Department of Homeland Security
 

Costs Claimed by Kinder Morgan Liquid Terminals 

LLC Under Port Security Grants Awarded by the 

Federal Emergency Management Agency 

American Recovery and Reinvestment Act of 2009 

OIG-13-73 April 2013
 
' OFFICE OF INSPECTOR GENERAL ""&~<.i"Ds~'Cl Department of Homeland Security 

Washington, DC 20528 1 www.oig.dhs.goY 

APR 9 2013 

MEMORANDUM FOR: David J. Kaufman 

Acting Assistant Administrator 

Grant Programs Directorate 

Federal Emergency Management Agency 

FROM: Anne 

Assistant 

l. Richard Inspecto~~ 

r General for Audits 

SUBJECT: Costs Claimed by Kinder Morgan Liquid Terminals LLC 

Under Port Security Grants Awarded by the 

Federal Emergency Management Agency 

Attached for your information is our final letter report, Costs Claimed by Kinder M organ 

Liquid Terminals LLC Under Port Security Grants Awarded by the Federal Emergency 

Management Agency. We incorporated the formal comments from the Associate 

Administrator for Policy, Program Analysis and International Affairs in the report. 

The report's only recommendation is Kinder Morgan should institute controls over 

quarterly reporting to make sure that expenditures are accurately reported. The 

Associate Administrator concurred with the recommendation. As prescribed by the 

Department of Homeland Security Directive 077-01, Follow-Up and Resolution for Office 

of Inspector General Report Recom mendations, within 90 days of the date of this 

memorandum, please provide our office with a written response that includes your (1) 

agreement or disagreement, (2) corrective action plan, and (3) target completion date 

for each recommendation . Also, please include responsible parties and any other 

supporting documentation necessary to inform us about the current status of the 

recommendation. Until your response is received and evaluated, the recommendation 

will be considered open and unresolved. 

Consistent with our responsibility under the Inspector General Act, we are providing 

copies of our report to congressional committees with oversight and appropriation 

responsibility over the Department of Homeland Security. We will post the report on 

our website for public dissemination. 

Major contributors to thi s report are Roger LaRouche, Director of Recovery Act Audits; 

Robert Leonard, Audit Manager; William Gillies, Audit Manager; and Marisa Coccaro, 

Report Referencer. 

Please call me with any questions, or your staff may contact John E. McCoy 11, 

Deputy Assistant Inspector General for Audits, at (202) 254-4100. 

Attachment 
 

                     

                     

                     

                          

                         

   

                           

                   

                     

             

                         

                     

                      

                     

                      

                          

                            

                         

 

                                    

                            

                              

                                    

                     

                                 

                           

     

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Background

The American Recovery and Reinvestment Act of 2009, as amended (Recovery Act)

appropriated $610 million to the Federal Emergency Management Agency (FEMA) for

emergency food and shelter, public transit and port security assistance, and

construction of non‐federal fire stations. FEMA awarded $150 million of that amount in

port security grants to 214 ports, port authorities, ferry systems, and other eligible

entities.

The purposes of the FEMA port security grants are to support increased port‐wide risk

management; enhance domain awareness; and increase capabilities to prevent, detect,

respond to, and recover from attacks involving improvised explosive devices, weapons

of mass destruction, and other nonconventional weapons.

On September 27, 2009, FEMA awarded 14 grants totaling $2,518,986 to Kinder Morgan

Liquid Terminals LLC (Kinder Morgan) for the installation of transportation worker

identification credential readers.1 Reimbursement for eligible project costs is based on

the grant agreements; Office of Management and Budget (OMB) Circular A‐87, Cost

Principles for State, Local and Indian Tribal Governments; and FEMA guidance.2

As of August 23, 2012, Kinder Morgan had claimed project costs totaling $1,071,891.

The claimed costs covered the period from September 1, 2009, through June 30, 2012.

Table 1 provides a financial summary of the 14 grants to Kinder Morgan.

1 Kinder Morgan is the third‐largest energy company in North America. It owns an interest in or operates

approximately 75,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, refined

petroleum products, crude oil, and carbon dioxide. It also stores or handles other products and materials

such as gasoline, jet fuel, ethanol, coal, petroleum coke, and steel. It receives fees for its services from

major oil companies, energy producers and shippers, and local distribution companies. 2 FEMA guidance for the port security grant program is contained in the U.S. Department of Homeland

Security’s American Recovery and Reinvestment Act of 2009, Port Security Grant Program, Guidance and

Application Kit, May 2009.

www.oig.dhs.gov 2 OIG‐13‐73
 

                    

     

         

       

         

       

       

   

   

     

     

     

   

         

       

     

          

                           

                     

                    

                       

                   

      

                     

                        

