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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Enhanced Coordination
Needed to Ensure Drinking
Water State Revolving
Funds Are Used to Help
Communities Not Meeting
Standards
Report No. 12-P-0102
December 1, 2011
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Report Contributors:	Janet Kasper
Khadija Walker
Melinda Burks
Kimberly Crilly
Claire McWilliams
LaTanya Scott
Abbreviations
DWNIMS
Drinking Water National Information Management System
DWSRF
Drinking Water State Revolving Fund
EPA
U.S. Environmental Protection Agency
FY
Fiscal year
I UP
Intended use plan
OIG
Office of Inspector General
PER
Program Evaluation Report
PWSS
Public Water System Supervision
SDWA
Safe Drinking Water Act, as amended in 1996
SDWIS
Safe Drinking Water Information System
Cover photo: Treated drinking water from a faucet. (EPA photo)
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail: OIG Hotline@epa.gov	write: EPA Inspector General Hotline
phone: 1-888-546-8740	1200 Pennsylvania Avenue NW
fax:	202-566-2599	Mailcode 2431T
online:
http://www.epa.gov/oiq/hotline.htm
Washington, DC 20460

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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
12-P-0102
December 1, 2011
Why We Did This Review
Congress created the Drinking
Water State Revolving Fund
(DWSRF) program to assist
public water systems with
upgrading infrastructure to ensure
the continued provision of safe
drinking water. The fund requires
states to give priority to projects
needed to protect public health
and ensure compliance with the
Safe Drinking Water Act
(SDWA), especially in locations
with great economic need and the
most serious health problems. We
sought to determine whether
DWSRF funds are effectively
used to assist communities that
do not meet standards.
Background
Congress established the DWSRF
program in the 1996 amendments
to SDWA. The goal of the
DWSRF program is to provide
states with the means to establish
a revolving fund to provide low-
cost loans to public water
systems, and other funding
through set-asides, to further
public health protection under
SDWA. In fiscal year 2010, the
U.S. Environmental Protection
Agency (EPA) allotted
$1.36 billion for state DWSRF
programs.
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2012/
20111201-12-P-0102.pdf
Enhanced Coordination Needed to Ensure
Drinking Water State Revolving Funds Are Used to
Help Communities Not Meeting Standards
What We Found
The DWSRF program is not taking full advantage of the data and tools that are
available to identify noncompliant systems that may benefit from DWSRF
funding. Although EPA and the states use DWSRF funds to assist communities
in achieving or maintaining compliance with drinking water standards, some
high-priority systems were not aware of the DWSRF program. SDWA requires
that funding priority be given to projects that address the most serious risk to
human health, are necessary to ensure SDWA compliance, and assist systems
most in need. However, noncompliance by some community systems with the
highest number of health-based violations is being resolved through other
means, such as through consolidation with other systems, enforcement actions,
technical assistance, or other funding sources. One EPA region and two states
we reviewed stated that EPA does not have discussions with states about
specific systems in violation of SDWA when reviewing state intended use
plans and project priority lists, or when conducting annual reviews. The EPA
DWSRF program should encourage enhanced coordination with enforcement
programs and use available Agency enforcement data and tools to identify
noncompliant systems that may benefit from DWSRF funding. These actions
would assist in achieving the Agency's strategic objective of making water safe
to drink.
What We Recommend
We recommend that the Assistant Administrator for Water include in the
annual regional review of states checklist an assessment of the coordination
between state DWSRF and enforcement programs. We also recommend that
the Assistant Administrator create a national intended use plan review checklist
that includes a requirement to assess coordination between state DWSRF and
enforcement programs. Further, we recommend that the Assistant
Administrator identify and implement actions to enhance coordination between
regional and state DWSRF and Public Water System Supervision programs.
EPA agreed with all of our recommendations and provided milestone dates for
each recommendation.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
December 1, 2011
MEMORANDUM
SUBJECT: Enhanced Coordination Needed to Ensure Drinking Water State Revolving Funds
Are Used to Help Communities Not Meeting Standards
Report No. 12-P-0102
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency. This report contains findings that describe the problems
the OIG has identified and corrective actions the OIG recommends.
Action Required
In responding to the draft report, the Agency provided a corrective action plan with milestone
dates for addressing the recommendations. Therefore, a response to the final report is not
required. The Agency should track corrective actions not implemented in the Management Audit
Tracking System. We have no objections to the further release of this report to the public. The
report will be available at http://www.ega.gov/oig.
If you or your staff have any questions regarding this report, please contact Melissa Heist at
(202) 566-0899 or heist.melissa@epa.gov. or Janet Kasper at (312) 866-3059 or
kasper.ianet@epa.gov.
