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Office of Inspector General
Audit Report
INTERAGENCY AGREEMENTS
FOLLOW-UP ON HEADQUARTERS
INTERAGENCY AGREEMENTS
2000-P-0029
September 29, 2000

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Inspector General Division(s)
Conducting the Audit
Contributors
Headquarters Audit Division
Washington, DC
Sabrina Berry
Christine (Chris) Baughman
Mike Prater
Judy Vanderhoef
Program Office(s) Involved	Office of Administration and Resources
Management:
Grants Administration Division
Office of Solid Waste and Emergency Response
Office of Research and Development
Office of Air and Radiation
Office of Water
Office of Enforcement and Compliance Assurance
Office of Prevention, Pesticides, and Toxic
Substances
Office of the Administrator
Office of Environmental Information
Office of Policy and Economic Evaluation
Office of International Activities
Office of General Counsel
Office of the Chief Financial Officer

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
THE INSPECTOR GENERAL
September 29, 2000
MEMORANDUM
Subject: Audit Report Number 2000-P-0029
Follow-up Audit On Headquarters Interagency Agreements
From:	Michael E. Prater, Audit Manager
Headquarters Audit Division (2443)
To:
Romulo L. Diaz, Assistant Administrator for
Administration and Resources Management (3101 A)
Attached is the subject report. This report contains findings that describe problems the
Office of Inspector General has identified and corrective actions the OIG recommends.
This audit report represents the opinion of the OIG and the findings contained in this audit
report do not necessarily represent the final EPA position. Final determinations on
matters in this audit report will be made by the EPA managers in accordance with
established audit resolution procedures. For report distribution, see Attachment 5.
ACTION REQUIRED
In responding to the draft report and during the exit conference, your office provided
corrective actions, with milestone dates where applicable, for most of the
recommendations. Concerning enhancements to training and the Integrated Grants
Management System, we would appreciate a response to the report within 90 days of the
report date. We will close this report in our tracking system when all issues have been
resolved . Please track all corrective actions in the Management Audit Tracking System.
We have no objections to the further release of this report to the public.
If you or your staff have any questions, please call Sabrina Berry of Headquarters Audit
Division on (202) 260-5121, or Cathy Jenson, Audit Liaison, on (202) 260-8207.
Attachment

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INTRODUCTION
We performed this audit to determine if the Environmental Protection Agency (Agency or
EPA) took action to correct problems identified in a prior audit report. That audit report,
E1FMG4-13-0061 -5400051, entitled Interagency Agreements: Off-Loading At EPA
Headguarters and dated March 31, 1995, identified problems with procedures for initiating
or accepting work or payment through interagency agreements (lAGs) authorized by the
Economy Act of 1932. The report discussed funds for contract work under such lAGs
which the Headquarters Grants Administration Division (GAD) awarded during
September. Although the prior audit was limited to lAGs based on the Economy Act of
1932, we also evaluated lAGs based on other statutes. Attachment 1 provides
information on the prior audit findings and recommendations to correct problems.
Objectives
The first objective of this audit was to determine if the problems identified in the prior audit
were corrected. Since that audit report was issued, the number of lAGs authorized by the
Economy Act has substantially decreased. We also evaluated lAGs authorized under
other statutes. The second objective of this audit was to determine if non-Economy Act
lAGs were being properly executed and managed.
Background
An IAG is a written agreement between Federal agencies under which goods or services
are provided on a reimbursable basis. An IAG can also be an agreement in which the
agencies set forth policies and procedures governing their relationships in areas of
mutual interest and responsibility. In this second type of agreement, no transfer of funds
takes place. This report applies only to the former type of IAG. Under these lAGs, an
agency needing supplies or services (the requesting or ordering agency) obtains them
from the other agency (the servicing agency). When EPA is the requesting agency, the
IAG is a disbursement or allocation transfer-out IAG because funds appropriated for EPA
are given to another agency. On the other hand, when EPA is the servicing agency, the
IAG is a reimbursement or allocation transfer-in IAG because EPA will receive funds from
the other agency. Thus, EPA's role under a reimbursement IAG in relation to the other
agency is the reverse of its role under a disbursement IAG.
Within EPA, the roles and responsibilities of the organizations involved in the IAG are
similar regardless of whether EPA is the requesting or servicing agency. Generally, each
IAG must be a distinct project. The three primary organizations in EPA responsible for a
particular project are the program (or regional) office, the GAD at Headquarters (or the
regional grants management office), and the Cincinnati Financial Management Center
(CFMC). In general, the Headquarters program office: develops and negotiates the IAG
and related amendments; monitors the work, resulting products, and costs; and helps
close the IAG. The program office designates the project officer, who is responsible for

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these matters. For lAGs originating in Headquarters program offices, GAD: helps the
program office comply with requirements; executes the IAG and related amendments;
inputs information about the IAG into the Agency's related information system;
coordinates with the finance office, particularly the CFMC; and ensures that the IAG is
closed. CFMC is the central servicing finance office for all payments and receipts on EPA
lAGs. For additional background information, please see Attachment 2.
Scope and Methodology
We performed this audit in accordance with the U. S. General Accounting Office's
Government Auditing Standards (1994 Revision), issued by the Comptroller General of
the United States. We conducted the field work for this assignment from September 1999
through June 2000. We reviewed
the applicable statues and
regulations, as well as guidance
and policy documents prepared by
EPA, and obtained information on
the status of corrective actions
related to the prior audit report. To
evaluate current practices, we
selected a sample of 55 lAGs
awarded by the Headquarter GAD,
for which the majority of the funds
would be used by a contractor or
assistance recipient. This was a
statistical sample of agreements
awarded in August or September
1997, or August or September 1999. For the former, we only considered disbursement
lAGs assigned to project officers at Headquarters or Research Triangle Park, North
Carolina. We used information from the Agency's Grants Information and Control System
to identify the universe and select a sample. However, we did not evaluate the internal
controls related to this system. Concerning this sample, we reviewed the files kept by the
GAD and project officers, and interviewed the project officers.
Results-in-Brief
With one exception, the Agency took corrective action to resolve problems identified in
the prior audit report. The guidance or training was improved in the areas of: (1) justifying
why the IAG was chosen instead of a contract; (2) ensuring that the cost of the proposed
work was reasonable; and (3) obtaining detailed cost information related to payments.
Current practices generally reflected these improvements, although further changes are
needed in some areas. Project periods are generally limited to the required five years or
less. In addition, the Office of General Counsel has concurred with the Agency practice
Samp1e Of
Interagency Agreements
Number
Tvce Of IAG
Year
of IAGs

Awarded
28
Disbursement
1999
12
Reimbursement
1999
15
Disbursement
1997
55





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of directly paying contractors of another agency. However, no progress has been made
with regard to obtaining full reimbursement of costs under reimbursement lAGs. As a
result, EPA continues to transfer an unknown amount of its resources to other agencies in
violation of the Economy Act.
In addition to these matters, we noted several areas where guidance and training could
be improved. The statutory citation used as the basis for the cooperation agreement
should reflect a 1997 opinion from the Office of General Counsel. Unless properly
justified, the project start date should be after both parties have signed the agreement.
Project officers' files need to better document certain project activities. Finally,
reimbursable work needs to be promptly budgeted and appropriately recorded in the
accounting system.