                  

                         

                     

       

  

                           

                        

                           

                         

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Table 1. Financial Summary of Port Security Grants to Kinder Morgan

Grant

Number Location

Grant

Amount

Costs

Claimed

2009‐PU‐R1‐0236 Benicia, CA $56,846 $43,807

2009‐PU‐R1‐0240 Los Angeles Harbor, CA 130,698 0

2009‐PU‐R1‐0243 Port Sutton, FL 170,142 153,208

2009‐PU‐R1‐0244 Ship Channel, Pasadena, TX 351,633 332,000

2009‐PU‐R1‐0246 Port Arthur, TX 63,871 59,500

2009‐PU‐R1‐0247 International Marine Terminal, LA 90,686 51,997

2009‐PU‐R1‐0248 Pasadena, TX 363,879 114,911

2009‐PU‐R1‐0249 Longview, OR 56,846 52,706

2009‐PU‐R1‐0250 Linnton, OR 191,300 123,122

2009‐PU‐R1‐0348 Chicago, IL 185,323 0

2009‐PU‐R1‐0380 Argo, IL 334,329 0

2009‐PU‐R1‐0381 Chesapeake, VA 185,323 0

2009‐PU‐R1‐0382 Elizabeth River Terminal, VA 143,962 140,640

2009‐PU‐R1‐0383 North Charleston, SC 194,148 0

Total $2,518,986 $1,071,891

Source: Office of Inspector General.

The objective of this audit was to determine whether costs claimed by Kinder Morgan

were allowable, allocable, and reasonable according to the funding agreements and

applicable Federal requirements. In addition, we examined the support for

expenditures and jobs data contained in the quarterly recipient reports submitted to

FederalReporting.gov and in the financial status reports submitted to FEMA.

Results of Review

We determined that project costs of $1,071,891 were allowable, allocable, and

reasonable. We also determined that Kinder Morgan had complied with the Recovery

Act requirements for submitting quarterly reports to the Federal Government.

However, we noted instances in which the expenditure data in the quarterly reports

submitted to FederalReporting.gov and in the financial status reports submitted to

FEMA were incorrect.

Reporting

Section 1512 of the Recovery Act requires grant recipients to file reports each calendar

quarter to the Federal Government website at FederalReporting.gov. Each report is to

include the total amount of Recovery Act funds received, the amount of funds expended

or obligated to projects or activities, an evaluation of the project’s completion status,

www.oig.dhs.gov 3 OIG‐13‐73
 

                                

                 

                         

                        

                       

                       

                          

   

                     

               

                     

                         

                  

                   

       

                       

                     

                              

                      

                           

   

                       

                         

          

     

                      

                           

                      

                     

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

and an estimate of the number of jobs created or retained by the project or activity. In

addition, the Department of Homeland Security’s American Recovery and Reinvestment

Act of 2009, Port Security Grant Program, Guidance and Application Kit (Part VI.C.)

requires grant recipients to submit quarterly financial status reports to FEMA.

We reviewed 28 reports and determined that 1 quarterly report submitted to

FederalReporting.gov and 2 financial status reports submitted to FEMA did not agree

with the amounts in the Kinder Morgan accounting records. The three instances are

discussed below:

	 The December 31, 2011, final quarterly report to FederalReporting.gov for grant

number 2009‐PU‐R1‐0382 showed project expenditures of $99,173, whereas the

Kinder Morgan accounting records showed expenditures of $140,640, a difference of

$41,467.

	 The June 30, 2012, financial status reports submitted to FEMA for grant numbers

2009‐PU‐R1‐0247 and 2009‐PU‐R1‐0248 did not show any project expenditures.

However, the Kinder Morgan accounting records showed expenditures of $51,997

and $114,911, respectively.

Kinder Morgan’s Vice President and Chief Security Officer told us that project

expenditures for grant number 2009‐PU‐R1‐0382 were incurred after the final quarterly

report was prepared. He said that a corrected final report could not be submitted to

FederalReporting.gov because officially the grant had been closed out. Kinder Morgan

officials did submit corrected Federal financial reports to FEMA for the other two grants

(2009‐PU‐R1‐0247 and 2009‐PU‐R1‐0248).

Recommendation

We recommend that FEMA’s grant officer ensure that Kinder Morgan institutes sufficient

controls over quarterly reporting to make sure that expenditures are accurately reported.

