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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Examination of Costs Claimed
Under Cooperative Agreement
X7-83325501 Awarded to
Kathleen S. Hill, Chiloquin,
Oregon
12-4-0224 January 23, 2012
REDACTED VERSION FOR PUBLIC RELEASE
The full version of this report contained sensitive information. This is a
redacted version of that report, which means the sensitive information
has been removed. The redactions are clearly identified in the report.
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Report Contributors: Janet Lister
David Kim
Lela Wong
Abbreviations
CFR Code of Federal Regulations
EPA U.S. Environmental Protection Agency
GIAMD Grants and Interagency Agreements Management Division
OIG Office of Inspector General
Recipient Kathleen S. Hill
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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At a Glance
Why We Did This
Examination
The U.S. Environmental
Protection Agency (EPA)
requested assistance from the
Office of Inspector General
(OIG) due to concerns relating
to project and funding
management exercised by a
cooperative agreement
recipient, as well as the
recipient's cash draw practices.
Background
EPA competitively awarded
Cooperative Agreement
X7-83325501 on October 26,
2006, to Kathleen S. Hill
(recipient), an individual, to
support the creation and
administration of a national
tribal water program council.
The council is intended to raise
awareness of water-related
issues pertaining to the health
of tribal communities and the
quality of tribal aquatic
resources and watersheds.
EPA's contribution to the
project was 100 percent of
approved costs up to $800,000.
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
Examination of Costs Claimed Under
Cooperative Agreement X7-83325501 Awarded to
Kathleen S. Hill, Chiloquin, Oregon
What We Found
Kathleen S. Hill did not have a financial management system that met federal
standards. We identified the following material weaknesses concerning the
recipient's internal controls and compliance with federal requirements:
• The recipient did not have adequate controls to ensure that costs claimed
were in accordance with Code of Federal Regulations (CFR)
requirements under 2 CFR Part 230.
• The recipient's cash draws did not comply with 40 CFR Part 30
requirements or the terms and conditions of the cooperative agreement.
As a result, we questioned $80,721 of the $726,587 claimed under the
cooperative agreement. Questioned costs included ineligible fringe benefit, travel
and per diem, supplies, and contractual costs.
What We Recommend
We recommend that the Director, Office of Grants and Debarment, disallow and
recover $80,721 in questioned costs. We also recommend that the director verify
that the recipient has an adequate financial management system in place prior to
any future award. Further, we recommend that the director verify that the
recipient's final financial status report is properly supported by accounting
system records.
EPA did not comment on the recommendations, but generally agreed with the
findings, with the exception of fringe benefits. The recipient generally disagreed
with the findings and recommendations, and said they were based on inaccurate
and incomplete data. However, the recipient's comments and supporting
documentation did not change our findings and recommendations.
The full report is at:
www.epa.qov/oiq/reports/2012/
20120123-12-4-0224.pdf
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
January 23, 2012
MEMORANDUM
SUBJECT: Examination of Costs Claimed Under Cooperative Agreement X7-83325501
Awarded to Kathleen S. Hill, Chiloquin, Oregon
Report No. 12-4-0224
This is our report on the subject examination conducted by the Office of Inspector General (OIG)
of the U.S. Environmental Protection Agency (EPA). This report contains findings that describe
the problems the OIG has identified and corrective actions the OIG recommends. This report
represents the opinion of the OIG and does not necessarily represent the final EPA position. EPA
managers in accordance with established audit resolution procedures will make final
etermination on matters in this report.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to this
report within 120 calendar days, or May 22, 2012. You should include a corrective action plan
for agreed-upon actions, including milestone dates. Your response will be posted on the OIG's
public website, along with our memorandum commenting on your response. Your response
should be provided as an Adobe PDF file that complies with the accessibility requirements of
Section 508 of the Rehabilitation Act of 1973, as amended. The final response should not contain
data that you do not want to be released to the public. If your response contains such data, you
should identify the data for redaction or removal.
We have redacted information on pages 24-76 of this report. Exemption (b)(6) of the Freedom of
Information Act permits the government to withhold names of individuals when disclosure of
such information "would constitute a clearly unwarranted invasion of personal privacy"
[5 U.S.C. § 552 (b)(6)]. The individuals whose names are redacted were not high-level officials.
FROM:
Arthur A. Elkins, Jr.
Inspector General
TO:
Howard Corcoran
Director, Office of Grants and Debarment
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If you or your staff have any questions regarding this report, please contact Robert Adachi,
Director of Forensic Audits, at (415) 947-4537 or adachi.robert@epa.gov; or Lela Wong,
Project Manager, at (415) 947-4531 or wong.lela@epa.gov.
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Examination of Costs Claimed Under
Cooperative Agreement X7-83325501
Awarded to Kathleen S. Hill, Chiloquin, Oregon
12-4-0224
Table of C
Introduction 1
Purpose 1
Background 1
Independent Auditor's Report 3
Results of Examination 5
Internal Controls Over Costs Claimed Need Improvement 5
Note 1: Fringe Benefits 6
Note 2: Travel and Per Diem Costs 7
Note 3: Supplies 8
Note 4: Contractual Costs 8
Note 5: Other Costs 9
Note 6: Costs Claimed in Excess of Accounting System Amount 11
Advance Cash Draws Do Not Meet Federal Requirements 11
Work Performance Issues 12
Recommendations 13
Agency and Recipient Comments 13
OIG Response 14
Status of Recommendations and Potential Monetary Benefits 16
Appendices
A Agency's Comments on Draft Report and OIG Evaluation 17
B Recipient's Comments on Draft Report and OIG Evaluation 22
C Distribution 79
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Introduction
Purpose
The U.S. Environmental Protection Agency's (EPA's) Grants and Interagency
Agreements Management Division (GIAMD), within the Office of Grants and
Debarment of the Office of Administration and Resources Management,
requested assistance from the Office of Inspector General (OIG) due to concerns
related to Kathleen S. Hill's (recipient's) management of activities and funding
under Cooperative Agreement X7-83325501, as well as cash draw practices. The
OIG met with a GIAMD team leader and agreed to perform an examination to
determine whether the recipient complied with applicable federal laws and
regulations and the terms and conditions of the cooperative agreement.
Background
Through a competitive process, EPA awarded the cooperative agreement to an
individual, Kathleen S. Hill, of Chiloquin, Oregon, on October 26, 2006. The
cooperative agreement provided assistance of $800,000, incrementally funded
over a 4-year budget period. The budget and project period was from October 15,
2006, to October 15, 2010, and was subsequently extended to March 31, 2011.
The purpose of the cooperative agreement was to support the creation and
administration of a national tribal water program council. The council is intended
to:
• Raise awareness of water-related issues pertaining to the health of tribal
communities and the quality of tribal aquatic resources and watersheds.
• Promote information exchange, facilitate the exposure of tribal water
program employees to best management practices for addressing water
quality concerns, and encourage the enhancement of tribal water
protection program development and implementation.
To help the reader understand the report, we define the following key terms:
Amount Claimed. Amounts drawn to support federal outlays as certified
by the recipient on U.S. EPA Payment Requests (EPA Form 190-F-04-001).
Costs Questioned—Ineligible. Costs that in the auditor's opinion have
been incurred contrary to a provision of a law, regulation, contract, grant,
or cooperative agreement term, or other agreement or document governing
the expenditure of funds, and which should be disallowed from
consideration for federal reimbursement.
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Costs Questioned—Unsupported. Costs for which the auditee was not
able to provide adequate supporting documentation to the auditor. In the
auditor's opinion, such costs should be disallowed for federal
reimbursement unless EPA program officials satisfactorily resolve the
deficiencies reported by the auditor.
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Independent Auditor's Report
At the request of the EPA Grants and Interagency Agreements Management
Division, Office of Grants and Debarment, Office of Administration and
Resources Management, we have examined the costs claimed by Kathleen S. Hill
(recipient) under Cooperative Agreement X7-83325501 for the period October 15,
2006, to September 30, 2010. This is an interim audit. The cooperative agreement
ended on March 31,2011.
By signing the award documents and thus agreeing to the terms set out therein,
the recipient has accepted responsibility for preparing its cost claim to comply
with the requirements of the Code of Federal Regulations (CFR) under 2 CFR
Part 230, 40 CFR Part 30, and the terms and conditions of the cooperative
agreement. Our responsibility is to express an opinion as to whether the costs
claimed complied with the applicable requirements.
Our examination was conducted in accordance with the Government Auditing
Standards issued by the Comptroller General of the United States, and the
attestation standards established by the American Institute of Certified Public
Accountants. We examined, on a test basis, evidence supporting the amount
claimed under the cooperative agreement and performed other procedures we
considered necessary under the circumstances. We believe our examination
provides a reasonable basis for our opinion.
We conducted our field work from January 11, 2011, to July 27, 2011, and
performed the following steps:
• Reviewed EPA project and cooperative agreement files.
• Interviewed EPA personnel to obtain an understanding of the project.
• Interviewed the recipient, her project administrator, and her bookkeeper to
obtain an understanding of the project and the internal controls.
• Performed a judgmental sample of the EPA payments/draws to obtain a
reasonable assurance that the recipient deposited the payments into the
proper bank accounts and that draws complied with federal laws,
regulations, and terms and conditions of the cooperative agreement.
• Performed judgmental samples of costs claimed under the cooperative
agreement to obtain a reasonable assurance that the costs are allowable in
accordance with federal laws, regulations, and terms and conditions of the
cooperative agreement.
• Performed fraud detection procedures, including review for transaction
patterns and duplicate payments.
As part of obtaining reasonable assurance that the recipient's costs claimed under
the cooperative agreement are free of material misstatement, we performed tests
of its compliance with the requirements of 2 CFR Part 230, 40 CFR Part 30, and
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the terms and conditions of the cooperative agreement. We also considered the
recipient's internal controls over cost reporting to determine our audit procedures
and to express our opinion on the costs claimed. Our consideration of internal
control would not necessarily disclose all internal control matters that might be
material weaknesses. A material weakness is a deficiency, or a combination of
deficiencies, in internal control such that there is a reasonable possibility that a
material misstatement of the entity's financial statements would not be prevented,
or detected and corrected on a timely basis. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe
than a material weakness, yet important enough to merit attention by those
charged with governance.
Our examination disclosed the following material weaknesses concerning the
recipient's internal controls and compliance with the requirements of 40 CFR Part
30 and 2 CFR Part 230.
• The recipient did not have adequate controls to ensure that costs claimed
were in accordance with 2 CFR Part 230 requirements.
• The recipient's cash draws did not comply with 40 CFR Part 30
requirements or the terms and conditions of the cooperative agreement.
As a result, we questioned $80,721 of the $726,587 claimed under the cooperative
agreement.
In our opinion, because of the effect of the issues described above, the costs
claimed do not meet, in all material respects, the requirements of 40 CFR Part 30,
2 CFR Part 230, and the terms and conditions of the cooperative agreement for
the period ended September 30, 2010.
Robert K. Adachi
Director for Forensic Audits
January 23, 2012
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Results of Examination
The recipient's financial management system did not meet federal standards. We
identified the following material weaknesses concerning the recipient's internal
controls and compliance with federal requirements:
• The recipient did not have adequate controls to ensure that costs claimed
were in accordance with 2 CFR Part 230 requirements.
• The recipient's cash draws did not comply with 40 CFR Part 30
requirements or the terms and conditions of the cooperative agreement.
As a result, we questioned $80,721 of the $726,587 claimed under the cooperative
agreement. We summarize the costs claimed and questioned in table 1 below:
Table 1: Summary of questioned costs
Cost category
Amount
claimed
Amount questioned—
ineligible
Note
Personnel
$282,969
Fringe Benefits
60,339
60,339
1
Travel & Per Diem
276,122
1,916
2
Supplies
16,034
170
3
Contractual
37,892
3,375
4
Other
51,395
13,085
5
Costs Claimed in Excess of
Accounting System Amount
1,836
1,836
6
Totals
$726,587
$80,721
Sources: Amounts claimed were from the recipient's accounting system and U.S. EPA Payment
Requests. Costs questioned were based on the OIG's analysis of the data.
Internal Controls Over Costs Claimed Need Improvement
The recipient did not have adequate controls to ensure that costs claimed under
the cooperative agreement were in accordance with federal requirements.
According to 2 CFR 230, Appendix A, Section A.2, to be allowable under an
award, a cost must, among other things, be reasonable for the performance of the
award and be allocable, conform to any limitations or exclusions set forth in the
cost principles, and be adequately supported. The recipient claimed costs under
the cooperative agreement that were not in accordance with these requirements.
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Note 1: Fringe Benefits
We questioned fringe benefit costs of $60,339 claimed because the recipient:
• Charged $32,943 in 40IK costs to the cooperative agreement that was not
supported by established written organization policy, as required by
2 CFR Part 230 federal cost principles.
• Did not allocate life insurance and medical costs of $27,396 according to
2 CFR Part 230 requirements.
Fringe Benefit Charges Contrary to Federal Cost Principles
We questioned $32,943 in 40IK costs charged to the cooperative
agreement that were not supported by established written organization
policy, as required by 2 CFR Part 230. The budget for the cooperative
agreement included a total fringe benefit amount equal to 23 percent of
personnel costs. On an annual basis, the recipient calculated a 40IK
amount for herself and the project administrator and charged it to the
cooperative agreement. The annual 40IK amount charged to the
cooperative agreement was the budgeted amount (i.e., 23 percent of their
salaries) less all other fringe benefits paid during the year.
According to 2 CFR 230, Appendix B, Section 8.g.2, fringe benefits in the
form of employer contributions or expenses for social security, employee
insurance, pension plan, and the like are allowable, provided such benefits
are granted in accordance with established written organization policies.
Title 40 CFR 30.21(b)(6) requires the recipient to have an adequate
financial management system, which includes written procedures for
determining the reasonableness, allocability, and allowability of costs.
Title 2 CFR 230, Appendix A, Section 2.g. further states that in order for a
cost to be allowable it must be adequately documented. In our opinion,
these regulations require the recipient to demonstrate that the fringe
benefit amount charged to the cooperative agreement was granted in
accordance with established written policy.
During our field work, the recipient provided policies stating that fringe
benefit packages for key personnel included the 40IK and that the
recipient was committed to providing these benefits. The policy did not
provide benefit amounts or computation methods; therefore, the recipient
has not met the above federal requirements.
The recipient believes that the 23 percent budgeted amount for fringe
benefits constituted an approved amount. We disagree with the recipient's
position. The cooperative agreement budget is an estimate. It does not
represent approved actual fringe benefit costs.
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Life Insurance and Medical Costs Not Properly Allocated
We questioned life insurance expenses of $4,901 and medical expenses of
$22,495 that were not allocated based on the requirements of 2 CFR 230,
Appendix A, Section A.4, which states that a cost should be allocated to a
particular cost objective in accordance with the relative benefits received.
The recipient and the project administrator were both part-time employees
under the cooperative agreement. However, the recipient charged the
cooperative agreement for 100 percent of the premiums for a life
insurance policy obtained for the project administrator and for all medical
expenses for the recipient, the project administrator (her husband) and for
two of their children. The medical expenses included the employee's share
of the health insurance premium for a family policy provided by the
California Public Employees' Retirement System from the recipient and
the project administrator's prior employment with the State of California.
The medical expenses also included all out-of-pocket medical and dental
expenses for the family (the recipient, the project administrator, and two
of their children). This charging practice is not in accordance with the
relative benefit received under the cooperative agreement. The costs
should be allocated to the cooperative agreement according to the recipient
and the project administrator's part-time employment status.
The recipient believes that she considered the part-time status in the fringe
benefit allowance. Her policy stated that total fringe benefit expenses were
restricted and limited to 23 percent of the personnel costs for the
cooperative agreement. The employee's personnel cost was for part-time
employment; therefore, total fringe benefit reflected the part-time status.
However, in our opinion, although the recipient's 23 percent fringe benefit
ceiling considered the part-time status, the actual charges to the
cooperative agreement did not. As explained above, the recipient charged
100 percent of the life insurance and medical costs to the cooperative
agreement. Therefore, we continue to question the costs.
Note 2: Travel and Per Diem Costs
We questioned travel costs of $1,916, consisting of a travel refund of $1,728 not
credited to the cooperative agreement and cell phone charges of $188 not properly
allocated.
Travel Refund Not Credited to the Cooperative Agreement
The recipient received a travel refund of $1,728, but did not demonstrate
that the refund was credited to the cooperative agreement in accordance
with 2 CFR Part 230. According to 2 CFR 230, Appendix A, Section
A.5.a, applicable credits refers to those receipts or reduction of
expenditures which operate to offset or reduce expense items that are
allocable to awards. To the extent that such credits accruing or received by
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the organization relate to allowable costs, they shall be credited to the
federal government either as a cost reduction or cash refund.
The recipient received a $1,728 refund for lodging costs paid under the
cooperative agreement. The recipient claimed that the credit was applied
to subsequent payments. She provided a summary of the transactions
where she claimed the credit was applied. However, we were unable to
verify the recipient's statement, as neither the credit amount nor the
transactions in the summary were in the recipient's accounting system
download. As a result, we questioned the costs.
Cell Phone Costs Not Properly Allocated
We questioned cell phone charges of $188 that were not properly
allocated. The charge was miscoded as Travel and Per Diem. See Note 5
for details on cell phone costs questioned.
Note 3: Supplies
We questioned supplies of $170 for a cell phone charge not properly allocated.
The charge was miscoded as supplies. See Note 5 below for details on cell phone
costs questioned.
Note 4: Contractual Costs
We questioned contractual costs of $3,375 claimed contrary to 2 CFR Part 230
requirements. The recipient claimed organization costs to set up a 40IK plan, a
medical plan, and employee agreements. There was no evidence of prior EPA
approval for the costs. According to 2 CFR 230, Appendix B, Section 31,
organization costs are unallowable except with prior approval from the awarding
agency.
The recipient believes that the evidence provided in her draft report response
demonstrated prior approval of the costs. In particular, the recipient believes the
following events and documentation collectively establish prior approval:
• EPA project officer's understanding of the necessity to incur the
contractual costs to comply with applicable law
• E-mail to the project officer requesting budget line-item changes relating
to the contractual costs
• Project officer's oral approval of the costs
• Quarterly report discussing these ongoing costs
We disagree with the recipient that this information constitutes the prior approval
per 2 CFR 230, Appendix B, Section 31. The recipient's response did not include
evidence of the project officer's approval of the costs. The e-mails cited by the
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recipient stated that there was a need to make some budget line-item changes to
address the start-up costs of the project. However, there was no mention of the
intent to obtain professional assistance or evidence of EPA's approval of the
budget line item changes. The recipient's quarterly report for the time period
stated that work is ongoing regarding the issue of appropriate fringe benefit
charges to the cooperative agreement and that further work will be in progress.
The quarterly report also did not mention professional assistance. In addition, it is
our opinion that the quarterly report is the recipient's after-the-fact assertion of
the project activities, not EPA's approval of the activities
Note 5: Other Costs
We questioned other costs of $13,085, consisting of $8,800 for less-than-arms
length rental and $4,285 for cell phone charges.
Less-Than-Arms Length Rental Costs
The recipient charged office trailer rental costs of $8,800 to the
cooperative agreement at an arbitrary monthly rate, contrary to the
requirements of 2 CFR Part 230. The office trailer was initially owned by
the recipient's daughter, and subsequently purchased by the recipient.
Rentals from the recipient and her daughter were less-than-arms-length
transactions. According to 2 CFR 230, Appendix B, Section 43.c, less-
than-arms-length leases include, but are not limited to, those between
divisions of a non-profit organization and the key employee of the non-
profit organization or his or her immediate family. Rental costs of
buildings under less-than-arms-length leases are allowable only up to the
amount that would be allowed had title to the property vested in the non-
profit organization. The allowable costs, according to 2 CFR 230,
Appendix B, Section 43.b, include actual costs of ownership, expenses
such as depreciation or use allowance, maintenance, taxes, and insurance.
