U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Examination of Costs Claimed 

Under American Recovery and 

Reinvestment Act Cooperative 

Agreement 2A-97706701 Awarded 

to Grace Hill Settlement House, 

St. Louis, Missouri 

Report No. 13-R-0367 August 30, 2013 

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Report Contributors: Brad Jones 

 Lela Wong 

 Michael Owen 

 Patrick McIntyre 

Abbreviations 

CA Cooperative Agreement 

CFR Code of Federal Regulations 

DEQ Diesel Emission Quantifier 

DERA Diesel Emissions Reduction Act 

DFH Direct Fire Heater 

EPA U.S. Environmental Protection Agency 

FTE Full Time Equivalent 

FY Fiscal Year 

GH Grace Hill Settlement House 

ODC Other Direct Costs 

OIG Office of Inspector General 

OMB Office of Management and Budget 

RFP Request for Proposal 

VIN Vehicle Identification Number 

Cover photo:	 School bus retrofitted under the cooperative agreement. 

(EPA OIG photos taken in St. Louis, Missouri) 

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: 

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202-566-2599 

1200 Pennsylvania Avenue, NW 

Mailcode 2431T 

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

U.S. Environmental Protection Agency 13-R-0367 

August 30, 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 examination of the costs 

claimed by Grace Hill 

Settlement House under 

American Recovery and 

Reinvestment Act cooperative 

agreement 2A-97706701. 

The OIG conducted this 

examination to determine 

whether the costs claimed were 

reasonable, allocable, and 

allowable in accordance with 

applicable federal requirements 

and the terms and conditions of 

the CA. The OIG also reviewed 

GH’s compliance with selected 

Recovery Act requirements and 

accomplishment of the 

objective of the CA. 

This report addresses the 

following EPA Goal or 

Cross-Cutting Strategy: 

 Taking action on climate 

change and improving air 

quality. 

For further information, contact 

our Office of Congressional and 

Public Affairs at (202) 566-2391. 

The full report is at: 

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

20130830-13-R-0367.pdf 

Examination of Costs Claimed Under 

American Recovery and Reinvestment Act 

Cooperative Agreement 2A-97706701 Awarded to 

Grace Hill Settlement House, St. Louis, Missouri 

What We Found 

GH’s financial management system did not meet federal standards. In particular: 

	 Procurements did not meet the competition or cost and price analysis 

requirements of the Code of Federal Regulations in 40 CFR §30.43 and 

§30.45. 

	 The contract administration system did not meet the requirements of 

40 CFR §30.47. 

	 Unallowable costs were not segregated and financial management data 

were not properly supported as required under 40 CFR §30.21 and 

2 CFR Part 230. 

 Labor charges did not comply with the requirements of 2 CFR Part 230. 

 Cash draws did not meet immediate cash needs requirement and were 

not properly documented as required under 40 CFR §30.22 and §30.21. 

As a result of the issues noted, we questioned $1,615,343 of the $2,250,031 

claimed under the CA. In addition, due to lack of adequate documentation from 

GH, we were unable to determine whether GH accomplished the objective of the 

CA or met the job reporting requirements of Recovery Act Section 1512. 

Recommendations 

We recommend that the Region 7 regional administrator disallow questioned 

costs of $1,615,343 and recover $1,423,028 of that amount under the CA. We 

also recommend that, prior to any future EPA awards, the regional administrator 

verify that GH has adequate controls related to such issues as procurement, 

contract administration, cost allowability, labor charges, and cash draws. In 

addition, we recommend that the regional administrator verify that GH reported 

the number of jobs created and retained in accordance with Recovery Act 

requirements and Office of Management and Budget guidance. We also 

recommend that the regional administrator verify that the vehicles GH reported 

as retrofitted under the CA were completed in accordance with workplan. 

GH disagreed with our recommendations. GH believed the contract costs were 

fair and reasonable, no federal funds were over-drawn, and it has exceeded the 

emission objective of the CA. GH believed no costs should be recovered, with an 

exception to a limited amount of personnel costs. Region 7 did not comment on 

the draft report. 
 

 

 

Karl Brooks, Regional Administrator 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

August 30, 2013 

MEMORANDUM 

SUBJECT: Examination of Costs Claimed Under American Recovery and Reinvestment Act 

Cooperative Agreement 2A-97706701 Awarded to Grace Hill Settlement House, 

St. Louis, Missouri 

Report No. 13-R-0367 

FROM: Arthur A. Elkins Jr. 

TO: 

Region 7 

This is our report on the subject examination 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. 

Due to the length of the recipient’s comments and the need to redact the sensitive information, 

appendices A and B are presented in separate files. 

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 

December 30, 2014. 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. This report will be available at 

http://www.epa.gov/oig. 

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

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Examination of Costs Claimed Under American Recovery and 13-R-0367 

Reinvestment Act Cooperative Agreement 2A-97706701 

Awarded to Grace Hill Settlement House 

Table of Contents 

Chapters 

1 Independent Accountant’s Report................................................................... 1 

2 Introduction ........................................................................................................ 4 

Purpose ...................................................................................................... 4 

Background ................................................................................................ 4 

3 Results of Examination – Costs Claimed ........................................................ 5 

 Recommendation ....................................................................................... 7 

 Recipient Comments ................................................................................... 7 

 OIG Response ............................................................................................. 8 

4 Financial Management System Did Not Meet Federal Standards.................. 10 

Procurements Did Not Meet Competition Requirements ............................ 10 

Procurements Did Not Meet Cost and Price Analysis Requirements ......... 12 

Contract Administration Did Not Meet Federal Requirements .................... 13 

Costs Claimed Included Ineligible and Unsupported Costs ......................... 15 

Labor Charges Did Not Comply With Federal Requirements ...................... 16 

Cash Draws Did Not Comply With Federal Requirements .......................... 17 

Conclusion................................................................................................... 18 

 Recommendation ........................................................................................ 18 

 Recipient Comments ................................................................................... 19 

 OIG Response ............................................................................................. 19 

5 Compliance With Recovery Act Requirements .............................................. 21 

 Recommendation ........................................................................................ 21 

 Recipient Comments ................................................................................... 22 

