U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Labor-Charging Practices 

at the New Mexico 

Environment Department 

Report No. 13-4-0296 June 17, 2013 

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Report Contributors: Bill Spinazzola

 David Kim 

 Janet Lister 

 Lela Wong 

Abbreviations 

AQB Air Quality Bureau 

CFR Code of Federal Regulations 

DWB Drinking Water Bureau 

EPA U.S. Environmental Protection Agency 

FFR SF 425 Federal Financial Report 

FY Fiscal year 

GWQB Ground Water Quality Bureau 

IGMS Integrated Grants Management System 

NMED New Mexico Environment Department 

OGD Office of Grants and Debarment 

OIG Office of Inspector General 

OMB Office of Management and Budget 

Recovery Act American Recovery and Reinvestment Act of 2009 

SHARE Statewide Human Resources, Accounting and Management Reporting 

SWQB Surface Water Quality Bureau 

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 13-4-0296 

June 17, 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 

labor-charging practices at the 

New Mexico Environment 

Department comply with federal 

requirements. The OIG also 

sought to determine the effect 

of any noncompliance on 

amounts NMED claimed under 

EPA awards. 

This report addresses the 

following EPA Goals and 

Cross-Cutting Strategies: 

 Taking action on climate 

change and improving air 

quality. 

 Protecting America’s 

waters. 

 Cleaning up communities 

and advancing sustainable 

development. 

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/ 

20130617-13-4-0296.pdf 

Labor-Charging Practices at the 

New Mexico Environment Department 

What We Found 

We found that three of the four NMED bureaus audited did not always comply with 

requirements found in the Code of Federal Regulations under 2 CFR Part 225. 

The Air Quality Bureau and Drinking Water Bureau charged labor, fringe benefits, 

and indirect costs to federal grants based upon budget allocations instead of actual 

activities performed. Personnel activity reports we received from the Surface Water 

Quality Bureau to support charges for labor costs incurred prior to July 2006 did not 

meet 2 CFR Part 225 requirements. 

Title 2 CFR Part 225 requires that where employees work on multiple activities or 

cost objectives, labor charges be based upon the after-the-fact distribution of an 

employee’s actual activity and supported by employee-signed personnel activity 

reports or the equivalent. NMED personnel stated that they charged labor based upon 

budget allocations because they thought the practice was acceptable. NMED 

personnel also stated that the accounting system used for SWQB timekeeping before 

July 2006 is no longer accessible and that employee-signed personnel activity reports 

from this period are no longer available. 

We questioned $298,159 in labor, fringe benefits, and related indirect costs claimed by 

AQB; $2,974,318 claimed by DWB; and $2,733,798 claimed by SWQB. We also 

identified an additional $486,305 charged to a DWB-administered grant, which has not 

yet been reported to the EPA. 

 Recommendations and Planned Corrective Actions 

We recommend that the Region 6 Regional Administrator disallow and recover 

unsupported costs of $298,159 from AQB; $2,974,318 from DWB; and $2,733,798 

from SWQB, unless NMED provides support that complies with 2 CFR Part 225 

requirements. We also recommend that the regional administrator ensures NMED 

does not claim unallowable costs of $486,305 under the DWB grant, unless it can 

provide support that complies with 2 CFR Part 225 requirements. In addition, we 

recommend that the regional administrator recover any unsupported costs claimed 

under AQB and DWB grants not covered in our cost-impact determination and ensure 

that labor-charging practices at remaining NMED bureaus with EPA grants comply 

with federal requirements. Region 6 agreed with our findings and four of the five 

recommendations. NMED agreed with recommendation 4 and disagreed with the 

remaining recommendations. NMED reiterated some of the comments provided during 

our fieldwork, but no additional information or supporting documentation was provided.

 Noteworthy Achievements 

AQB and DWB took corrective actions promptly when the issue was brought to their 

attention. Both bureaus issued written procedures that require employees to charge 

labor hours based upon actual activities performed. We found that employees 

complied with these procedures. As of April 14, 2012, labor-charging practices at all 

four audited bureaus comply with federal requirements. 
 

SUBJECT: Labor-Charging Practices at the New Mexico Environment Department 

 Report No. 13-4-0296 

FROM: Arthur A. Elkins Jr. 

Ron Curry, Regional Administrator 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

June 17, 2013 

MEMORANDUM 

TO: 

Region 6 

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. This report represents the opinion of the OIG 

and does not necessarily represent the final EPA position. In accordance with established auditresolution procedures, EPA managers will make final determinations concerning matters in this report. 

Action Required 

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

decision on the findings and recommendations contained in this report before you formally complete 

resolution with the recipient. Your proposed management decision is due in 120 days, or on 

October 15, 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 Eyerman, 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. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Labor-Charging Practices at the 13-4-0296 

New Mexico Environment Department 

Table of Contents 

Chapters 

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

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

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

Noteworthy Achievements ........................................................................... 1 

Scope and Methodology.............................................................................. 1 

Follow-Up on Prior Audit Issues .................................................................. 3 

2 Labor-Charging Practices Did Not Comply
 

With Federal Requirements............................................................................... 6 

Labor Charges Were Based Upon Budget Estimates ................................. 6 

Using Budget Estimates Did Not Meet Federal Requirements .................... 7 

NMED Believed Charges Based Upon Budget Estimates 

Were Acceptable .................................................................................... 8 

NMED Claimed Unallowable Costs ............................................................. 9 

 Recommendations ...................................................................................... 11 

EPA and Recipient Comments .................................................................... 11 

 OIG Response ............................................................................................ 12 

3	 NMED Claimed Unsupported SWQB Labor Costs .......................................... 13 

NMED Was Unable to Provide Personnel Activity Reports ......................... 13 

Federal Cost Principles Require Personnel Activity Reports ....................... 13 

NMED Claimed Unsupported Costs ............................................................ 14 

 Recommendation ........................................................................................ 15 

EPA and Recipient Comments .................................................................... 15 

 OIG Response ............................................................................................. 15 

Status of Recommendations and Potential Monetary Benefits.............................. 16
 

Appendices 

A NMED Grants Selected for Review ................................................................... 17 

B Region 6 Comments on the Draft Report......................................................... 18 

C NMED’s Comments on the Draft Report and OIG Evaluation ........................ 21 

D Distribution ......................................................................................................... 25 
Chapter 1

Introduction 

Purpose 

The U.S. Environmental Protection Agency, Office of Inspector General, 

conducted this audit to determine whether labor-charging practices at the New 

Mexico Environment Department comply with federal requirements. The OIG 

also sought to determine the effect of noncompliance on amounts NMED claimed 

under EPA awards. 

