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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Spending Taxpayer Dollars
Improved Oversight of EPA's
Grant Monitoring Program
Will Decrease the Risk of
Improper Payments
Report No. 15-P-0166
June 11, 2015
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Scan this mobile
code to learn more
about the EPA OIG.

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Report Contributors:	Janet Kasper
Ethel Lowery
Madeline Mullen
LaTanya Scott
Abbreviations
AAM
Advanced Administrative Monitoring
CFR
Code of Federal Regulations
CY
Calendar Year
EPA
U.S. Environmental Protection Agency
GC&RA
Grantee Compliance and Recipient Activity
GMO
Grants Management Office
OARM
Office of Administration and Resources Management
OGD
Office of Grants and Debarment
OIG
Office of Inspector General
OMB
Office of Management and Budget
Cover photo: Sulphur Springs City Hall was cleaned up with EPA Brownfield grant funds.
(Photo courtesy of the city of Sulphur Springs, Texas)
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OIG Hotline@epa.gov
More information at www.epa.gov/oiq/hotline.html.
EPA Office of Inspector General
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Washington, DC 20460
(202) 566-2391
www.epa.gov/oig
Subscribe to our Email Updates
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U.S. Environmental Protection Agency	15-P-0166
^	\ Office of Inspector General	June 11,2015
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At a Glance
Why We Did This Review
The U.S. Environmental
Protection Agency (EPA),
Office of Inspector General
(OIG), conducted this audit to
determine whether the EPA's
advanced administrative
monitoring (AAM) system is
effective for ensuring grant
recipient costs are allowable,
allocable and reasonable.
The OIG conducted this audit
in part to follow up on a
recommendation from EPA
OIG Report No. 13-P-0361,
EPA Needs to Improve STAR
Grant Oversight, issued
August 27, 2013.
The purpose of AAM is to
conduct an in-depth
assessment of a grant
recipient's administrative and
financial progress, as well as
examine the management of
the grant. AAM also includes
tests to ensure that claimed
costs are allowable, allocable
and reasonable.
This report addresses the
following EPA goal or
cross-agency strategy:
• Embracing EPA as a high-
performing organization.
Send all inquiries to our public
affairs office at (202) 566-2391
or visit www.epa.gov/oiq.
The full report is at:
www.epa.aov/oia/reports/2015/
20150611-15-P-0166.pdf
Improved Oversight of EPA's Grant Monitoring Program
Will Decrease the Risk of Improper Payments
EPA oversight of
AAM reviews did not
protect $507,168 in
taxpayer dollars.
What We Found
Advanced administrative monitoring oversight was not
always effective for ensuring grant recipient costs are
allowable, allocable and reasonable. The Office of
Management and Budget provides guidance on the
allowability, allocability and reasonableness of costs, and
the EPA provides guidance on conducting AAM reviews.
However, EPA guidance and reference materials do not clearly state that AAM reviews
are to assess whether the reviewed costs meet the requirements of applicable federal
cost principles. Confusing or insufficient guidance contributes to the difficulties grant
specialists have with AAM reviews. Insufficient oversight of AAM reviews increases the
risk of improper payments, so that AAM reviews cannot be relied on to accurately
identify whether costs are allowable, allocable and reasonable. During our audit, we
found inadequate documentation of costs totaling $507,168 for AAM reviews that did
not have adequate cost support for federal funds drawn.
Recommendations and Planned Agency Corrective Actions
We recommend that the Assistant Administrator for the Office of Administration and
Resources Management (OARM) implement a process to enhance quality-control
reviews of AAM reports. The process should include review of supporting
documentation.
We also recommend that OARM issue national guidance to EPA Grants Management
Offices. The guidance should clarify step-by-step processes needed to conduct
transaction testing, and include provisions for tracing costs to source documents to
ensure expended costs are allowable, allocable, reasonable, and aligned with the
approved budget and project activities. In addition, we recommend that the EPA follow
up on undocumented costs identified in the OIG finding and require grant recipients to
reimburse the agency for costs deemed unallowable based on insufficient and/or
unacceptable source documentation.
In its response, OARM agreed with all of the recommendations and provided planned
corrective actions with completion dates to address all of the draft report's
recommendations.