 OIG Response ............................................................................................. 22 

6 Meeting the Objective of the CA ....................................................................... 23 

Lack of Adequate Verifiable Details in Final Progress Report .................... 23 

Not All Retrofitted Vehicles Were Available for Inspection .......................... 23 

GH Did Not Consistently Document Work Completion Verification ............. 24 

Conclusion .................................................................................................. 25 

 Recommendation ....................................................................................... 25 

 Recipient Comments ................................................................................... 25 

 OIG Response ............................................................................................. 26
 

Status of Recommendations and Potential Monetary Benefits .............................. 27 

- continued -
 

 

Examination of Costs Claimed Under American Recovery and 13-R-0367 

Reinvestment Act Cooperative Agreement 2A-97706701 

Awarded to Grace Hill Settlement House 

Appendices 

A GH’s Comments on the Draft Report ............................................................... 28
 

B OIG Evaluation of GH’s Comments ................................................................. 29
 

C Distribution ........................................................................................................ 30
 
 

 

Chapter 1

Independent Accountant’s Report 

As part of our continued oversight of the assistance agreements the U.S. 

Environmental Protection Agency awarded under the American Recovery and 

Reinvestment Act of 2009, we have examined the costs claimed under 

cooperative agreement 2A-97706701, awarded to Grace Hill Settlement House. 

We conducted the examination to determine whether the costs claimed under the 

CA were allowable in accordance with the Code of Federal Regulations under 

2 CFR Part 230, Cost Principles for Non-Profit Organizations, and 40 CFR Part 

30, Uniform Administrative Requirements for Grants and Agreements with 

Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations, 

as well as the terms and conditions of the CA. We also reviewed GH’s 

accomplishment of the objective of the CA and compliance with the following 

Recovery Act requirements: 

 Buy American requirements under Section 1605. 

 Davis-Bacon Act wage requirements under Section 1606. 

 Job reporting requirements under Section 1512. 

The CA covered the period June 1, 2009, through June 30, 2011. By receiving the 

award, GH accepted responsibility for compliance with the requirements stated 

above. Our responsibility is to express an opinion on GH’s cost claim and 

compliance based on our examination. 

Our examination was conducted in accordance with the Government Auditing 

Standards issued by the Comptroller General of the United States and the 

attestation standards established by the American Institute of Certified Public 

Accountants. We examined, on a test basis, evidence supporting management’s 

assertions and performed such other procedures as we considered necessary under 

the circumstances. We believe our examination provides a reasonable basis for 

our opinion. 

We conducted our fieldwork from January 31, 2012, to April 17, 2013. 

We performed the following steps: 

 Reviewed the EPA project and grant files to obtain an understanding of 

the project. 

 Interviewed GH personnel to obtain an understanding of the project as 

well as the recipient’s policies and procedures. 

 Reviewed GH’s supporting documents for cash draws and costs claimed 

under the CA. 

 Reviewed evidence for work completion and conducted site visits to verify 

work completion. 

13-R-0367 1 
 

 

	 Reviewed evidence for compliance with Recovery Act and other federal 

requirements. 

GH is responsible for establishing and maintaining effective internal control over 

compliance with the requirements of 40 CFR Part 30, 2 CFR Part 230, Recovery 

Act, and the terms and conditions of the CA. In planning and performing our 

examination, we considered GH’s internal control over compliance with the 

requirements listed above as a basis for designing our examination procedures for 

the purpose of expressing our opinion on compliance, but not for the purpose of 

expressing an opinion on the effectiveness of internal controls over compliance. 

Accordingly, we do not express an opinion on the effectiveness of GH’s internal 

control. 

Our consideration of internal control over compliance with the above 

requirements was for the limited purpose described in the preceding paragraph 

and was not designed to identify all deficiencies in internal control over 

compliance that might be significant deficiencies or material weaknesses; 

therefore, there can be no assurance that all deficiencies, significant deficiencies 

or material weaknesses have been identified. 

A significant deficiency is a deficiency in internal control, or combination of 

deficiencies, that adversely affects that entity’s ability to initiate, authorize, 

record, process, or report data reliably in accordance with the applicable criteria 

or framework, such that there is more than a remote likelihood that a misstatement 

of the subject matter that is more than inconsequential will not be prevented or 

detected. A material weakness is a significant deficiency, or combination of 

significant deficiencies, that results in more than a remote likelihood that material 

misstatement of the subject matter will not be prevented or detected. 

Our examination disclosed the following material weaknesses in GH’s financial 

management system: 

 Procurements did not meet the competition or cost and price analysis 

requirements of 40 CFR §30.43 and §30.45. 

	 The contract administration system did not meet 40 CFR §30.47 

requirements. 

 Unallowable costs were not segregated and financial management data 

were not properly supported as required under 40 CFR §30.21 and 2 CFR 

Part 230. 

	 Labor charges did not comply with 2 CFR Part 230 requirements. 

	 Cash draws did not meet immediate cash needs requirements and were not 

properly documented as required under 40 CFR §30.22 and §30.21. 

As a result of the issues noted above, we questioned $1,615,343 of the $2,250,031 

claimed under the CA. In our opinion, because of the effect of the issues described 

above, the costs claimed do not meet, in all material respects, the requirements of 

13-R-0367 2 
 

 

 

40 CFR Part 30, 2 CFR Part 230, and the terms and conditions of the CA for the 

period ended June 30, 2011. 

In addition, due to lack of adequate documentation from GH, we were unable to 

verify whether GH accomplished the objective of the CA or met the job reporting 

requirements of Section 1512 of the Recovery Act. 

Robert K. Adachi 

Director, Forensic Audits 

August 30, 2013 

13-R-0367 3 
 

 

Chapter 2

Introduction 

Purpose 

The EPA Office of Inspector General conducted this examination to determine 

whether the costs claimed under the CA were reasonable, allocable, and allowable 

in accordance with the applicable federal requirements and the terms and 

conditions of the CA. The OIG also reviewed GH’s compliance with selected 

Recovery Act requirements and accomplishment of the objective of the CA. 

