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Audits on EPA Recovery ActFunded Diesel Emission 

Reduction Act Assistance 

Agreements Reported 

Programmatic and Management 

Challenges

Report No. 14-R-0355 September 15, 2014

 

U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL
This is one of the U.S. Environmental Protection Agency Office of Inspector General’s 

products associated with climate change. For details on our other reports on climate 

change, go to http://www.epa.gov/oig/climatechange.

Report Contributors: Leah Nikaidoh

Darren Schorer

 

Abbreviations

DERA Diesel Emissions Reduction Act

EPA U.S. Environmental Protection Agency

FY Fiscal Year

OAR Office of Air and Radiation

OIG Office of Inspector General

Cover photos: The American Recovery and Reinvestment Act of 2009 logo (center); 

(clockwise from top): a retrofitted school bus (EPA photo), old and new trailer 

refrigeration units (EPA OIG photo), a locomotive (EPA OIG photo), and an 

EPA-certified SmartWay tractor (EPA photo).

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More information at www.epa.gov/oig/hotline.html.

EPA Office of Inspector General

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 14-R-0355

September 15, 2014

Why We Did This Review

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. As part of 

our oversight of the 

U.S. Environmental Protection 

Agency’s (EPA’s) awarding of 

assistance agreements under 

the American Recovery and 

Reinvestment Act of 2009, we 

issued six separate reports on 

specific cooperative 

agreements involving the 

DERA program. The purpose 

of this new report is to 

summarize the findings in the 

previous reports and identify 

commonalities or overarching 

issues.

EPA awarded $294 million in 

Recovery Act funds under the 

DERA program for 

160 assistance agreements. 

The reported results are from 

our six previous reports,

representing approximately 

$26 million in federal 

expenditures.

This report addresses the 

following EPA goal or 

cross-agency strategy:

 Addressing climate change 

and improving air quality.

Send all inquiries to our public 

affairs office at (202) 566-2391

or visit www.epa.gov/oig. 

The full report is at:

www.epa.gov/oig/reports/2014/ 

20140915-14-R-0355.pdf

Audits on EPA Recovery Act-Funded Diesel Emission 

Reduction Act Assistance Agreements Reported 

Programmatic and Management Challenges 

 What We Found

During the six previous audits on Recovery 

Act cooperative agreements awarded for 

DERA projects, we determined that:

 Four of the six recipients did not meet all 

objectives of grant awards.

 Five of the six recipients did not have 

financial management systems that 

met federal requirements.

 Four of the six recipients did not meet Recovery Act requirements. 

As a result, we had questioned over 90 percent of the expenditures reviewed. 

As part of the Office of Management and Budget’s streamlining of federal 

assistance agreement requirements, emphasis has now been placed on 

agencies to assess recipient risk, and to focus on performance outcomes. The 

EPA should consider the issues identified as it takes such streamlining actions.

The six previous audits included recommendations for corrective actions.

No new recommendations are included because the limited sample size of 

previous Office of Inspector General reports may not be representative of the 

entire population of EPA DERA awards. Examples of actions the EPA took to 

address issues identified in the prior audit reports include the following:

 In response to a recipient not requiring a subrecipient to scrap or 

remanufacture old engines taken from repowered locomotives in 

accordance with the cooperative agreement, action was taken to do so.

 The EPA was able to provide confirmation that every vehicle reported as

retrofitted by a recipient under its cooperative agreement was completed.

 A recipient was not operating repowered locomotives in the area defined 

in the cooperative agreement, and the cooperative agreement was 

amended to have the grantee deliver environmental and health benefits to 

the required area.

The EPA’s Office of Air and Radiation also made changes to DERA oversight to 

reduce risk in the future, including revised methodologies for emissions 

reporting, yearly project officer and grantee training, creation of technical 

guidance related to DERA-specific assistance agreement management, and 

continued baseline and advanced monitoring on the DERA program.