Noteworthy Achievements
EPA Region 2 conducted an AAM review of a grant recipient. The recipient was not in
compliance with EPA grant requirements for documenting policies, procedures and
drawdown costs. Region 2 conducted extensive follow-up on this AAM review, and the
region's attention to detail helped to ensure taxpayer dollars are protected.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
June 11,2015
MEMORANDUM
SUBJECT: Improved Oversight of EPA's Grant Monitoring Program
Will Decrease the Risk of Improper Payments
Report No. 15-P-0166
FROM: Arthur A. Elkins Jr.
TO:
Karl Brooks, Acting Assistant Administrator
Office of 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.
The office responsible for implementing the recommendations is the Office of Grants and Debarment
within the EPA's Office of Administration and Resources Management.
Action Required
In response to the draft report, the agency provided planned corrective actions that address the
recommendations and establishes milestone dates. Therefore, a response to the final report is not
required. The agency should track corrective actions not implemented in the Management Audit
Tracking System.
We will post this report to our website at http://www.epa.gov/oig.

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Improved Oversight of EPA's Grant Monitoring Program
Will Decrease the Risk of Improper Payments
15-P-0166
	Table of Contents	
Purpose		1
Background		1
Responsible Office		2
Noteworthy Achievements		2
Scope and Methodology		3
EPA's Advanced Administrative Monitoring Reviews Generally Are
Effective but Need Improvement		4
EPA Provides Guidance for Cost Reviews		4
EPA Oversight Does Not Ensure All Reviewed Costs Are Allowable,
Allocable and Reasonable		5
Guidance and Oversight Should Be Improved		8
Lack of AAM Oversight Increases Risk of Improper Payments		10
Recommendations		11
Agency Response and OIG Evaluation		11
Status of Recommendations and Potential Monetary Benefits		13
Appendices
A Agency Response to Draft Report		14
B Distribution		17

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Purpose
The U.S. Environmental Protection Agency (EPA), Office of Inspector General
(OIG), conducted this audit in part to follow up on a recommendation concerning
advanced administrative monitoring (AAM), which was noted in EPA OIG
Report No. 13-P-0361, EPA Needs to Improve STAR Grant Oversight, issued
August 27, 2013. During that audit we found the EPA did not ensure costs were
allocable to a sampled grant, and the agency did not request certified effort
reports.
Our audit objective for this review was to determine whether the EPA's advanced
administrative monitoring system is effective for ensuring grant recipient costs are
allowable, allocable and reasonable.
Background
Grant responsibilities are shared between EPA program offices and the Office of
Grants and Debarment (OGD) within the Office of Administration and Resources
Management. OGD is responsible for the financial management of EPA grants.
OGD's responsibilities include, among other things, baseline and AAM reviews.
Baseline monitoring is the periodic review of a grant recipient's progress and
compliance with an award's scope of work, terms and conditions, and regulatory
requirements. AAM monitoring is an in-depth assessment of a grant recipient's
progress and management of the grant. Statistical sampling is used to select a
percentage of grants for AAM review each year. Most reviews are done by OGD
staff from EPA headquarters or by the 10 EPA regions, but many are done by
contractors.
The agency maintains the Grantee Compliance and Recipient Activity (GC&RA)
summary database as a central repository for information related to EPA grant
recipients. The database includes past grant activity and information about the
capacity of recipients to effectively manage grant funds. All advanced monitoring
activities must be recorded in the database, along with attached reports that count
as part of the Grantee Compliance Assistance Initiative outlined in EPA Order
5700.6. The primary purpose of the database is to provide accurate information
about grant recipient compliance activities to EPA staff in headquarters, regional
programs, and in Grants Management Offices (GMOs).
The Office of Management and Budget (OMB) provides guidance in the Code of
Federal Regulations (CFR) regarding the allowability, allocability and
reasonableness of costs charged to federal grants. The guidance is known as cost
principles and determines whether costs can be charged to federal grants for the
following types of recipients:
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•	Nonprofit organizations (2 CFR Part 230).
•	State, local and tribal governments (2 CFR Part 225).
Depending on the type of cost claimed, recipients are required to maintain
different types of support documentation as shown in Table 1.
