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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Attestation Report
The Environmental Careers
Organization Reported Outlays for
Five EPA Cooperative Agreements
Report No. 2007-4-00065
June 25, 2007
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Report Contributors:
Keith Rei chard
Richard Valliere
Yeon Kim
Abbreviations
Agreement Cooperative Agreement
CFR Code of Federal Regulations
EPA U.S. Environmental Protection Agency
OIG Office of Inspector General
OMB Office of Management and Budget
Recipient The Environmental Careers Organization
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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
2007-4-00065
June 25, 2007
Catalyst for Improving the Environment
Why We Did This Review
We conducted this
examination to determine
whether the (a) reported
outlays for five U.S.
Environmental Protection
Agency (EPA) assistance
agreements were reasonable,
allocable, and allowable in
accordance with the terms and
conditions of the agreements
and applicable regulations;
and (b) The Environmental
Careers Organization
(Recipient) achieved the
intended results of the grant.
Background
EPA awarded five assistance
agreements to the Recipient to
provide internships to students
in the environmental field.
The Environmental Careers Organization Reported
Outlays for Five EPA Cooperative Agreements
What We Found
The Recipient did not comply with the financial and program management
standards promulgated in Title 40 Code of Federal Regulations (CFR), Subchapter
B and OMB Circular A-122. We questioned $6,027,814 of claimed costs because
the Recipient (1) could not support the indirect general and administrative, and
"mission and placement" outlays; (2) did not maintain support for distributing
salaries and wages claimed as indirect general and administration, and "mission
and placement"; (3) could not support relocation outlays; and (4) drew EPA funds
in excess of those needed to meet immediate needs. The Recipient did not have
written accounting procedures for identifying direct and indirect costs, and the
basis for allocating such costs to projects. The Recipient also did not complete the
required single audit for fiscal year 2005 or comply with financial reporting
requirements.
The purpose of the grants was to provide undergraduate and graduate students
with exposure to environmental programs through training and experiences in
conducting research projects at EPA facilities. As of September 30, 2006, the
Recipient recruited 1,423 interns.
What We Recommend
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/
20070625-2007-4-00065.pdf
We recommend that the Director for the Grants and Interagency Agreements
Management Division address the questioned costs by (1) recovering payments of
$4,750,342 unless the recipient can modify its accounting system to meet the
requirements of Title 40 CFR 30.21 to 31.28; (2) recover payments of $1,277,472
incurred for ineligible costs; (3) rescind the final indirect cost rate approved for the
fiscal year ended December 31, 2004; and (4) require the Recipient to establish
policies and procedures for relocating interns that comply with OMB Circular
A-122. To address the reporting issues, the Recipient should be required to
complete and submit its single audit for the fiscal year ended December 31, 2005,
and prepare and submit overdue SF 272 Federal Cash Transactions Reports. Due
to the significance of these findings, we also recommend that EPA stop work on
all active agreements and not award any new agreements until the Recipient meets
minimum financial management requirements and repays all disallowed costs.
The Recipient responded to the draft report on June 5, 2007, but did not provide
additional information that would change the findings and recommendations.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
June 25, 2007
MEMORANDUM
SUBJECT: The Environmental Careers Organization Reported Outlays for Five
EPA Cooperative Agreements
Report No. 2007-4-00065
FROM: Melissa M. Heist
Assistant Inspector General for Audit
TO: Richard Kuhlman
This is our report on the subject audit conducted by the Office of Inspector General (OIG)
of the U.S. Environmental Protection Agency (EPA). This report contains findings that
describe the problems the OIG has identified and corrective actions the OIG recommends.
This report represents the opinion of the OIG and does not necessarily represent the final
EPA position. Final determination on matters in this report will be made by EPA managers
in accordance with established audit resolution procedures.
The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - is $265,099
Action Required
In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to provide
us your proposed management decision for resolution of the findings contained in this
report before any formal resolution can be completed with the grantee. Your proposed
decision is due on October 17, 2007. To expedite the resolution process, please email an
electronic version of your proposed management decision to kasper.ianet@epa.gov.
We have no objections to the further release of this report to the public. For your
convenience, this report will be available at http://www.epa.gov/oig. We want to express
our appreciation for the cooperation and support from your staff during our review. If you
have any questions about this report, please contact Janet Kasper at (312) 886-3059 or the
above email address.
Director, Grants and Interagency Agreement Management Division
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The Environmental Careers Organization
Reported Outlays for Five EPA Cooperative Agreements
Table of C
Background 1
Independent Auditor's Report 3
Results of Examination 5
Recommendations 14
Status of Recommendations and Potential Monetary Benefits 15
Schedules
Schedule 1 Schedule of Recorded Costs/Reported Outlays
and Questioned Costs by Assistance Agreement 16
Schedule 2 Schedules of Excess Mission and Placement Costs 18
Appendices
A Scope and Methodology 20
B Recipient Response 21
C Distribution 24
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Background
The U.S. Environmental Protection Agency (EPA) awarded five cooperative agreements
(agreements) to the Environmental Careers Organization (Recipient) totaling $20,498,630. The
Recipient, which is located in Boston, Massachusetts, was formed in 1972, and is a Section
501(c) (3) not-for-profit organization (specified in the Internal Revenue Code). The following
table summarizes information about the authorized project periods and funds awarded under each
of the five agreements:
Agreement
Award
Date
EPA
Share *
EPA
Payments
Payment
As of
Project Period
EQ82906501
6/13/2001
$3,292,906
$3,243,818
09/28/2006
05/01/2001 - 10/31/2006
EQ82898601
4/23/2001
5,177,194
5,174,355
09/28/2006
05/01/2001 - 10/31/2006
EQ83166001
5/03/2004
5,308,900
4,577,097
09/28/2006
05/01/2004 - 04/30/2007
EQ83103201
8/01/2003
1,772,403
1,184,464
08/17/2006
07/01/2003 - 06/29/2007
EQ82797401
1/05/2000
4,947,227
4,947,227
10/01/2004
10/01/1999-09/30/2004
Total
$20,498,630
$19,126,961
Source: The source of the agreement information was the agreements/amendments. The EPA payments and payment
dates came from EPA's Financial Data Warehouse.