The recipient charged an arbitrary amount rather than actual cost of
ownership. As a result, we questioned the $8,800 claimed under the
cooperative agreement.
To address this issue in the draft report response, the recipient proposed a
depreciation methodology to support the office trailer costs. However, we
could not accept the recipient's depreciation methodology for the
following reasons:
• The recipient did not provide a basis for allocating the property
acquisition cost of $20,000 between the trailer (depreciable
portion) and the land (non-depreciable portion).
• The recipient did not provide a cost of ownership calculation for
the period when rent was paid to her daughter. As a result, we
continue to question the office rental costs.
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Cell Phone Costs
The recipient charged cell phone costs of $4,285 to the cooperative
agreement. The costs were not allocated according to 2 CFR Part 230
requirements. The costs were for a family plan for four members,
including the recipient, her husband (project administrator), and two
children. The cell phones were used for personal and business purposes.
The recipient either charged 100 percent of the costs to the cooperative
agreement or an arbitrary amount.
According to 2 CFR 230, Appendix A, Section A.4, a cost is allocable to a
particular cost objective, such as a grant, contract, project, service, or other
activity, in accordance with the relative benefits received. The recipient
and her husband worked part-time on the cooperative agreement.
However, the cell phone charges did not reflect the benefits received from
their part-time employment, or account for their personal usage or their
children's usage.
According to the recipient, she had a family cell phone plan prior to the
cooperative agreement. When she received the cooperative agreement, her
cell phone costs under her family regional plan increased significantly
because of the long distance calls she had to make to communicate with
EPA and council members. In addition, under the cooperative agreement,
she was required to be available through e-mail. After setting-up the initial
plan, the grantee changed the plan 3 more times. She changed the cell
phone plan four times trying to find one that was reasonable. She
eventually selected a national family plan that included cell phone use for
herself, her husband, and two of their children, as well as data use for
herself.
In our opinion, a family plan should be prorated to charge the cooperative
agreement according to benefit received, as required under 2 CFR 230,
Appendix A, Section A.4, regardless of the arrangement she had prior to
the cooperative agreement.
In the draft report response, the recipient proposed an entirely new cost
allocation methodology to address the issue. Under the new methodology,
the recipient charged monthly cell phone plan costs to the cooperative
agreement as follows: (a) for the initial plan, she charged 50 percent of the
monthly plan cost; and (b) for the subsequent three plans, she charged the
monthly plan costs over and above half the cost of the initial plan. This
methodology resulted in charges to the cooperative agreement for
approximately 75 percent of the plan costs. As explained above, the plans
were for four family users, including the recipient and her husband, who
were part-time on the cooperative agreement, and two of their children. In
our opinion, the new cost allocation methodology of charging
approximately 75 percent of the plan costs to the cooperative agreement is
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not in accordance with the benefit received under the cooperative
agreement. Therefore, we continue to question the cell phone costs
claimed.
Note 6: Costs Claimed in Excess of Accounting System Amount
We questioned $1,836 claimed in excess of the expenditures recorded in the
recipient's accounting system. The excess amount occurred because the recipient
did not comply with the cash management requirements of 40 CFR 30.22. See
Advance Cash Draws Do Not Meet Federal Requirements section below for
details.
Advance Cash Draws Do Not Meet Federal Requirements
The recipient's advance cash draws did not comply with federal requirements.
The recipient made quarterly advance draws of $50,000 or $60,000, instead of
making draws to cover immediate cash needs, as required under 40 CFR 30.22
and the terms and conditions of the cooperative agreement. This advance draw
method occurred from the inception of the cooperative agreement in October 26,
2006, to May 7, 2010, when EPA changed the recipient's payment method to
reimbursement. Based on our review of the accounting system records, as of
May 7, 2010, the recipient drew $62,229 under the cooperative agreement in
excess of actual expenditures.
According to 40 CFR 30.22(a), payment methods shall minimize the time
elapsing between the transfer of funds from the U.S. Treasury and the issuance or
redemption of checks, warrants, or payment by other means by the recipients.
Title 40 CFR 30.22(b) states that cash advances to a recipient organization shall
be limited to the minimum amounts needed and be timed to be in accordance with
the actual, immediate cash requirements of the recipient organization. The timing
and amount of cash advances shall be as close as is administratively feasible to
the actual disbursements by the recipient organization for direct program or
project costs. Administrative condition 4 of the cooperative agreement also states
that, by accepting this agreement for the electronic method of payment through
the Automated Clearing House network, the recipient agrees to request funds
based on the recipient's immediate disbursement requirements.
The recipient stated that she communicated her intent to make quarterly advance
draws to the EPA project officer, grant specialist, and Las Vegas Finance Center.
It was the recipient's understanding that once the funding was obligated for an
upcoming event, the money would no longer be available. The recipient believed
that she always had zero cash on hand, as the draws were always committed for
future events. However, according to 40 CFR 30.22, draws were to be timed with
actual disbursement, not commitment or obligation.
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After the recipient was placed on reimbursement, she applied the $62,229
remaining from prior draws to expenditures incurred over the subsequent months.
The recipient stated that she did not submit a reimbursement request until
August 19, 2010, after she had spent all cash on hand. The recipient's accounting
system records showed that as of September 30, 2010, the cut-off date of our
examination, the recipient had a cash balance of $1,836. The cash balance
represents cash drawn in excess of expenditures. As a result, we questioned the
$1,836 excess draw amount.
It should be noted that this is an interim audit with a cut-off date of September 30,
2010. The cooperative agreement ended on March 31, 2011. As cash draw is an
on-going process, the excess draw amount may be different at the end of the
cooperative agreement.
Work Performance Issues
In the audit request, GIAMD raised concerns about the recipient's work
performance under the cooperative agreement. Specifically, GIAMD stated that
the recipient did not provide the required quarterly reports according to terms and
conditions of the agreement until year 4. GIAMD also stated that the recipient
claimed to have developed databases that EPA was not aware of; therefore, EPA
raised concerns about the validity of the databases.
To address this concern, we reviewed the original workplan, discussed the tasks
and deliverables with the recipient, and obtained samples of the deliverables.
The purpose of the cooperative agreement was to support the creation and
administration of a national tribal water program council. The council was
expected to raise awareness of water-related issues pertaining to the health of
tribal communities and the quality of tribal aquatic resources and watersheds. The
council was also expected to promote information exchange, facilitate the
exposure of tribal water program employees to best management practices for
addressing water quality concerns, and encourage the enhancement of tribal water
protection program development and implementation.
We believe the recipient has fulfilled the overall purpose of the cooperative
agreement. The recipient created a national tribal water council and held various
meetings for the council to raise awareness of water-related issues pertaining to
the health of tribal communities and quality of tribal aquatic resources and
watersheds. The meetings included presentations and discussions on best
management practices for water quality concerns and enhancing tribal water
protection program development and implementation.
We found that many of the tasks in the workplan were general in nature and did
not have verifiable deliverables. Examples of these tasks include coordinating
meeting schedules, updating council members on meetings and emerging issues,
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arranging for other communication events, promoting information exchange
within the council, and assisting in finding opportunities for council members to
raise awareness regarding tribal health and quality of tribal aquatic resources. The
verifiable deliverables under the cooperative agreement were council operating
procedures, quarterly reports, various databases, and meeting minutes. Based on
the work performed under our examination:
• The council operating procedures were established and adopted.
• Quarterly reports were submitted through September 30, 2010, as of the
end of our field work on July 27, 2011. We did not review the quarterly
report for timeliness. The audit cut-off date of our examination was 6
months before the end of the cooperative agreement. Therefore, we did not
believe the timeliness issue to be significant at that time.
• The databases were created and posted on the council's website. The
recipient explained that traditional databases were not conducive to
information sharing, so she used weblinks to allow all council members
access to the data.
• Documentation requirements for annual and monthly meetings were
generally met.
We noted that the financial portion of the quarterly report submitted to EPA for
the period ended September 30, 2010, did not reconcile to the recipient's
accounting system. The financial report showed total expenditures of $727,693,
while the recipient's accounting system showed total expenditures of $724,751, a
variance of $2,942. The cooperative agreement ended on March 31, 2011. EPA
should verify that the final financial status report is properly supported by
accounting system records.
Recommendations
We recommend that the Director, Office of Grants and Debarment:
1. Disallow and recover unallowable costs of $80,721 claimed under the
cooperative agreement.
2. Verify that the recipient has a financial management system that meets
federal standards established under 2 CFR 215.21 prior to any future
awards.
3. Verify that the recipient's final financial status report is properly
supported by accounting system records.
Agency and Recipient Comments
The OIG received comments on the draft report from EPA's Office of Grants and
Debarment on August 29, 2011, and from the recipient on August 26, 2011. The
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recipient also provided supplemental documentation as support for her comments.
We held exit conferences with EPA on October 6, 2011, and with the recipient on
October 11, 2011, to discuss the respective draft report comments.
EPA did not comment on the recommendations, but generally agreed with the
findings, with the exception of the fringe benefit issues. EPA stated that 2 CFR
Part 30 does not specify technical requirements for fringe benefit policies and that
we are holding the recipient to a higher standard than necessary. EPA also pointed
out that the report did not raise concerns regarding the reasonableness of the
fringe benefit amount nor did it question whether EPA authorized the costs in the
budget for the cooperative agreement. In addition, EPA requested that we include
the following in our report: (1) clarification regarding the applicability of 40 CFR
Part 30 regulations to an individual; (2) recognition that the quarterly reports only
partially met the terms and conditions of the cooperative agreement because they
were not submitted timely and the earlier ones did not include financial tracking
reports; and (3) providing of the specific dollar amount of the discrepancy where
the report cited that the recipient's quarterly financial report did not reconcile to
the accounting system. EPA's complete written response is in appendix A.
The recipient disagreed with the findings and recommendations. The recipient's
complete written response is in appendix B. The supplemental documentation
provided by the recipient is not included in the report due to its volume, but is
available upon request.
During the exit conference, the recipient requested clarification language on cash
draw, organization costs, and travel refund. The recipient also requested that we
remove the draft report section titled Request for Additional Funding.
OIG Response
We disagreed with EPA's position on the fringe benefit costs. We believe that
40 CFR 30.21(b)(6) and 2 CFR 230, Appendix A, Section 2.g. require the
recipient to demonstrate that the amount of fringe benefit charged to the
cooperative agreement was granted in accordance with established written policy;
therefore, we will continue to question the fringe benefit costs. However, we have
included allocation as the basis for questioning the life insurance costs.
Based on EPA's comments, we have added the clarification regarding the
applicability of 40 CFR Part 30 and the compliance with quarterly reporting
requirements. We have also included details on the expenditure variance between
the recipient's financial tracking report and the accounting system records.
The recipient's comments and supporting documentation did not resolve the
issues addressed in the draft report. Therefore, our position on the findings and
recommendations generally remains unchanged. We did make the following
changes in response to the recipient's comments:
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1.
Based on the recipient's request, we eliminated the "Request for
Additional Funding" section of the report, as there is no longer an audit
issue on the matter.
2. We eliminated the section in the draft report regarding the recipient's
fringe benefit policy not including effective dates and approval signatures.
However, the fringe benefit issues remain in the report because the
recipient has not demonstrated that the amount of 40IK charged to the
cooperative agreement was granted in accordance with established written
policy and that life insurance and medical costs were properly allocated.
As stated above, we moved the life insurance expenses of $4,901 from the
"Fringe Benefit Charges Contrary to Federal Cost Principle" section to
"Life Insurance and Medical Costs Not Allocated Properly" section.
3. We added discussions regarding the recipient's new cost allocation
methods for office trailer rental costs and cell phone charges.
4. We modified the report language for cash draw, organization costs and
travel refund, to recognize the recipient's perspective on the issues.
Details of our responses are included as text boxes in appendices A and B of this
report.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
13 Disallow and recover unallowable costs of $80,721
claimed under the cooperative agreement.
Planned
Completion
Date
Claimed
Amount
Agreed To
Amount
Director, Office of
Grants and Debarment
13 Verify that the recipient has a financial
management system that meets federal standards
established under 2 CFR 215.21 prior to any future
awards.
13 Verify that the recipient's final financial status
report is properly supported by accounting system
records.
Director, Office of
Grants and Debarment
Director, Office of
Grants and Debarment
1 0 = 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's Comments on Draft Report
and OIG Evaluation
The response from the Agency is provided verbatim. OIG responses to those comments
have been inserted in text boxes
United States Environmental Protection Agency
Washington, DC 20460
Office of
Administration
and Resources
Management
August 29, 2011
MEMORANDUM
SUBJECT: Comments on Draft Attestation Report, "Examination of Costs Claimed Under
EPA Cooperative Agreement X7-83325501 Awarded to Kathleen S. Hill,
Chiloquin, Oregon" Project No. 2011-1564
FROM: Howard Corcoran /s/ '%ow
-------
Based on our review of the Report and information available at this time, we generally agree
with the accuracy of most of the findings in the Report but have concerns over the finding
relating to fringe benefit costs. Our overall concern is that the Report does not fully take into
account the fact that EPA awarded the cooperative agreement to Kathleen Hill as an individual
rather than to an incorporated nonprofit organization. The Report assumes that 2 CFR Part 230
and 40 CFR Part 30 apply to the cooperative agreement as a matter of regulation. That is not the
case. As an individual, Ms. Hill was technically not covered by 2 CFR Part 230, which applies to
nonprofit organizations, or 40 CFR Part 30, which applies to institutions of higher education,
hospitals and other nonprofit organizations. The definition of nonprofit organizations, as defined
by 2 CFR § 230.25(a), does not include individuals.
We believe that the OIG should point out that Ms. Hill agreed to comply with 40 CFR Part 30
when she accepted the cooperative agreement, rather than to assert that the regulation applied
automatically. She was then subject to 2 CFR Part 230 by operation of 40 CFR § 30.27.
OIG Response 1: We applied the criteria for non-profit organizations in accordance with
the regulatory authority cited in the award documents.
To explain the recipient's responsibility for complying with the non-profit criteria, we
stated in the Independent Auditor's Report that "by receiving the award, the recipient has
accepted responsibility for preparing its cost claim to comply with the requirements of the
Code of Federal Regulations (CFR) under 2 CFR Part 230, 40 CFR Part 30, and the terms
and conditions of the cooperative agreement." In light of Agency's comment, we have
revised the phrase "by receiving the award" to "by signing the award document and thus
agreeing to the terms set out therein."
More importantly, the sole basis on which the OIG questions the fringe benefit costs is that the
benefits were not "granted in accordance with established written organization policies" as
required by 2 CFR Part 230, Appendix B, section 8.g.2. The OIG acknowledges that Ms. Hill
established a policy granting fringe benefits to herself and the project manager for the
cooperative agreement, Ms. Hill's husband, and that the fringe benefits provided under the policy
included payments for a 40 IK plan and life insurance. The Report does not raise any concerns
regarding the reasonableness of the amount of the fringe benefit payments nor does it question
whether the payments were authorized when EPA approved the budget for the cooperative
agreement. Instead, according to the Report:
the policies did not include an effective date, approval date, or approval signature;
therefore, there was no evidence that the recipient had these policies in place at the
time the recipient incurred the 401K and life insurance costs. The policies also did
not include plan details, such as qualifying and vesting conditions, criteria for
determining eligible amount, or payment plan. Without such details, the plan can be
unenforceable, and we do not consider them "established organization polices" in
accordance with 2 CFR 230, Appendix B, Section 8.g.2.
The absence of an effective date, approval date, or approval signature on the written policies
does not necessarily render the policies invalid. The regulation does not specify such technical
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requirements in order for the fringe benefit policies to be effective. Similarly, there is no
requirement in 2 CFR Part 230, Appendix B, Section 8.g.2 that fringe benefit policies "include
plan details, such as qualifying and vesting conditions, criteria for determining eligible amount,
or payment plan." The OIG appears to be holding Ms. Hill to a higher standard than is necessary
given that the fringe benefit payments were not excessive.2
OIG Response 2: In our opinion, it is the recipient's responsibility to demonstrate that the
amount of fringe benefits charged to the cooperative agreement was granted in accordance
with established written policy. Title 40 CFR 30.21(b)(6) requires the recipient to have an
adequate financial management system, which includes written procedures for determining
the reasonableness, allocability, and allowability of costs. Title 2 CFR 230, Appendix A,
Section 2.g., further states that in order for a cost to be allowable, it must be adequately
documented. The recipient's written policy merely stated that "the fringe benefits package
for the key personnel includes, but is not limited to medical expenses, medical insurance,
term life insurance and 40IK retirement program." The policy did not provide benefit
amounts or computation methods; therefore, the recipient has not demonstrated that the
benefit amounts were granted in accordance with established written policies.
The Agency raised concerns regarding EPA approval as well as the reasonableness and
allocability of the benefit costs. EPA did approve fringe benefits in the cooperative
agreement budget. We did not raise the reasonableness issue in our report because it is
subjective.
We agree that allocability should be included as an additional reason for questioning the
life insurance costs. The recipient charged 100 percent of the costs of the project
administrator's life insurance policy to the cooperative agreement. Since the project
administrator was part-time, the recipient should have allocated the costs to the cooperative
agreement according to his employment status. We have modified the report accordingly.
Allocability does not apply to the 40IK costs because the costs were not calculated based
on employment status. Rather, the amount was based on the maximum fringe benefit
allowed in the cooperative agreement budget. The budget included a total amount for
fringe benefits equal to 23 percent of the budgeted personnel costs. At the end of each year,
the recipient would calculate 23 percent of total personnel costs, subtract all other fringe
benefits incurred, and contribute the remaining balance to 40IK, which was then charged
to the cooperative agreement.
2 We note that at a prior meeting with my staff, OIG representatives stated that the fringe benefits would be
questioned based on the allocability of such costs in accordance with 2 CFR Part 230, Appendix A, Section 4.
Apparently, the OIG audit indicated that Ms. Hill charged the cooperative agreement for 100% of her and her
husband's fringe benefits when a lower percentage was warranted. If the audit did establish that all of the fringe
benefit payments were not allocable to the cooperative agreement, the Agency would be more amenable to
disallowing the costs on that basis.
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It is also noteworthy that under the OGD pre-award review for carrying out EPA Order 5700.8,
"EPA Policy on Assessing Capabilities of Non-Profit Applicants for Managing Assistance
Awards", the Office of Grants and Debarment personnel would have required that Ms. Hill
establish written personnel policies, which typically address fringe benefits provided by an
organization. The Agency did not conduct a pre-award review of Ms. Hill because she was not a
nonprofit organization. Consequently, the Agency bears some responsibility for not providing
Ms. Hill the pre-award assistance she may have needed to understand the requirements of 2 CFR
Part 230, Appendix B, section 8.g.2.
OIG Response 3: We agree that because the award document cited 40 CFR Part 30 as the
regulatory authority, the Agency should have conducted a pre-award review. However, the
fact that the Agency did not address the policy issue during pre-award does not relieve the
recipient from having the policies necessary to comply with the applicable requirements.
Finally, we have two additional comments with respect to the findings on page 13 of the Report.
First, the second bullet on the top of page 13 indicates that "quarterly reports were submitted
through September 30, 2010, in compliance with the terms and conditions of the agreement."
However, in addition to requiring quarterly reports, the cooperative agreement also called for the
quarterly reports to:
• Be submitted to the EPA Project Officer within 30 days after the end of each quarter;
• Include a financial tracking report that provides expenditures for the quarter and a
comparison to the budget for each of the items listed;
• Describe work progress made toward reaching objectives and benchmarks, difficulties
encountered, corrective action plans for the next quarter, and any key personnel changes;
and
• Provide periodic updates listing work and travel plans, and progress and funding status of
efforts under the cooperative agreement.
The contents of the recipient's quarterly reports did not fully comply with those requirements.
