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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Labor-Charging Practices
at the New Mexico
Environment Department
Report No, 13-4-0296
June 17, 2013
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about the EPA OIG.
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Report Contributors: Bill Spinazzola
David Kim
Janet Lister
Lela Wong
Abbreviations
AQB
Air Quality Bureau
CFR
Code of Federal Regulations
DWB
Drinking Water Bureau
EPA
U.S. Environmental Protection Agency
FFR
SF 425 Federal Financial Report
FY
Fiscal year
GWQB
Ground Water Quality Bureau
IGMS
Integrated Grants Management System
NMED
New Mexico Environment Department
OGD
Office of Grants and Debarment
OIG
Office of Inspector General
OMB
Office of Management and Budget
Recovery Act
American Recovery and Reinvestment Act of 2009
SHARE
Statewide Human Resources, Accounting and Management Reporting
SWQB
Surface Water Quality Bureau
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
email: OIG Hotline@epa.gov write: EPA Inspector General Hotline
phone: 1-888-546-8740 1200 Pennsylvania Avenue, NW
fax: 202-566-2599 Mailcode 2431T
online:
http://www.epa.gov/oiq/hotline.htm
Washington, DC 20460
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U.S. Environmental Protection Agency 13-4-0296
^ Office of Inspector General June 17,2013
At a Glance
Why We Did This Review
The U.S. Environmental
Protection Agency, Office of
Inspector General, conducted
this audit to determine whether
labor-charging practices at the
New Mexico Environment
Department comply with federal
requirements. The OIG also
sought to determine the effect
of any noncompliance on
amounts NMED claimed under
EPA awards.
This report addresses the
following EPA Goals and
Cross-Cutting Strategies:
• Taking action on climate
change and improving air
quality.
• Protecting America's
waters.
• Cleaning up communities
and advancing sustainable
development.
Labor-Charging Practices at the
New Mexico Environment Department
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2013/
20130617-13-4-0296.pdf
What We Found
We found that three of the four NMED bureaus audited did not always comply with
requirements found in the Code of Federal Regulations under 2 CFR Part 225.
The Air Quality Bureau and Drinking Water Bureau charged labor, fringe benefits,
and indirect costs to federal grants based upon budget allocations instead of actual
activities performed. Personnel activity reports we received from the Surface Water
Quality Bureau to support charges for labor costs incurred prior to July 2006 did not
meet 2 CFR Part 225 requirements.
Title 2 CFR Part 225 requires that where employees work on multiple activities or
cost objectives, labor charges be based upon the after-the-fact distribution of an
employee's actual activity and supported by employee-signed personnel activity
reports or the equivalent. NMED personnel stated that they charged labor based upon
budget allocations because they thought the practice was acceptable. NMED
personnel also stated that the accounting system used for SWQB timekeeping before
July 2006 is no longer accessible and that employee-signed personnel activity reports
from this period are no longer available.
We questioned $298,159 in labor, fringe benefits, and related indirect costs claimed by
AQB; $2,974,318 claimed by DWB; and $2,733,798 claimed by SWQB. We also
identified an additional $486,305 charged to a DWB-administered grant, which has not
yet been reported to the EPA.
Recommendations and Planned Corrective Actions
We recommend that the Region 6 Regional Administrator disallow and recover
unsupported costs of $298,159 from AQB; $2,974,318 from DWB; and $2,733,798
from SWQB, unless NMED provides support that complies with 2 CFR Part 225
requirements. We also recommend that the regional administrator ensures NMED
does not claim unallowable costs of $486,305 under the DWB grant, unless it can
provide support that complies with 2 CFR Part 225 requirements. In addition, we
recommend that the regional administrator recover any unsupported costs claimed
under AQB and DWB grants not covered in our cost-impact determination and ensure
that labor-charging practices at remaining NMED bureaus with EPA grants comply
with federal requirements. Region 6 agreed with our findings and four of the five
recommendations. NMED agreed with recommendation 4 and disagreed with the
remaining recommendations. NMED reiterated some of the comments provided during
our fieldwork, but no additional information or supporting documentation was provided.
Noteworthy Achievements
AQB and DWB took corrective actions promptly when the issue was brought to their
attention. Both bureaus issued written procedures that require employees to charge
labor hours based upon actual activities performed. We found that employees
complied with these procedures. As of April 14, 2012, labor-charging practices at all
four audited bureaus comply with federal requirements.
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Q
I « UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
| W\/C/ ® WASHINGTON, D.C. 20460
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THE INSPECTOR GENERAL
June 17,2013
MEMORANDUM
SUBJECT: Labor-Charging Practices at the New Mexico Environment Department
Report No. 13-4-029<5>
FROM: Arthur A. Elkins Jr.
TO: Ron Curry, Regional Administrator
Region 6
This is our report on the subject audit conducted by the Office of Inspector General of the
U.S. Environmental Protection Agency. 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. In accordance with established audit-
resolution procedures, EPA managers will make final determinations concerning matters in this report.
Action Required
In accordance with EPA Manual 2750, you are required to provide us your proposed management
decision on the findings and recommendations contained in this report before you formally complete
resolution with the recipient. Your proposed management decision is due in 120 days, or on
October 15, 2013. To expedite the resolution process, please email an electronic version of your
proposed management decision to adachi.robert@epa.gov.
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. We have no objection to the
further release of this report to the public. This report will be available at http://www.epa.gov/oig.
If you or your staff have any questions regarding this report, please contact Richard Eyerman, acting
assistant inspector general for the Office of Audit, at (202) 566-0565 or evermann.richard@epa.gov;
or Robert Adachi, product line director, at (415) 947-4537 or adachi.robert@epa.gov.
