Auditor’s Report for the South Carolina Drinking Water State Revolving Fund Program (the Program) as of June 30, 2002 - Audit Report No.2003-1-00138


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2	\>	ENVIRONMENTAL PROTECTION AGENCY
|	|	WASHINGTON, D.C
\ ^	OFFICE OF
"L	INSPECTOR GENERAL
September 17, 2003
Memorandum
Subject:	Auditor's Report for the South Carolina Drinking Water State Revolving Fund
Program (the Program) as of June 30, 2002
Audit Report No.2003-^-00138 /
From:	William M Da*
National SRF Audit Manager	Q
To:	Jimmy Palmer
Regional Administrator
EPA, Region 4
Atlanta, GA
Attached is a copy of the subject audit we sent to the State of South Carolina. The audit contains
reports on the financial statements, internal controls, and compliance requirements applicable to
the Drinking Water State Revolving Fund (SRF) program in South Carolina for the year ended
June 30, 2002.
We issued an unqualified opinion on the financial statements and did not note any matters
involving the internal control system and operations that we consider to be reportable conditions.
We qualified our opinion on the compliance requirements applicable to the SRF program because
the South Carolina Drinking Water State Revolving Fund did not comply with certain compliance
matters required by the Safe Drinking Water Act and regulations. In response to the draft audit
report, management agreed with our compliance issue, and is taking appropriate steps to correct
the deficiency.
In accordance with EPA directive 2750, the Action Official is required to take action on the
findings and recommendations in this report within 150 days.
The OIG has no objection to the release of this report to any member of the public upon request.
The report contains no confidential business or proprietary information.
If you have any questions or concerns regarding this matter, please feel free to contact me at
(916) 498-6590 or Mr. Paul Felz at (303) 312-6270.
Attachment

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5
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C3
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C
OFFICE OF
INSPECTOR GENERAL
September 17, 2003
Mr. R. Lewis Shaw, Deputy Commissioner
South Carolina Department of Health and Environmental Control
Mr. Michael S. Gulledge, Director
Office of Local Government
South Carolina State Budget and Control Board
Re: Audit Reports of the Financial Statements of the South Carolina Drinking Water State Revolving
Fund Program for the year ended June 30, 2002
Audit Report No. 2003-1-00138
Dear Mr. Shaw and Mr. Gulledge:
Enclosed please find an electronic copy of the audited financial statements for the South Carolina
Drinking Water State Revolving Fund Program for the year ended June 30, 2002. We made certain
adjustments and reclassifications, to which you have agreed, in order to have the financial statements
follow EPA's current reporting guidelines, which are in accordance with generally accepted accounting
principles
We would like to thank you and your staff for the cooperation and courtesies we received during our audit.
Please feel free to call me at (916) 498-6590 or Mr. Paul Felz at (303) 312-6270 should you have any
comments or questions.
Wlliam M. Dayton
Wlliam M. Dayton Q
National SRF Audit Manager

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OIG
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
South Carolina Drinking Water
State Revolving Fund Program
Financial Statements with
Independent Auditor's Report, June 30, 2002
Audit Report Number 2003-1-00138
Issued September 17, 2003

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South Carolina Drinking Water State Revolving Fund
Table of Contents
Independent Auditor's Report	1
Balance Sheet	2
Statement of Revenues, Expenses, and Changes in Fund Equity	3
Statement of Cash Flows	4
Notes to Financial Statements	5
Independent Auditor's Report on the Internal Control Structure Based on an Audit of
the Financial Statements Performed in Accordance with Government Auditing Standards	11
Independent Auditor's Report on Compliance with Requirements Applicable to the
Environmental Protection Agency's State Revolving Fund Program in Accordance with
Government Auditing Standards 	13
Supplemental Information	16

