OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Quick Reaction Report 

City of Elizabeth, New Jersey -

Excess Clean Water State 

Revolving Funds Claimed 

 Report No. 08-2-0062 

 January 23, 2008 
Report Contributors: Robert Adachi 

 Janet Lister

 Lela Wong 

 Janet Kasper 

Abbreviations 

CFR Code of Federal Regulations 

CWSRF Clean Water State Revolving Fund 

EPA U.S. Environmental Protection Agency 

Grantee City of Elizabeth, New Jersey 

OIG Office of Inspector General 

OMB Office of Management and Budget 

SAAP Special Appropriation Act Project 
U.S. Environmental Protection Agency 08-2-0062 

Office of Inspector General January 23, 2008

At a Glance 

Catalyst for Improving the Environment 

Why We Did This Review 

The U.S. Environmental 

Protection Agency (EPA) 

Office of Inspector General 

conducted a review of 

earmarked grants known as 

Special Appropriation Act 

Projects issued to State, local, 

and tribal governments. The 

City of Elizabeth, New Jersey 

(grantee) was selected for 

review. 

Background 

The grantee received EPA 

Special Appropriation Act 

Project grant number 

XP98241301, which provided 

Federal assistance of 

$1,451,800. The grantee was 

responsible for matching, at a 

minimum, 45 percent of the 

eligible project costs. The 

grantee fulfilled its matching 

requirement with loans from 

the New Jersey Department of 

Environmental Protection. 

The loans were funded 

through the Clean Water State 

Revolving Fund. 

For further information, 

contact our Office of 

Congressional and Public 

Liaison at (202) 566-2391. 

To view the full report, 

click on the following link: 

www.epa.gov/oig/reports/2008/ 

20080123-08-2-0062.pdf 

City of Elizabeth, New Jersey - Excess Clean 

Water State Revolving Funds Claimed 

What We Found 

The grantee claimed and was reimbursed under its Clean Water State Revolving 

Fund loan $335,232 in excess of actual costs incurred, contrary to the 

requirements of Title 40, Code of Federal Regulations, Section 35.3155 (d)(2). 

The grantee initially paid for all project construction costs using its internal 

service funds, and was reimbursed with draws from either the State loans or from 

the EPA grant. The grantee did not associate all reimbursements with contract 

invoice payments. The over reimbursement was associated with a State of New 

Jersey loan that was 50-percent funded from the Clean Water State Revolving 

Fund. These funds could have been made available for use by other potential loan 

recipients.

 What We Recommend 

We recommend that the Regional Administrator, EPA Region 2, coordinate with 

the State to ensure that the grantee immediately repays $335,232 drawn in excess 

of actual costs incurred. 
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

January 23, 2008 

MEMORANDUM 

SUBJECT: City of Elizabeth, New Jersey – 

Excess Clean Water State Revolving Funds Claimed 

Report No. 08-2-0062 

FROM: Melissa M. Heist 

Assistant Inspector General for Audit 

TO: Alan J. Steinberg 

Regional Administrator 

EPA Region 2 

This report contains a time-critical issue the Office of Inspector General (OIG) identified and 

recommends recovery of Federal funds drawn down by the recipient. This report represents the 

opinion of the OIG and does not necessarily represent the final position of the U.S. 

Environmental Protection Agency (EPA). EPA managers will make final determinations on 

matters in this report. 

The estimated cost of this report – calculated by multiplying the project’s staff days by the 

applicable daily full cost billing rates in effect at the time – is $38,479. 

Action Required 

In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to provide us 

your proposed management decision for resolution of the finding contained in this report before 

any formal resolution can be completed with the recipient. Your proposed decision is due in 

120 days, or on May 21, 2008. To expedite the resolution process, please email an electronic 

version of your proposed management decision to kasper.janet@epa.gov. 

We have no objections to the further release of this report to the public. This report will be 

available at http://www.epa.gov/oig. If you have any questions, please contact Janet Kasper, 

Director, Assistance Agreement Audits, at (312) 886-3059 or at the email address above. 
Purpose 

The Office of Inspector General is reviewing Special Appropriation Act Project (SAAP) grants 

to identify issues warranting further analysis. This includes reviewing the total project costs 

incurred by selected SAAP grant recipients. During our review of the SAAP grant awarded to 

the City of Elizabeth, New Jersey (grantee), we identified the following condition that we believe 

requires immediate attention. The grantee claimed and was reimbursed $335,232 in excess of 

actual costs incurred from a Clean Water State Revolving Fund (CWSRF) loan that was used to 

meet matching requirements of the grant. 

Background 

EPA Region 2 awarded grant number XP98241301 (grant) to the grantee on September 17, 2001. 