U.S. Environmental Protection Agency

Office of Inspector General

At a Glance

EPA should consider the 

issues identified in our 

prior reports as it takes 

actions directed by the 

Office of Management and 

Budget to assess risk 

inherent in its programs.
September 15, 2014

MEMORANDUM

SUBJECT: Audits on EPA Recovery Act-Funded Diesel Emission Reduction Act 

Assistance Agreements Reported Programmatic and Management Challenges 

Report No. 14-R-0355

FROM: Arthur A. Elkins Jr.

TO: Janet McCabe, Acting Assistant Administrator

Office of Air and Radiation

Nanci Gelb, Acting Assistant Administrator

Office of Administration and Resources Management

This is our report on the subject review conducted by the Office of the Inspector General (OIG) of the 

U.S. Environmental Protection Agency (EPA). As part of our oversight of the EPA’s awarding of 

assistance agreements under the American Recovery and Reinvestment Act of 2009, we issued six 

separate reports on specific assistance agreements involving the Diesel Emission Reduction Act 

program. The purpose of this new report is to summarize the findings from the previous reports and 

identify commonalities or overarching issues. The six previous audits included recommendations for 

corrective actions. No new recommendations are included in this report because the limited sample size 

of the previous OIG reports may not be representative of the entire population of EPA Diesel Emission 

Reduction Act program awards. The report represents the opinion of the OIG and does not necessarily 

represent the final EPA position. 

The Office of Air and Radiation’s Office of Transportation and Air Quality and the Office of 

Administration and Resources Management’s Office of Grants and Debarment can consider the issues 

identified in assessing the risks associated with recipients prior to award. 

Action Required

Because this report contains no recommendations, you are not required to respond to this report. 

However, if you submit a response, it 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 released to the public. If your 

response contains such data, you should identify the data for redaction or removal, along with 

corresponding justification. 

We will post this report to our website at http://www.epa.gov/oig.

THE INSPECTOR GENERAL

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, D.C. 20460
Audits on EPA Recovery Act-Funded Diesel Emission 14-R-0355

Reduction Act Assistance Agreements Reported 

Programmatic and Management Challenges

 

Table of Contents

Introduction............................................................................................................... 1

Purpose.............................................................................................................. 1

Background ........................................................................................................ 1

Responsible Offices............................................................................................ 2

Scope and Methodology..................................................................................... 2

What We Found......................................................................................................... 5

Recipients Did Not Meet Award Objectives......................................................... 6

Recipients’ Financial Management Systems 

Did Not Meet Federal Requirements.......................................................... 8

Recipients Did Not Meet Recovery Act Requirements ........................................ 9

Additional Prior Report Noted Similar Issues ...................................................... 10

Update on Actions Taken by EPA....................................................................... 10

Appendix

A Distribution ....................................................................................................... 12
14-R-0355 1

Introduction

Purpose

As part of our oversight of the U.S. Environmental Protection Agency’s (EPA’s) 

awarding of assistance agreements1under the American Recovery and 

Reinvestment Act of 2009, the EPA Office of Inspector General (OIG) issued six 

separate reports on specific assistance agreements involving EPA’s Diesel 

Emission Reduction program. The purposes of this new report are to:

 Summarize the findings reported under the assistance agreement audit 

reports.

 Identify any commonalities or overarching issues that impacted the 

recipients’ abilities to meet their grant objectives and comply with federal 

regulations.

Background

Diesel emissions account for 6.3 million tons of nitrogen oxide and 305,000 tons 

of particulate matter in the national mobile emissions inventory (2004).The 

emissions are from a variety of on-road and non-road vehicles, such as those used 

for freight, ports, transit, construction, agriculture and energy production. 

According to the EPA, reducing emissions from diesel engines is one of the most 

important air-quality challenges facing the United States. These emissions 

contribute to serious public health problems, including asthma, lung cancer, and 

various other cardiac and respiratory diseases. These problems result in thousands 

of premature deaths, millions of lost workdays, and numerous other negative 

health and economic outcomes every year.