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FINDINGS AND RECOMMENDATIONS
Improvements Are Needed To
Support Awarding Agreements
Numerous matters must be considered before GAD awards an IAG. In the decision
memorandum and related documents provided by the program office, some of these
matters are better addressed than others. Generally the documentation adequately
justifies why an IAG was used, contains the travel certification, and limits the project
period. However, confusion exists regarding which statute should be cited as the
authority for the IAG, the evaluation of the costs for the project, and the timing of the work.
The prior audit report raised concerns about why an IAG was used instead of the
procurement process. To correct this situation, Agency officials revised the guidance.
The decision memorandum must include a discussion of the alternatives considered and
why the IAG mechanism was selected. Further, the decision memorandum must explain
why the other agency was selected, or why the other agency selected EPA. We found
that the decision memorandums we reviewed generally contained this information.
The prior audit report found that project periods were exceeding the five-year limit set in
the guidance. For example, one agreement had a project period of over 18 years.
Agency officials agreed to better enforce this limitation. Of the 55 lAGs in our sample,
only one exceeded the five-year limit and that was by six days. From this we concluded
that Agency management is generally complying with the five-year limit.
Statutory Citation Was Not Always Proper
We question the basis for transferring funds under five lAGs. According to Agency
guidance, the decision memorandum must identify the statutory authority that is the basis
for transferring funds under the IAG. Generally, the authority will be either the Economy
Act of 1932 or one of EPA's "cooperation" authorities. Processing the award differs
depending on which citation is used. When a Headquarters program office intends to
disburse funds through the Economy Act which will obtain services under a contract of the
other agency, EPA's Office of Acquisition Management must review the proposed action
and approve a related determination and finding. In essence, they are agreeing that the
IAG can be used instead of a procurement action. Thus, citing the incorrect authority may
circumvent Agency controls. In addition, lAGs for cooperation projects often did not
identify the total project costs, which is one way of demonstrating that a cooperation
authority is appropriate. Further, when assistance instruments were involved, the
decision memorandum frequently did not state that the other agency had adequate grant-
making authority. Without such authority, using their funds for an assistance agreement
could violate their appropriation limitations. In addition to reviewing files and discussing
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the use of statutory authorities with the project officers, we also consulted with our Office
of General Counsel as well as the Agency's Counsel to further clarify information and
resolve matters addressed in this section.
We believe one IAG that cited a cooperation authority should have cited the Economy
Act, one IAG that cited a cooperation authority should have cited a different cooperation
authority, and three lAGs that cited the Economy Act should have cited a cooperation
authority. These five lAGs are detailed in Attachment 3. We discussed our concerns with
GAD and program officials (as disclosed in the attachment).
Agency guidance and training covers selecting the proper statutory citation, but could be
further clarified. Some project officers told us they were unsure about which citation to
use. They often relied on either others in the program office to tell them which citation to
use, or the wording of decision memorandums for earlier executed lAGs. One project
officer used a table from the application package for an assistance agreement to select
the statutory authority for the IAG. Although GAD explained that it is their policy to notify
the project officers of any changes in statutory authority, we found cases where the GAD
staff changed the citation without discussing it with program officials.
The extent of participation by the parties involved is one of the primary differences
between whether a cooperation authority or the Economy Act should be cited. According
to Agency guidance dated September 1996, a cooperation authority is appropriate when it
is a joint project from which both will benefit. Thus, the project should be directly related
to the needs and interests of both (all) agencies. The statement of work, project
description, or decision memorandum should explain both (all) agencies' interest in the
work. This may be evidenced by both (or several) agencies committing resources to the
project. However, if one agency is providing goods or services to another with no benefit
to itself, the Economy Act is the appropriate citation.
The mutual interest and joint benefits involved in a cooperation project were clarified in a
July 1997 legal opinion from the Office of General Counsel. According to the opinion, if a
cooperation authority is cited as the basis for an IAG, both (or several) agencies must
commit resources to the project. The other agency does not have to invest actual funds in
the project, but must invest some resources. The resources may be in the form of
salaries, equipment, travel, contract services, or grant funds. The Agency guidance was
not changed to reflect this opinion.
We found that total project costs under cooperation lAGs were generally not identified.
The "Interagency Agreement / Amendment," EPA Form 1610-1, includes a section to
identify resources committed by all parties to the project. Instructions for this section
specify that amounts should be entered. However, the instructions were omitted from the
currently available electronic version of the form. Of the 42 cooperative projects in the
sample, 9 (or 21%) identified resources committed by the other agency or agencies.
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Thus, evidence of a joint effort was omitted from the IAG for the remaining 33 projects. To
better support a cooperation authority citation, the IAG should identify resources provided
by all parties.
Projects related to the Superfund program usually cite sections 105(a)(4) and 115 of the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as
amended, and Executive Order 12580. According to the July 1997 legal opinion, lAGs
based on this authority are not subject to the requirements of the Economy Act. CERCLA
and the implementing executive order, according to EPA's long-standing position, provide
authority for the Agency to enter into lAGs with other agencies to carry out Superfund
responsibilities.
Also exempt from the Economy Act are lAGs using Government-wide contracts authorized
under section 5112(e) of the Information Technology Management Reform Act of 1996
(ITMRA). The Director of the Office of Management and Budget (OMB) is authorized
under section 5112(e) to designate one or more heads of Federal agencies as executive
agents for Government-wide acquisitions of information technology. According to an
OMB official, four programs within three Federal agencies have been designated. Four
lAGs in our sample cited ITMRA section 5112(e) and we believe these citations were
proper. However, we found that it was difficult to confirm whether the contract was
covered by ITMRA section 5112(e) because OMB has not published a list of designated
agencies nor did the decision memorandums address the matter. For the same reason,
the GAD staff find it difficult to confirm the appropriateness of citing ITMRA section
5112(e). A correct citation is important because Government-wide contracts are also
awarded under other sections of ITMRA and the Economy Act does apply to them.
Statutory authority is also of concern when the IAG project includes an assistance
agreement, i.e., a grant or cooperative agreement. No funds may be transferred under an
IAG unless both agencies have the authority to perform the activities included under the
agreement. Thus, the agencies involved must each have authority covering the
assistance activity. To ensure the matter has been considered, the decision
memorandum must include a statement that the other agency has adequate grant-making
authority. However, we found some cases where this statement was not included.
Therefore, we believe that greater emphasis should be placed on this requirement to
ensure that the appropriate statement is included in the decision memorandum.
Of the 20 lAGs that involved assistance, 5 (or 25%) of the decision memorandums did not
address the matter. Of these five projects, one involved international activity, so the EPA
Office of General Counsel planned to review the grant-making authority before the
assistance agreement was awarded. For another, the project officer had a copy of the
other agency's assistance agreement and it cited their statutory authority. For the
remaining three projects, there was no assurance that the other agency's grant-making
authority had been confirmed.
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Cost Evaluations Should Be Documented
As required, cost was generally considered before the award of the IAG. For 12 of the 55
lAGs, an independent cost estimate was prepared to determine that the amount of the
IAG was reasonable. A less detailed evaluation was performed for most of the remaining
lAGs, but many of these were not documented. Such documentation is important
because it: (1) supports the statement in the decision memorandum that costs are
reasonable; (2) provides an additional mechanism for clarifying the scope of work; and
(3) serves as a basis for future cost evaluations. Agency guidance dated September
1996 states that the decision memorandum should include, "A determination that the
costs of the proposed work is reasonable based on an independent estimate of costs or
other appropriate cost information developed by EPA "(emphasis added) Thus, Agency
guidance implies the evaluation should be documented, but does not specifically require
it.
