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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Internal Control Lessons Learned
for Hurricane Sandy Disaster
Relief Appropriations Act Funds
Report No. 13-P-0351
August 22, 2013
Scan this mobile
code to learn more
about the EPA OIG.

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Report Contributors:	Patrick Gilbride
Erin Barnes-Weaver
Todd Goldman
Derek Mulvihill
Abbreviations
ARRA	American Recovery and Reinvestment Act of 2009
CWSRF	Clean Water State Revolving Fund
DRAA	Disaster Relief Appropriations Act
DWSRF	Drinking Water State Revolving Fund
EPA	U.S. Environmental Protection Agency
GAO	Government Accountability Office
OIG	Office of Inspector General
OMB	Office of Management and Budget
SRF	State Revolving Fund
Cover photo: Hurricane Sandy was the biggest Atlantic storm in history, spanning an area
broader than Texas. (EPA image)
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
n	Office of Inspector General	13-P-0351
^	Tj	August 22, 2013
^ At a Glance
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Why We Did This Review
On January 29, 2013, the
President signed the Disaster
Relief Appropriations Act,
which provided $50.5 billion in
aid for Hurricane Sandy
disaster victims and their
communities. DRAA required
federal agencies supporting
Sandy recovery to implement
internal controls to prevent
fraud, waste and abuse of
funds. The U.S. Environmental
Protection Agency received
nearly $608 million, the bulk of
which was designated for the
Clean Water and Drinking
Water State Revolving Funds.
We sought to determine
whether the EPA has controls
in place for the award and
management of Sandy relief
funds based on lessons from
past reports on the American
Recovery and Reinvestment
Act of 2009.
This report addresses the
following EPA Goals or
Internal Control Lessons Learned for Hurricane
Sandy Disaster Relief Appropriations Act Funds
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.gov/oig/reports/2013/
20130822-13-P-0351.pdf
Cross-Cutting Strategies:
1
• Protecting America's
o
waters.
o
• Cleaning up communities
o
and advancing sustainable
A
development.
4
5.
What We Found
The Office of Management and Budget provided guidance to federal agencies
supporting Sandy recovery on their submittal of internal control plans by March
31, 2013. We reviewed 72 prior reports on ARRA and found that the following
percent of reports addressed key OMB provisions specifically, addressed multiple
provisions, or addressed no provisions:
¦ Conducting Additional Levels of Review
¦Increasing Monitoring and Oversight of Grant Recipients
Expediting Review and Resolution of Audit Findings
¦Adopting Improper Payments Management Protocol
i Multiple Categories
i No Categories
Source: OIG analysis.
EPA has controls in place to manage Sandy relief funds as described in the
agency's internal control plan (dated March 28, 2013), such as conducting
transaction testing on cash draws; performing semiannual administrative review
of audits; and accelerating resolution of open audits. We identified additional
controls for the agency to consider based on our prior report review:
Strengthen oversight of sub-recipients and develop a checklist that states
can use to help ensure compliance with DRAA.
Work with states to incorporate inspections as part of routine oversight.
Utilize information in recipient monitoring databases to regularly provide
management reports on project progress and status of corrective actions.
Include specific actions to identify states/projects at risk of not meeting
deadlines and establish procedures to assist states with delayed projects.
Update detection and reporting procedures to identify improper grant
payments.
This report makes no recommendations. We encourage the agency to consider
lessons we identified as the EPA moves forward with Sandy recovery activities.
Noteworthy Achievements
The EPA showed foresight to seek a waiver from OMB on expending funds within
24 months given the long-term nature of SRF construction projects. The EPA
also has plans in place to undertake many actions to address our suggestions.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
August 22, 2013
MEMORANDUM
SUBJECT: Internal Control Lessons Learned for Hurricane Sandy Disaster Relief
Appropriations Act Funds
Report No. 13-P-0351
FROM: Arthur A. Elkins Jr.
TO:
Stefan Silzer, Director
Office of Financial Management, Office of the Chief Financial Officer
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 observations and suggestions identified by
the OIG. This report represents the opinion of the OIG and does not necessarily represent the final EPA
position. Final determinations on matters in this report will be made by EPA managers in accordance
with established audit resolution procedures.
Action Required
You are not required to provide any further response to this report. We will post this report to our
website at http://www.epa.gov/oig.
If you or your staff have any questions regarding this report, please contact Rich Eyermann,
acting assistant inspector general for audit, at (202) 566-0565 or Eyermann.Richard@epa.gov;
or Patrick Gilbride, director for risk and program performance audits, at (303) 312-6969 or
Gilbride.Patrick@epa.gov.

