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U.S. Environmental Protection Agency	2006-3-00167
$	\	Dffiro nf Incnortnr ^onoral	July 26, 2006
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Office of Inspector General
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At a Glance
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Catalyst for Improving the Environment
Why We Did This Review
During our review of a single
audit of the State of Alaska, we
noted that the single auditor
raised issues regarding the State's
Department of Environmental
Conservation (State) that
potentially impact the
allowability of expenditures
incurred by the State.
Background
The Single Audit Act of 1984
established uniform entity-wide
audit requirements for State and
local governments receiving
Federal financial assistance.
The single audit for Alaska for
the year ended June 30, 2003,
was performed by the State's
Division of Legislative Audit.
The Office of Inspector General
is required to review and
disseminate the results of single
audits to responsible
U.S. Environmental Protection
Agency (EPA) officials.
The State identified $33,887,200
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/
20060726-2006-3-00167.pdf
Single Audit Report for the State of Alaska
Department of Environmental Conservation
for the Year Ended June 30, 2003
What We Found
The single audit questioned $1,166,051 in labor costs because State employees
did not account for their activities in accordance with Federal requirements. In
addition, we have questioned the balance of the EPA grant amounts of
$32,721,149 due to the following single audit results:
•	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. As a
result, one subrecipient 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 2003 would be over $7 million.
What We Recommend
We recommend that the Acting Regional Administrator, EPA Region 10:
•	Implement the single audit recommendations and disallow $1,166,051 of
personnel services costs;
•	Require the State to prepare and submit an indirect cost rate proposal for
indirect costs related to direct labor costs under the Village Safe Water
program;
•	Disallow the remaining $32,721,149 of costs associated with EPA funds
until the State can provide actual cost data, which includes the proper
application of the 4 percent administrative costs under each grant;
•	Require remittance of dividend and interest earned on EPA funds by its
subrecipient; and,
•	Formally place the State on a reimbursable payment basis until EPA
determines the State's cash management, labor, and financial reporting
systems fully meet Federal requirements, and the recommendations of this
report have been fully satisfied.

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