EPA-350-R-06-003
                                  June 2006

   OFFICE OF INSPECTOR GENERAL
                    Catalyst for Improving the Environment
Annual Performance Report
Fiscal Year 2005
A Statistical Summary and Compendium of OIG
Performance Results and Accountability Information

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                      UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                    WASHINGTON, D.C. 20460
                                                                               OFFICE OF
                                                                           INSPECTOR GENERAL
                                           June 1,2006

FOREWORD

     I am pleased to present the fourth Annual Performance Report for the U.S. Environmental
Protection Agency (EPA) Office of Inspector General (OIG). This report presents statistical and
narrative summaries of OIG performance results for Fiscal Year (FY) 2005 compared to our annual
performance targets. It also presents cumulative OIG results for the period FY 2001 through 2005
compared to the OIG annual performance goals for the same 5-year period. It is particularly important to
consider the subsequent results of OIG activity over a longer period than 1 year, since there is a
significant time lag in recognizing environmental and human health impacts influenced by our work. The
results of our investigative activities are dependent on highly variable levels of criminal/civil activity, and a
lengthy series of prosecutive actions by the courts.

     This report supplements, in greater statistical and narrative detail, the OIG summary performance
results presented in EPA's FY 2005 Performance and Accountability Report, available at
www.epa.gov/ocfopage. and provides additional items required by the Government Performance and
Results Act, such as management challenges, as well other relevant measures of performance activity.

     This and prior OIG Annual Performance Reports indicate we are continuing to make significant
improvements in applying performance measures to demonstrate the impact of our work. In FY 2006, the
OIG is working to measure internal management activity and apply cost accounting to improve the
efficiency of our operations, products, and services. We are  working to link OIG performance goals and
measures to specific expectations for each manager and staff member. This will improve our
understanding of how daily staff performance helps achieve organizational goals, and will enable us to
improve accountability. We will also implement a system to  track the Agency's completion of agreed-
upon actions recommended by the OIG.

     We rely upon our customers and stakeholders to inform us about the quality of our performance,
address risks, and add value. Please do not hesitate to contact me for any reason, as one of my personal
goals is to build constructive relationships that promote the economic, efficient, and effective delivery of
EPA's mission.
                                                  Sincerely,
                                                  Bill A. Roderick
                                                  Acting Inspector General

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  Table of Contents
About the EPA OIG	1




Scoreboard of Results	3




FY 2005 Results by OIG Strategic Goal and Objective	4




   GOAL 1: Contribute to Improved Human Health and Environmental Quality	4




   GOAL 2: Contribute to Improved Business Practices and Accountability	6




Our People	10




Our Resources	11




Appendix 1: OIG's Top Management Challenges	12




Appendix 2: EPA's Top Management Challenges	13




Appendix 3: Looking to the Future	14




Appendix 4: OIG FY2005 Program Activity	15

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  About the  EPA OIG
Vision

We are catalysts for improving the quality of the environment and Government through problem prevention
and identification, and cooperative solutions.

Mission

Add value by promoting economy, efficiency, and effectiveness within EPA and the delivery of
environmental programs. Inspire public confidence by preventing and detecting fraud, waste, and abuse in
Agency operations and protecting the integrity of EPA programs.

Goals
1.  Contribute to Improved
   Human Health and
   Environmental Quality

Objectives

• Influence programmatic and
  systemic changes and actions
  that contribute to improved
  human health and
  environmental quality.

• Add to and apply knowledge
  that contributes to reducing or
  eliminating environmental and
  infrastructure security risks and
  challenges.
• Identify recommendations, best
  practices, risks, and
  opportunities to leverage results
  in EPA programs and among its
  partners.
2.  Contribute to Improved
   Business Practices and
   Accountability

Objectives

• Influence actions that improve
  operational efficiency and
  accountability, resolve public
  concerns and management
  challenges, and achieve
  monetary savings.

• Improve operational integrity
  and reduce risk of loss by
  detecting and preventing
  vulnerabilities to fraud, abuse,
  or breach of security.
• Identify recommendations, best
  practices, risks, weaknesses,
  opportunities for savings, and
  operational improvements.
3.  Continuously Improve OIG
   Products and Services
Objectives

• Improve the timeliness,
  responsiveness, and value of
  our products and services to
  our clients and stakeholders.
• Apply technology, innovation,
  leadership, and skill proficiency
  for motivated staff and highly
  regarded products.
• Align organization plans,
  performance, measurement,
  processes, and followup for a
  cost-accountable results
  culture.

• Maximize use of available
  resources.
• Develop constructive
  relationships to leverage
  resources effectively and
  foster collaborative solutions.

