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I % u.s. environmental protection agency
% / OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Evaluation Report
EPA Should Improve Guidance and
Oversight to Ensure Effective
Recovery Act-Funded Diesel Emissions
Reduction Act Activities
Report No. 11-R-0141
March 1, 2011
~ ~~ RECOVERY.GOV
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Report Contributors: Rick Beusse
Chris Dunlap
James Hatfield
Erica Hauck
Geoff Pierce
Michael Young
Abbreviations
ARRA
American Recovery and Reinvestment Act of 2009
DEQ
Diesel Emissions Quantifier
DERA
Diesel Emissions Reductions Act
DOC
Diesel oxidation catalyst
EPA
U.S. Environmental Protection Agency
FTE
Full-time equivalent
FY
Fiscal year
NOx
Nitrogen oxides
OAR
Office of Air and Radiation
OIG
Office of Inspector General
OMB
Office of Management and Budget
OTAQ
Office of Transportation and Air Quality
PM 2 .5
Fine particulate matter
Cover photos: Left to right. Verification of the installation of a diesel oxidation catalyst on an
existing school bus; verification of a new (cleaner operating) replacement bus;
and verification of a new diesel engine installed in a marine vessel. (EPA OIG
photos taken during onsite visits to ARRA DERA projects.)
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s U.S. Environmental Protection Agency 11-R-0141
i? M m t, — . March 1,2011
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SKI
f At a Glance
Catalyst for Improving the Environment
Why We Did This Review
The American Recovery and
Reinvestment Act of 2009
(ARRA) provided the U.S.
Environmental Protection
Agency (EPA) with
$300 million in grant funds for
diesel emissions reduction
activities. We conducted our
review to determine whether
these funds were effective in
obtaining diesel retrofits and
emissions reductions.
Background
In fiscal year 2008, EPA
began funding projects
through grants authorized by
the Energy Policy Act of
2005, Title VII, Subtitle G,
also known as the Diesel
Emissions Reduction Act
(DERA). Under this
authority, EPA
competitively awards grants
for projects to achieve
significant reductions in
diesel emissions that
improve air quality and
protect public health. In
addition, EPA awards grants
to support state diesel
emissions reduction
programs.
For further information, contact
our Office of Congressional,
Public Affairs and Management
at (202) 566-2391.
The full report is at:
www.epa.aov/oia/reports/2011/
20110301-11-R-0141.pdf
EPA Should Improve Guidance and Oversight to
Ensure Effective Recovery Act-Funded
Diesel Emissions Reduction Act Activities
What We Found
Documentation of grant activities did not always demonstrate that funded DERA
work achieved the desired emissions reductions. For two subgrants involving
13 completed engine replacements costing $343,753, supporting documentation
did not clearly indicate the emissions certification level of the new engines. Also,
for three subgrants to replace six vehicles costing $268,000 in DERA funds, the
engine model year was different from the vehicle model year. These documentation
errors could result in EPA overestimating emissions reductions for these projects.
Additionally, two subgrantees installed unverified technology costing $15,900 on
15 buses. Further, quarterly reports included errors on specific project details that
could affect the accuracy of EPA's final emissions reduction projections for these
grants. Additional EPA guidance and oversight is needed to ensure that projects
achieve the planned emissions reductions and that activities are reported accurately.
For the state DERA grant reviewed, two subgrantees replaced three vehicles costing
$108,425 even though they planned to replace these vehicles in 2010. EPA grant
conditions stipulate that grantees must use funds for early replacements, not to
replace vehicles or engines that would have been replaced due to normal attrition.
However, neither the grant conditions nor EPA guidance explains how to determine
normal attrition. We believe these expenditures do not meet the intent of DERA,
and that EPA should better define early replacement for its state grant awards.
The methodology used by prime grantees to report the number of jobs funded by
ARRA appeared reasonable. However, for one grant the prime grantee did not
adjust job hours to account for cost sharing by the subgrantee. As a result, the job
hours reported as funded by ARRA were slightly overstated.
What We Recommend
We recommend that the Assistant Administrator for Air and Radiation require the
Director, Office of Transportation and Air Quality, to (1) develop oversight
procedures to provide reasonable assurance that grantee progress reports are
accurate and that emissions certification levels are verified, (2) require that DERA
grant and subgrant agreements specify the emissions certification level or year of
new engines installed as part of vehicle replacement and engine repower projects,
(3) issue guidance clearly defining eligible costs for early replacements of vehicles
and engines for state grants, and (4) recoup unsupported expenditures of funds.
The Office of Air and Radiation agreed with our recommendations and is taking
actions to implement them.
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^EDSX
| \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Q
| | WASHINGTON, D.C. 20460
Vtr/
THE INSPECTOR GENERAL
March 1, 2011
MEMORANDUM
SUBJECT:
FROM:
EPA Should Improve Guidance and Oversight to Ensure Effective
Recovery Act-Funded Diesel Emissions Reduction Act Activities
Report No. ll-R-0141
Arthur A. Elkins, Jr.
Inspector General
L7
TO:
Gina McCarthy
Assistant Administrator for Air and Radiation
This is our report on the subject evaluation 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.
Final determinations on matters in this report will be made by EPA managers in accordance with
established audit resolution procedures.
The estimated direct labor and travel costs for this report are $358,741.
Action Required
In response to the draft report, the Office of Air and Radiation provided a corrective
action plan on January 14, 2011, that sufficiently addressed all recommendations. We
believe that the Office of Air and Radiation's proposed, ongoing, and completed actions
for those recommendations meet the intent of these recommendations, and we are closing
all recommendations in our tracking system upon issuance of this report. No further
response is required for those recommendations. The Office of Air and Radiation needs
to track these closed recommendations to completion in the Agency's tracking system.
We have no objections to the further release of this report to the public. This report will
be available at http://www.epa.gov/oig.
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If you or your staff have any questions regarding this report, please contact Wade Najjum,
Assistant Inspector General for Program Evaluation, at (202) 566-0832 or
naiiurn. wade@epa.gov; or Rick Beusse at (919) 541-5747 or beusse.rick@epa.gov.
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EPA Should Improve Guidance and Oversight
to Ensure Effective Recovery Act-Funded
Diesel Emissions Reduction Act Activities
11-R-0141
Table of C
Chapters
1 Introduction 1
Purpose 1
Background 1
Noteworthy Achievements 4
Scope and Methodology 4
2 Additional EPA Guidance and Oversight Needed to Ensure
Effectiveness of Diesel Emissions Reduction Act Activities 7
Oversight Needed to Ensure Grant Projects Achieve Emissions
Reductions and Are Reported Accurately 7
Guidance Needed to Ensure That Funds Are Not Used to Replace
Engines That Would Have Been Replaced Anyway 11
Methodology to Report the Number of Jobs Funded Was Reasonable 14
Other Matter 14
Conclusions 14
Recommendations 15
Agency Comments and OIG Evaluation 16
Status of Recommendations and Potential Monetary Benefits 17
Appendices
A Agency Response to Draft Report 19
B Distribution 26
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Chapter 1
Introduction
Purpose
Under the American Recovery and Reinvestment Act of 2009 (ARRA), Congress
appropriated $300 million to the U.S. Environmental Protection Agency (EPA) to
award as grants to states, local governments, and nonprofit organizations to
reduce emissions from diesel engines. We conducted this evaluation to determine
whether selected ARRA grants were effective in obtaining diesel retrofits and the
intended diesel emissions reductions. Specifically, we addressed the following
objectives:
• Were claimed project activities and emissions reductions accurate?