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. Congress appropriated a total of $219.1 million for the 

EPA under DERA for fiscal years (FYs) 2008 through 2011. The money enabled 

the EPA’s Office of Air and Radiation (OAR) to fund programs managed by 

OAR’s Office of Transportation and Air Quality to achieve significant reductions 

in diesel emissions (e.g., tons of pollution produced and diesel-emission 

exposures, particularly from fleets operating in areas designated by the agency as 

poor air quality areas). Of the authorized DERA amount, 70 percent is authorized 

 

1 An assistance agreement is the legal instrument EPA uses to transfer money, property, services, or anything of 

value to a recipient to accomplish a public purpose. It is either a grant or a cooperative agreement and will specify: 

budget and project periods; the Federal share of eligible project costs; a description of the work to be accomplished, 

and any terms and conditions/special conditions.
14-R-0355 2

for competitive national assistance agreements and low-cost revolving loans, and 

the remaining 30 percent is for state assistance agreements and loan programs. 

The OAR continues to provide substantial DERA funding, with non-Recovery 

Act awards of over $141 million to recipients to reduce diesel air emissions 

through FY 2017.

Congress appropriated an additional $300 million to the EPA in FY 2009 for 

DERA assistance agreements under the Recovery Act. In addition to the DERA 

goal of reductions in diesel emissions, the assistance agreements awarded with 

Recovery Act 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. The EPA

reported that it awarded approximately $294 million for 160 assistance 

agreements.

Responsible Offices

The OAR’s Office of Transportation and Air Quality and the Office of 

Administration and Resources Management’s Office of Grants and Debarment are 

the program offices responsible for the issues discussed in this report. 

Scope and Methodology

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We identified six previous reports on 

Recovery Act DERA projects issued by the OIG for review, as listed in table 1.
14-R-0355 3

Table 1: Summary of previously issued OIG audit reports

Report title Report no. Date issued

Examination of Costs Claimed Under EPA Cooperative Agreement 

2A-83440701 Awarded Under the Recovery Act to Cascade Sierra 

Solutions, Eugene, Oregon

12-R-0749 September 4, 2012

Air Quality Objectives for the Baton Rouge Ozone Nonattainment Area 

Not Met Under EPA Agreement 2A-96694301 Awarded to the Railroad 

Research Foundation

13-R-0297 June 20, 2013

Projected Emission Reductions Overstated and Buy American 

Requirements Not Met Under EPA Award to the Tennessee Department 

of Transportation

13-R-0321 July 19, 2013

Examination of Costs Claimed Under EPA Cooperative Agreements 

2A-96104501 and 2A-96107201 Awarded Under the Recovery Act to 

Chelsea Collaborative Inc., Chelsea, Massachusetts

13-R-0353 August 22, 2013

Examination of Costs Claimed Under American Recovery and 

Reinvestment Act Cooperative Agreement 2A-97706701 Awarded to 

Grace Hill Settlement House, St. Louis, Missouri

13-R-0367 August 30, 2013

Unless California Air Resources Board Fully Complies With Laws and 

Regulations, Emission Reductions and Human Health Benefits Are 

Unknown

14-R-0130 March 6, 2014

Source: OIG-issued reports

We analyzed the findings and recommendations to determine whether there were 

any issues common to more than one audit. We did not obtain any new 

information and did not conduct preliminary research. This report is intended to 

be informative in nature and provide lessons learned for future DERA awards.

No recommendations are included because the limited sample size of the previous 

OIG reports issued may not be representative of the entire population of EPA 

DERA awards. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit objectives.

The seven assistance agreements included in these six reports represented

$26,737,810 of the approximately $294 million of Recovery Act DERA money 

awarded by EPA. The six recipients included four non-profit organizations and 

two state agencies. Details on the assistance agreements are in table 2.

 
14-R-0355 4

Table 2: Details on grants reviewed

Recipient

Recipient 

type Grant no. Project objective

Federal 

award 

amount

Project 

period

Cascade Sierra 

Solutions, Eugene, 

Oregon

Non-profit 2A-83440701 Create a national 

revolving loan program 

for heavy-duty trucks. 

$9,000,000 08/01/09 to 

03/31/13

Railroad Research 

Foundation, 

Washington, D.C.

Non-profit 2A-96694301 Repower locomotives 

for Baton Rouge, 

Louisiana.

