U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
EPA Should Improve
Timeliness for Resolving
Audits Under Appeal
Report No. 11 -P-0687
September 21, 2011
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Report Contributors: Richard Eyermann
Mike Davis
Marcia Hirt-Reigeluth
Yeon Kim
Ashley Sellers-Hansen
Abbreviations
AA Assistant Administrator
AFC Audit followup coordinator
CEDI Caribbean Environment & Development Institute
CFR Code of Federal Regulations
EPA U.S. Environmental Protection Agency
FDL Final Determination Letter
MATS Management Audit Tracking System
OARM Office of Administration and Resources Management
OCFO Office of the Chief Financial Officer
OGC Office of General Counsel
OGD Office of Grants and Debarment
OIG Office of Inspector General
ORC Office of Regional Counsel
RA Regional Administrator
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail: OIG Hotline@epa.gov write: EPA Inspector General Hotline
phone: 1-888-546-8740 1200 Pennsylvania Avenue NW
fax: 703-347-8330 Mailcode 8431P (Room N-4330)
online: http://www.epa.gov/oig/hotline.htm Washington, DC 20460
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
11-P-0687
September 21, 2011
Catalyst for Improving the Environment
Why We Did This Review
We initiated this review to
evaluate how efficiently,
effectively, and timely the
U.S. Environmental Protection
Agency (EPA) resolves audits
under appeal. Our objectives
were to determine whether all of
the audits under appeal are
included in the Management
Audit Tracking System (MATS),
whether the applicable policies
and procedures are complete and
relevant, and how efficiently and
effectively the audits under
appeal are being resolved.
Background
For purposes of this report, we
use the term "audits under
appeal" to describe situations in
which a grantee disagrees with a
Final Determination Letter
issued by the Agency sustaining
some or all of the questioned
costs identified in an audit of a
completed grant. The grantee
appeals the Final Determination
Letter with the Regional
Administrator or Assistant
Administrator of the issuing
EPA office.
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/20117
20110921-11-P-0687.pdf
20117
EPA Should Improve Timeliness for Resolving
Audits Under Appeal
What We Found
EPA's efforts to resolve over $55 million for audits under appeal in Regions 2
and 5 are not efficient, effective, or timely. During our audit, we found that:
• Inadequate communications between audit followup coordinators and
EPA personnel responsible for resolving audits under appeal have
resulted in inaccurate information in MATS.
• Policies and procedures for addressing audits under appeal are not
complete and relevant; many of the policies for resolving audits under
appeal are inconsistent.
• EPA does not adhere to its policies for timely resolution of audits under
appeal; as of September 2010, 17 of 30 audits under appeal had been in
resolution for 10 to 21 years.
EPA Manual 2750 and the Code of Federal Regulations (CFR), through
40 CFR 31.70, require that appeals be fully and fairly considered and resolved
in the earliest practicable timeframe, at the lowest level possible. Because
appeals are not being resolved timely, at least $17.3 million is not available to
the government. These funds could potentially be used to protect public health
and the environment.
What We Recommend
We recommend that the Office of the Chief Financial Officer ensure that the
in-process revisions to EPA Manual 2750 include a communication strategy to
ensure that EPA records current data on audits under appeal in MATS,
establishes a finite number of reconsideration requests, and provides for
consistency among policies for resolving audits under appeal. We also
recommend that the Assistant Administrator for Administration and Resources
Management reference revisions to EPA Manual 2750 in the Office of
Administration and Resources Management's in-process revisions to the
Agency's Assistance Administration Manual. The Agency generally agreed
with the report's findings and overall recommendation for EPA to provide
greater structure and consistency to the audit resolution process, but the Agency
proposed alternatives to the recommendations. Currently, the Office of
Inspector General considers the recommendations to be unresolved with
resolution efforts in progress.
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z UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
**^^^ •" WASHINGTON, D.C. 20460
\
THE INSPECTOR GENERAL
September 21,2011
MEMORANDUM
SUBJECT: EPA Should Improve Timeliness for Resolving Audits Under Appeal
Report No. ll-P-0687
FROM: Arthur A. Elkins, Jr.
Inspector General
TO: Barbara J. Bennett
Chief Financial Officer
Craig E. Hooks
Assistant Administrator for Administration and Resources Management
This is our report on the subject audit 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 audit resolution procedures.
The estimated direct labor and travel costs for this report are $216,357.
Action Required
The Agency did not agree with recommendations 1 and 2. These recommendations are
considered unresolved with resolution efforts in progress. Therefore, in accordance with EPA
Manual 2750 regarding unresolved recommendations, you are required to provide a written
response to recommendations 1 and 2, including a proposed corrective action plan with planned
completion dates, within 90 calendar days of the report date. Your response will be posted on the
OIG's public website, along with our memorandum commenting on your response. Your
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. The final response
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should not contain data that you do not want to be released to the public; if your response
contains such data, you should identify the data for redaction or removal. 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 Melissa Heist,
Assistant Inspector General for Audit, at (202) 566-0899 or heist.melissa@epa.gov: or Richard
Eyermann, Director, Efficiency Audits, at (202) 566-0565 or evermann.richard@epa.gov.
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EPA Should Improve Timeliness for 11 -P-0687
Resolving Audits Under Appeal
Table of Contents
Purpose 1
Background 1
Scope and Methodology 3
Results of Review 4
Not All Audits Under Appeal Are Correctly Recorded in MATS 5
Policies and Procedures for Resolving Audits Under Appeal Are
Inconsistent 5
EPA Does Not Achieve Timely Resolution of Audit Appeals 6
Conclusion 8
Recommendations 8
Agency Comments and OIG Evaluation 9
Status of Recommendations and Potential Monetary Benefits 10
Appendices
A List of Sampled Audits Under Appeal 11
B Timeline of Resolution Process for Sampled Audits 12
C Agency Response and OIG Evaluation 15
D Distribution 21
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Purpose
The U.S. Environmental Protection Agency (EPA), Office of Inspector General
(OIG), initiated this review to evaluate how efficiently and timely EPA resolves
audits under appeal. As of September 17, 2010, the Management Audit Tracking
System (MATS) listed 30 grant audits totaling $61,495,139 in questioned costs
that were under appeal. Our objectives were to determine:
• Which audits under appeal are not included in MATS?
