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s	U.S. Environmental Protection Agency	2007-4-00027
£ %M \ Office of Inspector General	November 30,2006
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%; At a Glance
Catalyst for Improving the Environment
Why We Did This Review
In response to a congressional
request, the Office of
Inspector General examined
the execution of U.S.
Environmental Protection
Agency (EPA) grants awarded
to the National Rural Water
Association (NRWA) and the
financial management
practices used by NRWA
under EPA grants.
Background
The NRWA is a nonprofit
organization that provides
technical assistance, training,
and legislative representation
to water providers serving
rural communities. NRWA is
a federation consisting of
48 State associations
representing 49 States. Since
October 2000, NRWA has
received over $70 million
from EPA to provide training
and technical assistance to
rural water systems.
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.aov/oia/reports/2007/
20061130-2007-4-00027.pdf
Examination of Financial Management Practices of the
National Rural Water Association, Duncan, Oklahoma
What We Found
NRWA's method of allocating indirect costs over total direct costs is contrary to
the requirements of the Office of Management and Budget (OMB) Circular
A-122. Currently, NRWA does not exclude subcontracts or subawards from its
indirect cost allocation base. As a result, the EPA grants are bearing a
disproportionate amount of indirect costs. For the period from March 1, 1999, to
February 29, 2004, EPA grants may have been over-allocated by $2,021,821 in
indirect costs. The exact amount of the indirect over-allocation will be determined
during negotiating the indirect cost rate.
NRWA's procedures do not identify all unallowable costs. Because NRWA does
not have written procedures for reviewing costs, its current practice may not
comply with OMB Circular A-122. NRWA's practice of charging costs based
upon budgets does not comply with OMB's definition of direct costs. NRWA
also does not consistently record costs based upon the actual activity performed.
As a result, NRWA's direct and indirect costs may include unallowable costs and
would conflict with its assertion in the cost allocation plan that only allowable
costs are allocated to specific grants and programs.
NRWA's drawdowns for State associations' costs are based upon budgeted
amounts and not on actual expenditures. Because NRWA is distributing payments
based on budgeted and not actual State associations' costs, it may be providing
cash advances in excess of the State associations' immediate needs.
What We Recommend
We recommend that the Director of the Grants Administration Division:
•	Obtain final negotiated indirect cost rates for NRWA.
•	Require NRWA to develop written procedures to (a) identify unallowable
costs in accordance with OMB Circular A-122, and (b) develop written
procedures for the preparation of cash draws.

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