U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Air Quality Objectives 

for the Baton Rouge 

Ozone Nonattainment Area 

Not Met Under EPA Agreement 

2A-96694301 Awarded to the 

Railroad Research Foundation 

Report No. 13-R-0297 June 20, 2013 

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code to learn more 

about the EPA OIG. 
 

 Report Contributors: Michael Rickey 

 Kevin Collins 

 Larry Brannon 

 Iantha Maness 

Abbreviations 

CFR Code of Federal Regulations 

EPA U.S. Environmental Protection Agency 

KCS Kansas City Southern Railway Company 

OIG Office of Inspector General 

OMB Office of Management and Budget 

Recovery Act American Recovery and Reinvestment Act of 2009 

Hotline 

To report fraud, waste, or abuse, contact us through one of the following methods: 

email: OIG_Hotline@epa.gov write: EPA Inspector General Hotline 

phone: 

fax: 

1-888-546-8740 

202-566-2599 

1200 Pennsylvania Avenue, NW 

Mailcode 2431T 

online: http://www.epa.gov/oig/hotline.htm Washington, DC 20460 
 

 

 

 

U.S. Environmental Protection Agency 13-R-0297 

June 20, 2013 Office of Inspector General 

At a Glance 

Why We Did This Review 

Emissions from diesel exhaust 

can lead to serious health 

conditions like asthma and 

allergies, and can worsen heart 

and lung disease, especially in 

vulnerable populations such as 

children and the elderly. These 

emissions can also damage 

plants, animals, crops, and 

water resources. Under the 

authority of the American 

Recovery and Reinvestment 

Act of 2009, the U.S. 

Environmental Protection 

Agency awarded almost 

$3 million to the Railroad 

Research Foundation to reduce 

diesel emissions by repowering 

five locomotives in Baton 

Rouge, Louisiana, an ozone 

nonattainment area. 

Our objective was to determine 

whether the Railroad Research 

Foundation used these funds to 

fulfill its obligations under the 

terms of the agreement and 

applicable laws and 

regulations. 

This report addresses the 

following EPA Goal or 

Cross-Cutting Strategy: 

 Taking action on climate 

change and improving 

air quality. 

For further information, contact 

our Office of Congressional and 

Public Affairs at (202) 566-2391. 

The full report is at: 

www.epa.gov/oig/reports/2013/ 

20130620-13-R-0297.pdf 

Air Quality Objectives for the Baton Rouge Ozone 

Nonattainment Area Not Met Under EPA Agreement 

2A-96694301 Awarded to the Railroad Research Foundation 

What We Found 

The Railroad Research Foundation has not complied with the requirements of 

cooperative agreement 2A-96694301. We identified the following noncompliance 

issues: 

 The five repowered locomotives were not operating in the Baton Rouge 

area as originally proposed and expected by the EPA. As a result, the 

inhabitants in the Baton Rouge ozone nonattainment area were not 

receiving the benefits of the lower diesel emissions expected by the EPA 

when it approved the project. 

 Costs of $4,614 for various indirect activities under a service agreement 

were not allowable under federal cost principles and the terms of the 

agreement. 

 Costs of $16,512 for the foundation’s indirect costs were not supported 

because the cooperative agreement did not authorize indirect costs for 

the entire project period. 

Recommendations and Responses 

We recommend that the regional administrator for Region 6: 

1. Recover federal funds of $2,904,578 unless the foundation provides a 

verifiable and enforceable remedy to reduce diesel emissions in the 

Baton Rouge ozone nonattainment area, as required by the cooperative 

agreement. 

In the event that all federal funds are not recovered under the first 

recommendation, we recommend that the regional administrator for Region 6: 

2. Recover the $4,614 claimed for unallowable other costs. 

3. Recover the excess indirect cost of $16,512, or consider funding the 

foundation’s indirect cost for the entire project period. 

The foundation did not agree with the draft report’s recommendation to repay all 

federal funds, and proposed a possible remedy to achieve compliance with the 

cooperative agreement. The foundation agreed with the unallowable salary cost 

but disagreed with the questioned indirect costs. EPA Region 6 agreed with our 

recommendations and will seek appropriate cost recoveries. 
 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

SUBJECT: Air Quality Objectives for the Baton Rouge Ozone Nonattainment Area Not Met 

Under EPA Agreement 2A-96694301 Awarded to the Railroad Research Foundation 

 Report No. 13-R-0297 

FROM: Arthur A. Elkins Jr. 

TO: 

 Region 6 

Ron Curry, Regional Administrator 

June 20, 2013 

MEMORANDUM 

This is our final report on the subject audit of cooperative agreement 2A-96694301 awarded to the 

Railroad Research Foundation, Washington, D.C. We performed this site visit as part of our 

responsibility under the Recovery Act. This report contains findings on noncompliance with cooperative 

agreement terms and conditions and questions claimed costs as a result of this noncompliance. 

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. 

Action Required 

In accordance with EPA Manual 2750, you are required to provide us your proposed management 

decision for resolution of the findings contained in this report before any formal resolution can be 

completed with the recipient. Your proposed decision is due in 120 days, or on October 18, 2013. 

To expedite the resolution process, please email an electronic version of your proposed management 

decision to adachi.robert@epa.gov. 

Your response will be posted on the OIG’s public website, along with our memorandum commenting 

on your response. Your response should be provided as an Adobe PDF file that complies with the 

accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as amended. The final 

response should not contain data that you do not want to be released to the public; if your response 

contains such data, you should identify the data for redaction or removal. We have no objection to the 

further release of this report to the public. This report will be available at http://www.epa.gov/oig. 

If you or your staff have any questions regarding this report, please contact Richard Eyermann, acting 

assistant inspector general for the Office of Audit, at (202) 566-0565 or eyermann.richard@epa.gov; 

or Robert Adachi, product line director, at (415) 947-4537 or adachi.robert@epa.gov. 
 

 

Air Quality Objectives for the Baton Rouge Ozone 13-R-0297 

Nonattainment Area Not Met Under EPA Agreement 

2A-96694301 Awarded to the Railroad Research Foundation 

Table of Contents 

Chapters 

1 Independent Attestation Report........................................................................ 1 

2 Introduction ........................................................................................................ 3 

3 Expected Benefits Not Being Achieved ........................................................... 5 

4 Financial Results................................................................................................ 11 

Status of Recommendations and Potential Monetary Benefits.............................. 15 

Appendices 

A Railroad Research Foundation Response to Draft Report ............................ 16 

B Region 6 Response to Draft Report.................................................................. 22 

C Distribution ......................................................................................................... 24 
 

 

Chapter 1

Independent Attestation Report 

We have examined the Railroad Research Foundation’s compliance with the 

terms and conditions of the cooperative agreement 2A-96694301and the costs 

claimed on the Federal Financial Report, dated October 11, 2010. By accepting 

the funding provided through the cooperative agreement, the foundation has 

responsibility for complying with these requirements. Our responsibility is to 

express an opinion on the foundation’s compliance based on our examination. 