• Are the policies and procedures for appeal of Agency decisions
complete and relevant?
• How efficiently are audits under appeal being resolved?
Background
For purposes of this report, we use the term "audits under appeal" to describe
situations in which a grantee disagrees with a Final Determination Letter (FDL)
issued by the Agency sustaining some or all of the questioned costs identified in
an audit of a completed grant. The grantee appeals the FDL with the Regional
Administrator (RA) or Assistant Administrator (AA) of the issuing EPA office.
Management Audit Tracking System
In accordance with EPA Manual 2750, December 3, 1998, EPA tracks
information on audits under appeal in MATS. EPA uses MATS to support the
Audit Management Process by which: (1) EPA officials respond to OIG final
reports, (2) OIG and EPA officials resolve findings and recommendations
contained in reports, and (3) EPA officials implement followup corrective actions.
Audit followup coordinators (AFCs) are responsible for entering accurate,
complete, and verifiable information into MATS, and maintaining official files
containing records of audit reports, management decisions, and certifications of
completed corrective actions. Ensuring the Quality of Data in MATS: OCFO
Quality Assurance Plan, September 30, 2008, details the training requirements for
AFCs and the methods used for data quality, such as data entry and review
checklists, and periodic spot checks of the documentation contained in the AFCs'
official files compared to the information provided in MATS.
Appeal Resolution Process
Until 2008, EPA resolved audits under appeal in accordance with the procedures
cited in EPA's Closeout Policy for Grants and Cooperative Agreements,
August 27, 1992. This policy included the closeout requirements basic to all
grants and cooperative agreements, the roles and responsibilities of EPA and its
recipients, and the specific closeout requirements unique to Superfund,
Construction Grants, and the State Revolving Fund Programs. The policy also
11-P-0687
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included the audit resolution and disputes requirements and criteria. The 1992
closeout policy was superseded when EPA issued Order 5700.6A2, Policy on
Compliance, Review and Monitoring, effective for closeout procedures on
January 1, 2008. The flowchart below is the current process for closing out and
resolving an appeal.
Figure 1: The resolution process for audits under appeal
HQ
Region
„ diSPUte" • , K d9isapn
DDOna0tHCQ \a9r
\ i n i -j.i • n n I I
tee/ \^--~^ AA responsible for ^~~^*. submit
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(Yes ^ -^
( End j
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\ Disputant's
\ Within 30 counsel may
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Jtant / petition with RA evidences, /
se?/ p briefs /
/ _^_— 1 /
/ ^^^ I
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r
C End ^)
V ^
RA's dec s on is final. Yes
RA's decision remains fina . No
AA's decision / Disputant is /
becomes the / entitled to an /
final EPA "" / informal /""
action / conference /
/ • • /
^j entitled to an /
~*J informal /
/ conference /
/ with EPA /
/ officials /
AA's decision
EPA action
/ Disputant /
/ entitled to an /
/ informal /
conference /
with EPA /
officials /
RA issues
decision
,/ \v
x^ Does \,
<^ disputant "^>
\. agree? x^
1 No
W th n 30
calendar days,
d sputa nt may
f le a petition
for AA's
discret onary
review
/ WillAA X^^
\ review? J>
Yes
D isputant
subm its briefs
in support of
Source: OIG interpretation of 40 Code of Federal Regulations 31.70, Disputes.
Note: DDO is the disputes decision official.
11-P-0687
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Scope and Methodology
We conducted this performance audit from September 2010 through July 2011 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit
objectives.
As of September 2010, EPA and its regions had 30 audits under appeal with total
questioned costs of $61,495,139. We selected Regions 2 and 5 for review because
20 appeals, totaling $55,546,879, were associated with these two regions. Regions
2 and 5 had 66 percent of the appeals with over 90 percent of the total questioned
costs. Our sample of 10 appeals consisted of 5 appeals from Region 2 and 5 from
Region 5, totaling $17,301,131 in questioned costs. Appendix A lists the selected
audits under appeal.
We conducted interviews and reviewed documentation to understand the tracking
process for audits under appeal, the steps in the resolution process, and the
applicable EPA or federal policies and procedures. We visited Region 2,
Region 5, and EPA offices in New York, New York; Chicago, Illinois; and
Washington, DC. We interviewed the AFCs and the staffs of the Offices of
Regional Counsel (ORC), the Grants Management Divisions, and program offices
of Regions 2 and 5 to determine the process for resolving audits under appeal and
the guidance they followed. In addition, we met with management from the Office
of General Counsel (OGC) and Office of Grants and Debarment (OGD) at EPA
headquarters to determine their roles in the appeal resolution process. During the
interviews, we learned that OGC and OGD are currently in the process of revising
the Agency's Assistance Administration Manual. Subsequently, we learned that
the Office of the Chief Financial Officer's (OCFO's) Office of Financial
Management was convening a workgroup comprising representatives from Office
of Administration and Resource Management (OARM), OGC, OIG, the regions,
and program offices to revise EPA Manual 2750.
We reviewed the ORC and AFC files for Regions 2 and 5, including audit reports,
FDLs, grantee appeal letters and petitions, RA Dispute Decisions, and
miscellaneous correspondence. We also reviewed information on the audits under
appeal in MATS.
We assessed the internal controls relevant to our objectives by reviewing the
applicable criteria, and during our interviews, we verified regional and
headquarters personnel compliance with the criteria. The applicable criteria
include:
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• EPA Manual 2750, EPA 's Audit Management Process
• The Code of Federal Regulations (CFR), 40 CFR 31.70, Disputes
• Office of Management and Budget Cost Principles, as promulgated in
the CFR
• Regional policies and procedures for reviewing, resolving, and closing
audits under appeal
• EPA's Closeout Policy for Grants and Cooperative Agreements
• EPA Order 5700.6A2, Policy on Compliance, Review and Monitoring
• EPA Region 2 Procedures for Resolution of Assistance Disputes under
40 CFR Part 301 Subpart L and 40 CFR 35.3030
• The Memorandum of Understanding Between the Office of Regional
Counsel and the Region 5 Offices/Divisions for Grants Law
Management
• MATS user's manual
Based on our reviews of regional policies and the documents provided by regional
personnel, as well as our interviews with regional personnel, we compared the
timelines set forth in the regional guidance to the actual timelines of the audits
under appeal.