Background 

The Diesel Emission Reduction Act was signed into law in August 2005 under 

Title VII, Subtitle G, of the Energy Policy Act of 2005. DERA authorized $200 

million per year from fiscal years 2007 through 2011 (or a total of $1 billion) for 

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

from fleets operating in areas designated by the agency as poor air quality areas. 

Congress appropriated a total of $219.1 million for the EPA under DERA for FYs 

2008 through 2011. Congress appropriated an additional $300 million to the EPA 

in FY 2009 for DERA assistance agreements under the Recovery Act. 

The EPA awarded the CA on July 20, 2009, to GH under the Recovery Act. The 

purpose of the award was to provide emission reduction technology for delivery 

trucks, long-haul trucks, school buses, tugboats, fire engines, ambulances, airport 

support equipment, dump trucks, and street sweepers. The technology used in this 

project was expected to save 87,884 gallons of diesel fuel per year, help 

companies retain current employees, and create new jobs. This project was 

expected to reduce air pollution, resulting in benefits to the health of residents and 

workers in the St. Louis region. 

The EPA awarded the CA under 40 CFR Part 30. The grant budget and project 

period was from June 1, 2009, to June 30, 2011. Estimated total project cost is 

$2,256,420, consisting of federal share of $2,000,000 and required recipient 

match of $256,420. The final federal financial report submitted by GH on 

September 29, 2011, shows total project costs of $2,250,031, consisting of federal 

share of $1,985,679 and recipient matches of $264,352. The $264,352 included 

required matches and voluntary matches. 

13-R-0367 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 3

Results of Examination – Costs Claimed 

Our examination disclosed that GH’s financial management system did not meet federal 

standards. Specifically, we identified the following material weaknesses: 

 Procurements did not meet the competition or cost and price analysis requirements of 

40 CFR §30.43 and §30.45. 

 The contract administration system did not meet 40 CFR §30.47 requirements. 

 Unallowable costs were not segregated and financial management data were not 

properly supported as required under 40 CFR §30.21 and 2 CFR Part 230. 

 Labor charges did not comply with 2 CFR Part 230 requirements. 

 Cash draws did not meet immediate cash needs requirements and were not properly 

documented as required under 40 CFR §30.22 and §30.21. 

As a result, we questioned $1,615,343 of the $2,250,031 claimed under the CA. We 

summarize the costs claimed and questioned below: 

Table 1: Summary of questioned costs 

Cost category 

Amount 

claimed 

Costs questioned 

Ineligible Unsupported Note 

Personnel $70,870 - 64,617 1 

Fringe benefit costs 15,300 14,841 1 

Contract costs 2,091,009 61,450 1,443,922 2 

Other direct costs (16,496)1 2,430 429 3 

Indirect costs 91,037 27,654 4 

Costs incurred in excess of 

claimed amount 

(1,689) 

Total project costs $2,250,031 91,534 1,523,809 

Total costs questioned 1,615,343 

Allowable project costs 634,688 

Allowable federal share (88.65%) 562,651 

Cumulative cash draw 1,985,679 

Amount due EPA $1,423,028 

Sources: Amounts claimed are from GH’s accounting records and the final federal financial report GH 

submitted to the EPA under the CA. Costs questioned are based on OIG’s analysis of the data. 

1

 Actual amount of other direct costs claimed is $28,907. The negative amount shown above is due to other direct 

costs of $45,403 being misclassified as contract costs in GH’s accounting records and in the federal financial report. 

13-R-0367 5 
 

 

 

Note 1: Fringe Benefits 

We question personnel costs of $64,617 and the associated fringe benefit costs of 

$14,841 as unsupported because GH’s labor charges for full-time employees did 

not comply with federal requirements. Chapter 4 of this report, in the section 

Labor Charges Did Not Comply With Federal Requirements, discusses this 

issue in more detail. 

Note 2: Contract Costs 

We question contract costs of $1,505,372 consisting of the following: 

 Ineligible costs of $31,469 claimed in excess of the contract ceiling 

amounts. 

 Ineligible voluntary matches of $29,981. 

 Unsupported costs of $1,273,788 due to noncompliance with federal 

procurement regulations. 

 Unsupported costs of $170,134 due to noncompliance with contract billing 

terms. 

a)	 Costs Claimed In Excess of Contract Ceilings. We question ineligible 

costs of $31,469 claimed in excess of the contract ceiling amounts because 

these costs did not comply with contract terms. Detailed discussion of this 

issue is in the chapter 4 section Contract Administration Did Not Meet 

Federal Requirements, in the subsection Invoice Payments Not 

Consistent With Contract Terms. 

b) Voluntary Matches. We question ineligible voluntary matches of $29,981 

because these costs are included in the total project costs claimed but are 

not eligible for federal cost sharing. Voluntary matches were established 

under the contracts as costs to be paid by contractors in addition to the 

amounts for EPA cost sharing. 

c)	 Noncompliance With Federal Procurement Regulations. We question 

unsupported costs of $1,273,788 because GH did not comply with federal 

procurement regulations. As a result, we are unable to determine whether 

the costs claimed were fair and reasonable. Detailed discussion of this 

issue is in the chapter 4 sections Procurements Did Not Meet 

Competition Requirements and Procurements Did Not Meet Cost and 

Price Analysis Requirements. Actual amount questioned due to 

noncompliance with federal procurement regulations is $1,322,857. 

However, $49,069 of the $1,322,857 is already included in items a) and b) 

above. The net amount questioned for noncompliance with federal 

procurement regulations is reduced to $1,273,788 to avoid duplication of 

questioned costs. 

13-R-0367 6 
 

 

d)	 Noncompliance With Contract Billing Terms. We question unsupported 

costs of $170,134 because contractor billings did not comply with contract 

terms. Unit prices billed by the contractors and paid under the CA did not 

match unit prices in the contracts. Detailed discussion of this issue is in the 

chapter 4 section Contract Administration Did Not Meet Federal 

Requirements, in the subsection Invoice Payments Not Consistent With 

Contract Terms. Actual amount questioned for noncompliance with 

billing terms is $210,062. Some of the $210,062 is already included in 

items a) and c) above. The net amount questioned is reduced to $170,134 

to avoid duplication of questioned costs. 