FROM: Arthur A. Elkins, Jr
Inspector General
TO:
Nancy Stoner
Acting Assistant Administrator for Water

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Enhanced Coordination Needed to Ensure	12-P-0102
Drinking Water State Revolving Funds Are
Used to Help Communities Not Meeting Standards
		Table of C	
Purpose		1
Background 		1
Noteworthy Achievements		2
Scope and Methodology		2
Increased Coordination Needed Between DWSRF Programs and
Enforcement		3
DWSRF Funds Used to Assist Noncompliant Systems		4
Some Systems With Highest Number of Violations
Not Applying for DWSRF Funding		4
Annual Reviews Do Not Assess State DWSRF Coordination
Wth Enforcement		7
Enhanced Coordination Needed to Reach Some Systems Wth
Highest Number of Violations		8
Conclusion		9
Recommendations		9
Agency Response and OIG Evaluation		10
Status of Recommendations and Potential Monetary Benefits		11
Appendices
A Agency Response to Draft Report	 12
B Distribution	 17

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Purpose
Congress created the Drinking Water State Revolving Fund (DWSRF) program to
assist public water systems with upgrading infrastructure to ensure continued
provision of safe drinking water. The program requires states to give priority to
projects that address immediate risks to human health, are needed to ensure Safe
Drinking Water Act (SDWA) compliance, and assist systems most in need. We
sought to determine whether DWSRF funds are effectively used to assist
communities that do not meet standards.
Background
Congress established the DWSRF program in the 1996 amendments to the SDWA.
The goal of the DWSRF program is to provide states (a) the means to establish a
revolving fund to provide low-cost loans to public water systems, and (b) other
funding through set-asides to further public health protection under the SDWA.
In fiscal year (FY) 2010, the U.S. Environmental Protection Agency (EPA) allotted
$1.36 billion for state DWSRF programs.
EPA conducts an annual review of each state's program to evaluate the
effectiveness of the DWSRF program's operations and to develop guidelines
necessary to assure effective program management. EPA allots funding to the
states based on need, in accordance with the SDWA. Need is assessed every
4 years through EPA's Needs Assessment Survey. Each fiscal year, EPA regions
review and approve the state ranking systems, intended use plans (IUPs), and
project lists to ensure compliance with the SDWA. At the end of the year, EPA
regions perform annual reviews of the state programs and document these reviews
in Program Evaluation Reports (PERs) that summarize findings. Periodically,
EPA's Office of Water in headquarters reviews regional oversight of state
programs.
EPA's 2011-2015 Strategic Plan states that, "by 2015, 90% of community water
systems will provide drinking water that meets all applicable health-based drinking
water standards through approaches including effective treatment and source water
protection." This plan promotes (a) the construction of infrastructure that brings
safe drinking water into the homes of small, rural, and disadvantaged communities;
and (b) increased efforts to guard the nation's critical drinking water infrastructure.
EPA and states use the DWSRF to fund infrastructure construction.
States are responsible for setting state funding priorities, developing the ranking
criteria for project selection, and ranking the projects based on priority. States
provide loans and other types of assistance to eligible water systems to finance the
costs of infrastructure projects needed to achieve or maintain compliance with
SWDA requirements. State DWSRF programs are annually required to develop
an IUP that lists the projects eligible for DWSRF loans and the projects it plans to
fund. SDWA Section 1452(b)(3)(A) states that, to the maximum extent
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practicable, an IUP shall give priority for the use of DWSRF funds to projects
that:
•	Address the most serious risks to human health
•	Are necessary to ensure compliance with SDWA requirements
•	Assist systems most in need on a per-household basis according to state
affordability criteria
The Drinking Water State Revolving Fund: Program Operations Manual states
that programs must include two priority lists with each IUP. The comprehensive
priority list includes all projects that are eligible for program assistance and have
submitted a preapplication for priority listing. The fundable project list identifies
projects expected to receive assistance in the upcoming year. The annual state
IUP must also include details on the state's priority ranking system.
SDWA Section 1420 capacity development provisions provide a framework for
states and water systems to work together to ensure that systems acquire and
maintain the technical, managerial, and financial capacity needed to meet the
Act's public health protection objectives.
Noteworthy Achievements
The project priority ranking systems for the states we reviewed—Missouri and
Oregon—complied with the SDWA requirement that funding priority be given to
projects that address the most serious risk to human health, are necessary to
ensure compliance with SDWA requirements, and assist systems most in need.