Among other things, the recipient failed to include the requisite "financial tracking report" within
30 days after the end of each quarter. Although the contents of the recipient's quarterly reports
improved in the third quarter of the final year of the cooperative agreement, we suggest that the
OIG revise the second bullet of the audit report to indicate that the quarterly reports were
submitted through September 30, 2010, in "partial" compliance with the terms and conditions of
the agreement.
OIG Response 4: Based on our review, we believe the financial tracking reports were in
the quarterly reports as of September 30, 2010, although we cannot opine on the timeliness
of these reports. We have revised the report to explain that we did not review for timeliness
of quarterly report submittals. The examination was conducted close to the end of the
cooperative agreement period. We did not believe the timeliness issue was significant at
that point. Our focus was whether the recipient submitted the required reports at the time of
our examination.
Second, we request that the OIG clarify the finding in the first full paragraph on page 13 of the
Report. In particular, the OIG points out in that paragraph that the financial portion of the
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quarterly report for the period ending on September 30, 2010, did not reconcile with the
recipient's accounting system. We request that the OIG provide the specific dollar amount of the
discrepancy between the recipient's accounting system and the quarterly report.
OIG Response 5: We have added the requested information to the final report.
Thank you once again for the opportunity to comment on the draft Report and for your thorough
review of the recipient's claimed costs. If you have any questions concerning this matter, please
feel free to contact Joe Lucia, the Office of Grants and Debarment's assistance agreement Audit
Follow-up Coordinator. You may reach Joe by email at lucia.ioseph@epa.gov. or by phone at
202-564-5378.
cc: LelaWong
Jan Lister
Elana Goldstein
Macara Lousberg
Michael Mason
Denise Sirmons
Denise Polk
Kysha Holliday
Joe Lucia
Jessica Durand
James Drummond
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Appendix B
Recipient's Comments on Draft Report
and OIG Evaluation
The response from the recipient is provided verbatim. OIG responses to those
comments have been inserted in text boxes. We did not include the recipient's
attachments due to volume. These attachments may be obtained upon request.
Kathleen S. Hill Response
To
The U.S. Environmental Protection Agency
OFFICE OF INSPECTOR GENERAL
Draft Attestation Report
re Examination of Costs Claimed Under
Tribal Water Program Council Cooperative Agreement X7-83325501
Awarded to
Kathleen S. Hill, Chiloquin, Oregon
Project No. 2011-1567 July 27, 2011
August 26, 2011
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Table of Contents
Response to At A Glance 1
Response to Introduction 2
Purpose 2
Background 3
Grantee's Background Statement 3
Response to Independent Auditors Report 6
Response to Results of Examination 8
Internal Controls over Costs Claimed Need Improvement 8
Note 1: Fringe Benefits 8
Fringe Benefits Charges Contrary to Federal Cost Principles 9
Medical Costs Not Properly Allocated 11
Note 2: Travel and Per Diem Costs 12
Travel Refund Not Credited to the Cooperative Agreement 13
Cell Phone Costs Not Properly Allocated 14
Note 3: Supplies 14
Note 4: Contractual Costs 14
Note 5: Other Costs 17
Less-Than Arms Length Rental Costs 17
Cell Phone Costs 18
Note 6: Costs Claimed in Excess of Accounting System Amount 21
Advance Cash Draws Do Not Meet Federal Requirements 23
Response to Recommendations 26
Response to Other Concerns Raised by Audit Request 26
Work Performance 26
Request for Additional Funding 33
STORET/WQX Training -$10,000 39
OWOW Tribal Wetlands Training - $30,000 42
Recommendation 45
Response to Status of Recommendations and Potential Monetary Benefits 46
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List of Attachments
1.
Attachment
1
2.
Attachment
2
3.
Attachment
3
4.
Attachment
4
5.
Attachment
5
6.
Attachment
6
7.
Attachment
7
8.
Attachment
8
6/14/06
9.
Attachment
9
9/30/07
10.
Attachment
10
11.
Attachment
11
12.
Attachment
12
13.
Attachment
13
6/22/06
14.
Attachment
14
15.
Attachment
15
16.
Attachment
16
17.
Attachment
17
18.
Attachment
18
19.
Attachment
19
10/25/07
20.
Attachment
20
2007
21.
Attachment
21
22.
Attachment
22
23.
Attachment
23
2007
24.
Attachment
24
25.
Attachment
25
26.
Attachment
26
27.
Attachment
27
28.
Attachment
28
EPA Competition Order, Section 20 Waiver
EPA Competition Order, 12 a. (1) (A), Exceptions from Competition
Letter from Grantee to Michael Shapiro re Meeting, April 18, 2010
Letter to Grantee, 5/27/06
E-Mail re DUNs Number, 6/14/06
E-Mail from re OGC Questions and Sole Proprietorship
Budget Documents for Cooperative Agreement, 3/9/06
E-Mail from Kathleen Hill re Sole Proprietorship,
NTWC Quarterly Report, pp. 1-2, re LLC Status and Fringe Benefits,
NTWC Quarterly Report, pp. 1-2, re Accounting Services, 7/1/07
NTWC Budget Details for TWPC, revised 7/31/07
E-Mail re Budget Modification Request, 8/8/07
Letter from Michael Shapiro to Kathleen S. Hill, re Grant Award,
E-Mail re Revised NTWC Budget, 9/13/06
Revised TWPC Budget, 9/13/06
Revised NTWC Schedule of Milestones, 9/18/06
Employee Acknowledgement of Personnel Policies, 10/15/06
Northwest Retirement Plans, Inc. Letter re 401k plan, 10/5/07
Kathleen S. Hill, LLC Action to Adopt Qualified Retirement Plan,
IRS EIN [partly redacted] Issued for Kathleen S. Hill, LLC, 10 October
Employee Acknowledgement of LLC Personnel Policies, 10/1/07
Medical Care and Insurance Plan Adoption, 10/1/07
Medical Care and Insurance Plan of Kathleen S. Hill, LLC, October 1,
Spreadsheet for Reimbursement of Funds to NTWC Account
April 2010 Credit Card Statement re Reimbursement of Funds
May 2010 Credit Card Statement re Reimbursement of Funds
June 2010 Credit Card Statement re Reimbursement of Funds
July 2010 Credit Card Statement re Reimbursement of Funds
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29.
Attachment
29
30.
Attachment
30
31.
Attachment
31
32.
Attachment
32
33.
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34.
Attachment
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35.
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36.
Attachment
36
37.
Attachment
37
38.
Attachment
38
39.
Attachment 39 1
40.
Attachment 40 1
41.
Attachment
41
Paperwork
42.
Attachment
42
43.
Attachment
43
44.
Attachment
44
45.
Attachment
45
46.
Attachment
46
47.
Attachment
47
48.
Attachment
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49.
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50.
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51.
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52.
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53.
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54.
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55.
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56.
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57.
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57
58.
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59.
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59
60.
Attachment
60
61.
Attachment
61
62.
Attachment
62
63.
Attachment
63
re 40K Shortfall
to Grantee re Assistance
>0 re $10K in Funding Pkg.
re OWM $10K in Grant
ee re STORET/WQX Budget Con
re $10K Addition
11.15.07 I re Budget Concerns_ Funding
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64.
Attachment
64
65.
Attachment
65
66.
Attachment
66
67.
Attachment
67
68.
Attachment
68
69.
Attachment
69
70.
Attachment
70
71.
Attachment
71
72.
Attachment
72
73.
Attachment
73
10.2.09 OWOW Query to^J re Adding $$
10.5.09^ _Add up to $30,000
10.08.09 OWOW Request to Grantee
10.12.09 Grantee re OWOW Assistance Request
re $30,000
12.16.09 Grantee re URGENT Funding Issue
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Response to At a Glance
There are factual errors/inconsistencies under the heading of Why We Did This Examination.
First, grantee Kathleen S. Hill was awarded three (3) assistance awards by EPA: the Tribal Water
Program Council Cooperative Agreement, a competitive award of $800,000, and two (2)
supplemental, non-competitive awards for $10,000 and $30,000. The total awards add to
$840,000, not "up to $800,000" as reported by the OIG.
OIG Response 1: Only one cooperative agreement for $800,000 was awarded to the
recipient. Refer to OIG Response 33 for discussion on the additional $40,000.
Second, the Office of Inspector General (OIG) states that EPA requested assistance
"due to concerns relating to a cooperative agreement recipient's project andfunding
management, as well as cash draw practices. "
This statement is inconsistent with the Office of Inspector General's statement on page 13 of
the report, in which the OIG states
"The GIAMD 's audit request stemmedfrom the recipient's request for additional
funding as a result of the following two training courses initiated by the EPA program
offices:
• Training in 2007for tribal members to learn about Storage and Retrieval Data
Warehouse and Water Quality Exchange (referred to as STORET WOX).
• Office of Wetlands, Oceans, and Watersheds training in 2009 on Sustainable
finance for tribal wetlands [programs]. "
OIG Response 2: Consistent with OIG practice, we did not include the audit request
in the draft report. However, we correctly summarized the concerns in the audit
request. According to the audit request, EPA started to review the cooperative
agreement supporting documentation in detail when the recipient requested additional
funding as a result of the training events cited above. EPA's review identified the
concerns in the audit request.
It is the grantee's opinion that the statement on the At A Glance page was made to avoid drawing
attention to errors made by EPA's GIAMD Grant Specialist who arbitrarily cut $40,000 from the
original Tribal Water Program Council Cooperative Agreement funding intended to support the
work of the National Tribal Water Council. It is also the grantee's opinion that EPA's decision
to add $30,000 of funding for the additional work was a violation of EPA's own Competition
Order and that those funds, and the $10,000 for additional work awarded to the grantee
previously, were used to supplant $40,000 of original grant funding that EPA had committed for
the support of the National Tribal Water Council.
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GIAMD's action violated the EPA Competition Order that prohibits non-competitive,
supplemental grant awards of more than $15,000 to existing EPA grantees unless the Order
requirement is waived by the Grants Competition Advocate.
(See Attachment #1)
The decision to reject $40,000 included in the original funding for the support of the National
Tribal Water Council (NTWC) and supplant it with separate awards of $10,000 and $30,000,
respectively, appears to have effectively shielded GIAMD's violation of the Order from
exposure. (See Attachment #2)
The grantee's request to EPA in December 2009 was not to add funds for the training, but to
honor the Tribal Water Program Council Cooperative Agreement by releasing the $40,000 to
support the work of the National Tribal Water Council. The EPA not only refused to release the
$40,000 but also failed to provide grant funds to any other grantee for the support of the NTWC
between the end of the grantee's extension to March 31, 2011 and issuance of a new award that
is anticipated to take place in the Fall of 2011.
OIG Response 3: Refer to OIG Response 33 for discussion of the additional $40,000.
Response to Introduction
Purpose
Factual Error: The OIG claims that the GIAMD requested assistance
"due to concerns related to Kathleen S. Hill's (recipient's) management of activities
andfunding.... As well as cash draw practices. "
Issues pertaining to any concerns related to the grantee's management of "activities and funding"
will be addressed later in this document, on an issue by issue basis.
The issue of cash draw practices was resolved May 13, 2011 during a face-to-face meeting
requested by the grantee and NTWC Project Administrator with Office of Water and GIAMD
personnel, including the Office of Water Deputy Assistant Administrator, an Office of General
Council attorney and the Chief of a Grants Management Branch, almost eight months prior to the
date that OIG says the audit began.
, memorialized the resolution of this issue in a May27, 2010 letter to the grantee:
" ...Further, I recognize that you have been consistently drawing funds in even amounts
because you misunderstood the process for making financial drawdowns. Since you
contacted EPA's Las Vegas Finance Center prior to making a drawdown, you
assumed you were allowed to draw awardfunds in advance of immediate cash needs. "
(See Attachments #3 & #4)
January 1
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In fact, the grantee's cash drawdowns prior to May 27, 2010 were based on negotiations with the
original EPA Project Officer, authorization by the original GIAMD Grant Specialist (to the best
of the grantee's knowledge) and discussion with EPA's Las Vegas Finance Center. The grantee
negotiated cash advances with the EPA Project Officer under the "administratively feasible"
standard of 40 CFR Part 30. As the cash advances were obligated to a zero amount of available
funds, a new request was made to the Las Vegas Financial Center.
The GIAMD Grant Specialists who are responsible for monitoring grant financial matters did not
notify the grantee that her negotiated cash advance procedures were inconsistent with EPA
standard procedures. In fact, it is shocking that none of the three GIAMD Grant Specialists
assigned to this grant addressed the matter until 3 V2 years into the grant - and only after the
grantee questioned a GIAMD Grant Specialist's arbitrary withdrawal of $40,000 of grant
funding.
OIG Response 4: As addressed in OIG Response 2, the OIG correctly summarized
EPA's concerns in the audit request.
We evaluated historical activities of the cooperative agreement from inception to the
examination cut-off date of September 30, 2010. The audit request referenced the May 13,
2010, meeting between the recipient and EPA staff. However, the audit request also
indicated that EPA still had concerns. Therefore, we do not agree that the cash draw issue
was resolved. In the May 27, 2010, memo cited by the recipient, EPA recognized that the
recipient misunderstood the advance draw requirement, but EPA did not consider the
issue resolved or waive the advance draw for immediate cash needs requirement.
Administrative Condition 4a in the cooperative agreement clearly states that cash draws
are for meeting immediate cash disbursement needs. No amendment was made to the
cooperative agreement to change the requirement.
Background
Many of the auditor statements in this section are in error and/or incomplete. As mentioned
above, the grantee received three (3) assistance awards from EPA. The NTWC $800,000 Tribal
Water Program Council Cooperative Agreement, a $10,000 supplemental, non-competitive
award for EPA training of tribal participants at a STORET/WQX training in 2007, and a $30,000
supplemental non-competitive award for EPA Tribal Wetlands training in 2009. The total for the
three (3) grant awards is $840,000 and not $800,000 as stated by the OIG auditors. This issue is
addressed with more detail in the Request for Additional Funding section of this response.
OIG Response 5: See OIG Response 1.
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Grantee's Background Statement
Since at least October 18, 1972, EPA has been authorized to issue water-related grants to
individuals via Public Law 92-500, the Federal Water Pollution Control Act Amendments of
1972, which amended the original Federal Water Pollution Control Act. To the best of the
grantee's knowledge, EPA has never developed and published rules and regulations for working
with "individual" grantees.
In or about February 2006, Kathleen Hill and Dr. Joseph Dupris, wife and husband, learned of an
EPA Office of Water grant opportunity to create and facilitate the work of a national tribal water
council. The RFA allowed for proposals by "individuals", so Hill and Dupris applied.
Hill and Dr. Dupris, who are both enrolled in federally recognized Indian tribes and who have
more than half a century of experience in service to Indian Country, were notified that their grant
application had been chosen in or about late May, 2006, but that the grant could only go to an
individual (i.e., Hill or Dupris), not individuals (Hill and Dupris).
Other issues pertaining to a grant to an individual arose immediately:
At 7:06 a.m. on June 14, 2006, the EPA Project Officer forwarded a message informing Hill and
Dupris that "The DUNs hotline made it very clear that individuals that are receiving federal
funds for a public purpose must have a DUNs number. " (See Attachment #5)
At 11:47 a.m. on June 14, 2006, the EPA Project Officer forwarded a list of questions to Hill and
Dr. Dupris from the EPA Office of General Counsel (OGC). Following is a summary of Hill's
and Dupris' responses to the questions posed by OGC, which the EPA Project Officer shared
with OGC and GIAMD representatives. (See Attachment #6)
* Hill would be the official individual applicant for the grant.
* Hill would be the overall NTWC Project Manager, Dr. Dupris would be the NTWC
Project Administrator, and he would be the employee of Hill.
* The salaries of both Hill and Dr. Dupris were provided for in the applicant's proposed
budget, which would fund salaries, taxes and fringe benefits as provided for in the budget
detail submitted by the applicant. (See Attachment #7)
At 12:58 p.m. on June 14, 2006, the EPA Project Officer informed headquarters Grants and OGC
representatives that "Kathleen Hill is working on getting a DUNS number, but she is having a
heck of a time. She is going to try to apply as a sole proprietorship, because there is apparently
no "individual" category on the requiredform. " (See Attachment #6).
On June 20, 2006, Hill informed the EPA Project Officer that she and Dr. Dupris had
1) acquired a DUNs number;
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2) filed papers for the "Kathleen S. Hill" business with the state of Oregon, and received a
business registry number (which was required in order to open a business bank account in
the state of Oregon);
3) opened a new business bank account (which was needed in order to provide routing
information, bank account number, etc. for the required Central Contractor Registration);
and
4) completed the required CCR registration process. (See Attachment #8)
As documented above, EPA knew in 2006 that Hill had to create a new business and register as a
sole proprietor in order to receive EPA funding. EPA also knew that the grantee revised that
status to a single-member LLC in October 2007 in order to access fringe benefits authorized by
EPA in the grantee's budget. (See Attachment #9)
The original EPA Project Officer was aware of the challenges faced by the grantee as a small
business owner required to comply with state, federal, and IRS rules and regulations, while also
trying to comply with nonprofit rules. Based on that understanding the original EPA Project
Officer authorized the grantee to seek professional assistance to help resolve these difficulties.
(See Attachments #10, #11 and #12)
On June 22, 2006, Mike Shapiro (Deputy Assistant Administrator, Office of Water) sent the
official letter notifying Hill that she had "been selected as the party with whom EPA will pursue
negotiations to award a cooperative agreement. " Shapiro's letter stated further that
of my staff, will be working closely with you to negotiate a cooperative agreement prior
to the award of the grant. " (See Attachment #13)
Hill, with the assistance of Dr. Dupris as NTWC Project Administrator, moved forward to
negotiate the Tribal Water Program Council Cooperative Agreement with^^^^^^J, who
was also the EPA Project Officer. On September 13, 2006, Dupris submitted a revised budget
(which specifies '/2 time salaried positions for Hill and Dupris, and fringe benefits at the 23%
level), that was approved by EPA on September 13, 2006. (See Attachment #14)
On September 18, 2006, the EPA Project Officer called Hill and Dr. Dupris to inform them that
GIAMD had requested that they revise their Milestone Schedule and the budget formats from
those provided in the original grant application. The EPA Project Officer forwarded a sample for
the grantee's review, and Hill provided the revised budget, mentioned above, and a new Four (4)
Year Milestone Chart to the EPA Project Officer on September 22, 2006. (See Attachments #15
and #16)
It was the grantee's understanding that the negotiated modifications and amendments to the
application for the cooperative agreement were incorporated by reference in the Notice of Award
by on October The
modifications and amendments negotiated with the EPA Project Officer included, but were not
limited to:
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1. The 4-year budget of $800,000 for the NTWC Tribal Water Program Council
Cooperative Agreement;
2. Revision of applicant status to being a single applicant and a sole proprietor;
3. Key personnel employment status;
4. Application of OMB Circular A-122 provisions for non-profit entities;
5. Salaries and fringe benefit calculations;
6. A cash advance process;
7. Revision of grant milestone schedule and budget formats; and
8. Advance understandings and approvals by EPA.
Since there was no notification or discussion to the contrary, it was the grantee's understanding
that these negotiated and approved terms and conditions were included, by reference in the 2007,
2008, 2009 and 2010 Notices of Award since the general language remained consistent. It is the
grantee's understanding that the combination of records missing from the EPA Project Officer
files coupled with what appears to be incomplete recordkeeping by a series of GIAMD Grant
Specialists, have led to misunderstandings among the various parties, including the auditors.
For example, one issue that the grantee has become aware of is that the original GIAMD Grant
Specialist apparently did not attach the revised Schedule of Milestones (that the EPA Project
Officer had request on behalf of the GIAMD) to the October 26, 2006 Notice of Award. This
oversight seems to have contributed to confusion on the part of the GIAMD Grant Specialist and
EPA Project Officer appointed after the retirement of the original EPA Project Officer. The
Notice of Award and the original grant application timeline for deliverables and activities differ
because the original grant application timeline anticipated a grant start date of June 2006, but the
grant was not actually awarded until October 2006.