Our examination was conducted in accordance with generally accepted 

government auditing standards issued by the comptroller general of the United 

States and the attestation standards established by the American Institute of 

Certified Public Accountants. We examined, on a test basis, evidence supporting 

management’s assertion and performed such other procedures as we considered 

necessary in the circumstances. We believe that our examination provides a 

reasonable basis for our opinion. 

We contacted various representatives from the U.S. Environmental Protection 

Agency’s Region 6 to gather information on criteria relevant to the cooperative 

agreement; obtain an understanding of the proposed project; and gather 

information concerning the foundation’s performance. Specifically, we performed 

the following steps: 

 Reviewed the EPA’s project and cooperative agreement files. 

 Interviewed the EPA’s personnel to obtain an understanding of the 

cooperative agreement. 

 Reviewed the original and revised applications associated with the award 

of cooperative agreement 2A-96694301. 

 Reviewed cooperative agreement 2A-96694301 and its modifications. 

 Reviewed the foundation’s original and revised work plans. 

 Conducted interviews with EPA Region 6’s associate director for Air 

Programs; EPA Region 6’s Diesel Emission Reduction Act coordinator; 

and the grant management officer. 

We made site visits to the foundation’s office in Washington, D.C., and 

performed the following steps: 

	 Reviewed recipient cooperative agreement files and interviewed recipient 

personnel to gain an understanding of the accounting system, internal 

controls, costs reported under the cooperative agreement, and the work 

performed under the cooperative agreement. 

	 Selected November 2010 activity reports to review the operating locations 

of the repowered locomotives. 

13-R-0297 1 
 

 

 

	 On a test basis, reviewed costs reimbursed under the cooperative 

agreement to determine whether the costs met the applicable Code of 

Federal Regulations requirements under 40 CFR Parts 30 and 34, 

2 CFR Parts 215 and 230, and the cooperative agreement. 

 Obtained third party confirmation for the costs of the repower kits.
 

 Confirmed in-kind matching costs.
 

 Tested for compliance with Recovery Act requirements.
 

We also reviewed: 

	 The foundation’s single audit reports for 2009 and 2010. 

	 A limited scope review of the foundation’s administrative and financial 

management systems for managing the EPA’s funds under cooperative 

agreement 2A-96694301. 

	 The foundation’s actions to address the recommendations in the limited 

scope review. 

Our examination disclosed the following noncompliances with cooperative 

agreement requirements: 

	 The five locomotives repowered with Recovery Act funds were not 

operating in the Baton Rouge, Louisiana, area as originally proposed and 

expected by the EPA. 

	 Costs of $4,614 for various indirect activities under a service agreement 

and excess wages were not allowable under federal cost principles and the 

terms of the agreement. 

	 Costs of $16,512 for the foundation’s indirect costs were not supported 

because the cooperative agreement did not authorize indirect costs for the 

entire project period. 

In our opinion, because of the noncompliance items described above, the 

foundation has not complied with the requirements of cooperative agreement 

2A-96694301. 

Robert K. Adachi 

Director for Forensic Audits 

13-R-0297 2 
 

Chapter 2

Introduction 

Purpose 

The EPA Office of Inspector General conducted this review to determine whether 

the Railroad Research Foundation complied with the requirements, terms and 

conditions of cooperative agreement 2A-96694301 and all related laws and 

regulations. 

Background 

The American Recovery and Reinvestment Act of 2009 appropriated $300 million 

for Diesel Emission Reduction Act grants. The diesel emission program was 

created under Title VII, Subtitle G, of the Energy Policy Act of 2005. This act 

authorized the EPA to fund programs to achieve significant reductions in diesel 

emissions in terms of tons of pollution produced and diesel emission exposures, 

particularly from fleets operating in areas designated by the EPA as poor air 

quality areas. 

On September 1, 2009, the EPA used Recovery Act funds to award cooperative 

agreement 2A-96694301 to the foundation under the National Clean Diesel 

Funding Assistance Program. This award authorized federal funds of $2,927,496 

to repower locomotives for the city of Baton Rouge, Louisiana, in accordance 

with the application, dated April 28, 2009, and all modifications and amendments. 

The total project costs were $3,659,370, which included the authorized federal 

funds and the recipient share of $731,874. The agreement was amended twice to 

extend the project period, and to allow indirect costs. The amended project period 

was September 1, 2009, to December 31, 2010. 

On December 15, 2009, the foundation submitted a revised application in support 

of a modified work plan to change the locomotive model being repowered. This 

change was necessary due to technical issues with the model originally proposed. 

The substitute locomotive model did not change the expected lower emissions or 

the project’s location. The EPA approved the change in the work plan on 

December 22, 2009, without amending the cooperative agreement. 

The foundation is a Washington, D.C., based 501(c)(3) non-profit organization 

established to undertake research, development and educational projects devoted 

to sustaining the safety, security and efficiency of the railroad industry. The 

foundation provided proposal development services, program and project 

management, federal regulation compliance, financial and technical reporting, and 

federal agency interface for sponsored projects. The foundation has received 

federal funds from the U.S. Department of Transportation’s Federal Railroad 

13-R-0297 3 
 

 

 

Administration, the U.S. Department of Homeland Security, and the EPA. During 

the cooperative agreement’s project period, the foundation had two employees. 

Subsequently, the foundation hired a senior program director as a third employee. 

The foundation is closely aligned with the Association of American Railroads. 

The association is a 501(c)(6) trade organization committed to ensuring that 

freight railroads operate the safest and most efficient, cost-effective and 

environmentally sound freight transportation system in the world. Association 

members operate over a 140,000-mile network in North America, and include the 

major freight railroads in the United States, Canada and Mexico, as well as 

Amtrak. The association works with elected officials and leaders in Washington, 

D.C., on critical transportation and related issues related to the freight rail 

industry. 

The foundation and the association were co-located, and the association provided 

financial, accounting, managerial and administrative support to the foundation. 

Based on the 2009 tax returns, 8 of 11 foundation officers and/or directors were 

compensated association officers. A management committee, which consisted of 

two association officers from the foundation’s Board of Directors, actively 

managed foundation business and supervised foundation employees. In July 2012, 

the foundation entered into an agreement to obtain independent accounting 

services from an outside firm. 

