard, in the sample we reviewed, EPA redacted most if
not all information (other than the total cost billed) contained in the invoices. EPA
indicated that it could not release the information without a signed non-disclosure
agreement for protection of CBI. EPA's cash advance MOU with Coast Guard
established specific documentation requirements that EPA should meet in
supporting the drawdown of its cash advance, including contractor invoices and
supporting documentation with detailed activity. By redacting CBI information
from its invoices, EPA does not comply with its MOU requirements. As a result,
EPA is at risk of the Coast Guard indefinitely delaying reimbursement, denying
costs, and requiring repayment of cash advances. This is significant because EPA
contract costs represent over 67 percent of its total response costs. Any of these
situations could potentially render EPA unable to pay its contractors in a timely
manner. If this impasse remains unresolved, EPA may be at risk of incurring
Anti-Deficiency Act (ADA)5 and Prompt Payment rule6 penalties. As detailed in
chapter 5, EPA had incurred an ADA violation in November 2010.
Redacted CBI Needed for Reimbursement and Cost Recovery
The Coast Guard, in its November 1, 2010, comments to EPA on its cost
documentation packages, stated that it needed explanations, clarifications, and
invoices to consider the costs for reimbursement. EPA later clarified that the
Coast Guard needed unredacted documentation. The Coast Guard also informed
EPA that it needed the information for cost recovery. EPA stated that, due to
protection provided by the Trade Secrets Act, EPA could only share CBI with the
Coast Guard after providing proper notice to respective contractors about the
potential release. EPA indicated that the Coast Guard would have to sign a non-
disclosure agreement before EPA would release any documentation containing
CBI. EPA stated the non-disclosure agreement was necessary because EPA
An ADA violation occurs when funds are obligated or expended without sufficient appropriations to cover the
obligation or expenditure. Based on Office of Management and Budget Circular A-11 (Part 4), the EPA
Administrator is required to report the ADA violation through the Director of the Office of Management and Budget
to the President, Congress, and the Comptroller General, and provide a comprehensive plan of action for preventing
any future recurrence.
6 The Prompt Payment rule ensures that federal agencies pay vendors in a timely manner. Under the rule, agencies
that pay vendors after a payment due date are assessed late interest penalties.
11-P-0527 14
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regulations require a non-disclosure agreement be in place before EPA can
provide unredacted documents to another federal agency.
As an interim measure to address the sharing of CBI, EPA and the Coast Guard
signed an agreement on November 18, 2010, that allowed the Coast Guard to
view unredacted invoices in EPA offices. However, the Coast Guard could not
copy or retain the contractor invoices. The Coast Guard visited EPA in
November 2010 and reviewed some contractor invoices. Not all invoices were
available because EPA had not completed its required contractor release
notifications. The Coast Guard returned to EPA in early December 2010 to
complete its review but, due to a miscommunication, was unable to gain access to
the EPA building.
Also during this time, due to ongoing cash flow problems, EPA requested and the
Coast Guard denied a second cash advance. According to the Coast Guard, the
denial was due in part to EPA not providing required contractor CBI-related cost
documentation. Ultimately, the denial of EPA's second cash advance request
contributed to EPA incurring an ADA violation in fiscal year 2011 and has
created delays in payments to EPA's contractors.
On December 10, 2010, EPA's Deputy Chief Financial Officer met with the Coast
Guard on the CBI issue and sent it a non-disclosure agreement for signature. The
agreement stipulates an EPA requirement to identify CBI and notify contractors
of the release of CBI in invoices. The December 2010 agreement is not limited to
DWH only, but covers all cost documentation related to all actions taken by EPA
and its contractors under EPA's removal authority under Section 311 of the
CWA, OP A, and/or the NCP. By signing the agreement, the Coast Guard would
be agreeing that material designated as CBI or potential CBI by EPA shall not be
disclosed unless it is in accordance with 40 Code of Federal Regulations
§ 2.209(c)(5).
According to EPA's Deputy Chief Financial Officer, correspondence with the
Coast Guard in December 2010 indicated that the Coast Guard would get back to
EPA regarding the non-disclosure agreement. On January 25, 2011, the OIG
contacted the Coast Guard to discuss the impact of the CBI issue on EPA's cost
reimbursement. The Coast Guard informed us that while it wishes to resolve the
CBI issue, it has not agreed to EPA's proposed non-disclosure agreement.
Further, EPA has not released unredacted contractor cost documentation for Coast
Guard review. The Coast Guard explained that it needed the CBI contract-related
cost documentation for cost recovery from the responsible parties, and cost
recovery is needed to reimburse EPA.
The OIG met with EPA financial officers on February 15, 2011, for an update on
the CBI issue. At that meeting, we learned that the Coast Guard had not signed or
contacted EPA about the non-disclosure agreement. Additionally, EPA has not
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released its unredacted contractor cost documentation and, as of mid-January
2011, has stopped submitting bills to the Coast Guard for reimbursement.
Conclusion
If EPA and the Coast Guard cannot reach agreement on the sharing of CBI, there
is risk that the Coast Guard will not reimburse EPA for a significant portion of its
response costs. In addition, the impasse has contributed to delays in payments to
EPA's contractors. If this issue remains unresolved or is not timely addressed, and
EPA cannot pay its contractors timely, EPA may face additional ADA violations
and Prompt Payment rule penalties. Further, the unresolved CBI issue impedes
EPA's ability to seek additional cash advances from the Coast Guard.