OIG Response 6: We acknowledge that the recipient is an individual, not a non-profit, and
that there were challenges in meeting the various requirements. However, when the
recipient signed the award documents for the cooperative agreement, she agreed to comply
with the non-profit requirements under 40 CFR Part 30; therefore, regardless of other
federal and state requirements, the recipient is required to comply with 40 CFR Part 30.
Most of the information presented here is repeated later in the Results of Examination
section. We will address those comments in the Results of Examination section.
Response to Independent Auditor's Report
Audit Timeframe
In the grantee's opinion, the statement that the auditors conducted their field work beginning
January 11, 2011 is factually inaccurate.
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The auditors say that during the time period between January 11, 2011 and July 27, 2011, they:
• Reviewed EPA project and cooperative agreement files.
• Interviewed EPA personnel to obtain an understanding of the project.
It was obvious during the grantee and NTWC Project Administrator's first meeting with the
auditors on January 12, 2011 that extensive communication, discussion and information
exchange had already taken place between the auditors and GIAMD staff and managers. In fact,
when the grantee addressed GIAMD's allegation of misspending $40,000, the auditor told the
grantee that she needed to "make your best case " as to that matter. The auditor also questioned
the grantee as to her pre-grant relationship with^^^^^^J (there was none), asked why her
communication with the current EPA Project Officer differed markedly from her communication
with the current EPA Project Officer (based on e-mail messages the auditor said she had seen),
and asked whether the grantee's "prior relationship" with EPA Region 10 staff played a role in
"getting extra work" (a $30,000 supplemental, non-competitive award, which the grantee did not
seek) with regard to the grantee's 2009 support of OWOW Tribal Wetlands training on behalf of
the EPA headquarters office. The auditors also took pictures of the grantee's office in response to
GIAMD allegations that the grantee was working out of her home and charging her home utility
bills to the grant.
The grantee does not infer specific motives as to the factually erroneous statements regarding the
beginning dates of audit interviews with EPA personnel.
OIG Response 7: The field work dates in the draft report are correct. Preliminary research
work, such as interviewing EPA personnel and reviewing EPA files, was performed prior
to field work to obtain an understanding of the concerns in the audit request in order to
determine whether an examination was warranted. Field work started on January 11, 2011,
after OIG management's approval to proceed with the examination.
Alleged Material Weakness - Cost Controls
A factual error is made by the OIG auditors in alleging that the grantee did not have adequate
controls to ensure that costs claimed were in accordance with 2 CFR Part 230 requirements.
These requirements are in OMB Circular A-122 for non-profit entities. The error in the audit
report is that the accounting records examined were supported and documented according to the
EPA approved cash-based accounting system. The auditors were able to identify the costs
associated with the grant expenses by budget category in the paper records of the grantee. The
accounting records of the grantee were also memorialized in a Quickbooks accounting system
that was in the exclusive controlled of an independent contractor, and the accounting records
were reconciled to a dedicated bank account.
What is at issue in the auditor's report is not that the accounting documents do not record and
support the grant expenses, instead the OIG auditors take issue with the approved EPA grant
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budget and associated grant costs. If the grantee did not have the records to support the grant
costs in question, the auditors would not have been able to determine the exact dollar amount and
budget category for each grant expense "in question". Additionally, the auditors seem to ignore
the fact that the grantee must comply with state and federal business and labor laws, and IRS
rules and regulations that apply to businesses. Instead, the auditors allege that compliance with
those laws and the negotiated terms and conditions of the grant "do not meet federal standards"
that apply to nonprofit entities.
OIG Response 8: Internal control is more than having the supporting documentation for the
costs. It also includes controls to ensure that costs are claimed in accordance with federal
requirements and cooperative agreement terms and conditions. According to 40 CFR 30.21,
federal standards for financial management systems includes, among other things, written
procedures for:
a) Determining the reasonableness, allocability, and allowability of costs in accordance
with the provisions of the applicable federal cost principles and the terms and
conditions of the award; and
b) Minimizing the time elapsing between the transfer of funds to the recipient from the
U.S. Treasury and the issuance or redemption of checks, warrants, or payments by
other means for program purposes by the recipient.
The report identified issues with five out of six cost categories and questioned $80,721 of
the $726,587 claimed due to noncompliance with federal requirements. This represents
approximately 83 percent of the cost categories and 11 percent of the costs claimed. In our
opinion, the results of our examination demonstrated that the recipient had material internal
control weaknesses.
The recipient cited state and federal laws, as well as Internal Revenue Service rules and
regulations. As explained under OIG Response 6 above, the cooperative agreement was
awarded under 40 CFR Part 30. The recipient agreed to comply with these requirements
when she signed the award documents; therefore, regardless of other federal and state
requirements, the recipient is required to comply with 40 CFR Part 30.
In the grantee's opinion, the OIG auditors also err in their failure to reveal that the audit was
conducted during the course of grant performance, that the accounting records reviewed during
the audit were working documents that had not yet been through the due diligence process that is
part of the grant closeout process, and that the documents were not certified by the grantee.
The auditors also do not reveal that (1) the timing of the audit was during an accounting change
over from a cash advance system to a reimbursement system, and (2) the grantee and NTWC
Project Administrator were required to fund some of the grant activities with their 401k
retirement and other personal funds because EPA did not provide timely reimbursement
payments.
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OIG Response 9: We stated in the Background section that the cooperative agreement
period ended on March 31, 2011, and in the Independent Auditor's Report section that the
cut-off date of our examination was September 30, 2010. We have included additional
information in the report to clarify that this is an interim audit, not a final audit.
The recipient's financial management requirement is the same regardless of the timing of
the examination. The recipient is required to maintain records to demonstrate that costs are
allowable, allocable, and in accordance with federal requirements at all times, not just at
grant close-out.
The examination began in January 2011, 3 months after the cut-off period of our
examination, and 8 months after the recipient was placed on reimbursement payment
method. The recipient also revised her accounting records in March 2011, 6 months after
the examination cut-off period. The fact that the recipient did not have the accounting
records ready after 6 month further demonstrated internal control weaknesses.
Finally, the auditors fail to mention that their examination of accounting records was based on
Profit and Loss Statements and not full accounting records that would include the balance sheet
and transactions lists that are part of the general ledger. These examination procedures give rise
to auditing errors as to the ending account balance on September 30, 2010, a false allegation that
a credit was not returned to the grant, and other issues that relate to the questioned costs, such as
two (2) coding errors.
OIG Response 10: In our audit notification letter to the recipient, we requested the
financial records for the agreement, including "all ledgers, journals, and other books of
original entry." In response to our request, the recipient's bookkeeper provided an initial
download of the records from its accounting system QuickBooks at the start of our field
work in January 2011 and a revised download in March 2011, almost 3 months into the
examination. The records examined were determined by the recipient to be the proper
records to support the costs incurred under the cooperative agreement.
It is important to note that in sampling documents from almost four (4) years of the grant activity
the auditors revealed only two (2) miscoding errors by the bookkeeper (one for $170 and another
for $188). In the grantee's opinion these two temporary coding errors do not rise to the level of a
"material weakness... or combination of significant deficiencies that results in more than a
remote likelihood that a material misstatement will not be prevented or detected. " (See auditor's
statement on page 4 of the Draft Report).
OIG Response 11: Our conclusions were not based on the two nominal issues as indicated
by the recipient. OIG Response 8 above discussed the materiality of the internal control
weaknesses in detail.
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Alleged Material Weakness - Cash Draws
The grantee also questions the auditor's reiteration of an alleged material weakness as to the
recipient's cash draws since those cash draw downs and procedures were negotiated with the
EPA Project Officer in 2006. As noted previously in this response, the issue of cash draw
practices was resolved during a face-to-face meeting of the grantee and NTWC Project
Administrator with Office of Water and GIAMD personnel, including the Office of Water
Deputy Assistant Administrator, an Office of General Council attorney and the Chief of a Grants
Management Branch on May 13, 2011, almost eight months prior to the January 11, 2011 date
that OIG says the audit began.
OIG Response 12: See OIG Response 4.
Response to Results of the Examination
The OIG auditors have made factual errors and mischaracterizations related to the questioned
costs of $80,721. The auditors also err in their assessment that the grantee's financial
management system did not meet federal standards because of inadequate controls and cash
draws that do not comply with 40 CFR Part 30 or the grant terms and conditions.
OIG Response 13: See OIG Response 8
Response to Internal Controls over Costs Claimed Need Improvement
The auditors factually err in their assessment that 2 CFR, Appendix A, Section A.2 does not
allow fringe benefit costs of $60,339 for life insurance, 401k costs, and medical costs. It is
essential to a factual analysis to correctly interpret applicable laws, rules, and regulations. An
audit report should reveal that the auditors did not access or examine certain documents during
the course of an audit. Such a review is necessary to form a valid opinion.
In this section, the auditors do not reveal that the questioned costs for fringe benefits of the
grantee relate only to non-profit entities and not to for-profit entities. In fact, as a business
owner, the grantee could not avail herself of most of the fringe benefits that she would generally
have access to if the grantee organization had been a nonprofit. The auditors err in their failure to
reveal the requirement of state, federal, and IRS rules and regulations that apply to the grantee.
The auditors also fail to reveal that they did not ask for or review grantee documents that
demonstrate that the written policies for fringe benefits were signed, approved, and effective
when costs were incurred.
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OIG Response 14: We requested documentation throughout the examination and we held
extensive interviews with the recipient and the project administrator to gain an
understanding of how costs were charged to the cooperative agreement. We considered all
documentation provided by the recipient during field work in our draft report.
The recipient commented that "the auditors factually err in their assessment that 2 CFR,
Appendix A, Section A.2 does not allow fringe benefit costs of $60,339 for life insurance,
401k costs, and medical costs." We would like to clarify that the report did not assert that
life insurance, 401K, and medical costs are not allowable per 2 CFR Part 230. Rather, it is
our opinion that the amount of life insurance and 40 IK benefits were not established in the
company policy and that the medical costs were not properly allocated, as required under
2 CFR Part 230.
As explained in OIG Response 6 above, we acknowledge that the recipient is an individual
business owner, not a non-profit entity. However, when the recipient signed the award
documents for the cooperative agreement, she agreed to comply with the non-profit
requirements under 40 CFR Part 30; therefore, regardless of other federal and state
requirements, the recipient is required to comply with 40 CFR Part 30.
Response to Note 1: Fringe Benefits
As noted previously, since at least October 18, 1972, EPA has been authorized to issue water-
related grants to individuals via Public Law 92-500, the Federal Water Pollution Control Act
Amendments of1972, which amended the original Federal Water Pollution Control Act. To the
best of the grantee's knowledge, EPA has never developed and published rules and regulations
for working with "individual" grantees. In this instance, EPA instructed the individual grantee to
comply with OMB Circular A-122, while also complying with state, federal and IRS laws
applicable to small businesses.
OIG Response 15: See OIG Response 6.
The statement that the recipient "charged life insurance and 40 IK costs of $37,844for herself
and her husband to the cooperative agreement without established written organization policy "
is a factual error for the following reasons:
* The grantee did not charge any of her life insurance costs to the Tribal Water Program Council
Cooperative Agreement.
OIG Response 16: We agree with the recipient's comment and have revised our report
accordingly.
* The life insurance costs charged for the NTWC Project Administrator were consistent with the
grantee's written organization policies and the NTWC Project Administrator's signed and
dated acknowledgement of those policies.
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* The grantee charged 40IK costs for herself and the NTWC Project Administrator to the
cooperative agreement consistent with written organization policies and a professionally
written 40IK plan that included signatures and dates.
OIG Response 17: See OIG response 19 below.
* The statement that the recipient "did not allocate medical costs of $22,495 according to 2 CFR
Part 230 requirements" is misleading because the recipient did not receive any of the medical
benefits allowed under 2 CFR Part 230 until professionally written policies and procedures
were developed in October 2007.
OIG Response 18: We questioned the medical costs due to the allocation method, and not
lack of policy. As explained in the draft report, the project administrator (recipient's
husband) was a part-time employee under the cooperative agreement. However, he charged
all medical expenses for himself and his immediate family to the cooperative agreement.
Title 2 CFR 230 requires costs to be allocated to cost objectives in accordance with the
relative benefits received. The cooperative agreement only received part-time benefit from
the employee; therefore, only part of the medical costs should be allocated to the
cooperative agreement.
Fringe Benefit Charges Contrary to Federal Cost Principles
Life Insurance and 401K Benefits
It is a factual error to claim that the grantee claimed life insurance and 40IK costs without
established written policies. Furthermore, it is the opinion of the grantee that the auditors' failure
to ask for or review the relevant fringe benefit documents is sufficient to deny their
recommendation that the grantee repay $37,844 of life insurance and 401k costs that were
included in the EPA-approved grant budget.
As noted previously, the grantee did not utilize Tribal Water Project Council Cooperative
Agreement funds to pay for life insurance for herself. Furthermore, the auditors did not request
or examine the relevant fringe benefit documents that prove that the grantee had written and
approved fringe benefit policies.
The grantee did use Cooperative Agreement funds to begin paying for life insurance for the
NTWC Project Administrator in January 2007, consistent with the Personnel Policies for
Kathleen S. Hill, which stated that:
"The employer is committed to providing a flexible and cost-effective medical
care, disability income, life insurance, and retirement program for eligible
employees. The employer reserves the right, in its discretion, to change the nature
of the benefits offered to employees.... " [Emphasis added]
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On October 15, 2006, the NTWC Project Administrator signed and dated an Employee
Acknowledgement document stating that he had read and understood the policies outlined in the
Personnel Policies for Kathleen S. Hill. (See Attachment #17)
As noted in the Grantee's Background Statement section of this response, the original EPA
Project Officer was aware of the challenges faced by the grantee as a small business owner
required to comply with state, federal, and IRS rules and regulations, while also trying to comply
with nonprofit rules. Based on that understanding the original EPA Project Officer authorized
the grantee to seek professional assistance to help resolve these difficulties.
One of the professional parties from whom the grantee sought assistance was Northwest
Retirement Plans, Inc. Northwest Retirement Plans, Inc. developed a comprehensive IRS
compliant 40IK plan for the grantee. The grantee is attaching the following documents in order
to address the factual error that "no evidence exists that the recipient had these policies in place
at the time the recipient incurred the 401k... costs. "
* October 5, 2007 Northwest Retirement Plans, Inc. letter about the Plan; (See
Attachment #18)
* Action by Unanimous Consent of members of LLC - Adoption of Qualified
Retirement Plan, signed by the grantee and dated October 25, 2007; and (See
Attachment #19)
* Documentation of the Internal Revenue Service's issuance of an EIN number for the
Kathleen S. Hill 401K Plan. (See Attachment #20)
The first 40IK costs were incurred on October 29, 2007, after the 40IK Plan was adopted, and
after the NTWC Project Administrator had signed an Employee Acknowledgement document on
October 1, 2007, stating that he had read and understood the policies outlined in the Personnel
Policies for Kathleen S. Hill, LLC. (See Attachment #21).
While the auditors acknowledge that OMB Circular A-122 permits life insurance, 401k plans,
and other fringe benefits, they do not reveal that their opinion that the grantee's written
Personnel Policies are not "established written policies" is based on a detail that is not part of the
published regulation in OMB Circular A-122. The auditor's statement infers that OMB Circular
A-122 defines a written fringe benefit policy as effective and applicable if, and only if,\ there is
proof of its existence not only by a physical written statement but also by a "signature of
approval" with an "approval date" and an "effective date." The auditors do hot, however, cite to
a specific section of OMB Circular A-122 in support of that assertion.
The very existence of professionally written and adopted fringe benefit documents that are
consistent with OMB Circular A-122 and other relevant laws is sufficient to deny the
recommendation that the grantee should repay $37,844 of life insurance and 401k costs that were
included in the EPA-approved grant budget.
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OIG Response 19: We requested documentation throughout the examination and reviewed
all documentation provided. As of the draft report date, the recipient did not provide
documentation showing approval date or signature. This information was later provided as
part of the draft report response. Based on the additional information provided, we have
removed the language in the report about the policies not having an effective date, approval
date, or approval signature. However, we will continue to question the costs because the
recipient's policy did not include plan details to substantiate that the amounts charged to the
cooperative agreement were according to the written policy.
Title 40 CFR 30.21(b)(6) requires the recipient to have an adequate financial management
system, which includes written procedures for determining the reasonableness, allocability,
and allowability of costs. Title 2 CFR 230, Appendix A, Section 2.g., further states that in
order for a cost to be allowable, it must be adequately documented. In our opinion, these
regulations require the recipient to demonstrate that the amount of benefit was granted in
accordance with established written policy. The recipient's written policy merely stated that
the fringe benefits package for key personnel includes term life insurance and a 40IK
program, and that the recipient is committed to providing these benefits. The policy did not
provide benefit amounts or computation methods; therefore, the recipient has not met the
federal requirements.
We agree with the recipient's comment that she did not use cooperative agreement funding
for her life insurance. The life insurance was for the project administrator. We have revised
the report accordingly.
The total questioned fringe benefit costs of $60,339 in the final report are the same as in the
draft report, however, we modified the details within this category. In the draft report we
had bundled 401K costs of $37,844 and life insurance costs of $4,901 together and
questioned them as not supported by organization policy. In the final report, we split them
up and had only the 401K costs of $37,844 questioned on lack of organization policy. We
moved the life insurance costs of $4,901 to the same category as the medical costs of
$22,495 because they both have the same issue of lack of proper allocation. We continue to
question these costs.
Medical Costs Not Properly Allocated
It is a factual error to state that the grantee did not allocate medical costs pursuant to 2 CFR Part
230 requirements.
The auditors rest their entire argument on their interpretation of 2 CFR 230, Appendix A, Section
A.4, which states that "a cost is allocable ... in accordance with the benefits received. "
The auditors claim that medical costs reimbursed to the NTWC Project Administrator are
prohibited and disallowed because the auditors consider the NTWC Project Administrator to be a
"part-time" employee.
Oregon state law and federal law do not define salaried employees as part or full time
employees. At issue for state and federal labor law is whether the employee is paid a fixed
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salary per year. Salaried employees are paid a fixed salary amount per pay period and are
determined to be exempt employees, not hourly employees. Both the grantee (NTWC Project
Manager) and NTWC Project Administrator (key personnel of the grant) were paid a fixed salary
of $35,000 per year. The grant benefitted from the fact that exempt salaried employees were not
paid for all hours worked, and from the fact that the grant did not have to fund a separate health
insurance policy. This is a "relative benefit" for the grant and EPA. The auditors do not seem to
acknowledge these cost-saving benefits.
Several other factors seem to be ignored, including the following:
2 CFR 230 § 230.25 Definitions (b) Prior approval
Where an item of cost requiring prior approval is specified in the budget of an
award, approval of the budget constitutes approval of that cost.
The auditors state that the "actual charges" for medical reimbursement costs for the family of the
employee are not permitted by 2 CFR Part 230. This statement rests solely on the auditor's
opinion that the salaried key grant personnel are only part-time employees that do not merit full
funding of their contracted fringe benefits. This is inconsistent with the fact that EPA approved
the grantee's budget which includes the allocation of an amount equal to 23% of key personnel
salary for fringe benefits.
2 CFR 230, Appendix A, Section A. 6 Advance understandings.
Under any given award, the reasonableness and allocability of certain items of
costs may be difficult to determine. This is particularly true in connection with
organizations that receive a preponderance of their support from Federal
agencies. ... The absence of an advance agreement on any element of cost will
not, in itself, affect the reasonableness or allocability of that element.
The grantee, as a small business owner who received the preponderance of her support from the
EPA grant, was not eligible to receive all of the benefits - including medical insurance and other
medical benefits - which nonprofit employees are generally eligible for. Based on her
understanding of the grantee's unique circumstances, the original EPA Project Officer authorized
the grantee to seek professional assistance to address the difficult situation of having a negotiated
and approved fringe benefit budget to which she had limited access as the owner of a small
business.