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OIG Product and Service Lines for Strategic Areas of Performance
Performance Audits
and Evaluations
• Air
• Water
• Land
• Cross Media
Financial/
Systems Audits

• Business Systems
  Financial Statements
• Contracts
• Assistance
  Agreements
• Computer Security
Investigations


• Financial Fraud
• Program Integrity
• Employee Integrity
• Laboratory Fraud
• Computer Crimes
Linking Our Work to Outcomes and Impacts
Public Liaison/
Advisory/Analysis
• Legislation/Regulation
  Review
• Control Assessments
• Public Inquiry/
  Outreach
• President's Council on
  Integrity and Efficiency
All of our work is planned based on the anticipated contribution to influencing resolution of the Agency's
major management challenges, reducing risk, improving practices and program operations, and saving
taxpayer dollars, leading to positive human health and environmental impacts and attaining EPA's Strategic
Goals.
Planning Starts With the End In Mind

We measure the return on our investment by how efficiently our resources are converted into products,
and how effectively our products drive outcomes.
Logic Model Example
Resources

 • Staff
 • Contracts
 • Technology
 • Training
 • Travel
 • Leadership


< 	
N 	
Products/
Services

• Audits
• Evaluations
• Investigations
• Special Analysis
• Consulting
• Legislation/
Regulation
Reviews


^ — 1
^ 	
I Outputs


• Recommendations

• Referrals to DOJ
• Best Practices
• Risks Identified
• Management
Challenges
Identified



Intermediate
Outcomes

• Savings/
Recoveries

• Process/Policy
Changes
• Indictments/
Convictions
• Certifications
• Civil Judgments
• Legislative/
Regulatory
Changes
• Administrative
Action
                                                   Impact
                                                   Outcomes

                                                    • Environmental
                                                     Risks Reduced
                                                    • Improved
                                                     Efficiency
                                                    • Examples of
                                                     Environmental
                                                     Improvement
                                                    • Examples of
                                                     Health
                                                     Improvement
                                                    • Operational Risks
                                                     Reduced
                   Efficiency Ratio
                   Cost/Activity
                                 Effectiveness Ratio
                                 Outputs/Impacts
Performance Presented in a Hierarchy of Related Measures
The performance results in this report are presented in a hierarchy, starting with several summaries and a
scorecard, followed by detailed measures and examples of results by goal for FY 2004, and as cumulative
totals for FY 2001- 2004, toward accomplishing the OIG Strategic Goals. We collected the information
presented in this report from the OIG's Performance Measurement and Results System (PMRS) and the
Inspector General Operational Reporting (IGOR) system, both dependent upon input by OIG staff, and
from EPA's Integrated Financial Management System.

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  Scoreboard of Results
Results Compared to FY 2005 Annual Performance Goal Targets

All results reported in FY 2005, from current and prior years' work, in OIG Performance Measurement
and Results System. (Except where noted, information verified and subject to OIG Data Quality Policy.)
Strategic Goals; With Government Performance and
Results Act Annual Performance Targets Compared
to FY 2005 Results Reported
Supporting Measures
Goal 1. Contribute to Improved Human Health and Environmental Quality
Environmental Improvements/Actions/Changes Q
• Target: 45
• Reported: 35 (78%)
Environmental Risks Reduced or Eliminated Q
• Target: 23
• Reported: 35 (152%)
Environmental Recommendations, Best Practices, Q
Risks Identified
• Target: 95
• Reported: 112 (118%)
0 Legislative changes/decisions
5 Regulatory changes/decisions
27 EPA policy, process, practice changes
1 Examples of environmental improvement
2 Best environmental practices implemented
1 5 Environmental risks reduced/eliminated
1 Certifications/validations/verifications
19 Critical congressional/public issues addressed
60 Environmental recommendations
34 Environmental best practices identified
1 8 Environmental risks identified
Goal 2. Improve EPA's Management, Accountability, and Program Operations
Return on Investment: Potential dollar return as Q
percentage of OIG budget ($50.5 million)
• Target: $75.8 million (150%)
• Reported: $143.8 million (285%)
Criminal, Civil, and Administrative Actions Reducing (~)
Risk of Loss/Operational Integrity
• Target: 80
• Reported: 125 (156%)
Improvements in Business/Systems/Efficiency Q
• Target: 220 3
• Reported: 724 (329%)
Recommendations, Best Practices, Challenges Q
Identified
• Target: 800 3
• Reported: 1119 (140%)
(dollars in millions)
$ 79.5 Questioned costs 1
$ 1 3.4 Recommended efficiencies, costs saved 2
$ 50.9 Fines, recoveries, settlements
15 Criminal convictions
23 Indictments/informations/complaints
4 Civil judgments/settlements/filings
83 Administrative actions
47 Policy process, practice, control changes
306 Corrective actions on FMFIA/mgt. challenges
24 Best practices implemented
325 Certifications/validations/verifications
9 Allegations disproved
1 3 Critical congressional or public management
concerns addressed
1059 Recommendations
35 Best practices identified
8 FMFIA/management challenges identified
17 Referrals for OIG or Agency action
Goal 3. Continuously Improve OIG Products and Services (Internally Reported - Not Audited)
Partners in collaborative products/services 358
Requests to testify at hearings/presentations 40
Management innovations implemented 1 6
Assignments performed by request/mandate 93%
FTE usage rate 94%
• Savingsfrommgt. improvements $60,000
• Products electronically accessible 90%
• PC IE projects/activities led 5
• Legs/regs/policies reviewed /timely 40/100%
• Expiring funds used 99.9%
1  Includes $0.9 million of costs resolved priorto report issuance, not in resolution process
2  Includes $0.1 million of savings from investigations, not in resolution process
3  Targets increased since the last Semiannual Report to Congress to reflect Single Audit results