Table 1: Acceptable documentation for claimed costs
Type of cost
Type of documentation
Personal
services
(salaries)
When employees work on multiple activities, the distribution of
salaries will be supported by personnel activity reports or equivalent
documentation.
Fringe benefits
Support is from established leave policies. Costs are equitably
allocated. The accounting basis is consistently followed.
Travel
Support indicates travel is allocable to a federal award and
adequately documented.
Procurement
Support indicates items such as supplies are allocable to a federal
award and are adequately documented.
Source: OIG analysis of 2 CFR Part 225 (state, local and tribal governments)
and Part 230 (nonprofit).
Responsible Office
The Office of Grants and Debarment within the EPA's Office of Administration
and Resources Management is responsible for oversight of AAM of grants.
However, regional GMOs have responsibilities for assigned individual AAM
reviews and follow-up.
Noteworthy Achievements
EPA Region 2 conducted an AAM review of a nonprofit grant recipient.
The recipient was not in compliance with EPA grant requirements for
documenting policies, procedures and drawdown costs. Region 2 said it has
extensive experience with AAM reviews and has placed many recipients in the
high-risk category. In the case of this particular nonprofit, Region 2 disallowed
the costs and placed the recipient in the high-risk category. Region 2 also
provided the nonprofit grant recipient with guidance for developing a successful
grants management system that included guidance on personnel, fringe benefits,
timekeeping, as well as templates to help the recipient draft procedures. Region 2
conducted extensive follow-up on this AAM review, and the region's attention to
detail helped to ensure taxpayer dollars are protected. This is a best practice that
should be considered by other regions.
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Scope and Methodology
We conducted our performance audit from April 2014 through March 2015, in
accordance with generally accepted government auditing standards issued by the
Comptroller General of the United States. 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 objective.
During calendar year (CY) 2013, the EPA reported 119 AAM reviews of
drawdowns totaling $22,817,844. Of the 119 reviews, 64 reviews were performed
by EPA and 55 by contractors. We selected a stratified random sample of 13 grant
recipients that experienced an AAM review during CY 2013. Our sample
included AAM reviews of grants awarded by headquarters and each EPA region.
Five of the 13 reviews were performed by contractors and eight were performed
by EPA staff.
To answer our audit objective, we analyzed the following:
•	EPA guidance and policies to determine grant specialist responsibilities
and oversight of AAM reviews.
•	CFR sections related to costs.
•	Sampled AAM records from the GC&RA database.
When database information was not as complete as required, we requested
additional documentation. During our audit of AAM reviews, we analyzed
documentation consisting of advanced monitoring reports, questionnaire results,
financial drawdowns, and supporting documents. In the case of four of the AAM
reviews, we obtained and reviewed missing supporting documentation from grant
recipients.
We interviewed grant specialists, contractors and grant recipients about issues
noted during our audit, and to obtain additional support for costs claimed. We also
met with OGD staff to discuss the AAM monitoring process including: AAM
procedures, challenges and results; grant recipient documentation of financial
records; and responsibilities for ensuring costs are allowable, allocable and
reasonable.
There are no prior U.S. Government Accountability Office audits impacting the
objective of this assignment. One AAM recommendation was noted in EPA OIG
Report No. 13-P-0361, EPA Needs to Improve STAR Grant Oversight, issued
August 27, 2013 (www.epa.gov/oig/reports/2013/20130827-13-P-Q361.pdf).
We discuss the EPA's implementation of the previous report's recommendation
on page 9 of this current report.
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EPA's Advanced Administrative Monitoring Reviews Generally Are
Effective but Need Improvement
EPA oversight of AAM reviews was not always effective for ensuring grant
recipient costs are allowable, allocable and reasonable. OMB provides guidance
on the allowability of costs, and the EPA provides guidance on conducting AAM
reviews. However, EPA guidance and reference materials do not clearly state that
advanced monitoring reviews are used to assess whether the reviewed costs meet
the requirements of applicable federal cost principles.