Background 

NMED was established by legislative act in July 1991. Its mission is to provide the 

highest quality of life throughout New Mexico by promoting a safe, clean, and 

productive environment. NMED has about 650 employees and 13 bureaus, 

including the Drinking Water Bureau, Surface Water Quality Bureau, Ground 

Water Quality Bureau, and Air Quality Bureau. As of February 27, 2012, NMED 

had approximately $95 million in active EPA grants. NMED had another 

$58 million in grants closed within the last 3 years (i.e., on or after May 2009) 

and subject to the record-retention requirement. 

Noteworthy Achievements 

When labor-charging issues were brought to the attention of AQB and DWB by 

an EPA contractor and OIG review, the bureaus took corrective actions and 

promptly issued written procedures that require employees to charge labor hours 

based upon actual activities performed. The EPA contractor’s review was 

conducted from June 7 to 10, 2010, and AQB issued revised procedures on 

June 25, 2010. OIG auditors brought the issue to DWB’s attention in 

January 2012, and DWB issued revised procedures on April 13, 2012. 

As of April 14, 2012, labor-charging practices at all four audited bureaus comply 

with federal requirements. In chapter 2 of this report, we further describe how 

both bureaus complied with federal requirements when the revised procedures 

were issued. 

Scope and Methodology 

We conducted this performance audit from May 15, 2012, to February 21, 2013. 

We conducted the audit in accordance with 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 

13-4-0296 1 
 

evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Based upon our risk assessment, we limited our audit to the following four 

bureaus: DWB, SWQB, GWQB, and AQB. These bureaus had the highest labor 

and fringe benefit amounts in our audit universe, which consisted of all EPA 

awards with a project end date of May 15, 2009, or later. The audit universe 

cut-off date was established to ensure that all grants selected for review were 

within the 3-year record-retention period required by 40 CFR § 31.42(b). 

We used the information in EPA’s Integrated Grants Management System to 

identify the four bureaus with the most labor and fringe benefits. Our analysis 

included both open and closed awards. We searched the IGMS for grants and 

cooperative agreements awarded to NMED with a project end date of May 15, 

2009, or later. We reviewed the grant budgets to determine EPA’s share of labor 

and fringe benefits for each award. We grouped the awards by NMED bureau and 

then selected the four bureaus with the most labor and fringe benefits. Table 1 

below shows NMED bureaus, total labor and fringe benefits, and EPA’s share of 

labor and fringe benefits. 

Table 1: Labor and fringe benefits by NMED bureau 

Bureau Total 

EPA’s 

share 

EPA’s percent 

of total 

SWQB $23,740,613 $16,256,496 36.64% 

GWQB 13,342,409 12,759,844 28.76% 

AQB 6,330,700 4,219,827 9.51% 

DWB 4,112,690 3,124,853 7.04% 

Petroleum Storage Tank Bureau 3,445,326 2,849,714 6.42% 

Hazardous Waste Bureau 3,598,418 2,697,935 6.08% 

Construction Programs Bureau 1,855,433 1,725,227 3.89% 

Radiation Control Bureau 561,066 451,741 1.02% 

Administrative Services Division 

(Program Support Grants) 388,898 286,165 0.64% 

Totals $57,375,553 $44,371,802 

Source: The amounts and percentages are from EPA’s IGMS. Bureau information is from NMED. 

13-4-0296 2 
 

 

 

We obtained an understanding of labor-charging practices at each of the four 

bureaus by: 

 Discussing labor-charging practices and timekeeping procedures with 

NMED management; 

 Interviewing selected employees to determine the labor-charging practices 

used by NMED; and 

	 Reviewing sample payroll transactions to determine whether actual 

practices were consistent with the practices described by NMED 

employees and management, and whether these practices complied with 

federal requirements. 

We tested payroll samples to determine whether: 

	 Hours that employees recorded on paper timesheets agreed with hours 

recorded on electronic timesheets. 

 Timesheets were signed by employees and approved by a supervisor. 

 Employees had been paid for the time period. 

 Dollar amounts for each subaccount recorded in the labor-distribution 

report (i.e., the Human Capital Management Payroll Report) divided by 

the employee’s hourly pay rate equal the hours reported on the employee’s 

timesheet. 

	 The distribution of time percentages in the employee’s task profile agree 

with the distribution on the employee’s timesheet. 

We identified 13 grants to use to estimate the cost impact of labor-charging 

practices that did not comply with federal requirements specified in 

2 CFR Part 225, Cost Principles for State, Local, and Indian Tribal Governments 

(Office of Management and Budget Circular A–87). The 13 grants selected 

represent approximately 63 percent of EPA’s share of labor and fringe benefits 

budgeted for the awards in our universe. The 13 grants are included in appendix A 

of this report. 

The time period covered by the audit varied depending on the bureau. We audited 

AQB and DWB from the inception of NMED’s current accounting system on 

July 1, 2006, to the start of our field work on May 15, 2012. For GWQB and 

SWQB, we extended the audited time period back to July 1, 2004, the earliest 

inception date of the grants selected for cost-impact estimate. 

Follow-Up on Prior Audit Issues 

We followed up on NMED’s actions in response to recommendations that 

addressed labor-charging issues made in a December 2010 report issued by EPA’s 

Office of Grants and Debarment based upon a limited review conducted by a 

contractor. The report stated that NMED did not have timesheets or equivalent 

documentation to support personnel costs charged to EPA assistance agreements. 

13-4-0296 3 
In response, NMED stated that labor hours charged to projects in the report were 

reconciled to actual time spent on the project, and adjustments were made to 

reduce expenditures charged to EPA awards. We reviewed the reconciliation and 

confirmed that adjustments were made; however, the adjustments were not based 

on employee timesheets that complied with federal requirements. 

Report on Internal Control and Financial Management Systems 

The OGD contractor completed a limited-scope review of NMED’s 

administrative and financial management system. The review objectives were to 

assess the effectiveness of NMED’s internal controls and to determine whether 

NMED’s administrative and financial management systems met federal cost 

principles, as well as the terms and conditions of EPA assistance agreements. 

The period reviewed was January 1, 2009, through May 19, 2010. 

The review covered five EPA assistance agreements awarded under the American 

Recovery and Reinvestment Act of 2009. One of the five awards was administered 

by AQB. The award was grant number 2D96690201 in the amount of $1,730,000. 

During the period reviewed by the OGD contractor, NMED drew $88,629. Of this 

amount, $62,193 was reported as unallowable salaries, fringe benefits, and related 

indirect costs. The OGD contractor stated that: 

 NMED did not have timesheets or the equivalent documentation to 

support personnel costs. 

