U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

New Procedures Aided 

Region 5 in Reducing 

Unliquidated Obligations 

Report No. 13-P-0145 February 13, 2013 

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learn more about 

the EPA OIG. 
 

 

Report Contributors: Heriberto Ibarra 

 Janet Kasper 

 Madeline Mullen 

Nicole Pilate 

 Shannon Schofield 

Abbreviations 

CFR Code of Federal Regulations 

EPA U.S. Environmental Protection Agency 

FMFIA Federal Managers’ Financial Integrity Act 

FY Fiscal year 

IA Interagency agreement 

OARM Office of Administration and Resources Management 

OCFO Office of the Chief Financial Officer 

OIG Office of Inspector General 

OMB Office of Management and Budget 

RMDS Resources Management Directives System 

ULO Unliquidated obligation 

Hotline 

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

e-mail: 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-P-0145 

February 13, 2013 Office of Inspector General 

At a Glance
 

Why We Did This Review 

The U.S. Environmental 

Protection Agency Office of 

Inspector General conducted 

this audit to determine whether 

Region 5 is timely liquidating 

grant, interagency agreement, 

and contract obligations. 

Prior OIG reports have 

identified concerns with 

obligations not being liquidated 

when no longer needed. EPA 

developed procedures to 

strengthen internal controls 

over unliquidated obligations. 

In fiscal year 2011, the Office of 

the Chief Financial Officer 

instituted a database to 

improve the consistency in 

reviewing and managing ULOs. 

Our review focused on whether 

the corrective actions taken 

were effective. 

This report addresses the 

following EPA Goal or 

Cross-Cutting Strategy: 

 Strengthening EPA’s 

workforce and capabilities 

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/ 

20130213-13-P-0145.pdf 

New Procedures Aided Region 5 in Reducing 

Unliquidated Obligations 

What We Found 

At the beginning of FY 2011, EPA’s system for reviewing ULOs indicated that 

Region 5 had over $1.7 billion in grant, contract, and interagency agreement 

ULOs. During FY 2011, Region 5 liquidated over $1 billion in ULOs, leaving 

about $645 million in ULOs remaining at the end of FY 2011. Our review found 

an additional $402,445 that, in our opinion, could have been deobligated during 

FY 2011. Region 5 deobligated the funds in FY 2012. 

Several factors impacted Region 5’s ability to liquidate funds, including obtaining 

the documentation necessary to close out funding agreements. For three funding 

agreements, valued at $616,976, delays in obtaining closeout documentation 

delayed deobligation of funds by as many as 10 years. While two contracts were 

deobligated, Region 5 is still working to obtain documentation from the other 

recipient. Obligations can also remain unliquidated for many years because of 

funding recipient delays in starting or completing projects. Some funding 

agreements in our sample had been inactive for more than 4 years. However, in 

each case, Region 5 provided evidence that the funds were still needed.

 Recommendations and Planned Agency Corrective Actions 

We recommend that the EPA Region 5 Administrator take action to deobligate 

the funds for the remaining closed grant (Town of Scott). We also recommend 

that the Chief Financial Officer and the Assistant Administrator for Administration 

and Resources Management address issues related to funding agreements 

where the obligation is inactive or open with no activity for more than 180 days. 

Region 5 took action to close the Town of Scott grant in November 2012. EPA 

agreed with the other recommendations. 

 Noteworthy Achievements 

Region 5 deobligated over $1 billion in grants, contracts, and interagency 

agreements in FY 2011. The region took action in FY 2012 to deobligate the 

funds from agreements where the grant period had expired, with the exception of 

one agreement where EPA is still working with the recipient to obtain 

documentation to close the grant. During the course of our audit, Region 5 also 

took action to remind staff of the procedures for elevating issues preventing 

deobligation of funding agreements to managers’ attention. 

The Office of the Chief Financial Officer implemented the ULO database in 

FY 2011 to improve consistency in reviewing and managing ULOs. The database 

provides the capability to proactively monitor ULOs and eliminates the use of 

manual spreadsheet reports. During interviews, users of the database stated that 

it was an excellent replacement for the previous review process. 
 

 

 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

February 13, 2013 

MEMORANDUM 

SUBJECT:	 New Procedures Aided Region 5 in Reducing Unliquidated Obligations 

 Report No. 13-P-0145 

FROM:	 Arthur A. Elkins, Jr. 

TO:	 Susan Hedman 

 Regional Administrator, Region 5 

 Barbara J. Bennett 

 Chief Financial Officer

 Craig Hooks 

 Assistant Administrator 

Office of Administration and Resources Management 

This is our report on the subject audit conducted by the Office of Inspector General of the U.S. 

Environmental Protection Agency. This report contains findings that describe the problems the 

OIG has identified and corrective actions the OIG recommends. 

Action Required 

In responding to the draft report, the Agency provided a corrective action plan for addressing the 

recommendations with milestone dates. Therefore, a response to the final report is not required. 

The Agency should track corrective actions not implemented in the Management Audit Tracking 

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

be available at http://www.epa.gov/oig. 