Insufficient oversight of AAM reviews increases the risk of improper payments
made with taxpayer dollars. AAM reviews cannot be relied on to accurately
identify whether costs are allowable, allocable and reasonable. During our audit,
we found inadequate documentation of costs totaling $507,168. This total
includes grant recipients that did not have adequate documentation to support
federal funds drawn, and AAM reviews completed without adequate support.
EPA Provides Guidance for Cost Reviews
EPA Order 5700.6A2, Policy on Compliance, Review, and Monitoring, states that
the purpose of AAM is to conduct an in-depth assessment of a grant recipient's
administrative and financial progress, as well as examine the management of the
grant. Each review must use the appropriate administrative protocol published by
the OGD's National Policy, Training and Compliance Division, and maintained
on the OGD's website. The protocol is a questionnaire that the grant recipient
completes regarding the policies, procedures and cost information. The protocol
references OMB cost principles that require costs to be allowable, allocable and
reasonable.
Grant specialists are responsible for maintaining appropriate file documentation
and recording monitoring reports within the GC&RA database. When the AAM
review requires corrective actions, resolution of the actions is expected within 120
calendar days of the draft report date (or final report date for contractor reviews),
unless explained in the database and outlined in the report.
AAM reviews conducted by contractors are described in EPA contract
EP-W-12-015. The contract requires contractors to conduct limited-scope
administrative and financial management system reviews. Those reviews require
interviews; review of administrative policies, procedures and the recipient's financial
management system; and the testing of a limited quantity of financial transactions
using the completed Advanced Post Award On-Site Protocol as a guide.
The EPA's Required Format for Writing an Administrative Onsite/Desk Review
Report provides additional details about AAM reviews. It states that the
objectives are to assess the effectiveness of the recipient's control and
accountability of EPA grant funds, as well as determine whether the recipient's
15-P-0166
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administrative and financial management systems generally meet the
requirements of the applicable Code of Federal Regulations, OMB cost principles,
and terms and conditions of the agreements. Support documents for EPA funds
drawn should include detailed accounting records that document payroll, travel,
other expenses, etc., by project. Payrolls, travel, fringe benefits, supplies,
equipment, contracts and subgrant charges should be supported with timesheets,
executed agreements, travel vouchers and invoices.
EPA Oversight Does Not Ensure All Reviewed Costs Are Allowable,
Allocable and Reasonable
EPA oversight has not effectively ensured that grant specialists and contractors
confirm grant recipient costs were allowable, allocable and reasonable during
transaction testing, or that policies and procedures were acceptable. Also, the EPA
did not always follow up on corrective actions, and some corrective actions only
received follow-up after OIG inquiry. Table 2 shows the drawdown amounts tested,
amounts the EPA questioned, and whether we found AAM reviews were adequate.
Table 2: Drawdown amounts reviewed for AAM
Grant recipient
Drawdown
Amount EPA
Was AAM review

amounts
questioned
adequate?

tested


#1
$122,708
$0
No
#2
$200,000
$0
Yes
#3
$41,895
$0
No
#4
$64,459
$0
No
#5
$200,000
$0
No
#6
$59,000
$59,000
Yes
#7
$25,000
$0
No
#8
$6,135
$0
Yes
#9
$51,330
$0
Yes
#10
$78,950
$0
Yes
#11
$95,873
$2,049
Yes
#12
$305,019
$0
No
#13
$74,219
$0
No
Total
$1,324,588
$61,049
—
Source: OIG analysis of AAM documentation.
EPA Did Not Always Review Sufficient Cost Documentation
For seven out of 13 AAM reviews, the EPA did not review adequate supporting
cost documentation to determine whether costs were allowable, allocable and
reasonable. Those conducting the reviews said they:
•	Did not realize that 100-percent review of documentation was required.
•	Had limited access to records.
•	Did not understand the grant recipient's accounting system, so support
was not obtained or used.
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In one case involving support for payroll costs, the EPA accepted time reports
from the accounting system and pay stubs to support time charged to the grant,
even though the regulations require personnel activity reports signed by the
employee to support labor charges.
The EPA questioned less than 5 percent of the tested transactions for the 13
advanced monitoring reviews, but we found that 38 percent of the transactions
should be questioned or were not adequately supported. The EPA did not review
adequate supporting cost documentation as shown in Table 3.