• Were funds used to retrofit or replace engines that would have been
scrapped or retrofitted anyway?
• Is the methodology used to report the number of jobs created/saved
reasonable?
Background
Diesel engines power a wide variety of vehicles and equipment, such as heavy-
duty trucks and buses, nonroad agricultural and industrial equipment,
locomotives, and marine vessels. Although EPA has issued a number of standards
over the past decade to control emissions from new diesel engines,1 older engines
continue to emit significant amounts of pollutants such as nitrogen oxides (NOx),
fine particulate matter (PM 2.5), and cancer-causing air toxics such as benzene.2
NOx contributes to ozone, a major component of smog and a health risk to many
Americans, and PM 2.5 has been linked to heart disease, respiratory ailments, and
premature death. In addition, EPA has concluded that diesel exhaust is a likely
human carcinogen that can cause lung cancer.
Reducing emissions from diesel engines is essential to improving air quality
across the nation. In 2008, over half of the U.S. population lived in areas that
exceeded air quality standards for ozone and/or PM 2.5, pollution problems to
which diesel engines contribute significantly. Because diesel engines have a long
useful life—often up to 20 or 30 years—millions of diesel engines built prior to
the more stringent emission standards will remain in use for years to come. EPA
estimates that engines built prior to 1990 are up to 60 times dirtier than new
engines.
1 These standards include the 2001 heavy-duty highway diesel engine rule, the 2004 nonroad diesel engine rule, the
2008 locomotive and marine diesel engine rule, and the 2009 Category 3 marine diesel engine rule.
2 Long-term exposure to high levels of benzene in the air can cause leukemia, particularly acute myelogenous
leukemia, a cancer of the bloodfonning organs. EPA has determined that benzene is carcinogenic to humans.
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In 2005, Congress passed the Energy Policy Act, of which Title VII, Subtitle G
established a program commonly referred to as the Diesel Emissions Reduction
Act (DERA) program. Under DERA, EPA provides grants and loans to states,
local governments, and nonprofit organizations, particularly in areas with poor air
quality, to reduce diesel emissions through various emissions reduction strategies.
These reduction strategies include retrofitting older engines with emission control
devices; repowering or replacing older engines with newer, cleaner engines;
reducing engine idling; and switching to cleaner alternative fuels. Congress first
appropriated funds for DERA in fiscal year (FY) 2008. In that year, EPA awarded
approximately $49 million in grants for diesel reduction programs.
DERA Grants Funded Under the Recovery Act
Congress appropriated $300 million3 for EPA to award as ARRA DERA grants
and loans in FY 2009,4 approximately 6 times the amount of DERA funding in
FY 2008. In addition to the environmental goals of DERA—to reduce diesel
emissions and improve air quality—the grants awarded with ARRA funds were
also intended to promote economic recovery and create or retain jobs. EPA was to
consider these economic factors in awarding competitive grants and fund projects
that could be undertaken quickly. Table 1 shows how EPA allocated the FY 2009
ARRA funds among four DERA programs.
Table 1: FY 2009 DERA grants funded by the Recovery Act
DERA
program
Program description
Amount
allocated
($ in millions)3
Number of
grants
awarded
National Clean
Diesel Funding
Assistance
Program
Grants awarded competitively to states,
local agencies, and nonprofit
organizations to reduce diesel emissions
through verified technologies.
$156
90
State Clean
Diesel Program
Grants allotted to states on a
noncompetitive basis to fund state diesel
emissions reduction programs.
88
51
SmartWay
Clean Diesel
Finance
Program
Grants awarded competitively to state,
local, private, and nonprofit entities to
establish innovative finance programs
that help fleets reduce diesel emissions.
30
5
National Clean
Diesel
Emerging
Technologies
Program
Grants awarded to state, local, private,
and nonprofit entities to support the
development of diesel emissions
reduction technologies.
20
14
Total
$294 a
160
Source: OIG-created table from analysis of EPA DERA information.
a The Recovery Act allows 2 percent of the total funds—or $6 million—to be used
for management and oversight of the grants.
3 Per ARRA, up to 2 percent of the $300 million may be reserved for EPA management and oversight of the grants.
4 The DERA program was also appropriated $60 million in non-ARRA funds in FY 2009.
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DERA strictly defines eligible emissions reduction solutions for the competitive
National Clean Diesel Funding Assistance Program grants. Eligible projects are
limited to the use of one or more of the following solutions:
• Retrofit technologies—including exhaust controls, engine upgrades, and
cleaner fuels use—that have been verified by EPA or the California Air
Resources Board
• Idle reduction technologies that have been verified by EPA
• Aerodynamic technologies that have been verified by EPA
• Low rolling resistance tires that have been verified by EPA
• Engine repowers, which involve replacing old engines with new engines
that are certified to meet stricter emission standards
• Replacing vehicles and equipment with newer models with engines
certified to meet stricter emission standards
EPA grants to states allow the states more leeway in what types of reduction
activities they can fund. For state grants, EPA does not require verified
technologies but encourages the states to use verified technologies and reduction
strategies to the greatest extent possible.
Grant Reporting Requirements
At the end of each quarter, grantees are required to submit quarterly reports with
information on expenditures, progress, problems, and terms and conditions met.
These reports include fleet description spreadsheets that contain details about the
grant activities completed, including the types of vehicles impacted, the type of
retrofit or replacement that occurred, and usage information such as annual miles
traveled.
Grantees are also required to submit final technical reports when their projects are
complete. The final reports include fleet spreadsheets that are identical to the
quarterly fleet sheet reports, except that they also include information about the
specific type of retrofit technology used (such as manufacturer and model), and
details about the new engines for engine repowers and replacements (such as
model and year of the new engine). EPA will use the information from the
grantees' final fleet spreadsheets as inputs into the Diesel Emissions Quantifier
(DEQ)5 to estimate final emissions reductions for all the ARRA DERA projects.
Because the Office of Transportation and Air Quality (OTAQ) will rely on the
data provided by the grantees to calculate the final DEQ emissions reductions, it
is essential that the information reported by the grantees be complete and
accurate.
5 DEQ is an EPA-developed model for estimating emissions reductions under specific retrofit scenarios, including
retrofitting, repowering, replacing, or adding devices that reduce pollution, reduce idling time, or improve mileage.
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In addition to EPA's required grants reporting, ARRA grant recipients must
submit quarterly reports to the Office of Management and Budget (OMB) through
an online reporting system. These reports include information on jobs funded by
ARRA. OMB's December 2009 revised guidance6 for reporting ARRA-funded
jobs defined jobs to be reported as "those funded in the quarter by the Recovery
Act." The guidance did not establish specific requirements for documentation or
other written proof to support reported job estimates. Instead, the guidance
required that recipients of ARRA funds be prepared to justify their estimates. The
revised guidance differed from OMB's initial guidance in that recipients of
ARRA funding are no longer required to make a subjective judgment on whether
a given job would have existed were it not for the Recovery Act. With respect to
grant agreements, which include cost-sharing requirements, OMB's revised
guidance states, "Jobs funded partially with Recovery Act funds will only be
counted based on the proportion funded by the Recovery Act."