If you or your staff have any questions regarding this report, please contact Melissa Heist, 

assistant inspector general for audit, at (202) 566-0899 or heist.melissa@epa.gov; or 

Janet Kasper, director, Contracts and Assistance Agreements Audits, at (312) 886-3059 or 

kasper.janet@epa.gov. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Procedures Aided Region 5	 13-P-0145 

in Reducing Unliquidated Obligations 

Table of Contents 

Chapters 

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

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

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

 Noteworthy Achievements ........................................................................... 2 

 Scope and Methodology .............................................................................. 3 

2 Region 5 Reduced Unliquidated Obligations by Over $1 Billion ................... 5
 

EPA Policies Require ULO Reviews ........................................................... 5 

EPA Could Have Deobligated Additional Funds on Expired Projects ......... 5 

Closeout Difficulties Were Not Elevated for Effective Resolution ................ 7 

3 Overall Closeout Goals Met But Documentation Delayed Certain

 Deobligations...................................................................................................... 8 

Federal Regulations Encourage Timely Closeouts ..................................... 8 

EPA Did Not Always Take Action on Delayed Closeouts ............................ 8 

Required Closeout Documents Were Not Obtained and Funds 

Could Not Be Deobligated .................................................................... 10 

 Recommendation ........................................................................................ 10 

Agency Comments and OIG Evaluation ...................................................... 10 

4 Recipients Can Take Many Years to Use Funds ............................................. 11 

Inactive Means No Activity for 6 Months or More ........................................ 11 

Obligations Can Linger for Years With No Drawdowns ............................... 12 

ULO Database Reports Could be Improved ................................................ 13 

 Recommendations ...................................................................................... 13 

Agency Comments and OIG Evaluation ...................................................... 14 

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

Appendices 

A Agency Comments to Draft Report .................................................................. 16 

B Distribution ......................................................................................................... 18 
 

 

 

Chapter 1

Introduction 

Purpose 

An unliquidated obligation is described as an obligation or liability that has not 

been expended or liquidated. In fiscal year 2011, the U.S Environmental 

Protection Agency Office of the Chief Financial Officer released new policies and 

procedures and launched a new database to improve and simplify the ULO review 

process. The EPA Office of Inspector General conducted this audit to determine if 

Region 5 is timely liquidating grant, interagency agreement, and contract 

obligations. Region 5 was selected for review because of its large volume of 

unliquidated obligations and the large number of grants with no financial activity 

for more than 18 months. 

Background 

The Federal Managers’ Financial Integrity Act of 1982 establishes overall 

requirements with regard to internal control and requires the agency head to 

annually evaluate and report on the controls and financial systems that protect the 

integrity of federal programs. Internal controls provide reasonable assurance of 

effective and efficient operations, reliable financial reporting, and compliance 

with applicable laws and regulations. The Office of Management and Budget 

Circular A-123, Management’s Responsibility for Internal Control, implements 

FMFIA. This circular requires programs to operate and use resources “consistent 

with agency missions, in compliance with laws and regulations, and with minimal 

potential for waste, fraud, and mismanagement.” 

EPA’s ULOs and management of grants that are eligible for closeout have caused 

the OIG, U.S. Government Accountability Office, and Congress to raise concerns. 

Prior OIG audits identified ULOs as an area where EPA can improve its ability to 

identify and deobligate unneeded funds and improve its OMB Circular A-123 

ULO review process. Additionally, Congress has rescinded millions of dollars of 

EPA appropriations. These rescissions have forced EPA to take a closer look at its 

ULOs and the close out of its grants, contracts, and IAs. 

To implement FMFIA and OMB Circular A-123 requirements and to address 

OIGs concerns, EPA developed several policies and procedures: 

	 EPA’s Management Integrity Program – FY 2011 Annual Guidance, 

Internal Controls Over Financial Activities, requires all Assistant 

Administrators and Regional Administrators to develop plans for staffing 

the A-123 ULO reviews and training the reviewers. By October 8, 2011, 

13-P-0145 1 
 

 

 

 

Assistant and Regional Administrators were required to submit a separate 

year-end ULO certification to verify that unneeded funds were deobligated 

by the end of FY 2011. The certification must be supported by a review of 

the ULO desktop tool. 

	 OCFO Policy Procedure RMDS 2520-03, Standard Operating 

Procedures: Deobligating Unliquidated Obligations, provides guidance 

for the deobligation of grants, contracts, and IAs. It defines a valid 

obligation as one for which appropriated funds are still available and an 

actual need still exists within the life of that appropriation. An inactive 

obligation is an obligation where there has been no activity for 6 months 

(180 days). 

	 OCFO Policy RMDS 2520-03-P1, Responsibilities for Reviewing 

Unliquidated Obligations, establishes procedures for managing ULOs 

under Agency funds-out IAs; assistance agreements including grants, 

cooperative agreements, and fellowships; contracts; travel; and 

miscellaneous items. This policy requires all responsible parties in EPA 

regions to conduct complete periodic but at least annual reviews of all 

current and prior year ULOs to ensure that all recorded obligations are still 

valid and properly documented. 