13-R-0297 4 
 

Chapter 3

Expected Benefits Not Being Achieved 

The project’s location and the reduction of health risks due to lower emissions 

were important criteria for funding this project for the Baton Rouge 

nonattainment area. However, the five locomotives repowered with Recovery Act 

funds under the cooperative agreement were not operating in the Baton Rouge 

area, as originally proposed in the application and as required by the cooperative 

agreement. As a result, the inhabitants in the Baton Rouge ozone nonattainment 

area were not receiving the benefits of the lower diesel emissions expected by the 

EPA when it approved the project. Emissions from diesel exhaust can: 

 Lead to serious health conditions, such as asthma and allergies, and can 

worsen health and lung disease. 

 Contribute to the production of smog, acid rain, and other adverse 

conditions that can damage plants, animals, crops, and water resources. 

The five parishes that encompass the Baton Rouge nonattainment area—the only 

such designated area in Louisiana—has an estimated population of 739,013, or a 

little over 16 percent of the state’s total population. Reducing diesel emissions 

and providing benefits to the population in proximity to the Baton Rouge railroad 

operations were important objectives when the EPA approved funding for this 

project. Since the repowered locomotives were not operating in the Baton Rouge 

area, reduced emissions that resulted were not improving the air quality and 

reducing health risks in the heavily populated Baton Rouge nonattainment area. 

Project Area Stated In Cooperative Agreement and Application 

The cooperative agreement states that the Railroad Research Foundation 

requested funds to repower locomotives in the city of Baton Rouge. The award 

was based on the April 28, 2009, application, including all modifications and 

amendments. The application clearly identified Baton Rouge as the area affected 

by the project. According to the application, the new engines would reduce NOx 

(mono-nitrogen oxides) and particulate matter by 46 percent over the old engines, 

which would reduce human exposure to potentially harmful diesel emissions. 

Further, the application states: 

... repowering these units to much cleaner Tier 2 levels, KCS 

[Kansas City Southern Railway Company] will dramatically 

extend the locomotive useful lives and maximize the 

environmental benefits to the surrounding communities for years to 

come.... The Baton Rouge area is currently designated as a serious 

nonattainment area for ozone.... There are residents in close 

13-R-0297 5 
 

 

proximity to rail operations which would see an immediate 

improvement in the reduction of emissions. 

The 1990 Clean Air Act Amendments recognized that reducing the precursor 

emissions that cause ozone – nitrogen oxides (NOx) and volatile organic 

compounds – was the primary method for assuring permanent ozone reductions. 

Ground level ozone, the most pervasive urban air pollutant, has been linked to 

respiratory illnesses and other serious public health concerns, such as asthma and 

heart disease. 

When breathed, particulate matter can accumulate in the respiratory system. Fine 

particulate matter is associated with such adverse health effects as heart and lung 

disease and increased respiratory disease, and symptoms such as asthma, decreased 

lung function, and even premature death. Also, particulate matter is a major cause of 

reduced visibility, and adversely impacts vegetation and ecosystems. 

The EPA relied on the information in the application and scored the project’s 

national programmatic priorities and regional significance high because of the 

benefits to the Baton Rouge area. Specifically, the EPA stated that the change 

from an unregulated standard to the Tier 2 standard would result in a huge 

reduction in emissions. Residents in the proximity of railroad operations in Baton 

Rouge would benefit greatly from the project. Further, NOx reductions were 

important for the Baton Rouge nonattainment area; reducing uncontrolled sources 

would advance efforts to come into attainment for the .075 parts per million ozone 

standard. The EPA gave the project the maximum number of points for a high 

population density with poor air quality. 

In November 2009, the foundation contacted the EPA to discuss the need to 

change the type of locomotive being repowered from the SD50 model to the 

GP40 model because of unforeseen technical problems. The EPA responded that 

in order to proceed under the current agreement, the foundation must meet two 

conditions: 

1.	 The change from the SD50 model to the GP40 model must result in 

equivalent emission reductions to those stated in the original application. 

2.	 The reductions realized are in the same geographic area (that is, the 

different model locomotives that will receive the new engines must 

operate in the same geographic area as stated in the application). 

In December 2009, the foundation submitted a locomotive change justification to 

repower the GP40 locomotive. Included in the justification was a letter, dated 

November 18, 2009, from the Kansas City Southern Railway Company which 

affirmed that the substitute locomotives would operate in the same service as 

originally proposed: “switching and local service in the Baton Rouge, LA area.” 

The foundation also submitted a revised Application for Federal Assistance, 

SF-424. In block 14, the foundation identified “City of Baton Rouge, East Baton 

13-R-0297 6 
 

 

Rouge Parish, LA” as the area affected by the project. The EPA approved the 

revised project on December 22, 2009. 

Locomotives Not Operating in Non-Attainment Area 

Based upon records provided by the foundation, the repowered locomotives were 

not being used in the nonattainment area specified in the application. We 

reviewed the Equipment Event Activity report for the month of November 2010 

for each of the five repowered locomotives. These reports show the locomotives’ 

daily locations and movements during the month. According to the reports, none 

of the trains operated in the Baton Rouge area during the month of November 

2010. All the locomotives were operating in Louisiana or Texas. The closest any 

of the GP40 locomotives traveled near Baton Rouge was about 100 miles; the 

furthest point from Baton Rouge was estimated at more than 400 miles. On 

February 27, 2012, the date that the November 2010 activity reports were printed 

for our review, two of the locomotives were in Mississippi, one was in Oklahoma, 

and one was in Bayou Pierre, Louisiana. The fifth locomotive was in Baton 

Rouge. 

Despite clear language in both agreements, KCS did not believe that it was 

required to operate the repowered locomotives in the Baton Rouge area after the 

project period expired on December 31, 2010. This conclusion was based on a 

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

Clean Diesel Campaign Helpline in October 2010. 

The cooperative agreement’s programmatic condition 12 states the following: 

Recipient agrees that at the end of the project period the equipment 

acquired under this assistance agreement will be subject to the 

property disposition regulations at 40 CFR 30.34.... Specifically, 

the Recipient is instructed to continue to use the equipment 

purchased under this assistance agreement in the project or 

program for which it was acquired for the remainder of its useful 

life, whether or not the project or program continues to be 

supported by federal funds ... these disposition instructions are 

applicable to assistance agreement recipients and any other thirdparty recipients acquiring equipment under this award. 

All the cooperative agreement’s terms and conditions were incorporated into the 

agreement between the foundation and KCS in exhibit A. Further, this agreement, 

executed in January 2010, stated that the railroad was familiar with the 

requirements and obligations of the cooperative agreement and would abide by all 

such requirements and obligations. 

If KCS had questions regarding its obligations under the agreement with the 

foundation or the terms of the foundation’s cooperative agreement with the EPA, 

13-R-0297 7 
 

 

it should have addressed those concerns directly with the foundation. The 

response from the National Clean Diesel Campaign Helpline does not change the 

requirements of the foundation’s agreement with the railroad1

 or the EPA’s 

cooperative agreement with the foundation. Consequently, the railroad is still 

obligated to operate the repowered locomotives in the Baton Rouge area for the 

useful life of the locomotive engines. 