Table 3: Inadequate documentation accepted by EPA during AAM reviews
Recipient
Drawdown
amount
tested
Type of cost
Inadequate documentation
Associated cost
#1
$122,708
Fringe
benefits and
adjustments
Did not review any documentation to
support $492 in fringe benefits charged
to the grant.
Did not verify that adjustments of
$40,900 were adequately supported.
$41,392
#3
$41,895
Subaward
Accepted the invoice from the
subrecipient as support for subrecipient
costs, but did not review how the
recipient evaluated subrecipient costs.
$41,895
#4
$64,459
Payroll,
indirect costs,
fringe
benefits and
procurement
Payroll—Employee pay stubs with total
salary and a computer printout of time
charges to various projects were
accepted as support for some payroll
costs. The documentation did not show
total dollars charged to the grant.
Indirect costs and fringe benefits—The
costs as claimed were accepted
without verifying if the rates were
approved.
Procurement—Invoices were accepted,
but the documents did not show how
the grantee determined costs were
allocable to the grants.
$50,071
#5
$200,000
Travel
Supporting documentation was
reviewed, but the documentation did
not add up to the total cost requested
for reimbursement.
$88
#7
$25,000
Payroll
Timesheets and a payroll ledger for
costs claimed were accepted, but the
documentation did not reconcile to the
total costs drawn down by the recipient.
$25,000
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Recipient
Drawdown
amount
tested
Type of cost
Inadequate documentation
Associated cost
#12
$305,019
Payroll,
fringe
benefits,
travel and
procurement
Payroll—A pay register and timesheets
were reviewed, but those documents
did not account for all costs claimed for
reimbursement.
Fringe benefits—Documentation that
supports fringe benefits charged to the
grant were not reviewed.
Travel—A general ledger was
reviewed, but receipts that support the
expenses of one traveler were not
reviewed.
Procurement—A statement of revenue
and expenditures was reviewed, but
not all costs were supported.
$287,336
#13
$74,219
Procurement
and travel
Two invoices were reviewed, but not all
the detailed support.
Contractor did not have any support for
two of the tested drawdowns.
$61,386
Total
$833,300


$507,168
Source: OIG analysis of AAM documentation.
Recipient Policies and Procedures Were Not Always Reviewed
The EPA reviewed the adequacy of policies and procedures for 10 of the 13 AAM
reviews. However, for three AAM reviews, the EPA did not review recipient
policies and procedures for compliance with federal regulations (Table 4).
Table 4: Policies and procedures not reviewed
Recipient
Not reviewed
#7
A grant specialist said he was not familiar with the recipient's
policies and procedures for drawing funds and payroll/personnel,
so the policies and procedures were not reviewed.
#12
The contractor stated that he was working alone on the review, so
he did not have time to review them.
#13
The contractor said he asked for policies and procedures, but they
were not reviewed to ensure consistency with federal cost
principles.
Source: OIG analysis of AAM documentation.
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Not All Corrective Actions Were Completed in a Timely Manner
The EPA conducted timely follow-up within 120 days for six of the nine reviews.
Three reviews were not timely. If follow-up is not timely, needed improvements
could be delayed (Table 5).
Table 5: Delayed follow-up on AAM review findings
Grant
recipient
EPA or
contractor
Date of
report
Corrective
action due
Date
follow-up
occurred
Closure
date in
IGMS
Time
elapsed
Did follow-
up exceed
120 days?
#5
EPA
01/23/14
05/15/14
09/19/14
09/19/14
8 months
Yes
#12
Contractor
08/22/13
09/23/13
10/27/14
Not
closed
14
months
Yes
#10
Contractor
01/31/14
Not
specified
11/04/14
11/05/14
9 months
Yes
Source: OIG analysis of AAM and follow-up documentation.
Guidance and Oversight Should Be Improved
EPA guidance and reference materials do not clearly state that AAM reviews are
used to assess whether the costs being reviewed meet the requirements of
applicable federal cost principles. EPA grant reference materials do not clearly
identify the criteria the grant specialist or contractor are to use during advanced
monitoring reviews. EPA Order 5700.6A2 states that each review must use the
appropriate administrative protocol. However, according to the Director of the
OGD's National Policy, Training and Compliance Division, the information on
OGD's website, which includes the administrative protocol, is not mandatory.