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ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C
OFFICE OF
INSPECTOR GENERAL
Independent Auditor's Report
To: Mr. R. Lewis Shaw, Deputy Commissioner
South Carolina Department of Health and Environmental Control
Mr. Michael S. Gulledge, Director
Office of Local Government
South Carolina State Budget and Control Board
We have audited the accompanying balance sheet of the South Carolina Drinking Water State Revolving
Fund Program (the Program) as of June 30, 2002, the related statement of revenues, expenses, and
changes in fund equity, and the statement of cash flows for the year then ended. These financial
statements are the responsibility of the Program's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in the United States of
America and Government Auditing Standards issued by the Comptroller General of the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph present fairly, in all material
respects, the financial position of the Program as of June 30, 2002, and the results of its activities and its
cash flows for the year then ended in conformity with generally accepted accounting principles in the
United States of America.
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a
whole. The supplemental information is presented for purposes of additional analysis of the financial
statements. The supplemental information has been subjected to the auditing procedures applied in the
audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to
the financial statements taken as a whole.
As discussed in Note 1, the financial statements referred to above are intended to present the financial
position and results of operations of the Program, a component of the general fund of the State of South
Carolina. These statements are not intended to present the financial position or results of operations for
the State of South Carolina, the South Carolina Department of Health and Environmental Control, or the
South Carolina State Budget and Control Board, of which the Program is a part. Certain supplementary
information referred to as Management Discussion and Analysis, although not a required part of the basic
financial statements, has been omitted for this program-specific financial presentation.
In accordance with Government Auditing Standards, we have also issued a report dated April 25, 2003,
on our consideration of the Program's internal control structure and a report dated April 25, 2003, on the
Program's compliance with laws and regulations.
uffice of InSpe^Tojrpehera
April 25, 2003

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SOUTH CAROLINA
Drinking Water State Revolving Fund (DWSRF)
Combining Balance Sheet
June 30, 2002
(With comparative unaudited totals for 2001)


DWSRF

Loan
Fee
(Memorandum
only)
Total
2002
(Unaudited)
2001
Assets:
Current assets:
Cash and cash equivalents
Loan interest receivable
Investment interest receivable
Federal grant receivable
Current portion of loans receivable
$
9,547,150
130,682
113,746
23,428
948,344
$
383,506
$
9,930,656
130,682
113,746
23,428
948,344
$
7,517,243
168,840
62,536
33,372
767,293
Total current assets

10,763,350

383,506

11,146,856

8,549,284
Noncurrent assets:
Loans receivable, net of current portion

23,719,842



23,719,842

21,087,852
Total noncurrent assets

23,719,842

-

23,719,842

21,087,852
Total assets
$
34,483,192
$
383,506
$
34,866,698
$
29,637,136
Liabilities and Fund Equity:
Current liabilities:
Unearned income
Due to other funds

25,659
23,428

-

25,659
23,428

14,221
33,372
Total current liabilities

49,087

-

49,087

47,593
Fund Equity

34,434,105

383,506

34,817,611

29,589,543
Total liabilities and fund equity
$
34,483,192
$
383,506
$
34,866,698
$
29,637,136
2

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SOUTH CAROLINA
Drinking Water State Revolving Fund
Combining Statement of Revenues, Expenses
and Changes in Fund Equity
For the year ended June 30, 2002
(With comparative unaudited totals for 2001)
(Memorandum
only)
Loan	Total	Unaudited

DWSRF

Fee
2002
2001
Revenues:
Loan interest
Investment earnings
Grant Revenues
Management fees
$ 903,783
413,166
1,384,743
$
15,416
123,501
$ 903,783
428,582
1,384,743
123,501
$ 720,345
267,780
542,447
5,097
Total revenues
2,701,692

138,917
2,840,609
1,535,669
Expenses:
Salaries and benefits
Contractual services
T ravel
Indirect costs
Other operating costs
335,618
973,647
5,394
30,242
39,842

62,329
2,412
3,949
397,947
976,059
5,394
30,242
43,791
297,385
245,039
21,098
41,531
Total expenses
1,384,743