Environmental and Related Health Benefits Not Being Realized 

Baton Rouge was one of 12 sites in the United States that measured 

concentrations above the 2008 ozone standard in the 2006-2008 time period.2 

Because the locomotives were not operating in the area as originally proposed, the 

environmental and related human health benefits expected in Baton Rouge from 

lower emissions were not being realized. 

Emissions from diesel exhaust can lead to serious health conditions such as 

asthma and allergies, and can worsen heart and lung disease, especially for 

vulnerable populations such as children and the elderly. Diesel engines emit 

particulate matter (soot), nitrogen oxides which contribute to the production of 

ground-level ozone (smog) and acid rain, hydrocarbons, air toxics, and black 

carbon. As previously noted, ground level ozone and particulate matter cause 

serious human respiratory problems. Additionally, these emissions can damage 

plants, animals, crops and water resources. 

At the time the EPA awarded the cooperative agreement, the Baton Rouge area 

was classified as a “moderate” 8-hour ozone nonattainment area based on the 

1997 standard.3

 In 2012, the EPA designated the Baton Rouge area as a 

nonattainment area for the 2008 national ambient air quality standards for ozone.4 

The Baton Rouge nonattainment area, which includes five parishes—East Baton 

Rouge (including the city of Baton Rouge), West Baton Rouge, Iberville, 

Ascension, and Livingston—was the only designated nonattainment area in the 

state of Louisiana. The estimated population for these five parishes was 739,013, 

or a little over 16 percent of the state’s total population.5 

Reducing diesel emissions in a nonattainment area and providing benefits to the 

population in proximity to railroad operations in Baton Rouge were important 

objectives when the EPA approved funding for this project. This importance was 

clearly emphasized when the EPA informed the foundation that it could substitute 

a different locomotive model, provided the emission reductions remained the 

same as originally proposed, and the substitute locomotives operated in the same 

1

 Article 10 in the agreement between the foundation and the KCS states that changes or alterations to the agreement 

are not binding unless such changes are in writing and signed by both parties.

2 Our Nation’s Air, Status and Trends Through 2008, EPA-454-R-09-002, February 2010. 3

 73 Fed. Reg. 15087-15092 (March 21, 2008). 

4

 77 Fed. Reg. 30088, 30125 (May 21, 2012). 

5

 U.S. Census Bureau 2011estimate.
 

13-R-0297 8 
 

 

geographic location as originally proposed. Since the repowered locomotives 

were not operating in the Baton Rouge area, the reduced emissions resulting from 

this project were not improving the air quality and reducing health risks in the 

heavily populated Baton Rouge nonattainment area. 

After discussions with the foundation regarding this issue, KCS provided a letter, 

dated May 12, 2012, stating “repowered locomotives are based in Baton Rouge 

and are used for pick-up and delivery service in the Baton Rouge area and the 

surrounding communities we serve.” The locomotives would remain so for the 

10-year estimated life of the new engines. However, the locomotives would need 

to move to Shreveport, Louisiana, for periodic maintenance. The foundation also 

offered to monitor the engine locations for future years. 

The location and use of the repowered locomotives described in the May 12, 

2012, letter is different than earlier representations. The original application, 

dated April 28, 2009, stated that the project would maintain the ability to provide 

switching and local pickup and delivery services. Further, the application stated 

that residents in close proximity to the rail operations in the greater Baton Rouge 

area would see an immediate improvement in the reduction of emissions. The 

application seems clear—the repowered locomotives would operate in the greater 

Baton Rouge area performing switching and local services, and the public 

benefiting from the project would be those close to rail operations. 

Also, the revised application, dated December 15, 2009, clearly identifies the city 

of Baton Rouge, East Baton Rouge Parish, Louisiana, as the project location. In 

the letter accompanying the revised application and work plan, the railroad 

confirmed that it would use the repowered locomotives for “switching and local 

service in the Baton Rouge, LA area.” 

The description used in the May 12, 2012, letter is different than the original and 

revised applications. The repowered locomotives would be “based” in Baton 

Rouge, and used for pickup and delivery services in the Baton Rouge area and 

surrounding communities. There is no mention of switching activities. Further, 

the letter’s description of the area of operations—“the Baton Rouge area and 

surrounding communities”—is not necessarily the same as the city of Baton 

Rouge, Louisiana; the Baton Rouge area; or the city of Baton Rouge, East Baton 

Rouge Parish, Louisiana used in the applications for federal assistance. 

Recommendations 

We recommend that the regional administrator for Region 6: 

1.	 Recover federal funds of $2,904,578 unless the foundation provides a 

verifiable and enforceable remedy to reduce diesel emissions in the Baton 

Rouge ozone nonattainment area, as required by the cooperative agreement. 

13-R-0297 9 
 

 

Railroad Research Foundation Response 

The foundation disagreed with the recommendation because it believes the terms 

of the cooperative agreement have been complied with in part and it remains 

possible to comply with the terms in the future. The foundation believes the 

cooperative agreement’s expected program benefits can still be realized. The 

foundation stated that, since becoming aware in May 2012 that the repowered 

locomotives were sometimes operating outside the Baton Rouge area, the 

foundation has taken corrective action with KCS to ensure that the locomotives 

are operating in the Baton Rouge area. However, there is some confusion over 

what locations are within the Baton Rouge area for the purpose of the cooperative 

agreement. 

Subject to clarification of the operating location, the foundation stated the railroad 

will operate the locomotives in the defined area going forward through 2019 and 

possibly beyond, thereby achieving the expected environmental and related 

human health benefits. Rather than recover the full assistance amount of 

$2.9 million, the foundation believes that it would be more consistent with the 

goals of the program to work out an arrangement that would result in full 

compliance with the terms of the cooperative agreement. The foundation believes 

that it would be useful to discuss details of the proposed remedy with the EPA in 

order to achieve full benefits of the cooperative agreement. The proposed remedy 

would include operation of the repowered locomotives within the defined area for 

the remainder of the locomotives’ useful lives and the possible addition of time to 

account for any periods of past noncompliance. 

Region 6 Response 

Region 6 agreed with the proposed recommendation. Region 6 said it will take 

into consideration any foundation provisions for quantifiable and enforceable 

measures that would ensure the reduction of diesel emissions in the Baton Rouge 

area when deciding cost recovery. 

OIG Response 

The foundation acknowledged that, contrary to the requirements of the 

cooperative agreement, the repowered locomotives operated outside the Baton 

Rouge area at times until May 2012. Since that time, the foundation stated that the 

locomotives have operated within the Baton Rouge area and would continue to do 

so with some clarification. Since the foundation proposed a possible remedy to 

achieve compliance and the region indicated a willingness to consider such a 

proposal, we believe that direct discussions between the region and the foundation 

would provide the best opportunity of achieving the intended environmental and 

human health benefits. We have revised our recommendation accordingly. 