Results of Review
EPA's efforts to resolve over $55 million for Regions 2 and 5 audits under appeal
are neither efficient nor timely. During our audit, we found that:
• Inadequate communications between AFCs and EPA personnel
responsible for resolving audits under appeal have resulted in
inaccurate information in MATS.
• Policies and procedures for addressing audits under appeal are not
complete and relevant; many of the policies for resolving audits under
appeal are inconsistent.
• EPA does not follow its policies for timely resolution for audits under
appeal; as of September 2010, 17 of 30 audits under appeal had been
in resolution for 10 to 21 years.
Both EPA Manual 2750 and 40 CFR 31.70 require that appeals be fully and fairly
considered and resolved in the earliest practicable timeframe, at the lowest level
possible. Because appeals are not being resolved timely, at least $17.3 million that
could be used to protect public health and the environment is not available to the
government.
1 Pursuant to 40 CFR 30.63, dispute procedures outlined in 40 CFR 31.70 also apply to grants issued under 40 CFR
Part 30.
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Not All Audits Under Appeal Are Correctly Recorded in MATS
EPA Manual 2750 requires that OCFO administer MATS to track information on
Agency-wide audit corrective actions, audits under appeal, causes of missed
deadlines, and questioned costs. OCFO relies on data contained in MATS to
prepare end-of-year audit followup reports, which EPA includes in its annual
Performance and Accountability Report to Congress and the President. AFCs are
responsible for maintaining and operating MATS, tracking responses to audit
reports from issuance through completion of the corrective action, and monitoring
the status of outstanding responses and appeals. Program and regional office
AFCs must enter timely, complete, and verifiable information in MATS to ensure
the accuracy of EPA's reports to Congress.
MATS did not include or had outdated information for five audits under appeal,
all within Region 2. MATS did not include Nassau County, New York, Audit
Report No. 1991-100228-320, with total questioned costs of $1,664,687, because
the audit was incorrectly closed in 1994. In addition, on July 20, 2007, Nassau
County withdrew its appeals of four other audits, with total questioned costs of
$1,175,691, but Region 2 did not record the withdrawal status in MATS. Of the
four withdrawn audits under appeal, three are now closed in MATS and one is in
collection. Thus, a net understatement of $966,059 in questioned costs in
Region 2's audits under appeal has been included in Agency end-of-year audit
followup reports to Congress from 2007 to the present, and an understatement of
$1,664,687 existed from 1994 to 2007.
We found that the ORCs in Regions 2 and 5 generally were unaware of MATS, of
the Agency's reliance on the data in MATS, and of the importance of keeping the
AFCs informed of the status of the ongoing appeals. As a result, inadequate
communication existed among the parties involved in resolving audits under
appeal, particularly regarding the status of the appeals and the importance of
accurately reflecting the data in MATS. In Region 2, lack of quarterly status
reports to the AFC on all open audits under appeal rendered the AFC unaware that
the open audit under appeal, as well as the four withdrawn appeals, were not listed
in MATS.
Policies and Procedures for Resolving Audits Under Appeal Are
Inconsistent
Policies and procedures for addressing audits under appeal are not complete and
relevant, and policies in headquarters and regions are inconsistent. Headquarters
policies and procedures lack timelines for resolving the audits under appeal as
well as milestones for monitoring the resolution status of the appealed audits.
Headquarters policies and procedures are general and only require that appeals be
fully and fairly considered and resolved in the earliest practicable timeframe, at
the lowest level possible. Specifically, EPA Manual 2750, 40 CFR 31.70, and
EPA's Closeout Policy for Grants and Cooperative Agreements only require that
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appeals be resolved in the earliest practicable timeframe. As a result, delays
occurred when the ORCs failed to follow the regional policies and procedures and
only complied with those of the Agency.
For example, in the Amherst, New York, and Nassau County, New York, audits
under appeal, repeated Requests for Reconsideration of the RA or AA's Dispute
Decisions prevented settlement of the appeals. Of the three Nassau County and
one Amherst appeals we reviewed, there were 2, 3, 4, and 5 reconsideration or
petitions for reconsideration requests filed. These repeated requests were
permitted per the Closeout Policy for Grants and Cooperative Agreements, which
states, "The recipient may request reconsideration of any decision of the RA or
AA."
Further, although the 1992 closeout policy was superseded when EPA issued
Order 5700.6A2, Policy on Compliance, Review and Monitoring, effective for
closeout procedures on January 1, 2008, the closeout policy remains posted on the
"Closeout Policies Topics" webpage,2 and Order 5700.6A2 is not posted.
Although the regions have timelines and milestones set forth in their internal
policies and procedures, they are inconsistent and are not followed. For example,
Regions 2 and 5 internal policies and procedures have established timelines and
milestones of 120 and 180 days, respectively, for the resolution of an audit under
appeal. Some of the regional policies and procedures are also outdated, having
been written in the 1980s. For example, the Region 5 policies and procedures
emphasize the government financial law matters arising under the Construction
Grants Program, which no longer exists.
EPA Does Not Achieve Timely Resolution of Audit Appeals
EPA's Closeout Policy for Grants and Cooperative Agreements and Order
5700.6A2, Policy on Compliance, Review and Monitoring, establish the policies
and procedures for closing out the completed grants in our sample. Region 2's
Procedures for Resolution of Assistance Disputes under 40 CFR Part 30 Subpart
L and 40 CFR 35.3030 set an internal goal to resolve each appeal within 120 days
of receipt of the appeal if no informal conference is held or, if a conference is
held, within 120 days after the date of the conference. In addition, Region 5's
Memorandum of Understanding Between the Office of Regional Counsel and the
Region 5 Offices/Divisions For Grants Law Management set a goal of 180 days
within which to resolve an appeal.