Noteworthy Achievements
In FY 2009, OTAQ and the EPA regional offices awarded 160 ARRA DERA
grants totaling almost $300 million within a short time period, allowing all but
one grantee at least a year or more to complete their grant projects. This was
noteworthy because the amount of funding for the FY 2009 ARRA DERA grants
awards was about 6 times more than EPA awarded in FY 2008 ($49.2 million),
the first year that Congress appropriated grant funds for DERA. Awarding the
grants quickly was important because the project period for the grants ended on
September 30, 2010, and the prime grant recipients needed sufficient time to
award subgrants for designated projects. The regions awarded 85 of the 90
competitive national grants by the end of July 2009 and awarded 4 more by the
end of September 2009. The regions also awarded 50 of the 51 state and District
of Columbia grants by the end of April 2009, and the sole remaining state grant in
September 2009.
Scope and Methodology
We limited our review to National Clean Diesel Funding Assistance Program
grants and State Clean Diesel Program grants, since they accounted for the
majority of the ARRA DERA funding (88 percent of the number of grants and
83 percent of the value of the grants). As shown in table 1, EPA awarded 90
National Clean Diesel grants totaling $156 million, and 51 state grants totaling
$88 million, or $1.73 million per state. At the time we selected the grants for our
review, EPA had disbursed only about 13 percent of the total awarded grant funds
for the National Clean Diesel and State Clean Diesel grants, as reported in EPA's
Integrated Financial Management System. Thus, the majority of planned grant
6 OMB Memorandum M-10-08, Updated Guidance on the American Recovery and Reinvestment Act - Data
Quality, Non-Reporting Recipients, and Reporting of Job Estimates, December 18, 2009.
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project activities had not been completed when we began our work and could not
be verified.
To address our objectives, we reviewed activity under two grants—one national
grant and one state grant. We selected these two grants from a list of the 20 grants
with the most funds expended as of March 18, 2010. We purposefully selected
two grants that involved multiple sectors (e.g., construction, public transit,
delivery), and multiple emissions reduction activities (e.g., idle reduction
technologies, vehicle replacements, engine repowers, etc.). Using the above
criteria, we selected grants awarded to the State of New Hampshire and the
American Lung Association of the Upper Midwest for detailed review. We
reviewed completed retrofit and replacement activities for 11 subgrants awarded
by New Hampshire and 15 subgrants awarded by the American Lung Association
of the Upper Midwest. In all, we reviewed 323 completed activities7 under these
two grants. We physically verified the retrofit installation or engine/vehicle
replacement for 25 of these 323 activities.
We conducted field work at EPA OTAQ in Washington, DC; the New Hampshire
Department of Environmental Services in Concord, New Hampshire; and the
American Lung Association of the Upper Midwest headquarters in Springfield,
Illinois. We physically verified the completion of diesel emissions reduction
projects in Dover, New Hampshire; Newburyport, Massachusetts; Durham, New
Hampshire; Pembroke, New Hampshire; Manchester, New Hampshire;
Milwaukee, Wisconsin; Fort Wayne, Indiana; and Decatur, Indiana.
We interviewed staff and managers from OTAQ (Ann Arbor, Michigan, and
Washington, DC), EPA Region 1 (Boston, Massachusetts), EPA Region 5
(Chicago, Illinois), the New Hampshire Department of Environmental Services
(Concord, New Hampshire), and the American Lung Association of the Upper
Midwest (Springfield, Illinois). To verify the completion of ARRA-funded diesel
emissions reduction activities, we reviewed documentation such as invoices and
cancelled checks to support the completion of the activities as provided in the
approved work plans and/or grant agreements. For a subset of these reviewed
activities, we also conducted on-site visits to verify that activities were completed
as reported.
We obtained grant award data from EPA's Integrated Financial Management
System to determine the universe of ARRA DERA grants and to select sample
grants for review. We determined that the Integrated Financial Management
System data were sufficient for these purposes.
7 We use the term "activity" to refer to the installation of a single retrofit or emissions reduction technology, the
replacement of one vehicle, or the repower of one engine. In general, the number of activities on a given grant
equals the number of vehicles impacted under the grant. However, in some cases, one vehicle may have had more
than one activity—for example, a school bus may have had both a retrofit technology and an idle reduction
technology installed, for a total of two activities.
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We conducted our field work from February to December 2010 in accordance
with generally accepted government auditing standards. Those standards require
that we obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our evaluation objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our objectives.
Review of Management (Internal) Controls
Generally accepted government auditing standards require that auditors obtain an
understanding of internal controls significant to the audit objectives and consider
whether specific internal control procedures have been properly designed and
placed in operation. We reviewed internal controls pertaining to oversight of grant
activities and expenditures, such as EPA and ARRA quarterly reporting, DERA
grant guidance, regional grant oversight procedures, and guidance for EPA grant
project officers. We also reviewed internal controls pertaining to ARRA jobs
reporting, such as OMB 's grant reporting guidance and EPA's procedures for
reviewing jobs numbers reported by grantees. In addition, we reviewed
compliance with applicable laws, including the DERA and ARRA statutes. Our
findings pertaining to specific internal and management controls are discussed in
chapter 2 of this report.
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Chapter 2
Additional EPA Guidance and Oversight
Needed to Ensure Effectiveness of
Diesel Emissions Reduction Act Activities
Documentation of grant activities was not always sufficient to demonstrate that
funded work met the specific requirements needed to achieve the desired
emissions reductions. This occurred in part because grantees were not required to
obtain verification that completed work met specific EPA emission standards.
Further, ARRA DERA grant funds were used to replace vehicles that would have
been replaced anyway due to normal attrition. The prime grantee project officer
chose to fund these projects over other projects because these projects could be
implemented quickly. As a result, over $203,0008 in potentially ineligible costs
were incurred. EPA does not have reasonable assurance that engine replacement
projects will achieve their estimated emissions reductions. Additional EPA
guidance and oversight is needed to assure these completed activities achieve the
planned emissions reductions and that the activities are reported accurately.
Further, additional guidance is needed to clarify when replacements are
considered normal attrition and not eligible for DERA funding.
Oversight Needed to Ensure Grant Projects Achieve Emissions
Reductions and Are Reported Accurately
Although grantees' documentation supports that work by vendors or subgrantees
was completed before grantees reimbursed them, this documentation was not
always sufficient to demonstrate that the work met the specific technical
requirements to achieve the desired emissions reductions. Further, quarterly
reports contained errors that should be corrected so that EPA can accurately
estimate the projected emissions reductions from the projects. Specific problems
we noted include the following:
• Documentation on new engine certification levels was unclear,
inconsistent, or insufficient.
• Emissions reductions for vehicle replacement projects may be
overestimated.
• Two subgrantees installed retrofit technology that was unverified at the
time the work was completed.
• Quarterly reports contained errors that may lead to inaccurate emissions
reduction projections.
8 All dollar amounts presented in this report have been rounded to the nearest whole dollar.
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• One grant agreement had not been revised to account for a reduction in
planned retrofit activities.
EPA could ensure more accurate emissions reductions reporting if it took steps to
ensure that its grant oversight identifies and resolves these types of problems
before the ARRA DERA grants are closed and final emissions reductions are
calculated. In some cases, additional guidance is needed to clarify how grantees
should address these situations.
