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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Quick Reaction Report
Excess Federal Funds Drawn on
EPA Grant No. XP98838901 Awarded
to the City of Huron, South Dakota
Report No. 2007-2-00030
August 2007

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Report Contributors:	Robert Adachi
Eileen Collins
Jan Lister
Janet Kasper
Abbreviations
EPA	U.S. Environmental Protection Agency
Grantee City of Huron, South Dakota
OIG	Office of Inspector General
OMB	Office of Management and Budget
Cover photo: Drinking Water Treatment Plant in Huron, South Dakota
(EPA OIG photo).

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OFFICE OF
INSPECTOR GENERAL
August 1, 2007
MEMORANDUM
SUBJECT: Excess Federal Funds Drawn on EPA Grant No. XP98838901
Awarded to the City of Huron, South Dakota
Report No. 2007-2-00030
TO:	Robert E. Roberts
Regional Administrator
EPA Region 8
This report contains time-critical issues the Office of Inspector General (OIG) identified and
proposes recommendations for recovery. This report represents the opinion of the OIG and does
not necessarily represent the final position of the U.S. Environmental Protection Agency (EPA).
EPA managers will make final determinations on matters in this report.
Action Required
Please provide a written response to this report within 30 calendar days. You should include a
corrective action plan for agreed upon actions, including milestone dates. We have no objections
to the further release of this report to the public. This report will be available at
http ://www.epa. gov/oig.
If you or your staff have any further questions, please contact me at 202-566-0847 or
roderick.bill@epa.gov; or Janet Kasper, Director, Assistance Agreement Audits, at
312-886-3059 or kasper.ianet@epa.gov.
Bill A. Roderick
Acting Inspector General
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460

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Purpose
During our audit of Special Appropriation Act Projects, the following condition came to our
attention, which we believe requires your immediate attention. The City of Huron, South
Dakota, (grantee) did not reduce the costs claimed under grant no. XP98838901 (grant) for
credits it received from other entities that contributed funds when those credits reduced project
costs.
Background
The grant was awarded on July 27, 2001. The purpose of the grant was to provide Federal
assistance of $3,871,500 for the upgrade of the water treatment plant. The $3,871,500 represents
the U.S. Environmental Protection Agency's (EPA's) contribution of up to 55 percent of the
eligible project costs. The grantee is responsible for matching, at a minimum, 45 percent of the
eligible project costs. EPA amended the grant to provide a total of $3,991,500 in Federal funds
with total project costs of $7,257,273.
Scope and Methodology
We performed our audit in accordance with Government Auditing Standards, issued by the
Comptroller General of the United States, with the exception of gaining a complete
understanding of internal controls as required under Section 7.11 and gaining an understanding
of information control systems as required under Section 7.59. We did not obtain a complete
understanding of the internal control system since the limited nature of our review focused on the
source documents that support costs claimed under the grant. We also did not test the recipient's
grant drawdown process or test the recipient's process for entering information into its
accounting system. Instead, we relied upon the information contained in the recipient's
accounting system for grant revenues and expenditures. We did not obtain an understanding of
information control systems since the review of general and application controls was not relevant
to the assignment objectives. Instead, we relied on the information contained in the grantee's
information control systems and relevant output data. We conducted our field work between
January 9, 2007, and May 16, 2007.
We made site visits to the grantee and performed the following steps:
	Obtained and reviewed State of South Dakota project files,
	Conducted interviews of grantee personnel,
	Obtained and analyzed the grantee's electronic accounting files, and
	Obtained and analyzed EPA and Drinking Water State Revolving Fund grant draws.
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Finding
The grantee did not reduce the total grant costs by the amounts received from local water
agencies. These local water agencies provided funds of $947,586 to the grantee to offset total
project costs. Under Office of Management and Budget (OMB) Circular A-87, Attachment A,
receipts or reductions that offset or reduce expenses allocable to Federal awards are credits.
Applicable credits shall be used as a cost reduction or refund to the Federal award. The grantee
received $947,586 from the following entities:
Table 1: Reimbursements Received from Local Water Agencies
Paid By:
Amount
Reason for Payment
Mid-Dakota Rural
Water System, Inc.
$243,259
Assistance to City for installation of piping and
appurtenances related to the new water
treatment plant, transmission line, and well field.
Mid-Dakota Rural
Water System, Inc.
$600,000
Assistance to City for construction of 1.5 million
gallon water storage tank.
James River Water
Development District
$23,750
Engineering fees on the water tower.
James River Water
Development District
$5,577
Engineering fees on the water tower.
Central Plains Water
Development District
$75,000
Engineering fees on the water tower.
Total
$947,586

