U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
U.S. Chemical Safety and
Hazard Investigation Board
Should Determine the Cost
Effectiveness of Performing
Improper Payment Recovery
Audits
Report No. 12-P-0312
March 1, 2012

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Report Contributors:
Michael Davis
Gloria Taylor-Upshaw
Heather Layne
Marcia Hirt-Reigeluth
Vanessa Rodriguez-Moya
Abbreviations
CSB	U.S. Chemical Safety and Hazard Investigation Board
FY	Fiscal year
IPERA	Improper Payments Elimination and Recovery Act
IPIA	Improper Payments Information Act
OIG	Office of Inspector General
OMB	Office of Management and Budget
PAR	Performance and Accountability Report
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail:	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
12-P-0312
March 1, 2012
Why We Did This Review
Office of Management and
Budget (OMB) guidance for
implementing the 2010
Improper Payments Elimination
and Recovery Act (IPERA)
specified responsibilities of
agencies and inspectors general.
Agencies are required to report
on improper payments, and
inspectors general are required
to determine whether the agency
is in compliance with IPERA.
As the Inspector General for the
U.S. Chemical Safety and
Hazard Investigation Board
(CSB), the U.S. Environmental
Protection Agency Office of
Inspector General undertook this
review of CSB's compliance
with IPERA.
Background
Each year, the federal
government wastes billions of
taxpayer dollars on improper
payments to individuals,
organizations, and contractors.
Despite efforts to reduce
improper payments, agencies
reported an estimated
$125 billion in improper
payments for fiscal year 2010.
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.aov/oia/reports/2012/
20120301 -12-P-0312.pdf
U.S. Chemical Safety and Hazard Investigation Board
Should Determine the Cost Effectiveness of
Performing Improper Payment Recovery Audits
What We Found
The CSB was not fully compliant with the reporting requirements of IPERA.
IPERA requires agencies to periodically review all programs and activities that
may be susceptible to significant improper payments. CSB is required to:
•	Publish and post on its website the Performance and Accountability
Report (PAR) for the most recent fiscal year
•	Identify programs and activities that are susceptible to significant
improper payments, defined as gross improper payments exceeding
2.5 percent of program outlays and $10 million of all program or activity
payments made during the fiscal year reported, and conduct a specific
risk assessment for each identified program
•	Determine the cost effectiveness of conducting recovery audits on each
program and activity of the agency that expends $ 1 million or more
annually
According to the Office of Management and Budget, beginning with the fiscal
year 2011 annual reporting period, inspectors general should evaluate the
accuracy and completeness of agency reporting, to include reviewing agency
improper payment reporting in the agency's annual PAR and determining
compliance with IPERA. As required, the CSB did publish its PAR on its
website, and because the CSB does not meet the minimum risk assessment
threshold, it is not required to perform the risk assessment. However, the CSB
had not determined the cost effectiveness of performing recovery audits for each
of its programs or activities that expend $1 million or more annually. Because
the CSB did not undertake an analysis to make that determination, it may be
failing to identify and recover improper payments that could be used to further
its mission of chemical accident prevention. Further, we were unable to evaluate
the accuracy and completeness of the CSB's reporting as well as CSB's
performance in preventing, reducing, and recapturing improper payments.
What We Recommend
We recommended that the CSB's Director of Financial Operations conduct an
analysis to determine the cost effectiveness of performing recovery audits on all
activities with annual outlays in excess of $ 1 million, and provide it to the
Inspector General as required by Office of Management and Budget
Memorandum M-l 1-16, Part I B. CSB concurred with our recommendation and
has completed its analysis.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
March 1, 2012
MEMORANDUM
SUBJECT: U.S. Chemical Safety and Hazard Investigation Board Should Determine the
Cost Effectiveness of Performing Improper Payment Recovery Audits
Report No. 12-P-0312
This is our report on the cost effectiveness of performing improper payment recovery audits.