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  FY 2005  Results by OIG Strategic Goal and  Objective
GOAL 1: Contribute to Improved Human Health and Environmental Quality

Targets and Results for Goal 1 Objectives
500
       Targets  Results

         Environmental
         Improvements,
        Actions, Changes
 Targets  Results

  Environmental or
 Infrastructure Risks
Reduced or Eliminated
                                                                              Data obtained from
                                                                              IGOR and PMRS.
   Targets   Results

     Environmental
 Recommendations, Best
Practices, Risks Identified
  In response to a recommendation in a 2003 OIG report, Significant Modifications Needed to Ensure
  Success of Fort Worth Asbestos Demolition Method, EPA's National Center for Environmental
  Innovation issued a memorandum that provides peer review guidance for EPA innovation projects. This
  memorandum requiring peer review is an important step toward ensuring that innovation projects protect
  human health and the environment. (Air)

  An OIG investigation resulted in a deferred prosecution agreement with a California environmental
  services corporation to settle allegations that the company falsified environmental analysis data. In
  accordance with the terms of the agreement, prosecution and any civil actions will be deferred for a
  period of 48 months, providing the company abides by the conditions of the agreement, including
  implementing a rigorous quality control process and donating $1.1 million to the Environmental Project
  and the Environmental Circuit Prosecutor Project for environmental enforcement, education, and
  training in the State of California. After the company successfully completes the deferred prosecution
  program set out in the agreement, the Government will close its case and not file any criminal or civil
  actions. (Laboratory Fraud)

  Three changes, which strengthened the cap-and-trade program for reducing emissions from coal-
  fired electric utilities, were made to the Clean Air Mercury Rule. As a result of issues raised in
  the OIG  report, Additional Analysis of Mercury Emissions Needed Before  EPA Finalizes Rules
  for Coal-Fired Electric  Utilities, a small emitters exemption and safety valve price  limit on
  allowances were deleted from the rule.  In addition, allowances for utilities located on tribal lands
  were included. (Air)

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An OIG review, Progress Made in Monitoring Ambient Air Toxics, But Further Improvements Can
Increase Effectiveness, found air toxics monitoring was conducted in only 10 percent of the 50 census
tracts with the estimated highest cumulative cancer risks from air toxics exposure. As a result of OIG
recommendations, EPA has included an additional ranking factor for local monitoring projects, which
considers the level of risk posed by air toxics in a local area applying for a monitoring grant. Awarding
monitoring grants to high risk areas will help those areas develop strategies to reduce the public's
exposure and risk. (Air)

As recommended by  an OIG  report, Efforts to Manage Backlog of Water Discharge Permits
Need to Be Accompanied by Greater Program Integration, EPA is continuing efforts to improve
water quality by addressing NPDES permit backlog and overall program integration with point
source programs that support the permit program, national NPDES permit backlog GPRA
measures and management, and NPDES permit program and backlog management on the  State
level. (Water)

The Department of Homeland Security relies on EPA to support the sampling operations for the
Bio Watch program, an early-warning system designed to detect the release of biological agents in the
air. An OIG report, EPA Needs to Fulfill Its Designated Responsibilities to Ensure Effective
BioWatch Program, identified oversight of sampling operations, assessing alternative technologies, and
consequence management planning as areas needing improvement in the BioWatch program. EPA
agreed with the  report and has begun working with regions to address issues identified. (Cross-Media)

As a result of recommendations in a 2004 OIG report, States Making Progress on Source Water
Assessments, But Effectiveness  Still to Be Determined, EPA's Office of Ground Water and Drinking
Water issued new guidance on program measures to better determine results of source water protection
strategies and activities. In addition, EPA issued guidance on disseminating source water information to
balance security and public right-to-know concerns. (Water)

An OIG report, EPA Region 10 Needs to Improve Oversight of Remediation Activities at the
Hanford Superfund lOOK-Area, recommended that the  Region  10 Administrator monitor progress
toward meeting  K Basin milestones, including spent nuclear fuel removal, and take appropriate
enforcement actions if milestones are not completed in a timely manner. Complete removal of the spent
nuclear fuel was completed in October 2004.  This significant achievement has reduced risks of
radionuclide releases to the air, soil, ground water, and Columbia River. (Land)