EPA’s management of ULOs was one of the reasons the OIG identified efficient 

use of available funds as an Agency weakness. In an April 2012 memorandum to 

the Chief Financial Officer, the OIG recommended that the efficient use of funds 

continue as an Agency-level internal control weakness until the ULO policies and 

procedures EPA developed are effectively implemented and assessed. Sound 

funds management is critically important, particularly as budgetary pressures 

continue to increase. When funds are not deobligated, those funds cannot be used 

on other environmental projects and are more susceptible to fraud, waste, and 

mismanagement. 

Noteworthy Achievements 

Region 5 deobligated over $1 billion in grants, contracts, and IAs in FY 2011. 

The region took action in FY 2012 to deobligate the funds from agreements where 

the grant period had expired, with the exception of one agreement where EPA is 

still working with the recipient to obtain documentation to close the grant. During 

the course of our audit, Region 5 also took action to remind staff of the 

procedures for elevating issues preventing deobligation of funding agreements to 

managers’ attention. 

The Office of the Chief Financial Officer implemented the ULO desktop tool in 

FY 2011 to improve consistency in reviewing and managing ULOs. The ULO 

tool provides the capability to proactively monitor ULOs and eliminates the use of 

manual spreadsheet reports. It includes visual review indicators, the history of the 

13-P-0145 2 
 

 

 

review, results of staff review, and the ability to export data. During interviews, 

users of the ULO tool stated that it was an excellent replacement for the previous 

review process and improved monitoring and tracking capabilities. 

Scope and Methodology 

We conducted this performance audit from February 2012 to November 2012 in 

accordance with generally accepted government auditing standards issued by the 

comptroller general of the United States. 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 objective. 

We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objective. 

To determine if Region 5 is timely liquidating grant, IA, and contract obligations, 

we obtained and verified the FY 2011 universe of Region 5 grant, IA, and 

contract ULOs using the ULO tool. We judgmentally selected 27 samples from 

the universe. A judgmental sample is a nonrandom sample selected based on the 

opinion of the auditors. The sampled ULOs included at least one grant, IA, and/or 

contract from each reason code with an obligation of more than $0 at the end of 

FY 2011. The reason code describes the result of the staff’s reviews of the ULO, 

including whether the obligation was still valid or should be deobligated. 

We interviewed Region 5 project officers, contract officers, and grant specialists 

with oversight responsibilities for the 27 samples to discuss how they review 

ULOs. We compared their processes to EPA policy. We reviewed files for each 

sample to identify why the ULO was not deobligated and to verify that EPA had 

adequate support for not deobligating the funds. EPA managers in Region 5, the 

Headquarters Interagency Agreement Shared Service Center, and the Region 10 

Grants and Interagency Agreements Unit were interviewed to discuss root causes 

for audit findings. The Shared Service Centers in Region 10 and headquarters are 

responsible for administering IAs nationwide, including Region 5. 

We obtained grant, IA, and contract information from several EPA data systems: 

 Integrated Grants Management System 

 Financial Data Warehouse 

 Compass Data Warehouse 

 FY 2011 ULO desktop tool 

The information systems were adequate to support our analysis of ULOs and each 

of our conclusions was reinforced by corroborating information found in the files. 

We evaluated Region 5’s internal controls regarding ULOs. We determined that 

the internal controls were sufficient to reasonably assure effective and efficient 

13-P-0145 3 
 

 

 

operations, reliable financial reporting, and compliance with applicable laws and 

regulations. 

We reviewed guidance documents and previous U.S. Government Accountability 

Office and EPA OIG reports relevant to our work. We also reviewed FY 2011 

FMFIA and A-123 assurance letters from EPA Region 5, Region 10, OCFO, and 

the Office of Administration and Resources Management. The OCFO’s assurance 

letter noted that there were no deficiencies or exceptions found during its FY 

2011 test of internal controls regarding ULOs. However, Region 5, Region 10, 

and the Office of Administration and Resources Management all noted 

deficiencies or issues related to ULOs. These deficiencies included: 

	 Inability to deobligate funds which were under the control of the Office of 

Regional Counsel, Region 5 

 Lack of followup on deobligation requests 

 Lack of supporting documentation for justification codes selected in the 

ULO tool 

 Inclusion of some closed and deobligated funds in the ULO tool 

Prior Audit Coverage 

Prior EPA OIG reports identified ULOs as an area where EPA can improve its 

ability to identify and deobligate unneeded funds and improve its internal 

controls. From FY 2008 through FY 2011, the OIG issued six reports that 

addressed ULOs: 