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Labor-Charging Practices at the
New Mexico Environment Department
13-4-0296
Table of C
Chapters
1 Introduction 1
Purpose 1
Background 1
Noteworthy Achievements 1
Scope and Methodology 1
Follow-Up on Prior Audit Issues 3
2 Labor-Charging Practices Did Not Comply
With Federal Requirements 6
Labor Charges Were Based Upon Budget Estimates 6
Using Budget Estimates Did Not Meet Federal Requirements 7
NMED Believed Charges Based Upon Budget Estimates
Were Acceptable 8
NMED Claimed Unallowable Costs 9
Recommendations 11
EPA and Recipient Comments 11
OIG Response 12
3 NMED Claimed Unsupported SWQB Labor Costs 13
NMED Was Unable to Provide Personnel Activity Reports 13
Federal Cost Principles Require Personnel Activity Reports 13
NMED Claimed Unsupported Costs 14
Recommendation 15
EPA and Recipient Comments 15
OIG Response 15
Status of Recommendations and Potential Monetary Benefits 16
Appendices
A NMED Grants Selected for Review 17
B Region 6 Comments on the Draft Report 18
C NMED's Comments on the Draft Report and OIG Evaluation 21
D Distribution 25
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Chapter 1
Introduction
Purpose
The U.S. Environmental Protection Agency, Office of Inspector General,
conducted this audit to determine whether labor-charging practices at the New
Mexico Environment Department comply with federal requirements. The OIG
also sought to determine the effect of noncompliance on amounts NMED claimed
under EPA awards.
Background
NMED was established by legislative act in July 1991. Its mission is to provide the
highest quality of life throughout New Mexico by promoting a safe, clean, and
productive environment. NMED has about 650 employees and 13 bureaus,
including the Drinking Water Bureau, Surface Water Quality Bureau, Ground
Water Quality Bureau, and Air Quality Bureau. As of February 27, 2012, NMED
had approximately $95 million in active EPA grants. NMED had another
$58 million in grants closed within the last 3 years (i.e., on or after May 2009)
and subject to the record-retention requirement.
Noteworthy Achievements
When labor-charging issues were brought to the attention of AQB and DWB by
an EPA contractor and OIG review, the bureaus took corrective actions and
promptly issued written procedures that require employees to charge labor hours
based upon actual activities performed. The EPA contractor's review was
conducted from June 7 to 10, 2010, and AQB issued revised procedures on
June 25, 2010. OIG auditors brought the issue to DWB's attention in
January 2012, and DWB issued revised procedures on April 13, 2012.
As of April 14, 2012, labor-charging practices at all four audited bureaus comply
with federal requirements. In chapter 2 of this report, we further describe how
both bureaus complied with federal requirements when the revised procedures
were issued.
Scope and Methodology
We conducted this performance audit from May 15, 2012, to February 21, 2013.
We conducted the 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 upon our audit objectives. We believe that the
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evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Based upon our risk assessment, we limited our audit to the following four
bureaus: DWB, SWQB, GWQB, and AQB. These bureaus had the highest labor
and fringe benefit amounts in our audit universe, which consisted of all EPA
awards with a project end date of May 15, 2009, or later. The audit universe
cut-off date was established to ensure that all grants selected for review were
within the 3-year record-retention period required by 40 CFR § 31.42(b).
We used the information in EPA's Integrated Grants Management System to
identify the four bureaus with the most labor and fringe benefits. Our analysis
included both open and closed awards. We searched the IGMS for grants and
cooperative agreements awarded to NMED with a project end date of May 15,
2009, or later. We reviewed the grant budgets to determine EPA's share of labor
and fringe benefits for each award. We grouped the awards by NMED bureau and
then selected the four bureaus with the most labor and fringe benefits. Table 1
below shows NMED bureaus, total labor and fringe benefits, and EPA's share of
labor and fringe benefits.
Table 1: Labor and fringe benefits by NMED bureau
Bureau
Total
EPA's
share
EPA's percent
of total
SWQB
$23,740,613
$16,256,496
36.64%
GWQB
13,342,409
12,759,844
28.76%
AQB
6,330,700
4,219,827
9.51%
DWB
4,112,690
3,124,853
7.04%
Petroleum Storage Tank Bureau
3,445,326
2,849,714
6.42%
Hazardous Waste Bureau
3,598,418
2,697,935
6.08%
Construction Programs Bureau
1,855,433
1,725,227
3.89%
Radiation Control Bureau
561,066
451,741
1.02%
Administrative Services Division
(Program Support Grants)
388,898
286,165
0.64%
Totals
$57,375,553
$44,371,802
Source: The amounts and percentages are from EPA's IGMS. Bureau information is from NMED.
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We obtained an understanding of labor-charging practices at each of the four
bureaus by:
• Discussing labor-charging practices and timekeeping procedures with
NMED management;
• Interviewing selected employees to determine the labor-charging practices
used by NMED; and
• Reviewing sample payroll transactions to determine whether actual
practices were consistent with the practices described by NMED
employees and management, and whether these practices complied with
federal requirements.
We tested payroll samples to determine whether:
• Hours that employees recorded on paper timesheets agreed with hours
recorded on electronic timesheets.
• Timesheets were signed by employees and approved by a supervisor.
• Employees had been paid for the time period.
• Dollar amounts for each subaccount recorded in the labor-distribution
report (i.e., the Human Capital Management Payroll Report) divided by
the employee's hourly pay rate equal the hours reported on the employee's
timesheet.
• The distribution of time percentages in the employee's task profile agree
with the distribution on the employee's timesheet.
We identified 13 grants to use to estimate the cost impact of labor-charging
practices that did not comply with federal requirements specified in
2 CFRPart 225, Cost Principles for State, Local, and Indian Tribal Governments
(Office of Management and Budget Circular A-87). The 13 grants selected
represent approximately 63 percent of EPA's share of labor and fringe benefits
budgeted for the awards in our universe. The 13 grants are included in appendix A
of this report.
The time period covered by the audit varied depending on the bureau. We audited
AQB and DWB from the inception of NMED's current accounting system on
July 1, 2006, to the start of our field work on May 15, 2012. For GWQB and
SWQB, we extended the audited time period back to July 1, 2004, the earliest
inception date of the grants selected for cost-impact estimate.
Follow-Up on Prior Audit Issues
We followed up on NMED's actions in response to recommendations that
addressed labor-charging issues made in a December 2010 report issued by EPA's
Office of Grants and Debarment based upon a limited review conducted by a
contractor. The report stated that NMED did not have timesheets or equivalent
documentation to support personnel costs charged to EPA assistance agreements.
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In response, NMED stated that labor hours charged to projects in the report were
reconciled to actual time spent on the project, and adjustments were made to
reduce expenditures charged to EPA awards. We reviewed the reconciliation and
confirmed that adjustments were made; however, the adjustments were not based
on employee timesheets that complied with federal requirements.
Report on Internal Control and Financial Management Systems
The OGD contractor completed a limited-scope review of NMED's
administrative and financial management system. The review objectives were to
assess the effectiveness of NMED's internal controls and to determine whether
NMED's administrative and financial management systems met federal cost
principles, as well as the terms and conditions of EPA assistance agreements.