In responding to the Hurricane Katrina disaster, the EPA Administrator required EPA senior
management to  read the 2003 OIG report, EPA's Response to the World Trade Center Collapse, for
lessons learned. As a result, two specific actions were taken by EPA.  EPA decided to 1) disclose
information publicly as soon as it was received and judged to be sound, supportable information; and 2)
ensure  that risk  decisions were based on sound science. In particular, EPA convened a meeting of the
EPA Science Advisory Board over the 2005 Labor Day weekend to review and comment on EPA's
sediment sampling plan in the aftermath of Katrina. (Air)

EPA Region 4 launched a new Atlantic Steel redevelopment Web site as a result of recommendations in
an OIG report,  Review of Changes to the Atlantic Steel Transportation Control Measure. The Web
site includes a forum for public comment. (Air)

A 2004 OIG report, Stronger Leadership Needed to Develop  Environmental Measures for Clean
Water State Revolving Fund, stated that the Agency was unable to measure environmental results
from actions taken to utilizing resources from the Clean Water State Revolving Fund (CWSRF) and

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  recommended that EPA develop and track environmental measures for the CWSRF.  As a result, the
  Office of Water issued a grant for States to work on developing environmental measures for CWSRF
  projects. One of the new performance activity measures in EPA's FY 2006 national water program
  guidance would measure the number of State revolving loan fund programs that have instituted means
  of measuring the loans' outcomes. (Assistance Agreements)

• In the OIG report, Substantial Changes Needed in Implementation and Oversight of Title  V Permits
  If Program Goals Are To Be Fully Realized, concerns with five key aspects of Clean Air Act Title V
  operating permits were identified: permit clarity, statements of basis, monitoring provisions, annual
  compliance certifications, and practical enforceability.  Of 11 report recommendations for environmental
  improvement, EPA has implemented actions resolving 7 recommendations. (Air)

• Region 4 took actions to address community concerns regarding site cleanup as a result of the 2004
  OIG report, Review of Actions at Escambia Treating Company Site, Pensacola,  Florida.  The
  region conducted public meetings with the Escambia community in February 2005, updated the
  Community Involvement Plan, and sent a copy of the plan to the site repository in Pensacola, Florida.
  (Public Liaison)

• As a result of a recommendation  in the OIG report, Ombudsman Review of the Marjol Battery Site,
  Throop, Pennsylvania, EPA and the Pennsylvania Department of Environmental Protection agreed to
  take corrective action at the Marjol Battery Site.  They agreed to drill nine additional holes at the site to
  evaluate the potential for mine fires, which had been a concern for the borough and nearby residents.
  (Public Liaison)

GOAL 2: Contribute to Improved Business Practices and Accountability

Cumulative Potential Dollar Return From Questioned Costs,  Efficiencies, Savings, Fines, and Recoveries
     $700
     $600

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EPA changed its requirements for screening contractor employee candidates as a result of the OIG
investigation of Intertek Testing Services. The Agency's new requirement that contractors check the
Excluded Parties Listing System (EPLS), as part of the screening process for employee candidates on
certain types of EPA contracts, was approved by the Office of Management and Budget on April 4.
2005. The EPLS contains the names of parties who have been excluded from Federal procurement and
nonprocurement programs. (Laboratory Fraud)

For a third consecutive year, EPA has earned a "green light" designation among Federal agencies for its
financial management. The OIG rendered an unqualified, or clean, opinion on EPA's financial
statements for FY 2004.  The OIG continues to recommend improvements to EPA's internal controls.
Agency actions on OIG recommendations have led to continuous improvements in EPA's financial
reporting,  contributing to the public's trust in EPA. (FinancialManagement)

Based on recommendations in the OIG report, EPA Needs to Compete More Assistance Agreements,
EPA revised Order 5700.5 (now Order 5700.5A1, effective January 15, 2005) emphasizing that EPA
should first seek ways to compete assistance agreements before it decides that competition is not
possible. The Order additionally clarifies the requirements for noncompetitive justifications by improving
definitions and providing examples, defines possible conflicts of interest when evaluating and awarding
competitive assistance agreements, requires all reviewers for each competition to certify in writing that
they are free from conflicts of interest,  and reinforces grants management officer responsibilities.
(Assistance Agreements)

To improve the efficiency and effectiveness of solving regional environmental issues, Region 6 has
finalized partnership guidelines and issued elevation protocols with three of its States: New Mexico,
Oklahoma, and Texas. These agreements, promoting collaboration and disagreement resolution between
Region 6 and its States, resulted from earlier OIG recommendations to Region 6 in a 2003 report, EPA
Region 6 Needs to Improve Oversight of Louisiana Environmental Programs.  In response to that
report, the Region established new procedures with Louisiana and subsequently decided to implement
the same procedures with all of its States. (Assistance Agreements)