This report represents our final position on the subject reported. It contains a finding that
describes the issues the Office of Inspector General (OIG) has identified and corrective action
the OIG recommends. This report represents the opinion of the OIG and does not necessarily
represent the final CSB position. CSB managers will make the final determinations on matters in
The Improper Payments Elimination and Recovery Act (IPERA) and Office of Management and
Budget guidance require the Inspector General to distribute this report to the following
individuals and organizations:
•	The Senate Homeland Security and Government Affairs Committee
•	The House Committee on Oversight and Governmental Reform
•	The Comptroller General
•	The Controller of the Office of Management and Budget
We are providing the report to these individuals and organizations under a separate transmittal.
FROM: Arthur A. Elkins, Jr.
Inspector General
TO:
The Honorable Rafael Moure-Eraso
Chairman and Chief Executive Officer
U.S. Chemical Safety and Hazard Investigation Board
this report.
In responding to the draft report, CSB provided corrective action plans for addressing the
recommendation. Therefore, a response to the final report is not required. We will post this
report to our website at http://www.epa.gov/oig.

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If you or your staffs have any questions regarding this report, please contact Melissa Heist,
Assistant Inspector General for Audit, at (202) 566-0899 or heist.melissa@epa.gov; or Michael
Davis, Acting Director, at (513) 487-2363 or davis.michaeld@epa.gov.

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U.S. Chemical Safety and Hazard Investigation Board	12-P-0312
Should Determine the Cost Effectiveness of
Performing Improper Payment Recovery Audits
		Table of 	
Purpose		1
Background		1
Scope and Methodology		2
Results of Review		3
CSB Did Comply With Two IPERA Requirements		3
CSB Did Not Determine Cost Effectiveness of Performing Recovery Audits		4
Recommendation		5
CSB Response and OIG Evaluation		6
Status of Recommendations and Potential Monetary Benefits		7
Appendices
A CSB Response	 8
B Distribution	 11

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Purpose
The Improper Payments Elimination and Recovery Act (IPERA) became law on
July 22, 2010, amending the Improper Payments Information Act of 2002 (IPIA).1
On April 14, 2011, the Office of Management and Budget (OMB) issued
government-wide guidance for implementation.2 The guidance updated the
requirements for measuring and remediating improper payments. The OMB
guidance requires agencies to report on improper payments and requires
inspectors general to review agency reporting. The U.S. Environmental Protection
Agency's Office of Inspector General (OIG) is the Inspector General for the
U.S. Chemical Safety and Hazard Investigation Board (CSB). Our objective was
to determine whether the CSB is in compliance with IPERA.
Background
IPERA requires that each agency periodically review and identify all programs
and activities that may be susceptible to significant improper payments. The Act
significantly increased requirements for payment recapture efforts by expanding
the types of payments that could be reviewed. It also lowered, to $1 million, the
threshold of annual outlays for each program and activity for which agencies are
required to conduct recovery audits, if conducting such audits would be cost
effective.
IPERA defines an improper payment, in relevant part, as any payment that should
not have been made or that was made in an incorrect amount, or any payment to
an ineligible recipient, for an ineligible good or service, a duplicate payment,
payment for a good or service not received, or a payment that does not account for
credit for applicable discounts. OMB Memorandum M-l 1-16 expanded the
improper payment definition to include payments without sufficient
documentation. Under OMB Memorandum M-l 1-04,3 agencies are to report on
improper payments:
•	Voluntarily returned by contractors
•	Used to offset future payments
•	Identified and returned to the agency through OIG efforts, such as audits,
reviews, or tips from the public
•	Identified and recovered through management post payment reviews and
close-out
1	In OMB Memorandum M-l 1-16, Issuance of Revised Parts I and II to Appendix C of OMB Circular A-l 23, issued
April 14, 2011, the term "IPIA" implies "IPIA, as amended by IPERA" but the authorizing legislation is still named
IPIA.