* EPA funded 100 percent of all agreements.
The five agreements were awarded under multiple regulatory authorities based on the EPA
program offices requesting internships. The objective of the five agreements was to provide
undergraduates and graduate students with exposure to environmental programs through training
and experiences in conducting research projects at EPA facilities. The Recipient recruited
interns at universities, with large culturally diverse student populations, to inspire students to
seek environmental careers.
The number of internships by agreement as of September 30, 2006, was as follows:
Agreement
No. of
Internships
EQ82906501
240
EQ82898601
405
EQ83166001
333
EQ83103201
100
EQ82797401
345
Total
1,423
Source: The number of internships
was provided by the Recipient.
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Special Conditions
On February 8, 2006, in order to safeguard EPA funds, EPA imposed a special condition on all
EPA assistance agreements awarded to the Recipient. The special condition limited the
Recipient to drawing EPA funds only for student-related expenses for the interns. The special
condition was placed on the Recipient until the Recipient's new accounting system was in place,
and was capable of properly allocating all direct costs to each of the EPA cooperative
agreements. On August 10, 2006, EPA amended the special condition, and authorized the
Recipient to draw "mission and placement" funds but left intact the prohibition of drawing funds
for indirect costs. As of April 3, 2007, the special condition remained in effect.
To assist the reader in understanding the report, key terms are defined below:
Reported Outlays/Cost: Actual cash disbursements identified by the Recipient on its
Schedules of Recorded Costs and the final Financial Status
Report (Standard Form 269A).
Questioned Costs: Costs that are (1) contrary to a provision of a law,
regulation, agreement, or other document governing the
expenditures of funds; or (2) not supported by adequate
documentation.
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Independent Auditor's Report
We have examined the Schedules of Recorded Costs the Recipient prepared for EPA agreements:
EQ82906501, EQ82898601, EQ83166001, and EQ83103201. The Recipient did not file its
Federal Cash Transactions Reports, Standard Form 272, covering disbursements made for the
periods after June 30, 2005. Accordingly, we asked and received the Recipient's Schedule of
Recorded Costs for each agreement as of September 30, 2006. For agreement EQ82797401, we
examined the outlays that the Recipient reported on its final Financial Status Report.
Preparing the Schedules of Recorded Costs and the final Financial Status Report was the
Recipient's responsibility. Our responsibility is to express an opinion on the Schedules of
Recorded Costs and the final Financial Status Report and whether the reported outlays were
allowable and incurred in accordance with the terms and conditions of the agreements and
applicable EPA regulations. A summary of the Recipient's claimed outlays/recorded costs1 by
agreement follows:
Schedule of Recorded Costs/Financial Status Report
Agreement
Date
Submitted
Period
Ending
Reported
Outlays/Recorded
Costs
EQ82906501
11/29/2006
9/30/2006
$3,220470
EQ82898601
11/29/2006
9/30/2006
5,137,791
EQ83166001
11/29/2006
9/30/2006
4,448,356
EQ83103201
11/29/2006
9/30/2006
1,215,797
EQ82797401
12/30/04
9/30/2004
4,774,690
Total
$18,797,104
Source: Except for agreement EQ82797401, the sources of the recorded costs were the
Recipient's Schedules of Recorded Costs dated November 29, 2006. For agreement
EQ82797401, the source of the reported outlays was the Recipient's final Financial Status
Reports dated December 30, 2004.
We conducted our examination in accordance with the Government Auditing Standards issued by
the Comptroller General of the United States, and the attestation standards established for the
United States by the American Institute of Certified Public Accountants. We also followed the
guidelines and procedures established in the Office of Inspector General Project Management
Handbook, dated January 14, 2005. We examined, on a test basis, evidence supporting the
reported outlays, and performed such other procedures as we considered necessary in the
circumstances (see Appendix A for details). We believe that our examination provides a
reasonable basis for our opinion.
1 For reporting purposes, we will refer to the Recipient's claimed outlays/recorded costs as outlays or costs.
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We questioned reported outlays of $6,027,814 because the Recipient did not comply with the
financial and program management standards in Title 40 Code of Federal Regulations (CFR),
Subchapter B, Part 30.
In our opinion, because of the effects of the findings discussed in the Results of Examination, the
Schedules of Recorded Costs by Assistance Agreement and the outlays that the Recipient
reported on its final Financial Status Report do not present fairly, in all material respects, the
allowable costs incurred in accordance with the terms and conditions of the agreements and
applicable EPA regulations.
(fatet 'Ki
Janet Kasper
Office of Inspector General
U.S. Environmental Protection Agency
May 4, 2007
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Results of Examination
Financial and Program Management Systems Did Not Comply with
Standards
The Recipient did not comply with the financial and program management standards
promulgated in Title 40 Code of Federal Regulations (CFR), Subchapter B, and OMB Circular
A-122. We questioned $6,027,814 of claimed costs because the Recipient (1) could not support
the indirect general and administrative, and "mission and placement" outlays; (2) did not
maintain support for distributing salaries and wages claimed as indirect general and
administration, and "mission and placement"; (3) could not support relocation outlays; and (4)
drew EPA funds in excess of those needed to meet immediate needs. The Recipient did not have
written accounting procedures for identifying direct and indirect costs, and the basis for
allocating such costs to projects. The Recipient also did not complete the required single audit
for fiscal year 2005 or comply with financial reporting requirements.
The provisions of Title 40 CFR 30.62 provide that if a recipient materially fails to comply with
the terms and conditions of an award, whether stated in a Federal statute, regulation, assurance,
application, or notice of award, EPA may disallow all or part of the cost of the activity or action
not in compliance. Because the Recipient did not comply with the grant regulations, we
questioned $6,027,814 paid to the Recipient.