The period reviewed was January 1, 2009, through May 19, 2010.
The review covered five EPA assistance agreements awarded under the American
Recovery and Reinvestment Act of 2009. One of the five awards was administered
by AQB. The award was grant number 2D96690201 in the amount of $1,730,000.
During the period reviewed by the OGD contractor, NMED drew $88,629. Of this
amount, $62,193 was reported as unallowable salaries, fringe benefits, and related
indirect costs. The OGD contractor stated that:
• NMED did not have timesheets or the equivalent documentation to
support personnel costs.
• Wages and fringe benefits were distributed to agreements as a percentage
of an employee's time.
• The percentages were intended to approximate the budget.
• Calculated costs were not reconciled to actual time.
NMED did not dispute the OGD contractor's findings. NMED responded by
stating it would begin using timesheets for staff working on Recovery Act grants,
and timesheets would be used to identify actual hours charged to the grants.
NMED also stated that hours charged to the AQB-administered grant were
reconciled to actual hours, and journal entries were adjusted to reduce Recovery
Act expenditures. NMED also planned to have written timekeeping procedures
completed by January 15, 2011.
OIG Follow-Up
The OIG asked NMED to provide supporting data for the adjusting journal entry
that was referred to in its response to the OGD contractor's report. NMED
responded by providing the computation sheets that it used to determine the
adjustments, including a schedule that summarized the number of hours
employees worked on the grant.
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The OIG also asked NMED to provide supporting timesheets or other data for the
schedule of hours worked on the AQB-administered grant. NMED management
determined that the hours worked on the grant were based upon records of
meetings, telephone calls, and documented calendars. NMED management did
not retain any supporting timesheets or other data because they were unaware of
the requirement to do so. NMED officials also said they could provide copies of
emails from employees confirming the hours and tasks they worked on for the
AQB-administered grant. NMED provided a spreadsheet summary showing
employee names, dates, hours worked on the grant, and the source of the data.
The sources of the data were mostly emails.
Title 2 CFR Part 225, Appendix B, Section 8.h.(4), requires that where employees
work on multiple activities or cost objectives, salaries and wages be supported by
personnel activity reports or equivalent documentation. The personnel activity
reports or equivalent documentation must reflect an after-the-fact distribution of
the actual activity of each employee, account for the total activity for which each
employee is compensated, be prepared at least monthly and coincide with one or
more pay periods, and be signed by the employee.
NMED has not complied with the requirements cited above or the
recommendations in the OGD contractor's report. The adjustments NMED made
to salaries and benefits in response to the OGD contractor's recommendations
were not based upon personnel activity reports, as required by federal regulations.
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Chapter 2
Labor-Charging Practices
Did Not Comply With Federal Requirements
Two of the four NMED bureaus audited did not comply with federal requirements
for charging labor costs. AQB and DWB charged labor, fringe benefits, and
indirect costs to federal awards based upon budget allocation instead of actual
activities performed. Title 2 CFR Part 225 requires labor charges be based upon
the after-the-fact distribution of the actual activity. Budget estimates or other
distribution percentages determined before the services are performed do not
qualify as support for charges to federal awards. NMED personnel stated that they
charged based upon budget estimates because they thought it was an acceptable
method. As a result of the noncompliance, we questioned $298,159 in labor,
fringe benefits, and related indirect costs claimed by AQB; and $2,974,318
claimed by DWB. We also identified an additional $486,303 charged to a
DWB-administered grant, which has not yet been reported to the EPA due to
financial status report cut-off dates.
Labor Charges Were Based Upon Budget Estimates
We audited labor-charging practices at AQB, DWB, GWQB, and SWQB.
We found that GWQB complied with federal requirements and charged based
upon actual work performed for the entire period covered by the audit
(July 1, 2004, to May 15, 2012). We also found that SWQB complied with
federal requirements and charged based upon actual work performed for the
period July 1, 2006, to May 15, 2012. For the period July 1, 2004, to
June 30, 2006, based upon employee interviews, SWQB charged based upon
actual work performed. However, SWQB was unable to provide the required
personnel activity reports signed by the employees to support the costs claimed.
This issue is further discussed in chapter 3 of this report.
AQB and DWB did not always comply with federal requirements. Both bureaus
charged labor hours based upon budgeted percentages from the inception of
NMED's current accounting system—the Statewide Human Resources,
Accounting and Management Reporting—in July 2006. For AQB, the practice
continued through June 25, 2010. For DWB, the practice continued through
April 13, 2012.
AQB Timekeeping Procedures
From July 2006 to June 25, 2010, AQB recorded and charged labor costs to
federal awards based upon budgeted percentages determined for each employee at
the beginning of the fiscal year. On June 25, 2010, AQB revised its timekeeping
procedures in response to a review performed by the OGD contractor. The change
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required employees to record on their timesheets actual hours worked on each
project. AQB issued written timekeeping procedures on June 25, 2010, to
document the new requirements.
To verify the change in timekeeping procedures, we tested the payroll
documentation of two employees for the pay period ending October 1, 2010, and
two employees for the pay period ending April 30, 2010. These two pay periods
represent labor-charging practices before and after the June 25, 2010, change. The
two samples allowed us to test compliance with both the old and new procedures.
Our tests confirmed that AQB recorded and charged labor and associated
fringe benefits and indirect costs based upon budgeted percentages through
June 25, 2010; after this date, charges were based upon actual activities
performed.
DWB Timekeeping Procedures
From July 2006 to April 13, 2012, DWB recorded and charged labor costs based
upon budgeted percentages determined for each employee at the beginning of the
fiscal year. DWB revised its timekeeping procedures on April 13, 2012, after the
OIG raised the issue during our January 2012 visit. The new procedures require
employees to record labor hours based upon their actual activity. DWB issued
written timekeeping procedures on April 13, 2012, to document the new
procedures.
To verify the change in timekeeping procedures, we tested payroll documentation
for pay periods before and after the April 13, 2012, change. In our samples,
we included two employees from each of the pay periods ending on the
following dates: May 11, 2012; February 17, 2012; August 5, 2011; and
September 19, 2008. Our tests confirmed that DWB recorded and charged
labor and the associated fringe benefits and indirect costs based upon budgeted
percentages through April 13, 2012, and actual activities performed after that
date.
