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*. U.S. Environmental Protection Agency	12-P-0835

|	\ Office of Inspector General	September 19, 2012
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At a Glance
Why We Did This Review
Our objectives were to
determine the methodology the
U.S. Environmental Protection
Agency (EPA) uses to calculate
indirect cost rates for
reimbursable interagency
agreements (RIAs), and
whether EPA is applying the
correct indirect cost rates for
selected RIAs.
An interagency agreement is a
written agreement between
federal, state, or local agencies
through which goods or
services are provided on a
funds-out orfunds-in basis.
The term funds-in applies to an
interagency agreement in
which EPA provides goods or
services to another agency or
to a state or local government
and is reimbursed for its
expenses.
This report addresses the
following EPA Goal or
Cross-Cutting Strategy
• Strengthening EPA's
workforce and capabilities.
EPA Could Recover More Indirect Costs
Under Reimbursable Interagency Agreements
What We Found
EPA did not recover $11 million in indirect costs on funds-in RIAs. Federal
entities are required to recognize the full cost of goods and services provided
among federal entities; full cost includes both direct and indirect costs. For 54 of
59 RIAs reviewed, EPA did not bill other federal agencies the full amount of
indirect costs. This occurred because:
•	EPA exempted itself from recovering indirect costs on RIAs awarded
under 19 statutory authorities.
•	EPA issued polices where indirect costs do not apply to RIAs awarded
before the policies were effective nor to any agreement amendments.
•	EPA issued policies stating that indirect rates in effect at the time the RIA
is negotiated will apply for the life of the RIA.
•	Other miscellaneous calculating and billing errors occurred.
We estimated that EPA could have recovered $11 million in indirect costs based
on rates for fiscal years 2010 and 2011. Based on amounts remaining in open
agreements, we calculated an additional $2.5 million could be billed during the
remaining project periods. The additional indirect costs recovered could be used
to pay for other environmental activities.
Recommendations and Agency Corrective Actions
We recommend that the Chief Financial Officer revise Agency policy to include
indirect costs in all RIAs; revise the rules and policies for future actions to include
the ability to recover indirect costs and educate the EPA on the new policies
while implementation is in progress; revise Agency policy to require that
amendments to all RIAs include indirect costs based on current rates; correct the
indirect cost rate billing errors noted; and develop policy and procedures to verify
that correct indirect cost rates are used.
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.aov/oia/reports/2012/
20120919-12-P-0835.pdf
EPA agreed with all our recommendations or agreed to take actions that satisfy
the intent of the recommendations. The Agency has updated policy to clarify that
indirect costs should be included in all RIAs, is correcting billing errors, and plans
to develop policy to ensure that correct indirect cost rates are used.
Recommendation 4 is unresolved pending receipt of a date to correct billing
errors.
Noteworthy Achievement
EPA centralized interagency agreement activities within two service centers to
increase consistency in operations and improve efficiency and effectiveness.

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