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Reason for Review
On January 29, 2013, the President signed into law the Disaster Relief
Appropriations Act, which provided $50.5 billion in aid for Hurricane Sandy
disaster victims and their communities. Because relief funding of this magnitude
often carries additional risk, federal departments and agencies must ensure that the
funds appropriated under the DRAA are used for their intended purposes. The EPA
received nearly $608 million under the DRAA (post-sequester amount of $577
million). To provide assistance to the EPA, we conducted a review of past Office of
Inspector General and Government Accountability Office reports on the American
Recovery and Reinvestment Act of 2009 to compile a list of lessons learned for the
agency's Sandy recovery activities. This memorandum summarizes the results of
our review.
Background
Hurricane Sandy made landfall on
October 29, 2012, and struck the East
Coast from North Carolina to Maine.
High winds and storm surge caused
widespread flooding; loss of life;
displacement of persons; and
significant damage to private property,
public infrastructure and government
facilities. A dangerous nor'easter
followed 9 days later causing
additional damage and undermining
the recovery effort. New York and
New Jersey were especially hard hit by
these storms. Recovery efforts
continue today throughout the region.
The DRAA requires federal agencies
supporting Sandy recovery and other
disaster-related activities to implement
additional internal controls to prevent
waste, fraud and abuse of recovery
funds. Most of the EPA's DRAA
appropriation provided for the Clean Water and Drinking Water State Revolving
Funds ($600 million). Additional DRAA provisions for the EPA included:
•	Each state shall use not less than 20 percent but not more than 30 percent
of the amount of its capitalization grant for principal forgiveness, negative
interest loans or grants, or any combination of these.
•	Funds shall only be used for projects whose purpose is to reduce flood
damage risk and vulnerability or to enhance resiliency to rapid hydrologic
Clean Water State Revolving Fund
The Clean Water State Revolving Fund
program was established in 1987 under the
Clean Water Act. CWSRF programs provided
more than $5 billion annually in recent years to
fund water quality protection projects for
wastewater treatment, nonpoint source
pollution control, and watershed and estuary
management. CWSRFs have funded over $89
billion, providing over 30,012 low-interest
loans to date.
Drinking Water State Revolving Fund
The Safe Drinking Water Act, as amended in
1996, established the Drinking Water SRF to
make funds available to drinking water systems
to finance infrastructure improvements. The
program also emphasizes providing funds to
small and disadvantaged communities and to
programs that encourage pollution prevention
as a tool for ensuring safe drinking water.
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change or a natural disaster at treatment works defined by the Federal
Water Pollution Control Act or any eligible facilities under the Safe
Drinking Water Act, and for other eligible tasks at such treatment works
or facilities to further such purposes.
•	The Administrator may retain up to $1,000,000 of such funds for
management and oversight.
•	Funds must be expended by grantees within 2 years following the
agency's obligation of funds for the grant. The agency must include a term
in the grant that requires the grantee to return to the agency any funds not
expended within the 24-month period.
The Office of Management and Budget issued a memorandum to federal agencies
supporting Sandy recovery that established the criteria for control plans required by
the DRAA to be submitted by March 31, 2013 to OMB, GAO, and the agency's
Inspector General. OMB Memorandum M-13-07 required that, at a minimum,
agency internal control plans for Sandy recovery-related program funding reflect
consideration of the following elements:
•	Conducting Additional Levels of Review. Agencies shall adopt more
expansive review procedures, as appropriate, to scrutinize award
decisions, payment transactions, and other critical process elements that
impact the use of the Disaster Relief Appropriation Act's funds. To ensure
a higher degree of accountability, each agency shall include senior level
officials in these reviews, as appropriate (e.g., areas of high risk).
•	Increasing Monitoring and Oversight of Grant Recipients. To the
extent appropriate to mitigate risk and possible budgetary constraints,
agencies shall increase the frequency and specificity of grantee reporting,
conduct additional site visits, and provide additional technical assistance
and training to recipients of federal funding.
•	Expediting Review and Resolution of Audit Findings. Agencies shall
resolve all audit findings within 6 months after completion of the audit to
the extent practicable. Agencies should avoid granting extension requests