Note 3: Other Direct Costs 

We question ineligible other direct costs of $2,430 for items that are not allocable 

to or allowable under the CA. We also question ODCs of $429 for which GH 

could not provide supporting documentation. Detailed discussion of this issue is 

in the chapter 4 section Costs Claimed Included Ineligible and Unsupported 

Costs. 

Note 4: Indirect Costs 

Ineligible indirect cost of $27,654 is questioned because the $91,037 GH claimed 

exceeded the $63,383 approved in the grant budget. According to 40 CFR 

§30.25(c)(2)(iii), the recipient is required to obtain prior approval from the EPA 

when shifting costs between the budgeted indirect and direct costs. The EPA has 

confirmed that this approval was not requested by GH or granted by the EPA; 

therefore, the $27,654 is not allowable. 

Recommendation 

We recommend that the Region 7 regional administrator: 

1.	 Disallow $1,615,343 in questioned costs and recover $1,423,028 of that 

amount under the CA. If GH provides documentation that meets 

appropriate federal requirements or demonstrates the fairness and 

reasonableness of the contract prices, the amount to be recovered may be 

adjusted accordingly. 

Recipient Comments 

The OIG received comments on the draft report from GH on June 3, 2013. 

Region 7 did not provide any comments. We held an exit conference with GH and 

Region 7 on July 11, 2013, to discuss GH’s comments and our final position on 

the issues. 

13-R-0367 7 
 

 

GH disagreed with our recommendation to disallow and recover costs under the 

CA. GH believed the contract costs were fair and reasonable, no federal funds 

were over-drawn, and it has exceeded the emission objective of the CA. GH believed 

no costs should be recovered, with an exception for a limited amount of personnel 

costs. GH also submitted after-the-fact documentation prepared or obtained from 

its vendors and contractors attempting to support GH’s comments. GH’s complete 

written response is included in appendix A. Along with the response, GH 

provided 105 exhibits. Due to volume, exhibits are not included in the report, but 

are available upon request. 

GH provided additional comments on June 28, 2013, subsequent to the formal 

draft response. GH stated that we referred to the voluntary matches as amounts 

“paid” in excess of contract ceilings. GH said no part of the voluntary matches 

was actually paid. The costs were additional amounts over and above the project 

partners’ share of the contract prices, which the project partners absorbed. 

GH also disagreed with characterizing these costs as ineligible. GH believed the 

voluntary matches in excess of the contract ceilings should get “extra credit” and 

not bear on any cost recovery by GH or payment by the EPA. GH said it did not 

claim or receive cost recoveries or payments in excess of the contract amounts. 

OIG Response 

GH’s response did not change our recommendation to question and recover costs. 

GH acknowledged that the labor and fringe benefit costs were charged based on 

budget allocation, which did not meet the federal requirement. Except for the 

camera and accessory costs of $200.76 and $11.98, GH’s comments and 

supporting documentation continued to show that ODCs questioned were 

unallowable and indirect costs claimed exceeded the amount established in the 

grant budget. However, GH provided a contract modification to support some of 

the costs not billed in accordance with contract terms. In addition, GH provided 

an adequate explanation on the nonresponsive bidder issue. We have adjusted our 

report and the recommended questioned costs and recovery amount to reflect 

these changes. 

The remaining response and documentation provided by GH on the procurement 

and contract administration issues were prepared during the draft report response 

period. These explanations and documentation did not exist at the time of 

procurement. Consideration of these after-the-fact documentation is within the 

discretion of EPA management and would require that the agency make an 

exception in accordance with 40 CFR §30.4. 

Details of our responses to GH’s comments are in appendix B. 

GH’s comments on the voluntary matches referred to the language in chapter 4 

section Contract Administration Did Not Meet Federal Requirements, in the 

subsection Invoice Payments Not Consistent With Contract Terms. We agreed 

13-R-0367 8 
 

 

 

with GH that these costs were not actually paid. However, the costs were claimed. 

In the final federal financial report, GH claimed “recipient share required” of 

$258,420 and total “recipient share of expenditures” of $264,352. In its 

accounting records, GH did not distinguish the “recipient share required” from the 

addition expenditures. The $264,352 included recipient matches incurred in 

excess of contract ceilings which carried over to the total project costs claimed of 

$2,250,031. Since voluntary matches and costs incurred in excess of contract 

ceilings are not eligible for federal cost sharing, these costs were appropriately 

classified as ineligible costs for federal cost share calculation. We have changed 

the report from voluntary matches “paid” to “claimed” in excess of contract 

ceilings. 

13-R-0367 9 
 

 

Chapter 4

Financial Management System Did Not Meet 

Federal Standards
 

GH’s financial management system did not meet federal standards. Specifically, 

our examination disclosed the following material weaknesses: 

 Procurements did not meet the competition or cost and price analysis 

requirements of 40 CFR §30.43 and §30.45. 

 The contract administration system did not meet 40 CFR §30.47 

requirements. 

	 Unallowable costs were not segregated and financial management data 

were not properly supported as required under 40 CFR 30.21 and 2 CFR 

Part 230. 

 Labor charges did not comply with 2 CFR Part 230 requirements. 

 Cash draws did not meet immediate cash needs requirements and were not 

properly documented as required under 40 CFR §30.22 and §30.21. 

As a result of the issues noted above, we questioned $1,615,343 of the $2,250,031 

claimed under the CA. 

Procurements Did Not Meet Competition Requirements 

GH awarded five contracts for school bus retrofit, totaling $793,340, which did 

not comply with the federal competition requirements. The unit price, which was 

the same for all five contracts, was not based upon full and open competition. 

Although GH’s internal procurement policies and procedures complied with 

federal standards, GH’s staff did not always follow these procedures. 

Title 40 CFR §30.43 requires all procurement transactions to be conducted in a 

manner that provides, to the maximum extent practical, free and open 

competition. The regulation further states that the recipient should be alert for 

noncompetitive practices among contractors that may restrict or eliminate 

competition or otherwise restrain trade. 

GH’s procurement policy establishes the following price quotation or bidding 

requirement based on the purchase price: 

 Oral or written quotations from at least two responsible vendors for all 

purchases in excess of $5,000 but less than $25,000. 