68,690
1,453,433
605,053
Operating income
1,316,949

70,227
1,387,176
930,616
Capital Contributions
Environmental Protection Agency
State of South Carolina
2,781,762
1,059,130

-
2,781,762
1,059,130
8,954,925
4,626,817
Total Capital Contributions
3,840,892


3,840,892
13,581,742
Change in net assets
5,157,841

70,227
5,228,068
14,512,358
Fund equity, beginning of year
29,276,264

313,279
29,589,543
15,077,185
Fund equity, end of year
$ 34,434,105
$
383,506
$ 34,817,611
$ 29,589,543
3

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SOUTH CAROLINA
Drinking Water State Revolving Fund
Statement of Cash Flows
For the year ended June 30, 2002
(With comparative unaudited totals for 2001)
2002
Cash provided (used) by operating activities:
Loan interest
Loan fees
Investment interest
Operating grants
Program administration
Technical assistance
State drinking water program management
Local assistance
Loan disbursements
Loan repayments
Net cash provided (used) by operating activities
Cash flows from capital and related financing activities:
Capital Funds received from EPA
State match
Net cash used in capital and related financing activities:
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
941,941
123,501
377,372
1,395,776
(310,715)
(164,074)
(32,089)
(946,150)
(3,580,334)
767,293
(1,427,479)
2,781,762
1,059,130
3,840,892
2,413,413
7,517,243
(Unaudited)
2001
$ 601,560
5,097
230,531
528,500
(284,516)
(158,163)
(136,348)
(11,002,721)
575,490
(9,640,570)
8,954,925
4,626,817
13,581,742
3,941,172
3,576,071
Cash and cash equivalents, end of year
9,930,656
$ 7,517,243
Reconciliation of net operating income to net cash provided (used) by operating activities:
Net operating income	$ 1,387,175	930,616
Adjustments to reconcile operating income to net cash
provided by operating activities:
(Increase) decrease in current receivables	(3,109)	(182,059)
Increase (decrease) in current liabilities	1,495	38,104
Loan disbursements	(3,580,334)	(11,002,721)
Loan repayments		767,293 	575,490
Net cash provided by operating activities	$ (1,427,479)	$ (9,640,570)
4

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SOUTH CAROLINA
Drinking Water State Revolving Fund
Notes to Financial Statements
1. Organization of the Program
The South Carolina Drinking Water State Revolving Fund Program was established pursuant
to section 1452 (a) of the Safe Drinking Water Act amendments of 1996 and Section 48-5-55
of the South Carolina Code of Laws. The purpose of the DWSRF is to provide low interest
loans to public water systems for construction of drinking water facilities. Projects are
normally funded for a maximum term of twenty years; however, loan applicants considered
to be disadvantaged communities may be offered loans with a maximum term of thirty years.
Interest rates, which are established annually by the Budget and Control Board, are typically
30% to 33% below the average Bondbuyer 25 index. All loan repayments and interest are
deposited back in the Program to fund additional projects.
The State of South Carolina's Department of Health and Environmental Control (DHEC) and
the South Carolina Budget and Control Board, Office of Local Government (OLG) have
entered into a Memorandum of Agreement under which each has agreed to assume
specified responsibilities in connection with operations of the Program. DHEC develops an
annual Intended Use Plan, maintains a project priority system, obtains capitalization grants
from the U.S. Environmental Protection Agency (EPA), performs technical project reviews,
monitors construction, and is responsible for the environmental and technical aspects of the
Program. DHEC also sets aside portions of the capitalization grants allowed by the Safe
Drinking Water Act to fund certain other drinking water related activities, including
administration of the DWSRF, the State's drinking water program administration and
management, source water protection, operator certification, capacity development and
technical assistance for small water systems.
The OLG establishes the financial policies governing loans, makes final loan decisions,
disburses funds to borrowers, manages and accounts for the loan funds, and ensures the
state match in timely deposited.
DHEC's cost of administering the DWSRF program is charged to the four percent
administrative set-aside. The OLG's administration costs are charged to the Management
Fee Fund. Administration costs include the salaries and benefits of the employees, as well
as indirect costs allocated to the Program. Employees charging time to the Program are
covered by the benefits available to State of South Carolina employees. The fund is also
charged indirect costs through a cost allocation plan agreement between DHEC and the
EPA, which is renewed annually.
The Program's financial statements, footnotes, and related schedules are presented for the
EPA. The Program is included in the State of South Carolina's basic financial statements as
a part of a special revenue fund, which uses the modified accrual basis of accounting. Due
to differences in reporting methods, there may be differences between the amounts reported
in these financial statements and the State's basic financial statements.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements for the Program are presented as an enterprise fund. As such, the
Program is accounted for using the flow of economic resources measurement focus and is
maintained on the accrual method of accounting. Under the accrual method of accounting,
revenues are recognized when earned and expenses are recorded at the time the liabilities
5

