5-
<
4^>.	S
*L pro"*4-
o
z
LLI
o
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Examination of Costs Claimed
Under American Recovery and
Reinvestment Act Cooperative
Agreement 2A-97706701 Awarded
to Grace Hill Settlement House,
St. Louis, Missouri
Report No. 13-R-0367
August 30, 2013
Scan this mobile
code to learn more
about the EPA OIG.

-------
Report Contributors:	Brad Jones
Lela Wong
Michael Owen
Patrick Mclntyre
Abbreviations
CA
Cooperative Agreement
CFR
Code of Federal Regulations
DEQ
Diesel Emission Quantifier
DERA
Diesel Emissions Reduction Act
DFH
Direct Fire Heater
EPA
U.S. Environmental Protection Agency
FTE
Full Time Equivalent
FY
Fiscal Year
GH
Grace Hill Settlement House
ODC
Other Direct Costs
OIG
Office of Inspector General
OMB
Office of Management and Budget
RFP
Request for Proposal
YIN
Vehicle Identification Number
Cover photo: School bus retrofitted under the cooperative agreement.
(EPA OIG photos taken in St. Louis, Missouri)
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

-------
x^ed sta^
*	- U.S. Environmental Protection Agency	13-r-0367

i	\ Office of Inspector General	August 30 2013
s
"V—'—J"
% V|// "
At a Glance
Why We Did This Review
The U.S. Environmental
Protection Agency Office of
Inspector General conducted
this examination of the costs
claimed by Grace Hill
Settlement House under
American Recovery and
Reinvestment Act cooperative
agreement 2A-97706701.
The OIG conducted this
examination to determine
whether the costs claimed were
reasonable, allocable, and
allowable in accordance with
applicable federal requirements
and the terms and conditions of
the CA. The OIG also reviewed
GH's compliance with selected
Recovery Act requirements and
accomplishment of the
objective of the CA.
This report addresses the
following EPA Goal or
Cross-Cutting Strategy:
• Taking action on climate
change and improving air
quality.
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/
20130830-13-R-0367.pdf
Examination of Costs Claimed Under
American Recovery and Reinvestment Act
Cooperative Agreement 2A-97706701 Awarded to
Grace Hill Settlement House, St. Louis, Missouri
What We Found
GH's financial management system did not meet federal standards. In particular:
•	Procurements did not meet the competition or cost and price analysis
requirements of the Code of Federal Regulations in 40 CFR §30.43 and
§30.45.
•	The contract administration system did not meet the requirements of
40 CFR §30.47.
•	Unallowable costs were not segregated and financial management data
were not properly supported as required under 40 CFR §30.21 and
2 CFR Part 230.
•	Labor charges did not comply with the requirements of 2 CFR Part 230.
•	Cash draws did not meet immediate cash needs requirement and were
not properly documented as required under 40 CFR §30.22 and §30.21.
As a result of the issues noted, we questioned $1,615,343 of the $2,250,031
claimed under the CA. In addition, due to lack of adequate documentation from
GH, we were unable to determine whether GH accomplished the objective of the
CA or met the job reporting requirements of Recovery Act Section 1512.
Recommendations
We recommend that the Region 7 regional administrator disallow questioned
costs of $1,615,343 and recover $1,423,028 of that amount under the CA. We
also recommend that, prior to any future EPA awards, the regional administrator
verify that GH has adequate controls related to such issues as procurement,
contract administration, cost allowability, labor charges, and cash draws. In
addition, we recommend that the regional administrator verify that GH reported
the number of jobs created and retained in accordance with Recovery Act
requirements and Office of Management and Budget guidance. We also
recommend that the regional administrator verify that the vehicles GH reported
as retrofitted under the CA were completed in accordance with workplan.
GH disagreed with our recommendations. GH believed the contract costs were
fair and reasonable, no federal funds were over-drawn, and it has exceeded the
emission objective of the CA. GH believed no costs should be recovered, with an
exception to a limited amount of personnel costs. Region 7 did not comment on
the draft report.

-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
August 30, 2013
MEMORANDUM
SUBJECT: Examination of Costs Claimed Under American Recovery and Reinvestment Act
Cooperative Agreement 2A-97706701 Awarded to Grace Hill Settlement House,
St. Louis, Missouri
Report No. 13-R-0367
FROM: Arthur A. Elkins Jr.
TO:	Karl Brooks, Regional Administrator
Region 7
This is our report on the subject examination 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.
Due to the length of the recipient's comments and the need to redact the sensitive information,
appendices A and B are presented in separate files.
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
December 30, 2014. 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. 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 Eyermann, 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.
^tDSrX
#' A \
USE?*1

-------
Examination of Costs Claimed Under American Recovery and
Reinvestment Act Cooperative Agreement 2A-97706701
Awarded to Grace Hill Settlement House
13-R-0367
	Table of Contents
Chapters
1	Independent Accountant's Report		1
2	Introduction		4
Purpose 		4
Background 		4
3	Results of Examination - Costs Claimed		5
Recommendation 		7
Recipient Comments		7
OIG Response		8
4	Financial Management System Did Not Meet Federal Standards		10
Procurements Did Not Meet Competition Requirements		10
Procurements Did Not Meet Cost and Price Analysis Requirements		12
Contract Administration Did Not Meet Federal Requirements		13
Costs Claimed Included Ineligible and Unsupported Costs		15
Labor Charges Did Not Comply With Federal Requirements		16
Cash Draws Did Not Comply With Federal Requirements		17
Conclusion		18
Recommendation		18
Recipient Comments		19
OIG Response		19
5	Compliance With Recovery Act Requirements 		21
Recommendation		21
Recipient Comments		22
OIG Response		22
6	Meeting the Objective of the CA		23
Lack of Adequate Verifiable Details in Final Progress Report		23
Not All Retrofitted Vehicles Were Available for Inspection		23
GH Did Not Consistently Document Work Completion Verification		24
Conclusion		25
Recommendation 		25
Recipient Comments		25
OIG Response		26
Status of Recommendations and Potential Monetary Benefits		27
- continued -

-------
Examination of Costs Claimed Under American Recovery and
Reinvestment Act Cooperative Agreement 2A-97706701
Awarded to Grace Hill Settlement House
13-R-0367
Appendices
A GH's Comments on the Draft Report		28
B OIG Evaluation of GH's Comments 		29
C Distribution 		30