Documentation on New Engine Certification Levels Was Unclear,
Inconsistent, or Insufficient
For two engine replacement projects involving 13 completed engine replacements
at a cost of $343,753, supporting documentation was unclear, inconsistent, or
lacked a description of the emissions certification level of the new engines. EPA
needs this information to assure that the projects will result in emissions
reductions and as input into the DEQ to estimate the projects' emissions
reductions. The insufficient documentation about the certification years of these
new engines had not been identified by EPA monitoring or oversight. We
question whether EPA can identify the correct emissions certification level
through its final grant reporting process without the implementation of specific
procedures to verify engine certification levels. Given the technical nature of
these engine replacement projects and their higher cost compared with other
emissions reductions projects, we believe these projects warrant additional
oversight from EPA to ensure that they achieve their planned emissions
reductions. The two engine replacement projects are described below:
Subgrant to Replace Bus Engines
The national grant recipient awarded a $502,000 subgrant for a project
involving the replacement of older 1990s engines on 20 urban buses with
newer, cleaner engines. However, supporting documentation for 11 completed
replacements costing $276,375 was confusing and insufficient to determine
the certification level (year) of the new engines. EPA needs the engine
certification year as input into the DEQ to estimate emissions reductions.
Because of our inquiries, the subgrantee used diagnostic equipment to scan the
new engine computers and provided OTAQ with information such as serial
and model numbers from the scans. Using this information, an OTAQ
engineer determined that the certification year of the new engines was actually
more recent (2006) than the certification year shown in the vendor's invoices
(2002). Therefore, the project should obtain more NOx reductions than
originally expected.
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However, our review also found that these 11 completed engine replacements
did not include new diesel oxidation catalysts (DOCs).9 A Region 5 technical
contact confirmed that the installation did not include new DOCs. Further,
both the OTAQ engineer and the technical contact said that unless the vendor
installed new DOCs, the new engines would not achieve the certification
configuration required to meet either 2006 or 2002 emissions standards.
Without new DOCs, the buses likely will not achieve the 2 tons of particulate
matter emissions reductions planned.
The 11 replacement engines were completed as of March 31, 2010. The
invoices for these 11 replacements stated that the new engines were certified
to meet the emission standards in place in 2002. Vendor representatives and
prime grant recipient grant managers also stated that they believed the new
engines were 2002 certified. However, during a site visit at the vendor's
garage, we observed a sticker on one of the new replacement engines that
stated that the engine was certified to 2006 emission standards. This is
significant because EPA's emission standards changed in 2004, and a 2006-
certified engine would have lower emissions than a 2002-certified engine. The
vendor provided us with conflicting information about what certification level
the engines actually met, at first providing us with certification information
for 2002-certified engines and later providing us with certification information
for 2006-certified engines. After we presented our concerns about this
subgrant to Region 5 grant technical contacts, one of the region's technical
contacts visited this subgrantee in August 2010 to verify the new engine
replacements. The EPA technical contact confirmed that the vendor did not
install new DOCs. The existing DOCs were approximately 10 years old or
older, and according to an OTAQ engineer, need to be replaced for the new
engines to meet either the 2002 or 2006 engine certification configurations.
We estimate the cost of installing new DOCs on the 11 completed buses we
reviewed to be about $11,550 (11 @ $1,050 per DOC).
Subgrant to Replace Construction Equipment Engines
For one of the state awarded subgrants totaling $260,000 to replace engines on
six pieces of heavy construction equipment, the invoices did not show whether
the vendor conducted the work as planned for two of the replacements
completed at the time we conducted our review. The agreement between the
prime grantee and the subgrantee required the replacement of old engines with
new engines that met Tier l10 emissions standards. However, the invoice was
contradictory, stating that the new engines were both Tier 1 and Tier 2
engines. Representatives for the invoicing company told us that some
statements in the invoice were incorrect but that they had installed new Tier 1
9 Diesel oxidation catalysts are intended primarily to reduce particulate matter emissions, but also to reduce carbon
monoxide and hydrocarbons. They do not have a significant impact on NOx emissions.
10 EPA established emissions standards for heavy-duty construction equipment in incremental levels or tiers. Tier 1
refers to the first level of emissions standards, and Tier 2 is the second, more stringent level of emissions standards.
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engines. We requested a corrected invoice that showed the certification levels
for the two invoiced engines that we reviewed. We were not provided with a
corrected invoice; instead, we were provided with four "Engine Emissions
Data" documents that showed the certification level (Tier 1) for four engines.
However, we were unable to match the serial numbers on the "Engine
Emissions Data" documents to the serial numbers listed for the new engines in
the invoice's supporting data. The cost of these two engine replacements was
$67,378.
Emissions Reductions on Vehicle Replacement Projects May
Potentially Be Overestimated
For six vehicle replacements totaling $268,000 in DERA funds, the model year of
the engines in new vehicles was not the same as the vehicle model year. This
difference in years could potentially result in an overestimation of emissions
reductions for these projects if not reported correctly. The model year of the
engines was not evident from the invoices for these vehicles, and was only
discovered after we visited one of the subgrantees and discussed the project with
company officials. Specifically, older vehicles were replaced with model year
2010 vehicles; however, the vehicles had engines that were certified to meet the
emission standards in place for 2007 (i.e., 2007 model year engines), not the
stricter emission standards in place for 2010 engines.
The DEQ User's Guide states that when entering new vehicle information into the
DEQ, the engine model year—not the vehicle model year—should be entered in
the "model year" field. EPA's final fleet sheet reporting template, which EPA
plans to use to input information into the DEQ for final project emissions
reduction estimates, contains a field "Technology Model Year" under the inputs
for the "New Vehicle/Technology Information" table. EPA's instructions for the
final report state that the new model year should be reported for replacements and
repowers, but does not specify that it is the engine year—not the vehicle year—
that should be reported.
For vehicle replacement projects, we believe "Technology Model Year" could be
misinterpreted to mean the vehicle model year, and not the engine model year on
vehicle replacement projects. If the final fleet sheets submitted to EPA do not
indicate the correct model year of the engines, the emissions reductions for these
types of projects could be overstated.
Two Subgrantees Installed Unverified Technology
Fifteen retrofit activities we reviewed involved the installation of retrofit
technology that EPA had not verified for the specific model years of the vehicles
at the time the project was approved. At the time the installations were completed,
EPA had not verified any of the vendor's DOCs for school bus model years 2004
to 2006. Subsequent to the installation of these DOCs, EPA verified one specific
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manufacturer's technology for model years 2004 to 2006. Information we
gathered indicates that this technology is used by the vendor who conducted the
work. As of October 2010, EPA had not determined whether these 15 DOCs
costing $15,900 used the subsequently verified technologies. Even if these
technologies turn out be approved technologies, the approval of these projects
represented a breakdown in the oversight process.
Quarterly Reporting Errors May Lead to Inaccurate Emissions
Reduction Projections
Grantee reporting on completed activities contained numerous errors that could
affect the reliability of EPA's final emissions reductions estimates for the ARRA
DERA program. For example, the national grantee reported annual miles traveled
and annual idling hours as sums in its quarterly reports, rather than as averages.
According to EPA guidance, these data elements should be reported as averages,
not fleet totals. To the extent that the calculations in the DEQ are based on these
variables, the resulting DEQ emissions reduction projections may be inaccurate.
Other reporting errors in the quarterly reports included designating the wrong
retrofit technology and citing the incorrect year that the retrofit occurred.
Grant Agreement Not Revised to Account for Reduction in Planned
Activity
One of the subgrantees on the national grant we reviewed decided to install only
21 of the 25 direct-fired heaters11 originally specified in its grant agreement.
Neither the national grant recipient nor EPA identified this situation through
monitoring or oversight. The national grant recipient made its final payment to the
installation vendor on January 14, 2010. The grant recipient's quarterly report to
EPA for the period ending March 31, 2010, indicated there were no problems in
completing planned projects. In addition, EPA Region 5's progress report review,
dated February 3, 2010, contained the words "none identified" in response to the
review question, "Please identify any commitments in the work plan . . . not
addressed in the report or reported as not accomplished." If EPA's desk review
had included a review of the vendor's invoice, EPA could have determined that
the vendor installed only 21 direct-fired heaters. Such a review would allow EPA
to put the funds to better use by preparing a grant amendment to make the $7,200
in unused funds ($1,800 per heater for a total of $7,200) available for other diesel
retrofit projects under this grant.
