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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Audit Report
Improvements Needed to Ensure
Grant Funds for U.S.-Mexico Border
Water Infrastructure Program
Are Spent More Timely
Report No. 08-P-0121
March 31, 2008

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Report Contributors:	Andres Calderon
Randy Holthaus
Jennifer Hutkoff
Matthew Simber
Abbreviations
BECC	Border Environment Cooperation Commission
BEIF	Border Environment Infrastructure Fund
CWPPRA	Coastal Wetlands Planning, Protection and Restoration Act
EPA	U.S. Environmental Protection Agency
FMFIA	Federal Managers' Financial Integrity Act
FY	Fiscal Year
IFMS	Integrated Financial Management System
NADBank	North American Development Bank
NAFTA	North American Free Trade Agreement
OCFO	Office of the Chief Financial Officer
OIG	Office of Inspector General
OMB	U.S. Office of Management and Budget
Cover photo: This 2007 photo shows construction of two 120-foot diameter clarifiers (settling
basins) at the Nogales International Wastewater Treatment Plant in Rio Rico,
Arizona. This $62 million border project, funded in part with EPA grant
dollars, will upgrade the facility to meet certain permit limits for discharges into
the Santa Cruz River. (EPA photo)

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tf£D STAt_
*	U.S. Environmental Protection Agency	08-P-0121
| JD ^ Office of Inspector General	March 31 2008
At a Glance
Why We Did This Review
The U.S. Environmental
Protection Agency's (EPA's)
Office of the Chief Financial
Officer and some members of
Congress expressed concerns
related to unliquidated
balances in the U.S.-Mexico
Border Program (Border
Program). Our audit objective
was to answer the question:
Does EPA's U.S.-Mexico
Border Program have
adequate controls for
obligating and using water
infrastructure grant funds?
Background
EPA provided $626 million in
assistance agreements (grants)
for water infrastructure
improvements (both drinking
water and wastewater) along
the U.S.-Mexico border for
projects starting between
Fiscal Years 1997 and 2007.
EPA coordinates and works
with the Border Environment
Cooperation Commission and
the North American
Development Bank to ensure
border projects are designed
and constructed to achieve
environmental results.
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/2008/
20080331-08-P-0121.pdf
Catalyst for Improving the Environment
Improvements Needed to Ensure Grant Funds
for U.S.-Mexico Border Water Infrastructure
Program Are Spent More Timely
What We Found
From 2005 to 2007, EPA took actions to implement timeframes for Border
Program projects, reduce the scope of projects, and reduce unliquidated
obligations of projects. However, EPA needs to make additional changes to the
process it uses to manage the funds Congress appropriates for water
infrastructure improvements along the U.S.-Mexico Border. In Fiscal Years
2005 and 2006, EPA awarded $35.1 million to the North American
Development Bank to construct Border Program projects that could not be built
until they were planned and designed, which takes about 2 years. Since 1998,
the Bank has accumulated an unliquidated balance of $233 million because EPA
awarded grants to construct projects before design was complete. EPA
managers told us they provided grant funds in advance to ensure funds were
available to build projects once planning was completed. EPA staff also said
they felt pressured to obligate the money to avoid a reduction in program
funding. If this process continues, between $34 and $57 million of the funds
Congress appropriated for the program in Fiscal Years 2007 and 2008 will not
be needed until Fiscal Year 2010 or beyond.
Region 6 Border Program grant work plans did not include specific projects,
measures, milestones, or costs associated with projects. The work plan for EPA
Region 9's Fiscal Year 2006 grant included total cost of projects, but did not
include sufficient detail about how much the grant funded for the projects. EPA
requires that all grant work plans contain objectives, specific tasks, a schedule or
milestones, project measures, and detailed budgets. When EPA awards grants
with work plans that do not fulfill all requirements, there is an overall reduction
in accountability for the projects and funding.
What We Recommend
We recommend that EPA:
•	Require project planning and design be completed before awarding grant
funds for construction,
•	Develop a plan to fund other projects with the unobligated funds, and
•	Prepare work plans that contain required project information.
With one exception, EPA generally concurred with our recommendations.
However, EPA expressed reservations about being able to make changes to the
program without all stakeholders agreeing on how projects should be funded.

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^£Dsr^

?	\	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
|	|	WASHINGTON, D.C. 20460
\	'	G/
PROl^
OFFICE OF
INSPECTOR GENERAL
March 31, 2008
MEMORANDUM
SUBJECT:
Improvements Needed to Ensure Grant Funds for U.S.-Mexico Border
Water Infrastructure Program Are Spent More Timely
Report No. 08-P-0121
FROM:
Melissa M. Heist '	¦
Assistant Inspector General for Audit
TO:
Benjamin H. Grumbles
Assistant Administrator, Office of Water
Richard Greene
Regional Administrator, Region 6
Wayne Nastri
Regional Administrator, Region 9
Lyons Gray
Chief Financial Officer
This is the final report on the subject audit conducted by the Office of Inspector General (OIG)
of the U.S. Environmental Protection Agency (EPA). This audit report contains findings that
describe problems the OIG has identified and corrective actions that the OIG recommends. This
audit report represents the opinion of the OIG and the findings contained in this report do not
necessarily represent the final EPA position. Final determinations on matters in this audit report
will be made by EPA managers in accordance with established audit resolution procedures. We
would like to acknowledge the cooperation and assistance provided by your staff during the
course of the audit.
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 $417,493.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to the
findings and recommendations in this report within 90 days of the report date. We request that

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the Office of Water submit one consolidated response. Office of Water should include a
corrective action plan for agreed-upon actions, including milestones and dates. This report will
be available at http://www.epa.gov/oig.
If you or your staff has any questions regarding this report, please contact me at 202-566-0899 or
heist.melissa@epa.gov; or Janet Kasper, Director, Assistance Agreement Audits, at 312-886-
3059 or kasper.ianet@epa.gov.

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Improvements Needed to Ensure Grant Funds for U.S.-Mexico Border
Water Infrastructure Program Are Spent More Timely
Table of C
Chapters
1	Introduction		1
Purpose		1
Background		1
Noteworthy Achievements		4
Scope and Methodology		4
2	Awards Process Needs to be Changed to Maximize Use of Funds		5
Grant Funding Was Awarded but Not Used		5
Staff Said Pressure Felt to Award Grant Funds		7
Plan to Timely Use Funds Needed		8
Other Federal Construction Programs' Funding Processes Compared		8
Conclusion		9
Recommendations		9
Agency Response and OIG Comment		9
3	Grant Work Plans Reduced Accountability for Projects		11
Regional Work Plans Need Improvement		11
Recommendation		12
Agency Response and OIG Comment		12
Status of Recommendations and Potential Monetary Benefits		13
Appendices
A	Program Changes and Accomplishments		14
B	Details on Scope and Methodology	 16
C	NADBank's Unliquidated Balance	 18
D	Award Process Comparison to Other Programs	 19
E	Agency Response	 20
F	Distribution		28