for audit report submissions and should explore the feasibility of
conducting additional audit activities to review internal control procedures
prior to funding the activity.
•	Adopting Improper Payments Management Protocol. Agencies shall
manage all Sandy-related funding with the same discipline and rigor as
programs that are traditionally designated as high-risk for improper payments.
•	Continuing Collaboration with the Inspector General Community. To
identify and mitigate potential risk, agencies shall continue early and frequent
engagement with Inspectors General to discuss issues affecting the DRAA's
disaster-related programs and activities.
The EPA issued its internal control plan to OMB on March 28, 2013, and we
summarized our observations on the agency's plan below.
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Noteworthy Achievements
The EPA showed foresight to seek a waiver from OMB on the requirement to
expend DRAA funds within 24 months. EPA staff noted that the 2-year
requirement does not exist in the SRF base program and that it is difficult to
construct a typical SRF construction project in 2 years. The EPA also has plans in
place to undertake many actions to address our suggestions.
Scope and Methodology
We performed our review from April
2013 to July 2013 in accordance with
generally accepted government
auditing standards. Those standards
require that we plan and perform our
review to obtain sufficient,
appropriate evidence to provide a
reasonable basis for our observations
based on our objectives. We believe
the evidence obtained provides a
reasonable basis for our observations
presented in this report.
We sought to determine whether the
EPA has controls in place for the
award and management of Sandy
relief funds based on lessons from
past ARRA reports. While the EPA
noted important distinctions between
ARRA funding and Sandy relief funds, the agency agrees that ARRA provides a
fruitful reference point for Sandy planning. To address our objective, we received
briefings from agency program and regional offices on Sandy recovery activities,
including oversight of the states of New York and New Jersey. The EPA's Office
of Regional Operations and Office of the Chief Financial Officer described key
lessons from ARRA as well as emergency responses to Hurricane Katrina and the
Deepwater Horizon Oil Spill that the agency considered in formulating its Sandy
internal control plan (submitted to OMB on March 28, 2013).
We reviewed prior EPA OIG and GAO ARRA reports, and prior EPA OIG
non-ARRA reports on items referenced in the EPA's internal control plan
(e.g., SRF, improper payments, etc.), to identify applicable lessons for Sandy
relief funds. We reviewed 72 prior reports on ARRA, including 68 EPA OIG and
four GAO reports. We also reviewed the EPA's Management Audit Tracking
System for unimplemented recommendations on a judgmental sample of water-
related reports given the majority of DRAA appropriations to the CWSRF and
DWSRF. We identified 44 lessons learned from our review of prior reports and
American Recovery and Reinvestment
Act
Hie purpose of the American Recovery and
Reinvestment Act was to quickly save and
create jobs. Other objectives were to provide
temporary relief programs for those most
impacted by the recession and invest in
infrastructure, education, health, and "green"
energy. The approximate cost of the economic
stimulus package was estimated to be $787
billion at the time of passage (later revised to
$831 billion). The Act included direct spending
in infrastructure, education, health, and energy;
federal tax incentives; and expansion of
unemployment benefits and other social
welfare provisions. For EPA, ARRA provided
significant funding for states to finance high-
priority water infrastructure projects through a
$4 billion appropriation to the CWSRF
program and a $2 billion appropriation to the
DWSRF program.
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further narrowed list to five key lessons that repeated in three or more reports.
We conducted a comparative analysis of our identified lessons learned against the
EPA's provisions in the DRAA and the agency's internal control plan to
determine the adequacy of planned internal controls. We vetted our five
suggestions with the EPA and incorporated herein the agency's comments and its
descriptions of activities related to our five suggestions.
Results of Review
EPA has controls in place to manage Sandy relief funds as described in the
agency's internal control plan, such as conducting transaction testing on cash
draws; performing semiannual administrative review of audits; and accelerating
resolution of open audits. We identified additional controls for the agency to
consider based on our prior report review. Our review of 72 prior ARRA reports
identified the following number of those reports with elements relating to key
OMB provisions specifically, addressing multiple provisions, or addressing no
provisions:
OMB Provision