-------
Chapter 1
Independent Accountant's Report
As part of our continued oversight of the assistance agreements the U.S.
Environmental Protection Agency awarded under the American Recovery and
Reinvestment Act of 2009, we have examined the costs claimed under
cooperative agreement 2A-97706701, awarded to Grace Hill Settlement House.
We conducted the examination to determine whether the costs claimed under the
CA were allowable in accordance with the Code of Federal Regulations under
2 CFR Part 230, Cost Principles for Non-Profit Organizations, and 40 CFR Part
30, Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations,
as well as the terms and conditions of the CA. We also reviewed GH's
accomplishment of the objective of the CA and compliance with the following
Recovery Act requirements:
•	Buy American requirements under Section 1605.
•	Davis-Bacon Act wage requirements under Section 1606.
•	Job reporting requirements under Section 1512.
The CA covered the period June 1, 2009, through June 30, 2011. By receiving the
award, GH accepted responsibility for compliance with the requirements stated
above. Our responsibility is to express an opinion on GH's cost claim and
compliance based on our examination.
Our examination was conducted in accordance with the Government Auditing
Standards issued by the Comptroller General of the United States and the
attestation standards established by the American Institute of Certified Public
Accountants. We examined, on a test basis, evidence supporting management's
assertions and performed such other procedures as we considered necessary under
the circumstances. We believe our examination provides a reasonable basis for
our opinion.
We conducted our fieldwork from January 31, 2012, to April 17, 2013.
We performed the following steps:
•	Reviewed the EPA project and grant files to obtain an understanding of
the project.
•	Interviewed GH personnel to obtain an understanding of the project as
well as the recipient's policies and procedures.
•	Reviewed GH's supporting documents for cash draws and costs claimed
under the CA.
•	Reviewed evidence for work completion and conducted site visits to verify
work completion.
13-R-0367
1

-------
•	Reviewed evidence for compliance with Recovery Act and other federal
requirements.
GH is responsible for establishing and maintaining effective internal control over
compliance with the requirements of 40 CFR Part 30, 2 CFR Part 230, Recovery
Act, and the terms and conditions of the CA. In planning and performing our
examination, we considered GH's internal control over compliance with the
requirements listed above as a basis for designing our examination procedures for
the purpose of expressing our opinion on compliance, but not for the purpose of
expressing an opinion on the effectiveness of internal controls over compliance.
Accordingly, we do not express an opinion on the effectiveness of GH's internal
control.
Our consideration of internal control over compliance with the above
requirements was for the limited purpose described in the preceding paragraph
and was not designed to identify all deficiencies in internal control over
compliance that might be significant deficiencies or material weaknesses;
therefore, there can be no assurance that all deficiencies, significant deficiencies
or material weaknesses have been identified.
A significant deficiency is a deficiency in internal control, or combination of
deficiencies, that adversely affects that entity's ability to initiate, authorize,
record, process, or report data reliably in accordance with the applicable criteria
or framework, such that there is more than a remote likelihood that a misstatement
of the subject matter that is more than inconsequential will not be prevented or
detected. A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood that material
misstatement of the subject matter will not be prevented or detected.
Our examination disclosed the following material weaknesses in GH's financial
management system:
•	Procurements did not meet the competition or cost and price analysis
requirements of 40 CFR §30.43 and §30.45.
•	The contract administration system did not meet 40 CFR §30.47
requirements.
•	Unallowable costs were not segregated and financial management data
were not properly supported as required under 40 CFR §30.21 and 2 CFR
Part 230.
•	Labor charges did not comply with 2 CFR Part 230 requirements.
•	Cash draws did not meet immediate cash needs requirements and were not
properly documented as required under 40 CFR §30.22 and §30.21.
As a result of the issues noted above, we questioned $1,615,343 of the $2,250,031
claimed under the CA. In our opinion, because of the effect of the issues described
above, the costs claimed do not meet, in all material respects, the requirements of
13-R-0367
2

-------
40 CFR Part 30, 2 CFR Part 230, and the terms and conditions of the CA for the
period ended June 30, 2011.
In addition, due to lack of adequate documentation from GH, we were unable to
verify whether GH accomplished the objective of the CA or met the job reporting
requirements of Section 1512 of the Recovery Act.
Robert K. Adachi
Director, Forensic Audits
August 30, 2013
13-R-0367
3

-------
Chapter 2
Introduction
Purpose
The EPA Office of Inspector General conducted this examination to determine
whether the costs claimed under the C A were reasonable, allocable, and allowable
in accordance with the applicable federal requirements and the terms and
conditions of the CA. The OIG also reviewed GH's compliance with selected
Recovery Act requirements and accomplishment of the objective of the CA.
Background
The Diesel Emission Reduction Act was signed into law in August 2005 under
Title VII, Subtitle G, of the Energy Policy Act of 2005. DERA authorized $200
million per year from fiscal years 2007 through 2011 (or a total of $1 billion) for
the EPA to fund programs to achieve significant reductions in diesel emission
from fleets operating in areas designated by the agency as poor air quality areas.
Congress appropriated a total of $219.1 million for the EPA under DERA for FYs
2008 through 2011. Congress appropriated an additional $300 million to the EPA
in FY 2009 for DERA assistance agreements under the Recovery Act.
The EPA awarded the CA on July 20, 2009, to GH under the Recovery Act. The
purpose of the award was to provide emission reduction technology for delivery
trucks, long-haul trucks, school buses, tugboats, fire engines, ambulances, airport
support equipment, dump trucks, and street sweepers. The technology used in this
project was expected to save 87,884 gallons of diesel fuel per year, help
companies retain current employees, and create new jobs. This project was
expected to reduce air pollution, resulting in benefits to the health of residents and
workers in the St. Louis region.
The EPA awarded the CA under 40 CFR Part 30. The grant budget and project
period was from June 1, 2009, to June 30, 2011. Estimated total project cost is
$2,256,420, consisting of federal share of $2,000,000 and required recipient
match of $256,420. The final federal financial report submitted by GH on
September 29, 2011, shows total project costs of $2,250,031, consisting of federal
share of $1,985,679 and recipient matches of $264,352. The $264,352 included
required matches and voluntary matches.
13-R-0367
4

-------
Chapter 3
Results of Examination - Costs Claimed
Our examination disclosed that GH's financial management system did not meet federal
standards. Specifically, we identified the following material weaknesses:
•	Procurements did not meet the competition or cost and price analysis requirements of
40 CFR §30.43 and §30.45.
•	The contract administration system did not meet 40 CFR §30.47 requirements.
•	Unallowable costs were not segregated and financial management data were not
properly supported as required under 40 CFR §30.21 and 2 CFR Part 230.
•	Labor charges did not comply with 2 CFR Part 230 requirements.
•	Cash draws did not meet immediate cash needs requirements and were not properly
documented as required under 40 CFR §30.22 and §30.21.
As a result, we questioned $1,615,343 of the $2,250,031 claimed under the CA. We
summarize the costs claimed and questioned below:
Table 1: Summary of questioned costs
Cost category
Amount
claimed
Costs questioned
Note
Ineligible
Unsupported
Personnel
$70,870
-
64,617
1
Fringe benefit costs
15,300

14,841
1
Contract costs
2,091,009
61,450
1,443,922
2
Other direct costs
(16,496)'
2,430
429
3
Indirect costs
91,037
27,654