 Written quotations from at least two responsible vendors for all purchases 

of at least $25,000 but less than $100,000. 

13-R-0367 10 
 

 

	 Competitive proposals from at least three responsible vendors for all 

purchases of $100,000 or more. 

Contract Price Was Not Competitively Bid 

The unit price used for the five contracts was not based on open competition. 

Instead, the unit price was based upon GH’s negotiations with the main project 

partner (owner of the vehicles to be retrofitted) and bidders subsequent to the 

open bid process. 

The five contracts were for the same type of work. The contracts were awarded to 

install direct fire heaters on school buses. GH’s initial request for proposal did not 

specify the type or model of DFH because GH and its main project partner were 

unclear as to the type and model of DFH needed. GH left the RPF open to let 

bidders propose the appropriate DFH types. 

Four companies submitted bids in response to the RFP. Each company bid for a 

varying number of buses and with different DFH models. Two days before the bid 

due date, the main project partner informed GH that only Webasto products were 

acceptable. According to GH staff, this decision was not communicated to the 

bidders. As it turned out, only two of the four bidders (who we will refer to as 

“Company A” and “Company B”) submitted bids using the Webasto DFH. 

Although Company A was the lowest bidder, in our opinion, the four bid prices 

were not comparable because the bid prices for the remaining two bidders were 

not based on the Webasto DFH. 

Before the contract was signed, the project partner requested that additional 

features be added to the DFH, including a flame resistant box, crash sensor, and 

driver option to turn on the heater. Instead of allowing all original bidders to 

resubmit bids for the Webasto DFH with these additional features, GH negotiated 

with the project partner and bidders to arrive at a unit price. GH also decided to 

split the work between two selected companies (Company A and another bidder, 

which we will refer to as “Company C”). Once the unit price and the quantity split 

were determined, GH asked the two selected companies to submit quotes for the 

determined quantities using the negotiated unit price. GH ultimately awarded the 

contracts to these two companies at the negotiated unit price. 

GH was unable to provide documentation to support the unit price negotiations or 

the division of work. During our fieldwork, GH staff verbally explained that the 

other two companies were not asked to rebid because Company B was late 

submitting its original bid and Company D had too much other work under the 

CA. In our opinion, Company B’s late submittal on the original bid should not 

have affected the rebid, as the rebid would have established a new bid due date. 

GH should have, at a minimum, allowed Companies A and C to competitively bid 

on the new specifications instead of using the negotiated unit price. Further, GH’s 

internal procurement policy required competitive proposals from at least three 

13-R-0367 11 
 

 

     

responsible vendors for all purchases of $100,000 or more. In this case, the initial 

award totaled $656,792, consisting of $567,162 awarded to Company A and 

$89,630 to Company C. Negotiating the unit price instead of obtaining bids from 

three responsible vendors violated GH’s internal policy. Since GH could not 

provide documentation to support the unit price, there is no assurance that the 

price was fair and reasonable. As a result, we question all costs claimed under the 

two contracts as unsupported costs. 

When additional school buses became available for the same type of retrofit, GH 

again split the work. The work was split among three companies – referred to 

above as Companies A, B, and C. GH explained that Company B, which was late 

submitting its original bid, came to the pre-bid meeting for the second phase of 

the bus retrofit and again expressed interest in the work; therefore, “in the spirit of 

fair and open process,” GH awarded Company B approximately 30 percent of the 

additional retrofit work. The three additional contracts were awarded at the same 

unit price as the original two contracts. We question the original contracts because 

there is no assurance that the unit price awarded was fair and reasonable. We also 

question the additional contracts for the same reason. 

Procurements Did Not Meet Cost and Price Analysis Requirements 

GH’s procurements under the CA did not always meet the federal requirements 

for cost and price analysis. GH awarded four contracts without documented cost 

or price analysis. Title 40 CFR §30.45 requires some form of cost or price 

analysis to be made and documented in the procurement files for every 

procurement action. Regulations state that price analysis may be accomplished by 

comparing submitted price quotes with market prices and discounts. Cost analysis 

is achieved through review and evaluation of each cost element to determine 

reasonableness, allocability, and allowability. Without the required cost or price 

analysis, there is no assurance that the contract prices were fair and reasonable. 

Tugboat Retrofit Contracts 

GH awarded two sole source contracts to the owner of the tugboats, or the project 

partner, without evidence of cost or price analysis. GH awarded the two contracts, 

with not-to-exceed amounts of $79,895 and $286,999. Both contracts required 

replacement of a propulsion engine and an auxiliary engine. The $286,999 

contract also required replacement of a crane engine. The contract prices consist 

of costs for equipment purchases and project partner’s labor costs. There was no 

evidence of cost or price analysis on either of the contracts except for the cost of 

the auxiliary engine under the $286,999 contract. As a result, we question all costs 

claimed under the two contracts as unsupported costs, with the exception of the 

costs of the auxiliary engine for the $286,999 contract. 

GH explained that it made sense to award the contracts to the project partner 

because tugboats were the project partner’s main business. GH believed the price 

13-R-0367 12 
 

 

was fair and reasonable because the project partner covered 25 percent of the 

costs. 

We disagree with GH. The fact that the project partner contributed 25 percent of 

the costs is irrelevant for determining the fairness and reasonableness of the 

contract price. The 25 percent match requirement was imposed by GH on several 

of the project partners. Regardless of who received the retrofit contract, the 

project partner would have to cover 25 percent of the costs. There were other 

projects under the CA in which the project partner was not the retrofitting 

contractor but paid the required 25 percent match. 

Food Delivery Truck Contract 

GH awarded a contract for food delivery truck engine replacements without cost 

or price analysis. GH received one bid for the work and awarded the contract to 

the only bidder. Without cost or price analysis, there is no assurance that the price 

was fair and reasonable. As a result, we question the costs as unsupported. 

Drills and Crane Engine Replacement Contract 

GH awarded a contract for engine replacement for two drills and a crane without 

cost or price analysis. GH received one bid for the work and awarded the contract 

to the only bidder at the bid price of $113,095. 