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SOUTH CAROLINA
Drinking Water State Revolving Fund
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
are incurred. All assets and liabilities associated with the operations of the Program are
included on the balance sheet. The State has elected to follow the accounting
pronouncements of the Governmental Accounting Standards Board, as well as statements
issued by the Financial Accounting Standards Board on or before November 30, 1989,
unless the pronouncements conflict with or contradict GASB pronouncements.
Cash and Cash Equivalents
All monies of the loan fund are deposited with the South Carolina State Treasurer's Office,
which is responsible for maintaining these deposits in accordance with South Carolina State
law. The Program considers all such deposits to be cash. The Program on a monthly basis
receives investment interest earnings on these deposits. According to State law, the
Treasurer is responsible for maintaining the cash balances and investing excess cash of the
Program, as further discussed in Note 3. Consequently, management of the Program does
not have any control over the investment of the excess cash. The statement of cash flows
considers all funds deposited with the Treasurer to be cash or cash equivalents, regardless
of actual maturities of the underlying investments.
Cash received by DHEC from EPA to fund "set-aside" activities are generally used
immediately to reimburse other funds for eligible expenditures. Occasionally, DHEC will
draw funds based on future estimated expenditures, resulting in small cash balances, held
by DHEC, that are used to reimburse other funds when the expenditures are incurred.
Loans Receivable
Loans are funded by Federal capitalization grants and State matching funds. The DWSRF
monies are disbursed to borrowers on a cost reimbursement basis. When the borrowers
have incurred qualifying expenses, they request a loan disbursement from the Program, and,
upon approval, a disbursement is made. Interest begins accruing when funds are disbursed
to the borrower. Repayment of the loan begins within three to nine months after a Permit to
Operate is projected to be issued by DHEC, or up to 30 months after the loan is made,
whichever occurs first. The loans generally have maturities up to 20 years. South Carolina
provides longer repayment terms and/or interest subsidies for disadvantaged communities
under the Disadvantaged System Program as outlined in the State's Intended Use Plan.
There is no allowance for uncollectible accounts, as all repayments are current, and
management believes all loans will be repaid according to the loan terms.
Contributed Capital
In accordance with generally accepted accounting principles, funds received from EPA and
the State of South Carolina to capitalize the loan program are recorded as other revenues.
Funds received from EPA for reimbursement of set-aside expenses are treated as operating
grants.
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SOUTH CAROLINA
Drinking Water State Revolving Fund
Notes to Financial Statements
Cash and Cash Equivalents
All cash in the Program is deposited with the State Treasurer who is responsible for
maintaining and investing the pooled cash balances in accordance with State laws. The
Treasurer is required to maintain a mix of investments in order to allow funds to be withdrawn
at any time to meet normal operating needs. The Program's share of the investment income
from the local government investment pool is based on the average daily balance for the
period and is credited to the Program monthly. Details of the investments can be obtained
from the State Treasurer's Office.
All cash and investments in the local government investment pool are stated at cost, which
approximates fair market value. Investments in local government investment pools are not
categorized because they are not evidenced by securities that exist in physical or book entry
form.
Not subject to categorization:
Local government investment pool
Carrying Amount
$ 9.930.656
Loans Receivable
The Program makes loans to qualified entities at interest rates ranging from 3.5 percent to
4.0 percent with scheduled final maturity dates through 2032.
Loans receivable activity during the year ended June 30, 2002 is summarized as follows:
Loan Status
Funding Completed
Funding in Progress
Total
Loan Amount
Authorized
$ 12,034,928
22,351,208
$ 34,386,136
Remaining
Commitment
8,138,434
8,138,434
Loan Balance
June 30, 2001
$ 11,354,599
10,500,546
$ 21,855,145
Disbursements
$ 13,666
3,566,668
$ 3,580,334
Repayments
$ (469,613)
(297,680)
$ (767,293)
Loan Balance
June 30, 2002
$ 10,898,652
13,769,534
$ 24,668,186
The Program has entered into nine loans to three local communities that represented 91
percent of the total loans outstanding at June 30, 2002, as follows:
Community
Beaufort-Jasper Water and Sewer Autority
City of Florence
Startex-Jackson-Wellford-Duncan Water District
Total
Loan
Authorized
$ 16,409,116
8,978,340
4,793,309
Loan
Outstanding
$ 9,993,024
8,694,520
3,813,089
$ 30,180,765 $ 22,500,633
Percentage of
Total
Outstanding
41%
35%
15%
91%
7