For FY 2010, the states we reviewed ranked the projects in accordance with
established project priority ranking system criteria. EPA's DWSRF reporting
system shows that nationally for FY 2010, 82 percent of DWSRF infrastructure
funding went to projects to bring drinking water systems into compliance and to
assist systems to maintain compliance with drinking water standards and other
requirements of the SDWA.1 Through the DWSRF set-asides, the states can also
conduct outreach and provide technical and capacity development assistance to
drinking water systems, including small and disadvantaged communities. For the
fiscal years we reviewed, we found that Oregon intended to use 30 percent and
Missouri intended to use the full 31 percent of federal capitalization grant funds
for such activities.
Scope and Methodology
We conducted this performance audit from February to November 2011 in
accordance with generally accepted government auditing standards issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a
1 The audit did not verify the data for accuracy, as it was not part of the scope of the review.
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reasonable basis for our findings and conclusions based on our audit objective.
We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
We selected two states to review—Missouri and Oregon—based on the highest
percentage of systems in violation of health-based standards and the total
population served that was listed in the Safe Drinking Water Information System
(SDWIS) for 2008 and 2009.2 We used the highest number of SDWIS violations
because we believe systems with the most violations are also likely in need of
technical, financial, and managerial capacity. For the two states, we interviewed
state DWSRF and Public Water System Supervision (PWSS) staff; reviewed
supporting documentation for a sample of projects from the state project priority
lists; and compared comprehensive and fundable project lists to SDWIS inventory
and violations data. To assess internal controls, we obtained data from the
Drinking Water National Information Management System (DWNIMS) and
reviewed the Agency's quality assurance plans or procedures associated with both
SDWIS and DWNIMS. We did not assess the reliability of the data in SDWIS or
DWNIMS, because we did not rely on those data to form our conclusions and
recommendations.
We reviewed the relevant federal law, regulations, and guidance. We interviewed
EPA staff from the Office of Water, Office of Enforcement and Compliance
Assurance, and Regions 7 (for Missouri) and 10 (for Oregon) regarding the EPA
IUP approval process, annual review process, and EPA influence over state
project selection. There are 51 DWSRF programs, for 50 states and Puerto Rico.3
We analyzed the 51 most recently completed regional PERs and associated
checklists to assess any relevant trends identified in EPA's annual reviews of
DWSRF programs.4
There were no prior audits related to our objective.
Increased Coordination Needed Between DWSRF Programs and
Enforcement
EPA and the states use DWSRF funds to assist communities that do not meet
drinking water standards and to assist other communities in maintaining
compliance with drinking water standards. Noncompliance by some community
systems with the highest number of health-based violations is being resolved
through other means, such as through consolidation with other systems,
enforcement actions, technical assistance, or other funding sources. Some of these
2	The audit team used SDWIS data. SDWIS captures violation data at particular points in time, so the nature of the
violations may have changed over time.
3	Washington, DC, is not included in the count of traditional DWSRF programs. EPA does not complete a PER for
Washington, DC.
4	As of May 6, 2011, Region 2 did not complete a checklist for New Jersey. The most recently completed PERs and
checklists were for FY 2009.
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systems were not always aware of the DWSRF program. SDWA requires that
funding priority be given to projects that address the most serious risk to human
health, are necessary to ensure SDWA compliance, and assist systems most in
need. The EPA regions we reviewed did not have discussions with states about
specific systems in violation of SDWA when reviewing state IUPs and project
priority lists, or when conducting annual reviews. While it is encouraging that
systems with the highest number of health-based violations are resolving their
problems, enhanced coordination between EPA and the states, when considering
available funding, would further support the best use of DWSRF funds to achieve
the Agency's strategic objective of making water safe to drink.
DWSRF Funds Used to Assist Noncompliant Systems
DWSRF funding assists drinking water systems that do not meet drinking water
standards in several different ways:
•	DWSRF Infrastructure Loans: EPA's DWSRF program tracks DWSRF
funding nationally and by state through the DWNIMS. States report to the
DWNIMS database annually. The DWNIMS data show that nationally for
2010, 82 percent of DWSRF infrastructure funding went to projects to
bring drinking water systems into compliance (29 percent) and to assist
systems to maintain compliance (53 percent) with the SDWA, contributing
to the Agency's Strategic Plan "water safe to drink" subobjective.
•	DWSRF Set-Aside Funding: The SDWA allows states to use up to
31 percent of each federal capitalization grant for various activities. States
can use the funds to provide drinking water systems with technical,
financial, and managerial assistance that they may need to achieve or
maintain compliance.
Our review found that Missouri and Oregon rank projects according to priorities
set forth in the SDWA. The project priority ranking systems for the states we
reviewed complied with the SDWA requirement that funding priority should be
given to projects that (1) address the most serious risk to human health, (2) are
necessary to ensure compliance with SDWA requirements, and (3) assist systems
most in need. The states we reviewed ranked their projects in accordance with
those approved project priority ranking systems.