The purpose of the grant was to provide Federal assistance of $1,451,800 for a combined sewer 

overflow abatement project. The scope of the grant included constructing 26 in-line netting 

facilities and 5 bar screen facilities, and installing about 1,310 linear feet of sanitary sewers and 

420 linear feet of storm sewers, to separate combined sewer flow. This project would 

significantly reduce the amount of solids, floatables, and untreated wastewater being discharged 

to the Elizabeth River, Arthur Kill waterbody, and Newark Bay. EPA’s contribution to the 

project was 55 percent of approved costs not to exceed $1,451,800. The grantee was responsible 

for matching, at a minimum, 45 percent of the eligible project costs or $1,187,836. The grant’s 

budget period was from October 1, 2001, to June 30, 2003. 

The grantee fulfilled its matching requirement through two loans from the New Jersey 

Department of Environmental Protection. These loans were funded 50 percent from CWSRF 

funds and 50 percent from New Jersey Environmental Infrastructure Trust funds. 

Scope and Methodology 

We performed our audit in accordance with generally accepted government auditing standards 

issued by the Comptroller General of the United States, with the exception of gaining a complete 

understanding of internal controls as required under Section 7.11 and information control 

systems as required under Section 7.59. We did not obtain a complete understanding of the 

internal control system since the limited nature of our review focused on the source documents 

that support costs claimed under the grants. We also did not test the recipient’s grant drawdown 

process or process for entering information into its accounting system. Instead, we relied upon 

the grantee’s schedule of revenues and project costs. The schedule was reconciled to the 

grantee’s source documents but was not part of the official accounting system. We did not 

obtain an understanding of information control systems since the review of general and 

application controls was not relevant to the assignment objectives. We conducted our field work 

between June 25, 2007, and October 11, 2007. 

1 
We made site visits to the grantee and performed the following steps: 

• Conducted interviews of grantee and State of New Jersey personnel; 

• Obtained and analyzed the grantee’s electronic and hardcopy accounting files, source 

documents, bank statements, cancelled checks, and invoices; and 

• Obtained and analyzed EPA grant drawdowns, CWSRF and Environmental Infrastructure 

Trust loan draws, and other related financial data. 

Finding 

The grantee claimed and was reimbursed under its CWSRF loan $335,232 in excess of actual 

costs incurred, contrary to the requirements of Title 40, Code of Federal Regulations (CFR), 

Section 35.3155 (d)(2). Table 1 provides the details on construction costs incurred and the 

reimbursements from the various funding sources: 

Table 1: Schedule of Construction Costs and Reimbursements 

Amount 

Construction Costs Incurred $10,151,353 

Construction Costs Reimbursed 

EPA Grant XP98241301 

State of New Jersey Loan – S-340-942-02 

State of New Jersey Loan – S-340-942-03 

Total Reimbursements for Construction Costs 

$1,451,800 

1,578,435 

7,456,350 

$10,486,585 

Excess Reimbursements Over Construction Costs $335,232 

Source: Contractor invoices and grant and loan draws from City of Elizabeth files. 

Under Title 40 CFR 35.3155 (d)(2), the assistance recipient must first incur a cost to draw cash, 

and the draws will be available only up to the amount of payments made. Since the grantee only 

incurred costs and made payments of $10,151,353, the grantee was not entitled to the additional 

$335,232 drawn under the loan. 

The grantee initially paid for all project construction costs using its internal funds and was 

reimbursed with draws from either the State loans or the EPA grant. The grantee did not 

associate all reimbursements with contractor invoice payments. For this reason, reimbursements 

for construction costs were based on the “first in first out” accounting method that applies the 

reimbursements first to the earliest funding sources received by the grantee for construction 

costs. The last funding source the grantee received was State loan number S-340-942-03, which 

was 50-percent funded from the CWSRF. The grantee received $335,232 from loan number 

S-340-942-03 in excess of the construction costs incurred. The State could have made this 

amount available to other loan recipients in need of funding. As a result, we have questioned the 

$335,232 received in excess of the construction costs incurred. 

Recommendation 

1. We recommend that the Regional Administrator, EPA Region 2, coordinate with the 

State of New Jersey to ensure that the City of Elizabeth immediately repays $335,232 

drawn in excess of actual costs incurred. 

2
Grantee and Region 2 Comments 

On November 27, 2007, an exit conference was held with the grantee, Region 2, and State of 

New Jersey officials. The grantee concurs with the audit finding and will work with the New 

Jersey Department of Environmental Protection to identify other allowable costs to offset the 

questioned costs in the audit report. 

Office of Inspector General’s Response 

Our position remains unchanged since the grantee concurred with the finding. 

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Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed To 

Amount 

1 2 Coordinate with the State of New Jersey to ensure 

that the City of Elizabeth immediately repays 

$335,232 drawn in excess of actual costs incurred. 

O Regional Administrator, 

EPA Region 2 

05/21/2008 $335 

1 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 

Distribution 

Regional Administrator, Region 2 

Director, Office of Wastewater Management, Office of Water 

Director, Office of Wastewater Management - Municipal Support Division, Office of Water 

Director, Office of Grants and Debarment 

Director, Grants and Interagency Agreements Management Division 

Agency Followup Official (the CFO) 

Agency Followup Coordinator 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for Public Affairs 

Region 2 Audit Followup Coordinator 

Region 2 Public Affairs Office 

Deputy Inspector General 

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