Based on  a 2004 OIG report, EPA Prepared to Implement  Strategic Human  Capital Management
Activities But Challenges Remain, EPA is incorporating measures in its Annual Plan and Annual
Report that reflect achievement of the Agency's human capital strategies. Moreover, EPA's budget
process now includes human capital management considerations such as how resource changes may
impact the Human Capital Strategic Plan and, specifically, how proposed FTE changes impact mission
critical competencies, skill mix, and local human capital plans. (Business Systems)

As a result of a joint investigation with the Federal Bureau of Investigations, Johnny Lee Napier pled
guilty to embezzling Federal funds. He was sentenced to 9 months in prison, 3 years probation and
ordered to pay a $104,000 fine. Napier was the project manager on three grants awarded by EPA to
train and certify people in asbestos and lead paint removal.  (Financial Fraud)

Harry B. Still, Jr., a former general manager of the Bay Minette Utilities Board, Bay Minette, Alabama,
pled guilty to filing a false statement under the Clean Water Act.  Still, who filed a false discharge
monitoring report with the Alabama Department of Environmental Management, was sentenced to 12
months probation and was ordered to pay a $3,000 fine.  The OIG conducted the investigation jointly
with the Federal Bureau of Investigation, EPA Criminal Investigation Division, and Alabama Attorney
General's  Office. (Laboratory Fraud)

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Cumulative Actions to Improve Agency Management, Accountability, and Public Confidence
2000

1500

1000

 500
        Targets  Results
          Criminal, Civil,
          Administrative
             Actions
Targets   Results
Improve Business
  Processes and
  Resolve Public
    Concerns
   Targets   Results
Recommendations, Best
 Practices, Management
 and FMFIA Challenges
       Identified
FY 2005 target revised for Improved Business Processes and Addressing Public Concerns from 105 to 220
FY 2005 target revised for Recommendations, Best Practices, Challenges/Risks Identified from 220 to 800
                                                                                     Data obtained from
                                                                                     IGOR and PMRS.
  Tetra Tech, Inc., while admitting no wrongdoing, agreed to pay more than $400,000 to settle allegations
  that it overbilled costs on its Government contracts. The OIG investigation found that Tetra Tech billed
  estimated rates that were in excess of the actual costs for computer services and reproduction costs.
  (Financial Fraud)

  As a result of an OIG investigation, Antoine Michael Perry, a former EPA contractor employee, was
  found guilty of using a computer to cause damage.  Perry was sentenced to 4 months in prison, 3 years
  of probation including 4 months home detention, and ordered to pay $5,000 in restitution to EPA. The
  investigation determined that after Perry's employment with the contractor was terminated, Perry
  gained access to the EPA network and deleted files, changed  user passwords, and turned the system
  off. (Computer Crimes)

  An employee of Boyko Petroleum Services, Michael Klusaritz, received 21 months in prison and was
  ordered to pay more than $ 112,000 in restitution for mail  fraud and making false statements. The OIG
  and EPA Criminal Investigation Division, in a joint investigation, determined that Klusaritz caused Boyko
  to prepare and mail fraudulent environmental test reports  in connection with the Underground Storage
  Tank Closure Reports.  The reports were falsified to make it appear that no contamination  existed.
  Thus, Boyko's customers could avoid expenses that would have been incurred if contamination had
  been detected. (Financial Fraud)

  The OIG continues to operate a Technical Vulnerability Assessment Laboratory (TVAL) within the
  Office of Investigations.  The TVAL is a cooperative effort that involves the OIG Offices of
  Investigations and Audit and includes EPA's Office  of Environmental Information and information
  security community. By performing its assessments of networks for vulnerabilities and weaknesses in-
  house, the Agency recognizes cost savings on each assessment and gains more expertise in information

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system security. Recent assessments included the Agency payroll and travel systems, as well as a
complete assessment of a regional network of over 2,200 computers. As a result of the assessments,
some of which disclosed severe or high-level vulnerabilities, the Agency immediately took corrective
actions. (Computer Crimes)

The OIG questioned $21.2 million in expenditures related to EPA grants awarded to the Puerto Rico
Environmental Quality Board during a 5-year period that ended June 30, 2003. Questioned costs were
based on the results of Single Audit Act reviews. (Assistance Agreements)

The  OIG reported, in Region 10's Grant for Alaska Village Safe Water Program Did Not Meet EPA
Guidelines, that six ineligible projects totaling $4.8 million were included in the grant award and needed
to be removed. The OIG recommended that Region 10 suspend work under the grant until all pre-
award steps are completed and controls are established to ensure that Region 10 fulfills all EPA
requirements before awarding grants. (Assistance Agreements)

EPA awarded over $25.9 million to Oregon under a cooperative agreement for remedial redesign,
remedial action, and long-term response action at a former wood-treating facility, the McCormick
and Baxter Superfund site in Portland, Oregon.  The OIG recommended in its report, Oregon
Department of Environmental Quality Reported Outlays under Cooperative Agreement
V99060103, that EPA revoke the  State's self-certification of its procurement systems, require
Oregon to make other improvements, and disallow questioned costs of over $2 million.
(Assistance Agreements)