2,927,496 09/09/09 to 

12/31/10

Tennessee Department 

of Transportation, 

Nashville, Tennessee

State 2A-95425709 Install a network of truck 

stop electrification

facilities at highway 

truck stops.

2,000,000 06/01/09 to 

11/30/11

Chelsea Collaborative 

Inc., Chelsea, 

Massachusetts

Non-profit 2A-96104501 

and 

2A-96107201

Provide 14 retrofits and 

four engines upgrades. 

Repower privatelyowned stationary cold 

storage units.

1,921,426 05/01/09 to 

09/30/11

Grace Hill Settlement 

House, St. Louis, 

Missouri

Non-profit 2A-97706701 Provide emission 

reduction technology for 

a variety of vehicles.

2,000,000 06/01/09 to 

06/30/11

California Air 

Resources Board, 

Sacramento, California

State 2A-00T13801 Repower switch-yard 

locomotives within the 

South Coast Air Basin.

8,888,888 06/15/09 to 

12/31/10

 Total $26,737,810

Source: EPA grants database.
14-R-0355 5

What We Found

Our review of the six prior audits of specific cooperative agreements awarded 

under the Recovery Act involving DERA projects identified three common, 

overarching issues:

 Four of the six recipients did not meet all the objectives of the award.

 Five of the six recipients did not have a financial management systems 

that met federal requirements that applied to the grant award.

 Four of the six recipients did not meet Recovery Act requirements.

As a result, we questioned a total of $23.8 million of the $26.3 million claimed 

under the assistance agreements. We summarize the costs questioned by finding

and recipient in tables 3 and 4, respectively.

Table 3: Costs questioned by finding

Finding

Costs 

questioned 

Objectives of award not met $11,655,343

Federal requirements for financial management systems not met 10,538,263

Recovery Act requirements not met 1,623,049

 Total $23,816,655

Source: OIG-issued reports.

 Table 4: Funds audited and costs questioned by recipient

Recipient

Federal funds 

audited

Costs 

questioned

Cascade Sierra Solutions $9,000,000 $9,000,000

Railroad Research Foundation 2,904,578 2,904,578

Tennessee Department of Transportation 1,623,049 1,623,049

Chelsea Collaborative Inc. 1,921,426 0

Grace Hill Settlement House 1,985,679 1,423,028

California Air Resources Board 8,866,000 8,866,000

 Total $26,300,732 $23,816,655

Source: OIG-issued reports and assistance agreement award documents.

Cooperative agreements require substantial involvement in the form of technical 

assistance, development of outputs and oversight. Substantial involvement takes 

the form of monitoring the project by the EPA, participation and collaboration 

between the EPA and the recipient in program content, review of project progress, 

and quantification and reporting of results. Greater involvement, especially in the 
14-R-0355 6

early stages of the project, could prevent confusion over requirements and the 

later need for corrective actions at the end of the project. 

Recipients Did Not Meet Award Objectives

Four of six recipients did not meet the award objectives. Details on our findings 

are in table 5.

 Table 5: Details on recipients not meeting award objectives

Recipient Objective Findings

Cascade Sierra 

Solutions

The cooperative agreement allows 

for funding of pre-2007 model year 

highway vehicles so long as 

verified emission control 

technologies have been installed.

Recipient did not install verified 

emission control technologies on 

pre-2007 model year trucks;

therefore, trucks did not meet 

emission requirements.

Railroad Research 

Foundation

The cooperative agreement states 

that the foundation requested funds 

to repower locomotives in the city 

of Baton Rouge, Louisiana, which 

is currently designated as a 

nonattainment area for ozone.

Repowered locomotives were not 

operating in the Baton Rouge 

nonattainment area as provided for in 

proposal. As a result, the inhabitants 

of Baton Rouge were not receiving 

the benefits of the lower diesel 

emissions expected by the EPA.

Tennessee 

Department of 

Transportation

The cooperative agreement states 

that the final project report will 

include a summary of the project or 

activity, and actual results (outputs 

and outcomes, and costs). The 

agreement also says the final 

report will include the actual 

emissions benefit calculations.

