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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Spending Taxpayer Dollars
Northwest Indian Fisheries
Commission Complied With
Most Federal Requirements
but Claimed Some
Unallowable Costs
Report No. 17-P-0184
April 24, 2017
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Report Contributors: Angela Bennett
Darren Schorer
Abbreviations
CCMP
Comprehensive Conservation and Management Plan
CFR
Code of Federal Regulations
CWA
Clean Water Act
EPA
U.S. Environmental Protection Agency
FY
Fiscal Year
NWIFC
Northwest Indian Fisheries Commission
OIG
Office of Inspector General
OMB
Office of Management and Budget
SSIT
Sauk-Suiattle Indian Tribe
Cover photo: Nisqually Estuary (part of Puget Sound), Billy Frank Jr. Nisqually National
Wildlife Refuge, Washington. (EPA OIG photo)
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
April 24, 2017
MEMORANDUM
SUBJECT: Northwest Indian Fisheries Commission Complied With Most Federal Requirements
but Claimed Some Unallowable Costs
Report No. 17-P-0184
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency (EPA). The project number for this audit was OA-FY16-0176.
This report contains findings that describe the problems the OIG has identified and corrective actions the
OIG recommends. This report represents the opinion of the OIG and does not necessarily represent the
final EPA position. Final determinations on matters in this report will be made by EPA managers in
accordance with established audit resolution procedures.
In accordance with EPA Manual 2750, you are required to provide a written response to this report
within 60 calendar days. You should include planned corrective actions and completion dates for all
unresolved recommendations. Your response will be posted on the OIG's public website, along with our
memorandum commenting on your response. Your response should be provided as an Adobe PDF file
that complies with the accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as
amended. The final response should not contain data that you do not want to be released to the public;
if your response contains such data, you should identify the data for redaction or removal along with
corresponding justification.
FROM: Arthur A. Elkins Jr.
TO:
Michelle Pirzadeh, Acting Regional Administrator
Region 10
We will post this report to our website at www.epa.gov/oig.
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Northwest Indian Fisheries Commission
Complied With Most Federal Requirements
but Claimed Some Unallowable Costs
17-P-0184
Table of C
Chapters
1 Introduction 1
Purpose 1
Background 1
Responsible EPA Offices 3
Related Audit 4
Scope and Methodology 4
2 SSIT Indirect Costs Not Allocated in Compliance
With Federal Requirements 5
Indirect Costs Allocation Concerns 5
Recommendation 7
Auditee Response 7
EPA Response and OIG Comment 7
Status of Recommendations and Potential Monetary Benefits 8
Appendix
A Distribution 9
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Chapter 1
Introduction
Purpose
The U.S. Environmental Protection Agency (EPA), Office of Inspector General
(OIG), conducted this audit to determine whether costs claimed under cooperative
agreements PA00J32201 and PA00J91201—which were awarded to the
Northwest Indian Fisheries Commission (NWIFC)—were reasonable, allocable
and allowable in accordance with applicable laws, regulations, and cooperative
agreement terms and conditions.
Background
The EPA National Estuary Program is a non-regulatory program established by
Congress and authorized by Section 320 of the Clean Water Act (CWA). Under
this program, Puget Sound has been designated as one of 28 estuaries of National
Significance. The goal of the National Estuary Program is to attain or maintain
water quality in designated estuaries in order to protect public water supplies;
protect and enable the propagation of a balanced, indigenous population of
shellfish, fish and wildlife; and allow for recreational activities in and on the
water. In support of this goal, Section 320 of the CWA requires the development
of a comprehensive conservation and management plan (CCMP) that
recommends priority corrective actions and compliance schedules addressing
point and nonpoint sources of pollution. The CCMP for Puget Sound is the Puget
Sound Action Agenda.
NWIFC was awarded two cooperative agreements under Section 320 of the
CWA:
1. PA00J32201 for $15,700,581, covering the period January 1, 2011
through September 30, 2017.