Some Systems With Highest Number of Violations Not Applying for
DWSRF Funding
DWSRF infrastructure loans are not the only tool in addressing systems with the
highest number of SDWA violations. According to the Office of Water, the
number of violations that a system has does not necessarily equate to an
infrastructure need. Systems fail to meet standards for a variety of reasons, some
of which are not amenable to resolution through DWSRF funding. For cases in
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which noncompliance is related to managerial or operational deficiencies,
consolidation, enforcement actions, or other options may be considered. Further,
some systems did not have contact with the state DWSRF program. However,
EPA stated that systems with the highest number of violations may be best served
by technical assistance rather than capital financing. If a state can use other
methods to bring a system back into compliance more quickly than capital
financing, the Office of Water encourages those methods.
States are funding systems with violations, but not necessarily the systems with
the highest number of violations. In the two states we reviewed—Missouri and
Oregon—our comparisons between the SDWIS list of the top systems with
health-based violations and the state FY 2010 comprehensive lists and fundable
lists showed that not all systems with the highest number of violations were on the
states' latest fundable lists, as shown in table 1.
Table 1: Comparison of SDWIS lists to comprehensive and fundable lists
State
SDWIS list of systems
with most health-based
violations 2008-2009
No. of those systems
on federal FY 2010
comprehensive list
No. of those
systems on
federal FY 2010
fundable list
Missouri
20
4
0
Oregon
16
0
oa
Source: OIG analysis of systems with most violations in FYs 2008-2010 SDWIS compliance data
compared to state comprehensive and fundable lists associated with FY 2010 capitalization grant.
a Five of the 16 systems were funded by the DWSRF program in a prior fiscal year for
unrelated issues.
The systems that we identified as having the most violations had between 1 and
14 violations during 2008 and 2009, some of which could have long-term health
effects. For example, prolonged exposure to violations of the total coliform rule
can result in gastrointestinal illness and viruses; long-term exposure to arsenic can
cause bladder, lung, and skin cancer. Total coliform and arsenic were among the
violations identified in SDWIS for the systems with the most violations.
In Missouri, of the 20 systems that had the highest number of violations in
SDWIS for 2008-2009, 14 systems did not submit an application for a DWSRF
loan. Most of the 14 systems resolved the violations by getting funding from other
sources, but 3 of those 14 could not get the financial backing to support a DWSRF
loan. Of the six cases that applied for a DWSRF loan, one could not get the
financial backing for a DWSRF loan and the rest resolved the violations in other
ways. Table 2 summarizes the 20 systems in Missouri.
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Table 2: Missouri systems analysis
Reasons for systems not receiving FY 2010 DWSRF funding
No.
No application; problem was resolved by private or state funding
5
No application; problem being addressed by state or EPA enforcement action
4
No application; systems could not get financial backing for a loan (i.e., bonds)
3
No application; project funded by the U.S. Department of Agriculture
2
Submitted application; problem resolved by consolidating with another system
2
No application for FY 2010, but have since submitted an application; under
state DWSRF consideration for funding
1
No application for FY 2010, but engineer plans to submit application in a later
year
1
Submitted application; system cannot get financial backing
1
Submitted application; project was able to be funded by American Recovery
and Reinvestment Act of 2009 DWSRF funds
1
Total
20
Source: Responses from Missouri DWSRF staff or enforcement (PWSS) staff.
In Oregon, of the 16 systems that had the highest number of violations in SDWIS
for 2008-2009, 8 systems did not submit an application for a DWSRF loan. Most
of those eight systems were able to identify other sources of funding. The
remaining eight systems submitted loan applications to the DWSRF state
program; they were funded either by DWSRF in another fiscal year or by the
American Recovery and Reinvestment Act of 2009 for unrelated reasons. Table 3
summarizes the 16 systems in Oregon.
Table 3: Oregon systems analysis
Reasons for systems not receiving FY 2010 DWSRF funding
No.
No application; no contact with state DWSRF program, or problem resolved by
private funding or state capital improvement funds
5
No application for FY 2010; received DWSRF funding in another fiscal year
5
Submitted application; project funded by American Recovery and Reinvestment
Act of 2009 DWSRF funds
3
No application; aware of DWSRF program, problem resolved with private funds
1
No application for FY 2010; previous problem resolved by technical assistance,
recently submitted application; under state review for additional work that will
require capital investment
1
No application; system is now inactive
1
Total
16
Source: Responses from Oregon DWSRF staff or enforcement (PWSS) staff, and enforcement
database review.