GH staff stated that they used quotes for other similar retrofits, such as the 

tugboat propulsion engines and crane, as comparisons. However, this does not 

meet the federal requirement. As stated above under Tugboat Retrofit Contracts 

subsection, GH has not demonstrated that the prices for the tugboat propulsion 

engine and crane engine replacements were fair and reasonable since they were 

procured without cost or price analysis. The engines used for the tugboats also 

appear to be of a different type and class from the engines under this contract. In 

addition, GH did not have documentation for the stated comparison, as required 

under 40 CFR §30.45 and §30.46. Without cost or price analysis, there is no 

assurance that the price was fair and reasonable. As a result, we question the costs 

as unsupported. 

Contract Administration Did Not Meet Federal Requirements 

GH did not have an adequate contract administration system to ensure accuracy of 

contract information and contractor conformance with the terms, conditions, and 

specifications of the contracts, as required under 40 CFR §30.47. We noted that GH: 

 Awarded contracts that contained inaccurate information. 

 Approved and paid contractor invoices that were not consistent with 

contract terms and conditions. 

 Awarded contracts that contained conflicting terms. 

13-R-0367 13 
 

 

Contracts Contain Inaccurate Information 

GH did not have adequate controls to ensure the accuracy of the contract terms. 

We noted transposition errors in the contract unit price and the not-to-exceed 

amount. In addition, we noted a quantity error. The contract stated 115 vehicles 

instead of 94 vehicles. Without accurate contract information, the recipient would 

not be able to ensure contractors perform services and bill according to the 

parties’ intent. This could subject the government to contract disputes. 

Although the errors noted above had not resulted in actual contract disputes or 

billing errors, as the contracts referenced the bid packages, contract terms need to 

be accurate in order to protect the interest of all parties affected by the contract, 

including the EPA. 

Invoice Payments Not Consistent With Contract Terms 

GH did not have adequate controls to ensure that invoice payments to contractors 

were consistent with contract terms and conditions. Our review of the invoices 

indicated that 3 of the 10 contracts awarded under the CA contained invoices that 

were not billed at the unit prices established in the contracts. These invoices totaled 

$210,062. GH paid the invoices and claimed the costs under the CA without 

adequately verifying the contract terms or modifying the terms as necessary. We also 

noted that the cumulative amounts claimed under 3 of the 10 contracts exceeded the 

contract ceilings. The excess amounts for the three contracts totaled $31,469. 

Title 40 CFR §30.47 requires a system for contract administration be maintained 

to ensure contractor conformance with the terms, conditions, and specifications of 

the contract and to ensure adequate and timely follow-up of all purchases. Title 40 

CFR §30.27 establishes appropriate federal cost principles for determining 

allowable costs for each type of entity incurring the costs. The contracts GH 

awarded under the CA were to commercial organizations. According to 40 CFR 

§30.27(a), allowable costs for commercial organizations are determined in 

accordance with the provisions of the Federal Acquisition Regulation at 48 CFR 

Part 31. Under 48 CFR §31.201-2(a)(4), a cost is allowable only when the cost 

complies with the terms of the contract. These costs did not comply with the 

contract terms and, therefore, are unallowable under the contracts or the CA. 

Contracts Contain Mixed Terms 

GH awarded 5 of the 10 contracts under the CA with conflicting contract terms. 

One section of the contract would show a lump sum price while another suggested 

a unit price agreement. For example, one section of the contract would state: 

Grace Hill shall pay contractor, as full and complete compensation 

for performance of the services required by this agreement, a total 

sum of $____ as detailed in Schedule A. 

13-R-0367 14 
 

 

This language indicates a lump sum contract where GH would pay the contractor 

the stated sum for all of the tasks agreed to in Schedule A. However, the terms in 

Schedule A were for unit price contracts. Each line item in Schedule A of the 

contract showed a task to be performed and the number of units under the task 

with a not-to-exceed amount. Under a unit price contract, the contractor is paid at 

a fixed price per unit; the total amount may vary depending on the number of 

units provided but the total cost cannot exceed the not-to-exceed amount. 

The mixed contract terms become especially problematic when one line item in 

the contract contains multiple unit prices and when the invoiced unit prices do not 

match the contract prices. We were unable to determine whether the lump sum 

prices or the unit prices prevail. We contacted GH to obtain clarification. GH 

explained that these were intended to be unit price contracts. 

GH staff explained that the lump sum language was a standard template used for 

all contracts. Schedule A, with the unit price language, was added for the 

contracts under the CA with the intent to provide clarity on the scope of work and 

to specify the payment method for products or services. Due to the lack of 

contract knowledge by the procurement staff, the inconsistency in contract terms 

was not detected. 

Costs Claimed Included Ineligible and Unsupported Costs 

GH did not have adequate controls to ensure that unallowable costs were 

segregated and that costs in the accounting system were properly supported. As a 

result, costs claimed included ineligible and unsupported costs. Title 2 CFR 230, 

Appendix A, Section A.2, requires that a cost be in accordance with the federal 

cost principles, allocable to the award, and adequately documented to be 

allowable under a federal award. Title 40 CFR §30.21 also requires the recipient 

to have written procedures to determine the reasonableness, allocability, and 

allowability of costs, and to ensure that costs are supported by source 

documentation. 

Aside from the ineligible and unsupported contract costs explained above, GH 

claimed ODCs that are ineligible or unsupported. ODCs represent all direct costs 

other than personnel, fringe benefits, and contract costs. Examples of ODCs are 

costs relating to travel, supplies, meetings, and allocation of property support and 

computer support costs. Total ODCs claimed under the CA was $28,907. 

After segregating the allocated property support and computer support costs, as 

cost allocations were reviewed separately, there were 60 ODC transactions 

included in the claim. We selected 17 of the 60 transactions for review. Of the 

17 transactions we reviewed, we identified nine ineligible cost transactions, 

totaling $2,430. The ineligible costs were incurred for items that were not 

allocable to the CA or for food items that are expressly disallowed under 2 CFR 

13-R-0367 15 
 

 

230, Appendix B, Section 14. In addition, we identified two transactions, totaling 

$429, for which GH could not provide supporting documentation. 