Recommendation
We recommend that the Deputy Administrator:
3. Work with Coast Guard counterparts to develop and ensure the timely
implementation of an appropriate means of sharing EPA contractors'
response cost documentation designated as CBI.
Agency Response and OIG Evaluation
OCFO provided Agency comments. We reviewed OCFO's comments, met with
OCFO officials to discuss the comments, and made changes to the report where
appropriate. Appendix B provides the full text of OCFO's response and the OIG's
comments
The Agency agreed with recommendation 3 and provided an acceptable corrective
action plan. The Agency stated that it implemented a non-disclosure agreement
with the Coast Guard in March 9, 2011. In addition, the Agency said that it is in
negotiations to implement a non-disclosure agreement that will cover all work
performed on future sites and this will be completed by December 31, 2011. This
recommendation is open with agreed-to corrective action pending.
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Chapter 5
EPA Needs Additional Authority for
Funding Future Responses
EPA did not have sufficient oil spill response funding to handle its costs related to
the Gulf Coast oil spill. For those PRFA activities pending approval and funding
by the Coast Guard, EPA temporarily charged three non-oil-spill appropriations,
resulting in one purpose violation with respect to the Superfund appropriation.7
EPA also reprogrammed available Oil Spill and EPM-appropriated funds to cover
these initial unfunded costs. For its PRFA-funded activities, EPA used available
cash from its Oil Spill appropriation along with any reimbursements received
from the Coast Guard for previous oil spill work to pay for these activities prior to
receiving reimbursement from the Coast Guard. While EPA used its authority to
temporarily charge other appropriations and reprogram existing funds, this
authority was limited by relevant appropriation laws. EPA does not appear to
have the additional authority to provide itself with an alternative funding option
for immediate access to necessary response funds—other than its limited Oil Spill
appropriation—or to allow itself a waiver or temporary exemption from relevant
appropriation laws. As a result, EPA could not cover its rapidly growing response
costs. Despite a cash advance from the Coast Guard of $32 million, EPA
continued to have cash flow problems that resulted in an ADA violation in
November 2010. Without additional emergency oil spill response funding, EPA's
removal ability may be impeded, and EPA may be vulnerable to potential ADA
and Prompt Payment rule penalties on this and future oil spills.
EPA Faced Funding Challenges in Its Oil Spill Response
EPA faced challenges in funding its response work. Reimbursement from the
Coast Guard was not immediate and EPA did not have enough of its own
resources to cover its increasing response activities. In an attempt to prevent a
funding shortfall, EPA issued guidance that allowed for temporary charging to
non-oil-spill appropriations and for the reprogramming of funds. EPA also sought
and received a cash advance for $32 million from the Coast Guard. Because EPA
did not have timely access to sufficient funds, it incurred an ADA violation in
November 2010. In addition, EPA's temporary charging against Superfund
resulted in a purpose violation because EPA did not use the Superfund funds for
their intended purpose.
7 Under 31 U.S. Code § 1301(a), EPA may not charge Superfund for activities solely undertaken to respond to the
oil spill, even on a temporary basis.
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Temporary Charging
Due to the limited availability of Oil Spill Trust Fund appropriated funds and time
lags in the approval of its PRFAs, EPA temporarily charged other non-oil spill
appropriations.
EPA issued Additional Guidance on Tracking Spending for the BP Gulf of Mexico
(Deepwater Horizon) Oil Spill on June 22, 2010, that addressed temporary
charging. EPA temporarily charged to other appropriations approximately
$1.3 million of payroll and just over $1.0 million of other costs, including travel,
contracts, and expenses. Specifically, EPA charged costs to the Superfund, EPM,
and S&T appropriations. Payroll charges to these appropriations began on April
25, 2010, and ended in July 2010. The charges involved 260 employees and 794
payroll transactions (table 2).
Table 2: Temporary payroll charging
Fund
Superfund
S&T
EPM
Total
Number of
transactions
36
194
564
794
Number of
employees affected
19
64
177
260
Amount
$86,150
308,554
933,537
$1,328,241
Source: OIG analysis of EPA data.
EPA also expended or planned to expend other nonpayroll costs, including travel,
contracts, and other expenses, under the S&T and EPM appropriations. The
nonpayroll expenses began May 13, 2010, and continued through August 31,
2010. The expenses included 759 transactions totaling over $1.0 million (table 3).
Table 3: Temporary other costs charged
Fund
Superfund
S&T
EPM
Total
Number of
transactions
0
308
451
759
Amount
$0
421,763
583,802
$1,005,565
Source: OIG analysis of EPA data.
Because charges were made to non-oil-spill appropriations, EPA was required to
correct or reverse its temporary charges to the Superfund, S&T, and EPM
appropriations to the reimbursable Oil Spill appropriation. This correction was
necessary for EPA to bill the Coast Guard for reimbursement. Further, EPA had
to reverse the temporary charges to the S&T and EPM appropriations by the end
of the fiscal year to avoid a purpose violation. Per EPA, all appropriate temporary
charges were corrected by the end of the fiscal year as required.