	 Report No. 11-1-0069, EPA Did Not Fully Comply With Guidance 

Regarding OMB Circular A-123 Unliquidated Obligation Reviews, 

January 19, 2011 

 Report No. 11-P-0170, EPA Region 3 Reduced Unliquidated Obligations 

Under Water Program Assistance Agreements, March 15, 2011 

 Report No. 11-P-0228, EPA Should Reduce Unliquidated Obligations 

Under Expense Reimbursement Grants, May 16, 2011 

	 Report No. 09-P-0241, EPA Has Improved Efforts to Reduce Unliquidated 

Obligations in Superfund Cooperative Agreements, But a Uniform Policy 

Is Needed, September 22, 2009 

	 Report No. 09-P-0086, EPA Should Strengthen Internal Controls over 

Interagency Agreement Unliquidated Obligations, January 26, 2009 

	 Report No. 08-P-0265, EPA Should Continue Efforts to Reduce 

Unliquidated Obligations in Brownfields Pilot Grants, 

September 16, 2008 

13-P-0145 4 
 

 

 

 

Chapter 2

Region 5 Reduced Unliquidated 

Obligations by Over $1 Billion 

At the beginning of FY 2011, the ULO tool indicated that Region 5 had over $1.7 

billion in grants, contracts, and interagency agreement ULOs. Of the $1.7 billion, 

over $1 billion in ULOs was liquidated during FY 2011, leaving about $645 

million in ULOs remaining at the end of FY 2011. A judgmental sample found an 

additional $402,445 in expired obligations in FY 2011 that the OIG believes 

could have been deobligated. EPA policy requires annual reviews of ULOs and 

requires resource officials to certify that appropriate deobligations have been 

made on regionally administered contracts, grants, and IAs. Regional 

management stated that our sample included unusual circumstances or anomalies. 

Region 5 took action during FY 2012 to liquidate all of the sample transactions 

identified in this chapter and to remind staff of the process for elevating issues 

relating to the deobligation of funds to managers’ attention. When funds on 

expired projects are not deobligated, those funds cannot be used on other 

environmental projects. 

EPA Policies Require ULO Reviews 

EPA Policy RMDS 2520-03-P1, Responsibilities for Reviewing Unliquidated 

Obligations, effective October 1, 2010, states that the regional senior resource 

official is responsible for ensuring that staff review all ULOs administered by 

their region. The senior resource official must certify that “appropriate 

deobligation has been made on Regional travel and small purchases, as well as 

regionally-administered contracts, grants, and IAs.” 

EPA Policy RMDS 2520-03, Deobligating Unliquidated Obligations, discusses 

reviews of unliquidated obligations that are required by law. EPA must annually 

ensure that all recorded obligations are still valid and properly documented. 

EPA Could Have Deobligated Additional Funds on Expired Projects 

In FY 2011, Region 5 deobligated approximately $45 million in contract, grant, 

and IA obligations. We found an additional $402,445 in expired obligations, less 

than 1 percent of total deobligations, which the OIG believes Region 5 could have 

deobligated. During its FY 2011 review of obligations, Region 5 did not 

deobligate 3 of the 27 grants, IAs, and contracts in our sample even though the 

funds were no longer needed (table 1). Region 5 could have deobligated the funds 

from the 3 agreements because the projects had expired between 1 to 4 years prior 

to the end of FY 2011. EPA did deobligate the funds in FY 2012. 

13-P-0145 5 
 

 

 

 

 

 

Table 1: Details of sampled grant, IA, and contract that have expired 

Project name Type 

Project 

period end 

date 

Unliquidated 

amount as of 

9/30/2011 

Amount as of 

July 2012 

Ecorse MI 

Grant No. 

96580201 

Grant 09/30/2007 $309,192.75 $0 

US Army Corps 

of Engineers 

IA No. 

94758001 

IA 3/31/2010 59,249.93 0 

CH2M Hill 

Contract No. 

68W60025 

Contract 09/30/2007 34,002.40 0 

Total $402,445.08 $0 

Source: OIG analysis. 

The following provides details on the funding agreements that should have been 

deobligated in FY 2011: 

	 The City of Ecorse, Michigan, grant expired on September 30, 2007, with 

$309,192.75 remaining, and it could have been closed and deobligated. 

Based on Office of Regional Counsel advice, Region 5 suspended the 

award but did not deobligate the grant because there was a pending 

investigation. Under 40 CFR § 30.72(a)(1), the closeout of an award does 

not affect the right of EPA to disallow costs and recover funds. 

The grant’s original project period began October 1, 2005. As early as 

June 30, 2006, EPA found that the grantee had accomplished minimal 

work and failed to submit progress reports for five consecutive quarters, 

beginning with the quarter ending June 30, 2006. EPA took action to 

prevent the recipient from drawing down funds. On October 15, 2009 

(2 years after the project period ended), the Office of Regional Counsel 

informed the grant specialist to wait to close the grant until further notice. 

In its FY 2011 Assurance Letter, Attachment 3, Region 5 identified the 

Ecorse grant as a remaining corrective action because it was still in dispute 

and on hold by legal counsel. Based on 40 CFR § 30.62, which in part 

refers to enforcement remedies for noncompliance with grant awards, 

Region 5 management believes that its legal counsel’s recommendation to 

suspend the award pending the results of the investigation warranted 

deference. After receiving clearance from legal counsel, EPA deobligated 

the remaining funds on July 18, 2012. 

	 The U.S Army Corps of Engineers IA expired on March 31, 2010. 

However, it took over a year to close and deobligate the funds for this IA. 

