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EPA Grants Awarded to the
Lower Brule Sioux Tribe
Report No. 100370-2002-1 -000099 March 29, 2002
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Inspector General Resource Center
Conducting the Audit: Central Audit and Evaluation Resource Center
Denver, Colorado Office
EPA Region Covered:
Program Offices Involved:
Audit Conducted by:
Region 8
Tribal Assistance Program
Grants, Audits, and Procurement Program
Larry Dare
Chris Dunlap
Thomas Herrod
Cover: The illustration is part of an EPA poster that depicts Tribes' sovereign right to protect the
water, land, and air. The cover illustration represents air.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
CENTRAL AUDIT AND EVALUATION RESOURCE CENTER branch offices:
901 NORTH 5TH STREET 1445 Ross Avenue, Suite 1200
KANSAS CITY, KANSAS 66101 Dallas, Texas 75202-2733
913-551-7878 214-665-6621
FAX: 913-551-7837 FAX: 214-665-6589
March 29, 2002 999 18th Street Suite 300
Denver, Colorado 80202-2405
303-312-6872
FAX: 303-312-6063
MEMORANDUM
SUBJECT: EPA Grants Awarded to the Lower Brule Sioux Tribe
Report No. 1003 70-2002-1 -000099
FROM: Jeff Hart
Branch Manager
Denver Office
TO: J ack McGraw
Acting Regional Administrator
Region 8
Attached is our report, EPA Grants Awarded to the Lower Brule Sioux Tribe. This report
includes our independent assessment of three Lower Brule Sioux environmental grants and Lower
Brule Sioux's general management of its environmental program.
Action Required
In accordance with Environmental Protection Agency (EPA) Order 2750, you, as the action
official, are required to provide our office with a proposed draft management decision specifying the
Agency's position on our recommendation on costs questioned and other recommendations in this
report. The draft management decision is due within 120 calendar days of the date of this transmittal
memorandum.
Our report includes an assessment of your draft report comments. We also included your
written comments as Appendix I.
If you have any questions, please call me at (303) 312-6169 or Larry Dare at (303) 312-6969.
Please refer to report number 100370-2002-1-000099 on any related correspondence.
Attachment
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Table of Contents
Independent Auditor's Report 1
Audit Results 2
Objective 2
Scope and Methodology 2
Findings 3
Recommendations 4
Agency Comments and OIG Evaluation 5
Exhibits
A: Summary of Balance Due EPA 7
B: Summary of Audit Results for Water Grant X998854-01 8
Appendices
I: Region 8 Comments 11
II: Distribution 12
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
Independent Auditor's Report
We have examined the costs claimed on the final Financial Status Report (Form 269A) and Request for
Advance or Reimbursement (Form 270) for each of the grants listed in the Scope and Methodology
section, as submitted by the Lower Brule Sioux Tribe, Lower Brule, South Dakota (grantee). The
preparation and certification of the claims are the responsibility of the grantee. Our responsibility was
to express an opinion on the claims.
We conducted our examination in accordance with Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the claims submitted by the grantee are free of material
misstatement and eligible under grant agreements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the final claims. An audit also includes assessing
the accounting principles used and significant estimates made by management in preparing the claims.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the claimed costs referred to above and presented in Exhibits A and B do not present
fairly the reasonable, allowable, and allocable costs claimed according to the law, regulations,
assistance agreements, and other applicable Federal guidance.
Jeff Hart
Branch Manager
Denver Office
Central Audit and Evaluation Resource Center
Office of Inspector General
Fieldwork End: March 26, 2002
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
Audit Results
In response to a December 7, 1999 allegation letter, we reviewed (1) the legality of Environmental
Protection Agency (EPA) Region 8's Tribal Assistance Program grant awards, (2) the Tribal Assistance
Program's internal management, and (3) grantee management of environmental programs and
expenditure of grant funds. We reported on the first two issues in our September 29, 2000 report,
Increased Focus on Grant Management and Internal Relationships Would Improve Region 8's Tribal
Assistance Program. To address the third issue, we conducted financial audits of four tribal grantees.
We judgmentally selected the four tribes based on their significant involvement with EPA programs,
past performance, and the fact that each had several recently closed grants for which we expected to
find complete financial records. This report provides our findings at one of those grantees - the Lower
Brule Sioux Tribe, Lower Brule, South Dakota.
Objective
Our overall objective was to determine whether the grantee effectively managed its environmental
grants. To accomplish this objective, we asked the following question: Are costs claimed for grants
eligible, reasonable, and supported, and were the costs in compliance with grant terms and conditions
as well as applicable Federal statutes and regulations?
Scope and Methodology
The grantee claimed total outlays for the three grants totaling $659,927 under the following assistance
agreements:
Program
Grant No.