 Wages and fringe benefits were distributed to agreements as a percentage 

of an employee’s time. 

 The percentages were intended to approximate the budget. 

 Calculated costs were not reconciled to actual time. 

NMED did not dispute the OGD contractor’s findings. NMED responded by 

stating it would begin using timesheets for staff working on Recovery Act grants, 

and timesheets would be used to identify actual hours charged to the grants. 

NMED also stated that hours charged to the AQB-administered grant were 

reconciled to actual hours, and journal entries were adjusted to reduce Recovery 

Act expenditures. NMED also planned to have written timekeeping procedures 

completed by January 15, 2011. 

OIG Follow-Up 

The OIG asked NMED to provide supporting data for the adjusting journal entry 

that was referred to in its response to the OGD contractor’s report. NMED 

responded by providing the computation sheets that it used to determine the 

adjustments, including a schedule that summarized the number of hours 

employees worked on the grant. 

13-4-0296 4 
 

The OIG also asked NMED to provide supporting timesheets or other data for the 

schedule of hours worked on the AQB-administered grant. NMED management 

determined that the hours worked on the grant were based upon records of 

meetings, telephone calls, and documented calendars. NMED management did 

not retain any supporting timesheets or other data because they were unaware of 

the requirement to do so. NMED officials also said they could provide copies of 

emails from employees confirming the hours and tasks they worked on for the 

AQB-administered grant. NMED provided a spreadsheet summary showing 

employee names, dates, hours worked on the grant, and the source of the data. 

The sources of the data were mostly emails. 

Title 2 CFR Part 225, Appendix B, Section 8.h.(4), requires that where employees 

work on multiple activities or cost objectives, salaries and wages be supported by 

personnel activity reports or equivalent documentation. The personnel activity 

reports or equivalent documentation must reflect an after-the-fact distribution of 

the actual activity of each employee, account for the total activity for which each 

employee is compensated, be prepared at least monthly and coincide with one or 

more pay periods, and be signed by the employee. 

NMED has not complied with the requirements cited above or the 

recommendations in the OGD contractor’s report. The adjustments NMED made 

to salaries and benefits in response to the OGD contractor’s recommendations 

were not based upon personnel activity reports, as required by federal regulations. 

13-4-0296 5 
Chapter 2

Labor-Charging Practices 

Did Not Comply With Federal Requirements 

Two of the four NMED bureaus audited did not comply with federal requirements 

for charging labor costs. AQB and DWB charged labor, fringe benefits, and 

indirect costs to federal awards based upon budget allocation instead of actual 

activities performed. Title 2 CFR Part 225 requires labor charges be based upon 

the after-the-fact distribution of the actual activity. Budget estimates or other 

distribution percentages determined before the services are performed do not 

qualify as support for charges to federal awards. NMED personnel stated that they 

charged based upon budget estimates because they thought it was an acceptable 

method. As a result of the noncompliance, we questioned $298,159 in labor, 

fringe benefits, and related indirect costs claimed by AQB; and $2,974,318 

claimed by DWB. We also identified an additional $486,303 charged to a 

DWB-administered grant, which has not yet been reported to the EPA due to 

financial status report cut-off dates. 

Labor Charges Were Based Upon Budget Estimates 

We audited labor-charging practices at AQB, DWB, GWQB, and SWQB. 

We found that GWQB complied with federal requirements and charged based 

upon actual work performed for the entire period covered by the audit 

(July 1, 2004, to May 15, 2012). We also found that SWQB complied with 

federal requirements and charged based upon actual work performed for the 

period July 1, 2006, to May 15, 2012. For the period July 1, 2004, to 

June 30, 2006, based upon employee interviews, SWQB charged based upon 

actual work performed. However, SWQB was unable to provide the required 

personnel activity reports signed by the employees to support the costs claimed. 

This issue is further discussed in chapter 3 of this report. 

AQB and DWB did not always comply with federal requirements. Both bureaus 

charged labor hours based upon budgeted percentages from the inception of 

NMED’s current accounting system—the Statewide Human Resources, 

Accounting and Management Reporting—in July 2006. For AQB, the practice 

continued through June 25, 2010. For DWB, the practice continued through 

April 13, 2012. 

AQB Timekeeping Procedures 

From July 2006 to June 25, 2010, AQB recorded and charged labor costs to 

federal awards based upon budgeted percentages determined for each employee at 

the beginning of the fiscal year. On June 25, 2010, AQB revised its timekeeping 

procedures in response to a review performed by the OGD contractor. The change 

13-4-0296 6 
required employees to record on their timesheets actual hours worked on each 

project. AQB issued written timekeeping procedures on June 25, 2010, to 

document the new requirements. 

To verify the change in timekeeping procedures, we tested the payroll 

documentation of two employees for the pay period ending October 1, 2010, and 

two employees for the pay period ending April 30, 2010. These two pay periods 

represent labor-charging practices before and after the June 25, 2010, change. The 

two samples allowed us to test compliance with both the old and new procedures. 

Our tests confirmed that AQB recorded and charged labor and associated 

fringe benefits and indirect costs based upon budgeted percentages through 

June 25, 2010; after this date, charges were based upon actual activities 

performed. 

DWB Timekeeping Procedures 

From July 2006 to April 13, 2012, DWB recorded and charged labor costs based 

upon budgeted percentages determined for each employee at the beginning of the 

fiscal year. DWB revised its timekeeping procedures on April 13, 2012, after the 

OIG raised the issue during our January 2012 visit. The new procedures require 

employees to record labor hours based upon their actual activity. DWB issued 

written timekeeping procedures on April 13, 2012, to document the new 

procedures. 

To verify the change in timekeeping procedures, we tested payroll documentation 

for pay periods before and after the April 13, 2012, change. In our samples, 

we included two employees from each of the pay periods ending on the 

following dates: May 11, 2012; February 17, 2012; August 5, 2011; and 

September 19, 2008. Our tests confirmed that DWB recorded and charged 

labor and the associated fringe benefits and indirect costs based upon budgeted 

percentages through April 13, 2012, and actual activities performed after that 

date. 

Using Budget Estimates Did Not Meet Federal Requirements 

Federal cost principles require labor charges to be based upon actual activities 

performed. Title 2 CFR Part 225, Appendix B, Section 8.h. requires labor charges 

to be supported by personnel activity reports or equivalent documentation that 

meet the requirements in Section 8.h.(5) to be allowable for reimbursement under 

federal awards. Two of the requirements are that personnel activity reports must 

reflect an after-the-fact distribution of the actual activity of each employee and 

must be signed by the employee. Budget estimates or other distribution 

percentages determined before the services are performed do not qualify as 

support for charges to federal awards. 