A state can encourage noncompliant systems to submit Letters of Intent to the
state DWSRF program. Once the community chooses to submit a letter, the state
must rank the project above the funding line for that fiscal year, and then offer the
community the option to submit an application. Once the community submits an
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application to apply for the DWSRF loan, the state can review and rank the
project to compile the state's project priority list. In Missouri, the state issues a
notice informing the public of the availability of DWSRF loan applications, and
individual notifications are sent to all city water systems and water districts, as
well as engineering firms, in the state. In Oregon, the state has established an
outreach program to assist public water systems in developing technical,
managerial, and financial capacity. However, the state said that the DWSRF
capacity development program does not target systems that have the highest
number of violations. As noted, of the eight systems with the highest number of
violations that did not apply for DWSRF funding in Oregon, five systems did not
have any contact with the DWSRF program.
Annual Reviews Do Not Assess State DWSRF Coordination With
Enforcement
EPA annual reviews of state programs do not always assess whether the DWSRF
program is coordinated with the state's water enforcement or PWSS program. The
annual review checklist of the states does not contain specific questions relating to
coordination between the offices, and only 31 percent of the state performance
reports indicated that the issue was addressed during the annual review.
SDWA requires coordination between the DWSRF and enforcement programs.
SDWA Section 1452(g)(1)(B) requires that the authority to establish assistance
priorities and carry out oversight and related activities remain with the primary
agency, after consultation with other appropriate state agencies. The enforcement
program analyzes information regarding the compliance status of drinking water
systems. A system that is not complying with drinking water standards may need
a DWSRF loan to make improvements to the system in order to come into
compliance. In other cases, noncompliance can be addressed through
consolidation with larger systems or enforcement actions at the state or EPA
level.
The EPA annual review checklist does not include a question about whether the
state DWSRF program coordinates with state enforcement staff regarding systems
in noncompliance when selecting projects for DWSRF funding. The checklist
does include the following two questions:
•	Does the state have adequate procedures to ensure that systems in
significant noncompliance with any national primary drinking water
regulation are receiving funds only to achieve compliance?
•	Are set-aside funding activities coordinated with the overall goals of the
state's public drinking water program?
The annual review checklist does not include a review of coordination between
state DWSRF and enforcement programs in relation to project selection for
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DWSRF funding. Adding a specific checklist question to address this
coordination would help to ensure that the region, state DWSRF, and PWSS
programs enhance coordination to focus on achieving the Agency's strategic
"water safe to drink" subobjective.
Our review of the latest regional annual DWSRF PERs and related review
checklists for all 51 DWSRF programs showed that 39 percent included
comments on state project selection or ranking criteria in general, but little to no
discussion on specific projects selected for funding or systems in noncompliance.
Of the 51 PERs we reviewed, EPA regions made only three comments on meeting
health-based standards. Further, some regions commented on the states' selection
of projects and coordination with the enforcement program, but most did not, as
the checklist did not include specific questions about these areas. The PERs made
positive comments to indicate that a state program was performing well in an area
and negative comments to indicate that areas need improvement.
Table 4: PER results for 51 DWSRF programs
Comments category
Regional
comments:
positive
% of total
51
programs
Regional
comments:
negative
% of total
51
programs
Coordination with state enforcement/
PWSS/other state entities
16
31
0
0
Project selection/ranking criteria
15
29
5
10
Meeting health-based standards
2
4
1
2
Source: OIG analysis. Results only reflect PERs/checklists that contained comments related to the
specific categories.
Region 7 did not have discussions with its states about specific systems shown as
being in violation in the SDWIS database when reviewing IUPs and project
priority lists, or when conducting annual reviews of the state programs. Because
of this lack of discussion, EPA may be missing an opportunity to reach systems
that the state could assist through the program. EPA and states should discuss
systems that have not applied, and systems that possibly lack the capacity to
apply, to assess ways they can prepare these systems for funding. Regions do not
have a national IUP review checklist to use while approving state IUPs.
Enhanced Coordination Needed to Reach Some Systems With
Highest Number of Violations
In a 2006 memorandum, the EPA Office of Water emphasized to regional staff a
national priority for enhancing coordination between regional and state DWSRF
and PWSS programs, to focus on achieving the Agency's strategic "water safe to
drink" subobjective.5 However, the Agency has not developed specific steps for
regions to implement this priority.
5 Memorandum from Cynthia Dougherty, Director, Office of Ground Water and Drinking Water, to Water Division
Directors, "National Priorities for the Drinking Water State Revolving Fund Program," August 21, 2006.