Seventeen of 30 audits under appeal as of September 2010 had been in the
resolution process for 10 to 21 years. We sampled 10 of the 20 audits under
appeal in Regions 2 and 5. For these audits under appeal, the grantees filed their
appeals from April 1990 to October 2008 in Region 2, and from November 2000
to March 2009 in Region 5.
! http://intranet.epa.gOv/ogd/policv/2.0-Closeout-Topics.htm.
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We identified several causes of delay in resolving the audits under appeal. The
policies and procedures are inconsistent on when and how the audits under appeal
must be resolved, with some policies including suggested milestones while others
omit them. Other causes of delay were changes in program officers and ORC
counsel, lost files, or ORC attorneys' workloads, in which work with set deadlines
took priority. Three examples of audits under appeal—Amherst, New York;
Caribbean Environment & Development Institute (CEDI); and Brazil, Indiana—
illustrate the problems with timely resolution. Appendix B provides other
examples from our sample of audits under appeal that were not resolved in an
efficient, effective, or timely manner.
Region 2
Amherst County, New York, filed its appeal in December 1992 but did not
provide the additional supporting documentation for the $6,061,407
questioned until January 2001. Little interaction between EPA and the
grantee took place during an 8-year span (1993-2000). The RA
subsequently issued two Dispute Decisions, in November 2001 and
January 2002. In February 2002, Amherst filed a Petition for Discretionary
Review with the AA, who issued three Dispute Decisions, in April 2007,
July 2009, and March 2010. A Request for Reconsideration of the AA's
Decision was filed in May 2007, and two Requests for Deviation were
filed in May 2007 and December 2008. This appeal remains open.
The CEDI fiscal year 2000 audit under appeal, questioning $492,250, has
been in the resolution process since October 2008. The single audit of
CEDI determined that its accounting system was inadequate, with
outdated, incomplete, and inaccurate documents. CEDI last submitted
documentation in February 2009, but has subsequently been unable to
provide adequate documentation proving its claimed incurred costs are
reasonable, allowable, and allocable. As of October 2010, the Agency had
not established milestones for this appeal and was waiting for CEDI to
provide the requested additional documentation. Region 2 OGD and ORC
personnel explained that they have to go through due process and work
with the grantee. In addition, they explained that CEDI does not
understand the requirements for an adequate and compliant accounting
system, or what supporting documentation to maintain. This appeal
remains open.
Region 5
Brazil, Indiana, filed its initial appeal of the questioned $4,819,200 in
November 2000. From 2000 through 2008, little work was done on
resolving the appeal because the ORC attorney was waiting to learn about
the status of an Agreed Order between Brazil and the Indiana Department
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of Environmental Management certifying the completion of the project.
Retirement of the original project officer, misplaced files, slowness of the
new project officer in responding to the ORC attorney's questions, and the
ORC attorney's workload caused further delays. The RA signed the
Dispute Decision in February 2008, but it was misplaced and not issued to
the grantee until May 2008. In June 2008, the grantee filed a Petition for
Discretionary Review with the AA. A decision was due to be issued by
December 2010. A decision was not issued, and this appeal remains open.
Conclusion
Extensive delays in resolving audits under appeal in Regions 2 and 5 have tied up
$17,301,131 in grant funds for up to 21 years, preventing unused funds and all
monies owed to EPA from being deobligated or recovered and used on other
grants or returned to the government. Further, for the older audits under appeal,
historical knowledge and documentation have been misplaced or lost due to
departure or retirement of personnel from the grantee, program office, OGD, or
ORC. Compliance with the timelines and milestones set forth in the policies and
procedures would result in a more efficient, timely, and less expensive resolution
process. The resolution process is not timely; the timeframe is case dependent,
with appeals lingering for years. This lack of timely resolution has caused serious
delays in the recovery of significant amounts EPA believes is owed the federal
government.
Recommendations
We recommend that the Chief Financial Officer:
1. In coordination with the Assistant Administrator for Administration
and Resources Management, ensure that the in-process revisions to
EPA Manual 2750 include:
a. A communication strategy among audit followup, counsel,
and grants management at the region and headquarters levels
to assure entry in MATS of the current status of each audit
under appeal
b. Limits on the number of times a recipient may request
reconsideration of any decision of the RA or AA
c. Consistency among policies for resolving audits under appeal
and inclusion of:
i. Timelines and milestones for each step of the resolution
process
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ii. Limits on the number of times that extensions may be
granted and the number of times that the grantee may
submit additional documentation
iii. In-house monthly review by the responsible counsel
and grants management organizations of the status of
the resolution of audits under appeal
We recommend that the Assistant Administrator for Administration and
Resources Management:
2. Ensure that the in-process revisions to the Agency's Assistance
Administration Manual include:
a. An update to the OGD "Closeout Policies Topics" webpage,
adding EPA Order 5700.6A2 and labeling the Closeout
Policy for Grants and Cooperative Agreements as
"rescinded," "superseded," or "expired"
b. A reference to the procedures in EPA Manual 2750 that are
outlined in recommendation 1
c. Uniform procedures for resolving recipient disputes arising
from the Agency's assistance agreement audit determinations
Agency Comments and OIG Evaluation
Although the Agency stated that it generally agreed with the draft report's
findings and overall recommendation for the EPA to provide greater structure and
consistency to the audit resolution process, the Agency proposed several
alternatives to the recommendations. Based on the Agency's response, the OIG
has revised and separated the recommended corrective actions between OARM
and OCFO, and revised several aspects of the recommendations for greater
clarity. We believe that our recommendations to incorporate the specified
elements into OCFO's EPA Manual 2750 and OARM's Assistance
Administration Manual will result in the more timely, efficient, and effective
resolution of audits under appeal. Currently, the OIG considers the
recommendations to be unresolved with resolution efforts in progress. The
Agency's response is included in appendix C.