Conducting Additional Levels of
Review
•
23
Increasing Monitoring and
Oversight of Grant Recipients
•
21
Expediting Review and
Resolution of Audit Findings
2
Adopting Improper Payments
Management Protocol
•
3
Reports with Multiple
Categories
*
15
Reports with No Categories
3
Source: OIG analysis.
We identified five internal controls for the EPA to consider based on issues that
arose in three or more of the 72 ARRA reports we reviewed:
1.	The EPA should strengthen oversight of sub-recipients and develop a
checklist that states can use to help ensure compliance with DRAA.
2.	The EPA should work with states to incorporate inspections as part of
routine oversight.
3.	The EPA should utilize information in recipient monitoring databases to
regularly provide reports to management on progress of projects and status
of corrective action plans.
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4.	The EPA's plan should include specific actions to identify states/projects
at risk of not meeting deadlines and establish procedures to assist states
with projects not under contract/delayed.
5.	The EPA should update its detection and reporting procedures to identify
improper grant payments.
We found that the EPA's Sandy internal control plan addressed OMB guidance
requirements. We overlaid OMB's key elements and our observations on five
control suggestions on the EPA's internal control plan. Appendix A shows the
agency's full plan with our analysis in green.
The EPA agreed with our five control suggestions and described activities already
undertaken related to each as follows:
1.	The EPA should strengthen oversight of sub-recipients and develop a checklist that states
can use to help ensure compliance with DRAA.
The EPA agrees on the importance of sub-recipient oversight. The SRF program provided New York
and New Jersey with copies of review checklists to help ensure sub-recipient compliance with SRF
requirements. In addition, the EPA has developed DRAA-specific guidance with the states to facilitate
DRAA compliance.
2.	The EPA should work with states to incorporate inspections as part of routine oversight.
The EPA agrees that inspections can enhance oversight. While the EPA does not have the statutory
authority to require states to inspect projects, historically both New York and New Jersey have chosen
to do so. Consistent with the OIG's suggestion, they have indicated that they will follow this practice for
DRAA-funded projects (typically, inspections occur once each at the project's beginning and end, with
larger projects receiving more frequent inspections).
3.	The EPA should utilize information in recipient monitoring databases to regularly provide
reports to management on progress of projects and status of corrective action plans.
The EPA agrees on the need to effectively use monitoring information to assess progress and
corrective action. This is a key component of our Internal Control Plan. The "Performance and Results"
section of the plan designates the review of existing databases such as Clean Water Benefits
Reporting System, Drinking Water Benefits Reporting System and Compass Data Warehouse. EPA
Order 5600.6A2 requires the use of the Post Award Database and Grantee and Compliance Database
to monitor and track corrective actions. The SRF program guidance also requires monthly reporting
from the states on outlays and disbursements by project. Program officials utilize these sources to
provide monthly updates to management.
4.	The EPA's plan should include specific actions to identify states/projects at risk of not
meeting deadlines and establish procedures to assist states with projects not under
contract/delayed.
Both New York state and New Jersey, the two states that will be receiving SRF capitalization grants
under DRAA, have a long track record of successfully managing billions of dollars worth of water
infrastructure projects. To ensure projects are completed, the EPA requested a waiver from the 2 year
expenditure requirement from OMB. In addition, in response to requests from both states, the EPA will
provide support in tracking individual project status (Clean Water Benefits Reporting System and
Drinking Water Benefits Reporting System and Compass Data Warehouse) to ensure that the funds
are spent expeditiously. Further, the SRF program guidance requires monthly reporting from the states
on outlays and disbursements by project. The EPA believes these measures address the underlying
intent of the OIG's suggestion.
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5. EPA should update its detection and reporting procedures to identify improper grant
payments.
The EPA agrees that it is imperative to address the risk of improper payments and our Internal Control
Plan reflects this priority. OMB M-13-07 provides that "agencies shall manage all Sandy related funding
with the same discipline and rigor as programs that are traditionally designated as high-risk for
improper payments." To ensure compliance with the OMB directive, the SRF program will continue to
use its existing high-risk compliant protocol. The EPA will also continue to implement an OMB-
compliant sampling methodology to identify improper payments through cash transaction testing.
Source: OIG analysis based upon the EPA's June 14, 2013 response to our discussion draft report.
Conclusion
This report makes no recommendations to the EPA. Rather, we suggest that the