2. PA00J91201 for $4,980,000, covering the period October 1, 2014 through
September 30, 2019.
The purpose of these cooperative agreements is for NWIFC to provide
sub-awards1 to federally recognized Puget Sound tribes for projects to protect and
restore the estuary in a manner consistent with the Puget Sound Action Agenda.
Implementation of these two cooperative agreements includes the receipt of
applications in response to requests for proposal, the review of submitted projects
1 Title 2 CFR § 200.92 defines a sub-award as "an award provided by a pass-through entity to a subrecipient for the
subrecipient to carry out part of a Federal award received by the pass-through entity."
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to verify that they meet the funding intent, and the award of the funds. In addition,
NWIFC is required to ensure project accountability through appropriate invoicing,
financial audits, progress reporting and site visits.
Under these cooperative agreements, NWIFC has provided sub-awards to
21 tribes, including the Sauk-Suiattle Indian Tribe (SSIT). As shown in Table 1,
approximately 96 percent of the recorded costs from January 1, 2011, through
June 29, 2016, for cooperative agreements PA00J32201 and PA00J91201 are
sub-award costs related to the tribes.
Table 1: NWIFC recorded costs
Cost element
Recorded cost
Percent of total
Tribal sub-award costs
$14,147,295
96.20%
Salaries (including benefits)
362,965
2.47
Indirect
173,131
1.18
Other (e.g., travel, postage, supplies)
22,661
0.15
Total
$14,706,052
100.00%
Source: OIG summary of data from NWIFC accounting records.
Funding and Regulatory Authorities
As explained above, the cooperative agreements were awarded under Section 320
of the CWA. Funding for the cooperative agreements was authorized under the
following two regulations:
• Public Law 111-88, Department of the Interior, Environment, and Related
Agencies Appropriations Act of 2010.
• Public Law 113-76, Consolidated Appropriations Act 2014.
Title 40 CFR Part 31, Uniform Administrative Requirements for Grants and
Cooperative Agreement to State and Local Governments, provides regulatory
authority for funding awarded under the cooperative agreements prior to
December 26, 2014. Regulatory authority for funding awarded on or after
December 26, 2014 is at 2 CFR Part 200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards, and 2 CFR
Part 1500, Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards (EPA supplement). Title 40 CFR Part 35,
Subpart P, Financial Assistance for the National Estuary Program, provides
policies and procedures for funding awarded under the National Estuary Program.
EPA Order 5700.5A1, Policy for Competition of Assistance Agreement,
establishes EPA policy and requirements for the competition of assistance
agreements. EPA Order 5700.6A2, Change 2, establishes standards for the
oversight, monitoring and closeout of EPA assistance agreements.
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Specific Regulatory Authorities for Indirect Costs
Title 40 CFR § 31.22(b) states that "allowable costs will be determined in
accordance with the cost principles applicable to the organization incurring the
costs."
For determining the allowable costs of a state, local or Indian tribal government,
40 CFR § 31.22(b) requires using the principles in Office of Management and
Budget (OMB) Circular A-87, previously codified in 2 CFR Part 225.2
Appendix E.B of 2 CFR Part 225, State and Local Indirect Cost Rate Proposals,
provides the following relevant definitions:
2. "Indirect cost rate" is a device for determining in a reasonable
manner the proportion of indirect costs each program should bear.
It is the ratio (expressed as a percentage) of the indirect costs to a
direct cost base.
4. "Base" means the accumulated direct costs (normally either
total direct salaries and wages or total direct cost exclusive of any
extraordinary or distorting expenditures) used to distribute indirect
costs to federal awards.
In addition, Appendix E of 2 CFR Part 225 provides the following guidance:
All department or agencies of the government agency desiring to
claim indirect costs under Federal awards must prepare an indirect
costs rate proposal and related document to support those costs.