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Status of Recommendations and
Potential Monetary Benefits
POTENTIAL MONETARY
RECOMMENDATIONS BENEFITS (in SOOOs)
Planned
Rec. Page Completion Claimed Agreed-To
No. No. Subject Status1 Action Official Date Amount Amount
1 8 In coordination with the Assistant Administrator for U Chief Financial Officer
Administration and Resources Management,
ensure that the in-process revisions to EPA Manual
2750 include:
a. A communication strategy among audit
followup, counsel, and grants management at
the region and headquarters levels to assure
entry in MATS of the current status of each
audit under appeal
b. Limits on the number of times a recipient may
request reconsideration of any decision of the
RAorAA
c. Consistency among policies for resolving
audits under appeal and inclusion of:
i. Timelines and milestones for each step of
the resolution process
ii Limits on the number of times that
extensions may be granted and the
number of times that the grantee may
submit additional documentation
iii. In-house monthly review by the
responsible counsel and grants
management organizations of the status of
the resolution of audits under appeal
2 9 Ensure that the in-process revisions to the U Assistant Administrator for
Agency's Assistance Administration Manual Administration and
include: Resources Management
a. An update to the OGD "Closeout Policies
Topics" webpage, adding EPA Order
5700.6A2 and labeling the Closeout Policy
for Grants and Cooperative Agreements as
"rescinded," "superseded," or "expired"
b. A reference to the procedures in EPA Manual
2750 that are outlined in recommendation 1
c. Uniform procedures for resolving recipient
disputes arising from the Agency's
assistance agreement audit determinations
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
11-P-0687 10
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Appendix A
List of Sampled Audits Under Appeal
Audit number
1990-001114-320
1989-901299-320
1990-001108-320
2006-300069-320
1992-201155-320
Region
2
2
2
2
2
Audit title
Nassau County, New York
Nassau County, New York
Nassau County, New York
Caribbean Environment & Development
Institute, FY2000
Amherst, New York
Final
Determination
Letter issued
09/27/1990
03/30/1990
09/17/1990
09/26/2008
07/17/1992
Date of
grantee
appeal letter
10/24/1990
04/30/1990
10/05/1990
10/17/2008
08/07/1992
No. of days in
appeal status
past due date
7,232
7,388
7,237
658
6,572
Initial
disallowed
costs
$
04 700
4,344,808
60,921
492,250
6,061,407
Region 2 total $ 1 1 ,054,1 08
1997-100003-350
8-200095-350
8-200204-350
8-300041-350
9-300007-350
5
5
5
5
5
Brazil, Indiana
City of Bad Axe, Michigan — Unallowable
Costs Claimed Under EPA Grant
XP98578301
Village of Wellsville, Ohio — Ineligible Costs
Claimed Under EPA Grant XP97582801
City of Taylor, Michigan— FY 2005
Michigan Department of Environmental
Quality — FY 2006-2007
11/03/2000
06/17/2008
02/12/2009
01/29/2008
03/03/2009
11/30/2000
07/02/2008
03/12/2009
02/18/2008
03/27/2009
3,542
742
522
895
497
$ 4,819,200
211,143
647,377
187,393
381,910
Region 5 total $ 6,247,023
Total sample disallowed costs $ 1 7,301 ,1 31
11-P-0687
11
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Appendix B
Timeline of Resolution Process for Sampled Audits
Resolution process actions
Grant No.
Audit Report No.
Sample No.
Final Determination Letter
issued
Grantee requests review of FDL
and extension to perfect appeal
Region 2 grants extension request
Grantee requests additional
extension
Supplemental information provided
Grantee files appeal
Grantee requests extension to
perfect appeal
ORC counsel assigned
E-mails trying to locate complete
copy of file
Time extension granted
Followup request for review by
grantee
Scheduling Letter sent by EPA
to grantee
Documentation submitted
Meeting between EPA and
grantee
Grantee withdraws appeal for
disallowance of $27,355
EPA requests additional
information
Supplemental information provided
Region 2
Nassau County, New York
C360891 -07 C36^628' C360982-08
1— 901299 001108
1
09/27/1990
10/24/1990
No Dates
06/12/1!
2
03/30/1990
04/301 990
90
06/25/1990
10/16/1991
07/20/1992
08/10/1992
3
09/17/1990
10/05/1990
02/27/1992
04/29/1992
06/29/1992
07/20/1992
08/10/1992
09/16/1992
09/25/1992
Caribbean
Environment &
Development
Institute FY 2000
CE992069-
01/02/03/04/05/
06, 820770
2006-300069
4
09/26/2008
10/17/2008
10/17/2008
11/13/2008
12/09/2008
02/06/2009
Amherst,
New York
C36061 8-
02/03
1992-201155
5
07/17/1992
08/07/1 992
09/02/1 992
09/30/1 992
12/09/1992
12/09/1992
Region 5
Taylor,
Michigan
8-300041
6
01/29/2008
02/18/2008
05/30/2008
07/08/2008
Wellsville,
Ohio
8-200204
7
2/1 2/2009
3/1 2/2009
Bad Axe,
Michigan
8-200095
8
06/1 7/2008
07/02/2008
08/19/2008
11/04/2008
10/01/2008
02/01/2009
Michigan
Department of
Environmental
Quality
FY 2006-2007
9-300007
9
03/03/2009
03/27/2009
Brazil, Indiana
C 180457-04
1 997-1 00003
10
11/03/2000
11/30/2000
04/11/2001
04/2001-
05/2001
05/1 0/2002
07/11/2002
11-P-0687
12
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Resolution process actions
Grant No.
Audit Report No.
Sample No.