Using Budget Estimates Did Not Meet Federal Requirements
Federal cost principles require labor charges to be based upon actual activities
performed. Title 2 CFR Part 225, Appendix B, Section 8.h. requires labor charges
to be supported by personnel activity reports or equivalent documentation that
meet the requirements in Section 8.h.(5) to be allowable for reimbursement under
federal awards. Two of the requirements are that personnel activity reports must
reflect an after-the-fact distribution of the actual activity of each employee and
must be signed by the employee. Budget estimates or other distribution
percentages determined before the services are performed do not qualify as
support for charges to federal awards.
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In the past, both the AQB and DWB did not comply with these requirements.
As described above, AQB and DWB charged labor and related costs to federal
awards based upon budget allocation. These costs do not comply with federal
requirements and are not allowable for reimbursement.
NMED Believed Charges Based Upon Budget Estimates
Were Acceptable
NMED believed that it was an acceptable practice to charge labor and related
costs to federal awards based upon budget estimates. NMED's belief was based
upon prior audit experience and communications with EPA Region 6.
When the OIG discussed the issue with NMED in March 2012, NMED personnel
said that they believed it was a difference in interpretation of the federal
requirements. NMED had been audited by single auditors every year but had
never been told that there was an issue with its labor-charging method. Although
the issue was reported in the administrative and financial management system
review conducted by the OGD contractor, NMED believed that the requirement to
maintain timesheets and to charge based on actual activities performed were
specific to the Recovery Act awards.
We met with the firm that performed NMED's single audits for fiscal years 2009
through 2011 and reviewed relevant audit documentation for FY 2011. It appears
that the single auditor did not identify the labor-charging issue because the firm
had different criteria for risk assessment from the OIG. Risk assessment method
and criteria may vary for each audit based on the auditor's judgment. An audit
provides reasonable but not absolute assurance that the information presented is
free of material misstatement.
NMED also believed that EPA Region 6 officials approved labor charges based
upon budget estimates. NMED provided an email from EPA Region 6 dated
March 21, 2011. According to NMED, the email indicated EPA's approval of the
labor-charging practices. However, the subject of the email was "Allocation of
Rent," and Region 6 personnel stated in the email that the "EPA is comfortable
with the Base program being based on the proportion of time." We discussed the
March 2011 email with Region 6 staff and they said NMED misunderstood EPA's
intent. The email correspondence was concerned with the allocation of rent, and
labor was referenced because rent was based on labor costs. The email was
unclear about whether the statement referred to the allocation of facilities cost or
labor charges. Also, although the email was dated March 2011, NMED has been
using budget estimates since July 2006.
NMED also provided a written summary of a February 8, 2011, meeting between
officials from NMED, the EPA, and the New Mexico Finance Authority.
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Although the meeting summary appeared to discuss timesheets, labor hours, and
allocations, there was no indication of EPA's approval to charge labor based upon
budget. Furthermore, the meeting was held in 2011, while NMED had been using
budget estimates since July 2006.
NMED Claimed Unallowable Costs
To demonstrate the effect of noncompliance on costs claimed by NMED under
EPA awards, we initially selected a sample of 13 grants from the four NMED
bureaus that were audited (see appendix A).
The noncompliance explained above applied to three of the 13 grants
(one awarded to AQB and two awarded to the DWB). We identified unsupported
labor and related costs of $3,758,782 charged to the three grants due to the
noncompliance. Table 2 below summarizes these costs.
In addition, NMED was unable to provide the required personnel activity reports
for FY 2005 and FY 2006 for a grant awarded to SWQB, which is addressed in
chapter 3 of this report. The remaining nine grants were in compliance and no
costs were questioned.
Table 2: Unallowable amounts by NMED bureau and cost category
Direct
labor
Fringe
benefits
Indirect
costs
Total
Reported to the EPA
AQB
PM96666701
$ 175,349
$ 74,545
$ 48,265
$ 298,159
DWB
F00620309
1,044,907
436,339
287,271
1,768,517
F00620311
728,575
287,327
189,899
1,205,801
Subtotal DWB
1,773,482
723,666
477,170
2,974,318
Total Reported to the EPA
1,948,831
798,211
525,435
3,272,477
Unreported
DWB
F00620311
294,854
108,853
82,598
486,305
Grand Total
$2,243,685
$907,064
$608,033
$3,758,782
Source: NMED accounting records.
Grant number PM96666701 was the only AQB grant included in our sample of
13 grants. The latest SF 425 Federal Financial Report available to us for this grant
was dated October 24, 2011, which covers the period April 1, 2008, to September
30, 2011, and has a total of $644,811 in federal share of expenditures. We
obtained the supporting accounting reports from NMED and identified $298,159
in labor, fringe benefits, and related indirect costs charged to the grant through
June 25, 2010. These costs are not allowable for reimbursement because they
were charged based upon budget estimates and did not comply with federal
requirements.
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DWB grant numbers F00620309 and F00620311 were also included in our
sample. The latest FFR available to us for grant number F00620309 was dated
December 2, 2010, which covers the period July 1, 2008, to June 30, 2010, and
has a total of $2,077,426 in federal share of expenditures. This amount reconciled
to accounting records without exception. As described in a previous section of
this report, DWB labor-charging practices through April 13, 2012, did not comply
with 2 CFR Part 225, Appendix B, Section 8.h., and are not allowable for
reimbursement. Labor, fringe benefits, and related indirect costs claimed through
April 13, 2012, totaled $1,768,517. This amount is unallowable for
reimbursement because it was based upon budgeted or predetermined hours.
The latest FFR available to us for DWB grant number F00620311 was dated
October 26, 2011, which covers the period July 1, 2010, to September 30, 2011,
and has a total of $1,401,216 in federal share of expenditures. We reconciled,
with no exceptions, the $1,401,216 to detailed accounting reports. Labor, fringe
benefits, and related indirect costs recorded in accounting records through
April 13, 2012, and included in the FFR, totaled $1,205,801. This amount is not
allowable for reimbursement.
We also identified an unreported amount of $486,305 for grant number
F00620311, which was recorded in accounting records after September 30, 2011
(the cut-off date of the most recent FFR) and through April 13, 2012 (the date
DWB issued the new timekeeping procedures to record actual labor hours). This
unreported amount is not allowable for reimbursement, because it was based upon
budgeted or predetermined hours. Region 6 should ensure that NMED excludes
this amount from subsequent claims for reimbursement.