Guidance Is Not Clear
While EPA policy requires the use of the administrative protocol, the protocol
does not specify how the grant specialist or contractor is to evaluate information
the recipient provides. OGD reference material does not clearly identify which
criteria are to be used to evaluate grant recipient costs. OGD's website contains
three reference documents for AAM reviews: 1) required format; 2) guidance for
on-site reviews; and 3) guidance for desk reviews (Table 6). Each document
provides some information about testing transactions, but does not provide
specific guidance on evaluating transactions.
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Table 6: OGD reference instructions
OGD reference
Instructions for reviewing costs
Required Format for
Writing an Administrative
Onsite/Desk Review
Report
In describing what is to be included in the advanced
monitoring report, the reference material identifies the
types of supporting documentation that the recipient should
have to support the sampled drawdowns. However, the
reference document does not identify the criteria for
evaluating the documentation.
Grants Management
Office On-Site Review
Preparation Guidance
The reviewer is to judgmentally select samples to ascertain
whether procedures are working and costs claimed are
allowable, allocable and reasonable under the assistance
agreement. This guidance mentions the cost principles, but
does not provide any guidance for applying the cost
principles when reviewing cost documentation.
Off-Site/Desk Review
Guidance
The guidance does not contain any instructions concerning
how to review costs.
Source: OIG analysis of OGD reference materials.
Confusing or insufficient guidance contributes to the difficulties grant specialists
have with AAM reviews. One grant specialist said that she did not receive formal
training, even though she was conducting her first review. Thus, she was not
aware of subaward requirements and did not determine whether the grant
recipient was complying with subaward monitoring requirements. Another grant
specialist said the process associated with verifying costs was not easy, so he
relied on assistance from the grant recipient. The grant specialist was not aware of
support that he should have obtained. The lack of clarity in reference materials
also contributes to the confusion that grant specialists experience when
conducting AAM reviews.
Oversight Should Be Improved
For quality assurance purposes, OGD reviews AAM draft reports to ensure the
reports show what was covered in the review. However, supporting
documentation is not reviewed. Consequently, OGD was not aware that some
grant specialists and contractors were not reviewing the supporting documentation
needed to verify whether costs are allowable, allocable and reasonable. Without
reviewing supporting documentation, OGD cannot be assured that AAM reviews
are thorough and reliably reflect improper payments.
The AAM point of contact for OGD said grant specialists are not accountants or
auditors, and AAM reviews are not formal audits. OGD oversight also did not
include checking on whether grant specialists were following up on corrective
actions needed as a result of AAM reviews. In light of these challenges, AAM
reviews would benefit from increased OGD oversight and quality assurance
checks.
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Corrective Actions From Previous OIG Report Incomplete
The EPA did not take the corrective action that the OIG intended for a
recommendation made in EPA OIG Report No. 13-P-0361, EPA Needs to
Improve STAR Grant Oversight, issued August 27, 2013
(www.epa.gov/oig/reports/2013/20130827-13-P-0361 .pdf). The OIG
recommended that OGD issue guidance to grant specialists to remind them that
during transaction testing they are required to trace costs to source documents and
make a determination as to whether costs are related to the activities funded by
the grant.
The EPA reported in its Management Audit Tracking System that corrective
actions were complete, but the agency only sent an email reminder to grant
specialists in EPA headquarters. Since it was not national guidance, the email
reminder did not reach the grants staff in any of the regions, because the EPA
believed the recommendation was for grant specialists monitoring Science to
Achieve Results or "STAR" grants in headquarters and not the regions.
Lack of AAM Oversight Increases Risk of Improper Payments
The EPA's insufficient oversight of AAM reviews increases the risk of improper
payments with taxpayer dollars. Without reviewing supporting documentation,
OGD cannot be assured that AAM reviews reliably reflect improper payments or
accurately identify whether costs are allowable, allocable and reasonable.
Questioned and unsupported costs represent funds that can be put to better use.
