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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Quick Reaction Report
Unallowable Federal Funds Drawn on
EPA Grant No. XP98247201 Awarded
to the Wayne County Water and Sewer
Authority, New York
Report No. 08-2-0045
December 17, 2007

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Report Contributors:	Robert Adachi
Yeon Kim
Eileen Collins
Janet Kasper
Abbreviations
EPA	U.S. Environmental Protection Agency
Grant	Grant No. XP9824720
Grantee Wayne County Water and Sewer Authority, New York
OIG	Office of Inspector General
OMB	Office of Management and Budget
Cover photo: Reed Pond at Red Creek Regional Waste Water Treatment Plant
(taken by OIG staff in June 2007).

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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
08-2-0045
December 17, 2007
Why We Did This Review
The U.S. Environmental
Protection Agency (EPA)
Office of Inspector General
(OIG) conducted a review of
earmarked grants known as
Special Appropriation Act
Projects issued to local and
tribal governments. We
selected the Wayne County
Water and Sewer Authority,
New York, for review.
Background
The Wayne County Water and
Sewer Authority received an
EPA Special Appropriation
Act Project grant, Grant No.
XP98247201. The purpose of
the grant was to provide
Federal assistance of
$4,350,000 for designing and
constructing a 500,000 gallon
per day regional wastewater
treatment plant and sewer line
in the Town of Wolcott, New
York. The Wayne County
Water and Sewer Authority
was required to provide local
matching funds equal to 45
percent of the EPA-awarded
funds.
Catalyst for Improving the Environment
Unallowable Federal Funds Drawn on EPA Grant
No. XP98247201 Awarded to the Wayne County
Water and Sewer Authority, New York
What We Found
The Wayne County Water and Sewer Authority (grantee) claimed and was
reimbursed for preaward costs of $276,268 that are unallowable under Federal
regulations and the grant terms and conditions. As a result, EPA will need to
recover $151,947 under Grant No. XP98247201.
The grantee's financial management system does not provide accurate information
to ensure costs are claimed in accordance with Federal regulations. We found four
instances of inaccurate disclosures. As a result, we had no assurance that the costs
were not being claimed more than once or that the grantee was complying with the
funding or matching requirements for the various funding sources.
What We Recommend
We recommend that the Regional Administrator, EPA Region 2:
1.	Obtain recovery of $ 151,947 in unallowable preaward costs under Grant
No. XP98247201.
2.	Require the grantee to reconcile costs claimed for each of the sources of
funding to ensure that financial reports are accurate and costs claimed in
accordance with grant requirements.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.qov/oiq/reports/2008/
20071217-08-2-0045.pdf

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OFFICE OF
INSPECTOR GENERAL
December 17, 2007
MEMORANDUM
SUBJECT: Unallowable Federal Funds Drawn on EPA Grant No. XP98247201
Awarded to the Wayne County Water and Sewer Authority, New York
Report No. 08-2-0045
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FROM: Melissa M. Heist
Assistant Inspector General for Audit
TO:	Alan J. Steinberg
Regional Administrator
EPA Region 2
This report contains a time-critical issue the Office of Inspector General (OIG) identified and
recommends recovery of Federal funds drawn down by the recipient. This report represents the
opinion of the OIG and does not necessarily represent the final position of the U.S.
Environmental Protection Agency (EPA). EPA managers will make final determinations on
matters in this report.
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 $44,093.
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 finding contained in this report before
any formal resolution can be completed with the recipient. Your proposed decision is due in
120 days, or on April 15, 2008. To expedite the resolution process, please email an electronic
version of your proposed management decision to kasper.i anet@epa. gov.
We have no objections to the further release of this report to the public. This report will be
available at http://www.epa.gov/oig. If you have any questions, please contact Janet Kasper,
Director, Assistance Agreement Audits, at (312) 886-3059 or at the email address above.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460