13-4-0296 7 
 

In the past, both the AQB and DWB did not comply with these requirements. 

As described above, AQB and DWB charged labor and related costs to federal 

awards based upon budget allocation. These costs do not comply with federal 

requirements and are not allowable for reimbursement. 

NMED Believed Charges Based Upon Budget Estimates 

Were Acceptable 

NMED believed that it was an acceptable practice to charge labor and related 

costs to federal awards based upon budget estimates. NMED’s belief was based 

upon prior audit experience and communications with EPA Region 6. 

When the OIG discussed the issue with NMED in March 2012, NMED personnel 

said that they believed it was a difference in interpretation of the federal 

requirements. NMED had been audited by single auditors every year but had 

never been told that there was an issue with its labor-charging method. Although 

the issue was reported in the administrative and financial management system 

review conducted by the OGD contractor, NMED believed that the requirement to 

maintain timesheets and to charge based on actual activities performed were 

specific to the Recovery Act awards. 

We met with the firm that performed NMED’s single audits for fiscal years 2009 

through 2011 and reviewed relevant audit documentation for FY 2011. It appears 

that the single auditor did not identify the labor-charging issue because the firm 

had different criteria for risk assessment from the OIG. Risk assessment method 

and criteria may vary for each audit based on the auditor’s judgment. An audit 

provides reasonable but not absolute assurance that the information presented is 

free of material misstatement. 

NMED also believed that EPA Region 6 officials approved labor charges based 

upon budget estimates. NMED provided an email from EPA Region 6 dated 

March 21, 2011. According to NMED, the email indicated EPA’s approval of the 

labor-charging practices. However, the subject of the email was “Allocation of 

Rent,” and Region 6 personnel stated in the email that the “EPA is comfortable 

with the Base program being based on the proportion of time.” We discussed the 

March 2011 email with Region 6 staff and they said NMED misunderstood EPA’s 

intent. The email correspondence was concerned with the allocation of rent, and 

labor was referenced because rent was based on labor costs. The email was 

unclear about whether the statement referred to the allocation of facilities cost or 

labor charges. Also, although the email was dated March 2011, NMED has been 

using budget estimates since July 2006. 

NMED also provided a written summary of a February 8, 2011, meeting between 

officials from NMED, the EPA, and the New Mexico Finance Authority. 

13-4-0296 8 
 

 

 

 

Although the meeting summary appeared to discuss timesheets, labor hours, and 

allocations, there was no indication of EPA’s approval to charge labor based upon 

budget. Furthermore, the meeting was held in 2011, while NMED had been using 

budget estimates since July 2006. 

NMED Claimed Unallowable Costs 

To demonstrate the effect of noncompliance on costs claimed by NMED under 

EPA awards, we initially selected a sample of 13 grants from the four NMED 

bureaus that were audited (see appendix A). 

The noncompliance explained above applied to three of the 13 grants 

(one awarded to AQB and two awarded to the DWB). We identified unsupported 

labor and related costs of $3,758,782 charged to the three grants due to the 

noncompliance. Table 2 below summarizes these costs. 

In addition, NMED was unable to provide the required personnel activity reports 

for FY 2005 and FY 2006 for a grant awarded to SWQB, which is addressed in 

chapter 3 of this report. The remaining nine grants were in compliance and no 

costs were questioned. 

Table 2: Unallowable amounts by NMED bureau and cost category 

Direct 

labor 

Fringe 

benefits 

Indirect 

costs Total 

Reported to the EPA 

AQB 

PM96666701 $ 175,349 $ 74,545 $ 48,265 $ 298,159 

DWB 

F00620309 1,044,907 436,339 287,271 1,768,517 

F00620311 728,575 287,327 189,899 1,205,801 

Subtotal DWB 1,773,482 723,666 477,170 2,974,318 

Total Reported to the EPA 1,948,831 798,211 525,435 3,272,477 

Unreported 

DWB 

F00620311 294,854 108,853 82,598 486,305 

Grand Total $2,243,685 $907,064 $608,033 $3,758,782

 Source: NMED accounting records. 

Grant number PM96666701 was the only AQB grant included in our sample of 

13 grants. The latest SF 425 Federal Financial Report available to us for this grant 

was dated October 24, 2011, which covers the period April 1, 2008, to September 

30, 2011, and has a total of $644,811 in federal share of expenditures. We 

obtained the supporting accounting reports from NMED and identified $298,159 

in labor, fringe benefits, and related indirect costs charged to the grant through 

June 25, 2010. These costs are not allowable for reimbursement because they 

were charged based upon budget estimates and did not comply with federal 

requirements. 

13-4-0296 9 
DWB grant numbers F00620309 and F00620311 were also included in our 

sample. The latest FFR available to us for grant number F00620309 was dated 

December 2, 2010, which covers the period July 1, 2008, to June 30, 2010, and 

has a total of $2,077,426 in federal share of expenditures. This amount reconciled 

to accounting records without exception. As described in a previous section of 

this report, DWB labor-charging practices through April 13, 2012, did not comply 

with 2 CFR Part 225, Appendix B, Section 8.h., and are not allowable for 

reimbursement. Labor, fringe benefits, and related indirect costs claimed through 

April 13, 2012, totaled $1,768,517. This amount is unallowable for 

reimbursement because it was based upon budgeted or predetermined hours. 

The latest FFR available to us for DWB grant number F00620311 was dated 

October 26, 2011, which covers the period July 1, 2010, to September 30, 2011, 

and has a total of $1,401,216 in federal share of expenditures. We reconciled, 

with no exceptions, the $1,401,216 to detailed accounting reports. Labor, fringe 

benefits, and related indirect costs recorded in accounting records through 

April 13, 2012, and included in the FFR, totaled $1,205,801. This amount is not 

allowable for reimbursement. 

We also identified an unreported amount of $486,305 for grant number 

F00620311, which was recorded in accounting records after September 30, 2011 

(the cut-off date of the most recent FFR) and through April 13, 2012 (the date 

DWB issued the new timekeeping procedures to record actual labor hours). This 

unreported amount is not allowable for reimbursement, because it was based upon 

budgeted or predetermined hours. Region 6 should ensure that NMED excludes 

this amount from subsequent claims for reimbursement. 