2	OMB April 14, 2011, Memorandum M-l 1-16 revised OMB Circular A-123 Parts I and II.
3	OMB Memorandum M-l 1-04, Increasing Efforts to Recapture Improper Payments by Intensifying and Expanding
Payment Recapture Audits, issued November 16, 2010, provides guidance on expanding the types of payments that
can be reviewed and lowering the threshold of annual outlays that requires agencies to conduct payment recapture
audit programs.
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Each fiscal year, agency inspectors general are required to determine whether the
agency is in compliance with IPERA. Compliance means that the agency has:
•	Published a Performance and Accountability Report (PAR) for the most
recent fiscal year and posted it on the agency website
•	Identified programs and activities that are susceptible to significant
improper payments—defined as gross improper payments exceeding
2.5 percent of program outlays and $10 million of all program or activity
payments made during the fiscal year reported, or $100 million—and
conducted a specific risk assessment for each identified program
•	Determined the cost effectiveness of conducting recovery audits on each
program and activity of the agency that expends $1 million or more
annually
If an agency does not meet one or more of these requirements, then it is not
compliant. Inspectors general are required to evaluate (1) the accuracy and
completeness of agency reporting; and (2) agency performance in preventing,
reducing, and recapturing improper payments. Inspectors general should include
any recommendations to improve the agency's performance in reducing improper
payments.
Scope and Methodology
We conducted this compliance audit from December 2011 to February 2012 in
accordance with generally accepted government auditing standards, issued by
the Comptroller General of the United States. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
To determine whether the CSB is compliant with IPERA, we reviewed the CSB's
fiscal year (FY) 2011 PAR and accompanying materials. We interviewed the CSB
Director of Financial Operations to gain an understanding of what actions the
CSB took to comply with IPERA. We also reviewed the CSB's interagency
agreement with the Bureau of Public Debt to obtain a better understanding of the
division of financial responsibilities between the two agencies. Under this
agreement, the Bureau of Public Debt processes financial transactions, makes
administrative payments, and prepares various financial reports for the CSB. We
determined that our finding is the responsibility of the CSB and not the Bureau of
Public Debt.
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Results of Review
The CSB was not fully compliant with the reporting requirements of IPERA,
which require all agencies to periodically review all programs and activities that
may be susceptible to significant improper payments. As required, the CSB did
publish its PAR on its website, and we determined that CSB programs do not
meet the minimum risk assessment threshold that would require the CSB to
perform a risk assessment. However, despite the CSB Director of Financial
Operations' statement that performing recovery audits on those activities that
expend $1 million or more annually would not be cost effective, the CSB did not
undertake an analysis to justify such a determination, as stipulated in OMB
Memorandum M-l 1-16, Part I B(6). Because the CSB did not undertake this
analysis, it may be failing to identify and recover improper payments that could
be used to further its mission of chemical accident prevention. Further, the OIG
was unable to evaluate the accuracy and completeness of the CSB's reporting as
well as to evaluate the CSB's performance in preventing, reducing, and
recapturing improper payments.
CSB Did Comply With Two IPERA Requirements
IPERA requires all agencies to publish and post on their website the PAR for their
most recent fiscal year. The PAR, as described by OMB Circular A-l 1,
Section 200.12, is a consolidated annual report of agency performance and
financial results, containing the agency's audited financial statements and detailed
information on efforts to achieve goals during the past fiscal year.
In its November 2011 PAR for FY 2011, CSB stated:
The CSB has not identified any significant risk with improper
payments. However, we recognize the importance of maintaining
adequate internal controls to ensure proper payments, and our
commitment to the continuous improvement in the overall
disbursement management process remains strong. In FY 2011, the
CSB continued our agreement with the Bureau of the Public Debt
(BPD) to process financial transactions, make administrative
payments, and prepare various financial reports. This agreement
promotes the accuracy of our financial records and payments.
Based on our review, we determined that CSB is compliant with this requirement
of IPERA.