Unsupported Indirect Outlays
We questioned the indirect costs that the Recipient allocated to the agreements for several
reasons. First, the Recipient allocated indirect costs to the EPA agreements based on an
unsupported predetermined indirect rate that was not negotiated with either EPA or any
other Federal agency. Second, the Recipient did not use the final rate it had negotiated
for fiscal year 2004 when allocating indirect costs to the agreements. Third, the
Recipient's indirect costs included unallowable and unsupported costs that may impede
EPA from negotiating indirect rates. As a result, we have questioned $2,647,855 of
indirect costs and are recommending EPA rescind the approved final indirect rate for
fiscal year 2004. See Schedule 1, Note 3, for the detail of questioned indirect outlays by
agreement.
Under the provisions of OMB Circular A-122, Attachment A, Paragraph E, a
predetermined rate may be negotiated for use on awards where there is reasonable
assurance, based on past experience and reliable projection of the organization's costs,
that the rate is not likely to exceed a rate based on the organization's actual costs.2 Where
predetermined rates are not appropriate, the Circular requires provisional and final rates
2 A predetermined rate means an indirect cost rate, applicable to a specified current or future period, usually the
organization's fiscal year. The rate is based on an estimate of the costs to be incurred during the period. A
predetermined rate is not subject to adjustment.
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be negotiated. The Circular defines a provisional rate as a temporary indirect cost rate
applicable to a specified period which is used for funding, interim reimbursement, and
reporting indirect costs on awards pending the establishment of a final rate for the period.
A final rate means an indirect cost rate applicable to a specified past period which is
based on the actual costs of the period. A final rate is not subject to adjustment.
The Circular provides that a nonprofit organization which has not previously established
an indirect cost rate with a Federal agency shall submit to its cognizance agency, for
negotiation, an initial indirect cost proposal immediately after the organization is advised
that an award will be made and, in no event, later than 3 months after the effective date of
the award. After establishing an indirect cost rate, the Recipient must submit a new
indirect cost proposal to the cognizant agency within 6 months after the close of each
fiscal year. The results of each negotiation shall be formalized in a written agreement
between the cognizant agency and the nonprofit organization.
The Recipient did not negotiate either provisional or final indirect cost rates for any fiscal
year, except fiscal year 2004. For fiscal year 2004, the Recipient negotiated a final
indirect rate of 18.14 percent with EPA. The Recipient, however, did not use the final
negotiated indirect rate in determining the reported indirect outlays for fiscal year 2004.
Instead, the Recipient determined its reported indirect outlays of $2,647,855 (see
Schedule 1, page 15), by using an unsupported predetermined indirect rate of 18 percent
applied to the total outlays for stipends, stipend fringes, stipend other, and "mission and
placement." Accordingly, we questioned the allocated indirect outlays of $2,647,855 as
unsupported. We also recommend that EPA rescind the approved final indirect rate for
fiscal year 2004 for the reasons discussed below.
During our field work, the recipient prepared and provided us with final indirect rates for
all fiscal years including a revised rate for fiscal year 2004.3 Our review of these rates
identified three issues that may impede EPA from negotiating any rates with the
Recipient. First, the Recipient included development costs in the indirect expense pools.
According to the Recipient, development costs includes raising funds through grant
writing, direct mail appeals, special events, and direct personal requests to foundations,
corporations, government, and alumni for recruiting and placing interns. OMB Circular
A-122, Attachment A, Paragraph B (3) provides that fund raising costs are not allowable
as charges to Federal awards and must be treated as a direct cost. The following table
identifies the development costs which were included in the indirect cost pools:
3 The indirect cost rates the Recipient provided to us during the audit had not been submitted and negotiated with
EPA, as required by OMB Circular A-122.
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Fiscal Year
Amount
2000
$173,644
2001
225,366
2002
151,000
2003
89,018
2004
70,289
2005
37,928
2006
22,716
Total
$769,961
Source: OIG analysis of Recipient
accounting records
The second issue we identified was that the Recipient included certain direct costs as
indirect costs contrary to the provisions of OMB Circular A-122, Attachment A,
Paragraphs B and C. Specifically, the Recipient included direct costs related to the
Department of Interior and the State of California projects as indirect costs. The Recipient
also included direct intern fringe benefits costs as indirect costs. The Recipient did not
provide us with a complete listing of project numbers, therefore, we could not identify the
total direct project costs that needed to be removed from the indirect cost pools.
Finally, the Recipient's timekeeping practices also impact the Agency's ability to
negotiate indirect cost rates. We were unable to determine the validity of the labor costs
included in both the indirect costs pool and the indirect cost allocation base for any fiscal
year (see discussion below under Unsupported Salaries and Wages).
In response to the draft report, the Recipient stated that it had submitted indirect cost
proposals for several years, but a rate was only negotiated for 2004. The Recipient
agreed that there were some errors that resulted in billing different rates, but the
provisional rate was substantially less than the actual indirect cost rates. According to the
Recipient, even if the unallowable items were excluded, the rate billed was less than
actual funds spent. While the Recipient stated that actual indirect costs exceeded what
was billed, the EPA must approve the indirect cost rates before they can be used to
determine allowable costs.
Unsupported "Mission and Placement" Outlays
The Recipient's "mission and placement" costs were costs that the Recipient incurred to
recruit and place interns for EPA. We questioned "mission and placement" costs that the
Recipient allocated to the agreements for two reasons. First, the Recipient allocated the
"mission and placement" costs to the EPA agreements based on unsupported
predetermined "mission and placement" rates that were not negotiated with either EPA or
any other Federal agency. Second, the Recipient's "mission and placement" outlays
included unsupported costs that may impede EPA from negotiating the "mission and
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placement" rates. As a result, we have questioned $2,616,154 of "mission and
placement" costs. See Schedule 1, Note 2, for the detail of questioned "mission and
placement" outlays by agreement.
The Recipient did not identify the "mission and placement" costs specifically to a
particular final cost objective, i.e., a particular award or project of the organization.