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The regions and states should improve coordination with enforcement programs
when considering DWSRF projects for funding. A 2007 headquarters review of
Region 7 recommended that the region consider improving the links between
enforcement and the DWSRF program. From our discussions, it appears that
Region 7 has improved its coordination efforts. The Region 7 drinking water and
enforcement programs discuss the enforcement tool results and encourage the use
of DWSRF funding where appropriate.
EPA enforcement staff has tools that could assist the Office of Water staff in
identifying systems that may need assistance to comply with drinking water
standards. For example, the EPA Office of Enforcement and Compliance
Assurance has developed the Enforcement Targeting Tool to identify systems
with SDWA violations and allow EPA to target those systems for enforcement or
assistance. The EPA DWSRF program could use these Agency enforcement data
and tools to identify noncompliant systems that may benefit from DWSRF
funding.
Conclusion
The DWSRF program is not taking full advantage of the data and tools that are
available to identify noncompliant systems that may benefit from DWSRF
funding. DWSRF may never reach some communities with the highest number of
health-based drinking water violations because these communities have no
contact with the state DWSRF office and are not aware of the program; they do
not have technical, managerial, or financial capacity; or they cannot afford a loan.
We found that some systems with the highest number of health-based violations
are resolving noncompliance through other means, illustrating that DWSRF
infrastructure loans are not the only tool for addressing SDWA violations. One
EPA region and two states we reviewed stated that EPA does not have discussions
with states about specific systems in violation of the SDWA when reviewing state
IUPs and project priority lists, or when conducting annual reviews. The EPA
DWSRF program should encourage enhanced coordination with enforcement
programs and use the available Agency enforcement data and tools to identify
noncompliant systems that may benefit from DWSRF funding. These actions
would assist in achieving the Agency's strategic "water safe to drink"
subobjective.
Recommendations
We recommend that the Assistant Administrator for Water:
1. In the regional annual review checklist that supports the PER, include
an assessment of the coordination between state DWSRF and
enforcement programs.
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2.	Create a national IUP review checklist that includes a requirement for
regions to assess how the state DWSRF programs take into
consideration the needs of systems with multiple violations when
developing the IUP and selecting projects.
3.	To help achieve the Agency's strategic "water safe to drink"
subobjective, identify and implement actions to enhance coordination
between regional and state DWSRF and PWSS programs.
Agency Response and OIG Evaluation
EPA concurred with our recommendations and proposed the following corrective
actions with a milestone date of March 31, 2012, to address these
recommendations:
•	EPA will amend the annual review checklist to include appropriate
questions to assess the coordination between state DWSRF and
enforcement programs.
•	EPA will develop a national IUP review checklist that includes questions
to facilitate regional assessment of how state DWSRF programs take into
consideration the needs of systems with multiple violations, including
current compliance status and actions underway to address compliance,
when developing the IUP and selecting projects.
•	EPA will amend the regional annual review checklist to include
appropriate questions to assess the coordination between state DWSRF
and PWSS programs.
In addition to the proposed corrective actions to address our recommendations
above, EPA stated that its Office of Enforcement and Compliance Assurance
coordinated closely with the Office of Water to provide a webinar on the
Enforcement Targeting Tool to state counterparts in October 2011.
In responding to the draft report, EPA provided additional comments to the text of
the report. We made the necessary changes to the report based on the comments.
The proposed actions meet the intent of the recommendations. EPA's complete
response is in appendix A.
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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
Claimed
Amount
Agreed-To
Amount
9	In the regional annual review checklist that
supports the PER, include an assessment of the
coordination between state DWSRF and
enforcement programs.
10	Create a national IUP review checklist that includes
a requirement for regions to assess how the state
DWSRF programs take into consideration the
needs of systems with multiple violations when
developing the IUP and selecting projects.
Assistant Administrator 03/31/12
for Water
Assistant Administrator 03/31/12
for Water
10 To help achieve the Agency's strategic "water safe
to drink" subobjective, identify and implement
actions to enhance coordination between regional
and state DWSRF and PWSS programs.
Assistant Administrator
for Water
03/31/12
1 O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
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Appendix A
Agency Response to Draft Report
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D C. 20460
October 31, 2011
OFFICE OF WATER
MEMORANDUM
SUBJECT: Draft Report Project No. OA-FY11-0180
Enhanced Coordination Needed to Ensure Drinking Water State Revolving Funds
Are used to Help Communities Not Meeting Standards
FROM: Nancy K. Stoner
Acting Assistant Administrator for Water
TO:	Melissa M. Heist
Assistant Inspector General for Audit
Thank you for the opportunity to comment on the draft report titled Enhanced
Coordination Needed to Ensure Drinking Water State Revolving Funds Are Used to Help
Communities Not Meeting Standards. The Drinking Water State Revolving Fund (DWSRF) is
an important program that enables states to provide affordable loans to water systems for needed
infrastructure improvements and also allows states to assist water systems in developing
technical, financial, and managerial capacity and becoming sustainable. Office of Ground Water
and Drinking Water (OGWDW) has coordinated with the Office of Enforcement and
Compliance Assurance (OECA) in reviewing and commenting on the draft report. EPA concurs
with the proposed recommendations and plans to address them as described below.