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EPA's temporary charging to Superfund violated 31 U.S. § 1301(a), a "purpose
statute" violation because EPA may not charge Superfund for activities solely
undertaken to respond to the oil spills. An EPA memorandum, Adjustments to
Appropriated Funds Spending for the BP Gulf of Mexico (Deepwater Horizon)
Oil Spill, dated August 20, 2010, required that all appropriate charges be reversed
to EPA's oil spill appropriation (H) or reimbursable account (HR). Because EPA
was able to reverse all appropriate temporary charges to Superfund within the
same fiscal year they occurred (fiscal year 2010), the Superfund purpose violation
did not result in an ADA violation.
Reprogramming
In addition to temporary charging, EPA also asked the Office of Solid Waste and
Emergency Response and the regions (with the exception of Region 4 and 6), in
its Oil Appropriations Spending Memorandum, dated June 7, 2010, to reprogram
any available Oil-Spill-appropriated funds to cover its response costs. EPA
reprogrammed approximately $4.3 million, including $1.3 million in Oil Spill
funds and $3.0 million in EPM funds. The Agency advised the OIG that it would
not necessarily reverse these funds because it was not required to do so.
Cash Advance
EPA used available cash from its oil spill appropriation along with any
reimbursements received from the Coast Guard for previous oil spill work
performed to cover its PRFA activities prior to reimbursement by the Coast
Guard. However, due to the timing and magnitude of the spill and EPA's
escalating involvement in the response, EPA did not have enough cash in its Oil
Spill fund to cover its response costs. When the oil spill occurred on April 22,
2010, EPA was into the third quarter of the fiscal year and had less cash for oil
spill response than at the start of the fiscal year. By June 2010, EPA realized that
cash was going out faster than the reimbursement was coming in.
To prevent an anticipated cash shortfall, EPA negotiated a cash advance MOU
with the Coast Guard's NPFC in August 2010. The MOU provided a $32 million
cash advance, including $9 million allocated to Region 4, $18 million to
Region 6, and $5 million to headquarters.
EPA needed the cash advance to manage its cash flow for the DWH expenses.
These expenses were within EPA's approved PRFA funding but exceeded the
Agency's available cash. The cash advance temporarily solved EPA's anticipated
cash shortfall at the time. However, in November 2010, EPA continued to
experience cash flow problems resulting in part from its response to the DWH oil
spill and the Enbridge spill in Michigan. EPA asked the Coast Guard for another
cash advance. This time, EPA requested a $10 million cash advance against its
interagency agreement with the Coast Guard, rather than its DWH PRFAs.
However, per EPA, the Coast Guard denied the request, citing issues with access
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to cost documentation. According to EPA, the Coast Guard's denial of the second
cash advance, combined with EPA's continued shortfall of funds, contributed to
an ADA violation in November 2010.
Conclusion
EPA had to quickly develop novel solutions to fund its Gulf Coast oil spill
emergency response work. While these actions provided EPA with access to some
necessary funding, EPA's authority did not appear to provide it with an
alternative funding option for obtaining immediate access to necessary response
funds, other than its limited Oil Spill appropriation along with any
reimbursements received from the Coast Guard for previous oil spill work
performed. EPA's authority also did not appear to allow it to grant itself a waiver
or temporary exemption from relevant laws while it was trying to focus on
funding its considerable and time-urgent response. While the cash advance
provided EPA with access to needed funds, and the temporary charging and
reprogramming provided short-term coverage for response funding prior to
receiving authorized funding, EPA may not be able to rely on similar
circumstances in the future. During the course of our review, EPA proposed
language to the President's 2012 budget to provide that the Oil Spill Fund can
seek relief from any other appropriation if the Administrator determines that the
Oil Spill Fund does not have enough cash to carry out the oil spill remediation.
Recommendation
We recommend that the Chief Financial Officer:
4. Seek new or additional emergency response funding authority for oil
spills.
Agency Response and OIG Evaluation
OCFO provided Agency comments. We reviewed OCFO's comments, met with
OCFO officials to discuss the comments, and made changes to the report, as
appropriate. Appendix B provides the full text of OCFO's response and the OIG's
comments.
The Agency agreed with recommendation 4, provided an acceptable corrective
action plan, and took action to address this recommendation during the course of this
review. The Agency advised that in its fiscal year 2012 President's Budget (2012
appropriation), the EPA proposed to Congress new statutory authority for emergency
transfers from any of EPA's appropriations into the Oil Spill Response Account
when the cash flow of funds out of the account is higher than expected. This
authority will reduce the risk of future anti-deficiency violations by the Agency.
This recommendation is considered closed with agreed to actions complete.
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Status of Recommendations and
Potential Monetary Benefits
Rec.
No.
RECOMMENDATIONS
Page
No.
Subject
Status1
Action Official
9 Implement controls to ensure EPA consistently
generates response activity documentation that
provides a clear audit trail linking response work
performed to response work billed.
13 Implement controls to ensure that bills and
supporting cost documentation packages submitted
to the Coast Guard are clear and complete, and
comply with cost documentation requirements.
16 Work with Coast Guard counterparts to develop
and ensure the timely implementation of an
appropriate means of sharing EPA contractors'
response cost documentation designated as CBI.
