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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Quick Reaction Report
Passaic Valley
Sewerage Commissioners -
Unallowable Costs Claimed
Under EPA Grant XP98237601
Report No. 08-2-0226
August 6, 2008

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Report Contributors: Yeon Kim
Khadija Walker
Matthew Simber
Robert Adachi
Abbreviations
EPA	U.S. Environmental Protection Agency
Grant	Grant XP98237601
Grantee Passaic Valley Sewerage Commissioners
OIG	Office of Inspector General
Cover photo: Final clarifiers and influent baffles that increase the capacity of the Passaic Valley
Sewerage Commissioners plant in Newark, New Jersey. (EPA OIG photo)

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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
08-2-0226
August 6, 2008
Catalyst for Improving the Environment
Why We Did This Review
The U.S. Environmental
Protection Agency (EPA)
Office of Inspector General
conducted reviews of
earmarked grants known as
Special Appropriation Act
Projects issued to local and
tribal governments. We
selected the Passaic Valley
Sewerage Commissioners for
one of these reviews.
Background
In 2001, Passaic Valley
Sewerage Commissioners
received an EPA Special
Appropriation Act Project
grant, XP98237601.
The purpose of the grant was
to provide federal assistance
of $4,751,200 for
rehabilitating existing final
clarifiers, constructing a
floating dock and off-loading
facilities, and procuring
thickening centrifuges at the
grantee's location.
Passaic Valley Sewerage Commissioners -
Unallowable Costs Claimed Under EPA Grant
XP98237601
What We Found
The grantee claimed $2,385,634 for pre-award costs under Grant XP98237601 that
were incurred prior to the grant award and thus were unallowable under the grant
administrative conditions and Office of Management and Budget Circular A-87.
The federal share of the unallowable pre-award costs was $1,312,099.
What We Recommend
We recommend that the EPA Regional Administrator, Region 2, recover
$1,312,099, the federal share of the unallowable pre-award costs.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.qov/oiq/reports/2008/
20080806-08-2-0226.pdf

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OFFICE OF
INSPECTOR GENERAL
August 6, 2008
MEMORANDUM
SUBJECT: Passaic Valley Sewerage Commissioners -
Unallowable Costs Claimed Under EPA Grant XP98237601
Report No. 08-2-0226
FROM: Robert K. Adachi
Director of Forensic Audits
TO:	Alan J. Steinberg
Regional Administrator
EPA Region 2
This report contains a time-critical issue the Office of Inspector General (OIG) identified and
recommends recovery of federal funds drawn down by the recipient. This report represents the
opinion of the OIG and does not necessarily represent the final position of the U.S.
Environmental Protection Agency (EPA). EPA managers will make final determinations on
matters in this report.
The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - is $69,623.
Action Required
In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to provide us
your proposed management decision for resolution of the finding contained in this report before
any formal resolution can be completed with the recipient. Your proposed decision is due in
120 days, or on December 4, 2008. To expedite the resolution process, please e-mail an
electronic version of your proposed management decision to adachi.robert@epa.gov.
We have no objections to the further release of this report to the public. This report will be
available at http://www.epa.gov/oig. If you have any questions, please contact Robert Adachi,
Director of Forensic Audits, at (415) 947-4537 or at the e-mail address above.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460