EPA requests additional
information
Supplemental information provided
EPA internal e-mail
ORC e-mails w/ draft Dispute
Decision preparing waiver of
interest application
Case reassigned to new ORC
counsel
RA Dispute Decision signed
E-mails sent trying to locate signed
and released RA Dispute Decision
RA Dispute Decision issued
Petition for Discretionary Review
filed with AA
General Request for
Reconsideration filed by grantee
RA Dispute Decision issued
Petition for Discretionary Review
filed with AA
Request for Reconsideration filed
Meeting with grantee re another
submission
Time extension to submit
documentation
Final submission
Intermittent phone calls and
correspondence, no additional
information provided
RA Decision on Petition for
Reconsideration
RA Dispute Decision issued
Region 2 announces intention to
consolidate reviews of grants,
proposes conference
Grantee counsel, by phone, rejects
proposed schedule
Supplemental information provided
Region 2
Nassau County, New York
C360891 -07 C360628- C360982-08
«*™"< 9012999 oS8
1
09/24/1993
10/22/1993
10/25/1993
08/15/1996
02/01/1999
03/01/1999
03/1 3/2000
2
9/29/1995
10/30/1995
8/30/2001
8/30/2001
3
11/17/1992
12/09/1992
10/22/1993
10/25/1993
10/26/1993
09/26/1994
09/26/1994
10/26/1994
03/01/1999
09/07/2000
Caribbean
Environment &
Development
Institute FY 2000
CE992069-
01/02/03/04/05/
06, 820770
2006-300069
4
Amherst,
New York
C36061 8-
02/03
1992-201155
5
12/14/1992
1993-2000
11/07/2000
11/21/2000
01/18/2001
Region 5
Taylor,
Michigan
8-300041
6
07/20/201 0
07/22/201 0
08/11/2010
Wellsville,
Ohio
8-200204
7
09/22/2010
Bad Axe,
Michigan
8-200095
8
09/22/2010
Michigan
Department of
Environmental
Quality
FY 2006-2007
9-300007
9
03/03/2010
10/01/2010
Brazil, Indiana
C 180457-04
1 997-1 00003
10
01/18/2007
02/11/2008
03/01/2008
05/22/2008
06/20/2008
11-P-0687
13
-------
Resolution process actions
Grant No.
Audit Report No.
Sample No.
Conference held
Supplemental information provided
Grantee submits letter to OGD
Director requesting deviation
RA Dispute Decision issued
Petition for Discretionary Review
for Grant No. C360618-02 filed
Followup letter to Petition
Internal EPA Grants letter
AA Dispute Decision issued
Request for Reconsideration of AA
decision
Request for deviation from
provisions of 40 CFR 30 and
40 CFR 35
Appeal withdrawn
Followup letter to Petition
Request for Deviation letter
Letter recommending deviation
denial— Region 2 RAto OGD
Director
AA Dispute Decision issued
Letter recommending deviation
denial— Region 2 RAto OGD
Director
Status
Region 2
Nassau County, New York
C360891 -07 C360628- C360982-08
«*™"< 9012999 O^OS
1
07/20/2007
Closed -
01/05/2011
2
Open
3
Open
Caribbean
Environment &
Development
Institute FY 2000
CE992069-
01/02/03/04/05/
06, 820770
2006-300069
4
Open
Amherst,
New York
C36061 8-
02/03
1992-201155
5
04/24/2001
06/15/2001
07/19/2001
11/19/2001
01/03/2002
02/01/2002
02/04/2002
11/03/2003
08/29/2006
04/11/2007
05/1 7/2007
05/24/2007
12/31/2008
12/31/2008
05/1 9/2009
07/23/2009
03/01/2010
08/1 0/201 0
Open
Region 5
Taylor,
Michigan
8-300041
6
Open
Wellsville,
Ohio
8-200204
7
Closed -
09/22/2010
Bad Axe,
Michigan
8-200095
8
Open
Michigan
Department of
Environmental
Quality
FY 2006-2007
9-300007
9
Closed -
10/01/2010
Brazil, Indiana
C 180457-04
1 997-1 00003
10
Open
11-P-0687
14
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Appendix C
Agency Response and OIG Evaluation
I i
'•%.•**&&*'/
' \ Pfioi*^ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
August 5, 201 1
MEMORANDUM
SUBJECT: Response to Draft Office of Inspector General Audit Report,
Project No. OA-FY10-0205: EPA Should Improve Timeliness for Resolving Audits Under
Appeal
FROM: Craig E. Hooks, Assistant Administrator
Office of Administration and Resources Management
Barbara J. Bennett
Chief Financial Officer
TO: Melissa M. Heist, Assistant Inspector General for Audits
Office of Inspector General
Thank you for the opportunity to comment on the subject OIG draft Audit Report (Report), dated July 6,
2011. We appreciate the courtesy and open communications the OIG team afforded during the course of
the audit.
The expressed purpose of the audit was to evaluate the timeliness and efficiency of the EPA's process
for resolving a recipient's dispute arising from the EPA's assistance agreement audit determination
(defined in the Report as the "appeals resolution process"). We generally agree with the Report's
findings and overall recommendation for the EPA to provide greater structure and consistency to the
audit resolution process.
The EPA remains committed to ensuring that recipient audit appeals are resolved in an efficient and
timely manner. Since the OIG completed its fieldwork, the agency has continued to take affirmative
steps to resolve the audit appeals that were the subject of the OIG's review. For example, many of the
appeals in Region 2 were either withdrawn by the recipient or were decided with a partial remand back
to Region 2 for reconsideration. With respect to the Nassau County, New York Grant Number C360982-
06, referenced on page 5 of the Report, the Regional Administrator recently issued a decision reducing
the federal share of disallowed costs to $0. On June 9, 2011, Region 2 also closed the appeal concerning
the Nassau County, New York Grant Number C360982-08.
11-P-0687 15
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The Office of Grants and Debarment further issued a deviation that will facilitate the resolution of the
remaining Nassau County, New York audit appeals, and is in the final stages of deciding a deviation
request that will fully resolve the audit appeal concerning the Amherst, New York Grant Number
C360618-02/03. Region 5 has likewise continued to make progress in resolving its pending recipient
audit appeals. In addition, on March 28, 2011, the Region 5 Regional Administrator issued uniform
regional procedures for resolving assistance agreements audit disputes and appeals in that Region.
Based on our review of the Report, we have a number of comments on the Report's findings and
recommendations.
Comments on the Report's Findings
We note that the Report cites the EPA's Closeout Policy for Grants and Cooperative Agreements, issued
on August 27, 1992, as the governing policy for resolving assistance agreement audits under appeal.