20 Seek new or additional emergency response
funding authority for oil spills
Chief Financial Officer
Chief Financial Officer
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in SOOOs)
Claimed Agreed-To
Amount Amount
12/31/2011
$32,000 $32,000
Deputy Administrator 12/31/2011
Chief Financial Officer 02/14/2011
0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
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Appendix A
Details on Scope and Methodology
We conducted our evaluation from July 2010 through May 2011, in accordance with generally
accepted government auditing standards. We reviewed EPA's management controls to track and
recover its Gulf Coast oil spill response costs. To gain an understanding of these controls, we
met with EPA headquarters managers and staff in OCFO and the Office of Solid Waste and
Emergency Response, Office of Enforcement and Compliance Assurance, and Office of General
Counsel. We interviewed managers and staff from Regions 4 and 6 and the Office of Financial
Management, Cincinnati Finance Center.
To obtain background and an understanding of oil spill response requirements, we reviewed the
OP A, as well as the NCP as it relates to the Oil Spill Liability Trust Fund. We identified EPA's
roles and responsibilities specifically related to the DWH oil spill. We reviewed specific EPA
cost tracking and spending policies and procedures. We reviewed the Coast Guard NPFC
guidance as it relates to EPA's required cost documentation for PRFA-directed activities. We
reviewed relevant MOUs between the Coast Guard and EPA, including:
• Memorandum of Understanding between the US EPA and the US Coast Guard - For
Use of the Oil Spill Liability Trust Fund, December, 1996
• Memorandum of Understanding between Director, USCG National Pollution Funds
Center, and Director, USEPA Cincinnati Financial Management Center Governing
Cash Advances from the Oil Spill Liability Trust Fund related to the Deepwater
Horizon Incident Spill Response, FPNN10036, August 3, 2010
We reviewed relevant prior audit and evaluations reports, including: (1) U.S. Government
Accountability Office report, Deepwater Horizon Oil Spill: Preliminary Assessment of Federal
Financial Risks and Cost Reimbursement and Notification Policies and Procedures,
GAO-11-90R, November 12, 2010; and (2) U.S. Department of Commerce OIG memorandum,
Survey ofNOAA 's System and Processes for Tracking Oil Spill Costs, OIG-11-016-M,
December 22, 2010.
To determine where EPA's funding originated for its oil spill response, we requested and
reviewed payroll information from the Agency. We used this information to identify all sources
of funding for payroll, including temporary charging. We identified and reviewed Agency
procedures for the temporary charging and reprogramming of funds. We identified procedures
and controls in place to ensure that EPA corrected and reimbursed temporary charges to the
appropriate funds.
These procedures and controls are captured within the following guidance:
• Tracking Spending for the BP Gulf of Mexico (Deepwater Horizon) Oil Spill,
May 18,2010
• Oil Appropriation Spending, June 7, 2010
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• Additional Guidance on Tracking Spending for the BP Gulf of Mexico (Deepwater
Horizon) Oil Spill, June 22, 2010
• Adjustments to Appropriated Funds Spending for the BP Gulf of Mexico (Deepwater
Horizon) Oil Spill, August 20, 2010
We reviewed EPA's actions to determine whether any ADA violations have occurred and have
been reported to Congress or should be.
We obtained and reviewed EPA's PRFAs (including 21 amendments) and associated statements
of work through September 30, 2010, for Regions 4 and 6 and headquarters. We reviewed the
PRFAs to identify reimbursable and nonreimbursable activities. We also reviewed the PRFAs to
determine applicable timeframes for activities billed and eligibility of work performed prior to
the PRFA date.
We met with personnel from the Coast Guard NPFC to discuss EPA's billings, cost
documentation, and the cash advance MOU. We had communications with Coast Guard staff to
obtain an understanding of the Coast Guard's billing and cost documentation review process.
To determine whether response costs submitted by EPA to the Coast Guard support and align
with PRFA tasks and activities, we reviewed EPA's supporting cost summaries prepared through
Superfund Cost Recovery Package Imaging and On-Line System (SCORPIOS). We obtained
14 bills sent to the Coast Guard for costs incurred as of August 31, 2010. The 14 bills included
4 bills for headquarters, 5 bills for Region 4, and 5 bills for Region 6. The bills totaled over
$20.9 million. To determine EPA's compliance with the detailed cost documentation
requirements of the cash advance MOU, we reviewed the only cost documentation packages
available at the time. In this instance, the first cash advance was in August 2010, and EPA's first
cost documentation packages under the MOU were not submitted until October 14, 2010.
The packages, covering costs incurred through July 31, 2010, included one for headquarters
supporting Bill #3, one for Region 4 supporting Bill #4, and one for Region 6 supporting Bill #4.
The costs of the packages we reviewed totaled approximately $5.8 million, of which we sampled
approximately $2.9 million, or 51 percent. For each package, we judgmentally sampled the first
10 employees for payroll and travel and the first 10 vouchers for miscellaneous costs. Some
employees had multiple entries for payroll and travel. For all three packages, we reviewed all
vouchers for contract costs. For payroll, we reviewed employee timesheets and reconciled hours
billed to payroll hours for 5 percent of payroll costs in our sample billings. For travel, we
reconciled costs billed to supporting vouchers and receipts for 10 percent of travel costs in our
sample billings. For miscellaneous costs, we reconciled costs billed to transaction/payment
reports (no invoices or receipts provided) for 28 percent of miscellaneous costs in our sample
billings. For payroll, travel, and miscellaneous, we attempted to identify activities/work
performed to compare activities billed to those authorized in the PRFAs. However, we were
unable to accomplish this in most instances because the supporting documentation did not
always identify the activity/work performed.