Guidance Needed to Ensure That Funds Are Not Used to Replace
Engines That Would Have Been Replaced Anyway
EPA guidance specifically defines early replacement for its national competitive
grants, but the Agency should improve its state grant guidance to ensure that
11 Direct-fired heaters reduce diesel emissions by reducing engine idling.
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DERA funds are not used to replace engines that would have been replaced
anyway. We found that two subgrantees in New Hampshire were reimbursed
approximately $108,425 in ARRA DERA funds to replace three vehicles—one
grader and two dump trucks—even though information indicated that the
subgrantees would have replaced the vehicles through normal attrition.
All grant agreements between EPA and the states include programmatic condition
9(d) regarding early replacement of vehicles or engines. Programmatic condition
9(d) states:
Early replacement: Funds may be used for the early replacement of
vehicles, engines and/or equipment. Emissions reductions that
result from vehicle, engine or equipment replacements that
would have occurred through normal attrition are considered
to be the result of normal fleet turnover and not eligible costs
under this assistance agreement [emphasis added]. The
recipient must provide evidence that the replacement activity
would not have occurred without the financial assistance provided
by EPA. Supporting evidence can include verification that the
vehicles or equipment being replaced have useful life left and fleet
characterization showing fleet age ranges and average turnover
rates.
While the above condition states that the replacement of vehicles that would have
occurred through normal attrition is an ineligible cost, the grant agreements
between EPA and the states contain no further definitions of "early replacement"
or "normal attrition." EPA has not issued any additional guidance to define
normal attrition.
In contrast, EPA has specifically defined requirements for early replacement
under the national competitive grants. For example, EPA's request for proposal
for national grants provides specific examples of when a vehicle would be
considered as early replacement or normal attrition and thus ineligible for DERA
funding. Further, EPA's guidance for the national grants states that a vehicle
scheduled for replacement during the project period (i.e., before October 1, 2010)
is not considered an early replacement, and thus not eligible for funding under
DERA. We believe the grant agreements between EPA and the states should be
more specific regarding early replacement and normal attrition to address the
situations described below and to clearly establish the ability of EPA project
officers to determine whether costs are ineligible.
Subgrant to Replace Motor Grader
One New Hampshire town received a subgrant on August 19, 2009, from the state
to replace a motor grader, even though the town indicated it had plans to replace
the vehicle. The town was reimbursed $58,200 in ARRA funds, which was
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25 percent of the cost of the grader. The town's capital improvement plan for
2007-2016 recommended replacing the motor grader in 2010. Instead, the grader
was replaced in late August 2009 under the state's ARRA DERA grant. Further,
according to the town's project proposal form, the motor grader had begun
leaking oil and was having emissions problems, and that refurbishment of the
machine would not bring the motor grader up to current emissions standards.
Subgrant to Replace Two Dump Trucks
On November 18, 2009, another New Hampshire city received a subgrant from
the state to replace two dump trucks that the subgrantee had scheduled for
replacement. In March 2010, the city was reimbursed $50,225 (25 percent of the
total replacement cost) with ARRA DERA funds. According to the city's capital
improvement plan, the trucks were scheduled to be replaced in the city's fiscal
year 2010, which ran from July 1, 2009, to June 30, 2010. The city's fleet
manager confirmed to us that the city planned to replace the trucks. Further, the
fleet manager told us that because of the deteriorating condition of one of its
dump trucks, the city was using that dump truck only for emergency snow
removal during the winter.
The New Hampshire grant project officer was aware of the plans for replacing
these three vehicles but told us that the state was looking for projects that were
ready to begin and could be implemented quickly, as opposed to choosing
potential projects whose completions were less certain. EPA managers told us that
they considered these disbursements eligible costs under the program and cited
the DERA statute as giving states latitude on what DERA projects they fund.
Specifically, DERA states that:
... a State shall use any funds provided under this section to
develop and implement such grant and low-cost revolving loan
programs in the State as are appropriate to meet State needs and
goals relating to the reduction of diesel emissions.
We acknowledge that the lack of specificity in the state grant programmatic
conditions established by EPA to implement DERA makes it difficult to determine
whether costs were ineligible. However, given the condition of the replaced
equipment and both entities' documented plans to replace these vehicles, we do not
believe these replacements ($58,200 for 25 percent of the cost of the grader and
$50,225 for 25 percent of the replacement cost for the two dump trucks) met the
intent of the DERA program. EPA should more clearly define its programmatic
conditions for early replacements under state grants.
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Methodology to Report the Number of Jobs Funded Was
Reasonable
In general, the job reporting methodology used by the two grantees we reviewed
appeared reasonable.12 Both grantees obtained information from each of their
subgrantees and vendors concerning the jobs that were funded by the ARRA
grants. This information provided sufficient support for the hours that were
included in these grantees' jobs computations and met OMB requirements.
However, one grantee reported ARRA-funded full-time equivalents (FTEs) to
EPA without adjusting FTEs for subgrantee cost sharing, resulting in a slight
overstatement of ARRA-funded work hours. This oversight had a minimal impact
on the total FTEs reported for this grant, since some subgrantees were public
school systems that did not have a cost-share requirement, and the cost-share
requirement for other subgrantees did not exceed 30 percent of the project cost.
EPA could improve the accuracy of its ARRA jobs reporting by instructing its
project officers to ensure that grantees review and adjust their reported job totals
by any applicable cost-share percentages.
Other Matter
One of the grantees overpaid a vendor a total of $609 for 21 timers for direct-fired
heaters that were installed on school buses. According to the grant agreement
between the prime grant recipient and the subgrantee, the cost of the timers was
not to exceed $440. However, the vendor charged $469 for the installation of each
timer. We informed the grantee of the overcharge. As a result, the grantee
contacted the vendor and received a $609 credit for the overpayment. The grantee
plans to use this credit to pay for other work to achieve diesel emissions
reductions conducted by this vendor under the grant.
Conclusions
The results of our review of completed and reimbursed activities on two grants
indicated that EPA should improve its oversight and issue additional guidance to
ensure that grant activities are effective in achieving the anticipated emissions
reductions for those projects. For example, DERA grant project officers should
perform additional oversight of engine replacement projects to verify the emission
certification levels of the new engines. Further, oversight is needed to ensure that
grantee reports are accurate and provide the information needed to correctly
12 We noted that one grantee used different weekly hour totals to define an FTE for the same type of work. OMB
guidance allows grantees to base an FTE on the number of hours representing "a full work schedule for the kind of
job being estimated." While the total hours used to define the work week were not materially different for these
vendors, the possibility exists for vendors to use significantly different weekly hour totals in defining an FTE for the
same position. If a significant number of vendors defined the work week as substantially below 40 hours, we believe
the reported number of FTEs funded could be misleading to recipients of the information if they assumed that
reported hours were based on a traditional 40-hour work week.
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estimate emissions reductions. Also, guidance is needed for state grants to clarify
when vehicle replacements are considered normal attrition and therefore not
eligible for DERA funding.