13-R-0297 10 
 

 

 

 

 

 

 

 

 

Chapter 4

Financial Results 

The Railroad Research Foundation submitted a revised final Federal Financial 

Report on October 11, 2011, and claimed federal funds of $2,904,578, and a 

recipient’s matching share of $731,874. Pursuant to an agreement with the 

foundation, KCS funded the required match by partially paying for the GP40 

repower kits for the five locomotives included under the cooperative agreement. 

The confirmed cost for the five repower kits was $4,103,615, of which KCS paid 

$1,266,119. The balance of the kit cost—$2,837,496—was paid with federal 

funds. 

We reviewed the claimed costs and identified unallowable costs of $4,614, and 

unsupported costs of $16,512. The results of our examination are detailed in 

table 1 and the accompanying notes. 

Table 1: Schedule of costs claimed and questioned 

Questioned Costs 

Category Claimed Unallowable Unsupported Notes 

Salaries $21,830 

Fringe 6,279 1 

Travel 2,054 

Contractual:

 KCS 2,837,496

 Maximus 4,739 2 

Less prior questioned 

costs for Maximus (2,292) 2 

Other 11,304 $4,614 3a, b 

Indirect costs 23,168 $16,512 4 

Federal share 2,904,578 $4,614 $16,512 

Matching 731,874 

Total project costs $3,636,452 

Source: OIG analysis. 

Note 1. Fringe Benefits 

The foundation invoiced $6,279 for fringe benefits. This amount is more than the 

$3,611 reported on the final Federal Financial Report, dated October 11, 2011. 

Since the amount invoiced was less than amount budgeted by the EPA and less 

than the amount derived using the negotiated rate agreement, we did not question 

any costs. 

13-R-0297 11 
 

Note 2. Prior Question Costs 

The foundation claimed $4,739 for interim grant and contract management 

services under a consulting agreement with Maximus. An EPA administrative and 

financial monitoring report, dated July 2011, questioned $2,292 because the 

hourly rate paid to consultants exceeded the maximum allowable under EPA 

regulations. The foundation repaid the questioned amount on August 2011. 

Note 3. Other Costs - Association of American Railroads 

The foundation claimed $11,304 for accounting, legal and grants management 

services provided by the Association of American Railroads under a service 

agreement as follows: 

Table 2: Other costs claimed 

Claimed Unallowable Note 

Salaries $6,125 $830 a 

Indirect costs 3,784 3,784 b 

Travel 1,395 0 

Totals $11,304 $4,614 

Source: OIG analysis. 

Since the two organizations were under common control, the agreement did not 

meet the EPA’s procurement standards at 40 CFR § 30.42 and 30.43. However, 

association employees did provide necessary services under the cooperative 

agreement. Direct salaries and travel costs charged to the agreement were 

supported by adequate documentation. Therefore, direct salaries and travel costs 

for association employees met federal cost principles and, except for the excess 

costs discussed in note 3a, are allowable. 

a.	 The foundation claimed $830 for two association employees whose effective 

hourly labor rates exceeded the maximum allowed for consultants under the 

cooperative agreement. Section 25 of the cooperative agreement’s 

administrative conditions limited compensation to the maximum daily rate for 

Level IV of the Executive Schedule. This requirement is also contained in 

EPA’s regulations at 40 CFR § 30.27(b). This limitation applies because the 

foundation did not follow the EPA’s procurement standards when obtaining 

the association services. The questioned cost is the difference between the 

amounts claimed for the two employees and the amounts allowed. 

b. The foundation claimed $3,784 for fringe benefits, occupancy, the president’s 

office, and administration based on various percentage rates applied to direct 

salaries. These rates were not supported by an indirect cost rate agreement 

with a federal agency. Title 2 CFR Part 230 – Cost Principles for Non-Profit 

Organizations (Office of Management and Budget Circular A-122), 

Appendix A, General Principles, A.2.g, states that a cost must be adequately 

13-R-0297 12 
 

documented to be allowable. Since the association’s indirect cost rates were 

not supported by a federal rate agreement, the costs are not adequately 

supported and do not meet general principles for allowable costs. In addition, 

paragraph 4 of the cooperative agreement’s administrative conditions states 

that management fees or similar charges in excess of direct costs and 

approved indirect cost rates are not allowable. Accordingly, costs of $3,784 

based on unsupported indirect cost rates are not allowable. 

Note 4. Indirect Costs 

The foundation claimed indirect costs of $23,168 ($22,345 indirect costs and 

$823 occupancy costs). On invoice numbers 0001 through 0007, for costs 

incurred from August 17, 2009 through June 27, 2010, the foundation included 

fringe benefits and occupancy as part of the claimed salary costs. Beginning with 

invoice number 0008, salary, fringe benefits and indirect costs were identified 

separately. 

On April 12, 2011, the EPA amended the cooperative agreement to authorize an 

indirect rate of 150 percent applied to direct salaries and wages for the period 

beginning July 1, 2010, through December 31, 2010, which was the last 6 months 

of the project period. According to the agreement’s amended budget, the 

estimated indirect cost for the last 6 months of the project period was $41,853. 

Based on this amendment, the maximum allowable indirect cost was $6,656. The 

allowable amount was determined by multiplying the direct salaries of $4,437 for 

the last 6 months of the project by the authorized rate of 150 percent. The 

difference between the amount claimed and the amount allowed is $16,512. This 

amount is not allowable because of the limited time period specified in the 

amended agreement. However, the total indirect cost claimed—$23,168—is less 

than the budgeted amount of $41,853, and only 106 percent of the total direct 

salaries. 

Recommendations 

In the event that all federal funds are not recovered under recommendation 1, we 

recommend that the regional administrator for Region 6: 

2.	 Recover the $4,614 claimed for unallowable other costs. 

3.	 Recover the excess indirect cost of $16,512, or consider funding the 

foundation’s indirect costs for the entire project period. 

Railroad Research Foundation Response 

The foundation agreed to repay the $830 claimed for the two association employees 

in excess of the maximum daily rates allowed. However, the foundation disagreed 

13-R-0297 13 
 

 

with the recommendations to recover indirect costs for the foundation and the 

association. 

The foundation did not agree that the association’s indirect cost required a federally 

approved indirect cost rate agreement to be allowable under OMB Circular A-122, 

as long as the costs are reasonable, adequately documented, and treated consistently 

with other costs incurred for the same purpose in like circumstances. Regarding the 

foundation’s indirect costs, the foundation stated that it had a federally negotiated 

indirect cost rate agreement applicable to the cooperative agreement period of 

performance. The foundation believes that when the EPA modified the agreement 

to authorize indirect costs, it should have authorized the costs for the entire project 

period, and not just the last 6 months. 