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Chapter 1
introduction
Purpose
The U.S. Environmental Protection Agency (EPA) provided $626 million in
assistance agreements (grants) to the Border Environment Cooperation
Commission (BECC) and the North American Development Bank (NADBank)
for projects starting between Fiscal Years (FYs) 1997 and 2007. The grants were
for water infrastructure improvements (both drinking water and wastewater) along
the U.S.-Mexico border. EPA's Office of the Chief Financial Officer (OCFO)
and some members of Congress have expressed concerns related to unliquidated
balances in the U.S.-Mexico Border Program (Border Program). The EPA Office
of Inspector General (OIG) has audited EPA's controls for obligating and using
the Border Program's funds. Our audit objective was to answer the question:
Does EPA's U.S.-Mexico Border Program have adequate controls for obligating
and using water infrastructure grant funds?
Background
The U.S.-Mexico border region extends more than 2,000 miles from the Gulf of
Mexico to the Pacific Ocean, and over 60 miles on each side of the international
boundary line. Many heavily populated unincorporated areas along the U.S.-
Mexico border lack adequate sanitation and drinking water services. Outhouses
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A map of the U.S.-Mexico border region (EPA map).
1

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are often the only available means of sewage disposal. Pollutants from both
countries contaminate shared waters due to inadequate sewage treatment. In rural
areas, agricultural runoff and chemical waste pollute drinking water. EPA's
Border Program has two main areas of focus in developing water infrastructure:
delivering safe drinking water and treating wastewater.
For over 20 years, the United States and Mexico have collaborated in joint efforts
to protect the environment and public health along the U.S.-Mexico border.
Program partners - including EPA and the States of California, Arizona, New
Mexico, and Texas - have made progress on addressing critical environmental
problems. According to the U.S. -Mexico Environmental Program: Border 2012
Implementation and Mid-Term Report: 2007, the millions of dollars the United
States and Mexico have invested to build adequate water and wastewater
infrastructure are impacting over 6.7 million border residents. The improvements
not only improved water quality but preserved shared waterways, prevented beach
closures, provided safe drinking water, and protected human health. EPA uses
several key measures, as detailed in Table 1.1, to track yearly progress in the
U.S.-Mexico Border Program.
Table 1.1: U.S-Mexico Border Program Key Measures (unaudited)
Measure
2006
Target
2006
Actual
2007
Target
2007
Actual
Provide safe drinking water in the Mexico Border area
that lacked access to safe drinking water, as
measured in additional homes.
2,500
22,450
1,200
1,276
Provide sewer service in the Mexico Border area that
lacked access to wastewater sanitation, as measured
in additional homes
15,000
30,200
70,750
73,475
Border Environment Infrastructure Fund (BEIF)
Funding - Increase use of existing funds -
disbursement rate to increase the pace of
environmental protection. (Baseline - 44 percent)
51 percent
51 percent


BEIF Disbursements - Increase use of existing funds
to increase the pace of environmental protection.1


$56 million
$65 million
Source: EPA Quarterly Management Reports
Additional examples of program accomplishments are included in Appendix A.
Commission and Bank Involved in Program
EPA provided $626 million in grants to BECC and NADBank for water
infrastructure improvements from FYs 1997 through 2007.
• BECC: This is an international organization created by the governments
of the United States and Mexico under side agreements to the North
American Free Trade Agreement (NAFTA). The purpose of BECC is to
1 EPA revised one of the key measures for the Border Program in 2007 to focus on actual disbursements instead of
the disbursement rate.
2

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help conserve, protect, and enhance the environment in the U.S.-Mexico
border region by developing and certifying environmental infrastructure
projects that incorporate innovative sustainability and public participation
concepts. As of December 31, 2007, BECC had received $43 million for
planning border projects.
• NADBank: EPA provides funds to NADBank to ensure projects are
constructed. NADBank awards and manages sub-agreements and
oversees project construction and closeout. NADBank, also created under
NAFTA, is a bi-national financial institution capitalized and governed
equally by the United States and Mexico for the purpose of financing
environmental projects certified by BECC. As of December 31, 2007,
EPA had awarded NADBank $583 million for constructing border
projects. EPA awarded grants to NADBank at an average of $66.8 million
in each of FYs 2004, 2005, and 2006.
In FY 2006, Congress appropriated $50 million for the Border Program. Of this
amount, EPA provided $1.5 million (3 percent) to BECC and $39.9 million
(80 percent) to NADBank. EPA used the remaining $8.6 million (17 percent) for
a variety of efforts, including tribal grants along the border and special
appropriation projects Congress identified.
Recent Changes to Program
In FY 2005, EPA established a new project selection process for Border Program
grants. At the start of the process, project sponsors, usually municipalities and
local governments, submit proposals for construction projects. EPA and BECC
review each proposal and prioritize projects for funding. EPA finalizes the
prioritized list of projects to be designed and constructed. The prioritization list
generally includes many more projects than EPA has the resources to fund. For
example, the FYs 2005/2006 list included 161 projects, of which 26 were funded.
Once EPA finalizes the prioritization list, it provides grant funding to BECC for
the planning and design of water infrastructure projects. After the award, BECC
begins the 2-year process of planning the projects, completing the designs, and
finding funding sources to support the projects. As part of the final process
leading up to certification of a project, EPA issues its approval letter on the
project's financial structure and final BEIF amount. When BECC has completed
project planning and design and found adequate funding sources, it certifies each
project as ready for construction.
NADBank cannot construct projects until the joint BECC/NADBank Board
certifies them. NADBank issues sub-grants and ensures the non-EPA financing
for projects is in place. NADBank then oversees construction of the projects and
ensures that they are completed according to the final design. In 2005, EPA set a
goal that NADBank would ensure that sub-grant recipients complete construction
of new projects within 3]A years.
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EPA has finalized a new prioritization list of Border Program projects and plans
to award additional grants to BECC for planning and design and to NADBank for
constructing them. Based on the established process, the projects on the list will
not typically be certified until about 2 years after the list is finalized. Additional
details on program changes are included in Appendix A.
Noteworthy Achievements
EPA has taken action to improve the timeliness of border projects. Prior to 2005,
EPA did not have a specific timeline for completing Border Program projects, and
several took over 10 years to complete. EPA implemented a new project selection
process in 2005 and established a 5V2-year timeline to plan and construct projects.
EPA generally expects that it will take 2 years to plan and design a project and
another 3Vi years for the project to be constructed.
In August 2007, OCFO issued Policy for the US.-Mexico Border Program. The
goals of the policy are to address funds administration and provide guidance on
appropriate monitoring targets to: (a) optimize project completion rates,
(b) reduce stalled balances of funds, and (c) clarify program oversight. The
policy focuses on ensuring successful completion of ongoing projects, and
requires all projects that exceed specific milestones to be subject to a corrective
action plan. The policy also calls for cancelling those projects that appear
unlikely to be completed.
The 2005 and 2007 changes to the process for awarding and managing grant funds in
the Border Program are designed to improve the timeliness of constructing projects
and disbursing funds. As of July 2007, many of the projects that would be subject to
these new policies were still in the planning and design phase. The Agency believes
that the increase in BEIF disbursements in FY 2007 provides a strong demonstration
of the effectiveness of program changes. However, we were not able to evaluate the
effectiveness of the changes EPA made. This report identifies additional controls
that we believe are necessary to effectively manage the program.
Scope and Methodology
To answer our objective, we reviewed EPA's Border Program grants to
NADBank and reviewed the funding amounts paid to NADBank for grant
expenses. We interviewed EPA Regions 6 and 9 project officers and program
personnel for those grants. EPA Region 6 administers U.S.-Mexico border grants
along the Texas and New Mexico border; Region 9 administers U.S.-Mexico
border grants along the Arizona and California border. We also interviewed EPA
Headquarters officials regarding Border Program policies and funding. We
visited NADBank's offices in San Antonio, Texas, and interviewed personnel.
We performed our work in accordance with generally accepted government
auditing standards, issued by the Comptroller General of the United States. We
conducted our field work from April to September 2007. For additional details on
scope and methodology, see Appendix B.
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Chapter 2
Award Process Needs to be Changed
to Maximize Use of Funds
From 2005 to 2007, EPA took actions to implement timeframes for Border
program projects, reduce the scope of projects, and reduce unliquidated
obligations of projects. However, EPA needs to make additional changes to the
process it uses to manage the funds Congress appropriates for water infrastructure
improvements along the U.S.-Mexico Border. In FYs 2005 and 2006, EPA
awarded $35.1 million to NADBank to construct Border Program projects that
could not be built until they were planned and designed, which takes about
2 years. Since 1998, NADBank has accumulated an unliquidated balance of
$233 million because EPA awarded grants to construct border projects before
design was complete. EPA managers told us they provided grant funds in
advance to ensure funds were available to build projects once planning was
completed. EPA staff also said they felt pressured to obligate the money to avoid
a reduction in program funding. By following this process, millions of dollars are
not spent for years and, thus, are not addressing environmental and human health
needs. If this process continues, between $34 and $57 million of the funds
Congress appropriated for the program in FYs 2007 and 2008 will not be needed
until FY 2010 or beyond.
Grant Funding Was Awarded but Not Used
EPA set up the Border Program so that EPA awards funds for construction to
NADBank before projects are certified to be constructed. In FYs 2005/2006,
EPA awarded two grants totaling $68.3 million, of which $35.1 million2 went to
NADBank to build Border Program projects on the prioritization list. At the time
of award, BECC was beginning the 2-year process to certify the projects for
construction. NADBank could not use the $35.1 million EPA awarded until
BECC certified the projects. According to NADBank's June 30, 2007, quarterly
financial report, the recipient had still not incurred any expenses for the projects
these grants funded.
The guidelines EPA established for the Border Program allow 2 years for BECC
to certify projects, but in many cases it takes longer. For example, in July 2005,
EPA approved 22 projects on the FYs 2005/2006 prioritization list. Of the
2 The $35.1 million is the sum of $8.7 million from Region 6 and $26.4 million from Region 9. While EPA
Region 6 awarded a grant for $41.9 million in July 2005, only $8.7 million was to construct Border Program
projects from the FYs 2005/2006 prioritization list. The other $33.2 million was for water and wastewater projects
that were certified before the prioritization process began. EPA increased construction funding for four ongoing
projects and provided initial funding for two others that EPA previously approved. EPA Region 9 awarded a grant
for $26.4 million in August 2006 to construct Border Program projects from the FYs 2005/2006 prioritization list.
5