Instead, the Recipient identified and recorded the "mission and placement" costs as EPA
program costs, and then identified the costs to the EPA agreements based on
predetermined rates applied to the stipends paid under each EPA agreement. For
example, the Recipient identified "mission and placement" costs to EPA agreement
EQ82797401 at a rate of 23.09 percent, but the costs actually varied from 12.36 percent
in calendar year 2000 to 23.16 percent in calendar year 2004 (see Schedule 2.5, on page
19). The actual rates varied each year depending upon the actual costs incurred for
mission and placement activities and stipends paid to interns. The use of predetermined
rates in this case resulted in excess outlays of $180,563 being identified to the EPA
agreement.
Title 40 CFR 30.27 provides that the allowable costs incurred by nonprofit organizations
are determined in accordance with the provisions of OMB Circular A-122. OMB
Circular A-122 provides that predetermined rates may only be used if negotiated and
formalized in a written agreement between the cognizant agency and the nonprofit
organization. We found no evidence that predetermined rates were negotiated by EPA or
any other Federal agency.
As previously noted, a predetermined rate may be negotiated for use on awards where
there is reasonable assurance, based on past experience and reliable projection of the
organization's costs, that the rate is not likely to exceed a rate based on the organization's
actual costs. Where predetermined rates are not appropriate, the Circular requires
provisional and final rates be negotiated. The Recipient did not submit and negotiate
either provisional or final "mission and placement" rates for any fiscal year.
In total, under the five agreements, the Recipient identified "mission and placement"
costs of $2,616,154. During our field work, the Recipient calculated actual "mission and
placement" rates for all periods under review.4 Based on the Recipient's calculations, the
identified "mission and placement" costs exceeded the actual costs by $513,667 under the
five agreements. Consequently, the $513,667 amount is unallowable. The remaining
"mission and placement" costs of $2,102,487 ($2,616,154 - $513,667) are also
unallowable as the recipient did not submit its "mission and placement" rates to EPA for
negotiation as required by the OMB Circular A-122, Attachment A, Paragraph E (2).
Further, we were unable to determine the allowability of some of the costs included in
"mission and placement" cost pools for the fiscal years under review which may impact
the Agency's ability to negotiate the "mission and placement" rates. We requested but
4 The indirect "mission and placement" rates the Recipient provided to us during the audit had not been submitted
and negotiated with EPA, as required by OMB Circular A-122.
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the Recipient did not provide us with source documentation to support costs in such
accounts as (1) grant funded programs, (2) bank fees, (3) conference expenses, and (4)
outside consulting and travel costs. In addition, we were unable to determine the validity
of the labor costs included in "mission and placement" cost pool for any fiscal year.
Should the Recipient submit final "mission and placement" rates to EPA for negotiation,
we recommend that EPA disallow all costs that are not supported, including all labor
costs (see discussion below under Unsupported Salaries and Wages). See Schedule 1,
Note 2, for the detail of questioned "mission and placement" outlays.
In responding to the draft report, the Recipient stated that while the "mission and
placement" rates were not negotiated, they were annually provided to EPA. Changes in
staffing also contributed to the differences between the recorded and actual "mission and
placement" costs. The Recipient agreed that the costs were applied to agencies rather
than individual, but not did believe that this would cause a difference for total awards to
the agency since costs were allocated based on level of activity. We audited all of the
EPA grants for the time period, and found that the recorded "mission and placement"
costs were higher than actual costs for each grant, and therefore the costs were higher at
the agency level.
Unsupported Salaries and Wages
The Recipient did not maintain support for distributing its salaries and wages as required
by OMB Circular A-122. As a result, the "mission and placement" and indirect labor
costs recorded in the general ledger were not supported as required by OMB Circular A-
122, Appendix B, Paragraph 7 m.
OMB Circular A-122 requires that labor reports reflecting activity of each employee must
be maintained for all staff members (professional and nonprofessional) whose
compensation is charged, in whole or in part, directly to awards. To satisfy these
requirements, reports maintained by nonprofit organization must meet the following
standards:
... The distribution of salaries and wages to awards must be supported by
personnel activity reports...
The reports must reflect an after-the-fact determination of the actual
activity of each employee. Budget estimates (i.e[. ], estimates determined
before the services are performed) do not qualify as support for charges to
awards...
Each report must account for the total activity for which employees are
compensated and which is required in fulfillment of their obligations to
the organization...
The reports must be prepared at least monthly and must coincide with one
or more pay periods.
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The Recipient recorded "mission and placement" labor and indirect labor in the general
ledger based on predetermined budget estimates of the employees' time. Although
employees did maintain time sheets, the time sheets only identified hours worked for
payroll purposes only. The time sheets did not identify any final cost objectives which
would be needed to distribute the employees' salaries and wages to awards as required by
OMB Circular A-122.
In June 2006, the Recipient revised the employee time sheets to reflect the employees'
total labor activity. With this time sheet revision, the Recipient required employees to
record direct and indirect time. The Recipient also added a new category entitled
"Overhead Cost Objectives." The work hours recorded as "Overhead Cost Objectives"
reflected time spent on multiple awards within a funding agency. These costs were to be
identified directly to final cost objectives based on a percentage of direct time charged to
final cost objectives by each funding agency. In January 2007, the Recipient again
revised its employee time sheets and eliminated the "Overhead Cost Objectives" labor
category. The current time sheets, if used to distribute salaries and wages to awards, will
comply with OMB Circular A-122. However, we did not perform any transaction testing
of the new time sheets. Accordingly, we can not express an opinion on the adequacy of
the revisions made.
In responding to the draft report, the Recipient stated that timesheets were completed, but
did not identify specific awards. The rate at which the Recipient charged time to the
agreements approximated the activity level for the particular agency and made more
sense and was more accurate than what is required by Federal regulations. While the
Recipient believed its method was more accurate, it did not provide documentation to
support that conclusion. OMB Circular A-122 identifies allowable methods for
supporting salaries and wages, and requires awarding agency approval for other methods.
The Recipient did not have approval for any other method. By definition, costs not
supported by adequate documentation are questioned.
