U.S. ENVIRONMENTAL PROTECTION AGENCY 

OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Special Report 

EPA Office of Inspector General 

Recommendations on Office of 

Management and Budget Guidance 

for Recovery Act Implementation 

 Report No. 09-P-0132 

 March 31, 2009 
 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

March 31, 2009 

Daniel I. Werfel, Acting Controller 

Executive Office of the President 

Office of Management and Budget 

725 17th Street, NW 

Washington, DC 20503 

Dear Mr. Werfel: 

The U.S. Environmental Protection Agency (EPA) Office of Inspector General (OIG) has 

reviewed the Office of Management and Budget (OMB) Updated Implementing Guidance for the 

American Recovery and Reinvestment Act of 2009 (ARRA). While our review was not 

comprehensive, we are providing the following comments for your consideration concerning 

ways to improve risk assessment in the application and management of Recovery Act funds, and 

accuracy in reporting results. 

General Comments 

Overall, the guidance is prescriptive for agencies to make funding available in a 

transparent, need-driven way on an agency-by-agency basis. However, there does not appear to 

be a process described for cross-agency coordination of grantee and other fund recipient review 

to ensure that recipients are not obtaining funds from multiple sources for the same project, or 

that information on recipients’ (including contractors’) risk factors identified by one agency is 

shared among all. Similarly, we are concerned that multiple contributing agencies could 

individually claim the same results statistics, especially if all of the contributing agencies obtain 

the same reports from a common grantee. This guidance should address how a funds recipient or 

a Federal agency making a payment will differentiate reportable results proportionately when 

funds are paid by and received from multiple sources. 

We believe that there are appropriate cross agency checks that should be required, 

beyond the current process, to ensure that a grantee, contractor, or recipient (even at the local 

level) has not been debarred, suspended, or otherwise disqualified to receive funds; or that the 

recipient does not have an outstanding obligation in the form of a sustained questioned cost 

offset or any other court-ordered criminal action, civil settlement, or recovery action from a 

previous Federal payment. While there are general requirements to check the Federal Excluded 

Parties List before grants and contracts are awarded, these lists may not always be up to date, nor 

include actions at a local level, especially for sub-grantees of contractors who have not 

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previously received Federal funds and therefore might not otherwise be listed. We believe that 

in the interest of risk assessment, the importance of Federal, State, and local checks should be 

mentioned and results made available across Federal agencies. 

Since States will be primary recipients of Recovery Act funds, we have a question about 

what obligation State auditors have to review and report on the propriety of the accounting for, 

and use of, the funds and accuracy in the reporting of results. For example, in the EPA State 

Revolving Fund, grantees receiving more than $500,000 in Federal funds are subject to Single 

Audit requirements. While Section 5.7 discusses how updates will be provided to the 

compliance supplement to ensure it covers ARRA funds, sub-grantees below the $500,000 

threshold still may represent an auditable risk. While Federal OIGs have been funded to provide 

oversight, much of the risk of fraud, waste, and abuse will be at the sub-grantee level. Therefore, 

we believe that this guidance should recognize or express the intent that oversight for the 

application of funds should also remain transparent and be subject to risk assessment at the State 

and local level, including State level auditing, in addition to the requirements of OMB A-133 and 

the Federal OIG role. The Guidance expresses the expectation that OIGs will train others in the 

audit community, but does not express the expectation for the role of auditors in the audit 

community beyond that of the OIGs. The footnotes express the intent that Single Audits will be 

performed on more of a real-time basis, which means that a significantly greater investment in 

audit resources will be required beyond the Federal OIG level. 

Specific Comments 

Sections 2.10 and 2.14: We suggest that these sections also include a discussion about 

seeking information regarding Prime Contract Subprime Contractors who receive funding greater 

than $250,000 (or some other figure deemed to be appropriate), the Engineering Firm 

responsible for project if there is one, and the responsible entity distributing funds to contractor. 

Also, for government-wide use, this information should be sent to recovery.gov, where it would 

be available for everyone’s use and the special attention of the Recovery Accountability and 

Transparency Board. 

Sections 2.6 and 2.7: These sections mention the requirements to identify expected 

savings. While in concept it is a good idea to consider tangible results, it appears that such 

projections, absent factual basis, are aspirational or speculative. We are concerned that such 

projections, absent factual basis, may represent a vulnerability of basing decisions on faulty or 

exaggerated expectations. We suggest that the Guidance require any projection of savings upon 

which decisions rely be based on a benchmarked model or similar foundation of fact or proven 

method of forecasting such savings, similar to the explanation in Section 2.12 describing the 

guidance on the estimation of jobs created or retained. 

 Section 3: This section discusses assessment of risk. We believe that this section should 

explicitly require the assessment of risk associated with any decision for providing funds to each 

grantee, based on specific previous knowledge and experience with a particular grantee, 

including results of audits. We are specifically concerned about the capacity of grantees to 

account for and manage the grant funds, regardless of the need. The risk of grantee capacity, and 

ability of Federal agencies to closely monitor those grants, has been identified as a government3 
 

 

 

wide “High Risk” area by the Government Accountability Office, as well as the subject of OIG 

audits, and has been identified as an area of risk by EPA regional managers. We suggest that the 

guidance specify that existing OIG reports and status of actions on audit recommendations 

should be used as part of the risk assessment and decision making process in disbursing 

Recovery Act funds. 

Sections 6.3 and 6.4: Currently under the Federal Acquisition Regulation (FAR), the 

agency Contract Officer is the final decision authority in disputes between the eligibility and 

allowability of costs claimed, and costs questioned through an audit that are not satisfactorily 

addressed by the contractor. We suggest that this Guidance, provide for a neutral third party 

appeal process to arbitrate such disputes when there is a difference of opinion between the 

Contract Officer and auditor. If this Guidance cannot supersede the FAR alone, this may require 

that the FAR be changed, including the identification of the neutral third party arbitrator. Such a 

process helps protect the integrity of the audit process. 

Appendix 5 Risk Considerations: Similar to our comment on Section 3, we recommend 

that a review of previous relevant audit findings for any particular potential recipient of 

Recovery Act funds should be standard practice to be listed among the Program Risk 

Considerations. 

Should you have any questions, please contact Michael J. Binder, Deputy Assistant 

Inspector General for Congressional, Public Affairs and Management, at (202) 566-2617. 

 Sincerely,

 Bill A. Roderick 

 Acting Inspector General 

cc: Earl E. Devaney, Chairman, Recovery Accountability and Transparency Board 

Craig Hooks, Acting Assistant Administrator, Office of Administration and 

 Resources Management, EPA 

Howard Corcoran, Director, Office of Grants and Debarment, EPA 

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