According to Region 10’s Grants and Interagency Agreement unit, all 

work performed under this IA or under any associated contracts had been 

successfully completed. On March 17, 2011, EPA’s Cincinnati Finance 

Center indicated that the IA balance could not be reconciled due to a 

13-P-0145 6 
 

 

 

 

discrepancy. The finance center stated that closeout of the IA should not 

proceed until the balance was reconciled. On November 29, 2011, the IA 

was closed and the remaining $52,458.66 was deobligated. 

	 The project period for the CH2M Hill contract ended September 30, 2007, 

with $34,002 remaining. We did not observe any requests for closeout 

documents or attempts to deobligate the funds until almost 4 years after 

the project period ended. On September 26, 2011, an amendment was 

submitted to the finance center to deobligate the remaining funds. The 

finance center partially deobligated the funds. The previous contracting 

officer stated that he forgot to follow up to ensure that all of the remaining 

funds were deobligated. On February 27, 2012, the current contracting 

officer requested the contractor’s release form and final invoices. EPA 

received the contractor’s release form dated March 2, 2012, and final 

closeout voucher dated March 29, 2012. The remaining funds were 

deobligated on May 17, 2012. EPA should have requested the contractor’s 

release sooner and followed up when only a portion of the funds was 

deobligated. 

Closeout Difficulties Were Not Elevated for Effective Resolution 

Region 5 staff did not always take appropriate action to ensure that expired 

projects were deobligated. We were told that our sample included unusual 

circumstances or anomalies. During the course of our audit, Region 5 issued an 

e-mail to its staff members which reminded them of the grant and contract 

closeout procedures and instructed them to elevate closeout issues to the 

appropriate manager for assistance. Because the Agency has deobligated the 

funds for the grant, IA, and contract mentioned in this chapter and has instructed 

Region 5 staff to elevate closeout documentation issues to its managers, 

Region 5’s actions have addressed the issues in this chapter. Therefore, we have 

no further recommendations. 

13-P-0145 7 
 

 

 

 

 

Chapter 3

Overall Closeout Goals Met But Documentation 

Delayed Certain Deobligations 

Overall, Region 5 is meeting Agency grant closeout goals. Of the judgmental 

sample of 27 obligations reviewed during the audit, Region 5 did not take action 

to close out 1 grant and 2 contracts because documentation needed to close out the 

obligations had not been received. A recipient did not timely respond to 

documentation requests and staff did not elevate the issues to management. Grants 

should be closed when all administrative action and work is done. Contract 

closeout occurs when there is evidence of final payment and physical completion. 

When funds on expired projects are not deobligated, those funds cannot be 

redirected to other environmental projects. 

Federal Regulations Encourage Timely Closeouts 

As discussed in 40 CFR § 31.50, a federal agency is to close out a grant award 

“when it determines that all applicable administrative actions and all required 

work of the grant has been completed.” It also states that within 90 days after the 

expiration or termination of the grant, the grantee must submit all required 

financial, performance, and other reports. 

Likewise, Federal Acquisition Regulation Subpart 4.804 states that contract 

closeout occurs upon receipt of evidence of final payment and evidence of 

physical completion. The contract task orders mentioned in this chapter are 

indefinite delivery, indefinite quantity contracts and cost-plus-fixed-fee 

contracts.1

 To allow for completion of indirect cost rate audits, the regulation 

states that contracts should be closed within 36 months of the month in which the 

contracting officer receives evidence of physical completion. 

EPA Did Not Always Take Action on Delayed Closeouts 

In FY 2011, Region 5 deobligated 90 percent of the grants that closed that year. 

Region 5 did not take action during FY 2011 to close out 1 grant and 2 contracts 

of the 27 obligations reviewed during the audit. Region 5 was still awaiting 

closeout documentation and allowed these projects to remain open for up to 10 

years after project periods ended. Region 5 has since deobligated both of the 

1

 An indefinite delivery, indefinite quantity contract “provides for an indefinite quantity, within stated limits, of 

supplies or services during a fixed period.” In addition,”[t]he contract must require the Government to order and the 

contractor to furnish at least a stated minimum quantity of supplies or services.” FAR 16.504(a)(1). “A cost-plusfixed-fee contract is a cost reimbursement contract that provides for payment to the contractor of a negotiated fee 

that is fixed at the inception of the contract...but may be adjusted as a result of changes in the work to be performed 

under the contract.” FAR 16.306(a). 

13-P-0145 8 
 

 

 

 

contracts, but the grant remains open. Table 2 presents details of the sampled 

grant and contracts that were originally not closed out. 

Table 2: Details of sampled grant and contracts that needed closeout 

Project name Type Project period 

end date 

Unliquidated 

amount as of 

09/30/2011 

Amount as of 

July 2012 

Town of Scott, 

Grant No. 

XP00E27701 

Grant 10/31/2010 $35,600.00 $35,600.00 

Weston TO #3 

Contract No. 

GS10F0117 

Contract 09/30/2006 108,097.72 0 

Ecology and 

Environment 

Contract No. 