Where cost was considered but the evaluation was not documented, project officers told
us the basis for determining cost reasonableness. Generally, it was based on their past
experience with similar projects. Other explanations given as the basis for cost
reasonableness were: discussions with EPA contractors providing similar work; costs of
prior projects; and an undocumented evaluation of costs proposed by the other agency, or
their contractor or recipient. However, these efforts to evaluate costs were not
documented in the project file.
Cost reasonableness was one of the issues identified in the prior audit report. The
agency officials agreed that the decision memorandum should address the matter. As
noted above, the decision memorandums generally covered whether the costs were
reasonable.
Project Timing Was Inconsistent With Award
Project start dates were often before the award date without justification. According to
an Agency directive (Resource Management Directive 2550C, Chapter 4: Interagency
Agreements, paragraph 10 - Procedures for Funds-Out (Disbursement) Agreements,
dated 8/5/92), work cannot begin nor costs be incurred under an IAG until it is signed by
both parties. In addition, project period start dates should be on or after the IAG is
countersigned by the accepting agency. Exceptions to this policy must be supported by a
memorandum signed by the program decision official. According to an Agency grants
management fact sheet, starting work before the IAG is awarded limits options of program
decision officials, since a decision not to pay for the work would improperly augment
EPA's budget or create in the other agency an Anti-deficiency Act violation. According to
an Agency directive, Congress authorizes specific amounts of money for an agency to
use for specific purposes during a specific period of time. Using these funds otherwise
violates the appropriation act. Also, starting work before award may result in the
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contractor doing work that is not funded, and may mean the other agency cannot obtain
timely payment for the work.
The project start date for 34 (or 62%) of the 55 lAGs was before the award date. There
were two primary reasons why the project start date was before the award date. First, the
program office underestimated how long it would take to process the IAG. In these cases,
the project started after the decision memorandum was signed but before the IAG was
awarded. One project officer, for example, believed it would take 15 days to award the
IAG and set the start date accordingly. The lAGs in the sample were awarded an average
of 50 days after the date of the decision memorandum; the range was from 1 to 208 days.
Second, officials reached agreement with the other parties and proceeded with the work;
subsequently the decision memorandum was prepared without an explanation regarding
the timing of the work. In eight of these cases, work actually started before the award but
was justified in only two cases.
Project Officers Are Monitoring Agreement Activity
Project officers are adequately monitoring the work under the lAGs, including keeping the
other agency informed of progress under reimbursement lAGs. However, the monitoring
efforts were not always documented in the project file. According to an Agency directive,
the project officer must "Maintain a complete working file concerning relevant
programmatic and administrative activities, including pertinent documents." These
activities include monitoring the receipt (or delivery, under a reimbursement IAG) of goods
or services throughout the project period to ensure compliance with the terms of the
agreement.
Three types of monitoring activities were not always documented in the project files.
Electronic messages were filed in the project officer's computer. Consequently, the
information was not readily available unless the project officer was available. In addition,
some project officers told us that discussions from project meetings were not recorded
and made part of the file, nor were telephone conversations with parties to the IAG.
Conversely, in other cases, the project officer kept notes of meetings and telephone
conversations and copies of electronic mail in the project file. One good example was a
project officer who had established a "Post-award Management Plan" showing how she
intended to track progress of the work under the IAG. She then documented that she was
following her plan.
Additionally, the work being performed under the lAGs is the work described in the
decision memorandum. The decision memorandum must describe the objectives of the
proposed project and explain how the IAG will accomplish them. At the time we met with
the project officers and reviewed their files, work had begun under all but four of the lAGs.
Based on the discussions with the project officers and a review of the progress reports, the
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work actually performed was consistent with the descriptions in the decision memorandums.
More Payment Information Is Needed For Disbursement lAGs
Under a disbursement IAG, EPA is the requesting or ordering agency. That is, EPA pays
the other agency (or their contractor) for the work. Payments are made electronically or
manually through the CFMC. When made electronically, funds are taken from EPA's
account by the other agency, and EPA has three months to electronically reverse this
action. The agency taking the funds leaves behind minimal information to explain the
charges. We found that in some cases the project officers approved payments without
detailed information about the charges. According to an Agency directive (Resource
Management Directive 2550C, Chapter 4: Interagency Agreements, paragraph 5 - Roles
and Responsibilities - g.2. (8/5/92), the project officer must receive and review detailed
cost information submitted by the other agency. This information must be provided on a
project-by-project basis and must break down the information into the budget categories on
the IAG form. In addition, project officers did not always promptly inform CFMC whether
the payment was acceptable. In February 2000, a grants management fact sheet for
Agency leaders addressed these problems with payments under lAGs.
Cost Details Were Not Always Available
The prior audit report found that project officers generally did not obtain and review cost
information before approving invoices for payment. To correct the situation, Agency
officials agreed to include a standard clause in the IAG to require supporting cost details
and to address the matter when training the project officers. In addition, the project
officers would be instructed to notify CFMC to withhold or retract payments if details were
not provided. Cost details may help the project officer: evaluate the progress of the work;
justify the payments being made; or ensure that the other agency's fee is correct.
The lAGs in the sample included the above standard clause, and for 13 (or 46%) of the 28
lAGs under which payment had been made, the project officer obtained the necessary cost
details. For various reasons, in other cases the project officer was unable to obtain cost
details, or believed they were unnecessary.
In some instances when the project officer tried to obtain cost details, they were not
successful. In two cases, the project officers asked CFMC to retract payments that had
been made because cost details were not available. At the time of our review, the other
agency had not yet provided the cost details and CFMC had not reversed the payments.
In other cases in which the project officer wanted details but could not get them from the
other agency, they approved the invoices anyway because they knew the work was being
performed. One project officer became so frustrated because of the lack of cost
information that he stopped returning the invoice approval forms to CFMC after July 1998.
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Some project officers believed obtaining cost details was not warranted. For example, the
EPA share was such a small part of the overall project costs that the project officer was not
concerned about the costs. Also, when EPA pays in advance, detailed cost information is
not available at the time of payment; instead, the details should be provided afterwards on
a quarterly basis, and the unexpended funds returned to EPA at completion of the work. In
these cases, we agree cost details may not be warranted. Other project officers approved
payments based on alternatives to detailed cost information, such as oral information on
the work that was done, or the product(s) provided during the period covered by the
payment. In these latter cases, we believe the project officer should try to obtain detailed
cost information.
Project Officers Should Promptly
Return Invoice Approval Forms
With one exception, the project officers were returning the invoice approval forms to
CFMC. As mentioned above, one project officer stopped returning the invoice approval
forms because of the lack of cost details. Although the project officers were generally
returning the forms, they did not always do so in a timely manner. The forms are
supposed to be sent to CFMC within 10 days of receipt. A prompt reply is particularly
important when a payment is disapproved because CFMC must reverse electronic
payments within three months. In addition, project officers did not always keep a copy of
the invoices in their files. These invoice copies are useful to ensure duplicate payments
are not made, especially if there is a change in project officers.
For 7 of the 28 disbursement lAGs under which payments had been made, using invoice
approval forms in the project officer's files, we evaluated how quickly the project officer
signed the form. That is, how many calender days elapsed between the date on the
approval form and the date of the project officer's signature. About half of the forms were
signed within 10 calender days. The elapsed time for the others was from 11 to 73 days.
Thus, all of the forms were signed by the project officer within three months.