Excess Cash Drawn Down
The Recipient received $361,190 more in EPA funds than incurred and recorded in its
accounting system. The Recipient determined the amount of EPA funds to be drawn
down by using budgeted amounts instead of actual costs incurred. The provisions of
Title 40 CFR 30.22 provide that payment methods shall minimize the time elapsing
between the transfer of funds from the United States Treasury and the issuance or
redemption of checks, warrants, or payment by the recipient. Cash advances shall be
limited to the minimum amounts needed and be timed to be in accordance with the actual,
immediate cash requirements of the recipient organization in carrying out the purpose of
the approved program or project.
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We have calculated the excess cash as follows:
Outlay
Category
Recorded Costs/Reported Outlays
EQ82906501
EQ82898601
EQ83166001
EQ82797401
Total
Total
Outlays
As of
9/30/06
$ 3,220,470
$5,137,791
$4,448,356
$4,774,690
$17,581,307
Cash
Drawn
As of
9/30/06
3,243,818
5,174,355
4,577,097
4,947,227
17,942,497
Excess
Cash
Draws
$ 23,348
$ 36,564
$ 128,741
$ 172,537
$361,190
Source: The source of the excess cash draws was the OIG analysis of recorded
costs/reported outlays and the cash draws.
In addition to the excess recorded costs, for agreement number EQ82797401, the
Recipient incurred costs of $216,615 after the project period ended on September 30,
2004. Title 40 CFR 30.28 provides that a recipient may charge to the agreement only
allowable costs resulting from obligations incurred during the funding period. At the end
of the project period, the Recipient drew EPA funds to pay for the Community Intern
Program and the Associate Career Conference in 2005. Since the agreement project
period expired on September 30, 2004, costs incurred after September 30, 2004, are
unauthorized and have been questioned.
Unsupported and Unallowable Relocation Outlays
We questioned claimed relocation outlays of $186,000 as unsupported because the
Recipient did not (1) demonstrate that the claimed relocation outlays were allowable
under the OMB Circular A-122, (2) support the actual relocation expenses incurred by
interns as required by OMB Circular A-122, and (3) demonstrate whether the interns
actually relocated. Accordingly, we questioned claimed relocation outlays of $186,000
as unsupported. See Schedule 1, Note 2, for details on the questioned relocation outlays
by agreement.
In announcing the availability of Federal assistance to conduct the intern program, EPA
announced that internships may be located at EPA or at facilities of other organizations
with missions relating to environmental protection. The maximum period an intern may
participate in the intern program on a full- or part-time basis with funding from EPA was
limited to 6 months with a possibility of a 3-month extension to complete a project. If
interns were required to relocate, EPA would provide financial assistance to the recipient
in an amount up to $500 to offset the interns' relocation expenses.
OMB Circular A-122, Attachment B, Paragraph 45 defines relocation costs as costs
incident to the permanent change of duty assignment (for an indefinite period or for a
stated period of not less than 12 months) of an existing employee or upon recruiting a
new employee. The EPA interns were limited to 6 months with a possible extension of 3
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months. Thus, relocation costs are not authorized under the Circular as the stated period
of employment was less than 12 months.
Attachment A, Paragraph 45 of the Circular also provides that relocation expenses are
allowable provided that the reimbursement (1) does not exceed the employee's actual (or
reasonably estimated) expenses, and (2) is in accordance with an established written
policy followed by the employer. The Recipient neither required receipts from the
interns, nor established any written policies or procedures as required by the Circular.
Consequently, all the relocation costs are unsupported and thus unallowable.
We sampled 25 relocation transactions to determine if the interns lived within 50 miles of
the facility where the internships were located. Of the 25 transaction tested, we
determined that 14, or 56 percent, of the interns worked within 50 miles of the
internship's residence. Consequently, there did not appear to be a need for the interns to
relocate in 56 percent for the transactions tested.
According to the Recipient, in some EPA offices, EPA used the $500 relocation amount
as "getting started" assistance for the interns. The Recipient described the "getting
started" assistance as help in establishing the interns' housing, and assistance until the
first pay check arrived. All interns in certain EPA locations received the $500 relocation
amount regardless of whether the intern actually relocated. We do not consider "getting
started" assistance as an authorized relocation expense under the Circular. Thus the costs
are unallowable.
In responding to the draft report, the Recipient stated that EPA offered relocation
assistance for interns that would spend only 9 months on a project. Therefore, it is
reasonable to conclude that EPA was not offering the assistance in the context of
relocation as defined in OMB Circular A-122. In many instances, the project advisor
from EPA offered the relocation assistance as an enticement to secure a particular
candidate who would not normally accept the position at the pay rate offered. While
EPA may have intended the relocation costs to be an enticement to hire particular
candidates, it must do so within the requirements of Federal regulations. Only OMB has
the authority to grant exceptions to OMB Circular A-122.
Written Accounting Procedures Did Not Meet Standards
The Recipient did not have written accounting procedures for identifying direct and
indirect costs, and the basis for allocating such costs to projects, as required by the
regulations. Title 40 CFR 30.21(b) (6) states that the Recipient's financial management
system shall provide written procedures for determining that costs are reasonable,
allowable, and allocable in accordance with the Federal cost principles and the terms of
the agreement.
The Recipient did revise its Accounting Procedures Manual on June 1, 2006. However,
this manual is only a compilation of Federal requirements that the Recipient should
follow. It does not identify the procedures and practices to be used when recording costs.
12
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The manual does not identify the program project codes, nor does it identify the Chart of
Accounts to be used when recording costs. This manual states that the Recipient has
established overhead pools using a rational definition of "pool" based upon programs
offered. It did not provide any details identifying the pool composition nor the base to
which the rate will be applied.
The Recipient needs to develop specific written procedures to address recording and
allocating costs in its financial management system. In response to the draft report, the
Recipient stated that the entire accounting staff left the organization in the summer of
2006, and new staff was hired in the fall of 2006. Much of the staffs time was spent
replying to requests for historical information from the audit and little time was left to
develop procedures.