EPA consider the control suggestions we identified from past ARRA reports as
the agency moves forward with its Sandy recovery activities.
Agency Comments and OIG Evaluation
The EPA agreed with our report suggestions and appreciated our efforts to
acknowledge the agency's proactive steps to address our suggestions. Appendix B
includes the agency's full response to our draft report.
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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
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Appendix A
OIG Analysis of the EPA's Hurricane Sandy Internal Control Plan
Agency: U.S. EPA	Hurricane Sandy Internal Control Plan
Explanation - The table below describes the incremental risks identified with each program
administering Hurricane Sandy recovery funding as well as the internal control strategy (specific
policies and procedures enhancements) for mitigating each of these risks. The risk assessment
reflects the agency strategy on reducing improper payments, promoting effective grants
management, and ensuring the integrity of acquisitions. Further, the plan addresses efforts to
conduct additional levels of review, increase monitoring and oversight of grant recipients,
enhance collaboration with the inspector general community, expedite review and resolution of
audit findings, and adopt improper payments management protocol.
Program Name: Clean Water State Revolving Fund (CWSRF) - $500 million1
Funded Activities: Waste Water Infrastructure Financing. Grants fund state- managed SRF funds
which provide loans (and some subsides) for waste water projects to protect public health and
ensure compliance with the Clean Water Act (CWA). However, unlike other SRF appropriations,
the supplemental funds are provided for the purpose: "to reduce flood damage risk and
vulnerability or to enhance resiliency to rapid hydrologic change or a natural disaster at treatment
works ... and for other eligible tasks at such treatment works or facilities necessary to further
such purposes".2
Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071
Verify SDcndina -
Ensure
expenditures
match progress to
date and are for
appropriate
purpose (Improper
Payments3) and
appropriate
measures taken to
prevent waste,
fraud and abuse.
Perform State Annual Review
& conduct transaction testing
on selected cash draws. Semi-
Annual Administrative review
of audits and open reviews. In
addition, resolution of open
audits will be accelerated.
Policies and Procedures:
EPA Order 5700.6A2 Policy
on Compliance, Review and
Monitoring, EPA Manual
2750 Audit Management
Procedures.
1.	EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
2.	EPA should work with states to
incorporate inspections as part of
routine oversight.
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
Conducting Additional
Levels of Review
Increasing Monitoring
and Oversight of Grant
Recipients
Expediting Review and
Resolution of Audit
Findings
Adopting Improper
Payments Management
Protocol
1	SRF Notes a) Mechanism for CW & DW SRFs are similar but they implement different statutes and have
some differences in eligibility, etc. b) EPA may also retain $ 1 million of the total $600 million for
management and oversight c) States may choose to switch some funds from one SRF to the other.
2	Copy of EPA and management portions of the DRAA legislation attached for reference.
3	The agency plans to group all "Sandy" funds into a consolidated payment stream which will be sampled for
improper payments during the FY 2014 improper payments reporting cycle.
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Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071
Performance &
Results - Ensure
progress with
workplan and
environmental
results / outcomes.
Review State Annual Report
and conduct State Annual
Review & review CBR (Clean
Water Benefits Reporting
System)/PBR (Drinking
Water Benefits Reporting
System) data. Policies and
Procedures: 5700.6A2 Policy
on Compliance, Review and
Monitoring; EPA Order
5700.7 Enviromnental Results
under EPA Assistance
Agreements.
1.	EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
2.	EPA should work with states to
incorporate inspections as part of
routine oversight.
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
4.	EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
Increasing Monitoring
and Oversight of Grant
Recipients
Civil Riehts -
Compliance with
Title VI.
Provide certification of
compliance with Title VI
(Form 4700-4). Policies and
Procedures: National
administrative term and
condition, "Civil Rights
Obligations," included on all
awards.
N/A
Conducting Additional
Levels of Review
OIG - Ensure
collaboration with
the Office of the
Inspector General
EPA has identified a point of
contact in OIG for all
Hurricane Sandy related
issues.
N/A
Continuing
Collaboration with the
Inspector General
Community
Grant Conditions
- Compliance
with all terms and
conditions
associated with
grant.
Semi-annual
administrative review of
compliance with grant
terms and conditions.
Policies and Procedures:
EPA Order 5700.6A2
Policy on Compliance,
Review and Monitoring.
1.	EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
2.	EPA should work with states to
incorporate inspections as part of
routine oversight.
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
Conducting Additional
Levels of Review
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Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071