We provided NMED with a written summary of the results of our audit on
September 20, 2012, and obtained NMED's verbal comments in a meeting on
October 3, 2012. NMED management stated that they are working on addressing
the DWB issue, but they have reconstructed a work history report as support for
labor charges through June 25, 2010 for AQB. The work history report was based
upon data from an AQB project management system called "Envista." The system
documented the time employees actually spent monitoring air quality for AQB
projects across the state. We reviewed the work history report and determined the
report does not meet federal requirements. The report summarized dates; employee
names; site names; tasks performed; and the number of hours worked, which
included monitoring times and minimum driving times. No other hourly data were
included. However, to meet the requirements of 2 CFR Part 225, Appendix B,
Section 8.h., the data would have to reflect an after-the-fact distribution of the
employee's time and include the employee's total activity. The data would also
have to be prepared at least monthly, coincide with one or more pay periods, and be
signed by the employee. The work history report provided by NMED did not
present the required information. As a result, we continue to question the costs.
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Recommendations
We recommend that the Region 6 Regional Administrator:
1. Disallow and recover unsupported labor costs of $298,159 from AQB and
$2,974,318 from DWB, unless NMED can provide support that complies
with 2 CFR Part 225, Appendix B, Section 8.h.
2. Ensure that NMED does not claim unsupported costs of $486,305 for the
period October 1, 2011, to April 13, 2012, for grant F00620311, unless
NMED can provide support that complies with 2 CFR Part 225,
Appendix B, Section 8.h.
3. Identify and recover any unsupported costs from AQB- and DWB-
administered grants, which are not covered in our cost-impact
determination.
4. Ensure that labor-charging practices at any of the remaining nine NMED
bureaus that have EPA grants comply with federal requirements.
EPA and Recipient Comments
The OIG received comments on the draft report from the Region 6 deputy
regional administrator and the Office of the Secretary for NMED. We held an exit
conference with Region 6 on April 25, 2013, and with NMED on April 24, 2013.
Region 6 agreed with our findings and recommendations 1, 2, and 4 and requested
clarification on the scope of recommendation 3. For recommendations 1 and 2, the
region stated that it will provide NMED the opportunity to submit documentation
that substantiates the questioned costs and will take necessary corrective action,
including the recovery of costs as appropriate. The region said it will address
recommendation 4 as part of its compliance, review, and monitoring conducted
under EPA Order 5700.6 A2 CHG 2. During our exit conference, Region 6
clarified that compliance-monitoring reviews only involve verifying that
drawdowns were supported by source documentation. The reviews do not include
interviews or other procedures to ensure that employees charge their time based on
actual activities performed.
NMED did not address our recommendations by number. However, it responded
to recommendation 4 by stating that staff who work on federal grants are now
required to charge time and labor hours based on actual activities performed and
maintain personal activity reports. It disagreed with the remaining
recommendations by requesting that it not be required to return federal funds. In
addition, NMED reiterated some of the comments provided during our fieldwork,
but no additional information or supporting documentation was provided. The full
text of NMED's comments is included in appendix C of this report.
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OIG Response
We agree with the actions Region 6 proposed. However, in connection with
recommendations 1 and 2, Region 6 should ensure that the documentation complies
with the timekeeping and labor-charging requirements of 2 CFR Part 225 when
reviewing any additional documentation from NMED.
On recommendation 3, we clarified that Region 6 should include in its review all
open and closed grants that are within the record-retention period established under
40 CFR § 31.42. Subsection (c) requires records to be retained for 3 years from the
date of the final expenditure report. Furthermore, subsection (b)(2) states: "If any
litigation, claim, negotiation, audit or other action involving the records has been
started before the expiration of the 3-year period, the records must be retained until
completion of the action and resolution of all issues which arise from it, or until the
end of the regular 3-year period, whichever is later." Additionally, we clarified that
it would not be necessary to review labor charges to AQB grants after June 25,
2010, and DWB grants after April 13, 2012. Both bureaus complied with the
federal requirements for labor charging after those dates.
We advised Region 6 that its regular compliance-monitoring reviews would not be
adequate to address recommendation 4. Adequate review procedures need to be
performed to ensure that employees charge their time based on actual activities
performed, as required under 2 CFR Part 225.
Since NMED's comments were already addressed in the draft report, no changes to
the final report will be necessary. Our position on the reported findings and
recommendations remains unchanged. The details of our responses to NMED's
comments are embedded as text boxes in appendix C.
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Chapter 3
NMED Claimed Unsupported SWQB Labor Costs
NMED was unable to provide the required personnel activity reports to support
costs claimed by SWQB for the period July 1, 2004, to June 30, 2006 (FYs 2005
and 2006). Title 2 CFR Part 225, Appendix A, requires all costs to be adequately
documented, and Appendix B requires that where employees work on multiple
activities or cost objectives, charges for salaries be supported by personnel
activity reports or equivalent documentation that meets federal standards. Because
of NMED's noncompliance, we questioned $2,733,798 in labor, fringe benefits,
and related indirect costs.
NMED Was Unable to Provide Personnel Activity Reports
NMED could not provide the personnel activity reports required under 2 CFR
Part 225 to support labor costs charged to the EPA by SWQB in FYs 2005 and
2006. We selected a labor sample from FY 2005 and requested supporting
personnel activity reports such as timesheets. SWQB could not provide timesheets
or equivalent documents signed by employees. SWQB personnel said NMED used
a different timekeeping system prior to FY 2007, which began on July 1, 2006.
Although SWQB employees maintained timesheets to accumulate actual hours and
the timesheets were the basis for recording labor charges in the timekeeping
system, the timesheets are no longer available. The SWQB finance manager said
the hard-copy timesheets have been destroyed and the bureau can no longer access
the prior accounting system to obtain copies of the electronic timesheets. We asked
employees in our sample about their timekeeping practices in FY 2005. Employees
confirmed their use of timesheets to record actual labor hours, but they did not have
copies of these timesheets.
As a substitute for timesheets, the finance manager provided a labor-distribution
report, which listed by pay period the hours and projects that each of the three
employees in our sample charged. NMED personnel said that the labor-distribution
report is an adequate alternative to providing personnel activity reports. However,
labor-distribution reports do not contain employee signatures or other evidence of
employees attesting to the hours charged.