Single Audit Not Completed
The Recipient did not submit its single audit report for fiscal year 2005 to the Federal
Audit Clearing House timely. OMB Circular A-133, Paragraph 320, requires entities to
submit the audit report within the earliest of 30 days of the receipt of the audit report or 9
months after the audit period. Thus, the audit report should have been submitted no later
than September 30, 2006. It had not been submitted at the time we completed our audit
fieldwork. In replying to the draft report, the Recipient agreed that the Single Audit was
not performed.
Noncompliance with Financial Reporting Requirements
The Recipient did not file its semiannual Federal Cash Transactions Reports (SF272)
covering its outlays for the period July 1, 2005, through June 30, 2006. Outlays for the
period July 1, 2006, through September 30, 2006, were required to be reported by
January 15, 2007. As of April 13, 2007, the reports had not been submitted.
Administrative Grant Conditions require the Recipient to submit its Federal Cash
Transactions Report within 15 working days following the end of the semiannual periods
ending June 30 and December 31 of each year. This report is used by EPA to monitor
cash advances to the Recipient and to obtain disbursement information for each
agreement. The Recipient did not comply with EPA reporting requirements. In
responding to the draft report, the Recipient stated it was not practical to submit the forms
prior to completion of the audit, and that declarations as to the accuracy of the
information would not be truthful given the known adjustments to the prior period.
13
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Recommendations
We recommend that the Director, Grants and Interagency Agreement Management Division:
1. Recover payments of $4,750,342s unless the Recipient can modify its accounting
system to meet the requirements of Title 40 CFR 30.21 to 31.28 and
a. Prepare and submit mission and placement rates to EPA for negotiation,
b. Prepare and submit indirect cost rates for fiscal year 1999 through 2007 for
negotiation (see also recommendation 3), and
c. Provide documentation to support labor costs included in the mission and
placement and indirect cost rates.
2. Recover payments of $1,277,472 incurred for ineligible costs.
3. Rescind the final indirect cost rate approved for the fiscal year ended December 31,
2004.
4. Require the Recipient to establish policies and procedures for relocation costs that
comply with OMB Circular A-122.
5. Require the Recipient to complete and submit its single audit for the fiscal year ended
December 31, 2005.
6. Require the Recipient to prepare and submit overdue SF 272 Federal Cash
Transactions Reports.
7. Stop work on all active agreements.
8. Not award any new agreements until the Recipient meets (a) minimum financial
management requirements, including updating written accounting procedures and
procedures for cash draws and (b) repays all disallowed costs.
5 Represents the questioned mission and placement and indirect costs, less the $513,667 of mission and placement
costs in excess of actual costs.
14
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
14 Recover payments of $4,750,342 unless the
Recipient can modify its accounting system to
meet the requirements of Title 40 CFR 30.21 to
31.28 and
a. Prepare and submit mission and placement
rates to EPA for negotiation,
b. Prepare and submit indirect cost rates for the
fiscal year 1999 through 2007 for negotiation
(see also recommendation 3), and
c. Provide documentation to support labor costs
included in the mission and placement and
indirect cost rates.
14 Recover payments of $1,277,472 incurred for
ineligible cost
14 Rescind the final indirect cost rate approved for U
the fiscal year ended December 31, 2004.
14 Require the Recipient to establish policies and
procedures for relocation costs that comply with
OMB Circular A-122.
14 Require the Recipient to complete and submit
its single audit for the fiscal year ended
December 31,2005.
14 Require the Recipient to prepare and submit
overdue SF 272 Federal Cash Transactions
Reports.
14 Stop work on all active agreements.
14 Not award any new agreements until the
Recipient meets minimum financial
management requirements and repays all
disallowed costs.
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
EPA Director, Grants and
Interagency Management
Division
Planned
Completion
Date
Claimed
Amount
Agreed To
Amount
TBD
$4,750
TBD
TBD
TBD
TBD
TBD
TBD
TBD
$1,277
1 O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
15
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Schedule 1
Schedule of Recorded Costs/Reported Outlays and Questioned Costs
by Assistance Agreement
Category
Recorded Costs/Reported Outlays by Agreement
Note
EQ82906501
EQ82898601
EQ83166001
EQ83103201
EQ82797401
Total
Stipends
$ 1 913 3R?
$3,104,707
$2,879,587
$ 771 043
$ ? R73 ?70
$ 11,341,969
Stipend Fringes
210,303
332,676
253,515
73,900
294,060
1,164,454
Stipend Other
106,281
224,110
160,533
40,869
278,225
810,018
Subtotal
$ 2,229,946
$ 3,661,493
$ 3,293,635
$ 885,812
$ 3,245,555
$ 13,316,441
Mission and Placement
519,203
706,274
606,697
166,760
617,220
2,616,154
Indirect
471,321
770,024
548,013
163,197
695,300
2,647,855
Fee
_
_
11
28
_
39
Other
_
_
_
_
389,152
389,152
Total
$ 3,220,470
$5,137,791
$ 4,448,356
$ 1,215,797
$ 4,947,227
$18,969,641
Questioned Costs:
Stipend Other - Relocation
18,000
55,500
18,500
10,000
84,000
186,000
1
Mission and Placement
519,203
706,274
606,697
166,760
617,220
2,616,154
2
Indirect
471,321
770,024
548,013
163,197
695,300
2,647,855
3
Other
0
0
0
0
216,615
216,615
4
Excess Cash Draws
23,348
36,564
128,741
0
172,537
361,190
4
Total Questioned
$ 1,031,872
$ 1,568,362
$ 1,301,951
$ 339,957
$1,785,672
$6,027,814
Source: Except for agreement EQ82797401, the sources of the recorded costs were the Recipient's Schedules of Recorded Costs dated
November 29, 2006. For agreement EQ82797401, the source of the reported outlays was the Recipient's final Financial Status Reports dated
December 30, 2004. The source of the questioned amount was the OIG analysis of recorded costs/reported outlays.