There were various reasons why the project officers did not promptly return the form:
extensive travel; leave; trying to obtain cost details; higher priority work; and forgetting that
the form had arrived. This issue has not been neglected. CFMC keeps track of whether
invoice approval forms sent to a project officer are returned, and follows up on delinquent
forms. However, it is still the project officer's responsibility to promptly evaluate invoices.
EPA Continues To Pay The Other Agency's Contractors
According to the prior report, EPA was paying contractors with whom it had no contractual
relationship. Usually, when an IAG includes contract costs, the contractor bills the agency
with which it has a contract, and the agency includes its contract costs in its bill to EPA.
While the other agency has a legal right to payment from EPA, the report questioned
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whether their contractors (with whom EPA has no binding agreements) do. Even if this
payment method is allowable, the Agency should ensure that direct payments to other
Federal entities' contractors do not establish a relationship with those contractors which
could make EPA directly liable for other unanticipated costs (such as disputed costs).
Furthermore, the other agencies were charging EPA indirect costs to cover such services
as processing and paying invoices, and there is no indication that they have reduced their
established rates. Therefore, EPA could be paying twice for these services, i.e. paying the
other agency through its established rate to process and pay invoices when EPA is
processing and paying the invoices itself.
The disbursement IAG sample did not include any agreements with payments to another
agency's contractors. However, a review of recent lAGs with one of the agencies identified
in the prior report showed EPA is making direct payments to this agency's contractors.
Thus, the practice identified in the prior report continues.
In a legal opinion dated February 7, 2000, the Office of General Counsel stated
We are aware of no express legal prohibition against the use of direct cite
payment. However, the process increases the risk that the Agency would be
held to be in privity of contract with a servicing agency's contractor and thus,
potentially liable for contract-related costs and/or claims. To minimize that
risk, if the Agency elects as a policy matter to continue to use the process,
appropriate safeguards should be included in the IAG and the servicing
agency's contract. In addition, Agency staff should strictly limit their
interaction with the servicing agency's contractor to those activities
necessary to make direct payment.
The opinion then identified some specific actions that the Agency should take to protect
itself. Given this advice from the Office of General Counsel, at this time we do not intend
to pursue the issue of privity any further. However, the project officer should negotiate the
servicing agency's fee to ensure EPA will not be billed for indirect costs to cover services
that EPA is providing, such as processing and paying invoices.
Accounting For Reimbursable Work Could Be Improved
Under a reimbursement IAG, EPA is the servicing agency doing work for another agency.
To fund this work, EPA obtains reimbursable authority from the OMB, and makes this
authority part of EPA's financial operating plan by reprogramming the reimbursable amount
to an account specifically for a particular IAG. Thus, doing the work becomes part of
EPA's budget. As work progresses, CFMC bills the other agency for the cost of the work.
The amount billed under Economy Act reimbursement lAGs must recover the full cost of
doing the work. The Agency should neither make nor lose money on reimbursable work.
We found that the program offices sometimes did not promptly initiate the reprogramming
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needed to make the work part of the EPA budget, so the reimbursable funds were not
available to pay for the work. In addition, project officers relied on CFMC to bill the other
agency for services performed, although the guidance states the project officer should start
the billing process. Finally, EPA is not being reimbursed for the full cost of doing work for
others under the Economy Act.
Reprogramming Should Be Done More Timely
Reprogramming funds was delayed at least 6 months under 3 of the 12 reimbursement
lAGs. Once the IAG is fully executed, the program office enters a reprogramming in the
accounting system. After the Budget Division approves the reprogramming request, the
reimbursement authority is reflected in the Agency operating plan. One reprogramming
request was delayed due to a communication problem in the program office. In another
case, reprogramming was delayed because the wrong accounting information was initially
used. In the third case, the reprogramming was initially delayed because the project
officer did not want to impose on the finance staff during their busy year-end activities.
Until the funds are reprogrammed, they cannot be used by EPA to do the work for the
other agency. Therefore, the work should be delayed. Instead, for two of the above three
cases, work proceeded using EPA funds. This causes two problems. First, EPA funds are
not available for use on EPA activities. Second, since the payments were not made from
the reimbursable account, CFMC will not have the information it needs to bill the other
agency for the work.
In a related matter, we found another case where EPA funds were improperly used for
reimbursable work. In this case, the funds had been reprogrammed, however, the project
officer did not know how to obligate the reprogrammed funds for contract work.
Consequently, EPA funds were used to pay the contractor.
CFMC Is Ensuring That The Other Agency Is Billed
According to an Agency directive, the project officer must notify CFMC of work performed
under the agreement, fees to be charged, or cost to be reimbursed by the other agency.
The project officer does this by sending CFMC the "Report of Reimbursable Services
Rendered," (EPA Form 2550-8). Based on this report, CFMC should then bill the other
agency. However, the project officers with whom we discussed the matter did not plan to
send such a report to CFMC; instead, they expected CFMC to start the billing process
without their input. Knowing the project officers probably would not send the report, CFMC
regularly reviews disbursements related to reimbursement lAGs. When funds have been
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expended, CFMC bills the other agency. Consequently, even though the project officer
may not send the report, CFMC will periodically bill the other agency.
EPA Is Not Assessing Fees For Reimbursable Work
The Economy Act, U.S. Comptroller General Decisions, and Agency policy all require full
cost recovery when performing work or furnishing materials for another agency. Despite
these requirements, the prior report found that EPA did not bill other agencies for EPA's
indirect costs related to performing work or furnishing materials. This practice has not
changed. By not recovering full costs, EPA is, in effect, transferring to other agencies
resources that were given to EPA to accomplish its mission. Assuming rates comparable
to those used by other agencies, for reimbursable work authorized in fiscal 1999, EPA may
have been able to recover from $221,000 to $463,000.
According to the Economy Act, the requesting agency must pay the servicing agency "the
actual cost of goods or services provided." This requirement was repeated in the
implementing regulation (Title 40 CFR Chapter 1 Subpart 17.5), which further provided
that when a contract was involved, the servicing agency was entitled to the actual costs of
entering into and administering the contract or other agreement under which the order was
filled. The composition of "actual cost" was clarified by Comptroller General decisions
dated 1977 (B-136318) and 1984 (B-211953). They confirmed that actual cost, as used in
the Economy Act, included overhead and other expenses. Further, the latter stated that
"all proper elements of actual cost must be reimbursed in order to avoid augmenting the
requisitioning agency's appropriation." The 1977 decision directed agencies that were not
collecting significant indirect costs to "revise their practices with respect to any agreements
entered into hereafter under such law."
EPA has not revised its practices and is not collecting indirect costs that may be
significant. Other Federal agencies, when providing goods and services to EPA, charge
indirect cost rates between 3 percent and 6.5 percent. During fiscal 1999, EPA accepted
reimbursable work under the Economy Act totaling $7,591,117. The related fee for this
1999 work, at the above rates, would range from $221,100 to $463,300.
In response to the prior audit report, the Agency agreed to develop an indirect cost rate for
lAGs and include the rate in future Economy Act reimbursement lAGs. The development
of the rate was to be based on an Agency-wide policy for identifying and allocating indirect
costs. The Financial Management Division was to develop the policy in response to a
recommendation from the 1994 financial statement audit. The policy was not developed.
According to the 1999 financial statement audit, the OIG considers the 1994
recommendation still open because the Agency's corrective actions did not address the
recommendation. Thus, the indirect cost rate for lAGs was never developed.
Consequently, EPA continues to transfer its resources to other agencies.