68W60011 

Contract 12/17/2000 473,278.06 0 

Total $616,975.78 $35,600.00 

Source: OIG analysis. 

The following provides details on the grant and contracts that were not closed out 

because required documents were not available: 

	 The Town of Scott grant project period ended on October 31, 2010, at 

which time Region 5 should have initiated closeout procedures. During 

FY 2011 and 2012, Region 5 communicated several times with the grantee 

to request documents to officially close the grant. The project officer 

stated that the grantee stopped communicating with them and no longer 

answered phone calls which made it difficult to close out and deobligate 

any remaining funds. EPA extended the grant until July 31, 2012, and the 

grantee has until November 1, 2012, to submit invoices to support eligible 

costs. 

	 The Weston contract should have been closed out and funds deobligated 

since the project period ended September 30, 2006, over 6 years ago. A 

review of the contracting officer files showed no project activity or 

requests for closeout documents for more than 4 years. The project officer 

had retired and the Agency could not locate the project officer’s file. The 

Agency stated that the release of claims (required for closeout) was 

received and the task order was deobligated on October 4, 2011. EPA 

should have started the closeout process and obtained the release of claims 

when the project period ended. 

	 The Ecology and Environment contract project period ended 

December 17, 2000, with $473,278.06 remaining, and closeout procedures 

should have been initiated at that time. The contracting officer indicated 

that these were oil cleanup funds. According to Region 5, the contracting 

manager made the decision not to deobligate the funds because she felt 

13-P-0145 9 
 

 

 

that it was better to hold onto the Oil Spill Reimbursable Authority funds 

to pay the final invoice. In March and April 2012, EPA made final 

payment to the contractor which resulted in a $0 available balance and 

closed the contract. 

Required Closeout Documents Were Not Obtained and Funds Could 

Not Be Deobligated 

For the samples under review, projects were not closed out timely because 

required closeout documentation was not obtained. Region 5 has a procedure for 

elevating concerns about obtaining closeout documentation for grants. Region 5’s 

process calls for sending a letter requesting closeout documentation when the 

grant expires and additional letters when requested documentation is not received. 

This process was not followed for the Town of Scott project. On September 11, 

2012, Region 5 sent an e-mail to its grants specialists reminding them of the 

region’s closeout procedures and that they should timely elevate issues when 

there are delays in obtaining necessary closeout documents. 

In the case of the Weston contract, there was no evidence that documentation 

needed to close out the contract was requested for 4 years. Promptly elevating 

closeout delays to management may have resolved the delays more efficiently. On 

September 21, 2012, Region 5 management sent an e-mail to contracting staff 

reminding them of the procedures for closing contracts and stating that if there are 

concerns, they should be elevated. Region 5’s corrective action addresses the 

issues relating to the closeout of contracts. 

Recommendation 

We recommend that the Regional Administrator, Region 5: 

1.	 Close out the Town of Scott grant and deobligate any funds remaining 

after the required documents are obtained. 

Agency Comments and OIG Evaluation 

Region 5 took action to address the recommendation. EPA disbursed the remaining 

funds to the recipient on November 5, 2012, and closed the grant. EPA’s actions 

addressed the recommendation. 

13-P-0145 10 
 

 

 

 

Chapter 4

Recipients Can Take Many Years to Use Funds 

Grant and IA recipient delays in starting projects and requesting reimbursement 

create the appearance that funds are not needed. EPA policy defines inactive 

obligations as those in which there has been no activity for six months (180 days) 

or more. In our sample, three of 27 obligations were inactive even though the 

performance period for the grant or IA had not expired. Some of the obligations 

have been inactive for more than 4 years. When funds are not used, the Agency’s 

anticipated environmental outcomes are delayed or may become unattainable. 

Inactive Means No Activity for 6 Months or More 

EPA Policy Number 2520-03 defines inactive obligations as those in which there 

has been no activity for 6 months (180 days) or more. 

For grants, EPA Order 5700.6 A2 CHG 2, Policy on Compliance, Review and 

Monitoring, states that during programmatic baseline monitoring, areas to be 

reviewed may include “whether expended and remaining funds are reasonable.” 

EPA has taken some action to address the issue of the lack of drawdowns in 

recent years: 

	 EPA developed a timely payment term and condition to address grant 

recipients that have a history of accumulating ULOs without adequate 

justification. This term and condition may help reduce grant ULOs in the 

future. 

	 EPA’s Office of Wastewater Management issued the Management Plan 

for the Timely Award and Completion of Special Appropriations Act 

Project Grants, effective October 1, 2011, to facilitate the timely award 

and completion of congressional earmark grants. According to the 

guidance, recipients with no financial activity for 5 months must submit a 

written explanation of the reason for the inactivity. 

	 The purpose of the EPA’s Grants Policy Issuance 12-06, Timely 

Obligation, Award and Expenditure of EPA Grant Funds, effective 

October 1, 2012, is to ensure the timely obligation, award, and expenditure 

of EPA grant funds. The policy states that regional program offices may 

not approve grants where it is anticipated that drawdown of a substantial 

portion of federal funds will be delayed until the end of the project period, 

without the approval of the responsible National Program Manager. 