Although the unallowable ODC amount claimed under the CA is not material, the 

issue is significant when considering the number of transactions. Ineligible and 

unsupported costs represent about 65 percent of the transactions tested, or 

18 percent of the total transactions. It raises concern when the same issue had 

been raised by the EPA during its onsite review in November 2010. GH needs to 

implement adequate controls to ensure that this issue is resolved. 

Labor Charges Did Not Comply With Federal Requirements 

GH’s labor charges for full-time employees did not comply with federal 

requirements. The recipient charged full-time labor costs to federal awards based 

on a budget percentage allocation rather than actual activities performed. In 

addition, hours recorded on timesheets were identified by funding source rather 

than by award. Title 2 CFR Part 230 requires that distribution of salaries and 

wages to federal awards be based on an after-the-fact determination of actual 

activities. We believe the noncompliance occurred because GH’s full-time 

employees lack understanding of the federal requirements for labor charges. As a 

result, we have no assurance that the labor and related fringe benefit costs of 

$79,459 claimed under the CA represent actual activities performed for the CA. 

Labor Charging Not Based on Actual Activities 

GH’s labor hours charged to the CA for its two full-time employees did not 

comply with federal requirements. GH allocated the employees’ work hours 

among the various projects based on budget percentages predetermined by GH’s 

management. Federal cost principles under 2 CFR Part 230, Appendix B, 

Section 8.m.(1), states “[the] distribution of salaries and wages to awards must be 

supported by personnel activity reports.” Section 8.m.(2) states “[reports] 

reflecting the distribution of activity of each employee must be maintained for all 

staff member (professional and nonprofessional) whose compensation is charged, 

in whole or in part, directly to awards.” The regulation further states “[the] reports 

must reflect an after-the-fact determination of the actual activity of each 

employee. Budget estimates (i.e., estimates determined before the services are 

performed) do not qualify as support for charges to awards.” 

Timesheets Did Not Track Hours by Award 

Timesheets for full-time employees did not track hours by award. Instead, 

timesheet hours recorded were grouped by funding source. GH had two active 

EPA CAs from July 20, 2009, to December 31, 2010. GH recorded hours for both 

of the CAs in the timesheets as one line item, labeled as “EPA.” These hours were 

then charged to the respective awards based on the budgeted percentages, as 

explained above. According to 2 CFR 230, Appendix A, Section A.2, a cost must 

13-R-0367 16 
 

 

be allocable to be allowable under an award. Section A.4 states that a cost is 

allocable to a particular cost objective, such as a grant, contract, project, service, 

or other activity, in accordance with the relative benefits received. Without 

tracking the hours by award, the recipient would not be able to show benefits 

received by a particular award. 

Lack of Understanding of Federal Requirements 

Based on discussions with GH staff and our review of their correspondence with 

EPA Region 7, it appears that GH lacked an understanding of the federal 

requirements for labor charging. During our fieldwork, GH staff stated that, for 

most of the grant period, they did not understand how to demonstrate to the EPA 

the breakdown of labor hours between projects. In the June 9, 2011, determination 

letter for the 2009 single audit findings and the November 2010 onsite 

administrative assistance review findings, an EPA Region 7 official stated that 

GH was advised during an onsite visit in 2008 that its timesheets did not comply 

with federal requirements. GH personnel assured the region that they would 

change the timesheet to reflect actual time spent on grant activities. In the June 9, 

2011, letter, the region asked GH to explain why corrections had not been 

completed. GH stated that staff and management were directed to complete 

separate timesheets for each contract, as opposed to modifying the timesheets to 

track all actual activities by award. 

Cash Draws Did Not Comply With Federal Requirements 

GH’s advance cash draws did not meet the immediate cash needs requirements 

under 40 CFR §30.22 and the terms and conditions of the CA. GH also did not 

always adequately document its draw calculations as required under 40 CFR 

§30.21. As a result, GH was unable to provide adequate details for some of the 

cash draws or demonstrate when the excess amounts drawn were eventually 

credited to the EPA. 

Under 40 CFR §30.22(b), cash advances are limited to the minimum actual 

amounts immediately needed to carry out the purpose of the approved project. 

Title 40 CFR §30.22(b) also specifies that the timing and amount of cash 

advances shall be as close as is administratively feasible to the actual 

disbursements by the recipient. Administrative condition 2 of the CA reiterated 

this requirement. Title 40 CFR §30.21(b)(5) requires the recipient to have 

adequate procedures to minimize the time elapsing between the transfer of funds 

to the recipient from the U.S. Treasury payments for program purposes by the 

recipient. Title 40 CFR §30.21(b)(2) also requires the recipient to maintain 

records that adequately identify the source and application of funds for federally 

sponsored activities. 

We reviewed 8 of the 24 cash draws under the CA for compliance with the 

immediate cash need requirements. The draws reviewed were paid by the EPA 

13-R-0367 17 
 

 

 

prior to June 9, 2011, when GH was placed on a reimbursement method. Of the 

eight draws reviewed, three exceeded immediate cash needs. In addition, GH was 

unable to provide adequate details to support the calculation for one of the draws; 

therefore, we were unable to determine whether that cash draw met the immediate 

cash needs requirement. 

Based on our review, the cumulative cash draw amount did not exceed the 

cumulative expenditures; therefore, we did not question the cash draw in excess 

of immediate cash needs in the sample items. However, due to the lack of 

adequate documentation on draw calculations, GH was unable to explain when 

some of the over-drawn cash was used for program payments or credited to the 

EPA. 

Conclusion 

Based on the issues noted above, GH’s financial management system did not meet 

the federal standards described under 40 CFR §30.21. As a result, we believe that 

the costs claimed do not meet, in all material respects, the applicable federal 

requirements and the terms and conditions of the CA. 

Recommendation 

We recommend that the Region 7 regional administrator: 

2.	 Verify, prior to any future EPA award, that the recipient has adequate 

controls to ensure that: 

a)	 Procurement practices comply with federal regulations and the 

company’s own procedures. 

b) Contract personnel have adequate federal procurement knowledge. 

c)	 Contract and bid information are accurate and complete. 

d) Unallowable costs are properly segregated and financial 

management data are properly supported. 

e) Labor charges comply with federal requirements. 

f)	 Cash draws meet immediate cash needs and documentation 

requirements. 