For contract costs, because there were less than 10 vouchers in each of the packages, we
reviewed supporting documentation for 100 percent of the contract costs in our sample billings.
11-P-0527 23
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We reconciled billed costs to invoices and payment schedules. As with the payroll, travel, and
miscellaneous costs, we attempted to identify and compare activities/work performed with those
authorized in the PRFAs. Similar to the other costs, we were unable to accomplish this in most
instances because EPA did not provide the information in the supporting documentation.
To link activities that employees were performing with PRFA-approved activities, we
judgmentally chose to sample the operational period of June 20, 2010, to July 3, 2010 (pay
period #20). We reviewed the applicable TAP for Region 6. We reviewed 31 SitReps, including
15 from Region 4, another 14 from Region 6, and 2 from headquarters. We compared these
documents to payroll bills in an effort to determine whether staff listed in the SitReps and lAPs
correspond to staff listed in the billings. We also reviewed a snapshot from the Asset Tracker
provided by Regions 4 and 6.
To determine how EPA tracked temporary costs charged to non-oil-spill appropriations, we
requested a listing of all EPA employees working on the response (including those charging the
reimbursable oil spill account and those temporarily charging other accounts). We also requested
a listing of other costs (nonpayroll) that were temporarily charged. We identified how EPA
tracked the costs for future reimbursement. We also reviewed data provided by the Agency
indicating that EPA had corrected all appropriate temporary charges.
To determine how EPA tracked reprogrammed Oil Spill appropriations, we obtained and
reviewed an Integrated Financial Management System (IFMS) report from the Agency. The
Agency had reprogrammed oil funding in 16 instances.
To identify what data systems and processes EPA used to track and monitor costs for
reimbursement, we interviewed program officials in Regions 4 and 6 and managers in OCFO and
the Office of Financial Management, Cincinnati Finance Center. We identified and relied on
information in the SCORPIOS, IFMS, PeoplePlus, and GovTrip data systems to conduct our
review. We relied on response activity documentation, including SitReps and lAPs obtained
from the Agency's on scene coordinator website and Asset Tracker data provided by Regions 4
and 6. We also relied on other information and data provided by the Agency for temporary
charging and reprogramming of funds. We did not verify the accuracy of the information
obtained or data received. However, we believe the data was sufficient for our review.
We identified EPA headquarters and Regions 4 and 6 procedures and controls for processing of
expenses charged to the DWH oil spill, and supporting documentation, but did not test these
controls. We also reviewed regional guidance on charging to the DWH oil spill. The guidance
reviewed includes the following:
• Guidance for Headquarters Payroll Charging to the Deep Water Horizon (DWH) Oil
Spill Account, June 17, 2010
• EPA Region 6 Guidance for Charging to Deep Water Horizon Oil Spill Response,
June 30, 2010
• EPA Region 4 Guidance for Charging to BP Gulf of Mexico Deep Water Horizon Oil
Spill Response, July 20, 2010
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Appendix B
Agency Response to Draft Report and
OIG Comment
(Received June 23, 2011)
MEMORANDUM
SUBJECT: Response to the Draft Report: Office of Inspector General Evaluation of EPA's Gulf
Coast Oil Spill Response Shows Need for Improved Documentation and Funding
Practices, Project No. 2010-1314, dated May 5, 2011
FROM: Barbara J. Bennett
Chief Financial Officer
TO: Arthur A. Elkins, Jr.
Inspector General
Thank you for providing us with the opportunity to comment on and respond to the findings and
recommendations made in the "Draft Report: Office of Inspector General Evaluation of EPA's Gulf
Coast Oil Spill Response Shows Need for Improved Documentation and Funding Practices." We have
reviewed the draft report and provided two attachments in response: (1) Comments on the OIG Draft
Report and (2) Proposed Corrective Action Plan.
If you have any questions concerning this response, please contact Stefan Silzer, Director, Office of
Financial Management (OFM), at (202) 564-5389 or Chris Osborne of OFM at (202) 564-5070.
Attachments (2)
cc: Bob Perciasepe
Maryann Froehlich
Wade T. Najjum
Joshua Baylson
Elizabeth Grossman
Stefan Silzer
Raffael Stein
David Bloom
John Bashista
Susan Dax
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Melvin Vi snick
Carol Terris
Christopher Osborne
Jeanne Conklin
Dale Miller
Sandy Dickens
Janice Kern
Bobbie Trent
Carolyn Copper
Chad Kincheloe
Angela Bennett
Anne Declerck
James Bove
Dana Stalcup
11-P-0527 26
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Attachment 1
Comments on OIG Draft Report
"Office of Inspector General Evaluation of EPA 's Gulf Coast Oil Spill Response Shows Need for
Improved Documentation and Funding Practices"
Project No. 2010-1314, dated May 5, 2011
Chapter 1
Page 1 Paragraph 1 under National Contingency Plan and Federal Response: The report states
that the United States Coast Guard (USCG) has collected $518.4 million from BP for costs
related to the spill. The paragraph should go on to explain that "The billed amounts encompass
actual Federal On Scene Coordinator (FOSC) expenditures including costs of all USCG
personnel, ships, aircraft, and cutters directly supporting the FOSC and funds obligated by the
FOSC to other federal, state, and local government agencies. All the obligations and
expenditures to date are considered billable and fully collectible from the responsible parties.