Regarding the draft findings as presented on the "At A Glance" page, EPA would like to
emphasize that DWSRF funds may legally and appropriately be used to assist water systems in
maintaining as well as in achieving compliance. Please see the attached technical comments for
suggested wording. EPA also appreciates the effort that your office has made in the body of the
draft to clarify that funding infrastructure through the Drinking Water State Revolving Fund
(DWSRF) is not always the first or only answer to addressing water system non-compliance, and
that the number of violations that a water system has does not necessarily equate to an
infrastructure need.
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Our planned completion dates for the recommendations are as follows:
1.	In the regional annual review checklist that supports the PER, include an
assessment of the coordination between state DWSRF and enforcement programs.
Response: OSWDW will amend the checklist to include appropriate questions to assess
the coordination between State DWSRF and enforcement programs. This amendment to
the checklist will be completed by March 31, 2012. The revised checklist will be used by
the Regions for their State oversight visits thereafter. Starting with OGWDW reviews of
regional DWSRF programs in 2012, OGWDW will increase emphasis on assessing
regional progress in working with state to enhance coordination between state DWSRF
and enforcement programs.
2.	Create a national Intended Use Plan (TUP) review checklist that includes a
requirement for regions to assess how the state DWSRF programs take into
consideration the needs of systems with multiple violations when developing the IUP
and selecting projects. Response: OGWDW will develop a national Intended Use Plan
(IUP) review checklist that includes a section of questions to facilitate regional
assessment of how state DWSRF programs take into consideration the needs of systems
with multiple violations, including current compliance status and actions underway to
address compliance, when developing the IUP and selecting projects. The national IUP
review checklist will be developed by March 31, 2012. The new IUP checklist will be
used by the regions for review of capitalization grant award packages undergoing review
thereafter.
3.	To help achieve the Agency's strategic "water safe to drink" sub-objective, identify
and implement actions to enhance coordination between regional and state DWSRF
and PWSS programs. Response: On August 21, 2006 OGWDW issued a
memorandum to the regions on "National Priorities for the Drinking Water State
Revolving Fund" and one of the four national priorities identified was "enhancing
coordination between regional and state DWSRF and Public Water Supply Supervision
(PWSS) programs to focus on achieving the Agency's strategic 'water safe to drink" sub-
objective". To ensure appropriate emphasis on this priority, OGWDW will amend the
regional annual review checklist to include appropriate questions to assess the
coordination between State DWSRF and PWSS programs. This amendment to the
checklist will be completed by March 31, 2012. The revised checklist will be used by the
Regions for their State oversight visits thereafter. OGWDW will also continue to
emphasize this priority in its oversight of regional programs.
If you have questions, please contact Cynthia Dougherty at (202) 564-3750 or have your
staff contact Charles Job, Infrastructure Branch Chief, at (202) 564-3941.
cc: Cynthia Dougherty
Janet Kasper
Lisa Lund
Mamie Miller
Edward Messina
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Khadija Walker
Michael Mason
Marilyn Ramos
enclosure
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Office of Ground Water and Drinking / Office of Water and
Office of Compliance and Enforcement Assurance
Joint Comments on OIG Project No. OA-FY11-0180 9/21/11 Draft Report
Page "At a Glance" first sentence: "EPA and the states use DWSRF funds to assist communities
that do not meet in achieving or maintaining compliance with drinking water standards."
Page 1, Line 3: "The program requires states to give priority to projects that are needed to
protect public health and ensure compliance with the Safe Drinking Water Act (SDWA),
especially those with great economic need and the most serious health problems that address
immediate risks to human health, are needed to ensure SDWA compliance or assist systems most
in need on a per household basis."
Page 3, Line 14: Regarding the OIG report reference to SDWIS "compliance lists" -SDWIS
contains data on violations (non-compliance) of water systems as well as water system
descriptive data. We suggest that you use the terminology "inventory and violations data."
Page 3, last paragraph, 1st sentence: "EPA and the state use DWSRF funds to assist communities
that do not moot in achieving or maintaining compliance with drinking water standards."