We provided NMED with a written summary of the results of our audit on 

September 20, 2012, and obtained NMED’s verbal comments in a meeting on 

October 3, 2012. NMED management stated that they are working on addressing 

the DWB issue, but they have reconstructed a work history report as support for 

labor charges through June 25, 2010 for AQB. The work history report was based 

upon data from an AQB project management system called “Envista.” The system 

documented the time employees actually spent monitoring air quality for AQB 

projects across the state. We reviewed the work history report and determined the 

report does not meet federal requirements. The report summarized dates; employee 

names; site names; tasks performed; and the number of hours worked, which 

included monitoring times and minimum driving times. No other hourly data were 

included. However, to meet the requirements of 2 CFR Part 225, Appendix B, 

Section 8.h., the data would have to reflect an after-the-fact distribution of the 

employee’s time and include the employee’s total activity. The data would also 

have to be prepared at least monthly, coincide with one or more pay periods, and be 

signed by the employee. The work history report provided by NMED did not 

present the required information. As a result, we continue to question the costs. 

13-4-0296 10 
Recommendations 

We recommend that the Region 6 Regional Administrator: 

1.	 Disallow and recover unsupported labor costs of $298,159 from AQB and 

$2,974,318 from DWB, unless NMED can provide support that complies 

with 2 CFR Part 225, Appendix B, Section 8.h. 

2.	 Ensure that NMED does not claim unsupported costs of $486,305 for the 

period October 1, 2011, to April 13, 2012, for grant F00620311, unless 

NMED can provide support that complies with 2 CFR Part 225, 

Appendix B, Section 8.h. 

3.	 Identify and recover any unsupported costs from AQB- and DWBadministered grants, which are not covered in our cost-impact 

determination. 

4.	 Ensure that labor-charging practices at any of the remaining nine NMED 

bureaus that have EPA grants comply with federal requirements. 

EPA and Recipient Comments 

The OIG received comments on the draft report from the Region 6 deputy 

regional administrator and the Office of the Secretary for NMED. We held an exit 

conference with Region 6 on April 25, 2013, and with NMED on April 24, 2013. 

Region 6 agreed with our findings and recommendations 1, 2, and 4 and requested 

clarification on the scope of recommendation 3. For recommendations 1 and 2, the 

region stated that it will provide NMED the opportunity to submit documentation 

that substantiates the questioned costs and will take necessary corrective action, 

including the recovery of costs as appropriate. The region said it will address 

recommendation 4 as part of its compliance, review, and monitoring conducted 

under EPA Order 5700.6 A2 CHG 2. During our exit conference, Region 6 

clarified that compliance-monitoring reviews only involve verifying that 

drawdowns were supported by source documentation. The reviews do not include 

interviews or other procedures to ensure that employees charge their time based on 

actual activities performed. 

NMED did not address our recommendations by number. However, it responded 

to recommendation 4 by stating that staff who work on federal grants are now 

required to charge time and labor hours based on actual activities performed and 

maintain personal activity reports. It disagreed with the remaining 

recommendations by requesting that it not be required to return federal funds. In 

addition, NMED reiterated some of the comments provided during our fieldwork, 

but no additional information or supporting documentation was provided. The full 

text of NMED’s comments is included in appendix C of this report. 

13-4-0296 11 
OIG Response 

We agree with the actions Region 6 proposed. However, in connection with 

recommendations 1 and 2, Region 6 should ensure that the documentation complies 

with the timekeeping and labor-charging requirements of 2 CFR Part 225 when 

reviewing any additional documentation from NMED. 

On recommendation 3, we clarified that Region 6 should include in its review all 

open and closed grants that are within the record-retention period established under 

40 CFR § 31.42. Subsection (c) requires records to be retained for 3 years from the 

date of the final expenditure report. Furthermore, subsection (b)(2) states: “If any 

litigation, claim, negotiation, audit or other action involving the records has been 

started before the expiration of the 3-year period, the records must be retained until 

completion of the action and resolution of all issues which arise from it, or until the 

end of the regular 3-year period, whichever is later.” Additionally, we clarified that 

it would not be necessary to review labor charges to AQB grants after June 25, 

2010, and DWB grants after April 13, 2012. Both bureaus complied with the 

federal requirements for labor charging after those dates. 

We advised Region 6 that its regular compliance-monitoring reviews would not be 

adequate to address recommendation 4. Adequate review procedures need to be 

performed to ensure that employees charge their time based on actual activities 

performed, as required under 2 CFR Part 225. 

Since NMED’s comments were already addressed in the draft report, no changes to 

the final report will be necessary. Our position on the reported findings and 

recommendations remains unchanged. The details of our responses to NMED’s 

comments are embedded as text boxes in appendix C. 

13-4-0296 12 
Chapter 3

NMED Claimed Unsupported SWQB Labor Costs 

NMED was unable to provide the required personnel activity reports to support 

costs claimed by SWQB for the period July 1, 2004, to June 30, 2006 (FYs 2005 

and 2006). Title 2 CFR Part 225, Appendix A, requires all costs to be adequately 

documented, and Appendix B requires that where employees work on multiple 

activities or cost objectives, charges for salaries be supported by personnel 

activity reports or equivalent documentation that meets federal standards. Because 

of NMED’s noncompliance, we questioned $2,733,798 in labor, fringe benefits, 

and related indirect costs. 

NMED Was Unable to Provide Personnel Activity Reports 

NMED could not provide the personnel activity reports required under 2 CFR 

Part 225 to support labor costs charged to the EPA by SWQB in FYs 2005 and 

2006. We selected a labor sample from FY 2005 and requested supporting 

personnel activity reports such as timesheets. SWQB could not provide timesheets 

or equivalent documents signed by employees. SWQB personnel said NMED used 

a different timekeeping system prior to FY 2007, which began on July 1, 2006. 

Although SWQB employees maintained timesheets to accumulate actual hours and 

the timesheets were the basis for recording labor charges in the timekeeping 

system, the timesheets are no longer available. The SWQB finance manager said 

the hard-copy timesheets have been destroyed and the bureau can no longer access 

the prior accounting system to obtain copies of the electronic timesheets. We asked 

employees in our sample about their timekeeping practices in FY 2005. Employees 

confirmed their use of timesheets to record actual labor hours, but they did not have 

copies of these timesheets. 

As a substitute for timesheets, the finance manager provided a labor-distribution 

report, which listed by pay period the hours and projects that each of the three 

employees in our sample charged. NMED personnel said that the labor-distribution 

report is an adequate alternative to providing personnel activity reports. However, 

labor-distribution reports do not contain employee signatures or other evidence of 

employees attesting to the hours charged. 