Federal Cost Principles Require Personnel Activity Reports
Title 2 CFR Part 225, Appendix A, Section C.l.j, requires all costs to be
adequately documented. Title 2 CFR Part 225, Appendix B, Section 8.h.,
provides standards for support of salaries and wages under federal awards.
Appendix B, Section 8.h.(4), states that when employees work on multiple
activities or cost objectives, the distribution of their salaries or wages will be
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supported by personnel activity reports or equivalent documentation that meets
the standards in Section 8.h.(5). Under Section 8.h.(5), the personnel activity
reports are requiredto: (1) reflect an after-the-fact distribution of the actual
activity of each employee, (2) account for the total activity for which each
employee is compensated, (3) be prepared at least monthly and coincide with one
or more pay periods, and (4) be signed by the employee.
The SWQB did not comply with these requirements. Instead, SWQB provided a
labor-distribution report that provided the pay period, project number, hours
charged to each project, associated dollar amounts, and various accounting codes
for each employee. The labor-distribution report is a summary accounting report
and does not represent personnel activity reports in accordance with 2 CFR
Part 225, Appendix B, Section 8.h.(4) requirements. In addition, the
labor-distribution report did not identify the data-entry date or the person, and
entries were not signed by the employee.
Appendix B, Section 8.h.(3) states that when employees are expected to work
solely on a single federal award or cost objective, charges for their salaries and
wages will be supported by periodic certifications. These certifications will be
prepared at least semiannually and will be signed by the employee or a
supervisory official with first-hand knowledge of the work performed by the
employee. NMED did not have these certifications.
NMED Claimed Unsupported Costs
Under grant number C999610112, we identified $2,733,798 in labor, fringe
benefits, and related indirect costs incurred and claimed between July 1, 2004,
and June 30, 2006. These costs are not allowable because NMED could not
provide adequate supporting documents to comply with the CFR requirements.
Grant number C999610112 was the only SWQB grant that was from our sample
and active prior to July 1, 2006 (the beginning of FY 2007), and within the 3-year
record-retention period. The grant period is July 1, 2004 to June 30, 2012. The
latest FFR available to us for this grant was dated June 9, 2008, and covered the
period July 1, 2004, to June 9, 2008.
The federal share of expenditures reported was $7,069,500. A review of the
accounting records provided by NMED showed that they incurred $7,218,427,
a difference of $148,927 when compared to the amount NMED reported.
NMED intends to submit an amended FFR showing the correct amount incurred.
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Recommendation
We recommend that the Region 6 Regional Administrator:
5. Disallow and recover unsupported SWQB labor costs of $2,733,798
claimed under grant number C999610112, unless NMED can provide
support that complies with federal requirements.
EPA and Recipient Comments
Region 6 agreed with recommendation 5. The region stated that it will provide
NMED the opportunity to submit documentation that substantiates the questioned
costs and take necessary corrective action, including the recovery of costs as
appropriate.
NMED did not address our recommendations by number, but disagreed with the
recommendation by requesting that it not be required to return federal funds.
NMED reiterated some of the comments provided during our fieldwork, but no
additional information or supporting documentation was provided. The full text of
NMED's comments is included in appendix C.
OIG Response
We agree with the actions Region 6 proposed. However, when reviewing any
additional documentation from NMED, Region 6 should ensure that the
documentation complies with the timekeeping and labor-charging requirements of
2 CFRPart 225.
Since NMED's comments have already been discussed in the draft report,
no changes to the final report will be necessary. Our position on the reported
finding and recommendation remains unchanged. The details of our responses
to NMED's comments are embedded as text boxes in appendix C.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS ($000s)
Rec.
No.
Page
No.
Subject
Status1
Planned
Completion
Action Official Date
Claimed
Amount
Agreed-To
Amount
15
Disallow and recover unsupported labor costs of
$298,159 from AQB and $2,974,318 from DWB,
unless NMED can provide support that complies
with 2 CFR Part 225, Appendix B, Section 8.h.
Ensure that NMED does not claim unsupported
costs of $486,305 for the period October 1, 2011,
to April 13, 2012, for grant F00620311, unless
NMED can provide support that complies with
2 CFR Part 225, Appendix B, Section 8.h.
Identify and recover any unsupported costs from
AQB- and DWB-administered grants, which are not
covered in our cost-impact determination.
Ensure that labor-charging practices at any of the
nine NMED bureaus that have EPA grants comply
with federal requirements.
Disallow and recover unsupported SWQB labor
costs of $2,733,798 claimed under grant number
C999610112, unless NMED can provide support
that complies with federal requirements.
Region 6
Regional Administrator
Region 6
Regional Administrator
Region 6
Regional Administrator
Region 6
Regional Administrator
Region 6
Regional Administrator
$3,272
$2,734
1 0 = 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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NMED Grants Selected for Review
Appendix A
Open grants
NMED
bureau
Grant
number
Project
start date
Project end
date
Total project
costs
Award
amount
EPA
share
Budgeted
labor
Budgeted
fringe
benefits
Budgeted
labor and
fringe
benefits
EPA's
share of
labor and
fringe
benefits
AQB
PM96666701-4
4/1/2008
3/30/2012
$ 1,124,765
$ 1,124,765
100%
$ 334,742
$ 110,465
$ 445,207
$ 445,207
DWB
F00620311-4
7/1/2010
6/30/2012
2,626,028
1,969,521
75%
1,478,994
530,045
2,009,039
1,506,779
GWQB
V96618901-E
4/1/2006
9/30/2012
6,690,241
6,246,635
93%
2,690,763
988,450
3,679,213
3,435,258
GWQB
RP96678901-3
10/1/2008
9/30/2013
2,193,750
2,193,750
100%
1,079,820
337,938
1,417,758
1,417,758
SWQB
I00635009-6
7/1/2009
12/31/2011
3,487,668
3,047,500
87%
2,071,564
741,553
2,813,117
2,458,082
SWQB
C999610112-5
7/1/2004
6/30/2012
12,835,033
7,219,500
56%
4,220,230
1,566,827
5,787,057
3,255,127
SWQB
C999610113-5
7/1/2007
6/30/2013
10,834,267
6,357,800
59%
3,393,900
1,227,630
4,621,530
2,712,021
SWQB
C999610114-5
7/1/2009
6/30/2015
7,926,400
4,719,800
60%
2,503,369
777,269
3,280,638
1,953,466
Subtotal
$32,879,271
$24,053,559
$17,183,698
Closed grants
SWQB
I00635008-6
7/1/2007
12/31/2009
$ 4,064,368
$ 3,624,200
89%
$2,133,440
$ 709,136
$ 2,842,576
$ 2,534,727
DWB
F00620309-3
7/1/2008
6/30/2010
2,815,733
2,111,800
75%
1,382,897
559,414
1,942,311
1,456,733
GWQB
V97630201-5
7/1/2004
12/31/2009
6,111,111
5,500,000
90%
402,748
140,957
543,705
489,335
GWQB
V96618901-B
4/1/2006
9/30/2011
5,450,140
5,241,635
96%
2,265,057
832,541
3,097,598
2,979,094
GWQB
V96618901-C
4/1/2006
9/30/2011
5,887,473
5,660,635
96%
2,443,886
899,739
3,343,625
3,214,799
Subtotal
$22,138,270
$11,769,815
$10,674,688
Total
$55,017,541
$35,823,374
$27,858,386
Source: Bureau information is from NMED. All other information is from the EPA's IGMS.
