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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
American Recovery and
Reinvestment Act Site Visit of
Yauco - La Jurada Community
Distribution System,
Yauco, Puerto Rico
Report No. 13-R-G413
September 23, 2013

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Report Contributors:
Jean Bloom
Glen Chabotar
Vanessa Rodriquez-Moya
Abbreviations
DBA	Davis-Bacon Act
DWSRF	Drinking Water State Revolving Fund
EPA	U.S. Environmental Protection Agency
PRASA	Puerto Rico Aqueduct and Sewer Authority
PRDOH	Puerto Rico Department of Health
Cover photo: Pump Station at the Yauco - La Jurada Community Distribution System
site in Yauco, Puerto Rico. (EPA OIG photo)
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
Office of Inspector General
At a Glance
13-R-0413
September 23, 2013
Why We Did This Review
The U.S. Environmental
Protection Agency (EPA),
Office of Inspector General
(OIG), conducts site visits of
American Recovery and
Reinvestment Act of 2009
clean water and drinking water
projects. The purpose of this
unannounced site visit was to
determine whether the recipient
of funds complied with selected
requirements of the Recovery
Act and Drinking Water State
Revolving Fund (DWSRF)
program.
The Puerto Rico Aqueduct and
Sewer Authority (PRASA)
received $19.5 million in
Recovery Act funds from the
Puerto Rico Infrastructure
Finance Authority under the
DWSRF program administered
by the Puerto Rico Department
of Health (PRDOH). The Yauco
- La Jurada Community
Distribution System project
received $1,385,000 in
Recovery Act funds through a
DWSRF loan.
American Recovery and Reinvestment Act
Site Visit of Yauco - La Jurada Community
Distribution System, Yauco, Puerto Rico
What We Found
We conducted an unannounced site visit to the Recovery Act-funded project of
the Yauco - La Jurada Community Distribution System in Yauco, Puerto Rico,
in August 2010. The project consisted of furnishing and installing new water
distribution lines, constructing two distribution tanks, and installing house service
connections. We toured the project site, interviewed personnel from PRASA and
the PRDOH, as well as the prime contactor's manager and employees, and
reviewed documentation related to Recovery Act requirements.
Based on our site visit, no issues or concerns came to our attention that would
require action from the Commonwealth of Puerto Rico, PRDOH, PRASA or EPA.
The prime contractor did not provide sufficient documentation to confirm payment
of wages to its employees. According to PRASA, the prime contractor went out of
business before completing the project. The project was ultimately completed by
the prime contractor's insurers. PRASA experienced significant delays in
acquiring documentation to support the review as a result of the prime
contractor's demise.
According to PRASA, having a prime contractor going out of business before it
completes a project is a rare and isolated event. With PRASA's assistance, we
received adequate documentation to support compliance with the requirements
of the Recovery Act.
This report addresses the
following EPA theme:
• Protecting water: A precious,
limited resource.
For further information,
contact our public affairs office
at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2013/
20130923-13-R-0413.pdf

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#	\	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
^ \^\/ry I	WASHINGTON, D.C. 20460
V^L PRO^
THE INSPECTOR GENERAL
September 23, 2013
MEMORANDUM
SUBJECT: American Recovery and Reinvestment Act Site Visit of
Yauco - La Jurada Community Distribution System, Yauco, Puerto Rico
Report No. 13-R-0413
FROM: Arthur A. Elkins Jr.
TO:	Judith Enck, Regional Administrator
Region 2
This is our report on the subject site visit conducted by the Office of Inspector General of the
U.S. Environmental Protection Agency. This report summarizes the results of our site visit of the
Yauco - La Jurada Community Distribution System in Yauco, Puerto Rico, funded under the American
Recovery and Reinvestment Act of 2009.
We performed this site visit as part of our responsibility under the Recovery Act. The purpose of our site
visit was to determine the Puerto Rico Aqueduct and Sewer Authority's compliance with select
requirements under the Recovery Act pertaining to the Drinking Water State Revolving Loan program.
The funding agreement included a loan for $1,385,000 of Recovery Act funds for the Yauco - La Jurada
Community Distribution System.
Because this report contains no recommendations, you are not required to respond to this report. This
report will be available at http://www.epa.gov/oig.
If you or your staff have any questions about 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.