projects and status of corrective
action plans.
4. EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.

ADDrooriatc Use -
Ensure all
funds associated
with the award
are needed for
applicable
projects.
Completion of annual ULO
review and certification.
Policies and Procedures:
Resource Management
Directive System No. 2520-
03-PI (Administrative
Controls of Appropriated
Funds); EPA Grants Policy
Issuance (GPI) 11-01
Managing Unliquidated
Obligations and Ensuring
Progress under EPA
Assistance Agreements (as
amended by GPI 12-06
Timely Obligation, Award
and Expenditure of EPA
Grant Funds).
4. EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
Conducting Additional
Levels of Review
Tracking - EPA
will track the
outlays and
expenditures.
Creation of CFDA 66.482 -
Disaster Relief Appropriations
Act (DRAA) Hurricane Sandy
Capitalization Grants For
Clean Water State Revolving
Funds and new appropriations
/funds code (E2S2 - CWSRF
Sandy Supplemental).*
4.	EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
5.	EPA should update its
detection and reporting
procedures to identify improper
grant payments.
Increasing Monitoring
and Oversight of Grant
Recipients
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Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071
Timelv
Expenditure -
Additional
procedures to
ensure funds are
used in a timely
manner in the case
where a waiver is
granted for the
two year
expenditure
requirement
(Section 904(c)).
The estimated
outlay/expenditure rates are
based on the states' needs and
plans. (EPA will not be
delaying the work) New
Jersey and New York have
indicated it could take many
years to expend all the funds,
given the time it takes to
implement construction
projects. The estimated
outlays/expenditures are as
follows: Yearl: 0%; Year 2:
2%; Year 3: 24%; Year 4:
21%; Year 5: 19%; Year 6:
11%; Year 7: 8%; Year 8: 7%;
and Year 9: 8%. Policies and
Procedures: SRF Guidance
on Managing Hurricane
Sandy Funds and Activities.*
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
4.	EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
Increasing Monitoring
and Oversight of Grant
Recipients
Selection Process
- Ensure that
proper procedures
and scrutiny is
provided during
the recipient
selection process.
Grants will be provided to
New York and New Jersey
per the Clean Water Act.
Projects are chosen by the
states in accordance with
eligible project requirements
and State priority ranking
systems as required in CWA
and DRAA. Contracts for the
specified projects are
competed via bid processes as
required by the states and
municipalities. Policies and
Procedures: SRF Guidance
on Managing Hurricane
Sandy Funds and Activities
and the Clean Water Act.*
1. EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
Conducting Additional
Levels of Review
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Program Name: Drinking Water State Revolving Fund (DWSRF) $100 million4
Funded Activities: Drinking Water Infrastructure Financing. Grants fund state- managed SRF
funds which provide loans (and some subsidies) for drinking water projects to protect public
health and ensure compliance with the Safe Drinking Water Act (SDWA). However, unlike other
SRF appropriations, the supplemental funds are provided for the purpose: "to reduce flood
damage risk and vulnerability or to enhance resiliency to rapid hydrologic change or a natural
disaster at treatment works ... and for other eligible tasks at such treatment works or facilities
necessary to further such purposes".5
Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071
Verify SDcndina -
Ensure
expenditures
match progress to
date and are for
appropriate
purpose (Improper
Payments) and
appropriate
measures taken to
prevent waste,
fraud and abuse.
Perform State Annual Review
& conduct transaction testing
on selected cash draws. Semi-
Annual Administrative review
of audits and open reviews. In
addition, resolution of open
audits will be accelerated.
Policies and Procedures:
EPA Order 5700.6A2 Policy
on Compliance, Review and
Monitoring, EPA Manual
2750 Audit Management
Procedures.
1.	EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
2.	EPA should work with states to
incorporate inspections as part of
routine oversight.
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
Conducting Additional
Levels of Review
Increasing Monitoring
and Oversight of Grant
Recipients
Expediting Review and
Resolution of Audit
Findings
Adopting Improper
Payments Management
Protocol
Performance &
Results - Ensure
progress with
workplan and
enviromnental
results/outcomes.
Review State Annual Report
and conduct State Annual
Review & review CBR
(Clean Water Benefits
Reporting System)/PBR
(Drinking Water Benefits
Reporting System) data.
Policies and Procedures:
5700.6A2 Policy on
Compliance, Review and
Monitoring; EPA Order
5700.7 Environmental Results
under EPA Assistance
Agreements.
1.	EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
2.	EPA should work with states to
incorporate inspections as part of
routine oversight.
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
4.	EPA's plan should include
specific actions to identify
states/projects at risk of not
Increasing Monitoring
and Oversight of Grant
Recipients
4	SRF Notes a) Mechanism for CW & DW SRFs are similar but they implement different statutes and have some
differences in eligibility, etc. b) EPA may also retain $ 1 million of the total $600 million for management and
oversight c) States may choose to switch some funds from one SRF to the other.
5	Language taken from DRAA statute.
13-P-0351
12