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22 projects, BECC did not certify nearly half within the 2-year timeframe, and
EPA cancelled 3 projects. The status of all 22 projects is detailed in Table 2.1.
Table 2.1: Status of 2005/2006 Priority Projects
Project Status
Region 6
FY 2005
Region 9
FY 2005
Totals
Certified Projects
6
2
8
On Schedule to be Certified Within 2 Years
0
1
1
Delayed Beyond the 2-Year Timeframe
4
6
10
Cancelled
3
0
3
Total Projects
13
9
22
Source: OIG analysis of EPA Border Program project status.
When BECC is unable to certify projects within the 2-year timeframe, or EPA
cancels a project, it further delays when the funds EPA awards for construction
can be used. Allowing funds to remain on the EPA grant to NADBank for project
construction while these projects are designed and certified increases the
recipient's unliquidated balance. An unliquidated balance is an amount of grant
funds awarded to a recipient that has not been spent. Since 1998, EPA has
awarded $583 million to NADBank to construct Border Program water
infrastructure projects. As of September 30, 2007, NADBank had an unliquidated
balance of $233 million (see Appendix C for details).
While EPA may obligate funds in the same year they are authorized, the
obligations are made knowing that the funds will not likely be needed for several
years. By awarding funds prior to construction need, EPA has a process where
funds are idle for years. This is inefficient and does not comply with the Federal
Managers' Financial Integrity Act (FMFIA) of 1982. Under FMFIA Section
2(d)(l)(A)(ii), agencies must have controls that assure obligations and costs
comply with laws and that funds are safeguarded against waste, loss, unauthorized
use, or misappropriation.
NADBank's unliquidated balance has caused concerns with some members of
Congress and EPA's OCFO regarding the Border Program's use of funds. The
Senate included this language in the FY 2008 appropriation bill:
...the Committee is very concerned that EPA 's Mexico border
program is carrying forward nearly $300,000,000 in unliquidated or
unobligated balances for priority projects. Therefore, the Committee
has agreed with the President's request to reduce funding for the
program for this fiscal year and cannot consider further increases
until progress is made in reducing these unspent balances.
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In 2007, OCFO conducted a study and issued Policy for the US.-Mexico Border
Program to improve the program's fiscal practices and oversight. To optimize
project completion rates for individual projects, the policy proposes that EPA
redirect funds from stalled construction projects to new, high priority projects. To
address issues related to the balance of unliquidated obligations, the policy sets a
"threshold of concern" of $140 million. However, the policy does not state what
actions EPA will take if this threshold is exceeded, and it needs to do so to ensure
that the program monitors and reduces the unliquidated obligation balance. As of
September 30, 2007, NADBank had an unliquidated balance of $233 million.
Staff Said Pressure Felt to Award Grant Funds
According to EPA's Office of International Affairs and Region 6 Border Program
staff, there is pressure to show a financial commitment to projects. They said this
pressure resulted in EPA staff believing it is necessary to award grants for
construction when a project is first selected. EPA staff also felt pressure to
obligate money to avoid a reduction in program funding.
•	EPA awards grants to NADBank as proj ects enter the planning and design
phase to ensure funds are available up front to construct projects. Border
Program staff said that if BECC certifies a project but the Agency does not
have funding available for construction, the funds used for planning and
design would be wasted.
•	EPA implements the Border Program in partnership with other Federal
agencies, States, tribes, and the Mexican government. Other funding
sources work in concert with EPA to ensure projects have adequate
resources. EPA provides only about a third of project costs. According to
the April 2005 Border Environment Infrastructure Fund Guideline, EPA
grant funds are intended to supplement funding from other sources and
EPA officials have stated that EPA grant funds are considered to be the
"funding of last resort." The National Coordinator for the Border 2012
Program within EPA's Office of International Affairs noted relationships
with other funding sources, including the Mexican government, are
important to the program. EPA staff expressed concern that the program's
relationships with funding partners could be harmed if the Agency cannot
follow through and fund construction. According to EPA staff, the
Mexican government makes a verbal commitment at the beginning of the
planning process to fund the entire project through its life cycle.
However, when the Mexican government provides funding for a project,
its funds must be allocated and disbursed in the same year.
•	EPA Order 5703.1 1 A, Policy and Procedures for Funding Assistance
Agreements, states the Agency's policy is to award grants that are legal,
administratively correct, and complement the Agency's mission as quickly
as possible after funds become available. EPA staff indicated that
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delaying grant awards to construct projects could adversely impact the
program's funding provided by Congress. Program funding that is not
obligated could be taken away, which would set a precedent for future
appropriations.
Plan to Timely Use Funds Needed
EPA's award process reduces the amount of funds available to achieve EPA's
mission. At any given time, EPA will have awarded funding for projects where
construction may not begin for 2 years or more. According to EPA staff, the
Agency budgeted about $48 million of the FY 2007 appropriation for Border
Program projects, but the funding had not been awarded as of September 2007.
Congress provided an additional $14.8 million for FY 2008.3 If the Border
Program's process remains unchanged, between $34 and $57 million in grant
funding Congress appropriated in FYs 2007 and 2008 will not be needed for
projects until at least FY 2010.
EPA needs to identify other water/wastewater activities in the Border Program for
which the funds can be used more expeditiously. Through the budget process,
Congress has specifically identified funding for the Border Program. As a result,
EPA cannot use the funds for other programs without new congressional
authority. Therefore, EPA needs to identify opportunities within the Border
Program for using funding on current projects as opposed to projects where
construction will not begin for several years. EPA also needs to take into
consideration the funds it has not obligated in requesting additional funding from
Congress. If EPA does not take these actions, Federal funds will continue to be
unspent for several years rather than addressing immediate needs.
Other Federal Construction Programs' Funding Processes Compared
To further explore how phased grant funding can be managed and unliquidated
obligations reduced, we researched other Federal construction grant programs.
We found a comparable program at EPA as well as four other Federal programs.
Summaries on each are in Appendix D. Of the five programs, EPA's
Construction Grants program, the multi-agency Coastal Wetlands Planning,
Protection and Restoration Act (CWPPRA) program, and the Department of
Transportation Federal Highway Administration's program are the most similar to
the Border Program. These programs are similar because they also fund
construction, are grant-based, and are managed by outside entities (such as States
or a multi-agency task force). Multiple sources fund all of these programs, and
almost all of the programs award funding for construction after planning and
design are complete, thus reducing unliquidated balances. According to a
3 The President's budget lists FY 2008 funding for the U.S.-Mexico Border at $20 million. After accounting for a
1.56 percent Federal program cut, the adjusted President's budget was $19,688 million. Congress identified
$5 million (reduced to $4.92 million with the 1.56 percent rescission) in the budget for specific projects along the
border. As a result, $14.8 million is available for the Border Program.
8