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Purpose
During our review of Special Appropriation Act Projects, certain conditions came to our
attention which we believe require your immediate action. In particular, we found that the
Wayne County Water and Sewer Authority (grantee) claimed and was reimbursed for
unallowable preaward costs.
Background
Grant No. XP98247201 (grant) was awarded on September 17, 2001. The purpose of the grant
was to provide Federal assistance for designing and constructing a 500,000 gallon per day
regional wastewater treatment plant and sewer lines in the Town of Wolcott, New York. This
facility will serve the Village of Red Creek, the Butler Correctional Facility, the Red Creek
Central Schools, the Village of Fair Haven, and the Fair Haven Beach State Park in Cayuga
County. The initial award was for $2,903,600, and was amended twice, increasing the grant
amount to $4,350,000. The $4,350,000 represents EPA's contribution of up to 55 percent of the
eligible project costs of $7,909,091. The grantee was responsible for the remaining 45 percent of
the eligible project costs. The grant's project period was from October 1, 2001, to May 31, 2007.
As of May 31, 2007, the grantee had incurred project costs of $7,619,861 and received
$3,939,565 under the grant.
Scope and Methodology
We performed our examination in accordance with generally accepted government auditing
standards, issued by the Comptroller General of the United States, with the exception of
understanding information control systems as required under Section 7.23 and a complete
understanding of internal controls as required under Section 7.16. We did not obtain an
understanding of information control systems since the review of general and application
controls was not relevant to the assignment objectives. We also did not obtain a complete
understanding of the internal control system. Instead, we gained a general understanding of the
processes the recipient used to account for funds and focused our review on the source
documents that support costs claimed under the grant. We did not test the recipient's grant
drawdown process or test the recipient's process for entering information into its accounting
system. We conducted our field work between June 4, 2007, and July 23, 2007.
We made site visits to the grantee and performed the following steps:
•	Reviewed project files;
•	Analyzed the grantee's electronic accounting files;
•	Reviewed the grantee's accounting records: invoices, bank statements, cancelled checks,
and the board minutes; and
•	Toured the wastewater treatment plant built under the grant.
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Findings
The grantee claimed preaward costs that are unallowable under Federal regulations and the grant
terms and conditions. The grantee's financial management system does not provide accurate
information to ensure costs are claimed in accordance with Federal regulations and grant terms
and conditions. As a result, EPA will need to recover $151,947 under Grant No. XP98247201.
Unallowable Preaward Costs
The grantee claimed $276,268 of preaward costs for engineering services that are unallowable
under the grant administrative conditions and Office of Management and Budget Circular A-87.
Administrative Condition 1 of the grant states that:
...any project costs incurred prior to midnight of the date preceding grant award shall be
unallowable in their entirety.
Although grant amendment 2 approved engineering costs, the amendment did not contain any
approval of preaward costs. Office of Management and Budget Circular A-87 Attachment B,
Section 31, defines pre-award costs as those costs incurred prior to the effective date of the
award, which are necessary and allowable only to the extent that they would have been allowable
if incurred after the date of the award and only with the written approval of the awarding agency.
The grantee did not obtain the written approval of the EPA. Therefore, the preaward engineering
cost of $276,268 is unallowable, resulting in the Federal share of $151,947 being questioned
(55 percent of the total amount of $276, 268).
Financial Management Improvements Needed
The grantee needs to improve its process for claiming costs under Federal grants. Title 40 Code
of Federal Regulations 31.20(b)(1) requires that a grantee's financial management system
provide accurate disclosure of financially assisted activities in accordance with grant report
requirements and that costs be claimed in accordance with the grant terms. The grantee received
funding from three sources: an EPA grant, a Clean Water State Revolving Fund loan, and a State
of New York Environmental Bond Act grant. During the review, we noted the following
instances:
•	An invoice was claimed twice, once from the grant and a second time from the State
Revolving Fund loan. The grantee adjusted the costs claimed under the EPA grant after
we identified the error.
•	State Revolving Fund loans were used as matching funds for both the EPA grant and the
New York State Environmental Bond Act grant, contrary to the State of New York
requirements.
•	An EPA grant amount was being claimed as matching funds for the New York State
Environmental Bond Act grant, contrary to State of New York requirements.
These problems occurred because the grantee had different consultants preparing reimbursement
requests from various funding sources. As a result, we had no assurance that the costs were not
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being claimed more than once or that the grantee was complying with the funding or matching
requirements for the various funding sources. As of December 10, 2007, funds of $317,819 are
still available under the grant. Prior to closing out the grant, the grantee needs to reconcile costs
claimed for each of the sources of funding to ensure that financial reports are accurate and costs
claimed in accordance with grant requirements.
Recommendations
We recommend that the Regional Administrator, EPA Region 2:
1.	Obtain recovery of $ 151,947 in unallowable preaward costs under Grant No.
XP98247201.
2.	Require the grantee to reconcile costs claimed for each of the sources of funding to
ensure that financial reports are accurate and costs claimed in accordance with grant
requirements.
Grantee and Region 2 Comments
On October 29, 2007, we held an exit conference with the grantee. The grantee understood and
agreed with the factual accuracy of the preaward costs questioned. It was, however, the
grantee's understanding that Region 2 officials allowed the preaward costs through the approval
of the grant amendment. The grantee stated it would accept any determination made by
Region 2 officials to resolve the preaward costs questioned. The grantee agreed to reconcile the
costs claimed at the end of the project.
On October 29, 2007, the OIG held an exit conference with Region 2 representatives to obtain
the Region's comments on factual accuracy of the draft report. Region 2 officials agreed that the
grant did not allow preaward costs and that Office of Management and Budget Circular A-87
does require written approval.
OIG's Response
Our position remains unchanged since the grantee and Region 2 did not dispute the facts
presented in this report.
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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
3 Obtain recovery of $151,947 in unallowable
preaward costs under Grant No. XP98247201.
3 Require the grantee to reconcile costs claimed for
each of the sources of funding to ensure that
financial reports are accurate and costs claimed in
accordance with grant requirements.
Regional Administrator,
EPA Region 2
Regional Administrator,
EPA Region 2
Planned
Completion
Date
Claimed
Amount
Agreed To
Amount
$152
1 0 = 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.
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Appendix A
Distribution
Regional Administrator, Region 2
Director, Office of Wastewater Management, Office of Water
Director, Office of Wastewater Management - Municipal Support Division, Office of Water
Director, Office of Grants and Debarment
Director, Grants and Interagency Agreements Management Division
Agency Followup Official (the CFO)
Agency Followup Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Region 2 Audit Followup Coordinator
Region 2 Public Affairs Office
Deputy Inspector General
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