4
Costs incurred in excess of
claimed amount
(1,689)



Total project costs
$2,250,031
91,534
1,523,809

Total costs questioned
1,615,343



Allowable project costs
634,688



Allowable federal share (88.65%)
562,651



Cumulative cash draw
1,985,679



Amount due EPA
$1,423,028



Sources: Amounts claimed are from GH's accounting records and the final federal financial report GH
submitted to the EPA under the CA. Costs questioned are based on OIG's analysis of the data.
1 Actual amount of other direct costs claimed is $28,907. The negative amount shown above is due to other direct
costs of $45,403 being misclassified as contract costs in GH's accounting records and in the federal financial report.
13-R-0367
5

-------
Note 1: Fringe Benefits
We question personnel costs of $64,617 and the associated fringe benefit costs of
$14,841 as unsupported because GH's labor charges for full-time employees did
not comply with federal requirements. Chapter 4 of this report, in the section
Labor Charges Did Not Comply With Federal Requirements, discusses this
issue in more detail.
Note 2: Contract Costs
We question contract costs of $1,505,372 consisting of the following:
•	Ineligible costs of $31,469 claimed in excess of the contract ceiling
amounts.
•	Ineligible voluntary matches of $29,981.
•	Unsupported costs of $1,273,788 due to noncompliance with federal
procurement regulations.
•	Unsupported costs of $170,134 due to noncompliance with contract billing
terms.
a) Costs Claimed In Excess of Contract Ceilings. We question ineligible
costs of $31,469 claimed in excess of the contract ceiling amounts because
these costs did not comply with contract terms. Detailed discussion of this
issue is in the chapter 4 section Contract Administration Did Not Meet
Federal Requirements, in the subsection Invoice Payments Not
Consistent With Contract Terms.
b) Voluntary Matches. We question ineligible voluntary matches of $29,981
because these costs are included in the total project costs claimed but are
not eligible for federal cost sharing. Voluntary matches were established
under the contracts as costs to be paid by contractors in addition to the
amounts for EPA cost sharing.
c) Noncompliance With Federal Procurement Regulations. We question
unsupported costs of $1,273,788 because GH did not comply with federal
procurement regulations. As a result, we are unable to determine whether
the costs claimed were fair and reasonable. Detailed discussion of this
issue is in the chapter 4 sections Procurements Did Not Meet
Competition Requirements and Procurements Did Not Meet Cost and
Price Analysis Requirements. Actual amount questioned due to
noncompliance with federal procurement regulations is $1,322,857.
However, $49,069 of the $1,322,857 is already included in items a) and b)
above. The net amount questioned for noncompliance with federal
procurement regulations is reduced to $1,273,788 to avoid duplication of
questioned costs.
13-R-0367

-------
d) Noncompliance With Contract Billing Terms. We question unsupported
costs of $170,134 because contractor billings did not comply with contract
terms. Unit prices billed by the contractors and paid under the CA did not
match unit prices in the contracts. Detailed discussion of this issue is in the
chapter 4 section Contract Administration Did Not Meet Federal
Requirements, in the subsection Invoice Payments Not Consistent With
Contract Terms. Actual amount questioned for noncompliance with
billing terms is $210,062. Some of the $210,062 is already included in
items a) and c) above. The net amount questioned is reduced to $170,134
to avoid duplication of questioned costs.
Note 3: Other Direct Costs
We question ineligible other direct costs of $2,430 for items that are not allocable
to or allowable under the CA. We also question ODCs of $429 for which GH
could not provide supporting documentation. Detailed discussion of this issue is
in the chapter 4 section Costs Claimed Included Ineligible and Unsupported
Costs.
Note 4: Indirect Costs
Ineligible indirect cost of $27,654 is questioned because the $91,037 GH claimed
exceeded the $63,383 approved in the grant budget. According to 40 CFR
§30.25(c)(2)(iii), the recipient is required to obtain prior approval from the EPA
when shifting costs between the budgeted indirect and direct costs. The EPA has
confirmed that this approval was not requested by GH or granted by the EPA;
therefore, the $27,654 is not allowable.
Recommendation
We recommend that the Region 7 regional administrator:
1. Disallow $1,615,343 in questioned costs and recover $1,423,028 of that
amount under the CA. If GH provides documentation that meets
appropriate federal requirements or demonstrates the fairness and
reasonableness of the contract prices, the amount to be recovered may be
adjusted accordingly.
Recipient Comments
The OIG received comments on the draft report from GH on June 3, 2013.
Region 7 did not provide any comments. We held an exit conference with GH and
Region 7 on July 11, 2013, to discuss GH's comments and our final position on
the issues.
13-R-0367
7

-------
GH disagreed with our recommendation to disallow and recover costs under the
CA. GH believed the contract costs were fair and reasonable, no federal funds
were over-drawn, and it has exceeded the emission objective of the CA. GH believed
no costs should be recovered, with an exception for a limited amount of personnel
costs. GH also submitted after-the-fact documentation prepared or obtained from
its vendors and contractors attempting to support GH's comments. GH's complete
written response is included in appendix A. Along with the response, GH
provided 105 exhibits. Due to volume, exhibits are not included in the report, but
are available upon request.
GH provided additional comments on June 28, 2013, subsequent to the formal
draft response. GH stated that we referred to the voluntary matches as amounts
"paid" in excess of contract ceilings. GH said no part of the voluntary matches
was actually paid. The costs were additional amounts over and above the project
partners' share of the contract prices, which the project partners absorbed.
GH also disagreed with characterizing these costs as ineligible. GH believed the
voluntary matches in excess of the contract ceilings should get "extra credit" and
not bear on any cost recovery by GH or payment by the EPA. GH said it did not
claim or receive cost recoveries or payments in excess of the contract amounts.
OIG Response
GH's response did not change our recommendation to question and recover costs.
GH acknowledged that the labor and fringe benefit costs were charged based on
budget allocation, which did not meet the federal requirement. Except for the
camera and accessory costs of $200.76 and $11.98, GH's comments and
supporting documentation continued to show that ODCs questioned were
unallowable and indirect costs claimed exceeded the amount established in the
grant budget. However, GH provided a contract modification to support some of
the costs not billed in accordance with contract terms. In addition, GH provided
an adequate explanation on the nonresponsive bidder issue. We have adjusted our
report and the recommended questioned costs and recovery amount to reflect
these changes.
The remaining response and documentation provided by GH on the procurement
and contract administration issues were prepared during the draft report response
period. These explanations and documentation did not exist at the time of
procurement. Consideration of these after-the-fact documentation is within the
discretion of EPA management and would require that the agency make an
exception in accordance with 40 CFR §30.4.
Details of our responses to GH's comments are in appendix B.
GH's comments on the voluntary matches referred to the language in chapter 4
section Contract Administration Did Not Meet Federal Requirements, in the
subsection Invoice Payments Not Consistent With Contract Terms. We agreed
13-R-0367
8

-------
with GH that these costs were not actually paid. However, the costs were claimed.
In the final federal financial report, GH claimed "recipient share required" of
$258,420 and total "recipient share of expenditures" of $264,352. In its
accounting records, GH did not distinguish the "recipient share required" from the
addition expenditures. The $264,352 included recipient matches incurred in
excess of contract ceilings which carried over to the total project costs claimed of
$2,250,031. Since voluntary matches and costs incurred in excess of contract
ceilings are not eligible for federal cost sharing, these costs were appropriately
classified as ineligible costs for federal cost share calculation. We have changed
the report from voluntary matches "paid" to "claimed" in excess of contract
ceilings.
13-R-0367
9