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Agency Directives Should Be Updated
Numerous guidance documents related to interagency agreements are available through
EPA's Intranet. Although most of the guidance was recently issued, the directives were
not. These directives should be updated and (perhaps) consolidated. In addition, training
related to managing lAGs should be expanded to adequately cover the material in the
directives.
The Grants Administration Division is responsible for developing and implementing
Agency-wide administrative policies and procedures for lAGs, including training for the IAG
managers. According to EPA's Directives Manual, a lengthy agency-wide directive is
issued as a manual. Manuals usually consist of several chapters used to prescribe or
establish policies and operating procedures in functional areas. GAD is the office
responsible for the Assistance Administration Manual, including Chapter 51, "Managing
Interagency Agreements." The most current version of the Assistance Administration
Manual is dated 1984.
This manual is not the only agency-wide directive related to interagency agreements.
Resource Management Directives 2550C chapter 4, and 2550D chapter 6, which were
prepared by the Financial Management Division, also cover lAGs. These directives
address, respectively, interagency agreements and Superfund interagency agreements,
and are dated 1992 and 1988. Chapter 51 and these resource management directives
contain similar information. They are supplemented by several other guidance documents.
The oldest of these is the Interagency Agreement Policy and Procedures Compendium,
dated September 1988. It includes Chapter 51 of the Assistance Administration Manual,
plus three additional chapters that address statutory authorities, administrative linkages,
and procedures for agreements between agencies. Much of the material in the additional
chapters does not reflect recent legal opinions and current Agency practices. However,
more recent guidance available on-line includes: legal opinions from the EPA Office of
General Counsel; the Assistance Project Officer Training Manual, particularly module VIII
and Appendix T; and three April 1999 documents issued by CFMC on accounting-related
matters for lAGs.
GAD offers a three-day training course for assistance agreement and IAG project officers.
One module of the course addresses IAG requirements. At the end of three years, project
officers are encouraged to attend a one-day refresher course. The refresher also has a
module devoted to lAGs. Because of the demand for the training, several program offices
offer training for assistance agreement and IAG project officers in addition to that offered
by GAD. These include the Office of Research and Development, the Office of Water, the
Office of Air and Radiation, and the Office of Solid Waste and Emergency Response.
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HEADQUARTERS INTERAGENCY AGREEMENTS
Several project officers believed that the training did not sufficiently address managing
lAGs. The module on lAGs takes about 1% hours to complete. It covers a large amount
of information: definition of an IAG; statutory authorities; guidance; availability of funds; the
decision memorandum; CFMC's role; payments and billings; EPA requirements; project
officer responsibilities; and responsibilities of the grant offices. To be more effective, we
believe the training should also include examples and exercises. Thus, the IAG module
would take longer. However, since not all assistance project officers also manage lAGs,
the training may not need to be universal.
Recommendations
We recommend that the Assistant Administrator for Administration and Resources
Management:
1.	Update the decision memorandum guidance document and other current guidance
based on chapter 51 of the Assistance Administration Manual and the rest of the
September 1988 "Interagency Agreement Policy and Procedures Compendium."
particularly regarding:
a.	the statutory authority that should be used to transfer funds under an IAG;
b.	the need to document the evaluation that the proposed costs are reasonable;
and
c.	ensuring that key decisions and project progress are documented in the file,
including those in electronic format.
2.	Eliminate the September 1988 "Interagency Agreement Policy and Procedures
Compendium."
3.	Expand the IAG training module, or create a separate course for project officers of
lAGs with a prerequisite of either the assistance agreement project officers training
or the work assignment manager training. This training should emphasize:
a.	the content of the decision memorandum;
b.	the statutory authority that should be used to transfer funds under an IAG;
c.	identifying total project costs for projects citing cooperation authorities;
d.	the need to document the evaluation that the proposed costs are reasonable;
e.	ensuring that key decisions and project progress are documented in the file,
including those in electronic format;
f.	that the project start date must fall on or after the IAG award date unless
justification is otherwise provided; and
g.	accounting for reimbursable work.
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4. Assist the Office of the Chief Financial Officer in the process of establishing an
indirect cost rate to recover the full cost of work under Economy Act reimbursement
lAGs and include the rate in future such lAGs.
AGENCY COMMENTS AND PIG EVALUATION
The Assistant Administrator for Administration and Resources Management generally
agreed with the findings in the draft report. The Assistant Administrator suggested that we
add information to clarify several points identified throughout the report. Although the
Assistant Administrator did not fully agree with our recommendation for a standalone
Interagency Agreement course, due to concerns voiced by EPA program office officials,
the recommendation will be further evaluated by the Grants Administration Division's
Customer Relation Council.
Based on clarification given during our exit conference, we believe that the Agency has
adequately addressed recommendations 1 and 2. Although the Agency did not agree with
recommendation 3, Agency officials did agree to further consider this matter and advise us
of how the matter will be resolved. Instead of attaching the instructions to an existing
electronic version of Form 1610-1 "Interagency Agreement / Amendment," per
recommendation 4 in the draft report, the Grants Administration Division plans to develop
an Integrated Grants Management System which will include this EPA form as well as the
appropriate backup documents. We believe that this alternative is acceptable and request
that the Agency provide status and milestone dates for this system. Based on the
Assistant Administrator's response, we deleted this recommendation.
The Assistant Administrator did not believe that recommendation 5, in the draft report,
involving the establishment of an indirect cost rate should have been raised in this report.
It was raised in the OIG's 1994 EPA Financial Statements Audit and tracked during
subsequent audits. The Assistant Administrator further believed that the recommendation
should be deleted from this report. We have retained this recommendation, but slightly
changed the wording from our draft report recommendation.
We considered the Agency's comments and revised the report appropriately. We have
included the full text of the Assistant Administrator's comments as attachment 4.
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Attachment 1
Prior Report Recommendations
and Agency Response
Interagency Agreements: Off-Loadinq at EPA Headquarters
Audit Report E1FMG4-13-0061-5400051
March 31, 1995
EPA NEEDS TO BETTER DETERMINE AND DOCUMENT THE COST
REASONABLENESS OF ITS ECONOMY ACT IAGS
We recommend that the Assistant Administrator for Administration and Resources
Management:
2-1. Require that the Decision Memorandum describe the expected benefit to EPA of
purchasing through another agency and justify why the program office is not using the
Agency's own procurement process. EPA Agreed.
2-2. Refuse to execute any Economy Act IAG which does not clearly indicate the reasons
for purchasing through the IAG process rather than the procurement process. EPA
Agreed.
2-3. Obtain documentation for the IAG file which shows that the work to be performed is
within the scope and capacity of the existing contract. EPA Agreed.
2-4. Document for the IAG file, the comparative cost of each purchasing alternative
considered. EPA will require an Independent Government Cost Estimate or other
basis.
2-5. Apply the requirement for IGCEs to procurements through lAGs consistent with its
current requirement for EPA contracts. EPA will require an Independent Government
Cost Estimate or other basis.
EPA NEEDS TO RECOVER ITS FULL COSTS OF DOING WORK FOR
OTHER AGENCIES
3-1. Establish indirect cost rates for all future reimbursement Economy Act lAGs. EPA
agreed to establish an Indirect Cost Rate by 9/30/97.
3-2. Amend existing reimbursement Economy Act lAGs to include indirect costs. Cancel
existing reimbursement Economy Act lAGs if the other agency is not willing to pay EPA's
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Attachment 1
indirect costs. EPA will include an indirect cost rate provision in all funding actions
after 9/30/97.