Federal Cost Principles Require Personnel Activity Reports 

Title 2 CFR Part 225, Appendix A, Section C.1.j, requires all costs to be 

adequately documented. Title 2 CFR Part 225, Appendix B, Section 8.h., 

provides standards for support of salaries and wages under federal awards. 

Appendix B, Section 8.h.(4), states that when employees work on multiple 

activities or cost objectives, the distribution of their salaries or wages will be 

13-4-0296 13 
supported by personnel activity reports or equivalent documentation that meets 

the standards in Section 8.h.(5). Under Section 8.h.(5), the personnel activity 

reports are requiredto: (1) reflect an after-the-fact distribution of the actual 

activity of each employee, (2) account for the total activity for which each 

employee is compensated, (3) be prepared at least monthly and coincide with one 

or more pay periods, and (4) be signed by the employee. 

The SWQB did not comply with these requirements. Instead, SWQB provided a 

labor-distribution report that provided the pay period, project number, hours 

charged to each project, associated dollar amounts, and various accounting codes 

for each employee. The labor-distribution report is a summary accounting report 

and does not represent personnel activity reports in accordance with 2 CFR 

Part 225, Appendix B, Section 8.h.(4) requirements. In addition, the 

labor-distribution report did not identify the data-entry date or the person, and 

entries were not signed by the employee. 

Appendix B, Section 8.h.(3) states that when employees are expected to work 

solely on a single federal award or cost objective, charges for their salaries and 

wages will be supported by periodic certifications. These certifications will be 

prepared at least semiannually and will be signed by the employee or a 

supervisory official with first-hand knowledge of the work performed by the 

employee. NMED did not have these certifications. 

NMED Claimed Unsupported Costs 

Under grant number C999610112, we identified $2,733,798 in labor, fringe 

benefits, and related indirect costs incurred and claimed between July 1, 2004, 

and June 30, 2006. These costs are not allowable because NMED could not 

provide adequate supporting documents to comply with the CFR requirements. 

Grant number C999610112 was the only SWQB grant that was from our sample 

and active prior to July 1, 2006 (the beginning of FY 2007), and within the 3-year 

record-retention period. The grant period is July 1, 2004 to June 30, 2012. The 

latest FFR available to us for this grant was dated June 9, 2008, and covered the 

period July 1, 2004, to June 9, 2008. 

The federal share of expenditures reported was $7,069,500. A review of the 

accounting records provided by NMED showed that they incurred $7,218,427, 

a difference of $148,927 when compared to the amount NMED reported. 

NMED intends to submit an amended FFR showing the correct amount incurred. 

13-4-0296 14 
Recommendation 

We recommend that the Region 6 Regional Administrator: 

5.	 Disallow and recover unsupported SWQB labor costs of $2,733,798 

claimed under grant number C999610112, unless NMED can provide 

support that complies with federal requirements. 

EPA and Recipient Comments 

Region 6 agreed with recommendation 5. The region stated that it will provide 

NMED the opportunity to submit documentation that substantiates the questioned 

costs and take necessary corrective action, including the recovery of costs as 

appropriate. 

NMED did not address our recommendations by number, but disagreed with the 

recommendation by requesting that it not be required to return federal funds. 

NMED reiterated some of the comments provided during our fieldwork, but no 

additional information or supporting documentation was provided. The full text of 

NMED’s comments is included in appendix C. 

OIG Response 

We agree with the actions Region 6 proposed. However, when reviewing any 

additional documentation from NMED, Region 6 should ensure that the 

documentation complies with the timekeeping and labor-charging requirements of 

2 CFR Part 225. 

Since NMED’s comments have already been discussed in the draft report, 

no changes to the final report will be necessary. Our position on the reported 

finding and recommendation remains unchanged. The details of our responses 

to NMED’s comments are embedded as text boxes in appendix C. 

13-4-0296 15 
 

 

 

 

 

 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS ($000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed-To 

Amount 

1 11 Disallow and recover unsupported labor costs of 

$298,159 from AQB and $2,974,318 from DWB, 

unless NMED can provide support that complies 

with 2 CFR Part 225, Appendix B, Section 8.h. 

U Region 6 

Regional Administrator 

$3,272 

2 11 Ensure that NMED does not claim unsupported 

costs of $486,305 for the period October 1, 2011, 

to April 13, 2012, for grant F00620311, unless 

NMED can provide support that complies with 

2 CFR Part 225, Appendix B, Section 8.h. 

U Region 6 

Regional Administrator 

$486 

3 11 Identify and recover any unsupported costs from 

AQB- and DWB-administered grants, which are not 

covered in our cost-impact determination. 

U Region 6 

Regional Administrator 

4 

5 

11 

15 

Ensure that labor-charging practices at any of the 

nine NMED bureaus that have EPA grants comply 

with federal requirements. 

Disallow and recover unsupported SWQB labor 

costs of $2,733,798 claimed under grant number 

C999610112, unless NMED can provide support 

that complies with federal requirements. 

U 

U 

Region 6 

Regional Administrator 

Region 6 

Regional Administrator 

$2,734 

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. 

13-4-0296 16 
NMED Grants Selected for Review 

Open grants 

NMED 

bureau 

Grant 

number 

Project 

start date 

Project end 

date 

Total project 

costs 

 Award 

amount 

EPA 

share 

Budgeted 

labor 

 Budgeted 

fringe 

benefits 

Bud

labo

fri

ben

AQB PM96666701-4 4/1/2008 3/30/2012 $ 1,124,765 $ 1,124,765 100% $ 334,742 $ 110,465 $ 4DWB F00620311-4 7/1/2010 6/30/2012 2,626,028 1,969,521 75% 1,478,994 530,045 2,0

GWQB V96618901-E 4/1/2006 9/30/2012 6,690,241 6,246,635 93% 2,690,763 988,450 3,6

GWQB RP96678901-3 10/1/2008 9/30/2013 2,193,750 2,193,750 100% 1,079,820 337,938 1,4

SWQB I00635009-6 7/1/2009 12/31/2011 3,487,668 3,047,500 87% 2,071,564 741,553 2,8

SWQB C999610112-5 7/1/2004 6/30/2012 12,835,033 7,219,500 56% 4,220,230 1,566,827 5,7

SWQB C999610113-5 7/1/2007 6/30/2013 10,834,267 6,357,800 59% 3,393,900 1,227,630 4,6

SWQB C999610114-5 7/1/2009 6/30/2015 7,926,400 4,719,800 60% 2,503,369 777,269 3,2

Subtotal $32,879,271 $24,0

Closed grants SWQB I00635008-6 7/1/2007 12/31/2009 $ 4,064,368 $ 3,624,200 89% $ 2,133,440 $ 709,136 $ 2,8DWB F00620309-3 7/1/2008 6/30/2010 2,815,733 2,111,800 75% 1,382,897 559,414 1,9

GWQB V97630201-5 7/1/2004 12/31/2009 6,111,111 5,500,000 90% 402,748 140,957 5

GWQB V96618901-B 4/1/2006 9/30/2011 5,450,140 5,241,635 96% 2,265,057 832,541 3,0

GWQB V96618901-C 4/1/2006 9/30/2011 5,887,473 5,660,635 96% 2,443,886 899,739 3,3

Subtotal $22,138,270 $11,7Total $55,017,541 $35,8

Source: Bureau information is from NMED. All other information is from the EPA's IGMS. 