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EPA’s recent actions may help to prevent lack of drawdowns in the future, 

but extra attention by EPA staff will still be required. 

Obligations Can Linger for Years With No Drawdowns 

A few Region 5 grants were open for years with no drawdowns. In 3 of 27 

obligations reviewed, we found that recipients of two grants and an IA had not 

drawn down funds for about 4 years (table 3). EPA told us that funds were still 

needed for each of these cases. 

Table 3: Details of sampled grants and IA not drawing down funds 

Project 

name Type Award Date 

Unliquidated 

amount 

as of 9/30/2011 

Amount as of 

August 2012 

Rockford 

Grant No. 

BF00E45801 

Grant 03/18/2008 $1,700,000 $1,501,829 

Ohio EPA 

Grant No. 

XP00E59101 

Grant 12/21/2008 2,106,925 2,106,925 

Indian Health 

Service 

IA No. 

94817901 

IA 9/27/2007 81,400 12,173 

Total $3,888,325 $3,620,927 

Source: OIG analysis. 

The following describes grants and an IA with long periods of inactivity from 

Table 3 above: 

	 Since the Rockford Brownfield grant was awarded 4 years ago, there was 

one drawdown in July 2012. After the initial project period expired 

January 31, 2011, with no activity, Region 5 increased the initial award 

amount by $500,000. According to Region 5 staff, under this type of grant 

funds are not disbursed until after the loan review process is completed 

and eligible costs are incurred. The project officer explained that delays 

occurred after Chicago lost its 2016 Olympics bid and slated projects fell 

through. The project officer also stated that EPA and the state have 

reviewed the cleanup plans and ground breaking is expected to start in 

May 2012. Despite assurances that this project is now on track toward 

completion, when funds remain idle it appears that they are not needed. 

	 The Ohio Environmental Protection Agency has not drawn down any 

funds since the original award on December 21, 2008. During a 2010 onsite review, Region 5 found that while the Ohio Environmental Protection 

Agency had conducted work, there were no requests for payment. 

Region 5 recommended that the Ohio Environmental Protection Agency 

submit requests for payments semiannually. EPA files did not include a 

response from the Ohio Environmental Protection Agency to the report 

13-P-0145 12 
 

 

 

 

issued in March 2011. Region 5 staff explained that special appropriations 

grants present challenges. 

	 Region 5 did not take effective action when the Indian Health Service did 

not draw down funds for more than 4 years after the project period began 

October 1, 2007. The Indian Health Service did not draw down funds from 

October 10, 2007, to January 26, 2012. The project period for this IA 

expired at the end of 2010. It was amended June 1, 2011, to provide more 

time and the project period was extended until December 31, 2011. 

ULO Database Reports Could Be Improved 

Region 5 was required to review over 3,000 lines of ULOs in the FY 2011 ULO 

tool. The ULO tool does not highlight grants, IAs, and contracts which are 

inactive and have had no activity for 180 days. EPA began to use the ULO tool 

during FY 2011, and it was the first time such an extensive review of obligations 

was required. Previously, ULO reviews only included obligations inactive for 180 

days or more. Management explained that it did not seem efficient to review 

every obligation and that it was easier to make mistakes than it was in the past. 

We believe that obligations which have had no activity for long periods of time 

need to be distinguished from other obligations so that there is more attention on 

the older ULOs. If the ULO tool reports would highlight the older obligations, it 

would focus management’s attention on these obligations. Even though Agency 

policy states that an obligation is considered inactive after 180 days, Region 5 

expressed concern that given the nature of the two loan programs (Brownfields 

and State Revolving Loan programs), a longer “no activity trigger” may be 

appropriate. At 180 days, it is likely that all the grants would trigger greater 

attention, thus diverting management attention from other instances where actual 

problems may exist. 

Recommendations 

We recommend that the Chief Financial Officer: 

2. Revise the ULO desktop tool to separately identify obligations that have 

been inactive for 180 days or more. 

We recommend that the Assistant Administrator for Administration and 

Resources Management: 

3. Assess the effectiveness of the Office of Water practice of requiring 

written explanations from recipients when funds are not drawn for 

5 months and whether it should be applied to other types of financial 

agreements. 

13-P-0145 13 
 

 

 

 

Agency Comments and OIG Evaluation 

EPA agreed with both recommendations. By January 31, 2013, OCFO will restore 

the functionality of the ULO desktop tool that highlights obligations that have 

been inactive for 180 days. The Office of Grants and Debarment will review the 

effectiveness of the Office of Water’s practice of requiring written explanations 

from recipients to determine whether the practice should be expanded to other 

assistance agreements and interagency agreements. Based on the results of the 

review, a recommendation will be made to the Grants Management Council. 

Based on the council’s response to the recommendation, the Office of Grants and 

Debarment will make the necessary changes to its policies effective 

October 1, 2013. The Agency actions, when implemented, should address the 

recommendations. 