-------
Chapter 4
Financial Management System Did Not Meet
Federal Standards
GH's financial management system did not meet federal standards. Specifically,
our examination disclosed the following material weaknesses:
•	Procurements did not meet the competition or cost and price analysis
requirements of 40 CFR §30.43 and §30.45.
•	The contract administration system did not meet 40 CFR §30.47
requirements.
•	Unallowable costs were not segregated and financial management data
were not properly supported as required under 40 CFR 30.21 and 2 CFR
Part 230.
•	Labor charges did not comply with 2 CFR Part 230 requirements.
•	Cash draws did not meet immediate cash needs requirements and were not
properly documented as required under 40 CFR §30.22 and §30.21.
As a result of the issues noted above, we questioned $1,615,343 of the $2,250,031
claimed under the CA.
Procurements Did Not Meet Competition Requirements
GH awarded five contracts for school bus retrofit, totaling $793,340, which did
not comply with the federal competition requirements. The unit price, which was
the same for all five contracts, was not based upon full and open competition.
Although GH's internal procurement policies and procedures complied with
federal standards, GH's staff did not always follow these procedures.
Title 40 CFR §30.43 requires all procurement transactions to be conducted in a
manner that provides, to the maximum extent practical, free and open
competition. The regulation further states that the recipient should be alert for
noncompetitive practices among contractors that may restrict or eliminate
competition or otherwise restrain trade.
GH's procurement policy establishes the following price quotation or bidding
requirement based on the purchase price:
•	Oral or written quotations from at least two responsible vendors for all
purchases in excess of $5,000 but less than $25,000.
•	Written quotations from at least two responsible vendors for all purchases
of at least $25,000 but less than $100,000.
13-R-0367
10

-------
• Competitive proposals from at least three responsible vendors for all
purchases of $100,000 or more.
Contract Price Was Not Competitively Bid
The unit price used for the five contracts was not based on open competition.
Instead, the unit price was based upon GH's negotiations with the main project
partner (owner of the vehicles to be retrofitted) and bidders subsequent to the
open bid process.
The five contracts were for the same type of work. The contracts were awarded to
install direct fire heaters on school buses. GH's initial request for proposal did not
specify the type or model of DFH because GH and its main project partner were
unclear as to the type and model of DFH needed. GH left the RPF open to let
bidders propose the appropriate DFH types.
Four companies submitted bids in response to the RFP. Each company bid for a
varying number of buses and with different DFH models. Two days before the bid
due date, the main project partner informed GH that only Webasto products were
acceptable. According to GH staff, this decision was not communicated to the
bidders. As it turned out, only two of the four bidders (who we will refer to as
"Company A" and "Company B") submitted bids using the Webasto DFH.
Although Company A was the lowest bidder, in our opinion, the four bid prices
were not comparable because the bid prices for the remaining two bidders were
not based on the Webasto DFH.
Before the contract was signed, the project partner requested that additional
features be added to the DFH, including a flame resistant box, crash sensor, and
driver option to turn on the heater. Instead of allowing all original bidders to
resubmit bids for the Webasto DFH with these additional features, GH negotiated
with the project partner and bidders to arrive at a unit price. GH also decided to
split the work between two selected companies (Company A and another bidder,
which we will refer to as "Company C"). Once the unit price and the quantity split
were determined, GH asked the two selected companies to submit quotes for the
determined quantities using the negotiated unit price. GH ultimately awarded the
contracts to these two companies at the negotiated unit price.
GH was unable to provide documentation to support the unit price negotiations or
the division of work. During our fieldwork, GH staff verbally explained that the
other two companies were not asked to rebid because Company B was late
submitting its original bid and Company D had too much other work under the
CA. In our opinion, Company B's late submittal on the original bid should not
have affected the rebid, as the rebid would have established a new bid due date.
GH should have, at a minimum, allowed Companies A and C to competitively bid
on the new specifications instead of using the negotiated unit price. Further, GH's
internal procurement policy required competitive proposals from at least three
13-R-0367
11

-------
responsible vendors for all purchases of $100,000 or more. In this case, the initial
award totaled $656,792, consisting of $567,162 awarded to Company A and
$89,630 to Company C. Negotiating the unit price instead of obtaining bids from
three responsible vendors violated GH's internal policy. Since GH could not
provide documentation to support the unit price, there is no assurance that the
price was fair and reasonable. As a result, we question all costs claimed under the
two contracts as unsupported costs.
When additional school buses became available for the same type of retrofit, GH
again split the work. The work was split among three companies - referred to
above as Companies A, B, and C. GH explained that Company B, which was late
submitting its original bid, came to the pre-bid meeting for the second phase of
the bus retrofit and again expressed interest in the work; therefore, "in the spirit of
fair and open process," GH awarded Company B approximately 30 percent of the
additional retrofit work. The three additional contracts were awarded at the same
unit price as the original two contracts. We question the original contracts because
there is no assurance that the unit price awarded was fair and reasonable. We also
question the additional contracts for the same reason.
Procurements Did Not Meet Cost and Price Analysis Requirements
GH's procurements under the CA did not always meet the federal requirements
for cost and price analysis. GH awarded four contracts without documented cost
or price analysis. Title 40 CFR §30.45 requires some form of cost or price
analysis to be made and documented in the procurement files for every
procurement action. Regulations state that price analysis may be accomplished by
comparing submitted price quotes with market prices and discounts. Cost analysis
is achieved through review and evaluation of each cost element to determine
reasonableness, allocability, and allowability. Without the required cost or price
analysis, there is no assurance that the contract prices were fair and reasonable.
Tugboat Retrofit Contracts
GH awarded two sole source contracts to the owner of the tugboats, or the project
partner, without evidence of cost or price analysis. GH awarded the two contracts,
with not-to-exceed amounts of $79,895 and $286,999. Both contracts required
replacement of a propulsion engine and an auxiliary engine. The $286,999
contract also required replacement of a crane engine. The contract prices consist
of costs for equipment purchases and project partner's labor costs. There was no
evidence of cost or price analysis on either of the contracts except for the cost of
the auxiliary engine under the $286,999 contract. As a result, we question all costs
claimed under the two contracts as unsupported costs, with the exception of the
costs of the auxiliary engine for the $286,999 contract.
GH explained that it made sense to award the contracts to the project partner
because tugboats were the project partner's main business. GH believed the price
13-R-0367
12

