tftD STA^
U.S. Environmental Protection Agency	2006-3-00168
%	\ Office of Inspector General	July 26,2006
/ fi

%; At a Glance
Catalyst for Improving the Environment
Why We Did This Review
During our review of the single
audit of the State of Alaska, the
single auditor raised issues that
potentially impact the
allowability of expenditures
incurred by the State of Alaska
Department of Environmental
Conservation (State).
Background
The Single Audit Act of 1984
established uniform entity-wide
audit requirements for State and
local governments receiving
Federal financial assistance. The
State's Division of Legislative
Audit performed the single audit
for the year ended June 30, 2004.
In fulfilling the requirements of
the Single Audit Act, the Office
of Inspector General reviews and
disseminates the results of single
audits to responsible U.S.
Environmental Protection
Agency (EPA) officials.
The State identified $32,976,401
in Federal expenditures for EPA
grants under the Alaska Village
Safe Water program.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.qov/oiq/reports/2006/
20060726-2006-3-00168.pdf
Single Audit Report for the State of Alaska
Department of Environmental Conservation
for the Year Ended June 30, 2004
What We Found
The single audit questioned $1,115,721 in labor costs because State employees
did not account for their activities in accordance with Federal requirements. We
have questioned the balance of the EPA grant amounts of $31,860,680 because:
•	The State claimed disbursements that were advances and not actual costs.
•	The State did not correctly report assets and expenditures.
•	The State did not follow procurement procedures.
We also found that the State did not adequately monitor its subrecipients. While
the State contracted for a third-party certified public accountant firm to assess a
subrccipient's compliance with managing State funds, the State did not follow up
with problems identified with this subrecipient. This subrecipient also earned
interest and dividend income, contrary to EPA regulations. We estimate that the
potential amount of Federal interest earned on the over $100 million in investments
from 2001 to 2004 would be over $8 million.
The State had not corrected findings from the prior year single audit. In particular,
disbursements made by the State were advances and not actual costs. The State
also had not correctly reported assets and expenditures.
What We Recommend
We recommend that the Acting Regional Administrator, EPA Region 10:
Implement the single audit recommendations and disallow $1,115,721 of labor
costs.
Require the State to prepare and submit an indirect cost rate proposal for
indirect costs related to direct labor costs.
Disallow the remaining $31,860,680 of costs associated with EPA funds until
the State can provide actual cost data.
Require the subrecipient to remit dividend and interest earned on EPA funds.
Require the State to enter into an agreement with the Consortium to recognize
and support (1) the direct transfer of EPA grant funds from the State to the
Consortium, and (2) the Consortium's responsibility to comply with all EPA
grant requirements.
Place the State on a reimbursable payment basis until EPA determines the
State's cash management, labor, and financial reporting systems meet Federal
requirements, and the recommendations of this report are fully satisfied.

-------