13-P-0145 14 
 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

RECOMMENDATIONS 

 POTENTIAL MONETARY 

BENEFITS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed-To 

Amount 

1 10 Close out the Town of Scott grant and 

deobligate any funds remaining after the 

required documents are obtained. 

C Regional Administrator, 

Region 5 

11/05/2012 

2 13 Revise the ULO desktop tool to separately 

identify obligations that have been inactive for 

180 days or more. 

O Chief Financial Officer 01/31/2013 

3 13 Assess the effectiveness of Office of Water 

practice of requiring written explanations from 

recipients when funds are not drawn for 5 

months and whether it should be applied to 

other types of financial agreements. 

O Office of Administration 

and Resources 

Management 

10/01/2013 

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-P-0145 15 

1 
 

 

 

 

 

 

Appendix A 

Agency Comments to Draft Report 

January 09, 2013 

MEMORANDUM 

SUBJECT: Response to Office of Inspector General Draft Report No. OA-FY12-0306 

New Procedures Aided Region 5 in Reducing Unliquidated Obligations 

FROM: Susan Hedman 

 Regional Administrator 

TO: Melissa M. Heist 

Assistant Inspector General for Audit 

Thank you for the opportunity to respond to the recommendations in the audit report titled, “New 

Procedures Aided Region 5 in Reducing Unliquidated Obligations.” As requested in the 

December 12, 2012 transmission from OIG, Region 5 worked with Office of the Chief Financial 

Officer and the Office of Administration and Resources Management on this response. This 

memorandum summarizes the Agency’s position on each of the three report recommendations. 

AGENCY’S OVERALL POSITION 

As you will see below in the chart, the Agency agrees with the three recommendations. Region 

5 has completed the corrective action suggested in recommendation 1. Corrective actions for 

recommendations 2 and 3 are in progress. 

AGENCY’S RESPONSE TO SPECIFIC REPORT RECOMMENDATIONS 

Number Recommendation Intended Corrective 

Action(s) 

Estimated Completion 

& Contacts 

1 Close out the Town of Scott 

grant and deobligate any funds 

remaining after the required 

documents are obtained. 

The Las Vegas Finance Center 

made final payment of the 

remaining funds on November 

5, 2012 and has financially 

closed this grant. 

Completed 

Contact: Sharon Green, 

Region 5 GMO (312) 

353-5661 

2 Revise the ULO desktop tool to 

separately identify obligations 

that have been inactive for 180 

days or more. 

OCFO disabled this function in 

the FY 2012 ULO Desktop 

Tool due to issues with the 

data migration of the “last 

action date.” OCFO will 

restore the functionality of the 

ULO Desktop Tool that 

The planned completion 

date for this corrective 

action is January 31, 

2013. 

Contact: Adam Fett, 

Program Analyst, OFM 

13-P-0145 16 
 

 

 

highlights obligations that have 

been inactive for 180 days. 

(202) 564-5314 

3 Assess the effectiveness of the 

Office of Water’s practice of 

requiring written explanations 

from recipients when funds are 

not drawn for 5 months and 

whether it should be applied to 

other types of financial 

agreements. 

OGD will review this practice 

and evaluate whether the 

Agency should expand the 

practice to other assistance 

agreements and to interagency 

agreements. 

OGD will obtain 

feedback from the EPA 

grants/IA management 

community and make a 

recommendation to the 

Grants Management 

Council (GMC) at the 

2013 summer meeting. 

If the GMC determines 

that this practice should 

be expanded to other 

programs, OGD will 

make necessary changes 

to existing ULO review 

policies and develop 

implementing terms and 

conditions that will go 

onto effect October 1, 

2013. 

Contacts: Jennifer 

Hublar, OARM OGD 

(202) 564-5294 

We appreciate the efforts of the audit team and the team’s responsiveness to our comments on 

initial discussion drafts of this report. If you have any questions regarding this response, please 

contact Dale Meyer, Region 5 Comptroller at (312) 886-7561 or Eric Levy, Region 5 Audit 

Coordinator at (312) 353-3611. 

cc: Janet Kasper Barbara Freggens 

 Bharat Mathur Sandy Dickens 

 Cheryl Newton Stefan Silzer 

 Cyndy Colantoni Jeanne Conklin 

 Nanci Gelb Adam Fett 

Sandy Womack Dale Meyer 

 Howard Corcoran Betty White 

Jennifer Hublar Patricia Bamford 

Maryann Froehlich Sharon Green 

 Cheryl Varkalis Eric Levy 

13-P-0145 17 
 

 

Appendix B 

Distribution 

Office of the Administrator 

Regional Administrator, Region 5 

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 

Director, Office of Grants and Debarment, Office of Administration and Resources Management 

Director, Grants and Interagency Agreements Management Division, 

Office of Administration and Resources Management 

Director, Office of Regional Operations 

Deputy Regional Administrator, Region 5 

Assistant Regional Administrator, Region 5 

Audit Follow-Up Coordinator, Office of the Chief Financial Officer 

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

Audit Follow-Up Coordinator, Office of Grants and Debarment 

Audit Follow-Up Coordinator, Region 5 

13-P-0145 18