Management Comments and OIG Analysis

FEMA Comments to Recommendation

FEMA concurs with the recommendation. To ensure that expenditures are accurately

reported, FEMA will request that its regional staff add Kinder Morgan to the planned

current year financial monitoring schedule. Thirteen other Kinder Morgan Recovery Act

port security grants are currently scheduled for financial monitoring (through desk

www.oig.dhs.gov 4	 OIG‐13‐73
 

                  

                     

                     

   

                      

                       

                    

                   

                

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

reviews) by FEMA Region VI Grant Management Specialists. Through financial

monitoring, FEMA will be able to provide recommendations, corrective action, and

support to Kinder Morgan regarding internal controls, quarterly reporting, and reporting

expenditures.

OIG Analysis

FEMA’s proposed corrective action is responsive to the recommendation. However, the

recommendation will remain open and unresolved until we receive the updated current

year financial monitoring schedule. The recommendation will be closed once FEMA

provides evidence that Kinder Morgan institutes sufficient controls over quarterly

reporting to make sure that expenditures are accurately reported.

www.oig.dhs.gov 5 OIG‐13‐73
 

   

     

                       

                         

                                  

                       

             

                           

                     

                    

                       

                        

                           

                         

               

                       

              

                       

                       

           

                   

         

                     

               

           

                       

                          

                       

                        

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix A

Objective, Scope, and Methodology

The Department of Homeland Security (DHS) Office of Inspector General (OIG) was

established by the Homeland Security Act of 2002 (Public Law 107‐296) by amendment

to the Inspector General Act of 1978. This is one of a series of audit, inspection, and

special reports prepared as part of our oversight responsibilities to promote economy,

efficiency, and effectiveness within the Department.

The objective of this audit was to determine whether costs claimed by Kinder Morgan

were allowable, allocable, and reasonable according to the funding agreements and

applicable Federal requirements. In addition, we examined the support for

expenditures and jobs data contained in the quarterly recipient reports submitted to

FederalReporting.gov and in the financial status reports submitted to FEMA. Our audit

covered claimed costs of $1,071,891 for the period September 1, 2009, to June 30,

2012. This represents the total amount claimed as of August 23, 2012.

Our tests and procedures included the following:

	 Reviewing the Recovery Act, FEMA, and OMB guidelines, the FEMA grants, and

Kinder Morgan’s grant applications and investment justifications;

	 Interviewing FEMA officials to obtain an understanding of the port security grant

program;

	 Interviewing Kinder Morgan officials to obtain an understanding of the grants, grant

accounting, and claims for reimbursement;

	 Examining Kinder Morgan accounting records and supporting documents for the

amounts charged to the grants;

	 Reviewing the eligibility of the amounts claimed for reimbursement and discussing

our findings with Kinder Morgan officials; and

	 Visiting the grant project sites.

We tested Kinder Morgan’s records to determine compliance with OMB Circular A‐87

and with other terms and conditions of the grants. We considered Kinder Morgan’s

internal controls over the administration of grant funds in determining our audit

procedures. We also relied on Kinder Morgan’s 2011 U.S. Securities and Exchange

www.oig.dhs.gov 6	 OIG‐13‐73
 

                 

                        

                     

                                 

                            

       

                           

                         

                        

                           

   

                     

                           

                        

                         

                          

                         

   

   

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Commission Form 10‐K Annual Report conducted by PricewaterhouseCoopers LLP

(PWC). According to the report, in our opinion, the Partnership [Kinder Morgan]

maintained, in all material respects, effective internal controls over financial reporting.

To accomplish our objectives, we relied on the work of PWC as part of the 2011 SEC

Form 10‐K Annual Report. We did not review PWC’s workpapers, nor did we perform

tests on this work.

We did not address the Recovery Act requirements for (1) paying prevailing wages as

determined by the Secretary of Labor and (2) using only iron, steel, and manufactured

goods produced in the United States. FEMA officials had determined that these

provisions did not apply to the Kinder Morgan grants because the grants did not

constitute construction projects.

We conducted this performance audit between August and September 2012, pursuant

to the Inspector General Act of 1978, as amended, and according to generally accepted

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

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our

findings and conclusions based upon our audit objectives. We believe that the evidence

obtained provides a reasonable basis for our finding and conclusion based upon our

audit objectives.

www.oig.dhs.gov 7 OIG‐13‐73
 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix B

Management Comments to the Draft Report  

l l.S. [I 1n1 ... rU of 11 01111,'1:111(1 Security 

Wa hin to". DC 20472 

M EMORANDUM FOR: Anne L. Ric hards 

Assistant Inspector General for Audits 

Office of Inspector General 

David J. K~urman rNl\~) Associate Administra ~r lor 

Policy, Program Analysis and International Affairs 

PEMA Response to OIG Draft Let1er Report "Costs Claimed by 

Kinder Morgan Liquid Terminals LLC Under PorI SeclII';/y Granls 

Awarded by Ihe Fede/'af Emerxency Managemen( Agency - For 

Official (Ise Only - GIG Projec IA'o. 12-162-A UD-FEMA' 