-------
was fair and reasonable because the project partner covered 25 percent of the
costs.
We disagree with GH. The fact that the project partner contributed 25 percent of
the costs is irrelevant for determining the fairness and reasonableness of the
contract price. The 25 percent match requirement was imposed by GH on several
of the project partners. Regardless of who received the retrofit contract, the
project partner would have to cover 25 percent of the costs. There were other
projects under the CA in which the project partner was not the retrofitting
contractor but paid the required 25 percent match.
Food Delivery Truck Contract
GH awarded a contract for food delivery truck engine replacements without cost
or price analysis. GH received one bid for the work and awarded the contract to
the only bidder. Without cost or price analysis, there is no assurance that the price
was fair and reasonable. As a result, we question the costs as unsupported.
Drills and Crane Engine Replacement Contract
GH awarded a contract for engine replacement for two drills and a crane without
cost or price analysis. GH received one bid for the work and awarded the contract
to the only bidder at the bid price of $113,095.
GH staff stated that they used quotes for other similar retrofits, such as the
tugboat propulsion engines and crane, as comparisons. However, this does not
meet the federal requirement. As stated above under Tugboat Retrofit Contracts
subsection, GH has not demonstrated that the prices for the tugboat propulsion
engine and crane engine replacements were fair and reasonable since they were
procured without cost or price analysis. The engines used for the tugboats also
appear to be of a different type and class from the engines under this contract. In
addition, GH did not have documentation for the stated comparison, as required
under 40 CFR §30.45 and §30.46. Without cost or price analysis, there is no
assurance that the price was fair and reasonable. As a result, we question the costs
as unsupported.
Contract Administration Did Not Meet Federal Requirements
GH did not have an adequate contract administration system to ensure accuracy of
contract information and contractor conformance with the terms, conditions, and
specifications of the contracts, as required under 40 CFR §30.47. We noted that GH:
•	Awarded contracts that contained inaccurate information.
•	Approved and paid contractor invoices that were not consistent with
contract terms and conditions.
•	Awarded contracts that contained conflicting terms.
13-R-0367
13

-------
Contracts Contain Inaccurate Information
GH did not have adequate controls to ensure the accuracy of the contract terms.
We noted transposition errors in the contract unit price and the not-to-exceed
amount. In addition, we noted a quantity error. The contract stated 115 vehicles
instead of 94 vehicles. Without accurate contract information, the recipient would
not be able to ensure contractors perform services and bill according to the
parties' intent. This could subject the government to contract disputes.
Although the errors noted above had not resulted in actual contract disputes or
billing errors, as the contracts referenced the bid packages, contract terms need to
be accurate in order to protect the interest of all parties affected by the contract,
including the EPA.
Invoice Payments Not Consistent With Contract Terms
GH did not have adequate controls to ensure that invoice payments to contractors
were consistent with contract terms and conditions. Our review of the invoices
indicated that 3 of the 10 contracts awarded under the CA contained invoices that
were not billed at the unit prices established in the contracts. These invoices totaled
$210,062. GH paid the invoices and claimed the costs under the CA without
adequately verifying the contract terms or modifying the terms as necessary. We also
noted that the cumulative amounts claimed under 3 of the 10 contracts exceeded the
contract ceilings. The excess amounts for the three contracts totaled $31,469.
Title 40 CFR §30.47 requires a system for contract administration be maintained
to ensure contractor conformance with the terms, conditions, and specifications of
the contract and to ensure adequate and timely follow-up of all purchases. Title 40
CFR §30.27 establishes appropriate federal cost principles for determining
allowable costs for each type of entity incurring the costs. The contracts GH
awarded under the CA were to commercial organizations. According to 40 CFR
§30.27(a), allowable costs for commercial organizations are determined in
accordance with the provisions of the Federal Acquisition Regulation at 48 CFR
Part 31. Under 48 CFR §31.201-2(a)(4), a cost is allowable only when the cost
complies with the terms of the contract. These costs did not comply with the
contract terms and, therefore, are unallowable under the contracts or the CA.
Contracts Contain Mixed Terms
GH awarded 5 of the 10 contracts under the CA with conflicting contract terms.
One section of the contract would show a lump sum price while another suggested
a unit price agreement. For example, one section of the contract would state:
Grace Hill shall pay contractor, as full and complete compensation
for performance of the services required by this agreement, a total
sum of $ as detailed in Schedule A.
13-R-0367
14

-------
This language indicates a lump sum contract where GH would pay the contractor
the stated sum for all of the tasks agreed to in Schedule A. However, the terms in
Schedule A were for unit price contracts. Each line item in Schedule A of the
contract showed a task to be performed and the number of units under the task
with a not-to-exceed amount. Under a unit price contract, the contractor is paid at
a fixed price per unit; the total amount may vary depending on the number of
units provided but the total cost cannot exceed the not-to-exceed amount.
The mixed contract terms become especially problematic when one line item in
the contract contains multiple unit prices and when the invoiced unit prices do not
match the contract prices. We were unable to determine whether the lump sum
prices or the unit prices prevail. We contacted GH to obtain clarification. GH
explained that these were intended to be unit price contracts.
GH staff explained that the lump sum language was a standard template used for
all contracts. Schedule A, with the unit price language, was added for the
contracts under the CA with the intent to provide clarity on the scope of work and
to specify the payment method for products or services. Due to the lack of
contract knowledge by the procurement staff, the inconsistency in contract terms
was not detected.
Costs Claimed Included Ineligible and Unsupported Costs
GH did not have adequate controls to ensure that unallowable costs were
segregated and that costs in the accounting system were properly supported. As a
result, costs claimed included ineligible and unsupported costs. Title 2 CFR 230,
Appendix A, Section A.2, requires that a cost be in accordance with the federal
cost principles, allocable to the award, and adequately documented to be
allowable under a federal award. Title 40 CFR §30.21 also requires the recipient
to have written procedures to determine the reasonableness, allocability, and
allowability of costs, and to ensure that costs are supported by source
documentation.
Aside from the ineligible and unsupported contract costs explained above, GH
claimed ODCs that are ineligible or unsupported. ODCs represent all direct costs
other than personnel, fringe benefits, and contract costs. Examples of ODCs are
costs relating to travel, supplies, meetings, and allocation of property support and
computer support costs. Total ODCs claimed under the CA was $28,907.
After segregating the allocated property support and computer support costs, as
cost allocations were reviewed separately, there were 60 ODC transactions
included in the claim. We selected 17 of the 60 transactions for review. Of the
17 transactions we reviewed, we identified nine ineligible cost transactions,
totaling $2,430. The ineligible costs were incurred for items that were not
allocable to the CA or for food items that are expressly disallowed under 2 CFR
13-R-0367
15