16
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Note 1: See the Results of Examination, page 11, for the discussion of unsupported and
unallowable relocation outlays. The summary of questioned relocation outlays
follows:
Agreement
No. of
Interns
Questioned
EQ82906501
36
$ 18,000
EQ82898601
111
55,500
EQ83166001
20
10,000
EQ83103201
37
18,500
EQ82797401
168
84,000
Total
372
$ 186,000
Note 2: See the Results of Examination, page 7, for the discussion of unsupported
"mission and placement" outlays. The questioned "mission and placement"
outlays of $2,616,154 consist of (1) outlays of $513,667 identified in excess of
actual costs; and (2) outlays of $2,102,487 ($2,616,154 - $513,667) based on rates
which were not submitted to EPA for negotiation. The summary of the
questioned excess "mission and placement" outlays follows:
Agreement
Excess
Amount
Rate not
submitted for
negotiation
Schedule
EQ82906501
$59,594
$ 459,609
2.1
EQ82898601
148,877
557,397
2.2
EQ83166001
107,374
499,323
2.3
EQ83103201
17,259
149,501
2.4
EQ82797401
180,563
436,657
2.5
Total
$513,667
$2,102,487
Source OIG analysis of recorded costs/reported
outlays.
Note 3: See the Results of Examination, page 5, for the discussion of unsupported
indirect outlays of $2,647,855.
Note 4: See the Results of Examination, page 10, for the discussion of the excess cash
draws and other costs incurred after the grant project period.
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Schedule 2
Schedules of Excess Mission and Placement Costs
In Schedule 1, Note 2, we questioned "mission and placement" costs of $513,667 identified to
the EPA agreements in excess of actual outlays incurred. The following schedules detail the
questioned excess outlays by agreement. Beginning June 1, 2006, the Recipient revised its
accounting system to identify "mission and placement" costs as a direct cost, and did not use a
"mission and placement rate," therefore, we used N/A (not applicable) for that period.
Schedule 2.1
Agreement EQ82906501
Period
Total
Stipend
Mission and Placement Rates
Excess
Amount
Recorded
Actual
Difference
CY 2001
$ 96,645
23.09%
16.83%
6.26%
$6,050
CY 2002
200,388
23.09%
18.88%
4.21%
8,436
CY 2003
465,121
23.09%
17.15%
5.94%
27,628
CY 2004
931,602
24.12%
23.16%
.96%
8,943
1/1/2005-6/30/2005
85,958
24.00%
18.04%
5.96%
5,123
7/1/2005- 12/31/2005
64,296
23.35%
18.04%
5.31%
3,414
1/1/2006-5/31/2006
17,756
23.09%
32.47%
(9.38%)
0
6/1/2006 - 9/30/2006
51,596
N/A
N/A
N/A
Total
$ 1,913,362
$59,594
Schedule 2.2
Agreement EQ82898601
Period
Total
Stipend
Mission and Placement Rates
Excess
Amount
Recorded
Actual
Difference
CY 2001
$299,910
23.09%
16.83%
6.26%
$ 18,774
CY 2002
1,164,240
23.09%
18.88%
4.21%
49,015
CY 2003
1,209,592
23.09%
17.15%
5.94%
71,850
CY 2004
159,195
23.09%
23.16%
(.07%)
0
1/1/2005-6/30/2005
34,873
23.09%
18.04%
5.05%
1,761
7/1/2005- 12/31/2005
148,065
23.09%
18.04%
5.05%
7,477
1/1/2006-5/31/2006
8,452
23.09%
32.47%
(9.38%)
0
6/1/2006 - 9/30/2006
80,380
N/A
N/A
N/A
Total
$ 3,104,707
$ 148,877
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Schedule 2.3
Agreement EQ83166001
Period
Total
Stipend
Mission and Placement Rates
Excess
Amount
Recorded
Actual
Difference
CY 2004
$ 315,831
25.00%
23.16%
1.84%
$ 5,811
1/1/2005-6/30/2005
480,620
24.98%
18.04%
6.94%
33,355
7/1/2005- 12/31/2005
980,001
25.00%
18.04%
6.96%
68,208
1/1/2006-5/31/2006
336,748
25.00%
32.47%
(7.47%)
0
6/1/2006 - 9/30/2006
766,387
N/A
N/A
N/A
Total
$ 2,879,587
$ 107,374
Schedule 2.4
Agreement EQ83103201
Period
Total
Stipend
Mission and Placement Rates
Excess
Amount
Recorded
Actual
Difference
CY 2003
$ 10,610
23.09%
17.15%
5.94%
$630
CY 2004
393,893
23.75%
23.16%
.59%
2,324
CY 2005
125,070
24.62%
18.04%
6.58%
8,230
7/1/2005- 12/31/2005
87,412
24.99%
18.04%
6.95%
6,075
1/1/2006-5/31/2006
23,349
25.00%
32.47%
(7.47%)
0
6/1/2006 - 9/30/2006
130,709
N/A
N/A
N/A
Total
$771,043
$ 17,259
Schedule 2.5
Agreement EQ82797401
Period
Total
Stipend
Mission and Placement Rates
Excess
Amount
Recorded
Actual
Difference
CY 2000
$ 748,378
23.09%
12.36%
10.73%
$ 80,301
CY 2001
810,151
23.09%
16.83%
6.26%
50,715
CY 2002
308,264
23.09%
18.88%
4.21%
12,978
CY 2003
615,640
23.09%
17.15%
5.94%
36,569
1/1/04-9/30/04
190,837
23.09%
23.16%
(.07%)
0
Total
$ 2,673,270
$ 180,563
Source: The source of Schedules 2.1 through 2.5 was the OIG analysis of recorded
costs/reported outlays.