Region 6 Response 

The region agreed with the recommendations to recover $4,614 and $16,512, 

respectively. 

OIG Comments 

We disagree with the foundation’s statement that indirect costs charged by the 

association are allowable because indirect costs do not require a federally approved 

rate agreement to be allowable under OMB Circular A-122. As noted in the 

foundation’s response, an allowable cost must be adequately documented. For 

indirect costs, 2 CFR Part 230 – Cost Principles for Non-Profit Organizations 

(OMB Circular A-122), Appendix A, General Principles, E.1.f, defines an indirect 

cost proposal as documentation prepared by an organization to substantiate its 

claim for the reimbursement of indirect costs. This proposal provides the basis for 

the review and negotiation leading to the establishment of an organization’s 

indirect cost rate. Paragraph E.2.g states that the results of each negotiation shall be 

formalized in a written agreement between the cognizant agency and the non-profit 

organization. Since this required documentation was not provided, the association’s 

indirect costs were not adequately documented. 

With regard to the foundation’s indirect costs, we reviewed the October 27, 2010 

approved indirect cost negotiated agreement covering the final rates for calendar 

years 2008 and 2009 and provisional rates for 2010. The foundation’s response 

included the October 16, 2012 approved indirect cost negotiated agreement (see 

appendix A) that provides the final rates for calendar years 2010 and 2011. We 

did not question the $16,512 because of the lack of a negotiated indirect cost 

agreement but because the cooperative agreement only authorized reimbursement 

of indirect costs for the period July 1, 2010, through December 31, 2010. 

Therefore, indirect costs incurred and claimed outside the cooperative 

agreement’s authorized period are not eligible for reimbursement under the 

agreement and must be repaid unless the EPA modifies the cooperative 

agreement. 

13-R-0297 14 
 

 

 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Planned 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Completion 

Date 

Claimed 

Amount 

Agreed-To 

Amount 

1 9 Recover federal funds of $2,904,578 unless the 

foundation provides a verifiable and enforceable 

remedy to reduce diesel emissions in the Baton 

Rouge ozone nonattainment area, as required by 

the cooperative agreement. 

U Regional Administrator, 

Region 6 

$2,905 

2 13 In the event that all federal funds are not recovered 

under recommendation 1, recover the $4,614 

claimed for unallowable other costs. 

U Regional Administrator, 

Region 6 

$5 

3 13 In the event that all federal funds are not recovered 

under recommendation 1, recover the excess 

indirect cost of $16,512, or consider funding the 

foundation’s indirect costs for the entire project 

period. 

U Regional Administrator, 

Region 6 

$17 

1	 O = recommendation is open with agreed-to corrective actions pending 

C = recommendation is closed with all agreed-to actions completed 

U = recommendation is unresolved with resolution efforts in progress 

13-R-0297 15 
 

Appendix A 

Railroad Research Foundation Response 

to Draft Report 

April 9, 2013 

John Trefry, OIG 

USEPA Headquarters 

Ariel Rios Building 

1200 Pennsylvania Avenue, N.W. 

Mail Code: 2421T 

Washington, DC 20460 

Re: Response to Examination of Costs and Compliance – Cooperative Agreement 2A-96694301 

Awarded to the Railroad Research Foundation, Project No. OA-FY12-0198 

Dear Mr. Trefry: 

The Railroad Research Foundation (RRF) appreciates the opportunity to respond to the U.S. 

Environmental Protection Agency Office of Inspector General’s draft report of February 25, 

2013, entitled Examination of Costs and Compliance – Cooperative Agreement 2A-96694301 

(EPA-OIG Project No. OA-FY12-0198) awarded to the Railroad Research Foundation (Draft 

Report). The Draft Report states that the RRF did not comply with the above-referenced 

Cooperative Agreement, primarily because the five locomotives repowered with funds granted 

under the Cooperative Agreement were not operated in the Baton Rouge, Louisiana area. The 

Draft Report recommends that EPA seek to recover $2,904,758, the full amount funded under 

the Cooperative Agreement. As further explained below, the RRF disagrees with the 

recommended remedy because (1) to date, the terms of the Cooperative Agreement have been 

complied with in part; and (2) it remains possible for RRF to comply fully with the terms of the 

Cooperative Agreement and for the benefits of the program under which the grant was awarded 

to be fully realized. RRF has been and is committed to full compliance in the future and has 

complied with all the terms and conditions under this award since RRF was first made aware of 

an issue with the location of the repowered locomotives and took corrective action with its 

subrecipient, KCSR, since May of 2012. 

In September, 2009, EPA funded 80% of the total project cost and made an award to the RRF of 

$2,927,496 under the National Clean Diesel Funding Assistance Program. The additional 20% 

of project cost included a recipient contribution of $731,847. The funds awarded were to be used 

to repower five diesel locomotives. The purpose of the program was to reduce diesel emissions 

and improve air quality by operating locomotives which are more fuel efficient, meet more 

stringent air emission requirements, and include automatic engine start-stop systems. In 

December, 2009, a changed work plan was approved for the purpose of substituting a different 

locomotive model for the model proposed in the original application. The award also was 

amended twice to allow indirect costs and to extend the project period. 

13-R-0297 16 
 

In January, 2010, RRF entered into a subcontract with the Kansas City Southern Railway 

Company (KCSR), which owns and operates the locomotives that were to be repowered. Under 

the subcontract between KCSR and RRF, KCSR received funding in the amount of $2,837, 496, 

and was to comply with all the applicable terms of the Cooperative Agreement and applicable 

federal regulations. 

The relevant documents reference the project location as the Baton Rouge, Louisiana area. The 

Draft Report further states that the repowered locomotives “were not operating in the Baton 

Rouge, Louisiana area, as originally proposed in the application and as required by the 

cooperative agreement” and that, therefore, “the environmental and related human health 

benefits expected in Baton Rouge from lower emissions were not being realized.” The Draft 

Report takes the position that KCS was, and remains, “obligated to operate the repowered 

locomotives in the Baton Rouge area for the useful life of the locomotive engines.” 

RRF acknowledges that since the locomotives were repowered, they have operated outside of the 

Baton Rouge area at times. However, they have also operated within that area for part of the 

time. Specifically, since May 2012, KCS has advised RRF that the locomotives have been 

operated in locations that fall within the Baton Rouge area. (RRF can provide further detail on 

the post-May 2012 operations if necessary). Moreover, there is some confusion over what 

locations in KCS’s area of operations are within the Baton Rouge area for the purpose of the 

Cooperative Agreement. 