In this instance, a Certified Public Accountant referred the grantee to an attorney with expertise
in business structure and IRS approved fringe benefit plans. That professional was
knowledgeable about Section 105 Medical Care and Insurance Reimbursement Plans, which
Congress adopted specifically for small business owners whose spouses are in their employ. The
Section 105 Plan, governed by IRS rules, enabled the grantee and their dependent children to be
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insured through the NTWC Project Administrator's medical insurance and health care plan
within the 23% fringe benefit budget approved by EPA.
* 2 CFR 230, Appendix B, Section 8.g (2)
"Fringe benefits in the form of employer contributions or expenses for...
employee insurance... and the like, are allowable, provided such benefits are
granted in accordance with established written organization policies. "
The Medical Care and Insurance Reimbursement Plan, which was signed and adopted on
October 1, 2007, was granted in accordance with established written organization policies. (See
Attachment #22)
The NTWC Project Administrator's Employment Agreement, also signed and adopted on
October 1, 2007, contains the following statement:
3. The medical care and insurance reimbursement plan attached hereto is
incorporated herein. (See Attachment #23)
Although one of the auditors expressed considerable personal consternation with the Section 105
Plan, the cost of the Section 105 Medical Care and Insurance Reimbursement Plan is reasonable
for the benefit received. In the grantee's opinion, it would be unreasonable to require the grantee
to repay EPA $22,495 for a medical benefits plan that did not utilize an excessive amount of the
negotiated and EPA-approved fringe benefit budget.
OIG Response 20: The report did not assert that medical cost reimbursements were
prohibited. As explained under OIG Response 18 above, we questioned the medical costs
because they were not allocated to the cooperative agreement according to relative benefits
received.
We disagree with the recipient's position that we should not distinguish salaried employees
between part-time and full-time. The recipient and the project administrator were budgeted
to work half-time under the cooperative agreement. The intent was for the cooperative
agreement to benefit half-time; therefore, medical costs should be allocated accordingly.
The recipient believes that she received prior approval for the medical costs through the
cooperative agreement budget. In our opinion, the prior approval under 2 CFR 230.25
refers to the type of cost, not the amount incurred. By definition, budget represents an
estimate, not actual costs. The 23 percent fringe benefit in the cooperative agreement
budget was an estimate, not approved actual costs.
The recipient cited advance understanding under 2 CFR Part 230, Appendix A.6.
According to the 2 CFR, advance understanding means securing the awarding agency's
permission prior to incurring costs, and should generally be in writing. The recipient did
not provide documentation to demonstrate the existence of an advance understanding
regarding the amount of 40IK costs or medical costs.
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The recipient asserted that the medical cost reimbursement method was allowed under
Internal Revenue Service rules for small business owners. As previously stated, the
cooperative agreement was awarded under 40 CFR Part 30, and the recipient agreed to
comply with the 40 CFR Part 30 requirements when she signed the award documents.
Regardless of other federal and state requirements, the recipient is required to comply with
40 CFR Part 30. In this case, the recipient did not comply with the allocation requirement
under 2 CFR 230, Appendix A, Section A.4; therefore, we continue to question the costs.
Response to Note 2: Travel and Per Diem Costs
The statement that $1,728 was not properly allocated to the Tribal Water Program Council
Cooperative Agreement is a factual error.
The statement that $188 in cell phone charges was not properly allocated in Quickbooks at the
time of the audit is accurate. The charge was, however, properly recorded in the grantee's files.
Travel Refund Not Credited to the Tribal Water Program Council Cooperative Agreement
It is a factual error that a $1,728 Travel credit was not properly allocated to the Tribal Water
Program Council Cooperative Agreement. It should also be noted that the credit resulted from
the fact the grantee's contract for lodging required that the lodging be paid in advance of the
National Tribal Water Council - EPA meeting that took place there in May, 2010.
The grantee did in fact allocate the credit to the grant by deducting it from other expenses
incurred by the grant. In fact, the grantee provided the following information to the auditors on
April 30, 2011 (all of which are attached hereto):
(1) 7.21.10 spreadsheet which deducts the credit from $ 8,768.10 of NTWC expenditures
charged to the grantee's credit card, resulting in a remaining NTWC credit card debt of
$7,039.39. Following is an excerpt from the spreadsheet, which is also attached in full (See
Attachment #24)
NTWC Flights
$7,989.42
NTWC Agent Fees
$440.00
NTWC Postage
$0.00
NTWC Supplies
$338.68
$8,768.10
Mtg/Ldgng
CREDIT
($1,728.71)
NTWC Total
$7,039.39
(2) April 2010 credit card statement listing some of the expenditures reflected in the spreadsheet.
(See Attachment #25)
(3) May 2010 credit card statement listing some of the expenditures reflected in the spreadsheet.
(See Attachment #26)
(4) June 2010 credit card statement documenting the credit of $ 1,728.71. (See Attachment #27)
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(5) July 2010 NTWC Bank Statement reflecting the $7,039.39 credit card payment. (See
Attachment #28)
In response to that documentation, the grantee received the following message:
"Also, I reviewed the explanation you previously provided for the $1,728.71
travel refund, but unable to trace any of the amounts to the general ledger (GL).
Please see page 2 attached. The GL is the basis for our audit. I have to see
those amounts (either in total or individually) hit the GL to confirm that the credit
has been applied to other charges. Please clarify. Thanks!" (See Attachment
#29)
Ironically, the credit itself was not in the General Ledger - the auditors only knew of the credit
because it was recorded in the supportive accounting documents of the grantee, including a credit
card statement provided to the auditors.
As noted previously, this audit took place during the course of the grant, before the grantee had
an opportunity to engage in the kind of due diligence that is expected to take place in the
closeout phase of the grant.
Additionally, the grantee's independent bookkeeper has informed the grantee that the auditors
only requested the grantee's Profit and Loss Statements - she said that they had never requested
her General Ledger.
OIG Response 21: Title 2 CFR 230, Appendix A.5.a., requires all allocable returns,
refunds, credits, and like items to be credited to the award. To obtain a reasonable assurance
that this requirement was met, we examined bank statements, credit card statements, and
other source data to identify credits and refunds and ensure that they were credited to the
award.
From our review of the source documentation, we identified a credit of $1,728.71 received
by the recipient, but could not trace to the recipient's accounting system records to verify
that the credit was applied to other expenses under the cooperative agreement. None of the
transactions listed in the recipient's response was traceable to the accounting system, either
in total or in individual entries. In our opinion, the recipient did not demonstrate that the
refund was credited to the cooperative agreement. As a result, we questioned the costs.
The recipient stated that the examination took place during the course of the cooperative
agreement, before she had an opportunity to perform the kind of due diligence expected to
take place at grant close-out. We acknowledge that this is an interim audit, but the
recipient's financial management requirement is the same regardless of the timing of the
audit. Title 40 CFR 30.21 requires the recipient to maintain records to demonstrate that
costs are allowable, allocable, and in accordance with federal requirements at all time, not
just at grant close out.
The transaction in question occurred in May 2010, over 7 months prior to the beginning of
our field work, and almost 10 months prior to the date of the recipient's submission of its
revised accounting system data to the auditors. Due diligence should have been performed.
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The fact that recipient did not accomplish due diligence after 7 to 10 months further
demonstrated internal control weaknesses.
See OIG Response 10 for discussions regarding the recipient's statement that the auditors
only asked for profit and loss statement, not the general ledger.
Cell Phone Costs Not Properly Allocated
The auditors state that a cell phone charge of $188 was miscoded as a Travel and Per Diem cost
by the bookkeeper. This item is also a questioned cost (see the discussion below).
The auditors do not reveal that the accounting records supporting that cell phone cost were
properly and accurately reported in the grantee's original documentation, which is in the
grantee's files.
As noted previously, this audit took place during the course of the grant, before the grantee had
an opportunity to engage in the kind of due diligence process that is expected to take place in the
closeout phase of the grant.
In the grantee's opinion, the characterization of a simple recording error during the course of a
grant as a "material error" is unreasonable.
Response to Note 3: Supplies
As noted above, the auditors state that a cell phone charge of $170 was miscoded by the
bookkeeper as a Supply cost, and is a questioned cost.
The auditors do not reveal that the accounting records supporting that cell phone cost were
properly and accurately reported in the grantee's original documentation, which is in the
grantee's files.
As noted previously, this audit took place during the course of the grant, before the grantee had
an opportunity to engage in the kind of due diligence process that is expected to take place in the
closeout phase of the grant.
OIG Response 22: We did not question the cell phone charges for miscoding. All cell
phone costs questioned were due to improper allocation, as explained in the draft report.
Response to Note 4: Contractual Costs
As noted previously, since at least October 18, 1972, EPA has been authorized to issue water-
related grants to individuals via Public Law 92-500, the Federal Water Pollution Control Act
Amendments of1972, which amended the original Federal Water Pollution Control Act. To the
best of the grantee's knowledge, EPA has never developed and published rules and regulations
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for working with "individual" grantees. In this instance, EPA instructed the individual grantee to
comply with OMB Circular A-122, while also complying with state, federal and IRS laws
applicable to small businesses.
OIG Response 23: See OIG Response 6.
The statement that EPA did not approve the accounting service expenses included in the grantee
budget is contrary to the facts. EPA knew that the grantee, a sole proprietor prior to the issuance
of the Tribal Water Program Council Cooperative Agreement, was also required to comply with
2 CFR Part 230 that applies to non-profit entities because EPA had not developed rules and
regulations for individual grantees.
On July 31, 2007 the NTWC Project Administrator sent a message to the EPA Project Officer
and GIAMD Grant Specialist, noting that some budget line-item changes needed to be made,
partly because
"EPA 's requirement that I work as Kathy 's employee (not business partner) had
both federal and state tax consequences not anticipated in our original proposal....
Our local accountant has limited experience with federal grants, so I sought
guidance .... He also said that I need to
talk with^^^^^^^^^^^^^^^^^^^^M\regarding these financial matters, as
I look forward to speaking with both of you, and will call you. If I don't reach you, I
would appreciate it if you could call me at your earliest convenience.... " (See
Attachment #30)
At 10:51 pm Pacific time that same day, while forwarding the Year One, Quarter Four
Schedule of Milestones Quarterly Report to the EPA Project Officer, the NTWC Project
Administrator informed the EPA Project Officer that he had not been able to reach the GIAMD
Grant Specialist. (See Attachment #31)
Evidence of due diligence relative to fringe benefits is reflected in the Quarterly Report
referenced above, in which the grantee reported the following
"Work is ongoing regarding the issue of appropriate fi'inge benefit charges to the
grant and IRS rides for sole proprietors. Further work will be in progress for
several quarters to resolve these issues. " (See Attachment #9)
On August 1, 2007, the EPA Project Officer notified the NTWC Project Administrator that she
had forwarded his e-mail and quarterly report to the GIAMD Grant Specialist. (See Attachment #
32)
The EPA Project Officer, grantee and NTWC Project Administrator had several discussions
about the difficulties associated with the conflicting state, federal, and IRS rules that apply to
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businesses while the grantee was also trying to comply with non-profit terms and conditions, but
the NTWC Project Administrator was unable to talk with the GIAMD Grant Specialist.
On August 5, 2007, the NTWC Project Administrator notified the EPA Project Officer that
"I am writing because I have had no luck in connecting
regarding the line item modification in the NTWC budget. I have called her once
a day for the past week, with no response. I will keep trying to reach her(See
Attachment #33)
On August 8, 2007 the EPA Project Officer responded, with a cc to the GIAMD Grant Specialist,
saying that "It is not like not to respond. " Sadly, that was not the case where the grantee
and NTWC Project Administrator were concerned. Despite numerous telephone calls, the
GIAMD Grant Specialist did not speak to the grantee or NTWC Project Administrator from the
beginning of the grant until a new GIAMD Grant Specialist was assigned in November, 2007.
As a result of the above, and as a result of discussions with the grantee and NTWC Project
Administrator, the EPA Project Officer verbally approved the use of funds in the grantee's
Contractual category for fringe benefit related professional services.
That authorization allowed the grantee to address the fringe benefits issue. As the grantee
reported in the Year One, Quarter Four SCHEDULE OF MILESTONES Quarterly Report:
"Worked to finalize the documents and organization structure [of the] grantee.
Resolved the procedure for distribution offringe benefit charges to the grant by
conforming to the rules of the IRS for sole proprietors. The restructuring of the
sole proprietorship into a limited liability company, with one member, resolved
pension and health benefits issues. Further work with the accountants, attorney
andfringe benefit specialist should be on a limited basis in the future. "
The costs at issue are directly linked to the 40 IK and Medical Care and Insurance
Reimbursement Plan discussions above, for which the grantee was required to have written
policies.
The statement that the questioned "organization costs" were used to set up the grantee as a "sole
proprietor" is a factual error. As noted above, in the Grantee's Background Statement, the
grantee was required to become a sole proprietor in 2006, prior to accepting the Tribal Water
Program Council Cooperative Agreement award. The attorney who assisted the grantee by
developing the medical care plan did assist in restructuring the business entity so that the proper
employee agreements were in place and the grantee could receive health care and health
insurance that would otherwise not be available to her with the support of grant funds as a small
business owner.
Since the grantee's consultation with fringe benefit professionals was authorized by the EPA
Project Officer and benefitted the grant by ensuring that fringe benefit policies were properly
written, the grantee disagrees with the auditor's assertion that the $3,375 in costs are not
allowable.
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OIG Response 24: We accept the recipient's explanation that the costs were for setting up
40IK, medical plan, and employee agreements, and not for setting up the sole
proprietorship. We have modified the report accordingly.
The recipient stated that she received verbal approval from the EPA project officer to use
funds in the contractual category for fringe benefit related professional services. However,
we could not verify her statement. The recipient's response did not include evidence of the
project officer's approval of the costs. The e-mails cited by the recipient referred to the
need to make some budget line-item changes to address the start-up costs of the project.
There was no mention of the intent to obtain professional assistance or evidence of EPA's
approval of the budget line item changes. The recipient's quarterly report for the time
period stated that work is ongoing regarding the issue of appropriate fringe benefit charges
to the cooperative agreement and that further work will be in progress. The quarterly report
also did not mention professional assistance. In addition, it is our opinion that the quarterly
report is the recipient's after-the-fact assertion of the project activities, not EPA's approval
of the activities. As a result, we continue to question the costs.
Response to Note 5: Other Costs
Less that Arms Length Rental Costs
The auditors question the rental costs for the grantee's "trailer" office as being an "arbitrary flat
monthly rate", and states that the costs for the monthly office rental are a less-than-arms length
transaction that requires the grantee to treat the costs as if "the grantee had title to the property."
The grantee agrees that the less-than-arms length transaction requires a "use allowance
calculation" which is provided below. However, the grantee does not agree that EPA did not
approve the office rental costs, and that the rental costs are "arbitrary".
The use allowance calculation for the office rental is a conservative statement that verifies that
the monthly office rental of $200 is supported as being reasonable because the calculations
reveals that the office rental could have been up to $211.91 per month:
Units of Production Method for Calculating Use Allocation
Formula: (Cost-Residual Value)/Estimated Life in Units = Depreciation per Unit
Depreciation, Multiplied Rate per Unit times the Number of Units.
Calculations:
Cost of Trailer/Office
Salvage Unit
Value of Asset
Useful Per Day Units
Annual Work Days
Hours of Yearly Use
Monthly Use
Grant Years
Total Hours of Use
$18,000 Cost-Residual Value $18,000.00
0 Estimated Life in Units (7) $ 2,571.43
$18,000 Monthly Depreciation $ 211.91
260
2080
173.33
4.5
9360
8
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The auditor's statement that the office rental cost was arbitrary is a factual error. EPA assessed
the rental cost of $200 as being both reasonable and allocable in 2006, before the grant was
awarded, and EPA approved that cost in the Tribal Water Program Council Cooperative
Agreement budget for each year of the grant. Thus, as the use allowance calculations confirm,
the rental cost of $200 is both reasonable and allowable, even with a less-than-arm's length
transaction. The $200.00 per month rent also meets the 2 CFR 230 § 230.25 prior approval test.
The auditor's opinion that the rental costs should be disallowed and that the grantee should have
to repay those funds to EPA is not supported by the facts of the matter.
As the grantee informed the auditors, the original EPA Project Officer is the only EPA
representative who has ever discussed the office space and rent cost with the grantee.
On a side note, the auditors did not reveal in their Draft Report that current GIAMD Grant
Specialist personnel alleged that the grantee did not have an office, and that the grantee was
using grant funds to pay for the grantee's residential utility expenses. When the auditors met
with the grantee in the grantee's office in Chiloquin, Oregon for the first time, they took pictures
that documented the existence of the grantee's office for the audit records. (Ironically, one of the
utility charges questioned by GIAMD was for water and sewer charges. The grantee has lived in
two different rural residences since the inception of the grant - and both residences rely on a well
and septic system!) The false allegations by GIAMD are but one of many indications that the
GIAMD attempted to characterize the grantee as a dishonest and a fraudulent grantee before the
auditors began their audit examination visit in January 2011.
OIG Response 25: The recipient stated that she believes office rental costs were approved
by EPA. We want to clarify that the report did not question the rental costs for lack of EPA
approval. We questioned the costs because the method used by the recipient to charge the
costs to the cooperative agreement was not in accordance with 2 CFR Part 230
requirements. The office trailer was owned initially by the recipient's daughter, then by the
recipient herself. These are less-than-arms length rental relationships. Under 2 CFR
Part 230, Appendix B, Section B.43.C, amounts chargeable to a cooperative agreement for a
less-than-arms length transaction is limited to cost of ownership, including costs such as
depreciation or use allowance, maintenance, taxes, and insurance. Instead, the recipient
charged a flat monthly rental fee without supporting the basis for the rental rate.
In the draft report response, the recipient proposed a depreciation method, using $18,000 as
the base. However, we could not accept the recipient's depreciation method because:
• The recipient did not provide a basis for allocating the property acquisition cost of
$20,000 between the trailer (depreciable portion) and the land (non-depreciable
portion).
• The recipient did not provide a cost of ownership calculation for the period when
rent was paid to her daughter.
For the reasons detailed above, we will continue to question the office rental costs.
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Cell Phone Costs
The statement that cell phone costs of $4,285 were not properly allocated according to 2CFR
Part 230 requirements is a factual error.
It should also be noted that the grantee reimbursed late payment charges to the grant during the
closeout process, and any remaining late payment charges or fees have been identified for further
reimbursement pending the outcome of the audit. (Since the auditors are recommending that all
cell phone charges be reimbursed to the grant, it would not have made sense for the grantee to
continue reimbursing such charges until this matter is resolved.)
Although a cell phone reimbursement process is allowable under IRS rules, it is understandable
that the auditors are confused as to the grantee's cell phone expenses for the following reasons:
~ The grantee (NTWC Project Manager) informed the auditors that the cell
phone service costs were reimbursed in a financially conservative manner,
consistent with IRS rules and procedures.
~ The auditors examined some of the cell phone bills that were paid on behalf of
the grant that had all of the charges for the family plan expenses listed in the
invoice, but the total of the amount paid with grant funds did not cover even
the grant-related costs of the grantee (NTWC Project Manager's) and NTWC
Project Administrator's cell phone use. The total cell phone reimbursements
certainly did not rise to a level that would pay for the children's cell phone
expenses.
In keeping with the due diligence that is appropriate to the closeout process, the grantee
developed a spreadsheet that provides information regarding the cell phone costs that are
discussed below:
1. October 15. 2006 through May 18. 2007.
The grantee and NTWC Project Administrator used their existing cell phone plan for grant-
related calls during this time period. The grantee's mother passed on in November, 2006, so
although the cell phone was used for some NTWC purposes between October 15 and
December 18, 2006, the grantee did not allocate any of the cell phone use costs to the grant.