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Appendix A
Scope and Methodology
We performed our examination in accordance with the Government Auditing Standards, issued
by the Comptroller General of the United States, and the attestation standards established by the
American Institute of Certified Public Accountants. We also followed the guidelines and
procedures established in the Office of Inspector General Project Management Handbook, dated
January 14, 2005. We conducted this examination to express an opinion on the Recorded
Costs/Reported Outlays by Agreement, and determine whether the Recipient complied with all
applicable laws and regulations, as well as any special requirements under the agreement. We
conducted our field work from November 29, 2006, through March 9, 2007.
In conducting our examination, we performed the following procedures:
• We reviewed the cooperative agreements and project files to obtain background
information on the Recipient and the agreements.
• We interviewed the Recipient's personnel to understand the current accounting system
and the applicable internal controls as they relate to the reported outlays. Prior to our
audit, all of the Recipient's senior accounting personnel had terminated employment and
the current staff did not have knowledge of the prior accounting system and internal
controls for recording financial information in the prior system. Therefore, we based our
review on transactions testing only for those costs.
• We reviewed the most recent single audit reports to identify issues which may impact our
examination.
• We examined the recorded costs/reported outlays on a test basis to determine whether the
outlays were adequately supported and eligible for reimbursement under the terms of the
agreements and Federal regulations and cost principles.
• We reviewed the cooperative agreements to identify activities the Recipient was to
perform and evaluated the activities it accomplished.
20
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Appendix B
Recipient Response
June 5, 2007
Richard Valliere
EPA, Office of Inspector General (OIG)
One Congress Street
Suite 1100
Boston, MA 02114-2023
Dear Mr. Valliere,
Please accept this letter as the response to the Draft Attestation Report dated May 7,
2007. I have made comments or responses in the same order as they appear in your report.
1. Unsupported Indirect Outlays
A. The Organization had submitted indirect cost proposals to the EPA for negotiation
in several of the years covered under the audit period. The EPA never responded
to the submission of these reports or assigned an indirect rate other than in year
2004. The EPA has given the impression that it did not care about these reports
until it was time for an audit.
B. In indirect rate was assigned at 18.14% for 2004. There were some billing errors
that used either 18% or 19%.
C. The provisional rate of 18.14% was used in 2005 even though actual rates were
running in the area of 23%. As later approved by our cognizant agency.
D. There were no employees from ECO left on staff during the audit period that
would have had first hand knowledge of the transactions in question. Simply
determining that they are unallowable is considerably different than the standard
of reasonableness.
E. The Organization summarized data in a short period of time from historical
records for which no person was on staff that prepared the information. This was
not a submission or negotiation of an indirect rate. Even with items that may have
been unallowable costs excluded from the calculation of indirect costs, the rate
billed was still less than the actual funds spent.
2. Unsupported "Mission and Placement" Outlays
A. It would appear that no Mission and Placement rate was negotiated. However,
there was a calculation made annually to provide for reimbursement of these costs
and those calculations were provided.
B. There would certainly be differences with documentation and calculations of rates
made by people no longer employed by the organization and calculated as much
as six years ago.
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C. The Organization applied costs to agencies rather than by actual project. This
may cause some discrepancy on an individual award within the particular agency
but certainly not with in that agency since the costs were allocated based on a
level of activity or volume. This hardly seems to warrant the disallowance of all
expenses.
3. Unsupported Salaries and Wages
A. Time sheets for program staff were completed but not assigned to specific
contracts or awards.
B. Most staff employees performed administrative functions only, such as
accounting, human resources or administrative duties.
C. The purely administrative staffs time was charged to indirect expenses.
D. Program Managers were the only billable people spending time on contracts or
awards.
E. The program staff had very little, if any, administrative time.
F. The job title and description for the program staff specified the duties they would
perform, which is entirely billable.
G. Some staff had job titles such as EPA Program Coordinator. Their position
required they recruit staff and manage EPA Programs only.
H. The same is the case for other program managers with other specific agencies.
I. There were two managers that had any significant allocation of their time across
several agencies. With job titles such as Federal Programs Manager this would
make sense.
J. The rate at which time was charged to agencies would approximate the activity
level with those agencies.
K. Applying time by tiny increments to specific task orders is highly unrealistic.
Even though you will be complying with the A-122, in reality you are really
pretending to track costs. Using allocation of time based on level of activity,
especially when all the awards provide for the same activity, makes much more
sense and is infinitely more accurate.
4. Unsupported and Unallowable Relocation Outlays
A. The EPA awards offered relocation assistance even though it was an award that
did not allow for interns to spend more than 9 months on any particular
assignment. Therefore, it was reasonable to expect that the "relocation" the EPA
was offering was not in the context of the relocation definition in the A-122.
B. In many instances it was the Project Advisor from the EPA who offered the
"relocation" to the intern as further enticement to secure a particular candidate
who would not normally accept the position at the pay rate offered.
5. Written Accounting Procedures Did Not Meet Standards
A. The entire accounting staff of ECO had left the Organization by the summer of
2006.
B. The department was staffed with people with actual accounting degrees and
experience by fall of 2006.
22
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C. During the following months the entire department and much of the other
administrative staff was bogged down by requests for historical information in
course of the audit, not to mention trying to keep the existing activity current.
This left precious little time to document a new accounting procedure.
6. Single Audit Not Complete
A. The audit was almost impossible to complete while an ongoing EPA audit is
happening at the same time.
B. The outcome of the audit was of great interest to our accountants.
7. Noncompliance with Federal Reporting Requirements
A. The submission of the Federal Cash Transactions Reports (SF272) was not
practical with out the completion of the EPA audit.
B. Any declarations signed by the preparer could be considered untruthful if
adjustments were made to the prior period. This was a "catch 22" situation.
If you have any question please do not hesitate to contact me.
Sincerely,
Kevin D. Carter, CPA
Director of Finance and Accounting
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Appendix C
Distribution
Office of the Administrator
Director, Grants and Interagency Agreement Management Division (Action Official)
Director, Office of Grants and Debarment
Audit Followup Coordinator, Office of Grants and Debarment
Assistant Administrator for Enforcement and Compliance Assurance
Agency Followup Official (the CFO)
Agency Followup Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
General Counsel
Acting Inspector General
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