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Report Contributors: Janet Kasper
Michael Davis
Melinda Burks
Randy Holthaus
Jennifer Hutkoff
Shannon Schofield
Abbreviations
EPA
IA
JOFOC
OAM
OIG
USACE
U.S. Environmental Protection Agency
Interagency Agreement
Justification for Other than Full and Open Competition
Office of Acquisition Management
Office of Inspector General
U.S. Army Corps of Engineers
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*. U.S. Environmental Protection Agency 09-x-oi36
Office of Inspector General Apnl 9 2009
I I
At PRO"*4
At a Glance
Catalyst for Improving the Environment
Why We Did This Review
We reviewed open
recommendations from prior
Office of Inspector General
(OIG) audit reports that could
impact the U.S.
Environmental Protection
Agency's (EPA's) American
Recovery and Reinvestment
Act activities. These
recommendations involved
grants, contracts, and
interagency agreements.
Background
Open recommendations are
those for which EPA has not
completed corrective actions.
Recent Office of Management
and Budget guidance requires
the expediting of actions on
open recommendations to
preclude the continuance of
weaknesses or deficiencies
that can impact Recovery Act
funding.
For further information,
contact our Office of
Congressional, Public Affairs
and Management at
(202) 566-2391.
To view the full report,
click on the following link:
www.epa.aov/oia/reports/2009/
20090409-09-X-0136.pdf
Open Audit Recommendations
Affecting Recovery Act Activities
What We Found
We identified five open recommendations, from three EPA OIG reports, that
could have an impact on Recovery Act funding.
• In response to a 2008 report, EPA agreed to implement our
recommendation to distribute revised terms and conditions to regions in
June 2009 for spending brownfields grant funds more timely. EPA told
us these terms and conditions would be in place before EPA awarded any
Recovery Act grants.
• A 2008 OIG report found that EPA had no assurance that use of Cost-
Plus-Award-Fee contracts facilitates a higher level of performance than
other types of contracts, and contractors were given award fees without
sufficient support. To address these issues, the Office of Acquisition
Management completed revisions to the Contracts Management Manual
on April 7, 2009, and will have the information published by late April.
We also noted EPA Region 5 paid award fees in excess of limits, and
corrective action is still pending.
• A 2007 OIG report found that EPA often entered into interagency
contracts without conducting cost reasonableness assessments or
identifying alternatives, such as whether EPA's in-house staff should
acquire the services or products. EPA is not planning to conduct its
comprehensive review of interagency contracts to verify implementation
of the corrective action until September 2010. EPA needs to ensure other
corrective actions related to cost reasonableness assessments and
considerations of alternatives to interagency contracts are implemented
for Recovery Act interagency contracts.
We also have concerns that EPA is considering granting a waiver related to
several closed recommendations involving obtaining independent cost estimates
for interagency agreements with the U.S. Army Corps of Engineers.
We recommend that the Agency expedite corrective actions for the open
recommendations as they pertain to Recovery Act funds. EPA should let us
know within 30 days how it has acted, or plans to act, on these recommendations.
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^£DSX
I \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
| | WASHINGTON, D.C. 20460
% -ttP OFFICE OF
PR0 INSPECTOR GENERAL
April 9, 2009
MEMORANDUM
SUBJECT: Open Audit Recommendations Affecting Recovery Act Activities
Report No. 09-X-0136
FROM: Melissa M. Heist
Assistant Inspector General for Audit
TO: Craig Hooks, Acting Assistant Administrator
Office of Administration and Resources Management
Barry Breen, Acting Assistant Administrator
Office of Solid Waste and Emergency Response
Bharat Mathur, Acting Regional Administrator
Region 5
The Office of Inspector General (OIG) of the U.S. Environmental Protection Agency (EPA) has
completed a review of open recommendations from prior audit reports that could impact EPA's
American Recovery and Reinvestment Act (Recovery Act) activities. This review was not an
audit conducted in accordance with the Government A uditing Standards. Open
recommendations are those for which EPA has not completed corrective action. In accordance
with the Office of Management and Budget's Recovery Act Implementation Guidance, dated
April 3, 2009, if final action on report recommendations has not been taken, EPA should (1)
expedite such action to preclude the continuance of weaknesses or deficiencies in the
administration of Recovery Act funded programs, or (2) provide an explanation of why such
corrective actions cannot or should not be taken in the administration of Recovery Act funded
programs.