Thank you for th e o pportunity to comment on DIG Draft Report, " COSI.\" Claimed hy Kinder 

,\-forgan Liqllid Terminals LLe Under PorI Seclirity Gral1fs Awarded by the Federal Emergency 

/lIlanagemelii Agency - For Official Usc Only - OIG Project "\'0. 12-162-A UD-FEMA " . The 

findings in the report will be used to strengthen the effectiveness and efficiency of how we 

execute and mea<;ure our am~. We recogni7.e the need to continue to im prove the process, 

including addressing the recommendations raised in this report nle following is our rcs ponse to 

the recommendation for implementation: 

OI G Rccommend :ltion 1: We recommend that FEMA' s grant oftlcer ensu re that Kinder 

Morgan institutes sufficient controls over quarterly reportin g to make sure that expend itures are 

accurately reported. 

FEM A Respon se: Concu r. FEMA req uires all grantees to abide by the regulations stated 44 

eF R See 13.20b(I), ''"the financial management systems of other grantees and sub-grantees must 

meet the following standards: (1) Financial Reporting. Accurate , current, and comp lete 

disclosure of the financia l results of fi nancially assisted activities must be made in accordance 

'with the financ ial reporting requiremcllls ortbe grant or sub-grant." FEMA's responsibili ty i~ to 

monitor grantees, make financial and programmatic recommendations, and pursue resolution of 

corrective actions as they relate to the requirements set fo rth by 44 C FR part 13. 

rEMA will request th at the Regional staff add Kinder Morgan Liquids Terminals LLC to the 

current year pl anned financ ia l monitOl'ing schedule. Currently, 13 ot her Kinder Mo rgan A IUtA 

pon security grants are scheduled for financ ial monitoring (via desk review) by FEMA Region 

V I Gmnt Managt:m~nt Specialists. Through financia l monitoring, FF.MA will be able to provide 

recommendations, corrective action, and support to Kinder Morgan as they relate to internal 

controls, q uarterly reporting. and repo rti ng expenditures, 

We believe th is meets the intent of the recommendation and we request closure, 

www.fcml.eOV 

www.oig.dhs.gov 8 OIG‐13‐73
 

 

OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Again, we thank you for the work that you and your tearn did to infonn us of measures we can 

take to enhance the program's overall effectiveness, We look forward to QIG's final report for 

"Costs Claimed by Kinder Morgan Liquid Terminals LLC Under Pori Security Grants Awarded 

by the Federal Emergency Management Agency - Por Official Use Only - OIG Project No. J 2-

J62-AUD-FElwA ". Please direct any questions regarding this response to Gary McKeon, 

FEMA's Chief Audit Liaison, at 202-646-1308. 

2 

www.oig.dhs.gov 9 OIG‐13‐73
 

   

   

     

   

     

       

   

   

        

            

              

             

       

     

       

         

       

           

       

       

       

           

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

Appendix C

Report Distribution

Department of Homeland Security

Secretary

Deputy Secretary

Chief of Staff

Deputy Chief of Staff

General Counsel

Executive Secretary

Director, GAO/OIG Liaison Office

Assistant Secretary for Office of Policy

Assistant Secretary for Office of Public Affairs

Assistant Secretary for Office of Legislative Affairs

Acting Chief Privacy Officer

Recovery Act Coordinator

Federal Emergency Management Agency

Administrator, Federal Emergency Management Agency

Branch Chief, Transportation Infrastructure Security

Chief, Audit Branch, Grants Program Directorate

Office of Management and Budget

Chief, Homeland Security Branch

DHS OIG Budget Examiner

Congress

Congressional Oversight and Appropriations Committees, as appropriate

www.oig.dhs.gov 10 OIG‐13‐73
 

ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this document, please call us at (202) 254-4100, fax your 

request to (202) 254-4305, or e-mail your request to our Office of Inspector General 

(OIG) Office of Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov. 

For additional information, visit our website at: www.oig.dhs.gov, or follow us on Twitter 

at: @dhsoig. 

OIG HOTLINE 

To expedite the reporting of alleged fraud, waste, abuse or mismanagement, or any 

other kinds of criminal or noncriminal misconduct relative to Department of Homeland 

Security (DHS) programs and operations, please visit our website at www.oig.dhs.gov 

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reviewed by DHS OIG. 

Should you be unable to access our website, you may submit your complaint in writing 

to: DHS Office of Inspector General, Attention: Office of Investigations Hotline, 245 

Murray Drive, SW, Building 410/Mail Stop 2600, Washington, DC, 20528; or you may 

call 1 (800) 323-8603; or fax it directly to us at (202) 254-4297. 

The OIG seeks to protect the identity of each writer and caller.