The EPA has a fiduciary responsibility to ensure that all claimed costs reviewed
during AAM are allowable, allocable and reasonable. When a grant recipient does
not provide the EPA with the supporting documentation needed to verify the
allowability of costs, this may indicate the costs are not allowable or that the
required documentation does not exist.
AAM reviews did not have adequate documentation to support federal funds
drawn totaling $507,168. For example, in one of the AAM reviews, labor costs
were charged to several EPA grants. However, the grantee did not have
timesheets to show how the time was allocated. In addition, if a grant recipient
mistakenly charges time for other activities to an EPA grant that was funded to
sample and assess surface water quality, those charges could reduce the time and
number of samples and assessments expected under the EPA grant.
The EPA uses the results of AAM review transaction testing to conduct a
quantitative risk assessment for improper payments. Costs that are paid to
recipients, and are not found to be allowable, allocable and reasonable, meet the
definition of improper payments. When the EPA does not adequately review costs
during AAM reviews, the agency underestimates the improper payments that may
exist within the grant program.
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Recommendations
We recommend that the Assistant Administrator for Administration and
Resources Management:
1.	Implement a process to enhance quality-control reviews of AAM reports.
The process should include review of supporting documentation.
2.	Issue national guidance to the agency's GMOs. The guidance should
clarify step-by-step processes needed to conduct transaction testing, and
include provisions for tracing costs to source documents to ensure
expended costs are allowable, allocable, reasonable, and aligned with the
approved budget and project activities.
3.	Follow up on undocumented costs identified in the OIG finding and
require grant recipients to reimburse the agency for costs deemed
unallowable based on insufficient and/or unacceptable source
documentation.
Agency Response and OIG Evaluation
The agency agreed with the recommendations and provided planned corrective
actions with milestone dates.
In response to Recommendation 1, the EPA included two corrective actions:
•	All GMOs will be required to implement quality control measures for AAM
reviews (desk and on-site) conducted by EPA staff. This will include
reviewing supporting documentation prior to finalizing and transmitting the
AAM report to the recipient.
•	OGD will develop and implement quality control procedures to ensure that
all contractor-conducted, AAM on-site reviews are properly conducted.
This includes reviewing contractor work papers and source documentation
provided during the course of the review prior to transmitting the AAM
report to the recipient.
These actions will be completed by September 30, 2015. When implemented, the
corrective actions should address Recommendation 1.
In response to Recommendation 2, the EPA stated that OGD is in the process of
developing a standard operating procedure for AAM, which will address each of
the areas identified by the OIG. Once the procedure is finalized, all GMOs and
EPA grants staff will be required to follow the procedure when conducting AAM
reviews. These actions will be completed by September 30, 2015. When
implemented, the corrective actions should address Recommendation 2.
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In response to Recommendation 3, the EPA included two corrective actions:
•	GMOs will follow up with each of the recipients directly to request
additional documentation to support questioned costs.
•	GMOs will review the documentation and require reimbursement with
unallowable costs in accordance with applicable agency procedures.
These actions will be completed by December 31, 2015. When implemented, the
corrective actions should address Recommendation 3.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
No.
Subject
Status1
Action Official
Implement a process to enhance quality-control
reviews of MM reports. The process should
include review of supporting documentation.
Issue national guidance to the agency's GMOs.
The guidance should clarify step-by-step
processes needed to conduct transaction testing,
and include provisions for tracing costs to source
documents to ensure expended costs are
allowable, allocable, reasonable, and aligned with
the approved budget and project activities.
Follow up on undocumented costs identified in
the OIG finding and require grant recipients to
reimburse the agency for costs deemed
unallowable based on insufficient and/or
unacceptable source documentation.
Planned
Completion
Date
Claimed
Amount
Agreed-To
Amount
Assistant Administrator for 09/30/15
Administration and
Resources Management
Assistant Administrator for 09/30/15
Administration and
Resources Management
Assistant Administrator for 12/31 /15
Administration and
Resources Management
$507.2
1 O = Recommendation is open with agreed-to corrective actions pending.
C = Recommendation is closed with all agreed-to actions completed.
U = Recommendation is unresolved with resolution efforts in progress.