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Appendix B
Region 6 Comments on the Draft Report
tD su% UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
A
REGION 6
I I 1445 ROSS AVENUE, SUITE 1200
% * DALLAS, TX 75202-2733
% ^
April 8,2013
MEMORANDUM
SUBJECT: Response to Office of Inspector General - Draft Report Project No. OA-FY12-0497
"Labor Charging Practices at the New Mexico Environment Department" dated
February 21, 2013
FROM: Sam Coleman
Deputy Regional Administrator
Region 6
TO: Robert K. Adachi
Director of Forensic Audits
Office of the Inspector General
As required by EPA Manual 2750, Part 2, Section B(3), I am providing for your review the proposed
management decision in response to the recommendations listed in the Draft Report Project No. OA-
FY12-0497 ("OIG report"). The audit provided five recommendations that affect the overall budget and
subsequently operational capability of the New Mexico Environment Department (NMED) specifically its
Air Quality (AQB), Surface Water Quality (SWQB), and Drinking Water (DWB) Bureaus.
Region 6 agrees with the Inspector General's findings that three of the four NMED bureaus audited did
not always comply with the federal requirements specified in 2 CFR Part 225. However, the OIG report
acknowledges that the AQB and DWB have already implemented corrective actions and complied with
federal requirements before the issuance of the OIG report. As described below, Region 6 agrees with
Recommendations 1, 2, 4 and 5 and requests clarification on the scope of Recommendation 3.
To ensure that NMED is funded for the important work they completed under the assistance agreements
examined by the OIG, the Region will provide NMED the opportunity to submit documentation that
support the questioned costs. Region 6 will continue to assist NMED with their efforts to implement
labor charging practices that comply with federal requirements.
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Recommendation No . 1 Disallow and recover unsupported labor cost of $298,159from AQB and
$2,974,318from DWB unless NMED can provide support that complies with 2 CFR 225, Appendix B,
Section 8.h.
Region 6 will provide NMED the opportunity to submit documentation that substantiates the questioned
costs. The Region will review the documentation and take necessary corrective action, including the
recovery of costs as appropriate. It will also continue to assist NMED with their efforts to implement
corrective actions and comply with federal requirements.
Recommendation No. 2. Ensure that NMED does not claim unsupported cost of $486,305for the period
of October 1, 2011, to April 13, 2012, for grant F00620311, unless NMED can provide support that
complies with 2 CFR 225, Appendix B, Section 8.h.
Region 6 will provide NMED the opportunity to submit documentation that substantiates the questioned
costs. The Region will review the documentation and take necessary corrective action, including the
recovery of costs as appropriate.
Recommendation No. 3. Identify and recover any unsupported cost from AQB- and DWB-administered
grants, which are not covered in our cost-impact determination.
Region 6 requests clarification regarding the scope of this recommendation, including identification of the
universe of assistance agreements that would have to be reviewed by the Region.
Recommendation No. 4. Ensure that labor charging practices at any of the nine NMED bureaus that have
EPA grants comply with federal requirements.
Region 6 will specifically address compliance with 2 CFR Part 225, Appendix B, Section 8.h as part of its
monitoring of NMED Bureaus under EPA Order 5700.6 A2 CHG 2, Policy on Compliance, Review and
Monitoring. Additionally, Region 6 will establish Standard Procedures for Project Officers to use during
Advanced Programmatic Reviews focused on the evaluation of labor charging practices by NMED
Bureaus. Region 6 will continue to provide technical assistance to the NMED Bureaus to facilitate proper
labor charging practices.
Recommendation No. 5. Disallow and recover unsupported SWQB labor costs of $2,733,798, unless
NMED can provide support that complies with federal requirements.
Region 6 will provide NMED the opportunity to submit documentation that substantiates the questioned
costs. The Region will review the documentation and take necessary corrective action, including the
recovery of costs as appropriate. It will also continue to assist NMED with their efforts to implement
corrective actions and comply with federal requirements.
Conclusion
Region 6 has a valued relationship with NMED and an obligation to manage grants in accordance with
federal fiduciary and stewardship standards. The Region fully intends to continue working with NMED to
resolve the findings of the OIG audit and take necessary corrective action. If you have any questions
regarding this response, please contact Missy Milbeck, Comptroller at (214)665-6540 or Donna Miller,
Grants Management Officer at (214)665-8093.