For the period from December 19 through May 18, 2007, the grantee has allocated the
following to the grant:
- '/2 of the monthly plan cost; associated with the grantee (NTWC Project Manager's)
phone
- '/2 of the NTWC Project Administrator's cell phone use
- '/2 of credits received by the NTWC Project Administrator for his cell phone use
As recorded on the spread sheet related to cell costs (see attachment for this section), cell
phone use (and costs) sky-rocketed to more than twice their prior level in April and May 2007,
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when the Interim National Tribal Water Council (NTWC) members were selected and
subsequently appointed. In spite of the substantial increase in costs, the grantee did not
allocate any of the additional cell phone expenses to the grant.
2. Late May 2007 through October 18. 2007
In response to the dramatic increase in cell phone use costs, the grantee changed the cell plan
to ensure that the grant would not be threatened by significant unexpected rises in costs such
as those experienced in April and May. The new plan included a major increase in minutes
available for use without extreme charges, as well as unlimited incoming calls that would
increase the grantee's (NTWC Project Manager's) and NTWC Project Administrator's
availability to the EPA Project Officer, NTWC members and others interested in the new
Council. For this period of time, the grantee has allocated the following to the grant:
- the cost of the monthly plan over and above V2 the cost of the original plan
- V2 the cost of unlimited incoming calls
- V2 of the grantee's (NTWC Project Manager's) cell phone service
- V2 of the NTWC Project Administrator's cell phone service
- V2 of the grantee's (NTWC Project Manager's) cell phone use charges and fees
- V2 of the NTWC Administrator's cell phone use charges and fees
3. Late October 2007 through May 18. 2009
After the first meeting of the full Council of the National Tribal Water Council, the grantee
(NTWC Project Manager) determined that she needed to be more accessible to the EPA
Project Officer and Council members when she traveled or did not have immediate access to a
computer. As a result, she selected a "smart phone" that would enable her to access the internet
and e-mail on the road. When she changed phones, she learned that the cell phone contract
could be changed to get a lower price on the national plan while still maintaining an adequate
level of minutes available for use. She learned that she could also communicate with Council
members via text for a reasonable price (as contrasted with "per text message" charges) For
the period of time between late October 2007 and May 18, 2009, the grantee allocated the
following charges to the grant:
- the cost of the monthly cell plan over and above V2 the cost of the original cell plan
- V2 the cost of the unlimited incoming calls
- Vi the cost of the text messaging plan
- the full cost of the smart phone services that were acquired specifically for the grant
- V2 of the grantee's (NTWC Project Manager's) cell phone use charges and fees
- V2 of the NTWC Project Administrator's cell phone use charges and fees
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4. Late May 2009 through March 31. 2011
In late May, 2009, the grantee changed to a cell plan that included unlimited incoming calls
without an extra fee. For the time period between late May 2009 and March 31, 2011, the
grantee has allocated the following charges to the grant:
- the cost of the monthly cell plan over and above V2 the cost of the original cell plan
- Vi of the cost of the text messaging plan
- the full cost of the smart phone services that were acquired specifically for the grant
- V2 of the grantee's (NTWC Project Manager's) cell phone use charges and fees
These pro-rated cell phone charges are detailed in a spreadsheet attachment to this report. In the
grantee's opinion, the prorated cell phone expenses are reasonable and financially conservative.
The prorated costs for the cell phone service are based upon the review requirements of the IRS
rules and the terms and conditions of the Tribal Water Program Council Cooperative Agreement.
In the grantee's opinion, requiring the grantee to repay $4,285 for approved and allocable costs
associated with assisting the National Tribal Water Council as authorized by EPA in the Tribal
Water Program Council Cooperative Agreement award would be arbitrary and capricious.
Following are the final calculations from the attached spreadsheet:
(See Attachment #34)
OIG Response 26: The draft report addressed actual cell phone costs claimed under the
cooperative agreement and questioned the costs due to inconsistent charging methodologies.
In the draft report response, the recipient proposed an entirely new allocation methodology
for these costs. We evaluated the new methodology and determined it to be unacceptable
because it does not charge costs according to relative benefits received, as required under
2 CFR 230, Appendix A, Section A.4.
Under the new methodology, the recipient charged monthly cell phone plan costs to the
cooperative agreement as follows:
• For the initial plan, the recipient charged half of the cost of the monthly plan.
• For the subsequent three plans, the recipient charged the cost of the monthly plan
over and above half of the cost of the original plan.
Total Cell Phone Charges
Total NTWC Project Manager & NTWC
Project Administrator's Charges
Total Grant Charges
Total Paid by Grant
Total Owed to Grantee
$11,582.13
$8,405.70
$6,277.21
($4.285.00)
$1,992.21
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This methodology resulted in approximately 75 percent of the plan costs being charged to
the cooperative agreement and is not in accordance with the benefit received under the
cooperative agreement. The plan included four family users. Two of the users are the
recipient's children. The remaining two users (the recipient and her husband) are part-time
employees. It is our opinion that the cell phone costs did not reflect the benefits received
from the recipient's and her husband's part-time employment, account for their personal
usage or their children's usage.
For the reasons identified above, we continue to question the cell phone costs.
Response to Note 6: Costs Claimed in Excess of Accounting System Account
The claim that the recipient's accounting system had $1,836 "claimed in excess of the
expenditures recorded" is a factual error since the audit took place mid-grant. In the grantee's
opinion, the recommendation that the grantee should "pay back" those funds is arbitrary and
capricious given the fact that the auditors were informed on April 30, 2011 that $1,721.98 of
those funds were the grantees' personal funds which were being used to meet grant expenditures.
As of September 30, 2011 $1,721.98 of the grantee's personal 401K funds transferred to the
NTWC account to meet outstanding debts remained in the account, and $3,224.79 in costs had
been incurred but not yet reimbursed.
Furthermore, as the auditors were informed via e-mail on March 7, 2011:
On August 18, 2010,1 submitted a $4,099.57 requestfor reimbursement /
did not biow that I needed to include a Payment Request Form, so had to resubmit it on
Augustl9. On August 241 received an e-mail from in which she stated thai
had faxed the request to Las Vegas on Friday, August 20. During a call on August
25, however, informed Joseph and me that hadforgotten to fax the request,
but that it had subsequently been sent.
On August 19, 2010,1 also submitted a payment request for my 8.25.10 pay draw and
Joseph Dupris' 8.25.10 payroll, with accompanying timesheets. I submitted it early because
we had put in oar hours for that time period, and were leaving for Juneau on August 26. On
August 24, sent an e-mail with questions regarding our timesheets. I answered her
questions the same day (August 24, 2010).
Joseph and I had a conference call with on August 25. Since neither reimbursement
was forthcoming immediately, and I did not biow when the funds would be available, I told
her during that call that we would have to transfer funds from oar retirement account to pay
for the remaining NTWC Juneau per diem. I deposited $4,500.00from oar retirement
account into the NTWC account that same day.
I submitted another request for reimbursement on September 12, 2010, and^^^^ also had
a number of questions regarding that request.
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So this was the pattern:
Submission Date Payment Date
August 19 August 2 7
A ugust 19 A ugust 3 0
September 12 September 20
As result of the delays in reimbursements, I was afraid to withdraw full amounts due to
outstanding account debts, such as per diem checks. (See Attachment #35)
The grantee provided the following information to the auditors on May 1, 2011 specifically
response to the issue of "excess funds" in the account:
The NTWC bank account showed a balance of $1,836 (rather than 0) as of 9/30/10 for the
following reasons:
(1) On 8/25/10, as reflected in the August 2010 bank statement, the grantee had
transferred personal funds from her 401k retirement account to the NTWC
account in the amount of $4,500.00. $1,721.98 of those 40 IK funds were
remaining as of 9/30/10.
(2) A reimbursement in the amount of $9,570.73 had been deposited by EPA on
9/20/10 and all of the reimbursement charges had not been processed.
(3) Additionally, the following charges had been incurred, but not paid/reimbursed
from grant funds prior to 9/30/1 O.-
Kathleen S. Hill 9/25/10 Paydraw $ 1,458.33 1
Joseph C. Dupris 9/25/10 Payroll $ 1,458.33
Bank of America Credit Card Purchases:
Office Depot 8/25/10 Supplies Purchase $ 45.50
Office Depot 8/25/10 Supplies Purchase $ 22.63
Books 2 Taxes, Inc. 9/15/2010 Contractual payment $ 234.00
(Paid by personal check #10922)
Klamath Co. Solid Waste 9/25/10 cash payment $ 6.006
The above expenses incurred but not paid/reimbursed prior to 9/30/10 total
$3,224.79.
1 Payment requested on 9/30/10; payment deposited by EPA on 10/5/2010.
2 Payment requested on 9/30/10; payment deposited by EPA on 10/5/2010.
3 Reimbursement requested on 11/3/10; reimbursement deposited by EPA on 11/24/10.
4 Reimbursement requested on 11/3/10; reimbursement deposited by EPA on 11/24/10.
5 Reimbursement requested on 11/3/10; reimbursement deposited by EPA on 11/24/10.
6 Reimbursement requested on 11/3/10; reimbursement deposited by EPA on 11/30/10.
(See Attachment #36)
2
3
5
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A secondary issue not revealed by the auditors is the delays in the cost reimbursement requests
of the grantee by GIAMD. As a result of the delays in reimbursements by GIAMD, the grantee
concluded that it was not financially responsible to draw the full amounts due for outstanding
NTWC account debts. The grantee could not zero out the bank account because the grant terms
and conditions required the grantee to keep the NTWC bank account active in order to accept
EPA reimbursements and to pay the bills for NTWC activities. Thus, the $1,836 remaining in
the bank account on September 30, 2010 were the grantee's personal funds, not grant funds as
alleged by the auditors.
OIG Response 27: Our examination covered the period from inception of the cooperative
agreement on October 15, 2006, through the examination cutoff date of September 30,
2010. As explained in the report, the amount questioned represents the difference between
the revenue amount (cash draw/reimbursement) and the total expenditure amount for the
cooperative agreement, as shown in the recipient's accounting system.
We evaluated the additional documentation provided by the recipient regarding the use of
her personal funds, subsequent EPA reimbursement, and outstanding payments. Our review
confirmed that the net amount of cash draw/reimbursement exceeded the cumulative
expenditure amount by $1,836; therefore, we maintain our position on this issue. As cash
draw is an ongoing process, the excess draw amount may be different at the end of the
cooperative agreement.
Response to Advance Cash Draws Do Not Meet Federal Requirements
The statement that "advance cash draws do not meet federal requirements" is a factual error, and
misleading since the issue of cash draw practices was resolved during a face-to-face meeting of
the grantee and grant NTWC Project Administrator with Office of Water and GIAMD personnel,
including the Office of Water Deputy Assistant Administrator, an Office of General Council
attorney and the Chief of a Grants Management Branch on May 13, 2011, almost eight months
prior to the January 11, 2011 date that OIG says the audit began.
The resolution of this issue was memorialized in a letter written by the^^^^^^^J
on May
" ...Further, I recognize that you have been consistently drawing funds in even amounts
because you misunderstood the process for making financial drawdowns. Since you
contacted EPA's Las Vegas Finance Center prior to making a drawdown, you
assumed you were allowed to draw awardfunds in advance of immediate cash needs. "
(See Attachment #4)
As noted previously, the grantee's cash drawdowns prior to May 27, 2010 were based on
negotiations with the original EPA Project Officer, authorization by the original GIAMD Grant
Specialist (to the best of the grantee's knowledge) and discussion with EPA's Las Vegas
Finance Center. During those negotiations, the NTWC Project Administrator reviewed the
budget that he had developed regarding anticipated grant expenditures.
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The auditors fail to note that although the grantee and NTWC Project Administrator have
significant grants management experience on the programmatic side, and overseeing federal
grants as a whole (with staff), the EPA drawdown process was an entirely new experience.
Prior to the award of the grant, the grantee, NTWC Project Administrator and EPA Project
Officer reviewed the grant budget with the goal of projecting a reasonable spend-down rate of
grant funds. During that discussion, the NTWC Project Administrator shared a budget that he
had developed regarding quarterly expenditures, and the parties agreed that it would make sense
to draw funds down on an approximately quarterly basis to meet upcoming expenses. The EPA
Project Officer, grantee and NTWC Project Administrator believed that such a process was
consistent with the "administratively feasible" standard in 40 CFR 30.22. Such a process was
familiar to the grantee and NTWC Project Administrator based on their Tribal and nonprofit
experiences where drawing down a significant proportion of the budget at a time, spending it for
allowable purposes and providing reports of those expenditures was common practice. (See
Attachment #37)
As the following e-mail excerpts indicate, the grantee was very confused when the issue of EPA
drawdowns was first raised to her attention, and sought the advice of her EPA Project Officer,
who sought the advice of the GIAMD Grant Specialist:
11/04/06 After attending the Region 9 Tribal Environmental Conference, the grantee wrote the
following message to the EPA Project Officer:
"While in San Francisco, a project officer asked us if we have to do "drawdowns"
through the Las Vegas office. We really didn't know what she was talking about,
and we thought the whole purpose of the paperwork we did in July was to initiate
the financial process once things were approved. Now we are wondering if there
is something we need to learn about (or initiate) pertaining to the drawdown
process... could you let us know?
We also learned that although Tribes (like our project) don't engage in the kind of
big-dollar procurement processes that get complicated, they are expected to track
their procurement informally re minority and women-owned businesses. Do you
know anything about this? Is this something we should ask someone else about? "
(See Attachment #38)
11/04/06 The grantee followed the above message up with a second message:
Hi,
A quick note to let you know that we haven't yet received the authorization letter,
or a copy of it. We did, however, receive a "Managing EPA Grants" dvdfrom the
grants office and inspector general's office that provides an overview of financial
management and references a web site for the ASAP system. According to the
dvd, agencies enter spending authorizations into ASAP accounts and grantees
initiate payment requests. Do you know anything about this? According to the
website, EPA provides a number of some sort so the grantee can register. Do you
know if EPA has entered a spending authorization re our cooperative agreement,
and who will provide us with the information necessary to register as a grantee?
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We didn't realize this step was necessary, as we thought we had provided all
necessary financial account information to the agency last July. According to the
dvd, it is provided to new awardees, so I am assuming we are somewhere in the
pipeline we are just not sure "where. "
Thank you in advance for any information you can provide. - Kathy Hill (See
Attachment #39)
11/7/06 The EPA Project Officer forwarded the grantee's first 11/04/06 message to the GIAMD
Grant Specialist, as follows"
"Do you know the answer to this question? Or can you give me the name of someone
who would know? If there is a formal process, I need to find out what it is, ASAP.
Thanks. " (See Attachment #40)
11/9/06 (9:09 a.m. Eastern) The EPA Project Officer forwarded information indicating that the
grant paperwork had been processed:
Hopefully it went through at the Las Vegas office as well (?)
(See Attachment #41)
11/09/06 (10:53 a.m. Eastern) The NTWC Project Administrator responded
"Thanks for the update. I will contact the Las [Vegas] financial center this morning
to determine the status of the funds [disbursement]. We don't know as yet if there are
other papers to file with the financial center, but we will hopefully resolve that matter
this morning. " (See Attachment #42)
11/09/06 (12:21 p.m. Eastern) The NTWC Project Administrator send a second follow-up
message:
"I talked to the Las / Vegas [financial center andfound out that the authorization had
not yet been sent to them. was sent the form on Tuesday morning. said that
he wouldfollow up, find the authorization information, and start the funding process.
He has the banking information from us for the processing, but we still need to fill out
some forms that request the funds.
was unaware that we are not workins under a cost-reimbursed cooperative
agreement. I told him that we are expecting the funds as we wrote in the proposal -
funds advances of approximately $50,000 per fiscal quarter. He is looking into this
for us.
said that once we [receive] the new forms for requesting funds and once he enters
that information into the financial center system that it will take three (working) days
to have the funds appear in our bank account. Since tomorrow is a federal holiday
that may delay the funds until next week - about [W]ednesday.
We hope this update is helpful if you are contacted about the funding procedures. "
(See Attachment # 43)
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11/09/06 (1:39 p.m. Eastern) the NTWC Project Administrator followed up once more :
I have sent the request for payment at the Las [Vegas] Financial
Center and a copy of the signed Affirmation of Award for his records. As of 10.30 am
PST, has not [received] the information from He cannot
proceed to process the funds for cooperative agreement until that information is sent
to him.
Tomorrow is a federal holiday, and there [are]only a few hours left for your office in
Washington D.C. to
and his fax is
rocess the information to
His phone number is
Would you contact[GIAMD Grant Specialist ] and see if she sent
the information Las Vegas Financial Center? I will try to call her as well. (See
Attachment #44)
As mentioned previously (in the Contractual Costs section above), in spite of numerous
telephone calls requesting assistance, the GIAMD Grant Specialist never spoke to the grantee or
NTWC Project Administrator from the beginning of the grant until a new GIAMD Grant
Specialist was assigned in November, 2007.
While the grantee understands that there were concerns about the manner in which drawdowns
were processed during the first 3 V2 years of the grant, it would have been helpful if just one
GIAMD Grant Specialist had provided specific drawdown guidance to the grantee or NTWC
Project Administrator during that time. Since nothing was ever questioned, the EPA Project
Officer, grantee (NTWC Project Manager) and NTWC Project Administrator had no idea that the
negotiated $50,000 drawdowns were outside the EPA norm until the May 13, 2010 meeting at
which this issue was resolved as a misunderstanding.
In the grantee's opinion this issue is moot and has no place in the Draft Report since it was
resolved eight months before the beginning of the audit.
OIG Response 28: See OIG Response 4.
Response to Recommendation
For the reasons detailed above, the grantee believes it is a factual error to state that $80,721
disallowed costs should be recovered by the EPA.
In the grantee's opinion, it is inappropriate to recommend that the grantee's financial
management system should be verified prior to any future award based, especially given the fact
that the auditors make this recommendation elsewhere in the Draft Report. (See Response to
Status of Recommendations and Potential Monetary Benefits on the last page of this response.)
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OIG Response 29: Based on our analysis of the recipient's draft report comments, no
significant changes have been made to the Results of Examination or the questioned costs
of $80,721, and no changes will be made to the recommendation regarding verification of
the recipient's financial management system prior to any future award.
Response to Other Concerns Raised By Audit Request
Work Performance
The auditors state that the recipient has fulfilled the overall purpose of the Tribal Water Program
Council Cooperative Agreement. In fact, the grantee, in collaboration with the NTWC Project
Administrator, first EPA Project Officer and volunteer members of the National Tribal Water
Council exceeded the expectations related to the overall purpose of the Cooperative Agreement
during the relevant time frame.
As memorialized in the NTWC minutes for November 12, 2009, the original EPA Project
Officer said that
"...she considers her role in the establishment of the Council to be the most
important thing she has accomplished during her years with EPA. She said that
the NTWC is 'beyond stellar' and that every single Council member has
contributed to making a difference to the agency, and beyond, at both the national
and Tribal levels. "
The statement that "the recipient did not provide the required quarterly reports according to
terms and conditions of the agreement until year 4 " is a factual error. Contrary to the allegations
made by GIAMD, the grantee filed quarterly reports with the EPA Project Officer from the
beginning of the Tribal Water Program Council Cooperative Agreement in 2006, as documented
by attachments to this Response. There is a possibility that when the original EPA Project
Officer retired, she did not print out hard copies of quarterly reports prior to "cleaning out" her e-
mail messages. This is only a theory, and the grantee does not claim to know why EPA does
what EPA does.
OIG Response 30: The statement that "the recipient did not provide the required quarterly
reports according to terms and conditions of the agreement until year 4" was from the audit
request. We did not opine on the timeliness of the report submittals. We only confirmed that
the quarterly reports were submitted by the recipient as of September 30, 2010, the
examination cut-off date.