Financial Status
Report Form 269A
Amount
Water Special Studies
X998854-01
September 30, 1999
$33,565
General Assistance Program
NI998224-02
March 31, 2000
$429,190
Spill Prevention
X998422-01
December 31, 1999
$197,172
Total
$659,927
We selected these three grants to obtain a cross section of the Tribe's environmental program and
because the Tribe had received final payment from EPA for each grant. Grant X998854-01
involved water quality projects from October 1998 through September 1999. Grant NI998224-02
involved activities from March 1996 through March 2000. This grant was intended to increase
tribal capacity and its management capability to implement environmental programs. Grant
X998422-01 was provided to develop a spill prevention program. The project period was from
October 1997 through December 1999. EPA funded 100 percent of grant NI998224-02. EPA
paid 95 percent of the costs associated with the other two grants and the grantee paid the
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EPA Grants Awarded to
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remaining 5 percent. The outlays claimed for the three projects totaled $659,927, which included
total EPA payments of $652,127.
For each grant, the grantee certified on Standard Form 270, Request for Advance or
Reimbursement, that the costs were in accordance with the grant terms. Subsequently, the grantee
certified on Standard Form 269A, Financial Status Report, that all outlays and unliquidated
obligations were for the purposes set forth in the award documents.
We visited the Lower Brule Sioux Tribe Reservation during the week of April 2, 2001. We
reviewed the three grants, detailed expense ledgers, and accompanying receipts and other
supporting documentation.
Findings
We Questioned 97 Percent of Costs Claimed
We questioned 97 percent, or $639,388, of all costs claimed under the three grants we audited.
EPA's share of questioned costs is $632,615. The questioned costs primarily consist of all costs
associated with grant numbers NI998224-02 and X998422-01 because the grantee could not
provide a reasonably complete and accurate list of expenses. We questioned 39 percent, or
$13,026, of costs associated with grant X998854-01. The questioned costs for grant X998854-01
primarily consist of all payroll, travel, indirect, and recipient match costs. Details on questioned
costs for grant X998854-01 are in Exhibit B. We have not provided separate exhibits on the other
two grants because we questioned all costs associated with those grants.
Financial Management System Inadequate
Lower Brule Sioux Tribe's financial management system is inadequate. For two of the three
grants, the Tribe's list of expenses from its general ledger did not match the total program
expenditures on its final Financial Status Reports. Specifically, the Tribe (1) could not adequately
identify the source and application of funds for two of the three grants audited, (2) could not
provide supporting documentation for some costs claimed, (3) did not compare actual
expenditures to budgeted amounts in its progress reports, (4) did not comply with applicable
Office of Management and Budget cost principles, and (5) did not provide accurate, current, and
complete disclosure of financial results.
Internal Controls Did Not Support Good Grant Management
The General Accounting Office's Standards for Internal Control in the Federal Government
(Standards) establish standards that should be part of any organization's management. According
to the Standards, sufficient internal controls help provide reasonable assurance that an
organization's operations are effective and efficient, financial reporting is reliable, and applicable
laws and regulations are followed. A strong internal control structure includes five components:
(1) control environment, (2) risk assessment, (3) control activities, (4) information and
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Report No. 100370-2002-1-000099
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EPA Grants Awarded to
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communication, and (5) monitoring.
Even though our audit did not include a comprehensive review of the grantee's internal controls for
managing its Federal grants, two material weaknesses came to our attention during our audit that
raised serious concerns about the ability of the Lower Brule Sioux Tribe to adequately manage
environmental grants.
Control Environment: Lower Brule Sioux Tribe's leadership did not emphasize and, as a
result, management and staff did not establish a positive control environment - the
foundation for all other internal control standards. The Standards state that a positive
control environment includes competent staff with high integrity and ethical values, strong
management oversight of staff, clearly defined staff authority and responsibility, and strong
human capital policies and practices. Management provided neither the discipline and
structure nor the climate to positively influence the quality of internal controls. For
example, management did not require staff to charge time to the actual project on which
they worked, nor did management ensure environmental staff complied with grant
provisions. In addition, management did not establish an effective organizational structure,
and management did not implement effective oversight practices. Finally, key staff did not
possess adequate knowledge of grant requirements.
Information and Communication: Lower Brule Sioux Tribe management did not
adequately communicate program or financial information to either EPA or Tribal
management. The Standards require pertinent information to be, "identified, captured, and
distributed to the right people in sufficient detail and at the appropriate time to enable them
to carry out their duties and responsibilities efficiently and effectively." Timely information
should be available and in a form that allows Lower Brule management and staff as well as
EPA staff to ensure programs operate effectively and efficiently. Timely Financial Status
Reports help EPA and Tribal managers determine whether funds are sufficient to complete
required tasks, and program progress reports highlight accomplishments and areas that
need extra attention. However, Lower Brule Sioux Tribe staff submitted Financial Status
Reports and quarterly status reports late or not at all and, in many cases, could not locate
accounting records necessary to support claimed costs. In addition, many quarterly
progress reports contained only superfluous information and did not provide the
information necessary to assess program accomplishments.