3-3:	Accept no new reimbursement Economy Act lAGs until indirect cost rates are
established. EPA Refused.
ADMINISTRATION OF IAGS CAN BE STRENGTHENED
4-1.	Develop a standard clause for inclusion in all disbursement lAGs stating that EPA will
not pay invoices without supporting cost detail, including a breakout of direct and indirect
costs. EPA Agreed.
4-2. Instruct project officers to notify CFMC to withhold/retract payments when the
performing agencies does not adhere to conditions specified in the IAG. Included in
Project Officer training.
4-3. Incorporate the above steps into project officer training. EPA Agreed.
4-4.	Enforce project period limitations or require justification in the extension which
includes a firm project completion date. EPA Agreed.
EPA HAS PAID CONTRACTORS WITH WHOM IT HAS NO CONTRACTUAL
RELATIONSHIP
5-1.	Seek an opinion from the Office of General Counsel as to whether EPA has legal
authority to directly pay another agency's contractor under an IAG instead of paying the
agency, and whether EPA incurs any potential liability as a result of direct payment to the
contractor. If necessary, amend existing lAGs in accordance with legal requirements.
Opinion requested March 14, 1997; Office of General Counsel rendered an opinion
dated February 7, 2000.
5-2. Determine whether the Army Corps of Engineers and/or the U.S. Army National
Guard Bureau's indirect cost rates take into account the assumption of some
administrative activities by EPA as a result of the direct payment process, and if not, seek
a reduction in the indirect cost rates charged under these lAGs. EPA Disagreed.
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Attachment 2
Additional Background Information
About Interagency Agreements
The program office usually starts the interagency agreement (IAG) process by reaching
agreement with the other agency about a specific project. If it is a reimbursement IAG for
EPA, the other agency may give the program office a requesting document (i.e., their
version of a disbursement IAG). After reaching agreement, the program office prepares a
decision memorandum and drafts the "Interagency Agreement / Amendment" (EPA Form
1610-1), and sends both to the Grants Administration Division (GAD).
The decision memorandum must contain specific information and be signed by the
authorizing program official. If applicable, the decision memorandum must:
~	describe the proposed project;
~	identify the statute that is the basis for transferring the funds;
~	discuss alternatives considered and why the IAG mechanism was selected;
~	explain why the other agency was selected, or why the other agency selected EPA;
~	conclude, based on an independent cost estimate or other appropriate cost
information developed by EPA, that the proposed costs are reasonable;
~	address the requirements of the Economy Act;
~	provide a statement regarding the ceiling on travel costs;
~	provide statements regarding the appropriateness of an assistance agreement and
the grant-making authority of both agencies;
~	justify using the advance payment method; and
~	justify incurring costs before the IAG is awarded.
Adequately prepared decision memorandum packages reduce the need for rework by the
program office and follow-up by the GAD staff. GAD must review the decision
memorandum package to ensure that it fully complies with all appropriate legislative, policy
and administrative requirements.
As mentioned above, one matter that must be addressed by the decision memorandum is
the basis for transferring funds between the agencies. Generally, the basis is either the
Economy Act of 1932 or one of EPA's "cooperation" authorities. According to the Agency
guidance dated September 1996, the Economy Act should be cited when the following
criteria is met:
~	one agency (or its contractor) will provide goods to or perform services for the other
agency;
~	the amount of the IAG equals the total estimated cost of the goods or services,
including all direct and indirect costs;
~	none of the funds will be used for a grant or cooperative agreement;
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Attachment 2
~	the work will be performed within the period of fund availability, or (when a
contractor will do the work) the contract or task order will be awarded within the
period of availability; and
~	(except when a contractor does the work) the approving official has determined that
the requested services cannot be provided as conveniently or cheaply by a
commercial enterprise.
Also when a contractor is used, either:
~	the acquisition will be under an existing contract;
~	the servicing agency has the capabilities and expertise to enter into a contract,
which is not available within EPA; or
~	the servicing agency is specifically authorized by law or regulation to purchase such
supplies or services on behalf of other agencies.
Further, each Economy Act IAG must be supported by a determination and finding
approved by the requesting agency's contracting official regarding some of the above
requirements. Finally, both agencies must have the authority to perform the activities
included under the IAG. EPA's authority is granted through use of one of its environmental
statutes.
The Agency guidance is less precise regarding a cooperation authority, which is one of
EPA's environmental statutes. Projects citing a cooperation authority may cover
assistance agreements and must "generally" meet certain criteria. The key criteria is that
the project be directly related to the needs and interests of both agencies.
Each IAG must identify the project period. The project period is the period during which
the activities under the agreement are to be performed, defined with a starting date and an
ending date. According to an Agency directive, the project period may not exceed five
years unless justified by the originating office and approved by both the EPA decision and
action officials. Further, the starting date must be on or after the IAG is countersigned by
the accepting agency.
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Attachment 3
Statutory Citations Questioned
Summary: Of the 55 lAGs in the sample, we have concerns about the statutory citation for
5 interagency agreements (or 9%).
Criteria: Assistance Project Officer Manual, Appendix T, Attachment 4, and the 7-29-1997
legal opinion from the Procurement Practice Group, Finance and Operations Law Office,
Office of General Counsel.
1
Interagency agreement number: DW47938308-01
Other agency: General Services Administration
Amount: $403,000
Office: Office of Water
Description of activity: Evaluate EPA's whole effluent toxicity test methods, as part of the
settlement of a court case. The work is being done by a GSA MOBIS contractor.
Decision memorandum citation: No statute was cited
IAG citation: Cooperation authority (Clean Water Act)
Conclusion: The Economy Act should have been cited because the GSA is not benefitting
or contributing resources to the project. The IAG funding chart shows only lAG-related
funds.
Agency comments: The Agency official agreed. This IAG involved the GSA MOBIS
contract. A mistake on this citation was probably made and the Economy Act should have
been cited. However, this IAG was awarded before the Agency knew of the problems with
MOBIS; thus, instead of the Clean Water Act, they probably would have (incorrectly) cited
ITMRA section 5112(e).
2
Interagency agreement number: DW75938334-01
Other agency: Department of Health and Human Services
Amount: $1,500,000
Office: Office of Research and Develop
Description of activity: Install a joint-use pathological incinerator at the National Institute of
Environmental Health.
Decision memorandum citation: Economy Act
IAG citation: Economy Act
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Conclusion: Both agencies are providing resources to build the incinerator. The IAG
funding chart shows both are contributing resources. Thus, a cooperation authority should
be cited.
Agency comments: The Agency official disagreed. The Economy Act was correct since
the Agency was ensuring access to services, i.e., the incinerator. Also, EPA was
responsible for building specific parts of the incinerator. However, the guidelines were not
clear. If the Agency was deciding on the citation today, the Economy Act might not be
cited.
3
Interagency agreement number: DW75938398-01
Other agency: Department of Health and Human Services
Amount: $10,000
Office: Office of Research and Development
Description of activity: With the National Institute for Environmental Health Sciences
(NIEHS), sponsor a scientific conference on epigenetic toxicant-induced signal transduc-
tion and altered cell-cell communication to be held on October 18-20, 1999, in Ann Arbor,
Ml. A NIEHS grantee was organizing the conference.