Sources: City of Huron; Mid-Dakota Rural Water System, Inc.; and James River Water
Development District
Under OMB Circular A-87, Attachment A, the grantee needs to reduce the total project costs
under the grant by $124,006 due to the reimbursements received from the local water agencies.
See Table 2 for analysis and details. The reduction in project costs will result in the grantee
having drawn $68,203 of excess Federal funds under the grant.
Table 2: Analysis of Project Costs and Grant Overpayment
Water Treatment Plant Upgrade
Amount
Total Project Costs
$8,815,326
Less: Federal Funds Included in Drinking Water
($734,473)
State Revolving Fund Used to Finance Project

Subtotal Project Costs
$8,080,853
Less: Reimbursements
($947,586)
Eligible Project Costs
$7,133,267
Project Costs per Final Financial Status Report
$7,257,273
Difference Between Claimed and Actual Project Costs
$124,006
Federal Share and Potential Overpayment
$68,203
Source: OIG analysis of City of Huron data
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The grantee is anticipating receiving an additional reimbursement from the James River Water
Development District upon completion of the project. The grantee estimates the reimbursement
could be as much as $75,000. Based upon a reimbursement of $75,000, the grantee would be
required to repay the EPA 55 percent of the reimbursement, or $41,250.
Recommendations
We recommend that the Regional Administrator, EPA Region 8, require the City Huron to:
1.	Repay $68,203 for excess Federal funds drawn.
2.	Advise EPA of all future reimbursements.
3.	Repay 55 percent of all future reimbursements, including amounts received from the
James River Water Development District.
Auditee's Comments
The grantee considers the funds received from the various water agencies as part of the funds
available for use as match. The grantee also believes that OMB Circular A-87 does not
specifically identify reimbursements in the examples listed as the type of funds required to offset
costs paid by the Federal grant.
OIG Response
Our position remains unchanged. Mid-Dakota Rural Water System, Inc., stated it provided funds
to assist the "City for installation of piping and appurtenances related to the new water treatment
plant, transmission line, and well field," as well as the "construction of 1.5 million gallon water
storage tank." Mid-Dakota did not state that the funds were for the local match portion of the
EPA grant. The basic requirement under OMB Circular A-87 is that receipts or reductions that
offset or reduce expenses allocable to Federal awards are credits. The reimbursements received
by the grantee fit the definition of a credit. OMB Circular A-87 does provide some examples of
transactions that would qualify as an applicable credit. However, the examples cited are not all
inclusive.
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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
3 Require the City of Huron to repay $68,203 for
excess Federal funds drawn.
3 Require the City of Huron to advise EPA of all
future reimbursements.
3 Require the City of Huron to repay 55 percent of all
future reimbursements, including amounts received
from the James River Water Development District.
Planned
Completion
Date
Regional Administrator, TBD
EPA Region 8
Regional Administrator, TBD
EPA Region 8
Regional Administrator, TBD
EPA Region 8
Claimed
Amount
Agreed 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 undecided with resolution efforts in progress.
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Appendix A
Distribution
Regional Administrator, Region 8
Director, Office of Wastewater Management, Office of Water
Director, Office of Wastewater Management - Municipal Services Division, Office of Water
Director, Office of Grants and Debarment
Director, Grants and Interagency Agreements Management Division
Agency Followup Official (the CFO)
Agency Followup Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Region 8 Audit Followup Coordinator
Region 8 Public Affairs Office
Acting Inspector General
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