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SOUTH CAROLINA
Drinking Water State Revolving Fund
Notes to Financial Statements
4.	Loans Receivable (continued)
Loans mature at various intervals through January, 2032. The scheduled principal and
interest payments on completely disbursed loans maturing in the next five years and every
five years thereafter are as follows:

Principal

Interest
Total
2003
$ 488,192
$
404,081
$ 892,272
2004
506,960

385,312
892,272
2005
526,453

365,820
892,272
2006
546,698

345,574
892,272
2007
567,726

324,546
892,272
2008-2012
2,951,781

1,289,117
4,240,899
2013-2017
3,353,147

707,373
4,060,520
2018-2020
1,957,696

104,213
2,061,909
Totals
$10,898,652
$
3,926,036
$14,824,688
The current portion of loans receivable includes $488,192 for completed projects and an
estimated $460,152 for projects that are still in progress, for a total of $948,344. The
amortization schedules for the projects in progress may change upon completion of the
project when the final loan balance will be determined.
5.
Fund Equity
The Program is capitalized by grants through EPA and state match provided by the State of
South Carolina equaling 20 percent of the federal capitalization amount. The EPA grants and
the State match are included in the fund equity balance. South Carolina's matching
contribution has been provided through appropriation of State general fund resources. As of
June 30, 2002, EPA has awarded $44,515,247 to the state, of which $23,959,533 has been
drawn for loans and set-aside expenses. The State has provided match funds of
$10,513,550. The following summarizes the capitalization grant award, amounts drawn on
each grant as of the balance sheet date, and balances available for future loans and set-
aside costs:
Grant
FS984312-97
FS984312-98
FS984312-99
FS984312-00
FS984312-01
Grant Amount
$ 14,821,600
7,669,400
8,038,300
5,597,247
8,388,700
$ 44,515,247
Total Draws as
of June 30, 2001
$ 13,638,844
6,143,151
$ 19,781,995
2002 Draws
$1,117,000
1,361,060
1,666,478
2,000
31,000
$4,177,538
Total Draws as
of June 30, 2002
$ 14,755,844
7,504,211
1,666,478
2,000
31,000
$ 23,959,533
Grant Funds
Available June
30, 2002
$ 65,756
165,189
6,371,822
5,595,247
8,357,700
$ 20,555,714
The capitalization grant FS984312-00 was amended on June 21,2002, and $2,756,853 of the
DWSRF was transferred to the Clean Water State Revolving Fund. The schedule above
includes the amended grant amount.
8