Recipient overestimated emission 

reduction projections because it used 

estimated hours rather than actual 

usage. 

California Air 

Resources Board

 The cooperative agreement

requires the recipient to agree to 

scrap or remanufacture replaced 

equipment.

 The cooperative agreement states 

that the project will achieve 

significant reductions in diesel 

emissions.

 Recipient did not scrap or 

remanufacture replaced locomotive 

engines.

 Emission reductions calculations

were based on estimates of fuel

usage because actual fuel usage 

data was not available. As a result, 

the board does not have reasonable 

assurance of achieving projected 

emission reductions and humanhealth benefits.

 Source: OIG-issued reports and assistance agreement award documents.

Our audits reported that, in some cases, recipients misunderstood requirements of 

the cooperative agreement awards; or, in the haste of completing projects within 

the Recovery Act deadlines, guidance was not adequately communicated or 

documented to the recipient. We noted that one recipient did not seek guidance 

from the EPA on a timely basis, and did not disclose the issue in the quarterly 
14-R-0355 7

reports. Further, the audits disclosed issues with emission reduction calculations 

similar to those reported in a previous OIG report to the OAR (see later section, 

Additional Prior Report Noted Similar Issues). Ultimately, the final reports 

submitted by recipients did not demonstrate that Recovery Act DERA projects 

achieved the desired emissions reductions.

Recipients Did Not Seek or Document EPA Guidance

Although the Railroad Research Foundation’s award required repowering five 

locomotives in Baton Rouge—an ozone nonattainment area—we found that the 

locomotives were not operating in Baton Rouge. The foundation’s subrecipient 

did not believe that it was required to operate the repowered locomotives in the 

Baton Rouge area after the project period expired. This conclusion was based on a 

response to a hypothetical question that the railroad obtained from the National 

Clean Diesel Campaign Helpline. If the subrecipient had questions regarding its 

obligations under the agreement with the foundation, it should have addressed 

those concerns directly with the foundation.

Both Cascade Sierra Solutions and California Air Resources Board made decisions 

on grant activities that did not meet the award objective because they believed they 

had EPA concurrence, but they did not have documentation. Specifically:

 The Cascade Sierra Solutions award allowed the purchase of pre-2007 

model-year trucks as long as verified emission control technologies were

installed. Cascade purchased the trucks but did not retrofit them as required 

by the award. Cascade said the EPA project officer approved the purchase 

of the pre-2007 model-year trucks without retrofits on the condition that 

they be retrofitted at a later date. However, the communication cited by 

Cascade does not provide the project officer’s approval for the purchase; it

only acknowledges the purchase of the trucks and that Cascade planned to 

retrofit the trucks in the fall of 2010. In addition, the quarterly reports 

submitted by Cascade do not mention the pre-2007 model-year trucks until 

the fourth quarter of 2010. As of the report date of September 4, 2012, 

Cascade had yet to retrofit the pre-2007 model-year trucks. 

 The California Air Resources Board said it did not require the BNSF 

Railway Company to scrap or remanufacture the old engines in accordance 

with the award and Energy Policy Act requirements. The locomotives with 

the old engines would be banned from operation within California, which is 

consistent with the board’s other funding programs using incentives. The 

board said that the ban option was part of discussions with the EPA, and the 

board believed it had approval from the EPA. The EPA acknowledged that 

the period during project approvals was a chaotic time, but was not aware of 

any approval. In response to the audit, the board and BNSF signed a written 

agreement to scrap or remanufacture the old engines, and this agreement is 

supported by EPA headquarters and Region 9. 
14-R-0355 8

Recipients’ Final Report Did Not Demonstrate Achievement of 

Emission Reduction

The Tennessee Department of Transportation overstated its project results by using 

significantly overestimated usage assumptions in its projections rather than using 

actual usage data. As a result, Tennessee did not have reasonable assurance that the 

truck stop electrification project will achieve its projected emissions reductions and, 

ultimately, expected environmental and human health benefits. Further, the DERA 

program results may be overstated. In response to the report, EPA Region 4 said it is 

working with Tennessee to update emissions reduction information, and Tennessee 

said it was willing to work with the EPA to modify project results based on actual 

usage.