IPERA also requires all agencies to conduct a specific risk assessment for each
program or activity that may have improper payments in excess of $10 million of
all program or activity payments made during the fiscal year reported and
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2.5 percent of program outlays.4 IPERA Section 2(f)(3) defines a payment as any
transfer or commitment for future transfer of federal funds such as cash,
securities, loans, loan guarantees, and insurance subsidies to any nonfederal
person or entity that is made by a federal agency, a federal contractor, a federal
grantee, or a governmental or other organization administering a federal program
or activity. Interagency agreements, and payroll and benefits made to federal
agencies or employees, are excluded from consideration as a susceptible program
or activity.
For the CSB, pursuant to IPERA Section 2(f)(3), only nonfederal expenses are
eligible for consideration as a susceptible program or activity because they are
payments made to a nonfederal person or entity. CSB's FY 2011 budget of
$10,777,402 is shown in table 1 below.
Table 1: CSB FY 2011 Budget
Activity
Amount
Percentage
Federal expenses
$8,031,699
74.52%
Nonfederal expenses
$2,745,703
25.48%
Total
$10,777,402
100.00%
Source: OIG analysis of CSB data.
We reviewed the CSB's FY 2011 budget and determined that it does not meet the
minimum for the risk assessment threshold; as a result, CSB is not required to
perform the risk assessment.
CSB Did Not Determine Cost Effectiveness of Performing Recovery
Audits
The CSB did not determine the cost effectiveness of performing recovery audits
for each of its programs or activities that expend $1 million or more annually.
IPERA Section 2(h)(2)(A) requires that each agency shall conduct recovery audits
with respect to each program and activity of the agency that expends $1 million or
more annually, if conducting such audits would be cost effective.
OMB Memorandum M-l 1-16, Part I B, implements the requirements of
Section 2(h) of IPERA. The OMB memorandum defines a payment recapture
audit, also known as a recovery audit, as a review and analysis of an agency's or
program's accounting and financial records, supporting documentation, and other
pertinent information supporting its payments, that is specifically designed to
identify overpayments. A payment recapture audit program is an agency's overall
plan for risk analysis and the performance of payment recapture audits and
recovery activities. The agency head should determine the most cost-effective
way to conduct payment recapture activities. These activities should include a
4 The CSB does not meet the other threshold of this requirement, which is to conduct a specific risk assessment for
each program or activity that may have improper payments in excess of $100 million.
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management improvement program, if appropriate, and a copy of the program
should be provided to the agency's inspector general annually.
According to OMB, a cost-effective payment recapture audit is one in which the
benefits (i.e., recaptured amounts) exceed the costs (e.g., staff time and resources,
or payments to an audit contractor) associated with implementing and overseeing
the program. Agencies should consider the following criteria in determining
whether a payment recapture audit is cost effective:
•	The likelihood that identified overpayments will be recaptured
•	The likelihood that the expected recoveries will be greater than the costs
incurred to identify the overpayments
If an agency determines that it would be unable to perform a cost-effective
payment recapture audit program for activities expending more than $1 million
annually, it should notify OMB and the inspector general of this decision and
provide them with the analysis used to reach this decision. The agency should also
report in its annual PAR:
•	A list of programs and activities for which it has determined that a
payment recapture audit program would not be cost effective
•	A description of the justifications and analysis that it used to make that
determination
The CSB did not perform any of the requirements of OMB Memorandum
M-l 1-16, Part IB. The CSB Director of Financial Operations informed us that,
based on the CSB FY 2011 budget of $10,777,402, it was decided that performing
a recovery audit on those activities of the agency that expend $1 million or more
annually would not be cost effective. However, the CSB did not undertake any
analysis to determine the likelihood that identified overpayments would be
recaptured, or the likelihood that the expected recoveries would be greater than
the costs incurred to identify the overpayments. Therefore, the CSB may be
failing to identify and recover improper payments that could be used to further its
mission of chemical accident prevention. Further, the OIG was unable to evaluate
the accuracy and completeness of the CSB's reporting as well as CSB's
performance in preventing, reducing, and recapturing improper payments.