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Region 6 EPA staff member participating in the CWPPRA program, CWPPRA
projects prior to 1999 were fully-funded at the beginning of the planning and
design phase. However, to decrease unliquidated obligations, projects from 1999
forward did not receive construction funding until planning and design were
complete.
Conclusion
EPA's Border Program must make additional improvements to its processes for
obligating and using water infrastructure grant funds. The process, as designed,
ensures a recurring delay in the use of funds. EPA's ability to achieve its mission
is hindered when the Border Program does not use funds because the funds are
sitting idle for several years instead of being used for other priority projects. If
this process continues, EPA could award between $34 and $57 million in grant
funding for the 2007/2008 project prioritization list that might not be needed until
FY 2010 or beyond.
Recommendations
We recommend that the:
2-1 Chief Financial Officer clarify its August 2007 policy for the U.S.-Mexico
Border Program to specify the actions EPA will take when the fund
balance reaches the $140 million threshold of concern.
2-2 Regional Administrators for Regions 6 and 9 require the U.S.-Mexico
Border Program to complete planning and design of projects before EPA
awards any grant funds to NADBank for construction of the projects.
2-3 Assistant Administrator for the Office of Water, in conjunction with
Regions 6 and 9, prepare a plan to expeditiously use U.S.-Mexico Border
Program funding for immediate needs other than funding construction of
projects that have not completed planning and design.
2-4 Chief Financial Officer and Assistant Administrator for the Office of
Water adjust future budget requests for the U.S.-Mexico Border Program
to reflect funds that have not been obligated in prior years.
Agency Response and OIG Comment
In responding to the draft report, EPA commented on the recommendations and
provided additional information to clarify certain sections of the report. The
response to the recommendations is listed below and we have clarified certain
sections of the report as discussed with EPA at the exit conference on March 26,
2008. The full text of the Agency response is in Appendix E.
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EPA did not agree with our recommendation to clarify its financial policy to
describe what actions would be taken once the unliquidated balance exceeds
$140 million. OCFO, Office of Water, and Regions 6 and 9 held numerous
lengthy discussions during an 8-month period that resulted in the August 2007
policy for the U.S.-Mexico Border Program. The offices did not support
reopening discussions concerning the policy at this time and disagreed that
clarification is needed regarding the $140 million dollar threshold of concern.
The OIG believes EPA should have a plan in place that specifies what actions
EPA will take when the fund balance exceeds the established $140 million
threshold of concern. While EPA may obligate funds in the same year the funds
are authorized, the obligations are made knowing that the funds will not likely be
needed for several years. Policy clarification is needed to ensure that the program
does not continue to retain a large, unliquidated balance.
EPA agreed with our second recommendation pending coordination with program
partners. The U.S.-Mexico Border Water Infrastructure Program is considering
moving to a phased approach that would build up a portfolio of developed
projects ready to begin construction as funding becomes available. Before doing
so, EPA said it must first coordinate with the Mexican Government, States,
United States Department of Agriculture, and other key program partners. We are
encouraged by EPA's agreement with the recommendation since it should result
in funds being used more quickly. In January 2008, EPA awarded $48.3 million
to BECC and NADBank. We understand that EPA needed to award these grants
because the prioritization lists were completed and it had made commitments to
the various agencies involved in the Border program prior to the OIG
recommending changes. However, EPA needs to implement this
recommendation before awarding more grants to BECC and NADBank.
EPA agreed that the Border Program needs to prepare a plan to phase in the
expeditious use of funding, which was the third recommendation. This plan
would explain in more detail how EPA intends to implement the second
recommendation.
EPA agreed with the fourth recommendation with the understanding that EPA's
budget formulation process considers all aspects of EPA programs, including the
construction needs of projects in planning and design. EPA suggested that the
recommendation be revised to state "Adjust future budget requests for the
U.S.-Mexico Border Program to reflect funds that have not been obligated in prior
years as well as the construction needs of projects in planning and design." We
recognize that the budget request should include construction needs. However,
these needs should be narrowly defined to address "immediate" construction
needs and not include those that will occur in several years. We did not revise the
recommendation.
In responding to the final report, EPA needs to provide a corrective action plan,
with milestones and dates, for implementing the recommendations.
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Chapter 3
Grant Work Plans Reduced Accountability for Projects
EPA Region 6 Border Program grant work plans did not include specific projects,
measures, milestones, or costs associated with projects. The work plan for EPA
Region 9's FY 2006 grant included total cost of projects, but did not include
sufficient detail about how much the grant funded for the projects. EPA requires
that all grant work plans contain objectives, specific tasks, a schedule or
milestones, project measures, and detailed budgets. Without these elements, the
grantee's accountability for using funds appropriately and completing tasks is
reduced.
Regional Work Plans Need Improvement
Both Regions 6 and 9 need to work with NADBank to improve the U.S.-Mexico
Border Program construction grant work plans. EPA's project officer manual
states assistance agreement work plans must justify proposed financial and
resource needs. The narrative work plan must describe the program objectives,
the method to accomplish the objectives, and milestones for completion. The
budget is also an integral part of any grant work plan submitted to the Agency.
In FYs 2002 through 2005, Region 6 awarded six grants to NADBank totaling
$213 million. The work plans for these grants did not contain specific projects,
costs, and budgets of those projects, measures, milestones, and environmental
outputs and outcomes. Region 6 stated it was unable to include this information
because the grants for construction were awarded before BECC had completed
designing the projects.
Region 9 awarded a $118 million grant to NADBank in FY 2006, but the grant
work plan identified project costs totaling $276.4 million. The work plan
included total costs for the projects, even though construction was in process or
completed for 24 of 35 projects. According to EPA, the projects were included
because one or more the following activities were still pending:
•	Other portions of the project not funded by EPA grants were not completed,
•	Project close-out evaluations and certifications had not been completed, and
•	Transition assistance was still being disbursed.
While EPA stated that the $118 million grant budget reflected the portion of the
projects still to be completed under the grant, the information was not included in
the work plan.
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Recommendation
We recommend that the Regional Administrators for Regions 6 and 9:
3-1 Prepare grant work plans that include specific projects, measures,
milestones, and detailed budgets to be achieved with grant funds.
Agency Response and OIG Comment
EPA agreed with the recommendation. EPA stated that, while most of the
NADBank grant work plans in the past did not include detailed project budgets,
measures, and milestones, the most recent work plans for grant awards to BECC
and NADBank do. We reviewed the work plans for grants Regions 6 and 9
awarded in January 2008. The work plans did include additional information to
address the recommendation. EPA's actions addressed the recommendation.
The full text of the Agency response is in Appendix E.
We revised the finding to address the comments EPA provided in response to the
draft report.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
2-1
2-2
2-3
2-4
3-1
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Claimed
Amount
Agreed To
Amount
12
Clarify its August 2007 policy for the U.S.-Mexico
Border Program to specify the actions EPA will
take when the fund balance reaches the
$140 million threshold of concern.
Require the U.S.-Mexico Border Program to
complete planning and design of projects before
EPA awards any grant funds to NADBank for
construction for the projects.
In conjunction with Regions 6 and 9, prepare a plan
to expeditiously use U.S.-Mexico Border Program
funding for immediate needs other than funding
construction of projects that have not completed
planning and design.
Adjust future budget requests for the U.S.-Mexico
Border Program to reflect funds that have not been
obligated in prior years.
Prepare grant work plans that include specific
projects, measures, milestones, and detailed
budgets to be achieved with grant funds.
Chief Financial Officer
Regional Administrators,
Regions 6 and 9
Assistant Administrator
for Office of Water
Chief Financial Officer and