The California Air Resources Board calculated potential emissions reductions for 

the repowered locomotives based on estimates of fuel usage because actual fuelusage data for individual locomotives was not available. The board provided a 

range of emissions reductions based on estimated fuel usage, but the estimates 

varied significantly and the project may not achieve the emissions reduction 

targets. Unless the board can provide actual fuel usage, the EPA does not have 

reasonable assurance that the project will achieve projected emission reductions or 

expected environmental results and human health benefits.

Recipients’ Financial Management Systems Did Not Meet 

Federal Requirements 

We questioned $10,538,263 because the financial management systems for five of 

six recipients did not meet federal requirements that apply under the assistance

agreement award. Of the five recipients, four are non-profit organizations and one 

is a state agency. Specific instances of noncompliance included:

 A financial management system that was unable to provide timely 

financial information and reporting.

 A formal revolving fund not being established to support the revolving 

loan fund program.

 Project costs that were not fully supported.

 Progress reports that did not accurately identify expenditures by funding 

source, the number of projects, and the total cost of projects.

 Equipment procurements not meeting competition or cost and price 

analysis requirements.

 A contractor billing costs in excess of the recipient’s share of total costs.

 Lack of segregation of unallowable costs.

 Cash draws exceeding immediate cash needs.
14-R-0355 9

The amount of questioned costs by recipient are presented in table 6. 

 Table 6: Financial management system questioned costs

Recipient Recipient Type Questioned Costs

Cascade Sierra Solutions Non-profit $9,000,000

Railroad Research Foundation Non-profit 21,126

Chelsea Collaborative Inc. Non-profit 0

Grace Hill Settlement House Non-profit 1,423,028

California Air Resources Board State 94,109

 Total $10,538,263

Source: OIG-issued reports and EPA grants database.

Because four of the six recipients audited were non-profit organizations, we 

reviewed EPA policies and procedures to determine whether the EPA had any 

specific guidance regarding the award of assistance agreements to non-profit 

organizations. EPA Order 5700.8, EPA Policy on Assessing Capabilities of NonProfit Applicants for Managing Assistance Awards, establishes internal controls 

for determining whether the administrative and programmatic capability of nonprofit organizations apply for assistance agreements. It also establishes uniform 

post-award procedures for addressing a material failure to comply by non-profit 

recipients. As part of our audit work, we did not assess the EPA’s pre-award 

process for compliance with this order. However, given the significant financial 

management issues identified in our reports, EPA may need to reassess the 

effectiveness of this policy for future DERA awards.

Recipients Did Not Meet Recovery Act Requirements 

To receive Recovery Act funding, recipients had to comply with various 

requirements. As part of our audits, we reported that recipients did not fully 

comply with Recovery Act requirements related to job reporting and Buy 

American. The fact that Recovery Act requirements such as Buy American and 

job reporting were challenging for both the EPA and the recipients to interpret 

and implement contributed to the issues noted.

Four of the six recipients did not calculate the number of jobs created or retained 

in accordance with Office of Management and Budget guidance for Section 1512 

of the Recovery Act. Three recipients calculated jobs created or retained by 

including labor hours that were not funded through the Recovery Act. The 

recipients either agreed with the finding or expressed willingness to work with 

EPA on resolving the finding. One recipient was unable to provide supporting 

documentation for the number of jobs reported as created or retained, and the 

recipient disagreed with the finding. EPA has not provided a response and the 

finding is still unresolved.
14-R-0355 10

One recipient—the Tennessee Department of Transportation—did not comply 

with the Recovery Act’s Buy American requirements for all of its contract 

awardees. This occurred because, subsequent to the contract awards, the EPA 

incorrectly determined that the requirements did not apply to the project. 

Consequently, there was no assurance that all iron, steel or manufactured goods 

incorporated into the project were manufactured or substantially transformed in 

the United States, as required by Section 1605 of the Recovery Act. As a result, 

we questioned $1,623,049 as unsupported. Tennessee disagreed with the finding 

and recommendation. EPA Region 4 said that Tennessee has information that 

demonstrated Buy American compliance, but the finding is still unresolved.