We identified five open recommendations, from three EPA OIG audit reports, that pertain to
grants, contracts, and interagency agreements. Details on those five recommendations and the
status of each follow. We also provide details on one closed recommendations where we have
concerns about a current EPA decision to waive an Office of Management and Budget
requirement. We will issue a separate document identifying contractors and grant recipients that
have open audit recommendations.
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Grants
Report: EPA Should Continue Efforts to Reduce Unliquidated Obligations in Brownfields Pilot
Grants (08-P-0265), September 16, 2008
Recommendation 2: Assistant Administrator for Solid Waste and Emergency
Response revise model terms and conditions for assessment grants to include a
definition for the term "insufficient progress."
EPA had not consistently implemented a national policy or process that provided
reasonable assurance that brownfields grant funds would be spent in a timely manner.
EPA Headquarters had not provided specific guidelines on when grants should be
terminated, nor had it defined inadequate progress for grant performance. As a result,
grant funds that could have been used by other communities sat idle. This could impact
grants awarded with Recovery Act funds because grantees need to commence
expenditures and activities quickly to accomplish objectives of the Recovery Act (job
creation, programmatic results, and economic recovery). EPA agreed to implement our
recommendation to distribute the revised terms and conditions to the regions in June
2009. In March 2009, the OIG discussed this issue with the Director of the Office of
Brownfields and Land Revitalization, who said the revised terms and conditions would
be in place before EPA awarded any Recovery Act grants. EPA needs to ensure the
revised terms and conditions are completed in sufficient time to include in the Recovery
Act grants.
Contracts
Report: EPA Should Further Limit Use of Cost-Plus-Award-Fee Contracts (08-P-0093),
February 26, 2008
Recommendation 2-1: Assistant Administrator for Administration and Resources
Management revise the Contracts Management Manual to require that a cost-
benefit analysis be conducted prior to awarding a Cost-Plus-Award-Fee contract,
and all Cost-Pius-Award-Fee contracts be approved by the contracting officer's
Service Center Manager.
Recommendation 2-2: Assistant Administrator for Administration and Resources
Management revise the Contracts Management Manual to require work assignment
managers, project officers, contracting officers, and performance evaluation board
members to explicitly document the basis for award-fee decisions made.
EPA had no assurance that use of Cost-Plus-Award-Fee contracts facilitated a higher
level of performance than other types of contracts. These contractors were consistently
given high ratings and award fees, but EPA did not have sufficient documentation to
justify those ratings and award fees. To address our recommended corrective actions, the
Director, Office of Acquisition Management, approved Contracts Management Manual
revisions on April 7, 2009, and expects to publish the changes by late April. In awarding
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and monitoring the Recovery Act contracts, EPA should be taking steps to ensure that the
actions that are described in the Contracts Management Manual update are performed.
Although the President's Memorandum of March 4, 2009, on "Government Contracting"
establishes a preference for firm-fixed price contracts, it does not preclude EPA from
awarding new contracts or adding funds to existing contracts that are not firm-fixed price.
If EPA carries through with it plans to use existing cost plus award fee contracts to award
Recovery Act funds, it needs to ensure that our recommendations are implemented to
ensure the costs incurred for awards fees are reasonable and justified.
Recommendation 3-1: Region 5 Regional Administrator negotiate with contractors
to modify contracts currently providing base fees in excess of the 3-percent limit
cited by EPA Acquisition Regulations 1526.404-273(b) so that the fees no longer
exceed the 3-percent limit.
For some Region 5 Cost-Plus-Award-Fee contracts, base award fees were in excess of the
3-percent limit allowed by the EPA Acquisition Regulations. This resulted in an
overpayment of $100,000 in base award fees through July 2007, with a potential
overpayment of $760,000 over the remaining life of the contracts. In response to the
report, Region 5 had agreed to modify contracts by January 2009. However, according to
correspondence from the Region 5 audit coordinator, Region 5 plans to revise this date to
April 15, 2009. Before awarding contracts with Recovery Act funds, Region 5 needs to
ensure contracts have been modified to comply with EPA Acquisition Regulations.