Assistant Administrator
for Office of Water
Regional Administrators,
Regions 6 and 9
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
Program Changes and Accomplishments
To improve performance, EPA conducted or participated in management reviews in 2004 and
2005. In 2004, the Office of Management and Budget (OMB) conducted a Program Assessment
Rating Tool evaluation of the program and the program participated in a business process
review. In 2005, EPA developed long-term and efficiency measures and instituted a
prioritization process for reviewing projects. In 2007, EPA implemented new policies to address
how funds are managed and provide guidance on appropriately monitoring targets.
In evaluating the program in 2004, OMB gave the program a rating of adequate. OMB
concluded that the program addressed a serious health or environmental need, but lacked
adequate program performance information. Since OMB performed the review, EPA has
developed long-term measures, including baseline data for measuring progress and targets to be
achieved in future years (see Table A-l).
Table A-1: Long-Term Measures, Baselines, and Targets
Measure
Baseline
2012 Target
Percentage of water quality standards met in shared and
transboundary surface waters in 2002.
17
50 percent
By 2012, provide safe drinking water to 25% of homes in the
U.S.-Mexico border area that lacked access to safe drinking
water in 2003.
98,515
24,629
By 2012, provide adequate wastewater sanitation to 25% of
homes in the U.S.-Mexico border area that lacked access to
wastewater sanitation in 2003.
690,723
172,681
Source: Program Assessment Rating Tool; vwvw.expectmore.gov
In 2005, EPA began prioritizing which projects it would select for funding. Every 2 years, EPA
ranks projects based on risk, cost-effectiveness, institutional efficiency, and sustainability to
target limited funding towards those projects with the highest benefit. The process provides both
a list of projects available for funding and an assessment of existing needs along the border.
While the applications do not capture all needs, they do capture the needs of communities where
project sponsors are committed to taking out loans to access the EPA grant funds. The
2005/2006 prioritization process showed construction needs for 135 eligible projects valued at
$894 million. According to EPA, the 26 projects selected will benefit 474,705 people, and
leverage construction project costs of $162 million. During the 2007/2008 prioritization process,
EPA received 150 eligible applications with total construction needs of about $600 million. EPA
finalized the list of projects to be funded in December 2007.
EPA used the lessons it had learned from projects selected prior to 2005 to implement additional
management controls.
• In August 2005, EPA issued the Project Schedule and Bypass Provisions Policy. The
policy established time limits for project development and construction phases, and
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provided for the withdrawal or bypass of a project from funding if the project sponsor
was unable to meet time limits.
•	EPA established a requirement that NADBank begin disbursing funds within 2 years of
the sub-grant award. EPA also required that all project funds be committed to
construction contracts prior to the end of the second year of construction.
•	EPA scaled down the scope of projects. For the 2007/2008 prioritization process, EPA
required that projects be no more than $30 million, and grant assistance was limited to
$8 million.
EPA conducts quarterly meetings with program partners to review project progress to ensure
compliance with these policies.
In August 2007, EPA implemented its Policy for the U.S.-Mexico Border Program. The policy
was the result of collaboration among several EPA offices and was jointly issued by the Deputy
Administrator, Office of Water, Office of International Affairs, OCFO, and EPA Regions 6 and
9. The goals of this policy are to optimize project completion rates, to reduce unliquidated
obligations associated with stalled projects, and to clarify program oversight. According to EPA,
older, stalled projects now have construction and disbursement schedules to enhance
management of these projects to completion. New projects have construction and disbursement
schedules prior to approval of construction funds. According to EPA, as of December 2007, they
had observed improvements in project completions and reductions in unliquidated grant balances
due to the new policy.
Program Accomplishments
The Border Program and its projects affect millions of people. According to EPA, the
33 completed projects have benefited more than 4 million people by providing improved
drinking water and wastewater sanitation. The total cost of the projects was $610 million, with
$193 million from Border Program grants. For example, the Mexicali II "Las Arenitas"
wastewater treatment plant, completed in 2007, is treating an estimated 15 million gallons per
day of sewage that once flowed untreated into the New River and into the United States. In
addition to providing first-time wastewater treatment service to about 300,000 people, water
quality improvements to the New River have been realized.
According to EPA, the program has brought transparency and financial sustainability to the way
projects are funded. The program has incorporated environmental and technical competencies in
the planning and development of projects, and improved managerial, operational, and financial
capabilities of public utilities. This fiscal-minded approach is achieving results in communities
along the U.S.-Mexico border. For example, the Tijuana, Tecate, and Mexicali Water Utilities
have received acclaim as being counted in the top ten most efficient (production and commercial
efficiencies) public utilities in Mexico, with Tijuana rated #1 in the country. When this program
was initiated, billing and collection rates were low and did not receive utility attention.
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Appendix B
Details on Scope and Methodology
We performed our work in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States. These standards required that we obtain
an understanding of the program to be audited. We obtained an understanding of the program
through analysis of the laws, regulations, and guidance pertaining to grants awarded to BECC
and NADBank and an evaluation of internal controls over the grants.
We performed audit field work from July to September 2007. There were no relevant OIG or
Government Accountability Office reports related to the report topic. We reviewed internal
controls related to the processes for planning, organizing, directing, and controlling program
operations. We also reviewed controls for measuring, reporting, and monitoring program
performance. We did not, however, review the controls over the reliability of the data from these
processes. We gained an understanding of internal controls through the performance of the
procedures outlined below.
•	We interviewed personnel at EPA Region 6 in Dallas, Texas; EPA Region 9 in San
Francisco, California; and the NADBank office in San Antonio, Texas. We interviewed
EPA Headquarters staff in the Office of Water, Office of International Affairs, and
OCFO.
•	We examined EPA's grant prioritization lists to determine what projects were selected,
the status of those projects, and associated project costs. We reviewed the work plans for
grants EPA awarded in FYs 2005 and 2006 to construct those projects. EPA issued
additional grants in January 2008, after we had completed our field work. We reviewed
the 2008 grant work plans only to the extent needed to evaluate the Agency's response to
the draft report. Statistical information, such as number and value of grants awarded to
BECC and NADBank, was not updated to include the January 2008 grants.
•	We researched the funds available for these grants through EPA's Integrated Grants
Management System, Integrated Financial Management System, and various grant award
documents. We reviewed NADBank's quarterly financial reports and the expenses
associated with specific projects.
•	We reviewed the FYs 2004, 2005, and 2006 appropriations to determine the Border
Program funding levels, and reviewed the FY 2007 continuing resolution. We also
reviewed the proposed FY 2008 U.S. House of Representatives and Senate appropriation
bills to determine the proposed Border Program funding for FY 2008, as well as the
FY 2008 President's Budget.
•	At EPA Office of Water's request, we looked at aspects of other Federal programs that
could improve the Border Program's process. We found an EPA program and four
programs managed by other Federal agencies that conduct construction. We researched
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the Internet for information. We interviewed staff from EPA, the U.S. Department of
Agriculture, the U.S. Department of Transportation, and the U.S. Department of Housing
and Urban Development, to determine the processes these programs use to award funds
and any constraints placed on those funds.
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Appendix C
NADBank's Unliquidated Balance
EPA provided NADBank 10 grants totaling $583 million for projects starting since 1997. The
project period represents the amount of time EPA expects the recipient will need to complete the
projects. The term "draw down" represents the money EPA has paid NADBank for actual
expenses under the grants. The unliquidated balance is the money EPA awarded to NADBank
but NADBank had not spent as of September 30, 2007 (that is, the difference between the award
amount and the draw downs).
Grant
Number
Project Period