That policy, however, is no longer in effect. The EPA Order 5700.6 A2, entitled "Policy on Compliance,
Review and Monitoring," expressly replaced, rescinded and superseded the 1992 Closeout Policy. The
now effective EPA Order 5700.6 A2, was originally issued on September 24, 2007, and became
effective for closeout procedures on January 1, 2008. The Order essentially establishes the agency's
standards for the oversight, monitoring and closeout of EPA assistance agreements. Unlike the former
1992 Closeout Policy, it does not provide specific procedures for resolving audits or recipient disputes
arising from audit final determinations. Accordingly, as of January 1, 2008, the 1992 Closeout Policy no
longer governs the audit appeals process. We therefore request that in the Final Report, the OIG delete
the references for continuing compliance with that Closeout Policy.
OIG Response: The OIG revised the report to clarify that the closeout policy was applicable to the
appeals we reviewed that were under appeal before and up to January 1, 2008, at which time EPA Order
5700.6A2 superseded the closeout policy and took effect. Until this response, no mention was made of
EPA Order 5700.6A2, and according to the OGD intranet webpage "Closeout Policies Topics"
(http://intranet.epa.gOv/OGD/policy/2.0-Closeout-Topics.htm), the Closeout Policy for Grants and
Cooperative Agreements is the governing policy. We recommend that OGD update its webpage
"Closeout Policies Topics," adding EPA Order 5700.6A2 and labeling the Closeout Policy for Grants
and Cooperative Agreements as "rescinded," "superseded," or "expired." Further, we have also revised
recommendation l.b. to remove reference to the closeout policy.
We also note that in the second full paragraph on page 7, the Report indicates that Region 2 considered
the Caribbean Environmental & Development Institute (CEDI) a "high-risk" grantee. The EPA,
however, did not designate CEDI as "high-risk". If it had, then the Agency would have placed CEDI on
the reimbursement method of payment with active payment review.
OIG Response: During our meeting with Region 2 OGD and ORC personnel, the Grants and Contracts
Management Branch Chief used the phrase "high-risk grantees" when discussing some of the issues the
Agency faces with grantees unfamiliar with government accounting requirements; i.e., issues the EPA is
having with CEDI. However, since Region 2 explained that CEDI is not a high-risk grantee, we
removed the statement in question from the report.
11-P-0687 16
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Comments on the Report's Recommendations
Our consolidated comments on the specific Report recommendations and corrective actions initiated or
planned are set forth below.
1. We recommend the Assistant Administrator for Administration and Resources Management and
the Chief Financial Officer, jointly assure the in-process revisions to the Agency's Assistance
Administration Manual and EPA Manual 2750 include:
a. a communication strategy that ensures EPA records current data on audits under appeal in
MATS.
Response: We concur with the part of the recommendation calling for revisions to EPA Manual
2750 and a communication strategy to ensure updates in the Management Audit Tracking System
(MATS). Providing agencywide audit appeals resolution procedures as part of Manual 2750 will
help increase consistency in the resolution process. It will also allow for a more comprehensive
"cradle to grave" EPA policy that will provide information on audit follow-up, tracking, resolution
and appeal procedures in one central document. The Office of the Chief Financial Officer is
currently leading an agencywide workgroup to revise Manual 2750. The OIG is a key participant in
the workgroup. The workgroup's efforts had been on hold for several weeks pending the OIG's
completion of its own revisions to the OIG's internal audit review and resolution procedures. After
discussions between the OIG and OCFO managers, the workgroup resumed the Manual 2750
revision process, with the goal of completing a first draft of the revisions to the Manual by the end of
the third quarter of fiscal year (FY) 2012. The Office of Administration and Resources Management
will take the lead in developing the assistance agreement audit appeals resolution procedures for
final incorporation into the revised Manual 2750. OARM will work together with the Office of
General Counsel, OCFO and the Grants Management and Program Offices to develop the
procedures. OARM intends to complete the draft of the appeals resolution procedures by the end of
the second quarter of FY 2012.
OIG Response: The OIG agrees with the corrective actions covered in the preceding paragraph.
Therefore, we revised recommendation 1 to state that OCFO coordinate with OARM to revise EPA
Manual 2750 rather than recommending that OCFO and OARM jointly revise 2750 and the Assistance
Administration Manual. The 2750 Workgroup decided that each type of audit will address the Agency's
dispute resolution process. Currently, the draft flowcharts for the assistance agreements and single audits
both reference an appeals flowchart for the appeals process that has not yet been drafted. The
management action plan in response to the final report should more specifically cover the intended
approach for appeals.
Based on the planned incorporation of the appeals audit resolution procedures in Manual 2750, the
EPA does not believe that it is necessary to require inclusion of the same procedures in the agency's
Assistance Administration Manual at this time. While OGD has initiated a process to revise the
Assistance Administration Manual, those revisions will address the broader grants administration
process and will entail significantly more coordination and time than would be required for
developing the appeals resolution procedures. We therefore request that the OIG delete the
recommendation to include the appeals procedures in the EPA's Assistance Administration Manual,
since that recommendation would delay implementation of the corrective actions and closeout of this
OIG audit. OARM does intend to include the appropriate reference to the appeals procedures in the
11-P-0687 17
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revised Assistance Administration Manual. However, as previously mentioned, the Assistance
Administration Manual revisions represent a much larger and protracted process that is beyond the
scope of the Report.
OIG Response: The OIG agrees that the revised procedures should be in EPA Manual 2750. In the new
recommendation 2.b., the OIG recommends that OARM ensure that the Assistance Administration
Manual references the changes in 2750.
We also request that the OIG revise the recommendation to direct the applicable corrective actions
separately to OCFO and OARM. We recognize that the recommendation entails coordination
between both offices. However, based on the planned two-tiered corrective action strategy,
separating the recommendations will better enable each office to track and be accountable for
implementing the corrective action within its respective purview. Specifically, we request that the
OIG direct OARM to develop uniform procedures for resolving recipient disputes arising from the
agency's assistance agreement audit determinations. We also request that the OIG direct OCFO to
incorporate the procedures and requirements for regular MATS update in the revised EPA Manual
2750.