Recommendations
We recommend that the Assistant Administrator for Air and Radiation require the
Director, Office of Transportation and Air Quality, to:
1. Before allowing EPA project officers to close out the ARRA DERA
grants, provide DERA grant project officers notice of the reporting errors
and oversight problems we identified, including:
a. unclear, inconsistent, and insufficient documentation for engine
certification levels;
b. engine vehicle year reported instead of engine model year;
c. ineligible retrofits due to technology not being verified;
d. numerous errors in quarterly progress reports; and
e. the need to timely review project activities and, when some
planned retrofits technologies are not performed, put the funds to
better use by preparing a grant amendment.
2. Before allowing EPA project officers to close out the ARRA DERA
grants, develop and issue EPA monitoring and oversight guidance or
procedures for the grant project officers to provide reasonable assurance
that:
a. grantees' quarterly and final reports accurately identify the work
completed on projects,
b. the emissions certification level of new engines in engine repower
and engine/vehicle replacement projects is verified and accurately
reported, and
c. ARRA job totals on cost-sharing projects are reduced by the
percentage of subgrantee cost sharing.
3. Before allowing EPA project officers to close out the ARRA DERA
grants, require DERA grant project officers to verify the installation of
new DOCs that meet the certified engine configuration for new engines or
recoup $11,550 for the estimated cost of installing the DOCs from the
total project cost for the 11 completed urban bus repowers in our review.
4. Before allowing EPA project officers to close out the ARRA DERA
grants, require DERA grant project officers to verify that Tier 1 engines
were installed for the two construction equipment repowers in our review
or recoup the $67,378 in grant funds for these two unsupported engine
replacements.
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5. Before allowing EPA project officers to close out the ARRA DERA
grants, require DERA grant project officers to verify that the 15 DOCs
installed in buses under two subgrants awarded under the national grant
are now verified technologies or recoup the $15,900 in grant funds for the
DOC retrofits of 15 buses where the grantee installed unverified
technology.
6. Before allowing EPA project officers to close out the ARRA DERA
grants, require DERA grant project officers to verify that the grader and
two dump trucks identified in the capital improvement plans were eligible
for DERA funding or recoup $58,200 for the grader and $50,225 for the
two trucks.
7. Revise programmatic condition 9(d) for future state grant awards to clarify
the definition of early replacement for state grants or otherwise provide
guidance to state grant recipients to more clearly define eligible and
ineligible costs for early replacements of engines.
8. Require DERA grant and subgrant agreements to specify the emissions
certification level or year of new engines to be installed as part of vehicle
replacement and engine repower projects.
Agency Comments and OIG Evaluation
The Office of Air and Radiation (OAR) agreed with our findings and conclusions,
and has agreed to implement all of the report's recommendations. In its
January 14, 2011, response to the draft report, OAR detailed corrective actions it
has ongoing and planned, as well as actions it has already taken, to address each
of the recommendations. We commend OAR for beginning to implement the
report recommendations in such a timely manner. Based on OAR's written
response, as well as supplemental supporting documentation provided by OAR
staff, we are closing all recommendations upon issuance of this report. OAR's
complete written response, including its proposed action plan, is in appendix A.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Claimed
Amount
Agreed-To
Amount
1 15 Require the Director, Office of Transportation and C Assistant Administrator
Air Quality, to, before allowing EPA project officers for Air and Radiation
to close out the ARRA DERA grants, provide
DERA grant project officers notice of the reporting
errors and oversight problems we identified,
including:
a. unclear, inconsistent, and insufficient
documentation for engine certification levels;
b. engine vehicle year reported instead of
engine model year;
c. ineligible retrofits due to technology not
being verified;
d. numerous errors in quarterly progress
reports; and
e. the need to timely review project activities
and, when some planned retrofits
technologies are not performed, put the
funds to better use by preparing a grant
amendment.
2 15 Require the Director, Office of Transportation and C Assistant Administrator
Air Quality, to, before allowing EPA project officers for Air and Radiation
to close out the ARRA DERA grants, develop and
issue EPA monitoring and oversight guidance or
procedures for the grant project officers to provide
reasonable assurance that:
a. grantees' quarterly and final reports
accurately identify the work completed on
projects,
b. the emissions certification level of new
engines in engine repowerand
engine/vehicle replacement projects is
verified and accurately reported, and
c. ARRA job totals on cost-sharing projects are
reduced by the percentage of subgrantee
cost sharing.
3 15 Require the Director, Office of Transportation and C Assistant Administrator
Air Quality, to, before allowing EPA project officers for Air and Radiation
to close out the ARRA DERA grants, require DERA
grant project officers to verify the installation of new
DOCs that meet the certified engine configuration
for new engines or recoup $11,550 for the
estimated cost of installing the DOCs from the total
project cost for the 11 completed urban bus
repowers in our review.
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RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Planned
Completion
Action Official Date
Claimed
Amount
Agreed-To
Amount
15 Require the Director, Office of Transportation and
Air Quality, to, before allowing EPA project officers
to close out the ARRA DERA grants, require DERA
grant project officers to verify that Tier 1 engines
were installed for the two construction equipment
repowers in our review or recoup the $67,378 in
grant funds for these two unsupported engine
replacements.
Assistant Administrator
for Air and Radiation
16 Require the Director, Office of Transportation and
Air Quality, to, before allowing EPA project officers
to close out the ARRA DERA grants, require DERA
grant project officers to verify that the 15 DOCs
installed in buses under two subgrants awarded
under the national grant are now verified
technologies or recoup the $15,900 in grant funds
for the DOC retrofits of 15 buses where the grantee
installed unverified technology.
Assistant Administrator
for Air and Radiation
16 Require the Director, Office of Transportation and
Air Quality, to, before allowing EPA project officers
to close out the ARRA DERA grants, require DERA
grant project officers to verify that the grader and
two dump trucks identified in the capital
improvement plans were eligible for DERA funding
or recoup $58,200 for the grader and $50,225 for
the two trucks.
Assistant Administrator
for Air and Radiation
16 Require the Director, Office of Transportation and
Air Quality, to, revise programmatic condition 9(d)
for future state grant awards to clarify the definition
of early replacement for state grants or otherwise
provide guidance to state grant recipients to more
clearly define eligible and ineligible costs for early
replacements of engines.
Assistant Administrator
for Air and Radiation
16 Require the Director, Office of Transportation and
Air Quality, to, require DERA grant and subgrant
agreements to specify the emissions certification
level or year of new engines to be installed as part
of vehicle replacement and engine repower
projects.
Assistant Administrator
for Air and Radiation
O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
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Appendix A
Agency Response to Draft Report
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„ 't\m?. enviRiHHcHmi prcttx chon agency
' W..-TO, r-'K IT -J.W
JAN 14 2011
MEMORANDUM
SUBJECT: Office of Air and Radiation's (OAR) Response to OIG Draft Report EPA Should
Improve Guidance and Oversight to Ensure Effective Recovery Act-Funded
Diesel Emissions Reduction Act Activities, Proj ect No. 2010-1177
FROM: Gina McCarthy
Assistant Administrator
TO: Wade Najjum, Assistant Inspector General for Program Evaluations
Thank you for the opportunity to comment on the Office of Inspector General (OIG) draft
report, EPA Should Improve Guidance and Oversight to Ensure Effective Recovery Act-Funded
Diesel Emissions Reduction Act (DERA) Activities, Project No. 2010-1177, dated December 14,
2010, which focused on grant activities under DERA's Recovery Act program. The
recommendations provided in the draft report will help OAR continue to improve its oversight
and guidance for DERA grant activities.