13-4-0296 
 

 

 

Appendix B 

Region 6 Comments on the Draft Report 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

REGION 6 

1445 ROSS AVENUE, SUITE 1200 

DALLAS, TX 75202-2733 

April 8, 2013 

MEMORANDUM 

SUBJECT: Response to Office of Inspector General – Draft Report Project No. OA-FY12-0497 

“Labor Charging Practices at the New Mexico Environment Department” dated 

February 21, 2013 

FROM: Sam Coleman 

Deputy Regional Administrator 

Region 6 

TO: Robert K. Adachi 

Director of Forensic Audits 

Office of the Inspector General 

As required by EPA Manual 2750, Part 2, Section B(3), I am providing for your review the proposed 

management decision in response to the recommendations listed in the Draft Report Project No. OAFY12-0497 (“OIG report”). The audit provided five recommendations that affect the overall budget and 

subsequently operational capability of the New Mexico Environment Department (NMED) specifically its 

Air Quality (AQB), Surface Water Quality (SWQB), and Drinking Water (DWB) Bureaus. 

Region 6 agrees with the Inspector General’s findings that three of the four NMED bureaus audited did 

not always comply with the federal requirements specified in 2 CFR Part 225. However, the OIG report 

acknowledges that the AQB and DWB have already implemented corrective actions and complied with 

federal requirements before the issuance of the OIG report. As described below, Region 6 agrees with 

Recommendations 1, 2, 4 and 5 and requests clarification on the scope of Recommendation 3. 

To ensure that NMED is funded for the important work they completed under the assistance agreements 

examined by the OIG, the Region will provide NMED the opportunity to submit documentation that 

support the questioned costs. Region 6 will continue to assist NMED with their efforts to implement 

labor charging practices that comply with federal requirements. 

13-4-0296 18 
Recommendation No .1 Disallow and recover unsupported labor cost of $298,159 from AQB and 

$2,974,318 from DWB unless NMED can provide support that complies with 2 CFR 225, Appendix B, 

Section 8.h. 

Region 6 will provide NMED the opportunity to submit documentation that substantiates the questioned 

costs. The Region will review the documentation and take necessary corrective action, including the 

recovery of costs as appropriate. It will also continue to assist NMED with their efforts to implement 

corrective actions and comply with federal requirements. 

Recommendation No. 2. Ensure that NMED does not claim unsupported cost of $486,305 for the period 

of October 1, 2011, to April 13, 2012, for grant F00620311, unless NMED can provide support that 

complies with 2 CFR 225, Appendix B, Section 8.h. 

Region 6 will provide NMED the opportunity to submit documentation that substantiates the questioned 

costs. The Region will review the documentation and take necessary corrective action, including the 

recovery of costs as appropriate. 

Recommendation No. 3. Identify and recover any unsupported cost from AQB- and DWB-administered 

grants, which are not covered in our cost-impact determination. 

Region 6 requests clarification regarding the scope of this recommendation, including identification of the 

universe of assistance agreements that would have to be reviewed by the Region. 

Recommendation No. 4. Ensure that labor charging practices at any of the nine NMED bureaus that have 

EPA grants comply with federal requirements. 

Region 6 will specifically address compliance with 2 CFR Part 225, Appendix B, Section 8.h as part of its 

monitoring of NMED Bureaus under EPA Order 5700.6 A2 CHG 2, Policy on Compliance, Review and 

Monitoring. Additionally, Region 6 will establish Standard Procedures for Project Officers to use during 

Advanced Programmatic Reviews focused on the evaluation of labor charging practices by NMED 

Bureaus. Region 6 will continue to provide technical assistance to the NMED Bureaus to facilitate proper 

labor charging practices. 

. 

Recommendation No. 5. Disallow and recover unsupported SWQB labor costs of $2,733,798, unless 

NMED can provide support that complies with federal requirements. 

Region 6 will provide NMED the opportunity to submit documentation that substantiates the questioned 

costs. The Region will review the documentation and take necessary corrective action, including the 

recovery of costs as appropriate. It will also continue to assist NMED with their efforts to implement 

corrective actions and comply with federal requirements. 

Conclusion 

Region 6 has a valued relationship with NMED and an obligation to manage grants in accordance with 

federal fiduciary and stewardship standards. The Region fully intends to continue working with NMED to 

resolve the findings of the OIG audit and take necessary corrective action. If you have any questions 

regarding this response, please contact Missy Milbeck, Comptroller at (214)665-6540 or Donna Miller, 

Grants Management Officer at (214)665-8093. 

cc: F. David Martin, Secretary NMED 

13-4-0296 19 
 

 

Butch Tongate, Deputy Secretary NMED 

Vince Lithgow, Chief Financial Officer NMED 

Arthur A. Elkins Jr., Inspector General 

Lela Wong, Project Manager, Office of Inspector General 

Howard Corcoran, Director, Office of Grants and Debarment 

bcc: Ronnie Crossland, Acting ARA 

David Gray, External Affairs Division 

William Honker, Water Quality Protection Division 

David Garcia, Multimedia Planning and Permitting Division 

Missy Milbeck, Comptroller 

Susan Jenkins, Audit Liaison 

Donna Miller, Grants Management Officer 

13-4-0296 20 
Appendix C 

NMED’s Comments on the Draft Report 

and OIG Evaluation 

State of New Mexico 

ENVIRONMENT DEPARTMENT 

Office of the Secretary 

SUSANA MARTINEZ 

Governor 

JOHN A. SANCHEZ 

Lieutenant 

Harold Runnels Building 

1190 Saint Francis Drive, PO Box 5469 

Santa Fe, NM 87502-5469 

Telephone (505) 827-2855 Fax (505) 827-2836 

DAVE MARTIN 

Secretary 

BUTCH TONGATE 

Deputy Secretary 

www.nmenv.state.nm.us 

April 8, 2013 

Lela Wong 

Project Manager 

USEPA Office of the Inspector General 

75 Hawthorne Street, 7th Floor (IGA-1) 

San Francisco, CA 94105 

RE: Response to OIG Report: Project No. OA-FY12-0497 

Dear Ms. Wong: 

The New Mexico Environment Department (NMED) offers the following responses for the 

findings contained within the Office of Inspector General audit report entitled Labor-Charging 

Practices at the New Mexico Environment Department, dated February 21, 2013. It is the 

position of the NMED that the deliverables required by each federal award were completed 

within the grant cycle. Additionally, all expenditures charged to the federal awards were 

legitimate, properly allocable and in direct function with the grant-related activities. The report 

appropriately does not allege that NMED committed fraud, waste or abuse; rather, a lack of 

proper procedural documentation of some of NMED’s activities resulted in audit findings. 