Recommendations
We recommend that the Acting Regional Administrator, EPA Region 8:
1. Recover $632,615 of payments made to Lower Brule Sioux Tribe for which we questioned
costs.
2. Maintain the grantee's "high risk" designation until the grantee develops and implements
written procedures and controls to ensure that its:
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EPA Grants Awarded to
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(a) financial management system can adequately account for and support all claimed costs;
and
(b) payroll system meets Office of Management and Budget Circular A-87 requirements.
3. Suspend all current and new grants if, after 6 months, the grantee has not met the
requirements of recommendation 2.
4. Discuss the importance of strong internal controls including meaningful, timely program
performance reporting with Lower Brule Tribal managers.
Agency Comments and OIG Evaluation
Region 8 generally agreed with our findings and recommendations. The Region provided
comments to clarify portions of the report, and we have incorporated those comments and
modified the report as appropriate. We have included the Region's complete response in Appendix
1.
The Region noted that it did not have sufficient time to evaluate all the information provided by
the Tribe to support the costs associated with grant number X998854-01. However, we reviewed
the documentation the grantee sent to the Region and concluded that the materials provided by the
grantee support $6,923 of the costs questioned in our February 1, 2002, draft report. We analyzed
the sufficiency of the additional information, accepted certain items of cost, and modified our
report as appropriate. As a result we have changed recommendation 1 to read: "Recover
$632,615 of payments made to Lower Brule Sioux Tribe for which we questioned costs."
The Region agreed to maintain the grantee's high risk designation. In order to fully comply with
EPA Order 2750, the Region must request from the grantee a corrective action plan describing
how it will comply with recommendation 2. The grantee's corrective action plan should include
milestone dates and specific actions it will take to correct the issues discussed in recommendation
2.
The Region substantially agreed with recommendation 3. We agree that the Region should
reevaluate the grantee's financial management system after 6 months to determine whether the
grantee has made substantial progress correcting deficiencies. We also agree that when the
grantee has fully complied the Region should remove the grantee's high risk designation. We
believe, however, that the Region should recognize that if the grantee has made little or no
progress, the Region should withhold future grants until the grantee complies with Office of
Management and Budget Circular A-87.
The Region agreed with recommendation 4 and indicated that it would emphasize the importance
of strong internal controls during its next visit to the Tribe.
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
Exhibit A
Summary of Balance Due EPA
Water Special Studies Grant X998854-
01
(See Exhibit B)
$33,565 Claimed
$13,026 Questioned
$20,539 Total Allowable
EPA Payments as of 10/18/00
$31,135
EPA Share (95% of allowable)1
$19,512
Balance Due EPA
$11,623
General Assistance Program Grant
NI998224-02
$429,190 Claimed
$429,190 Questioned2
$0 Total Allowable
EPA Payments as of 7/20/00
$429,190
EPA Share (100% of allowable)
$0
Balance Due EPA
$429,190
Spill Prevention Grant X998422-01
$197,172 Claimed
$197,172 Questioned2
$0 Total Allowable
Total EPA Payments as of
6/23/00
$191,802
EPA Share (95% of allowable)
$0
Balance Due EPA
$191,802
Total Costs Claimed:
$659,927
Total Costs Questioned:
$639,388
Total Allowable:
$20,539
Total EPA Payments Made:
$652,127
Total EPA Share Allowable:
$19,512
Balance Due EPA:
$632,615
Notes
1. EPA share represents that portion of allowable project cost for which EPA is responsible.
2. We questioned all costs claimed because the grantee could not provide a complete and accurate
list of costs claimed.
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Report No. 100370-2002-1-000099
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
Exhibit B
Summary of Audit Results for
Water Special Studies Grant X998854-01
Costs Questioned as:
Categories
Costs
Claimed
Ineligible
Unreasonable
Unsupported
Total
Payroll
$6,636
$6,636
$6,636 1
Travel
1,500
1,500
1,500 2
Office Supplies
1,249
$789
$460
1,2493
Equipment
10,145
Contractual
10,394
Indirect Cost
1,273
1,273
1,2734
Recipient Match
2,368
2,368
2,368 5
Total
$33,565
$789
$460
$11,777
$13,026
Total Allowable (Claimed less Questioned)
$20,539
Summary of Balance Due EPA
EPA Payments as of 10/18/00
$31,135
EPA Share (95% of allowable)
$19,512
Balance Due EPA
$11,623
Notes
1. We questioned all payroll costs because the grantee's payroll system did not comply with Office
of Management and Budget Circular A-87 requirements. The grantee neither maintained an
after-the-fact accounting of time charges nor certified that any employees worked solely on this
grant. Office of Management and Budget Circular A-87 requires that when employees work on
more than one activity or cost objective, their salary or wage distribution must be supported by
documentation that reflects an after-the-fact distribution of the actual activity of each employee.