Interagency Agreements
Report: Interagency Agreements to Use Other Agencies' Contracts Need Additional Oversight
(2007-P-00011), March 27, 2007
Recommendation 2: Grants Administration Division require that the Interagency
Agreement (IA) decision memorandum better explain why an IA is more cost
effective, and include an evaluation of cost reasonableness assessments in the Grant
Administration Division's oversight reviews of IA management.
EPA often entered into interagency contracts without conducting cost reasonableness
assessments or identifying alternatives, such as whether EPA's in-house acquisition staff
should acquire the services or products. As a result, we found interagency contracts
where EPA could have saved money if it had awarded the contracts directly through its
in-house contracting staff. The Office of Grants and Debarment received an extension
for conducting its comprehensive program review of IAs to September 2010. This
extension was granted because of the Office of Federal Procurement Policy's delay in
issuing government-wide guidance on IAs. As a result, the comprehensive program
review that the Office of Grants and Debarment committed to perform in Fiscal Year
2008 is scheduled for completion in Fiscal Year 2010, a year after implementation of the
Office of Federal Procurement Policy guidance. While the comprehensive evaluation
may not be completed before Recovery Act IAs are awarded, EPA should ensure that
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other recommendations in the report, including cost reasonableness assessments and
consideration of alternatives to IAs, are performed.
Additional Issue on Closed Recommendations
We have identified an issue that we brought to the attention of the Directors for
Acquisition Management and Grants and Debarment regarding recommendations where
the corrective actions were completed but a waiver was being considered. In OIG Report
No. 2007-P-00021, EPA Can Improve Its Managing of SuperfundInteragency
Agreements with the U.S. Army Corps of Engineers, issued April 30, 2007, we made the
following two recommendations:
Recommendation 2-1: Require that regional offices develop an EPA
independent cost estimate for the Corps' oversight of IAs.
Recommendation 2-2: Require that regional offices conduct a cost
analysis of alternatives when determining whether to award an IA and
evaluate the analysis against an EPA-developed cost estimate.
The draft IA guidance mentioned that the Office of Solid Waste and Emergency
Response was requesting a class determination that the US ACE IAs are in the best
interest of the government. While we have not seen the details on the basis for this
request, we are concerned that EPA will not be considering alternatives and the cost
effectiveness of using the US ACE when awarding the IA. This issue has also received
congressional interest. In the House Report that accompanied the Fiscal Year 2008
appropriation (H.Rept 110-87), the committee stated it agreed with the OIG report and
EPA needs to develop its own independent cost estimates for US ACE work and conduct
cost analyses of alternatives prior to determining whether to engage the US ACE. The
House Report noted that cost considerations should always be an important consideration
when determining how best to perform work at a Superfund site. Further, in the Fiscal
Year 2009 appropriation, Congress requested that EPA provide an update on its oversight
of regional decisions to use the USACE.
In making the decision as to whether to approve a waiver of the best interest
determination for the USACE, we believe the Agency should consider the past OIG
recommendations and congressional statements on this issue. We have discussed this
issue with the Office of Grants and Debarment and Superfund contracting office and they
have stated that they will consider the issue we have raised in making a decision on the
waiver request.
Action Required
We recommend that the Agency expedite corrective action for these open recommendations as
they pertain to Recovery Act funds. Please provide a response within 30 days describing the
actions EPA is taking, or has taken, to address the recommendations.
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If you or your staff has any questions regarding this review, please contact me at (202) 566-0899
or heist.melissa@epa.gov; or Janet Kasper, Director for Contracts and Assistance Agreement
Audits, at (312) 886-3059 or kasper.ianet@epa.gov.
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Appendix A
Distribution
Office of the Administrator
Acting Assistant Administrator for Administration and Resources Management
Deputy Acting Assistant Administrator for Administration and Resources Management
Acting Assistant Administrator for Solid Waste and Emergency Response
Acting Regional Administrator, Region 5
Agency Follow-up Official (the CFO)
Agency Follow-up Coordinator
Acting General Counsel
Acting Associate Administrator for Congressional and Intergovernmental Relations
Acting Associate Administrator for Public Affairs
Audit Follow-up Coordinator, Office of Administration and Resources Management
Audit Follow-up Coordinator, Office of Solid Waste and Emergency Response
Audit Follow-up Coordinator, Region 5
Director, Office of Brownfields and Land Revitalization
Director, Office of Grants and Debarment
Director, Office of Acquisition Management
Audit Follow-up Coordinator, Office of Acquisition Management
Acting Inspector General
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