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American Recovery and Reinvestment Act Site Visit of
Yauco - La Jurada Community Distribution System,
Yauco, Puerto Rico
13-R-0413
Table of C
Purpose	 1
Background	 1
Scope and Methodology	 1
Results of Site Visit	 2
Buy American Requirements	 2
Contract Procurement	 3
Limits on Funds and Reporting	 3
Wage Rate Requirements	 3
Agency and Recipient Comments and OIG Evaluation		4
Status of Recommendations and Potential Monetary Benefits		5
Appendix
A Distribution	 6

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Purpose
The purpose of our unannounced site visit to the project of the Yauco - La Jurada
Community Distribution System in Yauco, Puerto Rico, funded by the American
Recovery and Reinvestment Act of 2009, was to determine whether the Puerto
Rico Aqueduct and Sewer Authority (PRASA) complied with selected
requirements of the Recovery Act pertaining to the Drinking Water State
Revolving Fund (DWSRF) program.
Background
The U.S. Environmental Protection Agency (EPA) awarded Recovery Act funds to
the Commonwealth of Puerto Rico under the DWSRF program. PRASA received
$19.5 million in Recovery Act funds from the Puerto Rico Infrastructure Finance
Authority under the DWSRF Program administered by the Puerto Rico Department
of Health (PRDOH). The Yauco - La Jurada Community Distribution System
project received $1,385,000 in Recovery Act funds through a DWSRF loan.
The project consisted of furnishing and installing new water distribution lines,
constructing two distribution tanks, and installing house service connections.
Scope and Methodology
We did not perform this engagement in accordance with generally accepted
government auditing standards. Specifically, we did not perform certain steps that
would allow us to obtain information to assess PRASA's internal controls and any
previously reported audit concerns. As a result, we do not express an opinion on
the adequacy of PRASA's internal controls or its compliance with all federal,
state or local requirements.
We visited the Commonwealth of Puerto Rico during August 2010 and made
unannounced onsite visits to various Recovery Act project sites. We visited the
Yauco - La Jurada Community Distribution System project site on August 11,
2010.
We limited the scope of our visit to the following steps:
1.	Toured the construction proj ect.
2.	Interviewed prime contractor employees and the prime contractor
manager onsite and personnel from PRASA and PRDOH.
3.	Reviewed documentation provided by PRASA and the prime
contractor on the following matters:
a.	Buy American requirements under Section 1605 of the
Recovery Act.
b.	Wage Rate requirement (Davis-Bacon Act, or DBA) under
Section 1606 of the Recovery Act.
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1

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c.	Limits on funds and reporting requirements under
Sections 1604 and 1512 of the Recovery Act.
d.	Contract procurement.
For Section 1606 testing, we judgmentally selected two pay periods (weeks ended
July 24, 2010, and August 14, 2010) to determine whether employees were paid
the prevailing DBA wages rates and to confirm payment to employees. We
selected the week ended August 14, 2010 as it correlated with our site visit and
judgmentally selected a week from the month prior to our site visit (week ended
July 24, 2010). We requested and verified supporting documentation from the
contractor and learned of cash payments made to employees for the payroll week
ended August 14, 2010. We expanded the universe to the 46-week period starting
February 13, 2010, through December 25, 2010, which included 454 transactions.
The contractor did not provide all the documentation needed to determine
compliance with the wage rate requirement. We requested, and PRASA provided,
assistance in obtaining documentation from the prime contractor and the prime
contractor's bank to support payment to employees.
Results of Site Visit
Based on our site visit, no issues or concerns came to our attention that would
require action from the Commonwealth of Puerto Rico, PRDOH, PRASA or EPA.
The prime contractor did not provide sufficient documentation to confirm
payment of wages to its employees. According to PRASA, the prime contractor
went out of business before completing the project. The project was ultimately
completed by the prime contractor's insurers. PRASA experienced significant
delays in acquiring documentation to support the review as a result of the prime
contractor's demise. According to PRASA, having a prime contractor going out
of business before it completes a project is a rare and isolated event. With
PRASA's assistance, we received adequate documentation to support compliance
with the requirements of the Recovery Act. Our specific review results are
summarized below
Buy American Requirements
We did not identify any issues regarding the Buy American requirements set out
in Section 1605 of the Recovery Act. Section 1605 of the Recovery Act requires
that all iron, steel or manufactured goods be produced in the United States, unless
certain exceptions apply. Based on interviews conducted and work performed,
PRASA and the prime contractor were fully aware of the Buy American
requirements. The Buy American requirements were included in the bid
documents and the contract between PRASA and its prime contractor. Physical
observation of materials onsite and Internet research conducted on the
manufacturers and materials used for the project did not disclose any issue or
concern with the Buy American requirements.
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2