Award
Amount
Draw downs
(as of 09/30/2007)
Unliquidated
Balance
(as of 09/30/2007)
99673901
04/04/1997-03/30/2005
$ 170,000,000
$ 170,000,000

$ 0
98630101
08/01/1999-07/31/2007
$
41,000,000
$
41,000,000

$ 0
98656401
07/15/2000-07/15/2008
$
41,000,000
$
41,000,000

$ 0
98686601
09/15/2001 -09/30/2010
$
84,000,000
$
54,895,562
$
29,104,438
97634901
05/01/2003-09/30/2013
$
24,693,132

$ 0
$
24,693,132
97660201
02/13/2004-09/30/2013
$
21,624,623
$
4,791,123
$
16,833,500
97668401
10/01/2004-05/15/2014
$
39,815,869

$ 0
$
39,815,869
97697001
07/13/2005-06/03/2015
$
41,914,100
$
16,262,237
$
25,651,863
96615601
12/29/2005- 12/19/2006
$
1,000,000
$
1,000,000

$ 0
96971301
08/01/2006-07/31/2016
$ 117,870,712
$
20,541,903
$
97,328,809
Totals

$ 582,918,436
$ 349,490,825
$ 233,427,611
Source: OIG analysis of EPA's Integrated Grants Management System and Integrated Financial
Management System
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Appendix D
Award Process Comparison to Other Programs
Agency
Program
Focus
Funding
Program Structure
Timeline / Lifecycle
EPA
Construction
Grants
Publicly-owned
wastewater treatment
plants
During 1970s and
1980s, more than
$60 billion
(program not
funded since 1990)
Project sponsors have to apply for
funding for up to three different phases
(planning, design, and construction).
Money not obligated for construction until after planning, design,
and National Environmental Policy Act assessment have concluded
(could be years after appropriation). Once money obligated,
disbursements must begin in 18 months. Sponsor must adhere to
construction schedule developed during the design phase.
U.S. Department
of Housing and
Urban
Development
Community
Development
Block Grants
Public facility
construction and
improvements,
homeownership
assistance, and
activities related to
neighborhood
revitalization
FY 2007 enacted:
$3,772 billion
Certain grants go directly to metropolitan
areas (pop. 50,000+) while other grants
go to States (to be used in population
centers smaller than 50,000). Various
projects can draw down from same grant.
Maximum of 12 months between appropriation and obligation;
7 years is the maximum amount of time a grant can be open.
Contracts cannot be open longer than 4 years; 3 years of inactivity
in grant will result in warning letter to grantee regarding
disbursement rate. U.S. Department of Housing and Urban
Development uses annual consolidated plans as primary tool for
grant management.
U.S. Department
of Agriculture
Rural
Development
Loan support for water
and sewer systems
FY 2007:
$150 million
Supervised credit agency that must
approve all development and planning
documents prior to releasing funds
(i.e., borrowers have to prepare own
designs). Most projects have 6-month to
2-year construction schedules.
Funds are obligated after preliminary design is complete but
disbursements cannot begin until after final designs are complete.
Timeframes for completion are 2 years after obligation, although
extensions are common. If money has not been spent in 5 years,
U.S. Department of Agriculture can deobligate funds.
U.S. Department
of
Transportation
Federal
Highway
Administration
Road and highway
construction
$38 billion annual
budget (funding
stable for last
several years)
Each State has a State-wide plan that
contains 1- to 4-year plans (called
"programs"). States receive formula
grants (these complex formulas are based
on factors such as population).
No longer than 12 months between appropriation and obligation.
Depending on size and complexity of project, the Federal Highway
Administration may elect to fund design and construction at the
same time (single appropriation) or in phases (multiple
appropriations). The Federal Highway Administration may fund
entire project or only portions of the project. If no disbursements for
1 year, the Federal Highway Administration may rescind funds.
Multi-Agency
Task Force
Coastal
Wetlands
Planning,
Protection and
Restoration
Act
Restoring and
preventing
loss to U.S. coastal
wetlands
Federal funding
averages
$50-60 million
per year; over life
of program (1990-
2019), estimated
Federal and
non-federal funding
is $2 billion
U.S. Army Corps of Engineers serves as
accounting lead and chairs most work
groups. Focus is on bottom-up project
development. Costs shared 85 percent
Federal, 15 percent non-federal. The
CWPPRA Task Force can roll out projects
in less than 5 years in response to critical,
local needs, and fills gaps left by the
Water Resource Development Board.
Three-phase project lifecycle: Phase Zero (Planning/Outreach) -
1 year and limited to $5 million; Phase One (Feasibility/Plans and
Specifications) - 2 to 3 years; Phase Two (Construction, Monitoring,
and Operations and Maintenance) - construction period is variable,
while Operations and Maintenance is 20 years. Federal sponsors
review funds quarterly within projects and determine whether funds
may be returned. Agencies review all projects annually for Phase
One or Two funding to identify excess and make a recommendation
to the task force how much funding to return. Returned funds are
available for reprogramming. Funds for Phase One and Two are
obligated after Phase Zero is completed.
Source: OIG analysis based on discussion with officials and staff from EPA and other Federal agencies
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Appendix E
Agency Response
MEMORANDUM
SUBJECT: Draft Audit Report (1/15/2008):
Improvements Needed to Ensure Grants Funds for US-Mexico Border Water
Infrastructure are Spent More Timely
Assignment No. 2007-0641
FROM: Benjamin H. Grumbles
Assistant Administrator
Office of Water
Richard Greene
Regional Administrator
Region 6
Wayne Nastri
Regional Administrator
Region 9
Lyons Gray
Chief Financial Officer
Officer of the Chief Financial Officer
TO:	Janet Kasper
Director of Assistance Agreement Audits
Office of the Inspector General
Thank you for providing the opportunity to comment on the OIG's Draft Audit Report:
Improvements Needed to Ensure Grant Funds for US-Mexico Border Water Infrastructure
Program Are Spent More Timely (111512008). Also, we appreciate the OIG's acknowledgement of
program accomplishments in the draft audit report. Find attached a consolidated response prepared
by the Office of Water, Region 6, Region 9 and OCFO, comprised of two parts. Part I responds
directly to the draft audit report recommendations. Part II responds to the request for factual errors
and omissions.
Should you have any questions regarding these comments, please contact Judy Davis,
Deputy Director of the Office of Wastewater Management at 202-564-0748, or have your staff
contact Lynn Stabenfeldt at 202-564-0602.
Attachment
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Joint Comments Prepared by OW, Regions 6 and 9, and OCFO
OIG Audit Report: Improvements Needed to Ensure Grant Funds to
US-Mexico Border Water Infrastructure Program Are Spent More Timely
January 15, 2008
Proposed OIG Recommendations:
2-1: Clarify its August 2007 policy for the US-Mexico Border Program to specify the actions
EPA will take when the fund balance reaches the $140-million threshold of concern.
Action Official: Chief Financial Officer
Response: Do not concur. We do not agree with this recommendation. OCFO, OW and the
Regions held numerous lengthy discussions during an 8-month period that resulted in the
August 2007 policy for the US-Mexico Border Program. We do not support reopening
discussions concerning the policy at this time and disagree that clarification is needed
regarding the $140-million dollar threshold of concern.
2-2: Require the US-Mexico Border Program to complete planning and design of projects before
EPA awards any grant funds to NADBank for construction for the projects.
Action Official: Regional Administrators, Regions 6 and 9
Response: Concur pending coordination with program partners. The US-Mexico Border
Water Infrastructure Program is considering moving to a phased approach that would build
up a portfolio of developed projects, which would be ready to begin construction as funding
becomes available. Before doing so, we must first coordinate with the Mexican Government,
US States, USD A and other key program partners.
Additional comment: Implementation of this recommendation would result in funds being
used more quickly, not result in a cost savings to EPA. The claimed monetary benefit of
$62.8M is, therefore, misleading. Should construction funding not be available in a timely
fashion for developed project needs, updated projects costs and designs may be required prior
to awarding construction funds, resulting in additional development time and costs. See
further comment on this point in the factual errors/omissions attachment (comment #2).
2-3: In conjunction with Regions 6 and 9. prepare a plan to expeditiously use US-Mexico Border
Program funding for immediate needs other than funding construction of projects that have
not completed planning and design.
Action Official: A A Office of Water
Response: Concur. The US-Mexico Border Water Infrastructure Program agrees to prepare a