[Appendix E. D. l.a]
Indirect cost rates be reviewed, negotiated, and approved by the cognizant
Federal agency on a timely basis. Once a rate has been agreed upon, it will
be accepted and used by all Federal agencies unless prohibited or limited
by statute. [Appendix E.E.I]
The terms and conditions of cooperative agreements PA00J32201 and
PA00J91201 provide that recipients are entitled to reimbursement of indirect costs
if they have a current rate agreement or have submitted an indirect cost rate
proposal to their responsible federal agency for review and approval.
Responsible EPA Offices
The Puget Sound Program within EPA Region 10's Office of Water and
Watersheds administers and manages cooperative agreements for tribal
implementation projects designed to protect and restore Puget Sound.
2 The regulations previously found at 2 CFR Part 225 have been revised and reorganized under 2 CFR Part 200 for
funding awarded on or after December 26, 2014.
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Related Audit
We performed a concurrent audit relating to cooperative agreement PA00J32201.
The scope of the concurrent audit was limited to addressing specific concerns
raised by a congressional committee that certain activities and expenditures under
PA00J32201 may have improperly funded an advocacy campaign in Washington
state called What's Upstream?. We issued a report on April 24, 2017,
EPA-Funded 'What's Upstream?' Advocacy Campaign Did Not Violate Lobbying
Prohibitions (Report No. 17-P-0183). We made no recommendations.
Scope and Methodology
We conducted this performance audit from July 2016 to January 2017, 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 objective. In our opinion, the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit
objectives.
We performed the following steps:
• Interviewed NWIFC personnel to obtain an understanding of NWIFC's
accounting system, internal controls, costs reported, and sub-award
monitoring and invoicing procedures.
• Obtained recorded cost expenditures and revenues.
• Selected a judgmental sample and tested seven labor transactions and nine
tribal sub-award transactions from eight tribes.
• Selected a judgmental sample of three tribes and conducted site visits to
perform cost reviews.
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Chapter 2
SSIT Indirect Costs Not Allocated
in Compliance With Federal Requirements
The OIG identified $87,963 of indirect costs reimbursed by NWIFC to SSIT that
were not in compliance with federal requirements. The remaining $14,618,089
claimed by NWIFC from January 1, 2011, through June 29, 2016, under both
cooperative agreements—which amounts to more than 99 percent of the total
costs—were reasonable, allocable and allowable in accordance with the
applicable laws, regulations, and cooperative agreement terms and conditions
discussed in the "Background" section of this report.
As shown in Table 2, we questioned $87,963 of indirect costs claimed by SSIT.
These costs were reimbursed by NWIFC to SSIT and subsequently by the EPA to
NWIFC. This questioned amount includes an unallowable $88,093 caused by the
improper application of SSIT's indirect cost rates to its subcontract costs.
However, the total unallowable cost is offset by a $130 allowable cost increase
due to a calculation error. The improper allocation occurred because SSIT and
NWIFC personnel did not understand the requirements of 2 CFR Part 225 and the
provisions contained in SSIT's indirect cost rate agreements.
Table 2: Summary of questioned costs
Category
PA00J32201
PA00J91201
Total
Federal Funds Expended
$13,842,094
$863,958
$14,706,052
Questioned Unallowable
88,093
0
88,093
Additional Allowable
(130)
0
(130)
Total Questioned
$87,963
$0
$87,963
Source: The EPA's Compass Data Warehouse and OIG audit results.
Indirect Costs Allocation Concerns
SSIT improperly calculated its indirect costs for the period of April 2011 through
March 2014. SSIT subcontracted work and inappropriately applied its indirect
cost rates based on costs incurred by the subcontractor.
The sub-award agreement between NWIFC and SSIT states that indirect costs
shall be paid to the tribe by NWIFC at a rate equal to the official negotiated
indirect cost rate applicable for the tribe. SSIT had approved indirect cost rate
agreements for fiscal year (FY) 2011 through FY 2014. The base used for the
calculation of indirect costs in these agreements did not include or allow for the
use of subcontractor costs. Per the FY 2011 and FY 2012 agreements, SSIT's
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calculation of indirect costs was to be based on total SSIT direct costs, less capital
expenditures and other sub-awards. For FY 2013 and FY 2014, the calculation
was to be based on total direct salaries and wages, excluding fringe benefits.