Decision memorandum citation: CERCLA, section 311
IAG citation: CERCLA, sections 105(a)(4) and 115; Executive Order 12580
Conclusion: The wrong section of CERCLA was cited. Both agencies are providing
resources for the project, as shown on the IAG funding chart, so a cooperation authority is
appropriate. The project officer believed that CERCLA section 311 should be the citation
because section 311(a) authorizes basic research (including epidemiologic and ecologic
studies) in consultation with the secretary of Health and Human Services. Sections 105
and 115 concern, respectively, the national contingency plan and assignment of duties and
responsibilities. They generally pertain to cleanup of contaminants at Superfund sites.
Agency comments: Agency official stated section 105 and 115 are usually cited for
Superfund work. He would not cite any other section of CERCLA without discussing the
matter with their Office of General Counsel representative.
4
Interagency agreement number: RW64938743-01 (reimbursement IAG)
Other agency: Tennessee Valley Authority
Amount: $2,000
Office: Office of the Chief Financial Officer
Description of activity: Coordinating performance efforts related to clean water goals and
objectives, with an EPA contractor providing support for this pilot project of the Natural
Resources Performance Management Forum.
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Attachment 3
Decision memorandum citation: Economy Act
IAG citation: Economy Act
Conclusion: A cooperation authority (probably the Clean Water Act) should have been
cited. The situation did not meet the criteria for citing the Economy Act. The decision
memorandum explained that work was for the benefit of the Natural Resources
Performance Management Forum, which includes EPA and 15 other Federal agencies.
However, the IAG funding chart shows only the lAG-related funds. According to the
project officer, three other agencies provided funds for the project through other lAGs, and
EPA also contributed resources.
[Note: The other IAG in the sample related to this project (RW12938715) cited the Clean
Water Act, section 104.]
Agency comments: The Agency official agreed. Since several agencies were funding the
activity and a related reimbursement IAG cited a cooperation authority, a cooperation
authority should have been cited.
5
Interagency agreement number: RW89938772-01 (reimbursement IAG)
Other agency: Department of Energy
Amount: $50,000
Office: Office of Air and Radiation
Description of activity: International Symposium On Restoration Of Environments With
Radioactive Residue. An EPA contractor provided support services for the symposium.
Decision memorandum citation: Both the Economy Act and Clean Air Act
IAG citation: Economy Act
Conclusion: A cooperation authority should have been cited because EPA, Department Of
Energy, and the Nuclear Regulatory Commission (NRC) all benefitted from the symposium.
However, the funding chart shows only the lAG-related resources. According to the project
officer, EPA contributed in-house resources and its contractor. The NRC also contributed
funds through another IAG (RW938340-01).
Agency comments: Agency official wanted to review office files. It appeared that a
cooperative authority may have been appropriate and a mistake may have been made.
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Attachment 4
Agency Response
AUG 22 2000
MEMORANDUM
Subject: Draft Audit Report: Follow-up Audit On
Headquarters Interagency Agreements
From:	Romulo L. Diaz, Jr. Is/
Assistant Administrator
To:	Michael E. Prater
Audit Manager
Thank you for the opportunity to review the draft Follow-up Audit on Headquarters
Interagency Agreements. I have attached OARM's responses to the recommendations in
the report with detailed comments on specific sections of the report.
In general, we agree with the report's findings and recommendations. However, we
do not agree with the recommendation that the Interagency Agreement portion of the
project officer's training course be expanded. OGD already has trained more than 4,600
project officers, and the number of project officers that we expect to train in the future will
not be substantial. For this reason, we believe development of a new IAG standalone
course would be a resource intensive effort not justified by the reduced training demand.
Further, most of the issues raised under this recommendation are covered by the current
IAG training module. However, since some EPA program offices believe changes should
be made, we will bring the recommendation to the Grants Administration Division's
Customer Relations Council. Based on advice of the Council and our experience with the
training course, we will determine an appropriate course of action and advise your office.
If you have questions concerning our comments on the report or our responses to
recommendations, please call Scott McMoran on 202-564-5376.
Attachment
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Attachment 4
ATTACHMENT
OARM RESPONSES TO RECOMMENDATIONS IN DRAFT AUDIT REPORT
1. Update chapter 51 of the Assistance Administration Manual, particularly regarding:
a.	the statutory authority that should be used to transfer funds under an IAG;
b.	the need to document the evaluation that the proposed costs are reasonable;
and
c.	ensuring that key decisions and project progress are documented in the file,
including those in electronic format.
RESPONSE: For the most part, the issues raised in this recommendation are addressed in
other IAG policy and guidance documents. The first two are covered in a decision
memorandum guidance document signed by Gary Katz, Director, Grants Administration
Division on September 30, 1996. That guidance is included in the Grants Administration
Division's Project Officer's Training Manual and is posted on OGD's intranet site. In
addition, since Chapter 51 of the Grants Administration Manual is the first chapter of the
IAG compendium, and since we agree with Recommendation number 2, which
recommends the elimination of the Compendium, it is not necessary to update Chapter 51.
Chapter 51 will be eliminated with the rest of the Compendium, in accordance with our
response to Recommendation 2. We do agree that it is appropriate to update the decision
memorandum guidance document to make it a more comprehensive document. It would
replace both the Compendium and Chapter 51, as well as the 1996 Guidance. We will
draft the new IAG document according to the following schedule:
Develop draft guidance and obtain Grant Administration Division approval for
customer review by February 28, 2001.
Obtain Grants Customer Relations comments by April 15, 2001.
Respond to comments and submit Guidance to Agency Directives Review Process
by June 30, 2001. As a part of the clearance process, we will eliminate the
Compendium of Procedures and Chapter 51 of the Grants Administration Manual.
Issue final Guidance as an Agency Directive by September 30, 2001.
The need to maintain adequate documentation of all actions under grants and Interagency
Agreements is made clear under Grants Management Fact Sheet for Agency Leaders,
Number 10: Assistance Agreement File Documentation, and in EPA Grants Management
Record Keeping Requirements. Further, this responsibility is covered in the Project Officer
Training Manual and training course.
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Attachment 4
2.	Eliminate the September 1988, "Interagency Agreement Policy and Procedures
Compendium." and transfer any relevant information (such as examples of decision
memoranda) to the Assistance Project Officer Training Manual.
RESPONSE-We agree and we will take action to do so in accordance with the schedule
above.
3.	Expand the IAG training module, or create a separate course for project officers of
interagency agreements with a prerequisite of either the assistance agreement
project officers training or the work assignment manager training. This training
should emphasize:
a.	the content of the decision memorandum;
b.	the statutory authority that should be used to transfer funds under an IAG;
c.	identifying total project costs for projects citing cooperation authorities;
d.	the need to document the evaluation that the proposed costs are reasonable;
e.	ensuring that key decisions and project progress are documented in the file,
including those in electronic format;
f.	that the project start date must fall on or after the IAG award date unless
justification is otherwise provided;
g.	and accounting for reimbursable work.
RESPONSE-We do not agree that expanding the IAG Project Officer Training Module is
necessary. We have trained more than 4,600 in the project officer training class and the
number of project officers trained in the future will not be substantial. Development of a
new course would be a resource intensive effort not justified by the reduced training
demand. Further, most of the issues raised above are all covered by the current module.
We do not agree that we should include identification of total project costs for projects
citing cooperation authorities. This is not required and would not be possible in many
cases. Instead, we require the decision memorandum to discuss the nature of the joint
activities. There is generally no record keeping as to the actual level of resources
expended by the other agency, so any costs included would be rough guesses and not
helpful.