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Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071


meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.

Civil Riehts -
Compliance with
Title VI.
Provide certification of
compliance with Title VI
(Form 4700-4). Policies and
Procedures: National
administrative term and
condition, "Civil Rights
Obligations," included on all
awards.
N/A
Conducting Additional
Levels of Review
OIG - Ensure
collaboration with
the Office of the
Inspector General.
EPA has identified a point of
contact in OIG for all
Hurricane Sandy related
issues.
N/A
Continuing
Collaboration with the
Inspector General
Community
Grant Conditions
- Compliance
with all terms and
conditions
associated with
grant.
Semi-annual
administrative review of
compliance with grant
terms and conditions.
Policies and Procedures:
EPA Order 5700.6A2
Policy on Compliance,
Review and Monitoring.
1.	EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
2.	EPA should work with states to
incorporate inspections as part of
routine oversight.
3.	EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
4.	EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
Conducting Additional
Levels of Review
AoDroDriatc Use -
Ensure all
funds associated
with the award
are needed for
applicable
projects
Completion of annual ULO
review and certification.
Policies and Procedures:
Resource Management
Directive System No. 2520-
03-PI (Administrative
Controls of Appropriated
Funds); EPA Grants Policy
Issuance (GPI) 11-01
Managing Unliquidated
4. EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
Conducting Additional
Levels of Review
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13

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Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071

Obligations and Ensuring
Progress under EPA
Assistance Agreements (as
amended by GPI12-06
Timely Obligation, Award
and Expenditure of EPA
Grant Funds).


Trackins - EPA
will track the
outlays and
expenditures.
Creation of CFDA 66.483 -
Disaster Relief
Appropriations Act (DRAA)
Hurricane Sandy
Capitalization Grants For
Drinking Water State
Revolving Funds and new
appropriations/funds code
(E3S2 - CWSRF Sandy
Supplemental.)*
4.	EPA's plan should include
specific actions to identify
states/projects at risk of not
meeting deadlines and establish
procedures to assist states with
projects not under
contract/delayed.
5.	EPA should update its
detection and reporting
procedures to identify improper
grant payments.
Increasing Monitoring
and Oversight of Grant
Recipients
Timelv
Expenditure -
Additional
procedures to
ensure funds are
used in a timely
manner in the case
where a waiver is
granted for the
two year
expenditure
requirement
(Section 904(c)).
The estimated
outlay/expenditure rates are
based on the states' needs and
plans. (EPA will not be
delaying the work) New
Jersey and New York have
indicated it could take many
years to expend all the funds,
given the time it takes to
implement construction
projects. The estimated
outlays/expenditures are as
follows: Yearl: 0%; Year 2:
2%; Year 3: 24%; Year 4:
21%; Year 5: 19%; Year 6:
11%; Year 7: 8%; Year 8:
7%; and Year 9: 8%. Policies
and Procedures: SRF
Guidance on Managing
Hurricane Sandy Funds and
Activities.*
3. EPA should utilize information
in recipient monitoring databases
to regularly provide reports to
management on progress of
projects and status of corrective
action plans.
Increasing Monitoring
and Oversight of Grant
Recipients
Selection Process
- Ensure that
proper procedures
and scrutiny is
provided during
the recipient
selection process.
Grants will be provided to
New York and New Jersey
per the Safe Drinking Water
Act. Projects are chosen by
the states in accordance with
eligible project requirements
and State priority ranking
1. EPA should strengthen
oversight of sub-recipients and
develop a checklist that states can
use to help ensure compliance
with DRAA.
Conducting Additional
Levels of Review
13-P-0351
14