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SOUTH CAROLINA
Drinking Water State Revolving Fund
Notes to Financial Statements
Fund Equity (continued)
As of June 30, 2001 and 2002, State matching contributions were as follows:
June 30, 2001 Contributions June 30, 2002
South Carolina State Match	$ 9.454.420 $ 1.059.130 $ 10.513.550
Set-Aside Costs
Total set-aside costs charged to the Program are as follows:
FY 1998
FY 1999
FY 2000
FY 2001
FY 2002
Total
Administrative
$
122,874
289,604
249,575
247,935
242,431
Technical
Assistance
$
6,103
158,163
164,074
$ 1,152,419 $ 328,340
State
Program
Management
$
32,089
Source Water
Protection
$
50,156
170,800
120,792
136,348
946,150
32,089
$ 1,424,246
Total
Set-Aside
$ 173,030
460,405
376,470
542,447
1,384,743
$ 2,937,094
7. Contingencies, Related Parties, and Subsequent Events
Contingencies
The Program is exposed to various risks of loss related to torts, thefts of assets, errors or
omissions, injuries to state employees while performing Program business, or acts of God.
The State maintains insurance for all risks of loss, which is included in the indirect costs
allocated to the Program.
According to DHEC management and legal counsel, there are no other loss contingencies
which require disclosure or accrual under the Statement of Financial Accounting Standards
No. 5.
Related Parties
There are no related party transactions with or related amounts receivable from
management of the Programs.
Subsequent Events
On September 3, 2002, EPA awarded South Carolina a capitalization grant in the amount of
$8,052,500.
9

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Independent Auditor's Report on the
South Carolina Drinking Water State Revolving Fund Program
Internal Control Structure Based on an
Audit of the Financial Statements
Performed in Accordance with
Government Auditing Standards

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ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C
OFFICE OF
INSPECTOR GENERAL
Mr. R. Lewis Shaw, Deputy Commissioner
South Carolina Department of Health and Environmental Control
Mr. Michael S. Gulledge,Director
Office of Local Government
South Carolina State Budget and Control Board
We have audited the financial statements of the South Carolina Drinking Water State Revolving Fund
Program (the Program) as of and for the year ended June 30, 2002, and have issued our report thereon
dated April 25, 2003.
We conducted our audit in accordance with generally accepted auditing standards and 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 financial statements are
free of material misstatement.
The management of the Program is responsible for establishing and maintaining an internal control
structure. In fulfilling this responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control policies and procedures. The objectives of an
internal control structure are to provide management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or disposition and that transactions are
executed in accordance with management's authorization and recorded properly to permit the preparation
of financial statements in accordance with generally accepted accounting principles. Because of inherent
limitations in any internal control structure, errors or irregularities may nevertheless occur and not be
detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that
procedures may become inadequate because of changes in conditions or that the effectiveness of the
design and operation of policies and procedures may deteriorate.
In planning and performing our audit of the financial statements of the Program for the year ended June
30, 2002, we obtained an understanding of the internal control structure. Wth respect to the internal
control structure, we obtained an understanding of the design of relevant policies and procedures and
whether they have been placed in operation, and we assessed control risk in order to determine our
auditing procedures for the purpose of expressing our opinion on the financial statements and not to
provide an opinion on the internal control structure. Accordingly, we do not express such an opinion.
Our consideration of the internal control structure would not necessarily disclose all matters in the internal
control structure that might be material weaknesses under standards established by the American
Institute of Certified Public Accountants. A material weakness is a condition in which the design or
operation of one or more of the specific internal control elements does not reduce to a relatively low level
the risk that errors and irregularities in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. We noted no matters involving the internal control
structure and its operations that we consider to be material weaknesses as defined above.
This report is intended for the information of management of the Program and the U.S. Environmental
r, this report is a matter of public record and distribution is not limited.
April 25, 2003
11