OAR appreciates the effort by the OIG to thoroughly understand the complexity of clean
diesel projects, including the technologies, engines and devices used to lower exhaust from
diesel vehicles, vessels and equipment, and to identify several areas for improvements in
guidance and oversight. OAR and the Regions have already begun to work diligently to
implement the recommendations in this report. Specifically there are several recommendations
involving subgrants which we believe have now been resolved. Corresponding materials
provided by the grantees to the Regions will be forwarded to the OIG under separate cover. In
addition, we have made progress on the other more general recommendations for enhanced
reporting. A summary of the recommendations, their associated actions and projected
completion dates is attached at the end of this document. Please see the specific
recommendations below and their updates.
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1. Before allowing EPA project officers to close out the American Recovery and
Reinvestment Act (ARRA) DERA grants, provide DERA grant project officers notice
of the reporting errors and oversight problems we identified, including:
a. unclear, inconsistent, and insufficient documentation for engine certification levels;
b. engine vehicle year reported instead of engine model year;
c. ineligible retrofits due to technology not being verified;
d. numerous errors in quarterly progress reports; and
e. the need to timely review project activities and, when some planned retrofits
technologies are not performed, put the funds to better use by preparing a grant
amendment.
EPA Response: OAR and the Regions have addressed this recommendation and have
taken action to improve its reporting and oversight. Specifically:
- Project Officers have been provided notice of the reporting errors and inconsistencies
noted above.
In addition:
- A technical information guidance document is being developed for EPA Project
Officers and Grantees which details how to ascertain engine certification levels using
PM/NOx certification levels for both on-highway and nonroad engines.
- Quarterly and final reporting templates are being revised to clarify needed information,
such as emissions levels, technology type/make/model/year and other datapoints,
including:
- the emissions levels for the four criteria pollutants (PM, NOx, CO and HC, as well
as C02), so that grantees will have to report that information;
- the headings for "engine model year" and "year of retrofit activity" and their
definitions so that correct costs/benefits can be calculated.
2. Before allowing EPA project officers to close out the ARRA DERA grants, develop
and issue EPA monitoring and oversight guidance or procedures for the grant project
officers to provide reasonable assurance that:
a. grantees' quarterly and final reports accurately identify the work completed on
projects,
b. the emissions certification level of new engines in engine repower and
engine/vehicle replacement projects is verified and accurately reported, and
c. ARRA job totals on cost-sharing projects are reduced by the percentage of
subgrantee cost sharing.
EPA Response: OAR agrees with this recommendation and has taken action to improve its
reporting and oversight. Specifically:
- Quarterly and final reporting templates are being revised to clarify needed information,
including a new seven-page narrative outline for final reports.
- A technical information guidance document is being developed for EPA Project Officers
and Grantees which details how to ascertain engine certification levels using PM/NOx
certification levels for both on-highway and nonroad engines
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- Project Officers will be retrained on job calculation involving cost-sharing projects.
- OAR has held three training sessions for EPA DERA programmatic staff and project
officers on the IG findings on repowers, exhaust control technologies and idling
reduction technologies. The first was an in-person training held on October 22, 2010 in
Washington, D.C. with approximately 40 staff and managers attending; one was a
webinar for EPA Project Officers on December 14, 2010; and the final webinar for
Project Officers and grant reviewers was on January 12, 2011.
3. Before allowing EPA project officers to close out the ARRA DERA grants, require
DERA grant project officers to verify the installation of new DOCs that meet the
certified engine configuration for new engines or recoup $11,550 for the estimated cost
of installing the DOCs from the total project cost for the 11 completed urban bus
repowers in our review.
EPA Response: EPA staff in Region 5 worked with the grantee, the fleet, and the vendor to
install diesel oxidation catalysts to bring the buses to the 2006 certified engine
configuration. Once the installations were complete, the vendor provided the grantee with
an invoice and letter confirming the installations at their cost. It is not necessary to recoup
any funds.
4. Before allowing EPA project officers to close out the ARRA DERA grants, require
DERA grant project officers to verify that Tier 1 engines were installed for the two
construction equipment repowers in our review or recoup the $67,378 in grant funds for
these two unsupported engine replacements.
EPA Response: EPA staff in Region 1 followed up with the grantee, and asked that they
obtain updated, clarified invoices that clearly indicate the serial numbers of the newly
installed engines, and that on the invoice, identify the engines as meeting the Tier 1 level of
emissions reduction. The grantee has indicated that the vendor is not able to provide
updated invoices, as that will cause a problem with their computer billing system.
However, the vendor was able to send record maintenance notes where the serial number of
the engine and the vehicle are both listed. After further follow up by Region 1, the grantee
obtained a letter, dated December 23, 2010, from the engine manufacturer. The letter
clearly describes each engine, with serial number, that was installed on each vehicle, with
vehicle serial number, and further indicates that the engines were certified as Tier 1.
Follow-up actions are completed. Region I has reviewed the three documents referenced
above and has determined that they demonstrate that Tier I engines were installed and
therefore, it is not necessary to recoup any funds.
5. Before allowing EPA project officers to close out the ARRA DERA grants, require
DERA grant project officers to verify that the 15 DOCs installed in buses under two
subgrants awarded under the national grant are now verified technologies or recoup the
$15,900 in grant funds for the DOC retrofits of 15 buses where the grantee installed
unverified technology.
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EPA Response: After reviewing and verifying completed work and associated
documentation with the vendor and fleet, Region 5 determined that only three of the 15
diesel oxidation catalysts installed were not verified for the engine model years of those
buses (the other 12 were actually fuel-operated heaters or verified catalysts). These diesel
oxidation catalysts have been subsequently verified by EPA for installation for the engine
model year in question (2004), therefore it is not necessary to recoup any funds.
6. Before allowing EPA project officers to close out the ARRA DERA grants, require
DERA grant project officers to verify that the grader and two dump trucks identified in the
capital improvement plans were eligible for DERA funding, or recoup $58,200 for the
grader and $50,225 for the two trucks.
EPA Response: The OIG draft report on page 13 refers to the $58,200 in ARRA funds that
was spent on a grader (25% of the grader cost), as well as $50,225 for two dump trucks (25
percent of the total replacement cost). The OIG states that the cities' capital plans
indicated these vehicles were scheduled for replacement, and that the vehicles were in
deteriorating condition.
EPA staff in Region 1 requested documentation/information from the grantee indicating
how the grantee established/evaluated eligibility for replacement vehicles for the two sub-
grants, as well as how the determination process worked. Region 1 also asked for a
clarification of the context in which the cities' capital plans were discussed, and current
status.
The grantee has indicated that they will comply with this request. Region 1 will evaluate
this additional information once it has been submitted. However, the preliminary
determination by Region 1 is that it is not necessary to recoup funds, as the grantee has met
the terms and conditions of the grant. The grantee complied with the overarching goal of
the Recovery Act, which was to create jobs and get funds into the economy as quickly as
possible, and the goals of DERA to reduce diesel emissions. The grantee conducted its
own competition to find projects that were "shovel ready," which was conducted openly
and with transparency.
As determined by the OIG's own investigation, the grantee
"... was looking for projects that were ready to begin and could be
implemented quickly, as opposed to choosing potential projects whose completions
were less certain. EPA managers told [the OIG] that they considered these
disbursements eligible costs under the program and cited the DERA statute as giving
states latitude on what DERA projects they fund. Specifically, DERA states that, '... a
State shall use any funds provided under this section to develop and implement such
grant and low-cost revolving loan programs in the State as are appropriate to meet
State needs and goals relating to the reduction of diesel emissions...' We [OIG]
acknowledge that the lack of specificity in the state grant programmatic conditions
established by EPA to implement DERA makes it difficult to determine whether costs
were ineligible."