The GIAMD claim of not being aware of the database or webpage links to other organizations
and entities related to the protection of water resource is also without substance. GIAMD and
the EPA Project Officer have direct access to the NTWC webpage on which the databases were
posted and could have asked the grantee about them at any time.
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The auditors assert that "many of the tasks in the workplan were general in nature and did not
have verifiables. " However, the grantee, NTWC Project Administrator and National Tribal
Water Council have produced numerous verifiable documents that are consistent with their
purpose.
It should also be noted that EPA liked the grant application submitted by Kathleen Hill and Dr.
Dupris so much that they asked them to give a grant proposal writing workshop at the National
Tribal Forum on Environmental Science. The presentation, made on September 27, 2006 was
well attended, and the grantee has been told that it received very positive feedback.
Furthermore, although the auditors acknowledge that the "recipient has fulfilled the overall
purpose of the cooperative agreementthe discussion regarding work performance is written in
such a manner that it appears to be an attempt to diminish the accomplishments of the grantee
and the activities of the National Tribal Water Council.
Following are real examples of the kind of work accomplished by the grantee and NTWC Project
Administrator in collaboration with the National Tribal Water Council. In the grantee's opinion,
they reflect the benefit of the National Tribal Water Council to EPA and to Indian Country.
The following is excerpted from the grantee's Iyrogram malic Closeout Report:
Long-Term Milestone 3
Improve water-related public health protection in Tribal communities.
Each of the NTWC members is aware of the threat poor water quality poses to the Tribal
members they serve, and the Tribal resources they are responsible for protecting. Based on
that knowledge and their commitment to Indian Country, the NTWC incorporated what
Council members identified as the NTWC's health-related purposes in its By-laws:
"The NTWC was established to advocate for the best interests of federally-recognized
Indian and Alaska Native Tribes, and Tribally-authorized organizations, in matters
pertaining to water. It is the intent of the NTWC to advocate for the health and
sustainability of clean and safe water, and for the productive use of water for the health
and well-being of Indian Country, Indian communities, Alaska Native Tribes and
Alaska Native Villages."
During its first NTWC-EPA face-to-face meeting in October 2007, NTWC members
shared some of their concerns about water-related health in Tribal communities. Among
these were concerns about:
* The effect of climate change on all aspects of life for Alaska Natives;
* States ignoring Tribes as they attempt to downgrade water quality standards by using
receiving waters as the standard for water quality;
* Agricultural impacts on water quality;
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* Mercury levels in fish tissue;
* Unregulated drinking water sources in remote areas;
* Impacts of uranium and power plant related issues;
* Impacts of low water tables coupled with upstream, underground contamination;
* The need to mitigate the effects of global warming;
* Threats posed by private corporations draining aquifers;
* Air deposition of mercury;
* Arsenic contamination in groundwater supplies;
* Groundwater mercury contamination;
* Mercury and nitrogen deposition impacts on tidal marshes;
* Failure to recognize the links between pollution and physical and spiritual health;
* Capture of pollutants from distant industrial emissions;
* Lack of funding for EPA-approved Tribal labs; and
* Social and health problems arising from the inability to practice traditional subsistence
lifeways.
As noted in Long-Term Milestone 2, above, the NTWC website includes a Links and
Resources page with over three dozen sites pertaining to entities engaged in the protection
of aquatic resources in Indian Country and a list of Funding Sources for Tribal Water &
Aquatic Resource Protection. Clearly, entities that engage in the protection of aquatic
resources in Indian Country help to address water-related Tribal health issues. Water and
Tribal health meetings and conferences that teach best-practices, as well as meetings at
which knowledge about water quality and Tribal public health can be enhanced, have
consistently been included in the website Meeting and Events page.
As discussed in Workplan Milestone 9, the NTWC has engaged with many EPA experts
who help to address water-related health threats. The NTWC has also designed
presentations regarding best practices for protecting Tribal public health. Council members
have done this directly, through presentations such as the "Tribal Water Quality Data
Management: Making Your Data Work for You, " which emphasized the need for Tribes to
manage data for their own Tribal purposes, as well as EPA's purposes, and by serving such
entities as the Mississippi Basin/Gulf of Mexico Hypoxia Task Force, National Water
Quality Monitoring Council, EPA State-Tribal Climate Change Council, National Tribal
Operations Committee Tribal Caucus, National EPA-Tribal Science Council, and the
various entities they serve or are engaged with through their individual Tribes and EPA
regions.
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The Grantee (NTWC Project Manager) has also shared information about water-related
public health threats in Indian Country, such as a major CDC publication regarding public
health and drought, the National Oceanic and Atmospheric Administration's work with the
Quileute Tribes re shellfish toxin, uranium plume health threats to Hopi villages, health
threats posed to Tribes and the fish they eat by mining slag that is in the Columbia River,
and high levels of mercury in fish that were found to be unsafe for consumption by the
Clear Lake Pomo Tribe in California.
The Grantee (NTWC Project Manager) and NTWC Project Administrator have supported
the NTWC's development of policy papers that incorporate concerns about impacts on
water quality that potentially impact Tribal health, including:
(1) A set of NTWC Issue Papers (previously mentioned) presented to EPA during the
October 2009 NTWC-EPA meeting, including
A Cultural Perspective on Water,
An Overview of Some Alaska Native Water Quality Issues & Concerns,
Tribal Issues & Concerns Related to Mining & Superfund Sites in the Lower 48 States
and Alaska,
Proposed Alternatives for Water Quality Protection When EPA Authorization is Not
an Option,
Inadequate/Inconsistent Funding Levels for Indian Tribes with Regard to the Clean
Water §106 Program, and
Initial NTWC Recommendations on Climate Change.
(2) Two policy-relevant letters pertaining to issues in Alaska:
A January 6, 2011 letter to EPA Administrator Lisa Jackson re National Tribal Water
Council Follow-Up: Key Messages Articulated during the EPA Region 10 Tribal
Leaders Summit. The letter highlighted the following issues:
(1) Environmental Justice (EJ) issues,
(2) Government- to-Government consultation,
(3) Global Climate Change Impacts,
(4) Access to Basic Sanitation,
(5) National Pollution Elimination System (NPDES) issues, and
(6) Mining Issues.
A January 6, 2011 letter to EPA Administrator Lisa Jackson and Region 10 Administrator
Dennis McLerran, regarding the NTWC's Request for EPA to exercise its authority under
Section 404(c) of the Clean Water Act to protect water quality in Bristol Bay from the
proposed Pebble Mine.
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(3) Comments that address policy matters, such as
January 21, 2008 Comments on the Rapanos decision;
August 18, 2008 Recommendation Against Alaska NPDES Program Delegation;
and
November 7, 2008 Comments on the NRC Uranium Recovery GEIS Proposal
The NTWC has also provided input to EPA with regard to both policy matters and EPA's
efforts for attaining measurable water quality improvement by submitting formal
comments on EPA plans, proposals and strategies, including
March 31, 2008
August 18, 2008
September 22, 2008
November 13, 2008
November 30, 2008
March 20, 2009
October 14, 2009
October 15, 2009
January 19, 2010
April 2, 2010
April 2, 2010
July 30, 2010
Comments on the National Water Program Draft Guidance for
FY 2009,
Comments on the National Water Program in the EPA
Strategic Plan 2006-2011 Update,
Comments on the Data Management Appendix to the CWA
Section 106 Tribal Guidance,
Comments on the §319 Handbook annotated outline,
Comments for the 2009-2014 EPA Strategic Plan Change
Document,
Comments on the National Water Program Draft Guidance for
FY 2010,
Comments on FY 2010 EPA National Tribal Program Tribal
Measures,
§106 Draft Status Report Comments,
Comments regarding the FY 2011-2013 National Priorities for
Enforcement & Compliance Assurance,
Comments on the Draft FY 2011 OECA National Program
Manager Guidance,
Comments on the Draft FY 2011 National Water Program
Manager Guidance, and
Comments re the Draft FY 2011-2015 EPA Strategic Plan.
In addition to promoting water protection and awareness via the website, networking and
writing, the NTWC's work has contributed information as to developing, establishing and
sustaining a comprehensive Tribal water protection program. It should be noted, however,
that the members of the National Tribal Water Council recognize that there is no "one size
fits all" Tribal water protection program. Every Tribe has its own unique sovereign
government and a unique relationship with the federal government and neighboring state
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and local governments. Each Tribe's homeland is different, and each Tribe's water-related
challenges are unique.
As the above excerpt reveals, the grantee, NTWC Project Administrator and National Tribal
Water Council have been advocates with regard to water quality issues that are important to
Indian Country. The NTWC, with the support of the grantee and NTWC Project Administrator,
have been valuable partners with EPA in its goal to carry out the mission of the Clean Water Act.
OIG Response 31: The statement that "many of the tasks in the workplan were general in
nature and did not have verifiable deliverables" addressed the fact that there were no
measurable outputs or deliverables for some of the tasks. Examples of these tasks include
promoting information exchange within the council and assisting in finding opportunities for
council members to raise awareness regarding tribal health and quality of tribal aquatic
resources. We verified that the recipient has completed the broad scope of the cooperative
agreement, even though we were unable to verify some of the more general tasks to
quantifiable output. For this reason, we stated that the recipient has fulfilled the overall
purpose of the cooperative agreement. There was no attempt to diminish the recipient's
accomplishments.
Finally, the auditors use the "work performance" section to imbed a recommendation that the
Director of Grants and Debarment verify the grantee's accounting system records for the final
financial report based on their claim that the grantee did not submit quarterly reports until Year 4
of the grant and that the September 30, 2010 quarterly report did not reconcile to the recipient's
accounting system.
The auditors have presented no evidence that the grantee's accounting system records are
inadequate. In fact, the auditors have relied on the grantee's accounting system files to question
the independent bookkeeper's mid-grant Quickbooks documents.
The statement that the grantee did not submit quarterly reports until Year 4 of the grant is also
false. In fact, pages from two first-year quarterly reports are attached to this document in
response to auditor errors pertaining to the grantee's fringe benefit processes.
The grantee does agree with the auditor that the mid-grant September 30, 2010 quarterly report
did not reconcile to the recipient's accounting system. There are several reasons for this:
(1) GIAMD required the grantee to change to a reimbursement process that began in late
August, 2010, and the independent bookkeeper was still in the process of making major
changes to her accounting system;
(2) Expenditures made out-of-pocket (such as those referenced in Response to Note 6: Costs
Claimed in Excess of Accounting System Account, above) were not yet integrated into
the independent bookkeeper's accounting system;
(3) The bookkeeper was still trying to figure out how to properly record the grantee's personal
deposits to the grant account (such as the August 25, 2010 $4,500 deposit from the
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grantee's 40IK account) to cover grant costs for which EPA reimbursements had been
delayed; and
(4) The bookkeeper was trying to update and reconcile the Quickbooks documents to the
grantee's records while dealing with the demands of tax season.
The auditors also state that
"The recipient is required to submit its final financial status report by June 29,
2011, 90 days after the end of the cooperative agreement budget period. "
At the time the auditors wrote the Draft Report that deadline has passed, and the auditors already
knew that the grantee had not submitted the final financial status report. As the grantee informed
the EPA Project Officer and GIAMD Grant Specialist on June 22, 2011
"I am writing to let you know that it will not be possible to complete the financial
closeout of EPA grant X7-83325501 by June 29, 2011.
The audit that was started in January of this year has taken a significant amount
of time and energy, and expenditures and unpaid expenses that were obligated
before the end of the grant period have not been fully processed. The financial
closeout is also impeded by the fact that we do know where the budget
modification stands.
We will also inform the Las Vegas Financial Office of this necessary delay. " (See
Attachment #45)
The grantee has been informed by non-GIAMD EPA financial personnel that EPA allows
extensions for the final financial report due date. The GIAMD did not offer the grantee such an
extension, or even inform her that the due date could be extended. Instead, several different
GIAMD personnel tried to pressure her into submitting the final financial report before she had
an opportunity to complete her due diligence review of all financial records. In fact, the grantee
was informed that the GIAMD will not process previously submitted grant reimbursement
requests until the final financial report is turned in.
The grantee's financial closeout has been delayed even further by the legal requirement of
responding to the auditor's Draft Report within 30 days.
OIG Response 32: The recipient's accounting system is required to support the data
submitted in the financial reports for all quarters, not just at close-out. We found that the
financial portion of the quarterly report for the period ended September 30, 2010, did not
reconcile to the recipient's accounting system. To address this issue, we recommended the
EPA to verify that the final financial status report is properly supported by accounting
system records. The recommendation was not intended to point out the due dates of the
final financial status reports. Our finding and recommendation remain unchanged.
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Request for Additional Funding
The draft Report is factually in error with the statement that "[t]he GIAMD 's audit request
stemmedfrom the recipient's request for additional funding as a result of.... Two training
courses "
In fact, the grantee (recipient) did not request additional funding for the two training courses
since the funding for those courses was provided for in the 2008 Assistance Amendment
(see the $10,000 item in the Fiscal section) and the 2010 Assistance Amendment (see the
$30,000 item in the Fiscal section), which were both authorized by the awarding official.
The grantee did, however, request $40,000 that was included in the budget for the support of
the Tribal Water Council and approved by EPA in 2006, but rejected by a Grants and
Interagency Agreements Management Division (GIAMD) Grant Specialist in November,
2009.
There are numerous other factual errors in this section of the draft audit report.
As noted on page 3 of this Response, the above statement regarding the origination of the
audit is inconsistent with the Why We Did This Examination textbox on the At A Glance
page wherein the Office of Inspector General (OIG) states that EPA requested assistance
"due to concerns relating to a cooperative agreement recipient's project andfunding
management, as well as cash draw practices. "
It remains the grantee's opinion that the statement on the At A Glance page was made to avoid
drawing attention to errors made by EPA's GIAMD Grant Specialist who arbitrarily cut $40,000
from the original grant funding intended to support the work of the National Tribal Water
Council. It is also the grantee's opinion that EPA's decision to add $30,000 of funding for the
additional work was a violation of EPA's own Competition Order and that those funds, and the
$10,000 for additional work awarded to the grantee previously, were used to supplant $40,000 of
original grant funding that EPA had committed for the support of the National Tribal Water
Council.
A factual error is also made by the statement that
"The recipient believes that the cooperative agreement is entitled to an additional
$40,000 based upon the project officer's assurances. " [Emphasis added]
Numerous EPA officials, including GIAMD personnel, were involved in discussions pertaining
to the $40,000 referenced by the OIG.
Although the November 30, 2009 Notice of Award for 2010 that included the $30,000 in funding
listed the original EPA Project Officer, there is no evidence that the GIAMD's decision to reject
$40,000 in funding for the Tribal Water Council involved any discussion or consultation with the
outgoing EPA Project Officer. Following is an October 26, 2009 message sent by the EPA
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Project Officer to an Integrated Grants Management System colleague that reflects her
commitment to ensure that Tribal Water Council grant funds were appropriately processed:
"Once again I need help entering appropriate information into IGMS. I now
believe I have six change requests pendingfinalization by IGMS. All are for the
same grant... Tribal Water Council # 83325501...Grantee is Kathleen Shaye Hill.
Five of them ($40,000 each) are incremental funding for general Council
operations for the next 12 months. These were generated by OW program offices:
OST, OWM, OGWDW, OWOW, and by the Immediate Office of the Assistant
Administrator. I thought I had completed finalizing them months ago, but
apparently not.
The final one just came in. It is a one time amount of $30,000 to fund tribal
training.
All are waiting for me to complete change award requests. As happens each year,
IGMS bollixes my mind. I could sure use your help. " (See Attachment #46)
GIAMD was solely responsible for the decision to supplant $40,000 of original grant funding for
the National Tribal Water Council with $10,000 and $30,000 of funding for extra work that was
supplemental to the original workplan and had already been performed by the grantee at EPA's
request. When the grantee contacted the retired EPA Project Officer regarding the Notice of
Award that still listed her as the Project Officer, she was saddened and surprised to learn that the
GIAMD had unilaterally cut NTWC funding. More information related to the background of the
$30,000 in funding is documented in the OWOW Tribal Wetland Training - $30,000 section.
Based on research done after the $40,000 in supplemental funding became an issue, it is the
grantee's opinion that GIAMD's decision to award the $30,000 of supplemental funding violated
EPA's own Policy for Competition of Assistance Agreements (Revised 4/09/2007). The Policy
for Competition states at Section 12 (1):
"Program Offices may award assistance agreements that are subject to this
Order non-competitively ... (1) When the assistance agreement is for $15,000 or
less.... " (See Attachment #2)
In both instances (the $10,000 funding for the Office of Wastewater Management
STORET/WQX training and the $30,000 funding for the Office of Wetlands, Oceans and
Watersheds Tribal Wetlands training), the EPA Project Officer inquired with the appropriate
GIAMD Grant Specialist as to how to appropriately add funding for the additional work. (See e-
mail excerpts in the STORET/WQX Training - $10,000 and OWOW Tribal Wetland Training -
$30,000 sections, below.) Neither the GIAMD Grant Specialist nor anyone else in GIAMD
informed the EPA Project Officer or the grantee that there might be some concern about adding
$30,000 in supplemental funding to the award without putting that additional work out for
competition.
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In fact, a great deal of confusion ensued on December 16, 2009 when the grantee received the
2010 Notice of Award, and the funding was $40,000 less than anticipated. Dr. Dupris, the
NTWC Project Administrator called the GIAMD Grant Specialist immediately. The GIAMD
Grant Specialist, who had been in communication with the EPA Project Officer and Office of
Wetlands, Oceans and Watersheds (OWOW) staff member who had arranged the Tribal
Wetlands training, told Dr. Dupris that the funding for the Tribal Water Program Council
Cooperative Agreement could not be added because the grant had already reached its "ceiling".
He also told Dr. Dupris that he had turned away $40,000 that an Office of Water Director had
tried to contribute as his office's share of funds in support of the National Tribal Water Council.
In subsequent communication that same day, the supervisor of the new EPA Project Officer sent
a message to the grantee stating that
"The 40K shortfall is not because OWOW's funding didn 7 or couldn 7 come through. I
think the issue is that 40K of OW's 200K total funding for the NTWC that was
supposed to go into the grant never did. I don't think NTWC funds were used to cover
the training. I think the grant is short 40K of NTWC funds. At least that is how it
seems to me. And I have heard nothing about funding being rescinded. " (See
Attachment #48)
After the holidays, on January 5, 2010, the new EPA Project Officer notified the grantee that she
had met with the GIAMD Grant Specialist who had turned away the $40,000 in funding for the
National Tribal Water Council, and another person who "will be the grants specialist for this
grant going forward". In other words, less than a month after his action became known, the
GIAMD Grant Specialist who had partially supplanted $40,000 of the original funding for the
NTWC with $30,000 of supplemental funds was reassigned. (See Attachment #48)
On January 21, 2010, the new EPA Project officer wrote the following to the grantee:
"The four year grant that supports the NTWC was for $800,000. There were two
instances where money was added to the grant, as you have indicated, for $10,000
and $30,000for training/travel support from OW program offices. Those additions
totaling $40,000 brought the funding level of the grant to the ceiling of $800,000. In
retrospect, those two instances of additional funding should have been processed as
supplemental actions, per EPA. As that did not take place on our end, and the ceiling
was hit, we now need to move forward to address that $40,000. " (See Attachment
#49)
That same day (January 21, 2010), the grantee and NTWC Project Administrator faxed the
signed Acceptance of Notice Award with the following statement:
"In December, we requested a waiver for acceptance of the award time period,
which [GIAMD Grant Specialist] agreed to. This was because of the
questions regarding the additional $40,000 that was not processed by EPA for the
cooperative agreement. The total of the grant was amended to reflect an addition
last year that raised the total amount of the award to $810,000, andfor this year the
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grant activities were to include an additional $30,000for travel for Wetlands
Training events. This raised the total grant award to $840,000.