Recommendation
We recommend that the Director of Financial Operations, U.S. Chemical Safety
and Hazard Investigation Board:
1. Conduct an analysis to determine the cost effectiveness of performing
recovery audits on all activities with annual outlays in excess of $1 million
and provide it to the Inspector General as required by OMB Memorandum
M-l 1-16, Part IB.
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CSB Response and OIG Evaluation
CSB concurred with the OIG recommendation. We evaluated CSB's planned
action for this recommendation and concluded that its actions should correct the
concern identified. In its response, CSB provided a Recovery Audit Analysis for the
Chemical Safety Board (CSB) that determined the cost benefit of conducting
recovery audits would yield a negative return. As a result, CSB notified OMB in
accordance with OMB Memorandum M-l 1-16 Part IB. CSB's full response is in
appendix A.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATION
POTENTIAL MONETARY
BENEFITS (In $000s)





Planned


Rec.
Page



Completion
Claimed
Ag reed-To
No.
No.
Subject
Status1
Action Official
Date
Amount
Amount
Conduct an analysis to determine the cost
effectiveness of performing recovery audits on all
activities with annual outlays in excess of
$1 million, and provide it to the Inspector General
as required by OMB Memorandum M-11-16,
Part I B.
Director of Financial
Operations, U.S. Chemical
Safety and Hazard
Investigation Board
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
Chemical Safety and	2175 K Street, NW • Suite 650 • Washington, DC 20037-1809
Hazard Investigation Board	Phone: (202) 261-7600 • Fax: (202) 201-7650
www.csb.gov
Hon. Rafael Moure-Eraso
Chairperson
Hon. John S. Bresland
Board Member
Hon. Mark Griffon
Board Member
February 17, 2012
Richard J. Eyermann
Deputy Assistant Inspector General for Audit
U.S. Environmental Protection Agency
Office of Inspector General
1200 Pennsylvania Ave
Washington, DC 20460
Dear Mr. Eyermann:
We have reviewed the your draft report on your review of the Chemical Safety and Hazard
Investigation Board's (CSB) compliance with the Improper Payments Elimination and Recovery
Act (IPERA).
We agree with your recommendation that the CSB conduct an analysis to determine the cost
effectiveness of performing recapture audits on all activities with annual outlays in excess of
$1,000,000. In fact, the CSB has conducted this analysis, which is provided as an attachment.
The CSB concluded that a recapture audit program would not be cost effective, and will notify
the Office of Management and Budget (OMB) of our finding in accordance with OMB
Memorandum M-l 1-16 Part IB.
Please contact Bea Robinson at 202-261-7627 for further information regarding our analysis of
recapture audits. I thank you and your team for your review.
Sincerely,
Rafael Moure-Eraso, Ph.D.
Chairperson
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Recovery Audit Analysis for the Chemical Safety Board (CSB)
The following constitutes the CSB's analysis of the cost effectiveness of engaging an audit
recovery firm to review invoices paid by the CSB under the "Improper Payment and Recovery
Act" (IPERA).
During FY 2011, the CSB made payments to non-Federal sources totaling $2,746 million. Of
these payments, $780 thousand were periodic payments for the CSB's leasehold interests in
Washington, DC. These payments are included in the CSB's IPERA "payment" base, but would
not normally be included in other agencies' baseline because most agencies payments for space
rental are handled as intragovernmental transactions with the General Services Administration
(GSA). However, the CSB has independent leasing authority under its organic statute, and
contracts directly with its headquarters landlord rather than through the GSA. Although we
acknowledge that leasehold payments may meet the definition of non-Federal payments, their
nature and type (periodic fixed monthly payments) make it unlikely that they would result in an
"improper" payment and would not yield much opportunity for payment recovery.