EPA awarded three cooperative agreements to the Natural Resources Defense Council (NRDC)
totaling over $3 million. The OIG questioned over $ 1.4 million of reported outlays because the NRDC
did not maintain the necessary documentation to fully support its reported costs, as required by Federal
regulations. As a result of the  OIG report, Natural Resources Defense Council Reported  Outlays
Under EPA Cooperative Agreements CX82546101, CS82675101, and XA83033101, the NRDC
has implemented new time-keeping procedures to require employees to account for all work activities.
(Assistance Agreements)

An EPA grant recipient, the Health Effects Institute, did not maintain documentation, as required by
Federal regulations, to support over $2 million in reported costs. EPA awarded over $ 18.7  million to
the Health Effects Institute to conduct  and evaluate research and testing related to the health effects
of emissions from automobiles and other environmental pollutants.  The OIG questioned the $2 million
in a  report, Reported  Outlays  Under EPA Grant R828112-01 Health Effects  Institute, and
recommended that EPA take steps to ensure the recipient addresses its financial management
weaknesses. (Assistance Agreements)

At the request of EPA OIG, the Defense Contract Audit Agency (DCAA) performed audits of EPA
contracts that resulted in over $1.2 million of sustained recommended efficiencies and questioned costs.
The OIG DCAA monitoring team identified an additional $2.1 million of questioned costs and
efficiencies included in the DCAA audits. (Contracts)

EPA's current Response Action Contracts assign to EPA a disproportionate share of the risk  of cost
overruns; expose EPA to the risk of loss of funds through litigation; limit competition; and forego
potential cost savings associated with other approaches to contracting, such as Performance-Based
Service Acquisition.  EPA generally agreed with recommendations in the OIG report, Response Action
Contracts: Structure and Administration Need Improvement, for improving the  contract structure and
administration of Response Action Contracts. (Contracts)

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  Our People
Progress in Filling Skill Gaps From FY 2004 to FY 2005

The OIG is making significant progress in implementing its Human Capital Plan to align its staffing skill
mix to match the its strategic goals and product lines.  During FY 2005, the OIG was able to satisfy better
than 76 percent of its identified skill gaps, which at one time were reported as an OIG Management Level
Weakness (Challenge).
Series                           Skill Gap
Program Analyst                     47
Criminal Investigator                 16
Financial Auditor                     13*
Social Scientist                      17
Environmental Scientist                8
ITAuditor                            9
Computer Specialist                  3
Operations Research Specialist         3
TOTAL                            116
                                                Progress Filling Gap
                                                       43
                                                       13
                                                       11*
                                                       10
                                                        3
                                                        3
                                                        2
                                                        1
                                                       86
Percent of Gap Filled
       91%
       81%
       85%
       59%
       38%
       33%
       66%
       33%
       76%
* The skill gap for Financial Auditor represented excess staff; progress involved a redistribution of staff.

FY 2005 OIG Parity With the Civilian Labor Force

The OIG is 92.2 percent in parity with the civilian labor force.

                  FY 2006 OIG Diversity Compared to the Civilian Labor Force

Amer Indian Females

  Amer Indian Males

      Asian Females

        Asian Males

   Hispanic Females

     Hispanic Males

      Black Females

        Black Males

     White Females

       White Males

                   0       5      10      15      20     25      30     35     40
                                                                                           45
The OIG workforce overall is 91.2 percent in relative parity with the civilian labor force for the designated
categories.  Staff categories where the OIG has significant under-representation are White Females and
Hispanic Males and Females.
                                             10

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  Our Resources
OIG FY 2005 Resource Use and Allocation
FY2004 Appropriation -Final Utilization Rate
Account           $ Appropriation Available
Management                  $36,587,700
Superfund                     13,136,037
TOTAL                       $49,723,737
                        $ Appropriation Used
                                $36,580,750
                                 13,118,367
                                $49,699,117
                     % $ Appropriation Used
                                  100.0%
                                   99.9%
                                  100.0%
FY 2005 Appropriation Usage
Account           $ Appropriation Available
Management                  $37,646,400
Superfund                     12,896,000
TOTAL                       $50,542,400
                        $ Appropriation Used
                                $37,270,463
                                 12,336,477
                                $49,606,940
                     % $ Appropriation Used
                                   99.0%
                                   95.7%
                                   98.1%
FY 2005 FTE Usage
Account
Management
Superfund
TOTAL
FY 2005 FTE Available
             274.0
              94.0
             368.0
FY 2005 FTE Used
          271.1
           86.9
          358.0
% FTE Budget Used
          98.9%
          92.4%
          97.3%
FY 2005 Distribution of Funds Used By Object Class
                      WCF
                    $5,092,973 1
             Contracts
             $4,330,441 ~\
            Expenses
             Awards
            |" $346,272
                        TOTAL $49,606,940
FY 2005 Distribution of FTEs Used: Total 358
                      IG Counsel
                         7.8
               Mission Systems
                   20.5
          Human Capital
             39.1
Planning, Analyis & Results
       11.7
     Cong/Public Liaison
          20.6
            Program Evaluation
                 84.8
                        Investigations
                           60.2
                                            11