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Risks Associated
with Funded
Activities
Mitigation Strategy
OIG Observations
(Lessons Learned No. from
Prior Report Review)
OMB Guidance Memo
13-071

systems as required in SDWA
and DRAA. Contracts for the
specified projects are
competed via bid processes as
required by the states and
municipalities. Policies and
Procedures: SRF Guidance
on Managing Hurricane
Sandy Funds and Activities
and the Safe Drinking Water
Act.*


13-P-0351
15

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sr.*
|i
Appendix B
Agency's Response to Draft Report
ih	n: '¦> ' wv.hu"•!¥(» L"; ai pp.' r ~ tkVj «t»v -r
WASHINGTON. D.C. 2C14B0
AUG 1 JP
office of me
IIWEf FINANCIAL OFFICER
atrnmNKiM
SUBJECT: K'l-spuo.r .11 ; uv ¦	:'ici -i il F> ifr Rr|-.»r; O-X-fV ¦- » 1
*'internal (. or-troh Lesson i earned tor Hurricane Sandy Disaster Relief ApprmtIons
Act Funds" tjbsitrti Jiils S1 K, 70 * 3
FROM: Stct.m Sil/cr. i 3iecc:iv	LfK
< Vol' i''= .ni'iiti.il V,;i::; •jur.x.nl
I. ¦'
I'll:	!<-chord i.> iTmurj;. Acunp A-..si html InsrxjcU ir Ciuiicntl
Office Audi:
1 hank you lor the i>pportur.il\ ki respond tt;> the inlormalUw presented in the sub;,eel audit report. The
I ,S. 1'iivifxuitiieuiiil Protection Agent} agrees vt-uh the report suuge-sLons jud appreciates she Office of
L:sp-,'.::vr (.cmltu.	ihc a.'ciK; '• piwidivv .;k-p. i . lJctc-;::-cm. Jf\<.l raw Lir\
cticsituns regarding this response, please contact Ailam rctl of my ^utl'nn 202-56*1-5 U-3. or lidmillon
' k :r ;• I", ihc Ofllcc >>:	i :: 2-J Jn I IS.v".
cc: Craig Hooks
Nanci Gelb
Howard Corcoran
Maryann Froehlich
David Bloom
John O'Connor
Istanbul Yusuf
Barbara Freggens
Adam Fett
Sandy Dickens
Nancy Stoner
Mike Shapiro
Hamilton Humes
Andrew Sawyers
Matt King
Bonnie Gitlin
Marilyn Ramos
Richard Eyermann
Kevin Christensen
Patrick Gilbride
Erin Barnes-Weaver
13-P-0351
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Appendix C
Distribution
Office of the Administrator
Director, Office of Financial Management, Office of the Chief Financial Officer
Assistant Administrator for Water
Assistant Administrator for Administration and Resources Management
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
Deputy Chief Financial Officer
Principal Deputy Assistant Administrator, Office of Water
Principal Deputy Assistant Administrator, Office of Administration and Resources Management
Director, Office of Wastewater Management, Office of Water
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Deputy Director, Office of Financial Management, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of the Chief Financial Officer
Audit Follow-Up Coordinator, Office of Water
Audit Follow-Up Coordinator, Office of Administration and Resources Management
13-P-0351
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