cc: F. David Martin, Secretary NMED
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Butch Tongate, Deputy Secretary NMED
Vince Lithgow, Chief Financial Officer NMED
Arthur A. Elkins Jr., Inspector General
LelaWong, Project Manager, Office of Inspector General
Howard Corcoran, Director, Office of Grants and Debarment
bcc: Ronnie Crossland, Acting ARA
David Gray, External Affairs Division
William Honker, Water Quality Protection Division
David Garcia, Multimedia Planning and Permitting Division
Missy Milbeck, Comptroller
Susan Jenkins, Audit Liaison
Donna Miller, Grants Management Officer
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Appendix C
NMED's Comments on the Draft Report
and OIG Evaluation
ENVIRONMENT DEPARTMENT
Office of the Secretary
State of New Mexico
SUSANA MARTINEZ
Governor
JOHN A. SANCHEZ
Lieutenant
Harold Runnels Building
1190 Saint Francis Drive, PO Box 5469
Santa Fe,NM 87502-5469
Telephone (505) 827-2855 Fax (505) 827-2836
DAVE MARTIN
Secretary
BUTCH TONGATE
Deputy Secretary
www.nmenv.state.nm.us
April 8, 2013
Lela Wong
Project Manager
USEPA Office of the Inspector General
75 Hawthorne Street, 7th Floor (IGA-1)
San Francisco, CA 94105
RE: Response to OIG Report: Project No. OA-FY12-0497
Dear Ms. Wong:
The New Mexico Environment Department (NMED) offers the following responses for the
findings contained within the Office of Inspector General audit report entitled Labor-Charsins
Practices at the New Mexico Environment Department, dated February 21. 2013. It is the
position of the NMED that the deliverables required by each federal award were completed
within the grant cycle. Additionally, all expenditures charged to the federal awards were
legitimate, properly allocable and in direct function with the grant-related activities. The report
appropriately does not allege that NMED committed fraud, waste or abuse; rather, a lack of
proper procedural documentation of some of NMED's activities resulted in audit findings.
Finally, in some cases, NMED both received written and verbal approval of our time and labor
practices from EPA based on the time and labor practices which was percentage based.
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OIG Response 1. As stated in chapter 1 of our report, the objective of our audit is to
determine whether labor-charging practices at NMED comply with federal requirements and
the effect of any noncompliance on amounts NMED claimed under EPA awards. We did not
address grant deliverables or expenditures other than labor. We reported that three of the
four NMED bureaus audited (DWB, AQB, and SWQB) did not always comply with the
labor-charging requirements in 2 CFR Part 225.
In chapter 2 of our report under the subheading "NMED Believed Charges Based on
Budget Estimates Were Acceptable," we addressed NMED's comment concerning the
approval of its time and labor practices by the EPA.
Upon notification of the improper procedures and to fully comply with 2 CFR Part 225 the
NMED changed the time and labor procedures. Staff who work on federal grants are now
required to charge time and labor hour based on actual activities performed. Staff is required to
maintain and upon request, provide personal activity reports justifying the work activities
supported by the grant(s). In addition, signed certification from staff that work solely on federal
grants are required and will be available upon request.
OIG Response 2. We acknowledged in our report under the "Noteworthy Achievements"
subheading that current practices at the four bureaus audited are in compliance with federal
requirements. It is NMED's responsibility to ensure that its timekeeping practices continue
to comply with federal requirements.
NMED also notes that there were no findings of non-compliance related to time and labor
reporting that qualified the opinion of the Single Audit for the time periods involved, with the
only exception being for the State Fiscal Year 2012 Single Audit. The qualification was based
on the disclosure of the OIG Audit. Additionally, year-end reviews with each grant program and
EPA have all been favorable and the NMED has never been notified that the agency had been
conducting business improperly or contrary to 2 CFR 225 standards.
OIG Response 3. We addressed this comment in chapter 2 of our report under the "NMED
Believed Charges Based on Budget Estimates Were Acceptable" subheading, paragraphs
2 and 3. It appears that the single auditor had different criteria for risk assessment from the
OIG. Risk assessment method and criteria may vary for each audit based on the auditor's
judgment. An audit provides reasonable but not absolute assurance that the information
presented is free of material misstatement.
We also discussed programmatic reviews with Region 6 staff. They indicated their reviews
verified the drawdowns were supported by source documentation. The reviews did not
include interviews and other procedures to ensure that labor-charging practices comply with
federal requirements.
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NMED is disappointed that the IOG audit team did not accept documentation which verifies that
NMED staff worked on the activities of the grants in question. Documentation included a work
history report that identifies staff, travel dates, description of work activity, time and labor costs,
and travel costs. The NMED also provided copies of e-mails and meeting notes that, in our
opinion, clearly indicated that EPA was aware of and approved the time and labor procedures.
OIG Response 4. We addressed the documentation cited above and explained why the
documentation did not comply with federal requirements. Details of the work history reports
can be found in chapter 2 of our report under the subheading "NMED Claimed
Unallowable Costs," last paragraph. EPA's approval was addressed in chapter 2 of our
report under subheading "NMED Believed Charges Based on Budget Estimates Were
Acceptable," last two paragraphs.
NMED would also like to point out that the difficulty in supplying supporting documentation for
some grants is based on the fact that the time period covered by a single grant extended several
years - in one case from July 4, 2004 through June 30, 2012. If the time periods between the
issuance and completion of each grant were shorter, it would be significantly less burdensome to
reconcile labor charges with applicable funding sources. Financial software changes and staff
changes limit the state's ability to retain historical knowledge and documentation through the
extended life of the grant and retention period.
OIG Response 5. We indicated in chapter 1 of our report that all of the grants in our review
were within the records-retention period. Title 40 CFR § 31.42(b) states that records must be
retained for 3 years from the date the recipient submits its final expenditure report.
NMED and EPA have discussed several times the need for training by EPA's grant management
staff. At a minimum, the training should cover the accountability measures that should be
followed by both grantee and grantor financial and program staff to ensure that grant activities
are accurately recorded and appropriately funded. The requirement for such training would be a
reasonable recommendation to address the OIG's audit findings.
OIG Response 6. Training on the proper procedures for identifying, accumulating and
reporting labor costs would help to eliminate the problems we noted during our review.
However, it is NMED's responsibility to ensure that its employees obtain the proper training
to comply with federal requirements.
The NMED respectfully requests that the agency should not be required to return any federal
dollars. A punitive penalty to the NMED would jeopardize the ability to perform the day to day
functions of the agency. The NMED is not in a position financially to fully support the functions
and activities required by our mission without co-reliance on the federal awards to assist in
meeting the objectives of the agency. At this time EPA and NMED are working collaboratively
to justify expenditures were appropriate.
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OIG Response 7. It is the responsibility of Region 6 to determine whether funds should be
returned, not the OIG. In addition, NMED can only be reimbursed for expenditures that
comply with federal requirements. As stated in our audit report, NMED's labor-charging
practices did not comply with federal requirements.
Sincerely,
F. David Martin
Cabinet Secretary
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Distribution
Regional Administrator, Region 6
Deputy Regional Administrator, Region 6
Director, Grants and Interagency Agreements Management Division,
Office of Administration and Resources Management
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
Audit Follow-Up Coordinator, Region 6
Public Affairs Officer, Region 6
Secretary, New Mexico Environment Department
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