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  Appendix 1: OIG's  Top Management Challenges
OIG Management Challenges

In FY 2005, for the seventh straight year, the OIG reported no material weaknesses under the Federal
Managers Financial Integrity Act. Further, the OIG continues to make progress in addressing reported
OIG-level weaknesses. The weaknesses identified in FY 2004 were not fully resolved in FY 2005
because of their complexity.
OIG-Level Weakness
Records Management
Human Resource Systems (Includes Skill Gaps)
IGOR (Information Technology)
OIG Intranet/Internet
Product Timeliness and Quality
Followup on Corrective Actions
Background Investigation/Security Process
FY 2003
S
S
s
s
s
s
s
FY2004
s






FY2005
S






In FY 2005, the OIG took the following steps to improve management controls:

• Developed policies and/or procedures on annual planning, OIG Internet and Intranet, reviewing report
  resolution status, followup policy, and post closeout followup.
• Procuring and overseeing the development and implementation of The Inspector General Enterprise
  Resources (TIGER) information system.
• Revised the Training Information System (TIS) to track continuing professional education for staff.
• Improved procedures for handling legal matters, including Freedom of Information Act requests.
• Utilized success indicators developed by OPM to assess our performance.
• Issued the fourth OIG Annual Performance Report demonstrating specific progress on OIG's Strategic
  Goals, including a balanced scorecard of financial, customer service, timeliness, and effectiveness
  measures.
• Developed the Law Enforcement Tracking System (LETS) to provide a consolidated repository of
  information necessary to ensure compliance with the requirements for Statutory Law Enforcement
  Authority.
• Completed the quality assurance reviews of Office of Investigations (OI) Northeastern Resource
  Center (NERC), October 2004, and OI Headquarters, November 2004, under the OI Inspection
  Program.
• Conducted periodic inventories of (issued and stored) firearms, badges, credentials, and other law
  enforcement equipment.
• Implemented a reorganization of the immediate office of the Inspector General.
• Performed an OIG-wide comprehensive review of the OIG Purchase Card System.
• OIG staff completed the  self-study courses "Information Security Awareness" and "Interacting with
  Contractors."
• Instituted a new organization-wide assignment evaluation process, including developing of an assignment
  assessment database.
• Developed a prototype for organization-wide activity process and performance metrics leading to an
  executive dashboard and subordinate management productivity controls.
                                            12

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  Appendix 2: EPA's Top Management Challenges
Historical Perspective Top Management Challenges as Reported by OIG

Below is the list of Top Management Challenges that the OIG has reported to EPA each year since 2003.
While EPA is making progress in resolving its Major Management Challenges, several have been
longstanding problems. The following table shows which challenges have been listed from 2003 through
2005 and their relationship to the President's Management Agenda.
EPA's Top Major Management Challenges
Reported by the OIG
Linking Mission and Management: Development of more
outcome-based strategic and annual targets in collaboration
with partners.
Agency Efforts in Support of Homeland Security: Implementing
a strategy to effectively coordinate and address threats.
Superfund Evaluation and Policy Identification: Improving the
usefulness of internal evaluations, and implementing program
policy decisions.
Information Resources Management and Data Quality: Improving
the quality of data used to make decisions and monitor progress.
EPA's Use of Assistance Agreements to Accomplish Its Mission:
Improving the management of the billions of dollars of grants
awarded by EPA.
Challenges in Addressing Air Toxics Program: Reducing air toxic
emissions by improving measurement of risk assessment and
progress.
Human Capital Management: Implementing a strategy that
will result in a competent, well-trained, and motivated workforce.
Information Security: Protecting information systems by
preventing intrusion and abuse of systems, and protecting
integrity of data.
FY
2003
S
S

S
s
s
s
s
FY
2004
*
s
s
s
s
s
s
s
FY
2005
*
s
s
s
s
s
s
s
Link to President's
Management Agenda
Integrating
Performance
& Budget


E-Gov
Financial
Performance

Human Capital
E-Gov
   In FY 2004 and 2005 Working Relationships with the States was consolidated in "Linking Mission to Management"
                                      13

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  Appendix  3:  Looking to the  Future
FY 2005 OIG Performance Targets (with targets FY 2006 - 2008)