-------
230, Appendix B, Section 14. In addition, we identified two transactions, totaling
$429, for which GH could not provide supporting documentation.
Although the unallowable ODC amount claimed under the CA is not material, the
issue is significant when considering the number of transactions. Ineligible and
unsupported costs represent about 65 percent of the transactions tested, or
18 percent of the total transactions. It raises concern when the same issue had
been raised by the EPA during its onsite review in November 2010. GH needs to
implement adequate controls to ensure that this issue is resolved.
Labor Charges Did Not Comply With Federal Requirements
GH's labor charges for full-time employees did not comply with federal
requirements. The recipient charged full-time labor costs to federal awards based
on a budget percentage allocation rather than actual activities performed. In
addition, hours recorded on timesheets were identified by funding source rather
than by award. Title 2 CFR Part 230 requires that distribution of salaries and
wages to federal awards be based on an after-the-fact determination of actual
activities. We believe the noncompliance occurred because GH's full-time
employees lack understanding of the federal requirements for labor charges. As a
result, we have no assurance that the labor and related fringe benefit costs of
$79,459 claimed under the CA represent actual activities performed for the CA.
Labor Charging Not Based on Actual Activities
GH's labor hours charged to the CA for its two full-time employees did not
comply with federal requirements. GH allocated the employees' work hours
among the various projects based on budget percentages predetermined by GH's
management. Federal cost principles under 2 CFR Part 230, Appendix B,
Section 8.m.(l), states "[the] distribution of salaries and wages to awards must be
supported by personnel activity reports." Section 8.m.(2) states "[reports]
reflecting the distribution of activity of each employee must be maintained for all
staff member (professional and nonprofessional) whose compensation is charged,
in whole or in part, directly to awards." The regulation further states "[the] reports
must reflect an after-the-fact determination of the actual activity of each
employee. Budget estimates (i.e., estimates determined before the services are
performed) do not qualify as support for charges to awards."
Timesheets Did Not Track Hours by Award
Timesheets for full-time employees did not track hours by award. Instead,
timesheet hours recorded were grouped by funding source. GH had two active
EPA CAs from July 20, 2009, to December 31, 2010. GH recorded hours for both
of the CAs in the timesheets as one line item, labeled as "EPA." These hours were
then charged to the respective awards based on the budgeted percentages, as
explained above. According to 2 CFR 230, Appendix A, Section A.2, a cost must
13-R-0367
16

-------
be allocable to be allowable under an award. Section A.4 states that a cost is
allocable to a particular cost objective, such as a grant, contract, project, service,
or other activity, in accordance with the relative benefits received. Without
tracking the hours by award, the recipient would not be able to show benefits
received by a particular award.
Lack of Understanding of Federal Requirements
Based on discussions with GH staff and our review of their correspondence with
EPA Region 7, it appears that GH lacked an understanding of the federal
requirements for labor charging. During our fieldwork, GH staff stated that, for
most of the grant period, they did not understand how to demonstrate to the EPA
the breakdown of labor hours between projects. In the June 9, 2011, determination
letter for the 2009 single audit findings and the November 2010 onsite
administrative assistance review findings, an EPA Region 7 official stated that
GH was advised during an onsite visit in 2008 that its timesheets did not comply
with federal requirements. GH personnel assured the region that they would
change the timesheet to reflect actual time spent on grant activities. In the June 9,
2011, letter, the region asked GH to explain why corrections had not been
completed. GH stated that staff and management were directed to complete
separate timesheets for each contract, as opposed to modifying the timesheets to
track all actual activities by award.
Cash Draws Did Not Comply With Federal Requirements
GH's advance cash draws did not meet the immediate cash needs requirements
under 40 CFR §30.22 and the terms and conditions of the CA. GH also did not
always adequately document its draw calculations as required under 40 CFR
§30.21. As a result, GH was unable to provide adequate details for some of the
cash draws or demonstrate when the excess amounts drawn were eventually
credited to the EPA.
Under 40 CFR §30.22(b), cash advances are limited to the minimum actual
amounts immediately needed to carry out the purpose of the approved project.
Title 40 CFR §30.22(b) also specifies that the timing and amount of cash
advances shall be as close as is administratively feasible to the actual
disbursements by the recipient. Administrative condition 2 of the CA reiterated
this requirement. Title 40 CFR §30.21(b)(5) requires the recipient to have
adequate procedures to minimize the time elapsing between the transfer of funds
to the recipient from the U.S. Treasury payments for program purposes by the
recipient. Title 40 CFR §30.21(b)(2) also requires the recipient to maintain
records that adequately identify the source and application of funds for federally
sponsored activities.
We reviewed 8 of the 24 cash draws under the CA for compliance with the
immediate cash need requirements. The draws reviewed were paid by the EPA
13-R-0367
17

-------
prior to June 9, 2011, when GH was placed on a reimbursement method. Of the
eight draws reviewed, three exceeded immediate cash needs. In addition, GH was
unable to provide adequate details to support the calculation for one of the draws;
therefore, we were unable to determine whether that cash draw met the immediate
cash needs requirement.
Based on our review, the cumulative cash draw amount did not exceed the
cumulative expenditures; therefore, we did not question the cash draw in excess
of immediate cash needs in the sample items. However, due to the lack of
adequate documentation on draw calculations, GH was unable to explain when
some of the over-drawn cash was used for program payments or credited to the
EPA.
Conclusion
Based on the issues noted above, GH's financial management system did not meet
the federal standards described under 40 CFR §30.21. As a result, we believe that
the costs claimed do not meet, in all material respects, the applicable federal
requirements and the terms and conditions of the CA.
Recommendation
We recommend that the Region 7 regional administrator:
2. Verify, prior to any future EPA award, that the recipient has adequate
controls to ensure that:
a)	Procurement practices comply with federal regulations and the
company's own procedures.
b)	Contract personnel have adequate federal procurement knowledge.
c)	Contract and bid information are accurate and complete.
d)	Unallowable costs are properly segregated and financial
management data are properly supported.
e)	Labor charges comply with federal requirements.
f)	Cash draws meet immediate cash needs and documentation
requirements.
13-R-0367
18

-------
Recipient Comments
GH disagreed with our recommendations. GH believed the contract costs paid
were fair and reasonable, based on competition and cost and price analysis
consistent with 40 CFR §30.43 and §30.45. GH also stated that it substantially
met the contract administration requirements of 40 CFR §30.47 using its program
manager's spreadsheet to manage vendor invoices and payments and through its
close-out documentation. GH stated that the questioned other direct cost amount
was immaterial and the limited costs questioned were allocable and reasonable
and not expressly disallowed. Although GH acknowledged that personnel and
fringe benefit costs charged to the project for its two full-time employees were
based on budget allocations, GH stated that these costs in large part represent
actual activities performed for the CA. GH stated that with exception to one to
two inadvertent accounting errors, it has drawn and credited the EPA as timely as
administratively feasible. In addition, GH provided a listing of internal control
improvements it has implemented in response to our findings and
recommendations.
GH also submitted documentation prepared or obtained from its vendors and
contractors during the draft report response period attempting to support GH's
comments. GH's complete written response is included in appendix A.
OIG Response
GH's response did not change our position on the recommendations. GH
acknowledged that the labor and fringe benefit costs were charged based on
budget allocation, which did not meet the federal requirement. Except for the
camera and accessory costs of $200.76 and $11.98, GH's comments and
supporting documentation continued to show that ODCs questioned were
unallowable. However, we modified some of the details on these issues. GH
provided adequate explanation regarding the nonresponsive bidder issue under the
Contract Administration Did Not Meet Federal Requirements section;
therefore, we have removed the subsection Awarding Contracts to
Nonresponsive Bidders from the report. GH also provided a contract
modification to support some of the costs not billed in accordance with contract
terms. Although we have adjusted the questioned amount based on GH's
response, the overall contract administration issue remained in the report since
GH did not provide documentation to adequately address the issue of inaccurate
information in the contracts, invoices not consistent with contract terms, and
contracts containing conflicting contract terms.
The remaining response and documentation provided by GH on the procurement
and contract administration issues were prepared during the draft report response
period. These explanations and documentation did not exist at the time of
procurement. Consideration of the documentation is within the discretion of EPA
13-R-0367
19