"We have discussed the confusion about this matter of funding with our new EPA
Project Officer, and have agreed to submit the signed notice of
award to insure the continuation of the grant activities until the issue of the missing
$40,000 is sorted out. In addition, we have asked to adjust budget line items to
reflect changes. As we understand it, the revision to the budget line items will be
addressed and completed after the decision is made regarding the $40,000. (See
Attachment #50)
Finally, on that same day, in response to what the grantee believed to be an earnest effort on
EPA's part to address its funding errors, and due to concern about continued funding for the
National Tribal Water Council, the grantee wrote the following to the EPA Project Officer
regarding the 2010 Assistance Agreement
"Thank you for providing the information needed to address FY2010 funding for the
NTWC, andfor discussing the matter with Joseph in his capacity as NTWC
Administrator.
Following is an update since Joseph's conversation with^^^^:
(1) Per Joseph's earlier discussion with you, our contact in the Las Vegas EPA
financial center, and, I have signed and Joseph has submitted
(faxed) the Notice of Award signature page for $190,000 pending resolution of
issues pertaining to the additional $40,000 of OWOWfunds. Once those issues
are resolved, an amendment can be processed, if appropriate.
(2) Although the current Notice of Award includes an approved FY2010
budget, [the new GIAMD Grant Specialist ] agreed that a budget line
item modification is in order. Joseph will work on that and submit a request to
you and^^^Msimultaneously. This is something we requested several times
while^^^^^^^A [the former GIAMD Grant Specialist ] was still there.
Although she was always amenable, she would invariably be out of the office
when we worked on it. In the long run, we don't perceive this to be a problem.
Instead, this presents an opportunity to incorporate changes relative to the
2007 OWOWSTORET/WQX Training travel and 2009 OWOW Wetlands
Training travel " (See Attachment #51)
Six days later, on January 27, 2010, the grantee was shocked to receive a message from the new
EPA Project Officer that included the following statement
"Actions authorizing additional funds were out of scope of the workplan. The Agency
needs to resolve this matter. " (See Attachment #52)
In fact, it is the grantee's opinion that EPA knew that the work done with regard to the additional
funds was not outside the scope of the workplan of the Tribal Water Program Council
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Cooperative Agreement. Instead, the grantee believes that EPA was beginning to engage in a
cover-up of the error it had made by adding $30,000 in funding to the Assistance Agreement for
additional work that was not put out for competition per EPA's own Policy for Competition of
Assistance Agreements (Revised 4/09/2007).
After two months with no progress toward resolving the $40,000 loss in funding, and having
been accused of misspending federal funds, on February 12, 2010, the grantee and NTWC
Project Administrator turned to the Office of Water Deputy Assistant Administrator, sending a
memo in which they stated
"FYI, all of the OWOWfunding was designatedfor OWOW-related travel, and
neither Hill, Dupris nor the NTWC received any economic benefit from this work.
Rather, the NTWC seems to have received economic detriment.
We are willing to live with a smaller budget if necessary, as long as we can properly
support the work of the National Tribal Water Council. We are not willing, however,
to continue to be treated as fraudulent grantees.
We need your support and assistance to resolve this matter so that we can move
forward and focus on the continuing good work of the NTWC. " (See Attachment #
53)
On February 26, 2010, the OW Assistant Administrator responded to the grantee, admonishing
her to work with his staff - the same staff that was treating her like a fraudulent grantee. The
grantee and NTWC Project Administrator did so.
The OIG's statement that 40 CFR 30.25(c)(1) requires that "the recipient shall request prior
written approval from the EPA awarding official for additional federal funding" is inconsistent
with the facts in this situation. Following is the relevant text:
30.25 - Revision of budget and program plans
(c) For nonconstruction awards, unless EPA regulations provide otherwise, recipients
shall request prior written approvals from:
(1) The EPA Award Official for the following:
(i) Change in the scope or the objective of the project or program (even if there is
no associated budget revision requiring prior written approval).
(ii) The need for additional Federal funding.
There was no change in the scope or objective of the project, the grantee was not seeking
additional funding, and the funding for the additional work asked of the grantee by EPA was
already in the budget of the relevant offices. The grantee relied on the expertise of her EPA
Project Officer, the EPA Project Officer's supervisor, the GIAMD Grant Specialist and the
OWOW staff person to properly follow EPA's internal processes.
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Following is the course of funding for 2007, 2008, 2009 and 2010 as captured in the various
Fiscal sections of the Assistance Amendments. Please note that when there was no other funding,
the grant was funded for a total of $200,000, consistent with the original grant budget of
$800,000 or $200,000 per year. Although the supplemental work was consistent with the
grantee's statement of work, it was not included in the original grant workplan.
2007
Purpos
e
2008
Purpose
2009
Purpos
e
2010
Purpose
$200,00
0
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$40,000
TWPC
$10,000
TWPC
(Rejected by
GIAMD)
$10,000
STORET/WQ
X
Training
$30,000
Wetlands
Training
-
-
$200,00
0
$210,00
0
$200,00
0
$190,00
0
The auditor's citation regarding 40 CFR 30.25(c)(1) is also inconsistent with following statement
made by the EPA Project Officer to the grantee on February 21, 2010, with a cc to both her
supervisor and the GIAMD Grant Specialist (neither of whom disagreed):
"The project officer ... has the role of determining that costs on a grant are
consistent with the workplan, scope, and approved budget of the grant. "
(Attachment #54)
In fact, both the $10,000 and $30,000 additional funding commitments were authorized as being
within the scope of the workplan by the former EPA Project Officer, neither GIAMD Grant
Specialist questioned the $10,000 awarded in the 2008 Assistance Amendment or the $30,000
awarded in the 2010 Assistance Amendment, and both Amendments were authorized by
None of the relevant EPA parties ever suggested that the grantee
needed to request prior written approval for the additional, supplemental funding awarded by
EPA for training events sponsored by EPA.
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It is also a factual error that
"EPA has advised the recipient on several occasions that she needed to provide a
revised budget, along with the outstanding tasks under the cooperative agreement, to
justify the additional funding. "
In fact, as noted above, EPA officials informed both the grantee and Dr. Dupris that EPA had
awarded the additional funding of $40,000 for the extra, supplemental work, but unilaterally
denied the grantee $40,000 of funding for the original grant that supported the National Tribal
Water Council. The $40,000 of Tribal Water Council funding, which the former GIAMD Grant
Specialist rejected in December 2009, was included in the original budget that was approved in
2006.
The only request for a revised budget by GIAMD was for the $800,000 that was the alleged
"ceiling" for the Tribal Water Program Council Cooperative Agreement and at no time did the
GIAMD request a revised budget for $840,000 which represented the total grant awards to the
grantee.
Details pertaining specifically to the $10,000 award and $30,000 award are provided below.
STORET/WQX Training - $10,000
Following is a summary of communication pertaining to the $10,000.00 funding for the 2007
STORETAVQX training for which EPA requested the grantee's assistance. Word format copies
of all of the e-mail messages quoted below are attached.
7/30/07 EPA Project Officer, notified Kathleen Hill that "One of our managers
in the 106program stopped me in the hall the other day to ask whether it might be
possible to put additional funds into your grant for training for tribes in STORET data
entry and the new Tribal 106 guidance. " She added "Please let me know what you
think -1 believe this activity is within the scope of your work. " (See Attachment #55)
7/31/07
10/19/07
11/01/07
contacted Kathleen Hill regarding his request to I
"whether the scope of the [NTWC] grant could accommodate training of this
sort as well as some travel scholarships to Tribes.... " (See Attachment #56)
informed Kathleen Hill that "I have just submitted your second year's
funding package for $210,000 [GIAMD Grant Specialist].... That
amount includes the $10Kfor Storet/WQS [WQX] training.... " (See Attachment #57)
(Tribal Section 106 Program, Office of Wastewater Management) sent an
e-mail message to Kathleen Hill, saying, "Kathleen - not sure was
able to talk to you about this or not - she's out sick. My office has put an additional
10K into your grant with OW to provide travel money for the Water Tribal Council
members (or a designee for each member) to attend the Storet/WQX Training.... I
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need your help to organize having tribes attend, up to the 10K we budgetedfor in your
grant. " (See Attachment #58)
11/12/07 Kathleen Hill contacted with concerns regarding STORET/WQX
funding, saying "We want to be sure that these matters are appropriately addressed
and that proper conduct is reflected in our records. "
also informed had
told her on Thursday [November 8, 2007] "that we will likely not see those funds for
at least 45 days, and more likely 60, because of the late date on which our funding
documents were submitted. " (See Attachment #59)
11/15/07
notified Kathleen Hill that "The $10K was included in the amendment
language that I had to put through for your FY 2008funding. " (See Attachment #60)
11/15/07
[new GIAMD Grant Specialist] notified
and Kathleen
Hill that "it looks like the funding for the training is built into the current funding
action I am working on. I have to work with on some things, but I do not
foresee the amendment taking 45-60 days to get awarded. " (See Attachment #61)
11/15/07
informed!
that "The travel funding is built into the
11/15/07
amendment you are now processing, because it only recently was made available. The
entire amount of the grant through 10/15/10 will now be $810,000. ... The grant SOW
[statement of work] covers tribal water training in a variety of venues. This particular
training opportunity will have major positive implications for our new CWA Section
106 tribal guidance initiative.... The travel costs for this training were pre-approved
by the EPA Project Officer and included in the amendment that is now being
processed (amendment one). " (See Attachment #62)
forwarded comments to Hill, with a cc to^^^J.
had said "Note that the extra $ 10k will not show up in your account until after
all $800k is put in. "
message included the following comments from^^^J, "On the change
request, you noted that an additional $10,000 is being added to the project, thus
making the total budget/project period cost $810,000. Per the competition policy,
supplemental funding amendments less than $15,000 can be issued non-competitively
if the additional work is within the scope of the original agreement. Program offices
must document compliance with the requirements of the competition policy in the
amendment package (see section 13). This means that we won't change the
budget/project period cost to $810,000 until the supplemental funding is approved (ie,
when EPA's total funding exceeds $800,000). At that time, you will have to submit the
documentation in accordance with the competition policy. This is mostly an FYI, but I
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wanted to explain why the total budget/project period cost won't change on this
amendment. It will still say $800,000. " (See Attachment #63)
Contrary to the GIAMD Grant Specialist's 11/15/07 statement, the 2008 Assistance Award,
by official included
the additional $10,000. The Notice of Award within the Assistance Agreement contains the
following language
"Based on your application dated 3/09/2006, including all modifications and amendments, the
United States acting by and through the US Environmental Protection Agency (EPA),
hereby awards $210,000. " (See Attachment #64)
OWOW Tribal Wetlands Training - $30,000
In early October 2009, the grantee received a call from the EPA Project Officer informing her
that another Office of Water program was asking for the grantee's assistance. The EPA Project
Officer informed the grantee that the request was being made because, without the grantee's
assistance, Tribal staff would be denied an important training opportunity. Following are
excerpts from a series of e-mail messages documenting the assistance requested and financial
commitments made:
10/2/09
OWOW staff person, wrote the following to
GIAMD Grant
Specialist for the Tribal Water Council grant, with a cc to EPA Project Officerl
As we discussed this afternoon, I would like to add some money to the Office
of Water grant to Kathleen Hill for supporting the National Tribal Water Program
Council. The money we add would be to support tribal travel to some 'sustainable
finance workshops for tribal wetland programs
The finance workshops... can be linked to a larger capacity-building function that I
believe is part of the mission of the National Tribal Water Program Council. So I am
hoping this grant's SOW [statement of work] can support travel support for tribes.
has already told me that she has no objection if you say it is OK.
[Emphasis added]
Please let me know if what I am asking for is consistent with this grant's SOW (I have
no other vehicle to use to support tribal travel to the workshops, and would hate to see
some tribes not attend the workshops because offinancial reasons.... " (See
Attachment #65)
10/5/09
(GIAMD Grant Specialist) responded to |
as follows:
with a cc to
"... You can add the EPM money if you choose, but the grant is near it's ceiling, so
the maximum amount you may add is $30,000. (See Attachment #66)
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subsequently wrote a message to the grantee which included the following
10/08/09
"I am writing you because I am interested in adding money to your grant with the
Office of Water, and I want to know if you are willing to take on the work that I would
be funding.
has said she is fine with what I proposed, and she and the relevant
person in EPA's Grants Office have said the grant statement of work
covers what I am proposing.
I am interested in adding S15-20K to the grant so that you can fund tribal travel to
some tribal wetland program finance workshops.
Both Region 9 and Region 10 have asked if EPA HQ could provide some financial
support for tribes to travel to the respective trainings. We have some funds to provide,
but no vehicle to deliver the financial aid....
I was going to contact you through^^^^^^^^, but as you must know, has
been battling an illness for a long time, and she has been difficult for me to contact, so
suggested I contact you directly... " [Emphasis added] (See Attachment
#67)
10/12/09 Having been assured that both the EPA Project Officer and GIAMD Grant Specialist
approved the additional work and funding, the grantee responded to^^^^J, stating
"We would be happy to work with you to ensure that Tribal representatives have an
opportunity to participate in this important training.... " (See Attachment #68)
10/13/09
"I let
soon. " (See Attachment #69)
notified the grantee that
know that I would be adding $3OK to your grant
10/14/09
(OWOW) included the following in a message to the grantee
"I actually have already put through the electronic paperwork to add $30,000 to your
grant, and my manager has already signed off on it. So after our accounting person
signs it, it will be and^^^^^^^ hands. " (See Attachment #70)
10/14/09 The grantee forwarded a message to the EPA Project Officer, her supervisor, and her
back-up person (the future EPA Project Officer) that she had sent to EPA Region 9
personnel regarding the upcoming OWOW Tribal Wetlands training. That message
contained the following text:
"FYI - Just to keep you in the loop -
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said his office has processed the additional $30,000 - $14,000for Region 9
Tribal travel and $14,000for Region 10 Tribal travel, with $2,000for our travel to
coordinate. Whatever we don 7 use for our travel will be usedfor Tribal travel. " (See
Attachment #71)
11/2/09 (OWOW) sent the following message to the grantee and NTWC Project
Administrator:
"... incase^^^^^^^^ did not already inform you, see the 10/30 emails from
and W^^^^Kbe/ow for status of the $30K we added to your grant with the Office of
Water. I think for any future funding status questions, you should contact (or
directly."
message included two attached messages. The earlier one, dated 10/30/09
at 12:24 p.m., was from the EPA Project Officer to^^^^J with a CC to the
GIAMD Grant Specialist:
"I think the process of adding your funding should be complete do you have
everything you need? There should be $200,000 ($40K from each of our 4 program
offices plus $40K from the immediate Office) and the additional $30K that OWOW put
in for wetlands training/travel for tribes.
Total should be $230,000for this period ofperformance. "
The GIAMD Grant Specialist responded to the EPA Project Officer on the same day
(10/30/09, at 12:26 p.m.), stating
"Everything is good. It will be obligated in the coming weeks. "
(See Attachment #72)
12/16/09 The grantee sent a message titled URGENT Funding Issue to the new EPA Project
Officer and her supervisor. That message included the following:
".... I am very concerned about an error made in our funding. Joseph spoke with
grant specialist earlier today about this concern.
In summary, the four-year grant that supports the NTWC was for $800,000. At EPA 's
request, we have taken on additional work NOT specifically for the NTWC and-
apparently WITHOUT COMPENSATION to the tune of $40,000....
It is also our understanding that submitted a Programmatic Review
Report about our grant citing a total Award Amount of $830,000 on or about October
30 because of this additional work and the funds verbally committed to it.
is now telling us that our grant had an $800,000 ceiling and we cannot be
reimbursedfor the extra $40,000 worth of expenditures that we did as a favor to the
EPA Office of Water for tribal travel to the trainings. If this was the case, we should
have been told that the additional $30,000 would not be added to our grant, but would
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come out offunds earmarked specifically for the National Tribal Water Council. "
(See Attachment #73)
As noted earlier, both the EPA Project Officer's supervisor and the new EPA Project Officer
acknowledged that EPA had erroneously failed to process 40,000 of Tribal Water Council
funding:
12/16/09 The EPA Project Officer's supervisor stated
" The 4 OK shortfall is not because O WOW's funding didn 7 or couldn 7 come through.
I think the issue is that 40K of OW's 200K total funding for the NTWC that was
supposed to go into the grant never did. I don't think NTWCfunds were used to
cover the training. I think the grant is short 40K of NTWC funds. At least that is
how it seems to me. And I have heard nothing about funding being rescinded. "
[Emphasis added.] (See Attachment #48)
1/21/10 And, as noted previously, the EPA Project Officer wrote to the grantee, stating
"The four year grant that supports the NTWC was for $800,000. There were two instances
where money was added to the grant, as you have indicated, for $10,000 and
$30,000for training/travel support from OWprogram offices. Those additions
totaling $40,000 brought the funding level of the grant to the ceiling of $800,000. In
retrospect, those two instances of additional funding should have been processed as
supplemental actions, per EPA." [Emphasis added.] (See Attachment #49)
In spite of these acknowledgements of EPA's error by both the new EPA Project Officer and her
supervisor, EPA took no action to correct its error.
Instead, the EPA Project Officer told that grantee on January 27, 2010 that
"Actions authorizing additional funds were out of scope of the workplan... " (See
Attachment #52)
... eventually leading to an audit initiated before the end of the grant - an audit which the
auditors themselves referred to as "unusual."
OIG Response 33: During the exit conference, the recipient requested the OIG to
eliminate the entire section in the report regarding the additional $40,000. We agreed to
eliminate the section because there was no longer an audit issue. EPA had determined the
work relating to the $40,000 to be within the original scope of the cooperative agreement;
therefore, the costs are allowable. We included the section in the draft report because the
recipient felt strongly about explaining the issue at the time.
As this section is eliminated, no further discussion on this issue is necessary.
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Response to Recommendation
The auditors' recommendation that the final financial status report be properly supported by
grantee accounting records appears to be a recommendation to the Director of the Office of
Grants and Debarment to conduct an unknown process to verify supportive documents for the
grant expenditures. Without further information, the grantee cannot provide a reasoned
response. Though the grantee does agree that the final financial status report must be properly
supported by the accounting records, the grantee believes that she has demonstrated that she
maintains proper accounting records to support grant expenditures. If such a verification process
is imposed on her, the grantee strongly appeals to whomever is in charge to ensure that she will
not be treated with same condescension and suspicion that she has endured for the last 19
months.
Response to Status of Recommendations and Potential Monetary Benefits
1. Based on the documentation provided herein, the grantee disagrees with the auditor's assertion
that there are $80,271 of unallowable costs, and with the recommendation that the Director of
the Office of Grants and Debarment should recover $80,271.
In fact, it is the grantee's opinion that EPA continues to owe the grant $40,000, in addition to
reimbursements for grant expenses incurred before March 31, 2011.
2. In the event that the grantee receives an award in the future, the grantee is confident that any
action taken by the Director of the Office of Grants and Debarment to verify that she has a
financial management system that meets federal standards would be met with success.
3. The grantee is not threatened by the need to verify that the recipient's financial status report is
properly supported by accounting system records, but she requests that if the Director of the
Office of Grants and Debarment decides to do so, that he assign a GIAMD Grant Specialist
whose primary goal is not an intent to do the grantee harm.
The grantee also requests that if the Director of the Office of Grants and Debarment decides to
do so, that he will identify a third, (truly) neutral party who can resolve any disputes between
the grantee and GIAMD staff.
OIG Response 34: Based on our analysis of the recipient's draft report comments,
no significant changes have been made to the findings and recommendations.
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Appendix C
Distribution
Assistant Administrator, Office of Administration and Resources Management
Assistant Administrator, Office of Water
Director, Office of Grants and Debarment, Office of Administration and Resources Management
Director, Grants and Interagency Agreements Management Division, Office of Administration
and Resources Management
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Water
Audit Follow-Up Coordinator, Office of Grants and Debarment
Kathleen S. Hill
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