Finally, in some cases, NMED both received written and verbal approval of our time and labor 

practices from EPA based on the time and labor practices which was percentage based. 

13-4-0296 21 
OIG Response 1. As stated in chapter 1 of our report, the objective of our audit is to 

determine whether labor-charging practices at NMED comply with federal requirements and 

the effect of any noncompliance on amounts NMED claimed under EPA awards. We did not 

address grant deliverables or expenditures other than labor. We reported that three of the 

four NMED bureaus audited (DWB, AQB, and SWQB) did not always comply with the 

labor-charging requirements in 2 CFR Part 225. 

In chapter 2 of our report under the subheading “NMED Believed Charges Based on 

Budget Estimates Were Acceptable,” we addressed NMED’s comment concerning the 

approval of its time and labor practices by the EPA. 

Upon notification of the improper procedures and to fully comply with 2 CFR Part 225 the 

NMED changed the time and labor procedures. Staff who work on federal grants are now 

required to charge time and labor hour based on actual activities performed. Staff is required to 

maintain and upon request, provide personal activity reports justifying the work activities 

supported by the grant(s). In addition, signed certification from staff that work solely on federal 

grants are required and will be available upon request. 

OIG Response 2. We acknowledged in our report under the “Noteworthy Achievements” 

subheading that current practices at the four bureaus audited are in compliance with federal 

requirements. It is NMED’s responsibility to ensure that its timekeeping practices continue 

to comply with federal requirements. 

NMED also notes that there were no findings of non-compliance related to time and labor 

reporting that qualified the opinion of the Single Audit for the time periods involved, with the 

only exception being for the State Fiscal Year 2012 Single Audit. The qualification was based 

on the disclosure of the OIG Audit. Additionally, year-end reviews with each grant program and 

EPA have all been favorable and the NMED has never been notified that the agency had been 

conducting business improperly or contrary to 2 CFR 225 standards. 

OIG Response 3. We addressed this comment in chapter 2 of our report under the “NMED 

Believed Charges Based on Budget Estimates Were Acceptable” subheading, paragraphs 

2 and 3. It appears that the single auditor had different criteria for risk assessment from the 

OIG. Risk assessment method and criteria may vary for each audit based on the auditor’s 

judgment. An audit provides reasonable but not absolute assurance that the information 

presented is free of material misstatement. 

We also discussed programmatic reviews with Region 6 staff. They indicated their reviews 

verified the drawdowns were supported by source documentation. The reviews did not 

include interviews and other procedures to ensure that labor-charging practices comply with 

federal requirements. 

13-4-0296 22 
NMED is disappointed that the IOG audit team did not accept documentation which verifies that 

NMED staff worked on the activities of the grants in question. Documentation included a work 

history report that identifies staff, travel dates, description of work activity, time and labor costs, 

and travel costs. The NMED also provided copies of e-mails and meeting notes that, in our 

opinion, clearly indicated that EPA was aware of and approved the time and labor procedures. 

OIG Response 4. We addressed the documentation cited above and explained why the 

documentation did not comply with federal requirements. Details of the work history reports 

can be found in chapter 2 of our report under the subheading “NMED Claimed 

Unallowable Costs,” last paragraph. EPA’s approval was addressed in chapter 2 of our 

report under subheading “NMED Believed Charges Based on Budget Estimates Were 

Acceptable,” last two paragraphs. 

NMED would also like to point out that the difficulty in supplying supporting documentation for 

some grants is based on the fact that the time period covered by a single grant extended several 

years – in one case from July 4, 2004 through June 30, 2012. If the time periods between the 

issuance and completion of each grant were shorter, it would be significantly less burdensome to 

reconcile labor charges with applicable funding sources. Financial software changes and staff 

changes limit the state’s ability to retain historical knowledge and documentation through the 

extended life of the grant and retention period. 

OIG Response 5. We indicated in chapter 1 of our report that all of the grants in our review 

were within the records-retention period. Title 40 CFR § 31.42(b) states that records must be 

retained for 3 years from the date the recipient submits its final expenditure report. 

NMED and EPA have discussed several times the need for training by EPA’s grant management 

staff. At a minimum, the training should cover the accountability measures that should be 

followed by both grantee and grantor financial and program staff to ensure that grant activities 

are accurately recorded and appropriately funded. The requirement for such training would be a 

reasonable recommendation to address the OIG’s audit findings. 

OIG Response 6. Training on the proper procedures for identifying, accumulating and 

reporting labor costs would help to eliminate the problems we noted during our review. 

However, it is NMED’s responsibility to ensure that its employees obtain the proper training 

to comply with federal requirements. 

The NMED respectfully requests that the agency should not be required to return any federal 

dollars. A punitive penalty to the NMED would jeopardize the ability to perform the day to day 

functions of the agency. The NMED is not in a position financially to fully support the functions 

and activities required by our mission without co-reliance on the federal awards to assist in 

meeting the objectives of the agency. At this time EPA and NMED are working collaboratively 

to justify expenditures were appropriate. 

13-4-0296 23 
OIG Response 7. It is the responsibility of Region 6 to determine whether funds should be 

returned, not the OIG. In addition, NMED can only be reimbursed for expenditures that 

comply with federal requirements. As stated in our audit report, NMED’s labor-charging 

practices did not comply with federal requirements. 

Sincerely, 

F. David Martin 

Cabinet Secretary 

13-4-0296 24 
Appendix D 

Distribution 

Regional Administrator, Region 6 

Deputy Regional Administrator, Region 6 

Director, Grants and Interagency Agreements Management Division, 

Office of Administration and Resources Management 

Agency Follow-Up Official (the CFO) 

Agency Follow-Up Coordinator 

Audit Follow-Up Coordinator, Region 6 

Public Affairs Officer, Region 6 

Secretary, New Mexico Environment Department 

13-4-0296 25