plan to phase in the expeditious use US-Mexico Border Program funding. This plan would
explain in more detail how the program intends to implement recommendation 2-2 above.
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2-4:	Adjust future budget requests for the US-Mexico Border Program to reflect funds that have
not been obligated in prior years.
Action Official: Chief Financial Officer, AA Office of Water
Response: Concur with the understanding that EPA's current budget formulation process considers
all aspects of EPA programs which will include, but will not be limited to the construction
needs of projects in planning and design. Further, we would like the OIG Final Audit Report
recommendation to state the following: Adjust future budget requests for the US-Mexico
Border Program to reflect funds that have not been obligated in prior years as well as the
construction needs of projects in planning and design,
3-1:	Prepare grant work plans that include specific projects, measures, milestones, and detailed
budgets to be achieved with grant funds.
Action Official: Regional Administrators, Regions 6 and 9
Response: Concur with clarification. Previously, most of the NADB grant work plans did
not include detailed project budgets. Currently, the new grant awards for BECC and NADB
include work plans that identify specific projects, measures, milestones and budgets for the
activities to be achieved with grant funds. The grant work plans include detailed
administrative budgets, and overall project costs with specific goals and tasks to be
accomplished. Detailed project budgets reflecting the BEIF component are based on the
affordability analyses, which are not available at the time that the grants are awarded;
therefore, specific BEIF amounts may not be included or shown only as estimates in the work
plans. A grant condition is included in the NADB award which clarifies that project budgets
are based on the affordability analyses once planning, development and final designs are
completed per EPA's policy for the U.S.-Mexico Border Water Infrastructure Program. The
affordability analyses which recommend specific BEIF project budgets are prepared by the
NADB and reviewed and approved by the EPA Regions 6 and 9 prior to project certification.
Factual Errors and Omissions
AT A GLANCE
1. Why we did this review. The U.S. Environmental Protection Agency's (EPA 's) Office of
the Chief Financial officer and Congress expressed concerns related to unliquidated
balances in the U.S.-Mexico Border program (Border Program).
Comment: The statement above implies that every member of Congress expressed
concern related to the unliquidated balances in this program. In fact, several members of
Congress requested that EPA significantly increase the funding level for the U.S.-Mexico
Border Program. A similar statement is also made in the section "Grant Funding Was
Awarded But Not Used," see paragraph 3 on page 6. We request the report include a
more balanced representation of the input EPA received from Congressional members;
some supporting and requesting an increased budget and some expressing concern
regarding the program's unliquidated balances.
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Background. From Fiscal Year 1993 through 2007, EPA awarded assistance
agreements (grants) totaling more than $1.2 billion to various recipients for water
infrastructure improvements (both drinking water and wastewater) along the US-Mexico
Border. EPA coordinates with the BECC and NADBank to ensure border projects are
designed and constructed to achieve environmental results.
Comment: The total award amount of $1.2B is misleading as it includes a wide array of
border funding, well beyond the funding that is the focus of this report. The uninformed
could easily conclude that the BECC and NADBank have received a combined $1.2B in
funding, when the two organizations have received through FY07 $675M. BECC and
NADBank first received Border Facilities Construction Funds in FY98, from funds
appropriated in FY96 and FY97. Prior year funding (FY93-FY95) preceded the formation
of BECC and NADBank. The body of the draft report focuses only on BEIF and PDAP
funding, so should the "Background" information. Further, the table provided in
Appendix C focuses solely on BEIF.
>	The total award amount should be changed to reflect awards made to
BEIF/PDAP only. This should also be corrected in Chapter 1, page 1, first
sentence under Purpose.
>	Reference only fiscal year funding that was made available to BECC and
NADBank. Revise "Background" section and Chapter 1, Purpose (Page 1) and
"Commission and Bank Involved in Program" (Page 2).
What We Found, 1st paragraph. Since 1998, the NADBank has accumulated an
unliquidated balance of $233 million because EPA awarded grants to construct projects
before design was complete.
Comment: The NADBank unliquidated balance as of September 2007 was $231 million.
Please revise.
What We Found, 1st paragraph. If this process continues, EPA will potentially award
up to $62.8 million in Fiscal Year 2008 that will not be needed until Fiscal Year 2010 or
beyond	
Comment: The above statement is misleading. It should be clarified that the total
includes an estimated amount of unappropriated funds. It should also be noted that of the
$48 million appropriated in FY07 for this program, approximately $6 million will be used
for planning and design of projects immediately. In FY 2008, four of those projects will
complete development and will use $6.5 million in construction funds, an additional $16
million for 2 projects will be put to use in early FY 2009, with the balance before the end
of FY 2009. The statement is made repeatedly throughout the document and should be
revised - see Chapter 2, page 5, last sentence of 1st paragraph; Chapter 2, page 8, last
sentence of 1st paragraph under Plan to Timely Use Funds; Chapter 2, page 9, last
sentence of Conclusion.
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5. What We Found, 2nd paragraph. Region 9 workplans did not identify specific costs
associated with new projects and overstated costs for ongoing projects.
Comment: The above statement is not entirely accurate. The costs of ongoing projects
were not overstated but were the actual BEIF costs contained in EPA's deal sheet
approval letters.
CHAPTER 1: Introduction
1.	Background, 1st paragraph. In rural areas, agricultural runoff and chemical waste
pollute drinking water.
Comment: Chemical waste should be deleted from the above statement because drinking
water contamination is more commonly attributable to naturally-occurring compounds
such as arsenic and fluoride, or those associated with inadequate waste treatment (fecal
coliform, bacteria, nitrates, etc.) in addition to agricultural runoff. Referencing chemical
waste as a source of drinking water contamination may convey an unintended message.
2.	Background, 2nd paragraph. For over 20 years, the US and Mexico have
collaborated....
Comment: Collaboration with Mexico through the Border Facilities Construction
Program more closely approaches about 15 years.
3.	Background, Table 1.1 (page 2)
Comment: Associate footnote 1 with the text of the 3rd and 4th measures, rather than with
the table title. Revise footnote text as follows: EPA revised the key one of the measures
for the Border...
4.	Recent Changes to Program, paragraph 3 (see page 3). NADBank cannot construct
projects until the joint BECC/NADBank Board certifies them.
Comment: Add following sentence immediately after above sentence: As part of the
final steps leading up to certification, EPA issues its letter of approval of the project
financial structure and final BEIF amount for the subgrant. NADBank issues....
5.	Noteworthy Achievements, paragraph 3 (see page 4). As a result we were not able to
evaluate the effectiveness of the changes necessary to effectively manage the program.
Comment: The increase in BEIF disbursements in FY07 provides a strong demonstration
of the effectiveness of program changes. This increase in disbursements is also a
reflection of accelerated on-the-ground construction progress since disbursements are
made on a reimburseable basis following completion of construction works. This increase
in annual BEIF disbursed is a result of the OCFO program review and policy direction.
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CHAPTER 2: Award Process Needs to be Changed to Maximize Use of Funds
1.	Grant Funding Was Awarded But Not Used, Page 5
Comment: Revise Footnote 2 as follows: The other $33.2 million was for water and
wastewater projects to complete funding for projects that were certified prior to
prioritization identified in the grant terms and conditions that wore not on the
prioritization list. EPA increased funding for four ongoing projects that only received
partial awards previously.
2.	Table 2.1: Status of 2005/2006 Priority Projects (page 6)
Comment: The table should be replaced with the following:
Project Slnlus
Ucgion 6 FY 2005
Ucgion 9 I-Y 2005
Tolal
Certified Projects
6
3
9
On Schedule to be
2
1
3
Certified Within Two