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08-2-0226
Purpose
The Office of Inspector General is reviewing Special Appropriation Act Project Grants to
identify issues warranting further analysis. This includes reviewing the total project costs
incurred by selected grant recipients. During our review of the grants awarded to Passaic Valley
Sewerage Commissioners (grantee), Newark, New Jersey, we identified the following condition
that we believe requires immediate attention. The grantee claimed and was reimbursed for pre-
award costs under Grant XP98237601 that are unallowable under the grant administrative
conditions and Office of Management and Budget Circular A-87.
Background
The U.S. Environmental Protection Agency (EPA) Region 2 awarded Grant XP98237601 (grant)
on March 22, 2001. The purpose of the grant was to provide federal assistance of $4,751,200 for
rehabilitating the existing final clarifiers, constructing a floating dock and off-loading facilities,
and procuring thickening centrifuges. The amount represents EPA's contribution of up to
55 percent of the eligible project costs, and is limited by the amount of the congressional
appropriation. The grantee was responsible for matching, at a minimum, 45 percent of the
eligible project costs. Total project costs under the grant were $8,638,545. The budget and
project period for the grant was March 1, 2001, to December 31, 2005.
Scope and Methodology
We conducted this performance audit 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. We conducted our field work
between March 10 and April 22, 2008. We performed the following steps:
•	Reviewed EPA Region 2 proj ect files;
•	Reviewed grantee's supporting documents for grant drawdowns;
•	Verified deposits of grant drawdowns to the grantee's bank statements;
•	Conducted interviews of the grantee;
•	Reviewed the grantee's procurement procedures and the selection of contractors to
determine whether the grantee complied with the procurement requirements pursuant to
Title 40 Code of Federal Regulations 31.36;
•	Reviewed the transactions of the project costs to determine whether costs were incurred
for construction only;
•	Reviewed and verified invoices to the accounting record, cancelled checks, and the bank
statements;
•	Determined and verified that the grantee met the required match to the grant; and
•	Toured the subject secondary wastewater treatment plant.
1

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08-2-0226
Finding
The grantee claimed three invoices under Grant XP98237601 totaling $2,385,634 for costs that
were incurred prior to the award. The costs were for procuring and installing three thickening
centrifuges. Administrative Condition No. 1 of the grant states that"... it is agreed that any
project costs incurred prior to midnight of the date preceding grant award shall be unallowable in
their entirety." All terms and conditions in the original grant agreement remained in effect and
were incorporated in both amendments 1 and 2. In addition, Office of Management and Budget
Circular A-87, Attachment B, Section 31, states that pre-award costs are allowable only when
necessary and only with the written approval of the awarding agency. The grantee did not obtain
EPA's written approval.
The details of the three invoices, all under Contract 23 A231, are as follows:
Table 1: Details on Three Invoices
Payment
Date
Work Period
Covered
Amount
Federal Share
(55%)
Local Match
(45%)
8/11/2000
Through 07/07/00
$ 155,585
$ 85,572
$ 70,013
2/16/2001
Through 01/12/01
1,724,398
948,419
775,979
4/16/2001
Through 03/09/01
505,651
278,108
227,543

$ 2,385,634
$ 1,312,099
$ 1,073,535
Source: OIG review of invoices
A portion of the third invoice is allowable for the period March 1-9, 2001; however, we are
unable to determine the amount of that portion from the documentation provided. Therefore, we
are questioning the entire invoice. As a result, the grantee claimed $2,385,634 in unallowable
pre-award costs, including the federal share of $1,312,099.
Recommendation
1. We recommend that the EPA Regional Administrator, Region 2, recover $1,312,099,
the federal share of the unallowable pre-award costs.
Grantee Comments
On June 17, 2008, we held a teleconference with representatives from EPA Region 2 and the
grantee to obtain their comments regarding the factual accuracy of our discussion draft report.
The grantee concurred with the factual accuracy of the report. Region 2 asked us to reword the
recommendation to be consistent with a previous Office of Inspector General (OIG) Special
Appropriation Act Project report. Region 2 stated that it was now in the process of amending the
grant to reflect an earlier start date, which may make the questioned costs allowable.
2

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08-2-0226
OIG Response
Our position remains unchanged since the grantee concurred with the findings. We also did not
change the recommendation to the language Region 2 suggested because the circumstances that
prompted the previous report recommendation did not exist in this case.
3

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08-2-0226
Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Planned
Completion
Action Official	Date
2 Recover $1,312,099, the federal share of the
unallowable pre-award costs.
Regional Administrator,
Region 2
Claimed
Amount
Agreed To
Amount
$1,312
1 0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
4

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08-2-0226
Appendix A
Distribution
Regional Administrator, Region 2
Director, Office of Wastewater Management, Office of Water
Director, Office of Wastewater Management - Municipal Support Division, Office of Water
Director, Office of Grants and Debarment
Director, Grants and Interagency Agreements Management Division
Agency Follow-up Official (the CFO)
Agency Follow-up Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Region 2 Audit Follow-up Coordinator
Region 2 Public Affairs Office
Deputy Inspector General
5

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