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Independent Auditor's Report
on Compliance with Requirements Applicable to the
South Carolina Drinking Water State Revolving Fund Program
in Accordance with
Government Auditing Standards

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Findings and Recommendations
State Match
As of June 30, 2002, the State was out of compliance with 40 CFR 35.3550 which requires States to
provide a dollar for dollar match for expenditures made under the State program management set-aside.
This match must be in the form of an eligible credit, funds deposited into the set-aside accounts, or
documented in-kind services. According to 40 CFR 35.3535, the match is to be provided at the time of
the capitalization grant award or in the same year that funds for this set-aside are expected to be
expended in accordance with a workplan approved by EPA. The State is authorized to use the amount of
State funds it expended on its Public Water System Supervision program in fiscal year 1993 as a credit
up to, but not greater than, 50 percent of the amount of match required.
The State had charged $32,089 expenditures to the State program management set-aside fund during
2002, and should have provided the same amount in state match funds. They had documented $7,904 of
in-kind services that were eligible for match. Including $7,904 in credit available from the fiscal year 1993
funds expended, the total match provided was $15,808, for a $16,281 shortfall.
We recommend the State promptly deposit provide the $16,281 match required for FY 2002 funds (50
percent of which can utilize the available credit from fiscal year 1993.) In future Intended Use Plans, the
State should provide the source of this match, as required by 40 CFR 35.3535(d)(2)(i) and 40 CFR
35.3550(h). It should also provide information on how it met the match requirement in its biennial report
to EPA.
State Response
The State responded:
The Department concurs with the findings.. .of the report for the DWSRF program regarding the
timing of the match for the State program management set-aside fund. Since becoming aware of
this requirement we have taken steps to insure the match is provided on a fiscal year basis, l/l/e
anticipate covering the required match by the closure of the DWSRF Program Grant Agreement
#FS981312-01-1, which is expected to be no later than September 30, 2006.
OIG Response
We appreciate the State recognizing the need to provide the match funds required. However, 40 CFR
35.3550 is an annual requirement, and the shortfall needs to be corrected as soon as possible. We see
no reason for the State to be out of compliance until fiscal year end 2006 on this matter.
14

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Supplemental Information

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State of South Carolina
Drinking Water State Revolving Fund
Schedule of Set-aside Expenses
Year Ended June 30, 2002



Program
Technical

Local

Cost Category
Administration
Management
Assistance
Assistance
Total
Salaries
$
153,739
$ 20,356
$
$
88,873
$ 262,967
Fringe Benefits

42,825
5,219
-

24,607
72,651
T ravel

3,806
1,252
-

336
5,394
Equipment

-
-
-

1,233
1,233
Supplies

249
-
-

8
257
Non Cap-Software

616
-
-

-
616
Contractual

1,454
-
164,074

808,120
973,647
Other Operating Costs

22,062
2,921
-

12,753
37,736
Total Direct Cost

224,750
29,748
164,074

935,929
1,354,501
Indirect Cost

17,680
2,341
-

10,220
30,241
Total Cost
$
242,431
$ 32,089
$ 164,074
$
946,150
$ 1,384,743
16

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Report Distribution
EPA, Headquarters:
Director, Grants Administration
Agency Followup Coordinator
Associate Administrator for Congressional
and Intergovernmental Relations
Associate Administrator for Communications,
Education and Public Affairs
Infrastructure Branch Chief
DWSRF Coordinator
DWSRF Audit Manager
EPA, Region 4:
Regional Administrator
Water Division Director
Chief, Grants and Technical Assistance
Audit Liaison
SRF Coordinator
South Carolina Department of Health and Environmental Control:
Deputy Commissioner
Assistant Director, Water Facilities Permitting Division
South Carolina State Budget and Control Board:
Director
Loan Programs Manager

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