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Appendix A
Agency Response to Draft Report
MAY 7 2015
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Report No. OA-FY14-0188,
Improved Oversight of EPA's Grant Monitoring Program Will Decrease the Risk
of Improper Payments, dated March 20, 2015
FROM: Karl Brooks, Deputy Assistant Administrator
TO:	Arthur A. Elkins,
Office of the Inspector General
Thank you for the opportunity to respond to the issues and recommendations in the subject draft
audit report. We agree with the three recommendations and have developed corrective actions
and estimated completion dates as described in the attachment.
The draft report also mentions a corrective action made in Office of Inspector General Report
No. 13-P-0361, EPA Needs to Improve STAR Grant Oversight issued August 27, 2013. The draft
report states that Office of Administration and Resources Management's Office of Grants and
Debarment did not take the corrective action intended by the OIG. The recommendation in
question called for OGD to "issue guidance to grant specialists to remind them that during
transaction testing, they are required to trace costs to source documents and make a
determination as to whether costs are related to the activities funded by the grant." The OGD
issued the guidance to the OGD grants specialists administering STAR awards. In the OIG's
view, the guidance should have been distributed to both OGD and Regional Grants Specialists.
The authority to award STAR grants is reserved for OGD award officials and the issues
addressed in the STAR audit report dealt with inadequate STAR cost documentation. Based on
these factors, the OGD disseminated guidance to OGD grants specialists administering STAR
awards. We regret the misunderstanding and note that under the attached corrective action plan,
the OGD will be distributing advanced monitoring guidance to all grant specialists in the fourth
quarter of this fiscal year.
If you have any questions about this response, please contact me at (202) 564-4600 or have your
staff contact Frederick Griefer, Office of Grants and Debarment, at (202) 564-5059 or via email
at Griefer.Frederick@epa.gov.
Attachment
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cc: Howard Corcoran
Denise Polk
Kysha Holliday
Frederick Griefer
Janet Kasper
Madeline Mullen
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No.
Recommendation
High-Level Intended Corrective Actions
Expected
Completion
by Quarter
and FY
1
Implement a process to enhance
quality-control reviews of AAM
reports. The process should
include review of supporting
documentation.
1.1 - All GMOs (HQs and regional) will be
required to implement quality control measures
for Advanced Administrative Monitoring
reviews (desk and onsite) conducted by EPA
staff. This will include reviewing supporting
documentation prior to finalizing and
transmitting the AAM report to the recipient.
4th Quarter
FY 2015
1.2- OGD will develop and implement quality
control procedures to ensure that all contractor-
conducted AAM (onsite) reviews are properly
conducted. This includes reviewing contractor
work papers and source documentation provided
during the course of the review prior to
transmitting the AAM report to the recipient.
4th Quarter
FY 2015
2
Issue national guidance to the
agency's Grants Management
Offices. The guidance should
clarify step-by-step processes
needed to conduct transaction
testing, and include provisions
for tracing costs to source
documents to ensure expended
costs are allowable, allocable,
reasonable, and aligned with the
approved budget and project
activities.
2.1 - OGD is in the process of developing a
comprehensive Standard Operating Procedure
for Administrative Advanced Monitoring that
will address each of the areas identified by the
OIG. Once the SOP is finalized, all GMOs and
EPA grants staff will be required to follow it
when conducting AAM reviews.
4th Quarter
FY 2015
3
Follow up on undocumented
costs identified in the OIG
finding and require grant
recipients to reimburse the
agency for costs deemed
unallowable based on
insufficient / unacceptable
source documentation.
3.1 - GMOs will follow up with each of the
recipients directly to request additional
documentation to support questioned costs.
1st Quarter
FY 2016
3.2 - GMOs will review the documentation and
require reimbursement for unallowable costs in
accordance with applicable agency procedures.
1st Quarter
FY 2016
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Appendix B
Distribution
Office of the Administrator
Assistant Administrator for Administration and Resources Management
Principal Deputy Assistant Administrator for Administration and Resources Management
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Director, Grants and Interagency Agreements Management Division,
Office of Administration and Resources Management
Director, Office of Policy and Resource Management,
Office of Administration and Resources Management
Deputy Director, Office of Policy and Resource Management,
Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Grants and Debarment,
Office of Administration and Resources Management
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