Funds are obligated by the FOSC to other federal, state, and local government agencies via
FOSC approved Pollution Removal Funding Authorizations (PRFAs) or Military
Interdepartmental Purchase Requests that provide reimbursable funding authority" (DHS 2010
Annual Financial Report page 99). It should be made clear in the report that the USCG has
collected from BP all of the funds obligated to other federal agencies under PRFAs (which
include the three PRFAs to the EPA).
OIG Response: Language that OIG could independently support was added to the final report in
the National Contingency Plan and Federal Response section to include a paragraph from the
cited Department of Homeland Security 2010 Annual Financial Report.
Page 2 Paragraph 3 under Funding of EPA Response Activities: The report contains multiple
references to the 1996 Memorandum of Understanding (MOU) signed by the EPA and the
USCG regarding use of the Oil Spill Liability Trust Fund. The report should also acknowledge
that the USCG has accepted summary level documentation for reimbursement since 1996. Prior
to the DWH oil spill, USCG only required detailed cost documentation for select cases in which
USCG had initiated an action to seek reimbursement from a responsible party.
OIG Response: The Agency has disclosed that Coast Guard has 'only' required detailed cost
documentation for 'select cases' in which Coast Guard had initiated an action to seek
reimbursement from a responsible party. Given that the DWH oil spill was the largest oil spill in
U.S. history, and with a responsible party, in our opinion, the Agency should have expected that
the Coast Guard would be seeking reimbursement from the responsible party and detailed cost
documentation from EPA to support the USCG reimbursement efforts. The Agency's request for
OIG to acknowledge in the report that USCG has accepted summary level cost documentation in
the past is not relevant in this circumstance.
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Page 2 Paragraph 4 under Funding of EPA Response Activities: The description of the cash
available to make payments from the Oil Spill Account is unclear. The OIG report states "EPA
used its available cash from its Oil Spill reimbursable account to pay for its PRFA authorized
activities." The PRFAs and the interagency agreement with the USCG do not provide cash to the
Agency. They only provide the authority to obligate funds. The Agency is limited to the cash
available from the Oil Spill appropriation along with any reimbursements received from the
USCG for previous work performed.
OIG Response: Language was modified in the final report in the Funding of EPA Response
Activities section to clarify the information.
Page 3 Paragraph 1: The EPA did not draw down funds based on billing summaries as part of the
cash advance. The cash advance was an advance of funds to ensure that the EPA had cash
available in the Agency account to pay expenses. The EPA was to provide the cost summaries
and cost documentation to support the expenses to liquidate the advance.
OIG Response: Language was added to the final report in the Funding of EPA Response
Activities section to clarify the information.
Chapter 2
Page 5 Paragraph 1: The OIG states that the documentation does not create a clear audit trail for
the USCG to accept the costs. In the previous chapter under Noteworthy Achievements, the OIG
states that the DWH Tracking and Spending Guidance "helped EPA ensure appropriate tracking
of its response costs and maintain fiscal integrity." The guidance established the accounting
codes to be used to track costs associated with the three PRFAs which were assigned to the EPA
for response work. Through this guidance, a structure was put in place to provide an audit trail
for all costs related to each of the PRFAs. The PRFAs did not require billing by subcategory so
the EPA did not set up account codes to track lower than the PRFA spending.
OIG Response: The guidance OIG includes in the report's "Noteworthy Achievements" section
does not ensure that EPA consistently generates response activity documentation that provides a
clear audit trail that links response work performed to response work billed. However, we
recognize the value of the guidance as a first important step in tracking the Agency's response
costs and providing consistent guidance to Agency staff and managers.
Chapter 2 of the OIG report states that EPA's cost documentation packages provided to support
the billings EPA sends to the Coast Guard for reimbursement deal with financial activity
categories, not response activities. We reviewed a judgmental sample of these cost
documentation packages and concluded EPA charged its response costs as required by Agency
guidance to the DWH account code. However, only 35 percent of the supporting documentation
for travel, 36 percent of the supporting documentation for contracts, and none of the supporting
documentation for payroll and miscellaneous provided a clear audit trail that linked the costs
billed to specific PRFA activities. Coast Guard NPFC guidance entitled Technical Operating
Procedures for Resource Documentation under the Oil Pollution Act of 1990, which is listed in
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Appendix 1 of EPA's 1996 MOU with the Coast Guard, provides that documentation should
support a clear audit trail. EPA advised that it generally provided information on response
activities to the Coast Guard in the form of SitReps and lAPs. EPA told us that reviewing
response activity documentation in conjunction with its cost documentation would provide a
complete picture of EPA's response activity performed and billed. Therefore, we looked at a
judgmental sample of the response activity documentation generated by EPA Regions 4 and 6
and headquarters. Based on our review we concluded that the response activity documentation
did not provide a clear audit trail between the work performed and billed to the Coast Guard and
was not consistently generated by EPA headquarters and Region 4 and 6. While PRFA's may not
explicitly require billing by subcategory, to provide a clear audit trail for Coast Guard to
reimburse costs, EPA should be able to provide response level activity documentation should the
Coast Guard or a responsible party ask for this documentation. We believe that the cost
documentation produced by utilizing the PRFA accounting codes, along with improved response
level activity documentation, will provide a clearer audit trail. In addition, EPA has disclosed in
its response that it is aware that USCG has requested "detailed cost documentation for select
cases in which USCG had initiated an action to seek reimbursement from a responsible party."