Our review of SSIT's invoices from April 2011 through March 2014 showed that
SSIT did not bill for any direct salary costs. The costs billed by SSIT included
only subcontractor costs, the indirect costs in question, and minor costs for
supplies. Without direct salary costs and with the exclusion of the subcontractor
costs, SSIT's base for allocation of indirect costs should have been limited to the
costs of the supplies. Instead, SSIT deviated from the approved method stipulated
in its indirect cost rate agreements and also included costs incurred by the
subcontractor in its calculation. This method resulted in a significant increase in
the amount of indirect costs claimed for the period.
This deviation is contrary to the terms and conditions of cooperative agreement
PA00J32201. In addition, the deviation was not provided to or approved by
SSIT's responsible federal agency.3 SSIT's indirect cost rate agreements for
FY 2011 through FY 2014 specifically state that such approval is required:
Changes in organization structure, or changes in methods of
accounting for costs that affect the amount of reimbursement
resulting from use of the rate in this agreement, require the prior
approval of the responsible negotiation agency. Failure to obtain
such approval may result in subsequent audit disallowance.
This same audit finding of unallowable costs was included in a May 2013
independent audit contracted by NWIFC. In response to the contracted audit
finding, however, SSIT stated that the indirect costs should be allowable because
the amount of supervisory and administrative effort required for the subcontracts
goes beyond the minimal effort threshold. NWIFC agreed with SSIT's response
and did not require reimbursement of the ineligible indirect costs. The OIG
disagrees with NWIFC's decision to allow the costs for the reasons discussed
above.
In addition to our finding of unallowable costs, we identified additional allowable
costs that were not claimed by SSIT. The $130 offset stems from an error by SSIT
in the calculation of indirect costs from July 2014 through September 2014. SSIT
calculated total indirect costs of $1,140. Based on the indirect cost rate for the
period, the OIG determined that the costs should have been $1,270, resulting in
additional eligible costs of $130.
3 SSIT's cognizant federal agency is the U.S. Department of Interior. The U.S. Department of Interior would also be
the responsible negotiation agency.
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Recommendation
We recommend that the Regional Administrator, Region 10:
1. Disallow and recover ineligible costs of $87,963 reimbursed to the
Northwest Indian Fisheries Commission for the specified indirect costs
claimed by the Sauk-Suiattle Indian Tribe.
Auditee Response
We shared our preliminary audit findings in the form of a discussion document
with NWIFC. At a meeting on February 3, 2017, an NWIFC representative stated
NWIFC was discussing the finding with SSIT and was trying to obtain additional
documentation.
EPA Response and OIG Comment
In response to discussion documents we issued to the agency on January 13, 2017,
EPA Region 10 provided the following statement:
We have reviewed both documents for factual accuracy and have
no comments or questions and do not request a teleconference on
either document. We look forward to the finalization and release of
the documents.
Based on Region 10's response, the OIG is issuing this final report without further
comment.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Potential
Planned
Monetary
Rec.
Page
Completion
Benefits
No.
No.
Subject
Status1
Action Official
Date
(in $000s)
1 7 Disallow and recover ineligible costs of $87,963 reimbursed to U Regional Administrator, $88
the Northwest Indian Fisheries Commission for the specified Region 10
indirect costs claimed by the Sauk-Suiattle Indian Tribe.
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
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Appendix A
Distribution
The Administrator
Chief of Staff
Regional Administrator, Region 10
Assistant Administrator for International and Tribal Affairs
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Deputy Regional Administrator, Region 10
Director, Office of Water and Watersheds, Region 10
Director, Public Affairs and Community Engagement, Region 10
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Director, Grants and Interagency Agreements Management Division, Office of Administration
and Resources Management
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Region 10
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