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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Quick Reaction Report
City of Elizabeth, New Jersey -
Excess Clean Water State
Revolving Funds Claimed
Report No. 08-2-0062
January 23, 2008

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Report Contributors:	Robert Adachi
Janet Lister
Lela Wong
Janet Kasper
Abbreviations
CFR
CWSRF
EPA
Grantee
OIG
OMB
SAAP
Code of Federal Regulations
Clean Water State Revolving Fund
U.S. Environmental Protection Agency
City of Elizabeth, New Jersey
Office of Inspector General
Office of Management and Budget
Special Appropriation Act Project

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Office of Inspector General
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At a Glance
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Why We Did This Review
The U.S. Environmental
Protection Agency (EPA)
Office of Inspector General
conducted a review of
earmarked grants known as
Special Appropriation Act
Projects issued to State, local,
and tribal governments. The
City of Elizabeth, New Jersey
(grantee) was selected for
review.
Background
The grantee received EPA
Special Appropriation Act
Project grant number
XP98241301, which provided
Federal assistance of
$1,451,800. The grantee was
responsible for matching, at a
minimum, 45 percent of the
eligible project costs. The
grantee fulfilled its matching
requirement with loans from
the New Jersey Department of
Environmental Protection.
The loans were funded
through the Clean Water State
Revolving Fund.
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/
20080123-08-2-0062.pdf
Catalyst for Improving the Environment
City of Elizabeth, New Jersey - Excess Clean
Water State Revolving Funds Claimed
What We Found
The grantee claimed and was reimbursed under its Clean Water State Revolving
Fund loan $335,232 in excess of actual costs incurred, contrary to the
requirements of Title 40, Code of Federal Regulations, Section 35.3155 (d)(2).
The grantee initially paid for all project construction costs using its internal
service funds, and was reimbursed with draws from either the State loans or from
the EPA grant. The grantee did not associate all reimbursements with contract
invoice payments. The over reimbursement was associated with a State of New
Jersey loan that was 50-percent funded from the Clean Water State Revolving
Fund. These funds could have been made available for use by other potential loan
recipients.
What We Recommend
We recommend that the Regional Administrator, EPA Region 2, coordinate with
the State to ensure that the grantee immediately repays $335,232 drawn in excess
of actual costs incurred.

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January 23, 2008
MEMORANDUM
SUBJECT: City of Elizabeth, New Jersey -
Excess Clean Water State Revolving Funds Claimed
Report No. 08-2-0062
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FROM: Melissa M. Heist	v
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 $38,479.
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 May 21, 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
OFFICE OF
INSPECTOR GENERAL