Years



Delayed Beyond the Two
Year Timeframe
4
4
8
Cancelled
3
3
6
Total Projects
15
11
26
(This table represents certification status as of 7/15/07)
3.	Grant Funding Was Awarded But Not Used, 2nd full par. page 6. By awarding funds
prior to construction need, EPA has a process where funds are idle for years, which is
inefficient and does not comply with the FMFIA of1982.
Comment: As the program has safeguarded its funds against waste, loss, unauthorized
use and misappropriation, please cite the specific part(s) of FMFIA with which the
program is not complying.
4.	Grant Funding Was Awarded But Not Used, Page 7
Comment: The statement that the policy proposes that EPA redirect funds from stalled
construction projects to the next projects on the priority list is not entirely accurate. This
statement should be struck from the report or revised to clarify that the policy proposes
that EPA withdraw funds from projects with 4 years of cumulative BEIF disbursements
at or below 5%. Withdrawn funds would be redirected to new projects.
5.	Plan to Timely Use Funds Needed, Page 8
Comment: The statement that at any given time EPA will have awardedfunding that
cannot be usedfor 2 years or more is not accurate. Policies implemented in 2005 provide
for up to two years for project development. Projects are in various stages of
development when selected for funding and therefore may or may not need the full two-
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year development period to reach certification. Projects may initiate and some have
initiated construction before the end of the two-year development period.
CHAPTER 3: Grant Work Plans Reduced Accountability for Projects
1. Regional Work Plans Need Improvement, paragraph 3 (see page 10)
Region 9 awarded a $118 million grant to NADBank, but the grant workplan identified project
costs totaling $276.4 million. The work plans did not identify what portion of the total costs
EPA wouldfund. In addition, the grant plan includedfunding amounts for projects that were
completed. Therefore, the grant budget did not reflect the actual work that would be
performed and funded under the grant. The project officer is responsible for reviewing the
proposed budget against the work plan to determine whether the budget is reasonable from a
programmatic perspective. In this case, the proposed budget was not reasonable for the
activities described in the work plan.
Comment: The grant workplans identified all the projects the NADBank would support
during the budget period. The workplans show that the total costs of these projects
amounted to $551.91 million, only a portion of which is funded with BEIF assistance.
The workplan for the FY05/06 prioritized projects did not include specific BEIF amounts
because the projects had not completed development including the financial affordability
analysis needed
to determine the appropriate BEIF amount. A second workplan for the previously
certified projects included the approved BEIF amounts (totaling $211.03 million) in their
entirety in order to be consistent with other BEIF summaries and approval documents.
It is the actual grant budget, not the workplans, that identified the portion of the BEIF
funds to be applied to projects, $111,475,710. This amount was determined by (1)
estimating the BEIF share of FY05/06 prioritized projects by calculating a percentage of
the project cost, and (2) quantifying the balance of undisbursed BEIF funds remaining in
the previously certified on-going R9 construction projects, which were being transferred
from Region 6 to the Region 9 grant. This proposed budget, which relied on the
combination of the two workplans, BEIF accounting summaries, and prioritization
estimates, is reasonable and appropriate from both the programmatic and financial
perspectives.
The grant workplans only included projects that were active at the time of grant award.
While the workplans identified some projects as having completed construction of the
BEIF components, projects were still active (i.e., requiring NADB support) as one or
more of the following activities were still pending:
(1)	entire project (not just the BEIF component) had not completed construction;
(2)	project close-out evaluations and certifications had not been completed;
(3)	transition assistance was still being disbursed.
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Appendix A, Program Changes and Accomplishments
1. Table A-l. Program Changes and Accomplishments
Comment: The table incorrectly notes that the baseline for the measure percentage of
water quality standards met in shared and transboundary surface waters is under
development when in 2006, the baseline for year 2002 was set at 17. See Completed
Program Improvement Plans at the following link:
http://www.whitehouse.gOv/omb/expectmore/detail/10002282.2004.html#completedImpr
ovement Plans
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Appendix F
Distribution
Office of the Administrator
Assistant Administrator, Office of Water
Chief Financial Officer
Regional Administrator, Region 6
Regional Administrator, Region 9
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Director, Grants and Interagency Agreement Management Division
Director, Office of Regional Operations
Audit Followup Coordinator, Office of Water
Audit Followup Coordinator, Office of the Chief Financial Officer
Audit Followup Coordinator, Region 6
Audit Followup Coordinator, Region 9
Public Affairs Officer, Region 6
Public Affairs Officer, Region 9
Deputy Inspector General
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