-------
management and would require that the agency make an exception in accordance
with 40 CFR §30.4.
Details of our responses to GH's comments are in appendix B.
13-R-0367
20

-------
Chapter 5
Compliance With Recovery Act Requirements
As part of our examination, we verified GH's compliance with Recovery Act Buy
American requirements (Section 1605), Davis-Bacon Act wage requirements
(Section 1606), and job reporting requirements (Section 1512). EPA Region 7
determined that the Buy American and Davis-Bacon Act wage requirements do
not apply to the CA. Based on our understanding of the nature of the work and
our review of the Recovery Act requirements, we agree with Region 7's
determination and no further verification was deemed necessary.
With regard to the job reporting requirement, GH was unable to provide
supporting documentation for the number of jobs it reported as created and
retained under Recovery Act Section 1512. The Recovery Act requires each
recipient that receives Recovery Act funds from a federal agency to submit a
quarterly report with an estimate of the number of jobs created and the number of
jobs retained by the project. The Office of Management and Budget issued
various guidance documents to implement the Recovery Act requirements. On
December 18, 2009, OMB issued guidance M-10-8 to update, among other things,
the method for estimating the number of jobs created and retained. The guidance
states that the estimate of the number of jobs created or retained by the Recovery
Act should be expressed as "full time equivalents." To avoid overstating the
number of other than full-time permanent jobs, OMB provided a formula for FTE
calculation that converts part-time or temporary jobs into fractional FTE. The
formula calculates FTEs using the total number of hours worked on the Recovery
Act-funded project during the reporting quarter divided by the total number of
hours in a full-time schedule for the quarterly.
Although GH submitted quarterly reports under Section 1512 of the Recovery
Act, after numerous requests, it was unable to provide detailed calculations or
supporting documentation. As a result, we are unable to verify whether the
number of jobs GH reported as created and retained were accurate and in
accordance with Section 1512 requirements, as supplemented by OMB guidance.
Recommendation
We recommend that the Region 7 regional administrator:
3. Verify that the recipient reported the number of jobs created and retained
in accordance with the requirements of Recovery Act Section 1512 and
the guidance issued by OMB.
13-R-0367
21

-------
Recipient Comments
GH disagreed with our recommendation. GH believed its final report showed
substantial compliance with the Recovery Act job reporting requirements.
GH stated that the final report set out the estimated FTEs funded at GH and the
project partners based on participation estimates and vendor letters and emails.
GH also said it followed the EPA's guidance to not use formulas, such as the
Manufacturers of Emission Controls Association formula, to estimate the number
of jobs created or retained. GH's complete written response is included in
appendix A.
OIG Response
Our position on this issue remains unchanged. We agree that the Manufacturers of
Emission Controls Association formula referenced by the EPA is not an
acceptable method for calculating jobs created or retained under the Recovery
Act. OMB guidance documents were issued to implement the Recovery Act
requirements. As stated in the draft report, OMB Guidance M-10-8 specified the
method for estimating the number of jobs created and retained. According to the
guidance, the number of jobs created and retained is to be expressed in terms of
FTEs and are to be calculated using the total number of hours worked on the
Recovery Act-funded project during the reporting quarter divided by the total
number of hours in a full-time schedule for the quarter. GH did not provide the
required supporting calculations. Therefore, we are unable to determine whether
GH reported the jobs created and retained according to OMB guidance. Details of
our responses to GH's comments are in appendix B.
13-R-0367
22

-------
Chapter 6
Meeting the Objective of the CA
We are unable to determine whether GH met the objective of the CA. The CA was
awarded to install emissions reduction technology on various vehicles to reduce air
pollution in the St. Louis region. In the final progress report submitted to the EPA
on October 12, 2011, GH reported that it had completed substantially all work
under the final CA workplan. GH also reported that the work completed provided
an annual emission reduction of 960 tons, exceeding the expected reduction of
809 tons. We verified that the correct technology was installed on the items
available for inspections, but we were unable to express an opinion as to whether
GH met the objective of the CA due to the following:
•	Lack of adequate verifiable details in GH's final progress report.
•	Not all vehicles were available for inspection during our site visits.
•	GH did not consistently document work completion verifications.
Lack of Adequate Verifiable Details in Final Progress Report
GH's final progress report submitted to the EPA did not include adequate details
identifiable to the retrofitted vehicles. As part of the final progress report, GH
provided a final fleet list—a listing of all vehicles GH retrofitted under the CA.
However, the list did not include vehicle identification information. The final fleet
list identified and grouped items by equipment class and engine type. An
equipment class (or one line item in the report) may consist of 1 vehicle or over
50 vehicles. GH did not have supporting listings for the equipment class grouping
or a complete listing of equipment with vehicle identification information that
could facilitate physical inspections of the retrofitted vehicles. When asked, GH
representatives said that the vehicle identification information was attached to the
invoices. Based on our review of the documentation provided by GH, although
many of the invoices included a listing of vehicle identification numbers, these
VINs do not always correspond to equipment class groupings. GH also did not
provide a complete listing of all VINs. In our opinion, GH is responsible for
providing the necessary data to demonstrate work completion and facilitate
verifications by the government.
Not All Retrofitted Vehicles Were Available for Inspection
Not all of the vehicles retrofitted under the CA were available for inspection. We
made attempts to obtain a reasonable assurance about whether the work under the
CA was completed by conducting three site visits. These site visits were to verify
retrofit of school buses, a tugboat, and airport vehicles.
13-R-0367
23