OIG Response: The OIG agrees to separately address corrective actions to OCFO and OARM. Also, in
the new recommendation 2.c., the OIG recommends that OARM develop uniform procedures for
disputes as suggested in the Agency response.
EPA concurred with recommendation l.a., calling for a communication strategy to ensure updates in
MATS. However, the Agency's proposed corrective actions do not fully address the intent of
recommendation l.a., which was to improve the interoffice communications at both regional and
headquarters levels among the AFCs, ORC, and OGD on the status of each audit under appeal.
Inadequate communications among EPA personnel responsible for resolving audits under appeal have
resulted in inaccurate information in MATS. At the time of this audit, several disputed audits that were
withdrawn by the grantee 3 years previously were still listed in MATS, resulting in an overstatement of
audits under appeal in MATS. In another instance, an appeal was lost in headquarters for almost a year
after the grantee appealed the RA's decision to the AA. The OIG revised recommendation l.a. to more
clearly cover the expectation that the Agency develop a communication strategy among the headquarters
and regional AFCs, ORC, and OGD to ensure that the most current data on disputed grant audits are
recorded in MATS.
b. update of the EPA Closeout Policy for Grants and Cooperative Agreements and revision of
the statement, "The recipient may request reconsideration of any decision of the RA or AA, "
to establish a finite number of reconsideration requests.
Response: The EPA does not concur with this recommendation. As indicated above, the Closeout
Policy is no longer in effect. The audit appeals resolution policy that OARM develops and OCFO
incorporates in Manual 2750 will limit the number of reconsideration requests permitted.
11-P-0687 18
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OIG Response: The OIG revised this recommendation in accordance with the Agency's request and
removed references for continuing compliance with EPA's Closeout Policy for Grants and Cooperative
Agreements. The OIG revised the recommendation to the OCFO to incorporate in EPA Manual 2750
milestones that limit the number of times a grantee may request reconsideration of RA and AA
decisions.
c. consistency among policies for resolving audits under appeal and inclusion of:
i. timelines and milestones for each step of the resolution process;
ii. limits on the number of time extensions may be granted and the number of times that the
grantee may submit additional documentation; and
Hi. monthly review of the status of the resolution of audits under appeal.
Response: The EPA agrees in principle that there is a need for greater consistency and structure in
the audit appeals resolution process, but has some concerns about the stringency of the deadlines and
restrictions contemplated under this recommendation. The fact is that many of the audit appeals take
time to resolve because they raise complex legal, technical and factual issues that require the
submission and review of extensive documentation and data. They also necessitate broad
coordination between various offices, including legal counsel, Programs, and Grants Management
Offices. The resolution timeframe for each appeal may vary depending on the nature of the issue and
the workload of the EPA personnel involved. In addition, the resolution process may include the
consideration of a formal deviation from governing regulations or policies. That would add another
layer of review and time to the resolution process. As a result, the appeals process does not lend
itself to rigid procedural deadlines or milestones.
Similarly, while it is necessary to prevent recipients from unnecessarily prolonging the appeals
resolution process by requesting unwarranted time extensions or submitting unnecessary additional
documentation, the adopted restrictions would need to allow some discretion to account for the
unique facts and circumstances of individual appeals.
The EPA therefore requests that recommendation c.i and ii be revised to require the adoption of
flexible guidelines for establishing timelines for the resolution of individual audit appeals, including
the ability to exercise discretion as necessary to take into account the unique facts and circumstances
of the appeal.
OIG Response: The OIG did not change the recommendations as requested for two reasons. First, the
degree of flexibility allowed in the dispute resolution process is at the Agency's discretion. Second, by
setting expectations for timelines and extensions, the Agency sets parameters for exceptions. For
example, limiting the number of documentation submissions and requests for reconsideration of RA and
AA decisions would reduce the potential for unnecessary delay in the resolution process. At the time of
our evaluation, 17 audits had been in appeal status for more than 10 years, and currently, there are 10
that have been in appeal status for more than 10 years.
11-P-0687 19
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Finally, the EPA requests that recommendation c.iii be revised to require a minimum of quarterly
rather than monthly updates to MATS. A mandatory minimum of quarterly updates is consistent
with MATS updating for OCFO's Quarterly Audit Management Progress Reports, and will more
appropriately take into account the general phases involved in the appeals resolution process.
OIG Response: The OIG revised this recommendation to clarify that this recommendation covers an
in-house monthly status review of disputes by counsel and grants management. We intended this review
to facilitate timely resolution and expect that the review is in addition to the quarterly MATS update.
Some topics for this review include (1) identification of audits in appeal status, (2) stage of the
resolution process, (3) issues delaying the resolution, (4) time extensions, and (5) counsel and grants
management workloads.
Thank you again for the opportunity to comment on the Report. If you have any questions concerning
this matter, please contact Denise Sirmons at 202-564-6771. You may also contact Alexandria Mincey,
the OGD Audit Follow-up Coordinator, at 202-564-5371, or Bernadette Dunn, the OCFO Audit Follow-
up Coordinator, at 202-564-4963.
cc: Judith Enck
Susan Hedman
Scott Fulton
Eric Schaaf
Robert Kaplan
Wendel Askew
James Drummond
Janet Kasper
Kathy O'Brien
Deborah Rutherford
Bernadette Dunn
Howard Corcoran
Denise Sirmons
John Sveck
Eric Levy
Alexandria Mincey
Joseph Lucia
11-P-0687 20
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Appendix D
Distribution
Office of the Administrator
Agency Followup Official (the CFO)
Assistant Administrator, Office of Administration and Resources Management
Regional Administrator, Region 2
Regional Administrator, Region 5
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Affairs
Associate Administrator for External Affairs and Environmental Education
Director, Office of Regional Operations
Audit Followup Coordinator, Office of Administration and Resources Management
Audit Followup Coordinator, Region 2
Audit Followup Coordinator, Region 5
11-P-0687 21
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