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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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