Since some of our agency partners, however, including the Office of Water, agree with the
recommendation, we will bring this issue to the Grants Customer Relation Council at the
December 2000 meeting. After a discussion in that forum, we will decide the best action to
take based on the demonstrated and agreed to need. We will advise you of our
conclusion as to what future action we will take by January 31, 2001.
4.	Include the instructions with the electronic version of EPA Form 1610-1,
"Interagency Agreement/ Amendment".
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RESPONSE-Several program offices have developed electronic versions of the IAG form.
GAD has not. We will however, provide the instructions to anyone who asks.
Developing new electronic forms such as that suggested here is not consistent with GAD's
plans for the Integrated Grants Management System (IGMS). In the future, the program
offices and other federal agencies will be able to use the electronic system to develop the
EPA form, and appropriate backup documents. The instructions are included in Appendix
T of the Project Officer's Training Manual. Each project officer has a copy of the Manual.
Also, GAD staff will draft the form for program offices using the GAD IGMS system in cases
where the offices ask for such assistance. We do not believe it is necessary to take the
additional action of developing an electronic form with instructions.
5. Establish an indirect cost rate to recover the full cost of work under Economy Act
reimbursement lAGs and include the rate in future such lAGs.
RESPONSE-We do not believe this issue should be raised under this Audit report. It is an
ongoing issue raised in the 1994 EPA Financial Statements Audit and tracked in each
report since. According to the FY 1999 Financial Statements Audit, "EPA discussed its
Goals and Strategies to Support Federal Financial Management Priorities as part of its FY
2001 OMB A-11 Section 52.2 submission to OMB on November 5, 1999. The goals and
strategies included six priorities, two of which discussed Improving Financial Accountability
and Improving Financial Management Systems. Neither of these two discussion topics
mentioned the development or the implementation of an agency-wide indirect cost policy.
We [The IG] acknowledge that the discussion did mention the accomplishment of
implementing the five basic accounting standards and the cost accounting standard issued
by the Federal Accounting Standards Advisory Board (FASAB) as well as developing
related policy announcements. The CFO should identify additional corrective action plans
and milestones to implement our recommendation." We believe an Agency-Wide Indirect
Cost Policy should identify what costs should be consistently included to recover its "full
cost" when determining the appropriate level of user fees for programs that receive fees for
services provided by EPA, costs for billing other government agencies for work performed
by EPA Superfund Indirect Costs to be included in billings to responsible parties for site
cleanups, etc. A cost accounting system, by itself, is not sufficient to take the place of an
agency-wide indirect cost policy. Such a policy would help ensure that costs are
consistently identified for inclusion in determining the "full cost" of conducting agency
programs and activities. We believe this recommendation should be deleted from this
report, since neither GAD not OARM can take action to resolve it.
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Attachment 4
Technical Comments on Draft
Page 4 (First partial paragraph)-The Report includes the following sentence:
When a Headquarters program office intends to disburse funds through the Economy Act,
EPA's Office of Acquisition Management must review the proposed action and approve a
related determination and finding.
The phrase "which will obtain services under a contract of the other agency" should be
added to read as follows:
When a Headquarters program office intends to disburse funds through the Economy Act
which will obtain services under a contract of the other agency, EPA's Office of Acquisition
Management must review the proposed action and approve a related determination and
finding.
Economy Act lAGs which do not obtain services under another agencies contract do not
require Office of Acquisition Management approval.
Page 4, Second paragraph-The Report includes the following sentence:
We also found cases where the GAD staff changed the citation without discussing it with
program officials.
We make it clear to GAD staff that they should explain and discuss any change in statutory
authority to project officers. If this did not occur, it was an oversight. We believe the
sentence is unnecessary since there is no related recommendation.
Page 5, top partial paragraph-The Report includes the following sentence:
Thus, evidence of a joint effort was omitted from the IAG for the remaining 33 projects. To
better support a cooperation authority citation, the IAG should identify resources provided
by all parties.
Based on the limited number of cases where the audit report indicates GAD used an
incorrect authority for the agreement, it appears the inclusion of such additional
information was not necessary. We review each IAG to assure the authority is correct. If it
cannot be determined that a project includes adequate information to determine whether it
is appropriately a cooperation IAG, we request supporting information. Where it is clear,
even though not specifically stated in a document, we bypass the bureaucratic step of
asking for the paper.
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Page 5, last full paragraph-The paragraph reads as follows:
Attachment 4
Statutory authority is also of concern when the IAG project includes an assistance
agreement, i.e., a grant or cooperative agreement. No funds may be transferred under an
IAG unless both agencies have the authority to perform the activities included under the
agreement. Thus, the agencies involved must each have authority covering the assistance
activity. To ensure the matter has been considered, the decision memorandum must
include a statement that the other agency has adequate grant-making authority. This
requirement is being overlooked.
We do not agree that GAD overlooks the requirement. This is never a concern if the IAG
is a funds-out agreement. If the other agency is awarding a grant or cooperative
agreement it is clear that it has the authority to do so. For funds-in agreements, where this
concern may arise, it is generally clear that the other agency has authority to award grants.
In those few cases where this may not be true, we have asked the other agency for
appropriate documentation. Where it is clear, even though not specifically stated in a
document, we bypass the bureaucratic step of asking for the paper.
Page 6, last paragraph-The Report includes the following sentence:
According to an Agency directive, work cannot begin nor costs be incurred under an IAG
until it is signed by both parties.
We are unsure as to what directive states this. Fact sheet Number 7 issued by Grants
Administration Division states that costs should not be incurred before award. It also says,
however, "In cases where emergencies, unplanned delays in fund availability, or other problems make
it necessary to move forward before award of the IAG, obtain Decision Approval Official approval
and develop an IAG funding package as soon as practicable." We do not encourage initiation of
work before award of the IAG, but in cases where it has happens, we require a justification for the
Approval Official. For this reason, we believe the sentence should be deleted or revised.
Page 8, first full paragraph-The Report includes the following sentence:
According to an Agency directive, the project officer must receive and review detailed cost
information submitted by the other agency.
The condition that must be included on each agreement states the following:
It is not our intent to require detailed cost information on each payment. Instead, the information
must be adequate to allow the project officer to make an informed decision. In some cases, the
project officer is intimately involved in the progress of the work and a very limited amount of
information might be adequate. In others, detailed information might be required. In either case, it is
within the project officer's discretion to determine whether the submitted information is adequate.
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Attachment 4
Page 9, first full paragraph-The Report includes the following sentence:
In these latter cases, we believe the project officer should try to obtain detailed cost information.
See comment above.
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Attachment 5
Report Distribution
Inspector General
Deputy Assistant Inspector General for External Audits
Mid-Atlantic Audit Division
Assistant Administrator, Office of Administration and Resources Management
Assistant Administrator, Office of the Chief Financial Officer
Comptroller
Director, Grants Administration Division
Director, Financial Management Division
Agency Follow-up Coordinator
Associate Administrator for congressional and Intergovernmental Relations
Associate Administrator for communications, Education, and Media Relations
Audi
Liaison,
OARM
Audi
Liaison,
OCFO
Audi
Liaison,
OSWER
Audi
Liaison,
ORD
Audi
Liaison,
OEI-OIRM
Audi
Liaison,
OAR
Audi
Liaison,
OW
Audi
Liaison,
OA
Audi
Liaison,
OECA
Audi
Liaison,
OPPTS
Audi
Liaison,
OP
Audi
Liaison,
OIA
Audi
Liaison,
OGC
Audi
Liaison,
OIG
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