In our opinion, given that the DWH Oil spill was the largest in US history and had a responsible
party, EPA should have anticipated and been prepared to provide information that supports a
clear audit trail.
The OIG should remove the sentence "While all costs may be appropriate, we were unable to
determine whether certain costs were related to authorized activities for reimbursement and, as
such, were billable." There is no indication in the draft report that the OIG tested transactions
and traced them back to the source to either confirm or deny the costs were associated to the
spill. The use of the PRFA account code along with the Agency controls in place prior to making
payments indicate that the costs were correctly applied.
OIG Response: Language was modified in the final report to clarify this statement.
As discussed in our response above we reviewed a judgmental sample of cost documentation
packages and concluded that EPA charged its response costs as required by Agency guidance,
but none of the supporting documentation for payroll and miscellaneous costs, and only 35
percent of the travel costs and 36 percent of the contract costs linked the costs billed to specific
PRFA activities. EPA told us that response activity documentation in conjunction with its cost
documentation provides a complete picture of EPA's response activity undertaken and billed, so
we looked at a judgmental sample of the documentation that the regions generated such as
SitReps and lAPs. We concluded that the response activity documentation does not provide a
clear audit trail between the work it performed and what it billed to the Coast Guard and was not
consistently generated by EPA Regions 4 and 6 and headquarters. Without consistently
accounting for response level activity, there is no way to know whether certain costs were related
to authorized activities for reimbursement and, as such, billable.
Throughout this Chapter, the OIG continues to state that the costs were not identifiable to
specific response activities. The Agency account code was not set up to track an activity because
there was no requirement in the PRFA to track at other than the PRFA spending level.
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OIG Response: EPA stated that response activity documentation in conjunction with cost
documentation provides a complete picture of EPA's response activity undertaken and billed.
Coast Guard NPFC guidance entitled Technical Operating Procedures for Resource
Documentation under the Oil Pollution Act of 1990, which is listed in Appendix 1 of EPA's
1996 MOU with the Coast Guard, provides that documentation should support a clear audit trail.
While PRFA's may not require billing by subcategory, EPA should be able to consistently
provide response activity documentation in order to provide a clear audit trail that supports
reimbursement of costs from the Coast Guard and future cost recovery efforts. EPA has
disclosed in its response that it is aware that the Coast Guard has requested "detailed cost
documentation for select cases in which Coast Guard had initiated an action to seek
reimbursement from a responsible party." In our opinion, given that the DWH oil spill was the
largest in U.S. history and had a responsible party, EPA should have anticipated and been
prepared to provide information that supports a clear audit trail and costs at the activity level.
Chapter 3
The chapter identifies issues with payroll and travel along with a statement that the USCG had
provided comments on the billings issued through November 2010. The payroll and travel issues
in question were minor and the USCG was provided with a satisfactory explanation in a timely
manner. The EPA and the USCG reached an agreement on the Confidential Business
Information (CBI) issue for DWH in March 2011. Once the agreement was signed, the EPA
provided the cost documentation for billing processing to the USCG. On May 2, 2011, the USCG
had completed the review of the cost documentation and has accepted all payroll and travel
claims without question.
OIG Response: The Agency's response does not address issues the OIG identified with payroll,
travel, miscellaneous, and contract costs, some of which were similar to the issues expressed by
the Coast Guard. Further, the Agency's response also does not provide details on how the CBI
agreement with the Coast Guard addresses the OIG findings regarding reimbursement of EPA's
contracts costs. As stated in the report, OIG observed missing documentation for payroll,
miscellaneous, and contract charges, and identified areas where clarification and/or additional
information was needed for some payroll, travel, and contracts costs for the sample we reviewed.
Regardless of how 'minor' EPA believes the Coast Guard comments were, EPA still had to
address the comments before Coast Guard would reimburse these charges. We believe EPA
should implement controls to ensure that bills and supporting cost documentation packages
submitted to the Coast Guard are clear and complete and comply with cost documentation
requirements.
In follow-up communications with the Agency on its draft report comments, we requested the
March 2011 CBI agreement. Based on our review of the information, we determined that the
agreement has not yet been effective in providing EPA reimbursement of its contractor costs and
other costs are also under review by USCG. However, the agreement has resulted in some EPA
costs being reimbursed.
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Page 10 Paragraph 1 under Coast Guard Review of Cost Documentation Packages: The OIG
states that on November 1, 2010 the EPA received comments on the cost documentation, which
had been provided, and were similar to the OIG findings explained in previous sections of this
chapter. The questions from the USCG did not dispute whether the costs were charged correctly
but were seeking information to either explain the EPA payment process or question what they
felt was an anomaly. The expenses were correctly charged to the applicable PRFA.
OIG Response: As the OIG report states, the Coast Guard requested additional explanation or
description from EPA along with additional supporting documentation for various costs including
payroll, travel, miscellaneous, and contracts. We believe that the Coast Guard requested this
information to assist in its review in determining whether the costs were PRFA-related costs and,
as such, reimbursable.