Page 3, next to last full sentence: The sentence contains the phrase "change this sentence to what
is in the AGG." This seems to be a typo and should be removed.
Page 4, line 5 to end of paragraph: The draft states that "while it is encouraging that systems
with the highest number of health-based violations are resolving their problems, enhanced
coordination between EPA and the states, when considering available funding, would increase
the likelihood that systems with the highest number of health-based violations receive DWSRF
funds as needed. This would ensure the best use of DWSRF funds and that the Agency's
strategic objective of making water safe to drink is achieved." These statements imply that a
water system with a high number of violations needs capital to address the source of the
violations when such a system may be better served through technical assistance such as through
a DWSRF set-aside. States may have more expedient and effective means to return systems to
compliance or may find that funds are best used to assist systems in maintaining compliance to
achieve the strategic objective of ensuring that water is safe to drink. We also have concerns
about the use of "highest number of health-based violations" as the sole metric to identify the
most serious non-compliance. The Enforcement Targeting Tool (ETT), which has been the
Agency's enforcement priority setting tool for over a year, is based on a combination of various
factors including the number of violations at a system, the type of violations and how long the
violations have been unaddressed when determining the seriousness of non-compliance. We
recommend amending the draft to say that "while it is encouraging that systems with the highest
number of health-based violations are resolving their problems, enhanced coordination between
EPA and the states, when considering available funding, would increase the likelihood that
systems with tho highest number of health basod violations rocoivo DWSRF funds as noodod.
This would ensure further support the best use of DWSRF funds and that to achieve the
Agency's strategic objective of making water safe to drink is achieved."
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Page 5, first full paragraph: The report notes that "States are funding systems with violations, but
not necessarily the systems with the highest number of violations." However, systems with the
highest number of violations may not be best served by capital financing but rather by technical
assistance. If a state can use other methods to bring a system back into compliance more quickly
than capital financing, those methods are encouraged.
Page 5-6: The report summarizes the relationship of DWSRF applications by water systems in
MO and OR relative to other sources of funding and problem resolution for water systems
looked at in the two states. Tables 2 and 3 indicate that all the water systems looked at were able
to resolve the problems through the DWSRF, financing through other sources or closing the
system in all but one out of 36 such systems. The key point from a public health perspective is
that resolution was achieved in nearly all cases regardless of the source of financing. The
DWSRF is not intended to provide financing to every water system needing capital investment to
address supplying safe water. The tables show that there are alternative paths to resolution of
health issues at water systems and one of them is the DWSRF.
Page 8, last full paragraph: This paragraph focuses on the lack of discussions by Region 7 with
States to address specific systems and their financing need. Again, the selection of water
systems to receive financing is a state function guided by the scoring and ranking based on the 3
factors specified in the SDWA.
Pages 8 bottom and 9 top: The report suggests that EPA has not developed specific steps
relating the DWSRF to the PWSS program for Regions to address the priority of the Agency's
strategic "water-safe-to-drink" sub-objective. The Agency has developed several means for
Regions to implement this priority through the DWSRF: through the IUP development reliance
on the three priorities of SDWA with the Region's review and approval; through the use of the
annual review checklist during Headquarters' review of the Region's DWSRF program; and
through the review by the Regional PWSS program of states accomplishment of capacity
development strategies and operator certification programs to enable states to receive full
DWSRF capitalization grants each year.
Page 9, second full paragraph: The report cites the new Enforcement Targeting Tool (ETT) to
indentify water systems with SDWA violations that may be useful in informing state and
Regional DWSRF programs about systems which may need either capital financing or technical
assistance through the DWSRF or other relevant programs to achieve compliance with SDWA.
EPA's enforcement program is working with its PWSS program to incorporate the ETT results in
relevant processes such as capacity development strategies review, replacing the approach
previously resulting in water systems being designated in "significant non-compliance" under
prior violation screening methods. EPA's Office of Enforcement and Compliance Assurance
(OECA) coordinated closely with the OW to provide a webinar on the ETT to state counterparts
in October 2011. The training materials are now available to states on the internet. EPA's OW
and OECA will continue to look for additional opportunities to increase awareness of enhanced
coordination between the programs.
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Appendix B
Distribution
Office of the Administrator
Acting Assistant Administrator for Water
Assistant Administrator for Enforcement and Compliance Assurance
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
Audit Follow-Up Coordinator, Office of Water
Audit Follow-Up Coordinator, Office of Enforcement and Compliance Assurance
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Office of Regional Operations
Regional Administrator, Region 7
Regional Administrator, Region 10
Regional Audit Follow-Up Coordinator, Region 7
Regional Audit Follow-Up Coordinator, Region 10
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