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In addition, the OIG determined in their report, .neither the grant conditions nor EPA
guidance explain how to determine normal attrition." The recommendation to make the
eligibility/attrition requirements clearer for all grants is addressed in Recommendation #7.
However, in the meantime, the grantee used a reasonable approach to meet the express
purpose of other, more urgent, ARRA requirements, especially given they were working
with imprecise guidance and an established system of flexibility for states. Moreover,
although the vehicles were potentially scheduled for replacement, given the economic
drivers of the ARRA program, the cities may not have been able to follow through on that
plan, and therefore may have not been able to make the replacements without EPA
assistance, which is one of the accepted parameters of making an eligibility decision.
Region 1 has asked the grantee for further clarification on this point; documentation will be
forwarded to the OIG when it is received from the grantee.
7. Revise programmatic condition 9(d) for future state grant awards to clarify the
definition of early replacement for state grants or otherwise provide guidance to state
grant recipients to more clearly define eligible and ineligible costs for early
replacements of engines.
EPA response: The program will provide guidance as the State Clean Diesel Program
grants are amended for Fiscal Year 2011 to clarify the definition of "early replacement."
8. Require DERA grant and subgrant agreements to specify the emissions certification
level or year of new engines to be installed as part of vehicle replacement and engine
repower projects.
EPA Response: EPA will require this information for all applications before awards
are made, in order to assure that there will be a project environmental benefit. Terms
and Conditions for all new grants for repower and replacement projects will be
revised to specifically require this information in their reporting. In addition,
Quarterly and Final Report templates are being revised to include this information
and it will be required before grant close-outs. Finally, all regional and headquarters
grant reviewers for the 2011 competition were trained on this issue at a webinar on
January 12, 2011.
A summary table of OAR's corrective actions and associated projected completion dates
is attached. Copies of responses from Region 1 and Region 5 are included as separate
attachments. If you have any questions, please contact me or staff member Jennifer Keller (202-
343-9541).
Attachments
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Corrective Actions and Projected Completion Dates
Rec.
No.
Page
No.
Subject
Lead
Responsibility
OAR Corrective Action
Planned Completion
Date
15 Require the Director, Office of Transportation and Assistant
Air Quality, to, before allowing EPA project officers Administrator
to close out the ARRA DERA grants, provide for Air and
DERA grant project officers notice of the reporting Radiation
errors and oversight problems we identified,
including:
a. unclear, inconsistent, and insufficient
documentation for engine certification levels;
b. engine vehicle year reported instead of
engine model year;
c. ineligible retrofits due to technology not
being verified;
d. numerous errors in quarterly progress
reports; and
e. the need to timely review project activities
and, when some planned retrofits
technologies are not performed, put the
funds to better use by preparing a grant
amendment.
15 Require the Director, Office of Transportation and Assistant
Air Quality, to, before allowing EPA project officers Administrator
to close out the ARRA DERA grants, develop and for Air and
issue EPA monitoring and oversight guidance or Radiation
procedures for the grant project officers to provide
reasonable assurance that:
a. grantees' quarterly and final reports
accurately identify the work completed on
projects,
b. the emissions certification level of new
engines in engine repower and
engine/vehicle replacement projects is
verified and accurately reported, and
c. ARRA job totals on cost-sharing projects are
reduced by the percentage of subgrantee
cost sharing.
15 Require the Director, Office of Transportation and Assistant
Air Quality, to, before allowing EPA project officers Administrator
to close out the ARRA DERA grants, require DERA for Air and
grant project officers to verify the installation of new Radiation
DOCs that meet the certified engine configuration
for new engines or recoup $11,550 for the
estimated cost of installing the DOCs from the total
project cost for the 11 completed urban bus
repowers in our review.
16 Require the Director, Office of Transportation and Assistant
Air Quality, to, before allowing EPA project officers Administrator
to close out the ARRA DERA grants, require DERA for Air and
grant project officers to verify that Tier 1 engines Radiation
were installed for the two construction equipment
repowers in our review or recoup the $67,378 in
grant funds for these two unsupported engine
replacements.
OAR will develop guidance and procedures for documenting
engine certification levels, and revise templates for clearer and
more accurate reporting. OAR will train all EPA DERA ARRA
Project Officers and technical staff at HQ and in the Regions on
technologies (verification, certification levels, etc.).
April, 2011
OAR will revise quarterly and final reporting templates so that
grantees can more accurately report completed work and
emissions certification levels for new engines. OAR will re-train all
EPA DERA ARRA Project Officers on correct job calculation.
April, 2011
OAR believes that this issue is closed, as the correct DOCs have
now been installed on all 11 urban buses at the vendor's expense.
OAR believes that this issue is closed, as the vendor has now
verified that the engines in question were in fact Tier 1 engines.
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16 Require the Director, Office of Transportation and Assistant
Air Quality, to, before allowing EPA project officers Administrator
to close out the ARRA DERA grants, require DERA for Air and
grant project officers to verify that the 15 DOCs Radiation
installed in buses under two subgrants awarded
under the national grant are now verified
technologies or recoup the $15,900 in grant funds
for the DOC retrofits of 15 buses where the grantee
installed unverified technology.
16 Require the Director, Office of Transportation and Assistant
Air Quality, to, before allowing EPA project officers Administrator
to close out the ARRA DERA grants, require DERA for Air and
grant project officers to verify that the grader and Radiation
two dump trucks identified in the capital
improvement plans were eligible for DERA funding
or recoup $58,200 for the grader and $50,225 for
the two trucks.
16 Require the Director, Office of Transportation and Assistant
Air Quality, to, revise programmatic condition 9(d) Administrator
for future state grant awards to clarify the definition for Air and
of early replacement for state grants or otherwise Radiation
provide guidance to state grant recipients to more
clearly define eligible and ineligible costs for early
replacements of engines.
16 Require the Director, Office of Transportation and Assistant
Air Quality, to, require DERA grant and subgrant Administrator
agreements to specify the emissions certification for Air and
level or year of new engines to be installed as part Radiation
of vehicle replacement and engine repower
projects.
OAR believes that this issue is closed, as: 1) the number of
DOCs which were incorrectly installed is three (the other 12
technologies were fuel-operated heaters or verified catalysts); and
2) the DOCs in question are now verified for the model year of the
school bus engines (2004).
OAR believes this issue is closed, as: 1) the grantee did not have February, 2011
a clear definition of "early replacement" at the time of the
subgrantee award; 2) the subgrantee award met other conditions
of the grant program , such as "shovel-ready project" and
"create/save jobs"; 3) due to the economic downturn the
subgrantee would not have purchased the vehicles the year of the
subgrantee award. OAR will obtain additional documentation on
the last point, above.
OAR will clarify the definition of "early replacement" for grantees of March, 2011
the State Clean Diesel program for the FY 2011 round of State
Clean Diesel Grants.
OAR will amend the Terms and Conditions for future awards to March, 2011
specify the emissions certification level or year of new engines to
be installed as part of vehicle replacement and engine repower
projects.
O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
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Appendix B
Distribution
Office of the Administrator
Assistant Administrator for Air and Radiation
Regional Administrator, Region 1
Regional Administrator, Region 5
Director, Office of Regional Operations
Agency Followup Official (the CFO)
Agency Followup Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Office of Transportation and Air Quality, Office of Air and Radiation
Audit Followup Coordinator, Office of Air and Radiation
Audit Followup Coordinator, Region 1
Audit Followup Coordinator, Region 5
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