Crosswalk between OIG Strategic Plan Objectives/Measures & EPA Annual Performance Plan Goals (APGs)
  OIG STRATEGIC GOALS/ EPA OIG APG
                    2006
                2007
2008
  FY 2005 OIG GOAL 1 /EPAAPG1: Improve human health and environmental quality by identifying 80
  recommendations, risks, or best practices; contributing to reduction or elimination of 18 environmental
  risks; and 42 changes or actions influencing positive environmental or health impacts.
Objective Measures and Targets:

• Environmental Improvements/Changes/ Actions (legislative,
  regulatory, policy, directives, best practices, environmental, or health
  improvements): Intermediate Outcome and Outcome Measures

• Environmental Risks Reduced/Eliminated Certifications,
  Verifications, Validations: Outcome Measures

• Recommendations,  Risks, or Best Practices Identified:  Output
  Measures
                     50
                     28
                     105
                 55
                 33
                 115
  58
  38
 120
business and progiam operations
  FY 2005 OIG GOAL 2 / EPA APG 2: Improve EPA's
  recommendations, potential savings, and recoveries for 150% annu al investment
  better business operations; and 80 criminal, civil, or administrative
             by identifying 240
            n OIG; 100 actions for
actions reducing risk of loss/integrity.
Objective Measures and Targets:

• Potential Dollar Return on Savings, Questioned Costs, Improved
  Business Practices, Recoveries, Fines, Settlements: Outcome
  Measures

• Criminal, Civil Administrative Actions Reducing or Eliminating Risk
  of Loss and Operational/Data Integrity: Intermediate Outcome
  Measures

• Improvements  in  Business/Systems/Efficiency (Actions Taken on
  Mgt Challenges, Certifications, Best Practices, Policies,
  Regulations): Outcome Measures

• Recommendations Made or Weakness, Best Practices Identified:
  Output Measures

* Revised to account for inclusion of Single Audits
                    150%
                     ROI
                     80
                    225*
                    820*
                150%
                ROI
                 80
                230*
                840*
150%
 ROI
  80
 240*
 860*
                                              14

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  Appendix 4: OIG  FY 2005 Program Activity
  Audit/Evaluation Activity and Agency Action
                    Investigative
Reports Issued
• Reviews Performed by OIG                              65
• Reviews by Another Federal Agency                      305
• Single Act Audit Reviews                               245
  TOTAL Reports                                       615

• Questioned Costs                                 $79.5M
• Cost Efficiencies                                  $13.4M
• Reports Resolved (from currents prior years)              263
• Agency Recoveries (from current & prior years)         $ 1.3M
                      Investigations Opened                    157
                      Investigations Closed                    141
                      Pending Investigations as of 9/30           218
                      Indictments of Persons/Firms (arrests)        23
                      Conviction of Persons/Firms                15
                      Administrative Action EPA Employees/Firms    83
                      Civil Judgments                           4
                      Allegations Disproved                      9
                      Fines and Recoveries
                      (including civil & savings)             $50.9M
Audit Resolution
(Dollars in Millions)
Other
Recommendations as Costs
• With no management decision start FY05
• Issued in FY05
• Agreed to by management or
  value of nonawards
• Not agreed to by management or
  value of nonawards
• With no management decision, end FY05
Percent of total agreed to by management
Questioned  Efficiencies
 $53.20*   $3.58"
 $47.27    $9.01
 $ 4.51

 $ 5.14
 $ 89.60
   4.5%
$4.00

$0.00
$9.50
29.2%
  Audits with no Federal action as of 9/30/05 which
  are over 365 days past issuance date                125
  Reports for which no management decision was
  made within six months of issuance at 9/30/05          39
Audit Resolution Reported by EPA
• Audits with management decisions but
  without final action beginning FY05
• Audits for which management decisions
  were reached in FY05
• Total audits pending final action
  during FY05
• Final action taken during FY05
• Audits without final action end of FY05
  (Carried as opening balance in FY06)
Percent Audit $ Value Final Action Taken FY05     9.7%
luestioned
$ 74.30
$ 4.50
$ 78.50
$ 7.60
$71.20
Efficiencies
$0.00
$2.90
$2.90
$0.90
$2.00
Hotline Complaints Received               474
Hotline Complaints Opened                 27
Hotline Complaints Closed                  18
Public Inquiries Addressed                138
Legislative/Regulatory Items Reviewed        40
President's Council on Integrity and
Efficiency (PCIE) Projects Led/Developed      5
           310%
  $1.1 M was recategorized from questioned costs to cost
  efficiencies during FY05
                                                   15

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Forquestions, comments, orto obtain copies of this report,
please contact any of the following:

Eileen McMahon
Assistant Inspector General for Congressional and Public Liaison
(202) 566-2546
McMahon.Eileen@epa.gov

Howard Cantor
Assistant Inspector General for Planning, Analysis, and Results
(202) 566-2649
Cantor.Howard@epa.gov

U.S. Environmental Protection Agency
Office of Inspector General
1200 PennsylvaniaAve., NW(2410T)
Washington, DC 20460
(202) 566-0847

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