Additional Prior Report Noted Similar Issues 

In addition to the six audits noted, the OIG had conducted an evaluation to 

determine whether selected Recovery Act awards were effective in obtaining 

diesel retrofits and intended diesel emission reductions. That evaluation, EPA 

Should Improve Guidance and Oversight to Ensure Effective Recovery ActFunded Diesel Emissions Reduction Act Activities (Report No. 11-R-0141), was 

issued March 1, 2011.

The OIG had reviewed National Clean Diesel Funding Assistance Program and 

State Clean Diesel Program assistance agreements. The report found that 

documentation of grant activities was not always sufficient to demonstrate that 

funded work met the specific requirements needed to achieve the desired 

emissions reductions. As a result, the EPA could overestimate emissions 

reductions for grant activities. Additionally, EPA funds were used to replace 

vehicles that would have been replaced anyway due to normal attrition.

The report concluded that EPA should issue additional guidance and improve 

oversight to ensure that completed activities achieve planned emissions reductions 

and that the activities are reported accurately. Additional EPA guidance was

needed to clarify when replacements were considered normal attrition and not 

eligible for DERA funding. OAR had concurred with the findings and conclusions 

and agreed to implement all of the report’s recommendations.

Update On Actions Taken by EPA

OAR provided additional information on the DERA program’s activities since the 

grants were awarded in 2009. OAR said it has strengthened the DERA program 

over the past 5 years and addressed many of the issues identified in the prior

audits. 

OAR acknowledged the issues with Recovery Act requirements but noted these 

were unique requirements and had not been required for non-Recovery Act 
14-R-0355 11

DERA projects. OAR believed it worked hard to balance the need to meet the 

mission of Recovery Act funding to complete “shovel ready projects” as fast as 

possible while interpreting and implementing Recovery Act requirements.

OAR said significant effort has been made to resolve the issues in the prior audit 

reports. OAR and the regions have worked with grantees to complete projects as 

intended. Specific actions included:

 Closing out the agreement between the California Air Resources Board

and BNSF to scrap locomotive engines.

 Confirming with the Grace Hill Settlement House that every vehicle 

retrofitted under the grant was completed.

 Amending the agreement between the Railroad Research Foundation and 

the Kansas City Southern Railway Company regarding the operation of 

five repowered locomotives.

 Recovering $1.8 million of funds from Cascade Sierra Solutions; the funds

were returned to the DERA program to fund emissions projects in priority 

areas with poor air quality.

In addition, OAR has made changes to DERA program oversight and 

implementation to reduce the risk of issues in the future, including:

 Updating DERA’s request for proposal.

 Revising reporting templates and methodologies for emissions reporting.

 Revising assistance agreement terms and conditions to clarify “early 

replacement.”

 Initiating yearly project officer and grantee training.

 Creating a technical guidance document emphasizing important points 

related to DERA-specific grants management and emission reduction 

technologies.

 Continuing to conduct baseline and advanced monitoring on the DERA

program.
14-R-0355 12

Appendix A

Distribution

Office of the Administrator

Assistant Administrator for Air and Radiation

Assistant Administrator for Administration and Resources Management

Agency Follow-Up Official (the CFO)

Agency Follow-Up Coordinator

General Counsel

Associate Administrator for Congressional and Intergovernmental Relations

Associate Administrator for External Affairs and Environmental Education

Deputy Assistant Administrator for Air and Radiation

Principal Deputy Assistant Administrator for Administration and Resources Management

Director, Grants and Interagency Agreements Management Division, Office of Administration 

and Resources Management

Director, Office of Transportation and Air Quality, Office of Air and Radiation

Director, Office of Policy and Resource Management, Office of Administration and 

Resources Management

Deputy Director, Office of Policy and Resource Management, Office of Administration and 

Resources Management

Audit Follow-Up Coordinator, Office of Air and Radiation

Audit Follow-Up Coordinator, Office of Administration and Resources Management

Audit Follow-Up Coordinator, Office of Grants and Debarment, Office of Administration and 

Resources Management