The useful life of the locomotives will extend into the future for many more years. Subject to 

discussion regarding clarification to the Cooperative Agreement with respect to the area in which 

the locomotives are to be operated, RRF and KCS are willing to commit that, other than for 

required maintenance, which will occur at a different location, the locomotives will be operated 

in the defined area going forward for the remainder of their useful lives, which is currently 

expected to end in 2019. Additionally, if the locomotives are rebuilt such that their useful lives 

extend past 2019, RRF and KCS are willing to continue to operate the locomotives in the defined 

area beyond that time to the extent necessary to make up for any time prior to May, 2012 when 

the locomotives were not being operated in the defined area. If the locomotives are operated in 

the defined area going forward, as proposed, much of the expected environmental and related 

human health benefits from lower emissions will, in fact, be achieved. Thus, inasmuch as the 

full period of performance has not run, and it remains possible to comply with the provisions of 

the Cooperative Agreement, thereby achieving its purpose, it is not appropriate for EPA to seek 

to recover the full grant amount of over $2.9 million. RRF believes that rather than recommend 

EPA take such an action, it would be more consistent with the goals of the program to work out 

an arrangement that would result in full compliance with the terms of the Cooperative 

Agreement. Among matters that should be clarified under such an arrangement is agreement 

about what locations constitute the defined area to assure compliance going forward. 

The RRF believes that in order to work out the details of its proposed remedy—operation of the 

repowered locomotives within the defined area for the remainder of the locomotives’ useful 

lives, with possible additional time to account for any periods of past noncompliance—it would 

be useful to discuss this matter directly with EPA in order to determine how best to achieve the 

full benefits of the program. 

13-R-0297 17 
 

 

This discussion would include agreement on a definition of the area where the locomotives are to 

be operated so there will be no confusion over where the locomotives are to be operated going 

forward. 

The Draft Report also found that certain RRF indirect costs charged to the project were not 

allowable in three areas. 

1. The Draft Report recommends recovery of $16,512 in indirect costs because the Cooperative 

Agreement did not authorize indirect costs for the entire project period, noting that an 

amendment authorizing an indirect rate of 150% applied only to the last six months of the project 

period, July 1, 2010 through December 31, 2010. Thus, the Draft Report recommends 

disallowing indirect costs for the prior period. RRF takes issue with this recommendation. 

The RRF had received a negotiated agreement issued by the Federal Railroad Administration 

(the cognizant agency) dated October 27, 2010, and a provisional rate was issued for the period 

01/01/2010 to 12/31/2010 (a copy is attached). This agreement allows an IDC rate of 216.8% 

even though RRF has charged only 150%. This agreement constitutes authorization of indirect 

costs for RRF and should have been applied to the Cooperative Agreement with EPA during the 

entire period of the project. RRF, in fact, incurred indirect costs for the entire project period and 

the amendment with EPA should have covered the entire period, not just the last six months. 

RRF is requesting a retro-active amendment to the EPA Cooperative Agreement to cover the 

entire period. Disallowance of all but the last 6 months of IDC recovery would represents a 

significant loss to RRF in cost recovery. OIG acknowledges this unfairness by recommending as 

an alternative to recovery of the $16,512 that EPA “consider funding the Foundation’s indirect 

cost for the entire project period.” Therefore, RRF respectfully requests that OIG withdraw its 

recommendation that EPA seek to recover the $16,512 in indirect cost. 

2. EPA regulation 40 CFR 30.27(b), limits the maximum daily salary rate paid to subcontractors 

to the Level IV of the Executive Schedule. In accordance with this regulation the OIG has 

determined $830 of salary paid for two employees of the Association of American Railroads 

(AAR), which provided services as part of the project, to have exceeded the maximum allowed 

rate for consultants under the Cooperative Agreement. Though the services rendered were 

determined to be allowable under procurement standards 40 CFR 30.42 and 30.43, this limitation 

applies. The RRF has requested that AAR reimburse $830 to RRF which would be repaid to the 

EPA for this questioned costs. 

3. The AAR charged RRF, and RRF claimed $3,784 for the AAR’s indirect cost. However, OIG 

found that the AAR’s indirect cost rates were not supported by a federal rate agreement, and 

therefore do not meet general principles for allowable costs. 

RRF disagrees with this finding. The indirect costs charged as a percentage of direct salary, 

which the Draft Report has already determined to be supported by adequate documentation and 

to meet federal cost principles, do not require a federal approved indirect cost rate agreement to 

meet the criteria to be treated as allowable costs as defined under OMB Circular A-122, Cost 

Principles for Not for Profit Organizations. Based on guidance contained in OMB Circular A122, for a cost to be allowable it must be reasonable, adequately documented and treated 

consistently with other costs incurred for the same purpose in like circumstances. RRF has 

reviewed the AAR’s methodology of identifying and developing an indirect cost methodology 

13-R-0297 18 
 

   

charged on the basis of direct labor hours incurred. RRF believes indirect costs charged against 

direct labor hours incurred were reasonable, adequately supported and documented and were 

treated consistently with other costs incurred for the same purpose, and therefore were properly 

claimed. Further, the AAR’s expenditures of federal funding is below the $300,000 threshold 

required for federal audits as set by OMB Circular A-133, Audits of State, Local Government 

and Non Profit Organizations, Subpart B, paragraph .200b, and further supports that the AAR is 

within the federal regulations in terms of requirements for supporting costs. 

To discuss further or for more information, you may contact me at 202-639-2118 or by email at 

jmarsh@railroadresearch.org. 

Best Regards, 

Jeffrey D. Marsh 

Vice President, Treasurer and Director 

Cc: Edward Hamberger, President Board of Directors 

Robert VanderClute, Vice President and Director 

 Sharon Stewart Cole, PhD., Sr. Program Director 

Dan Saphire, Legal Counsel 

Attachment 

13-R-0297 19 
 

 

 

 

 

 

 

 

NON-PROFIT ORGANIZATION 

INDIRECT COST NEGOTIATED AGREEMENT
 

Name: Date: October 16, 2012 

Railroad Research Foundation Filing Ref: This agreement replaces the agreement 

425 3rd

 Street, SW, Suite 910 dated March 19,2012 

Washington, DC 20024 

The indirect cost rate(s) contained herein is for use in grants and contracts with the U. S. Department of 

Transportation and other Federal agencies, subject to the limitations contained in Section II of this 

agreement: 

SECTION I: RATES
 

Overhead Rate 

Effective Period 

Type From To *Rate Location Applicable to 

Final 01/01/2008 12/31/2008 455.60% All All Programs 

Final 01/01/2009 12/31/2009 216.80% All All Programs 

Final 01/01/2010 12/31/2010 201.97% All All Programs 

Final 01/01/2011 12/31/2011 238.11% All All Programs 

*Base: Total direct salaries and wages, including fringe benefits. 