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Contract Procurement
We did not identify any issues with contract procurement or unfair bidding
practices. PRASA competitively awarded the construction contract based on
public advertisement. PRASA received 27 bids and, based on the
recommendation of its bid board, awarded the contract to the lowest responsive
bidder. A sample of unsuccessful bidders confirmed their participation in the
bidding process. Overall, the bidders contacted were satisfied with the
procurement process.
Limits on Funds and Reporting
We did not identify any issues regarding the limits on funds and reporting
requirements set out in Section 1604 and 1512 of the Recovery Act. Under
Section 1604 of the Recovery Act, no funds can be used for any casino, other
gambling establishment, aquarium, zoo, golf course, or swimming pool. We
visited the project site and reviewed the prime contract to verify that it contained
the appropriate language to comply with Section 1604 of the Recovery Act.
Section 1512 of the Recovery Act requires the recipient to report the number of jobs
created and the number of jobs retained by project or activity. We did not identify
any issues regarding PRASA's ability to meet the Recovery Act reporting and
financial management requirements. We interviewed PRASA personnel to obtain an
understanding of the reporting process and reviewed an example of the tables that
include the Section 1512 reporting information submitted by PRASA to PRDOH.
Wage Rate Requirements
The prime contractor complied with the requirements set out in Section 1606 of
the Recovery Act. Section 1606 requires all mechanics and laborers employed on
projects funded directly by—or assisted in whole or in part with—Recovery Act
funds to be paid wages at rates no less than the locally prevailing rate, as
determined by the U.S. Department of Labor.
We performed tests to determine whether employees were paid DBA wages rates
and to confirm payment to employees. Specifically, we compared the wages paid
on the certified payroll reports to the DBA Wage Determinations to determine
whether employees were paid wages equal to or above the required wage rate
specified by the U.S. Department of Labor.
We determined that the prime contractor was aware of the Recovery Act
Section 1606 requirements, and demonstrated its knowledge by preparing the
certified payroll reports and reviewing the payroll transactions for compliance
with the requirements. For example, from February 2010 through May 2010 there
were 89 instances where employees were not paid the minimum wages as
required by the DBA. The contractor noted the errors and made the corrections in
June 2010, prior to our review. We noted no additional instances.
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We reviewed the payment of wages to employees and determined cash payments
were made to employees for the week ended August 14, 2010. Since cash
payments can be an indicator of fraud, we expanded our universe of Section 1606
compliance testing for the 46-week period February 13, 2010, through
December 25, 2010. We found cash payments to employees for 10 payroll periods
(period ending August 14, 2010, through the period ending October 16, 2010).
Our universe included 454 transactions, of which 316 were non-cash payroll
transactions and 138 were cash payments.
We made multiple requests to the contractor for documentation to support the
payment of wages to employees. In September 2011, we obtained Office of
Inspector (OIG) General Office of Counsel services, submitted a formal request to
PRASA, and requested employee affidavits for the 138 cash payments and
supporting documentation for 191 of the 316 non-cash payroll transactions.
With PRASA's assistance, we received documentation to support 95 percent of
the payroll transactions examined (432 of 454 payroll transactions). We received
canceled checks, affidavits from the prime contractor and its employees, or bank
printouts to support payments to the employee. We verified all cash payments
using the information provided.
PRASA, dealing directly with the prime contractor's bank, was unable to provide
canceled checks for 22 of the requested transactions due to inaccurate check
numbers provided by the prime contractor. Due to the cost to PRASA associated
with obtaining additional canceled checks from the bank, we did not make any
further requests to obtain the outstanding checks. Based on the volume of
canceled checks provided, we concluded there was limited risk in this area.
Agency and Recipient Comments and OIG Evaluation
We discussed our site visit results at an exit conference with representatives of
PRDOH, PRASA and Region 2 on August 8, 2013. Originally, we recommended
that PRDOH require PRASA to review potential contractors' internal controls
associated with the payment of payroll transactions prior to awarding any future
contracts involving federal funds to reduce the risk associated with cash payments.
Based on additional information provided both during and after the exit conference,
PRASA was able to document that its standard procedures include a review of
internal controls prior to awarding any contracts, and those procedures were
followed. As a result, we removed this recommendation from our final report, and
this report no longer contains any recommendations.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
No recommendations
Claimed
Amount
Ag reed-To
Amount
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.
13-R-0413
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Distribution
Office of the Administrator
Regional Administrator, Region 2
Deputy Regional Administrator, Region 2
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Grants and Interagency Agreements Management Division,
Office of Administration and Resources Management
Director, Office of Policy and Resource Management,
Office of Administration and Resources Management
Deputy Director, Office of Policy and Resource Management,
Office of Administration and Resources Management
Director, Caribbean Environmental Protection Division, Region 2
Audit Follow-Up Coordinator, Region 2
Audit Follow-Up Coordinator, Office of Policy and Resource Management,
Office of Administration and Resources Management
Public Affairs Officer, Region 2
Executive Infrastructure Director, Puerto Rico Aqueduct and Sewer Authority
Director, Potable Water Division, Puerto Rico Department of Health
13-R-0413

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