Our report goes on to state that the Coast Guard review is still in process. EPA has stated in its
response that in March 2011, EPA and the Coast Guard reached an agreement on the CBI issue
for DWH. EPA further states that on May 2, 2011, the Coast Guard had completed its review of
the cost documentation and had accepted all payroll and travel claims without question. However,
as stated in the response above, we determined that the March 2011 agreement has not yet been
effective in providing EPA reimbursement of its contractor costs and other costs are also under
review by the Coast Guard. The agreement has resulted in some EPA costs being reimbursed.
It should also be noted that during this time there was not the appearance of consistent
approaches to communications and understanding of cost documentation requirements. While
the program, OCFO and the Agency would benefit from improved procedures for documentation
and an updated signed MOU, everyone should be cautious in drawing conclusions based on
information and responses/interviews collected during the early stages of the response when
some of the parameters seemed to change week to week. For instance, the requirements for
detailed cost documentation appeared to change and become more stringent as time passed.
OIG Response: The OIG appreciates that the DWH oil spill was an evolving situation and has
noted in the Background of the report that the DWH is the largest spill in US history. Chapter 5 of
the OIG report also describes EPA's DWH funding challenges. As stated in the Agency response,
EPA will benefit from improved procedures for cost documentation; highlighted by EPA's
experiences with the DWH oil spill.
Chapter 4
While the OIG has provided a synopsis of the negotiations with the USCG on the CBI issue, the
OIG does not address the underlying need for the CBI non-disclosure agreement. By failing to
discuss the basis for this necessity, the report inaccurately characterizes the EPA as being
unreasonable for requiring the USCG to enter into the non-disclosure agreement.
OIG Response: The OIG report states that EPA stated that, due to protection provided by the
Trade Secrets Act, EPA could only share CBI with the Coast Guard after providing proper notice
to respective contractors about the potential release. We do not believe the OIG report implies
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that EPA was unreasonable for requiring the Coast Guard to enter into the non-disclosure
agreement.
The OIG points out that the USCG requires un-redacted documents for cost recovery, but fails to
explain that EPA regulations require that a non-disclosure agreement be in place before the EPA
can provide un-redacted documents to another federal agency (40 CFR 2.209(c)). The 1996
MOU, which has already been discussed above, does not establish the necessary documentation
for interagency sharing of CBI and, in fact, does not discuss CBI at all. Requiring a non-
disclosure agreement is a necessary action that is not contradicted by the MOU. Therefore, the
EPA's handling of CBI has been, and is, in accordance to its regulations under 40 CFR Part 2. A
non-disclosure agreement between the EPA and USCG was put in place in March 2011, at which
time the un-redacted documents were provided to the USCG.
OIG Response: Language was added to the final report in the Redacted CBI Needed for
Reimbursement and Cost Recovery section to include information provided.
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Attachment 2
OCFO's Response to OIG Draft Report - Corrective Action Plan
'Office of Inspector General Evaluation of EPA 's Gulf Coast Oil Spill Response Shows Need for
Improved Documentation and Funding Practices"
Project No. 2010-1314, dated May 5, 2011
Rec.
No.
1.
2.
3.
OIG Recommendation
Implement controls to ensure
that EPA consistently
generates response activity
documentation that provides
a clear audit trail linking
response work performed to
response work billed.
Implement controls to ensure
that bills and supporting cost
documentation packages
submitted to the Coast Guard
are clear and complete, and
comply with cost
documentation requirements.
Work with Coast Guard
counterparts to develop and
Action
Official(s)
Office of the
Chief Financial
Officer
(OCFOyOffice
of Financial
Services (OFS)
OCFO/OFS
Office of the
Administrator
Proposed Corrective
Action
1 . 1 The necessary
controls needed to ensure
that the EPA consistently
generates response
activity documentation
are currently in place.
The account code
provided for each
Pollution Removal
Funding Authorization
(PRFA) or site identified
through the interagency
agreement provides a
clear audit trail to track
the costs to each response
activity.
2.1 The EPA and USCG
are in negotiations to
establish a protocol for
future sites that will
include a new cost
documentation procedure
that ensures the EPA
provides the USCG with
the necessary
documentation to support
the EPA billings.
3.1 The EPA and the
USCG reached an
Proposed
Completion Date
N/A
December 31,
2011
March 9, 2011
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Rec.
No.
4.
OIG Recommendation
ensure the timely
implementation of an
appropriate means of sharing
EPA contractors' response
cost documentation
designated as Confidential
Business Information (CBI).
Seek new or additional
emergency response funding
authority for oil spills.
Action
Official(s)
(OA)
OCFO/Office
of Budget
Proposed Corrective
Action
agreement on the CBI
issue for DWH.
3.2TheEPAandUSCG
are in negotiations to
implement a non-
disclosure agreement that
will cover all work
performed on future sites.
4.1 In its FY 2012
President's Budget (2012
appropriation), the EPA
proposed to Congress
new statutory authority
for emergency transfers
from any of EPA' s
appropriations into the
Oil Spill Response
Account when the cash
flow of funds out of the
account is higher than
expected. This authority
will reduce the risk of
future anti-deficiency
violations by the Agency.
Proposed
Completion Date
December 31,
2011
February 14,2011
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Appendix C
Distribution
Office of the Administrator
Deputy Administrator
Chief Financial Officer
Regional Administrator, Region 4
Regional Administrator, Region 6
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Audit Followup Coordinator, Office of the Chief Financial Officer
Audit Followup Coordinator, Region 4
Audit Followup Coordinator, Region 6
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