Fringe Benefit Rate 

Effective Period 

Type From To *Rate Location Applicable to 

Final 01/01/2008 12/31/2008 30.47% All All Programs 

Final 01/01/2009 12/31/2009 35.24% All All Programs 

Final 01/01/2010 12/31/2010 32.21% All All Programs 

Final 01/01/2011 12/31/2011 27.37% All All Programs 

*Base: Total direct salaries and wages 

13-R-0297 20 
 

 

 

 

 

 

SECTION II: GENERAL
 

A. LIMITATIONS: Use of the rate(s) contained in this agreement is subject to any statutory or 

administrative limitations and is applicable to a given grant or contract only to the extent that funds 

are available. Acceptance of the rate(s) agreed to herein is predicated on this conditions: 

(I) that no costs other than those incurred by the grantee/contractor were included in its indirect cost 

pool as finally accepted and that such costs are legal obligations of the grantee/contractor and 

allowable under the governing cost principles; (2) that the same costs that have been treated as 

indirect costs are not claimed as direct costs; (3) that similar types of costs have been accorded 

consistent accounting treatment; and (4) that the information provided by the grantee/contractor 

which was used as a basis for acceptance of the rate(s) agreed to herein is not subsequently found to 

be materially incomplete or inaccurate. 

B. ACCOUNTING CHANGES: The rate(s) contained in this agreement are based on the accounting 

system in effect at the time the proposal was prepared and the agreement was negotiated. Changes to 

the method of accounting for costs which affect the amount of reimbursement resulting from the use 

of this rate(s) require the prior approval of the office responsible for negotiating the rate(s) on behalf 

of the Government. Such changes include but are not limited to changes in the charging of a particular 

type of costs from indirect to direct. Failure to obtain such approval may result in subsequent cost 

disallowances. 

C. REIMBURSEMENT: Indirect cost reimbursement on all awards will be determined based upon the 

indirect cost rates established for the fiscal period in which the applicable direct expenditures are 

incurred. 

D. NOTIFICATION TO FEDERAL AGENCIES: Copies of this document may be provided to 

other Federal offices as a means of notifying them of the agreement contained herein. 

E. SPECIAL REMARKS: Federal programs currently reimbursing indirect costs to this organization 

by means other than the rate(s) cited in this agreement should be credited for such costs and the 

applicable rate cited herein applies to the appropriate base to identify the proper amount of indirect 

cost allocated to the program. 

US Department of Transportation Railroad Research Foundation 

Federal Railroad Administration 

/s/ Rebecca Pennington /s/ Sharon Cole 

Signature: Rebecca Pennington Signature: Sharon Stewart Cole, PhD 

Chief Financial Officer Sr. Program Director 

Office of Railroad Financial Management 

Date: November 7, 2012

 /s/ Jeffery D. Marsh 

Name and Title: Jeffery D. Marsh 

Vice President and Treasurer 

Date: October 18, 2012 

Negotiated By: Jennifer Capps 

 (202) 493-0112 

13-R-0297 21 
 

 

 

Appendix B 

Region 6 Response to Draft Report 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

REGION 6
 

1445 ROSS AVENUE, SUITE 1200 

DALLAS, TEXAS 75202 – 2733 

Office of the Regional Administrator 

April 5, 2013 

MEMORANDUM 

SUBJECT:	 Response to Office of Inspector General Draft Report-Examination of Costs and 

Compliance – Cooperative Agreement 2A-96694301 Awarded to the Railroad 

Research Foundation dated February 25, 2013 

FROM: Ron Curry 

Regional Administrator, Region 6 

TO: Robert K. Adachi, Jr 

Director of Forensic Audits 

Office of the Inspector General 

Thank you for the opportunity to respond to the issues and recommendations in the subject audit 

report. Following is a summary of the agency’s overall position, along with its position on each 

of the report recommendations. We have provided high-level intended corrective actions and 

estimated completion dates to the extent we can for those report recommendations with which 

the agency agrees. 

AGENCY’S OVERALL POSITION 

Region 6 agrees with the Office of the Inspector General’s recommendations. Additionally, 

reducing diesel emissions for the Baton Rouge nonattainment area and providing benefits to the 

population in proximity to railroad operations were important considerations when approving 

funding of the project. If the Railroad Research Foundation (RRF) were to provide quantifiable 

and enforceable measures to ensure the fulfillment of the grant requirements whereby the 

subsequent emissions reductions would benefit the Baton Rouge nonattainment area, Region 6 

would be willing to consider the measures offered by RRF in deciding whether all or a portion 

of the federal share in recommendation 1 will be recovered. 

13-R-0297 22 
 

 

 

 

AGENCY’S RESPONSE TO REPORT RECOMMENDATIONS
 

No. Recommendation High-Level Intended Correction Action(s) Estimated Completion 

1 Recover the federal share of 

$2,904,758 

Region 6 will disallow and recover the 

federal share in accordance with 40 CFR 

30 unless RRF can ensure grant is fulfilled 

by operating in the Baton Rouge area. 

6 months after final 

report 

In the event that all federal funds are not recovered under Recommendation 1, Region 6 will 

2 Recover the $4,614 claimed for 

unallowable other costs 

Region 6 will disallow and recover the 

federal share in accordance with 40 CFR 

30.62. 

6 months after final 

report 

3 Recover the excess indirect cost 

of $16,512, or consider funding 

the Foundation’s indirect cost 

for the entire project period 

Region 6 will disallow and recover the 

federal share in accordance with 40 CFR 

30.62. 

6 months after final 

report 

CONTACT INFORMATION 

If you have any questions regarding this response, please contact Thomas Diggs, Associate 

Director of the Air Programs Branch, Multimedia Planning and Permitting Division at (214) 665-

3102 or Gloria Vaughn of his staff at 214-665-7535. 

cc: Michael Rickey, Office of the Inspector General 

John Trefry, Office of the Inspector General 

bcc: David Garcia, Acting Director, Multimedia Permitting 

Thomas Diggs, Associate Director, Air Programs 

Mary Stanton, Air State and Tribal Operations 

Ashley Williams, Air State and Tribal Operations 

Missy Milbeck, Comptroller 

Susan Jenkins, Audit Liaison 

Donna R. Miller, Grants Management Officer 

Dannell Brown, Grants Management 

Paul Witthoeft, ORC 

Gloria Vaughn, Air Programs 

13-R-0297 23 
 

Appendix C 

Distribution 

Regional Administrator, Region 6 

Agency Follow-Up Official (the CFO) 

Agency Follow-Up Coordinator 

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

and Resources Management 

Deputy Regional Administrator, Region 6 

Director, Office of External Affairs, Region 6 

Office of the Regional Comptroller, Region 6 

Director, Multimedia Planning and Permitting Division, Region 6 

Associate Director for Air, Region 6 

Audit Follow-Up Coordinator, Region 6 

President, Railroad Research Foundation 

13-R-0297 24