Specifically, the Circular states that, "Budget estimates or other distribution percentages
determined before the services are performed do not qualify as support for charges to Federal
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
awards ..." The Circular further states that when employees are expected to work solely on a
single Federal award, "charges for their salaries and wages will be supported by periodic
certifications that the employees worked solely on that program for the period covered by the
certification . . . Certifications must be prepared at least semi-annually and signed by the
employee or a supervisor having first-hand knowledge of the work performed. The Circular
provides that "substitute systems," such as quantifiable measures of employee effort, may be
used instead of an after-the-fact distribution of an employee's actual activity.
2. We questioned all travel costs because the grantee entered the amount charged to the grant for
travel by journal voucher and the grantee could not locate the supporting documentation and/or
explain the purpose of the travel.
3. We questioned $789 of office supplies as ineligible because the documentation provided by the
grantee indicated the supplies were purchased to support another grant. We questioned $460
of supplies as unreasonable because although the grant period was for one year, the grantee did
not purchase these supplies until the last seven days of the grant period.
4. We questioned all indirect costs charged to the grant because the grantee could not provide
adequate documentation to support the charge. The grantee could not provide an approved
indirect cost rate for the grant period and was unable to explain how the charges were
calculated.
5. We questioned all recipient match charged to the grant because the documentation provided by
the grantee was inadequate. The documentation provided was a one-page sheet that listed
"Purchase of maps" for $2,368. The grantee could not produce an invoice for the purchase nor
did the grantee record the transaction in its accounting system.
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EPA Grants Awarded to
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Report No. 100370-2002-1-000099
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
Appendix I
Region 8 Comments
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UNITiO STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 8
Ml 1«rH STREET - 5WTC 309
DCWVER. CO U29M4W
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MR 28 m
MEMORANDUM
SUBJLO:
s^dHi'b"*-
Luwt Brule TipU." Draft Report Mo, 2001 -08-000370-LB
FROM:
Ai'unn Regional AdministraiOT
TO:
J
Jeff Hart
Branch Manager
Denver Office
This siraft audit report of three ! ower Brule I'ribc grams Twnmmcnds disallowing a large
amount of costs, The 1 nbe provided materials to us by March 22, 2002, but the Region has aoi
had the lime to folly review litem because of your deadline of March 29,2002 to issue the final
audit rvport. The Region will continue working; with the Tribe to review tie dballuwed costs.
The Region lias already itesignatcd Lower Brule as a '"high risk" grantee- We are using
this designation 10 require 1-ovrcr Urulc to submit financial and program information to support
each payment request The Tribe will mm! lo take strong action to address their financial
management and payroll syfi'em deficiencies, including the development tif procedures to track
awl support all ctrsls claimed ar-d ensure I owr Brule's pajmll system rotxu OMD
icqirinaiHRta.
White v»e substantially agree with recommendation #3, we would prefer to reevaluate
Lower Brute's financial management system after six months mid if thsy arc making substantial
ptugrcss tp conipij with recommendations *2(ii), and R{h), continue to work with them to
ensure compliance. If they have fully complied. we would remove tlitfir "high risk" designation.
finally, «c agreu with Recommendation #4 and will eeileratc the importance! of strong
internal controls during oar next site visit with Lower Brule management and financial staff,
Thiiak you for the opportunity to review find comment on (tots draft audit report. We look
forward tn working with your office t<> resolve thuse imijKjrtaut financial management jsswes.
A
PnMni ewBwst®*# Papm
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EPA Grants Awarded to
the Lower Brule Sioux Tribe
Appendix II
Distribution
Office of Inspector General
Inspector General
EPA Headquarters Office
Comptroller (2731 A)
Director, Grants Administration Division (3903R)
Agency Audit Followup Coordinator (2724A)
Associate Administrator for Congressional and Intergovernmental Relations
(1301A)
Associate Administrator for Communications, Education, and Media Relations
(1101 A)
Region 8 Office
Regional Counsel
Assistant Regional Administrator, Office of Partnerships and Regulatory
Assistance
Associate Assistant Regional Administrator, Office of Partnerships and
Regulatory Assistance
Director, Tribal Assistance Program
Assistant Regional Administrator, Office of Technical and Management Services
Director, Grants, Audits, and Procurement Program
Director, Financial Management Program
Audit Followup Coordinator
Director, Office of Communication and Public Involvement
Lower Brule Sioux Tribe Program Manager, Tribal Assistance Program
Lower Brule Sioux Tribe
Chairman
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Report No. 100370-2002-1-000099
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