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Purpose
The Office of Inspector General is reviewing Special Appropriation Act Project (SAAP) grants
to identify issues warranting further analysis. This includes reviewing the total project costs
incurred by selected SAAP grant recipients. During our review of the SAAP grant awarded to
the City of Elizabeth, New Jersey (grantee), we identified the following condition that we believe
requires immediate attention. The grantee claimed and was reimbursed $335,232 in excess of
actual costs incurred from a Clean Water State Revolving Fund (CWSRF) loan that was used to
meet matching requirements of the grant.
Background
EPA Region 2 awarded grant number XP98241301 (grant) to the grantee on September 17, 2001.
The purpose of the grant was to provide Federal assistance of $1,451,800 for a combined sewer
overflow abatement project. The scope of the grant included constructing 26 in-line netting
facilities and 5 bar screen facilities, and installing about 1,310 linear feet of sanitary sewers and
420 linear feet of storm sewers, to separate combined sewer flow. This project would
significantly reduce the amount of solids, floatables, and untreated wastewater being discharged
to the Elizabeth River, Arthur Kill waterbody, and Newark Bay. EPA's contribution to the
project was 55 percent of approved costs not to exceed $1,451,800. The grantee was responsible
for matching, at a minimum, 45 percent of the eligible project costs or $1,187,836. The grant's
budget period was from October 1, 2001, to June 30, 2003.
The grantee fulfilled its matching requirement through two loans from the New Jersey
Department of Environmental Protection. These loans were funded 50 percent from CWSRF
funds and 50 percent from New Jersey Environmental Infrastructure Trust funds.
Scope and Methodology
We performed our audit in accordance with generally accepted government auditing standards
issued by the Comptroller General of the United States, with the exception of gaining a complete
understanding of internal controls as required under Section 7.11 and information control
systems as required under Section 7.59. We did not obtain a complete understanding of the
internal control system since the limited nature of our review focused on the source documents
that support costs claimed under the grants. We also did not test the recipient's grant drawdown
process or process for entering information into its accounting system. Instead, we relied upon
the grantee's schedule of revenues and project costs. The schedule was reconciled to the
grantee's source documents but was not part of the official accounting system. 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 conducted our field work
between June 25, 2007, and October 11, 2007.
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We made site visits to the grantee and performed the following steps:
•	Conducted interviews of grantee and State of New Jersey personnel;
•	Obtained and analyzed the grantee's electronic and hardcopy accounting files, source
documents, bank statements, cancelled checks, and invoices; and
•	Obtained and analyzed EPA grant drawdowns, CWSRF and Environmental Infrastructure
Trust loan draws, and other related financial data.
Finding
The grantee claimed and was reimbursed under its CWSRF loan $335,232 in excess of actual
costs incurred, contrary to the requirements of Title 40, Code of Federal Regulations (CFR),
Section 35.3155 (d)(2). Table 1 provides the details on construction costs incurred and the
reimbursements from the various funding sources:
Table 1: Schedule of Construction Costs and Reimbursements
Amount
Construction Costs Incurred
$10,151,353
Construction Costs Reimbursed
EPA Grant XP98241301
State of New Jersey Loan - S-340-942-02
State of New Jersey Loan - S-340-942-03
Total Reimbursements for Construction Costs
$1,451,800
1,578,435
7,456,350
$10,486,585
Excess Reimbursements Over Construction Costs
$335,232
Source: Contractor invoices and grant and loan draws from City of Elizabeth files.
Under Title 40 CFR 35.3155 (d)(2), the assistance recipient must first incur a cost to draw cash,
and the draws will be available only up to the amount of payments made. Since the grantee only
incurred costs and made payments of $10,151,353, the grantee was not entitled to the additional
$335,232 drawn under the loan.
The grantee initially paid for all project construction costs using its internal funds and was
reimbursed with draws from either the State loans or the EPA grant. The grantee did not
associate all reimbursements with contractor invoice payments. For this reason, reimbursements
for construction costs were based on the "first in first out" accounting method that applies the
reimbursements first to the earliest funding sources received by the grantee for construction
costs. The last funding source the grantee received was State loan number S-340-942-03, which
was 50-percent funded from the CWSRF. The grantee received $335,232 from loan number
S-340-942-03 in excess of the construction costs incurred. The State could have made this
amount available to other loan recipients in need of funding. As a result, we have questioned the
$335,232 received in excess of the construction costs incurred.
Recommendation
1. We recommend that the Regional Administrator, EPA Region 2, coordinate with the
State of New Jersey to ensure that the City of Elizabeth immediately repays $335,232
drawn in excess of actual costs incurred.
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Grantee and Region 2 Comments
On November 27, 2007, an exit conference was held with the grantee, Region 2, and State of
New Jersey officials. The grantee concurs with the audit finding and will work with the New
Jersey Department of Environmental Protection to identify other allowable costs to offset the
questioned costs in the audit report.
Office of Inspector General's Response
Our position remains unchanged since the grantee concurred with the finding.
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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
Planned
Completion
Date
2 Coordinate with the State of New Jersey to ensure
that the City of Elizabeth immediately repays
$335,232 drawn in excess of actual costs incurred.
Regional Administrator,
EPA Region 2
05/21/2008
Claimed
Amount
Agreed To
Amount
$335
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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