Accordingly, the CSB believes that its baseline for determining improper payment recovery was
approximately $1,965 million during FY 2012 (total non-Federal payments less period leasehold
payments).
According to published literature of firms engaging in recovery audits (e.g., Mehlman and
Associates, "The Value of Secondary Post Audits"), improper payment recover firms claim a
typical return rate of 1 - 10% of total payments. The most exhaustive work in this area has been
conducted by the Federal Centers for Medicare and Medicaid Services (CMS). CMS initiated a
recovery audit contractor (RAC) program in order to recoup some portion of improperly made
Medicare and Medicaid payments. CMS created this program because both Medicare and
Medicaid were alleged to have high rates of improper payments due to the nature of the
programs - reimbursement of billings for medical services. These types of programs were
believed to be especially vulnerable to improper payments due to the complex nature of medical
services. Areas of vulnerability include, among others: incorrect payment amounts, payment for
non-covered services, incorrect coding of services and payment for duplicate services.
CMS engaged recovery audit contractors to review CMS payments for Medicare and Medicaid
billings. The CMS engagement and resulting study found that RACs identified an error rate of
approximately 3.9% of all Medicare payments made which amount to $12.9 billion in
erroneous payments out of Medicare payments totaling $330 billion in the base year studied
(FY 2007). However, the vast majority of these improper payments were not necessarily
overpayments, but rather payments that did not completely or accurately represent the services
provided. Of the total of "improper" payments, approximately $1 billion represented
overpayments, which represented an overpayments rate of .3%. Actual recoveries were
approximately $400 million, which represented a recovery rate of .15%) of all Medicare
payments.
The CSB is mindful that the Medicare program is a complex process and that payments made
under the program are sometimes rife with disputes and interpretive disagreements. In contrast,
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the CSB's non-Federal payments (i.e., contractor payments) are for goods and services
representing relatively simple and straightforward transactions. Accordingly, the CSB estimates
that its recovery rate for "improper" payments would be no higher than that experienced by
Medicare, approximately, 0.15%. Therefore, the CSB would expect gross recoveries of $3000 -
$4500 depending on whether leasehold payments were included in the base to be examined.
Moreover, recovery auditors charge a fee for their services. According to the "Accounts Payable
Network," an organization promoting use of recovery audits, fees range from 25 - 50% of the
amount recovered, with a typical fee of about 40%.
Therefore, the net amount that would likely be recovered by the CSB would range from $1800 -
$2500. This seems to be a nominal return for the effort that would be expended to utilize these
services.
Lastly, the CSB, as is the case with many smaller agencies, uses payment services provided by a
centralized government service provider - in the CSB's case, the Bureau of the Public Debt
located in Parkersburg, WV. In order to properly audit the CSB's non-federal payments, a
recovery auditor would need to have access to both BPD payment records as well as the CSB's
own receiving invoices. This would like further complicate the audit and add cost.
In conclusion, the CSB believes that given its relatively modest budget and the simple nature of
the goods and services it purchases, that its vulnerability for improper payments is quite low.
While some level of improper payment may pertain to the CSB, the level is likely to be so small
that it would not be cost effective or remunerative for a recovery auditor to undertake such an
engagement. In addition, the CSB's internal costs in overseeing the recovery auditor are likely to
be higher than any amounts recovered.
Sources: Accounts Payable Network
Mehlman and Associates
CMS Recovery Audit Contractors (RACs), The Who, What, When, Where Why and
How?
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Appendix B
Distribution
Chairman and Chief Executive Officer, U.S. Chemical Safety and Hazard Investigation Board
Managing Director, U.S. Chemical Safety and Hazard Investigation Board
Deputy Managing Director, U.S. Chemical Safety and Hazard Investigation Board
Counselor to the Chair, U.S. Chemical Safety and Hazard Investigation Board
Director of Financial Operations, U.S. Chemical Safety and Hazard Investigation Board
Director, Office of Recommendations, U.S. Chemical Safety and Hazard Investigation Board
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