-------
For our visit to the school bus yard, because we did not have a complete listing of
all school buses retrofitted, we pre-selected buses from contractor invoices for
inspection. However, when we arrived at the site, we learned that several factors
made locating the pre-selected sample items extremely difficult. Some of the
vehicles were out running the routes. Buses that were not scheduled for routes were
randomly parked at the various bus yards. As a result, the only verification we were
able to perform was walking through the bus yard and verifying that the correct
technology was installed on the buses located at the yard. The same verification
was performed during the airport site visit. We were advised that due to safety
concerns and vehicle work schedules, our inspection of the vehicles would be
limited to those units not deployed for service on the airport grounds.
The tugboat we selected for testing was not available for inspection until our final
exit conference on July 11, 2013. Upon inspection, we found that the technology
installed matched the contract and the bid documents, but not the project partner
invoice. GH said it will work with the project partner to provide a satisfactory
explanation to the EPA during audit resolution.
Due to these issues, we were unable to obtain a reasonable assurance that the
vehicles reported as completed actually existed and had been retrofitted.
GH Did Not Consistently Document Work Completion Verification
GH did not consistently document work completion verification. According to GH
management, GH verified all contractor invoices for work completion with the
project partners prior to making payments. Verification was either through site
visits or telephone calls to project partners. When conducting site visits, instead of
verifying a random selection of vehicles from the invoices, GH's staff would walk
through the site and only verify what they saw. This method of verification did not
provide assurance that all vehicles invoiced actually existed and were retrofitted
since GH did not select items for verification from the complete universe (i.e., all
items listed in the invoice). It only verified whether the vehicles at the site were
completed according to specification. Furthermore, under either verification
method (site visit or telephone call), GH did not maintain evidence to document
actual vehicles verified.
According to GH management, GH's contractor invoice payment packages should
contain a Contractor Invoice Submission form. The form is required to be
completed and attached to the check request for contractor invoice payments. The
form includes a summary of the contractors work, date and signature of GH's
project manager inspection of work, and date and signature of the fleet manager or
designee accepting the work. However, we identified invoice payments of
$930,508 or 398 vehicles for which GH did not provide the Contractor Invoice
Submission form. The $930,508 represents at least part of 8 of the 10 contract
awarded under the CA.
13-R-0367
24

-------
Conclusion
Although we were able to verify that the appropriate technology was installed on
the limited number of vehicles available for inspections, we were unable to
determine whether the vehicles reported as completed actually existed and were
retrofitted. As a result, we are unable to express an opinion as to whether GH met
the objective of the CA.
The fact that GH was unable to provide evidence that it consistently verified the
work completion raised a question about the reliability of the information reported.
EPA Region 7 staff also had concerns about the reliability of the data submitted by
GH in its October 12, 2011, final progress report based on their cursory review of
the data. As a result, Region 7 has advised GH to revise and resubmit the report to
include a complete listing of the VINs for the vehicles retrofitted.
Recommendation
We recommend that the Region 7 regional administrator:
4. Verify that vehicles GH reported as retrofitted under the CA were
complete and retrofitted in accordance with the workplan requirements.
Recipient Comments
GH disagreed with our recommendation. GH stated that it prepared the final
report and final fleet list in accordance with instructions. As part of the draft
response, GH provided the verification details for the equipment on the fleet lists
submitted with the final report. GH said the fleet list verification details
demonstrated that there is no reasonable basis for doubting whether GH met the
objectives of the CA.
GH also stated that there is no requirement to make all retrofitted units available
for inspection during site visits or for the recipient to verify work completion.
GH explained that the vehicles were not all available for inspection because of
their service schedules, which GH had no control over. GH acknowledged that the
tugboat we selected for testing was not initially made available for inspection due
to misunderstanding about the site visit arrangement. The tugboat was later made
available for inspection at the time of our final exit conference on July 11, 2013.
Furthermore, GH acknowledged that the contractor invoice payment packages
were developed midway through the project and was not used in the earlier
payments.
GH's complete written response is included in appendix A.
13-R-0367
25

-------
OIG Response
Our position on this issue remains unchanged. Although GH provided the vehicle
identification details for the fleet lists as part of its draft response, this information
was not available for sample selection during our fieldwork. Since our fieldwork
phase has already passed, the new information provided by GH will not affect our
position on the issue.
We disagree with GH's statement that there is no requirement to make all
retrofitted units available for inspection or for the recipient itself to verify work
completion. Recovery Act Section 1515, as incorporated into administrative
condition 17 of the CA, requires the recipient to allow any appropriate
representative of the OIG to examine any records of the recipient, any of its
procurement contractors and subcontractors that pertain to, and involve
transactions relating to the grant. Based on our interpretation of this requirement,
we believe GH is required to make the retrofitted units available for inspection.
Programmatic condition 11 of the CA also states that the work under the CA must
be completed in accordance with the approved workplan. Item 5 of the workplan
states that GH will assure retrofits are ordered, installed and maintained in a
timely manner. Without some form of verification, GH would not be able to
provide this assurance. Furthermore, the final report is GH's representation to the
EPA that it had completed all of the tasks under the agreement. It is GH's
responsibility to ensure that its final representation is accurate, complete, and
properly supported.
In connection with the consistency in work completion verification, GH
acknowledged that invoice payment packages verification was not done for the
earlier payments. No additional comment is needed from the OIG.
Details of our responses to GH's comments are in appendix B.
13-R-0367
26

-------
Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Rec. Page
No. No.
Subject
Status1
Planned
Completion
Action Official Date
POTENTIAL
MONETARY BENEFITS
(In $000s)
Claimed
Amount
Agreed
To
Amount
1	7 Disallow $1,615,343 in questioned costs and recover	U	Regional	$1,615
$1,423,028 of that amount under the CA. If GH provides	Administrator,
documentation that meets appropriate federal	Region 7
requirements or demonstrates the fairness and
reasonableness of the contract prices, the amount to be
recovered may be adjusted accordingly.
2	18 Verify, prior to any future EPA award, that the recipient has
adequate controls to ensure that:
a)	Procurement practices comply with federal
regulations and the company's own procedures.
b)	Contract personnel have adequate federal
procurement knowledge.
c)	Contract and bid information are accurate and
complete.
d)	Unallowable costs are properly segregated and
financial management data are properly supported.
e)	Labor charges comply with federal requirements.
f)	Cash draws meet immediate cash needs and
documentation requirements.
3	21 Verify that the recipient reported the number of jobs	U Regional
created and retained in accordance with the requirements	Administrator,
of Recovery Act Section 1512 and the guidance issued by	Region 7
OMB.
4	25 Verify that vehicles GH reported as retrofitted under the	U Regional
CA were complete and retrofitted in accordance with the	Administrator,
workplan requirements.	Region 7
U	Regional
Administrator,
Region 7
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
13-R-0367
27

-------
Appendix A
GH's Comments on the Draft Report
Due to the length of the recipient's comments and the need to redact the sensitive information in
the comments, appendix A is presented in a separate file. See the following link:
www.eDa.gov/oig/reDorts/2013/20130830-13-R-0367 appendix A.pdf
13-R-0367
28

-------
Appendix B
OIG Evaluation of GH Comments
Due to the length of the recipient's comments and the need to redact the sensitive information in
the comments, appendix B is presented in a separate file. See the following link:
www.eDa.gov/oig/reDorts/2013/20130830-13-R-0367 appendix B.pdf
13-R-0367
29

-------
Distribution
Regional Administrator, Region 7
Deputy Regional Administrator, Region 7
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 7
Grants Management Officer, Region 7
Public Affairs Officer, Region 7
Director, Air and Waste Management Division, Region 7
Chief, Air Planning Branch, Air and Waste Management, Region 7
President and Chief Executive Officer, Grace Hill Settlement House
13-R-0367

-------