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*. U.S. Environmental Protection Agency	14-R-0130
^	\ Office of Inspector General	March 6,2014
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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 examination to
determine whether the costs
claimed under cooperative
agreement 2A-00T13801
awarded under the American
Recovery and Reinvestment
Act of 2009 to the California Air
Resources Board (CARB)
were reasonable, allowable and
allocable in accordance with
applicable laws, regulations,
and cooperative agreement
terms and conditions. The OIG
also sought to determine
whether cooperative agreement
objectives were met.
This report addresses the
following EPA themes:
•	Addressing climate change
and improving air quality.
•	Making a visible difference
in communities across the
country.
For further information,
contact our public affairs office
at (202) 566-2391.
The full report is at:
www.epa.aov/oia/reports/2014/
20140306-14-R-0130.pdf
Unless California Air Resources Board Fully
Complies With Laws and Regulations, Emission
Reductions and Human Health Benefits Are Unknown
What We Found
CARB did not fully
comply with the
Energy Act and
cooperative agreement
requirements, resulting
in potential
overpayment of
$8,866,000.
Our examination disclosed material weaknesses in
CARB's compliance with laws, regulations, and the
terms and conditions of the cooperative agreement.
Specifically, CARB did not comply with the
requirement of the cooperative agreement and the
Energy Policy Act of 2005 to scrap or remanufacture
the old engines. CARB also did not accurately report
jobs created or retained or provide actual emissions
reduction calculations, as required under the cooperative agreement. In addition,
CARB paid contract costs that were not in accordance with contract terms.
CARB completed the locomotive repower according to the workplan. However,
CARB has not demonstrated that it met the cooperative agreement objective for
achieving significant emissions reduction as CARB did not provide actual
emissions benefit calculations.
Recommendations and Corrective Actions
For the contract terms issue, we recommended that the Region 9 Regional
Administrator disallow and recover ineligible costs of $94,109 claimed under the
cooperative agreement and require CARB to establish internal controls prior to
any future awards. In response to draft report, CARB repaid the $94,109 to the
EPA. CARB's contractor—BNSF Railway Company—also signed an agreement
on November 18, 2013, to scrap or remanufacture the replaced engines. We
recommend that the region verify that CARB and BNSF comply with the
agreement and document the scrap or remanufacture. The region should recover
the federal share of $8,771,891 claimed in the event CARB violates the
November 18, 2013, agreement.
We also made recommendations related to jobs reported as created or retained,
developing a more accurate calculation of project results based on actual fuel
usage, and adjusting the reporting of CARB's project results. In response to the
draft report, CARB submitted the job report corrections. Region 9 and CARB
disagreed with the two recommendations relating to project results.
Noteworthy Achievements
CARB and the BNSF Railway Company repowered 11 locomotives instead of the
eight required by the cooperative agreement because of cost reductions
achieved by the manufacturer and a higher contractor contribution percentage
than what was required under the agreement. The subcontractor also
accomplished construction of the 11 locomotives in less than 4 months in order to
meet the Recovery Act deadline of September 30, 2010.

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