13-R-0367 18 
 

 

Recipient Comments 

GH disagreed with our recommendations. GH believed the contract costs paid 

were fair and reasonable, based on competition and cost and price analysis 

consistent with 40 CFR §30.43 and §30.45. GH also stated that it substantially 

met the contract administration requirements of 40 CFR §30.47 using its program 

manager’s spreadsheet to manage vendor invoices and payments and through its 

close-out documentation. GH stated that the questioned other direct cost amount 

was immaterial and the limited costs questioned were allocable and reasonable 

and not expressly disallowed. Although GH acknowledged that personnel and 

fringe benefit costs charged to the project for its two full-time employees were 

based on budget allocations, GH stated that these costs in large part represent 

actual activities performed for the CA. GH stated that with exception to one to 

two inadvertent accounting errors, it has drawn and credited the EPA as timely as 

administratively feasible. In addition, GH provided a listing of internal control 

improvements it has implemented in response to our findings and 

recommendations. 

GH also submitted documentation prepared or obtained from its vendors and 

contractors during the draft report response period attempting to support GH’s 

comments. GH’s complete written response is included in appendix A. 

OIG Response 

GH’s response did not change our position on the recommendations. GH 

acknowledged that the labor and fringe benefit costs were charged based on 

budget allocation, which did not meet the federal requirement. Except for the 

camera and accessory costs of $200.76 and $11.98, GH’s comments and 

supporting documentation continued to show that ODCs questioned were 

unallowable. However, we modified some of the details on these issues. GH 

provided adequate explanation regarding the nonresponsive bidder issue under the 

Contract Administration Did Not Meet Federal Requirements section; 

therefore, we have removed the subsection Awarding Contracts to 

Nonresponsive Bidders from the report. GH also provided a contract 

modification to support some of the costs not billed in accordance with contract 

terms. Although we have adjusted the questioned amount based on GH’s 

response, the overall contract administration issue remained in the report since 

GH did not provide documentation to adequately address the issue of inaccurate 

information in the contracts, invoices not consistent with contract terms, and 

contracts containing conflicting contract terms. 

The remaining response and documentation provided by GH on the procurement 

and contract administration issues were prepared during the draft report response 

period. These explanations and documentation did not exist at the time of 

procurement. Consideration of the documentation is within the discretion of EPA 

13-R-0367 19 
 

 

management and would require that the agency make an exception in accordance 

with 40 CFR §30.4. 

Details of our responses to GH’s comments are in appendix B. 

13-R-0367 20 
 

 

 

 

Chapter 5

Compliance With Recovery Act Requirements 

As part of our examination, we verified GH’s compliance with Recovery Act Buy 

American requirements (Section 1605), Davis-Bacon Act wage requirements 

(Section 1606), and job reporting requirements (Section 1512). EPA Region 7 

determined that the Buy American and Davis-Bacon Act wage requirements do 

not apply to the CA. Based on our understanding of the nature of the work and 

our review of the Recovery Act requirements, we agree with Region 7’s 

determination and no further verification was deemed necessary. 

With regard to the job reporting requirement, GH was unable to provide 

supporting documentation for the number of jobs it reported as created and 

retained under Recovery Act Section 1512. The Recovery Act requires each 

recipient that receives Recovery Act funds from a federal agency to submit a 

quarterly report with an estimate of the number of jobs created and the number of 

jobs retained by the project. The Office of Management and Budget issued 

various guidance documents to implement the Recovery Act requirements. On 

December 18, 2009, OMB issued guidance M-10-8 to update, among other things, 

the method for estimating the number of jobs created and retained. The guidance 

states that the estimate of the number of jobs created or retained by the Recovery 

Act should be expressed as “full time equivalents.” To avoid overstating the 

number of other than full-time permanent jobs, OMB provided a formula for FTE 

calculation that converts part-time or temporary jobs into fractional FTE. The 

formula calculates FTEs using the total number of hours worked on the Recovery 

Act-funded project during the reporting quarter divided by the total number of 

hours in a full-time schedule for the quarterly. 

Although GH submitted quarterly reports under Section 1512 of the Recovery 

Act, after numerous requests, it was unable to provide detailed calculations or 

supporting documentation. As a result, we are unable to verify whether the 

number of jobs GH reported as created and retained were accurate and in 

accordance with Section 1512 requirements, as supplemented by OMB guidance. 

Recommendation 

We recommend that the Region 7 regional administrator: 

3.	 Verify that the recipient reported the number of jobs created and retained 

in accordance with the requirements of Recovery Act Section 1512 and 

the guidance issued by OMB. 

13-R-0367 21 
 

 

 

Recipient Comments 

GH disagreed with our recommendation. GH believed its final report showed 

substantial compliance with the Recovery Act job reporting requirements. 

GH stated that the final report set out the estimated FTEs funded at GH and the 

project partners based on participation estimates and vendor letters and emails. 

GH also said it followed the EPA’s guidance to not use formulas, such as the 

Manufacturers of Emission Controls Association formula, to estimate the number 

of jobs created or retained. GH’s complete written response is included in 

appendix A. 

OIG Response 

Our position on this issue remains unchanged. We agree that the Manufacturers of 

Emission Controls Association formula referenced by the EPA is not an 

acceptable method for calculating jobs created or retained under the Recovery 

Act. OMB guidance documents were issued to implement the Recovery Act 

requirements. As stated in the draft report, OMB Guidance M-10-8 specified the 

method for estimating the number of jobs created and retained. According to the 

guidance, the number of jobs created and retained is to be expressed in terms of 

FTEs and are to be calculated using the total number of hours worked on the 

Recovery Act-funded project during the reporting quarter divided by the total 

number of hours in a full-time schedule for the quarter. GH did not provide the 

required supporting calculations. Therefore, we are unable to determine whether 

GH reported the jobs created and retained according to OMB guidance. Details of 

our responses to GH’s comments are in appendix B. 

13-R-0367 22 
 

 

Chapter 6

Meeting the Objective of the CA 

We are unable to determine whether GH met the objective of the CA. The CA was 

awarded to install emissions reduction technology on various vehicles to reduce air 

pollution in the St. Louis region. In the final progress report submitted to the EPA 

on October 12, 2011, GH reported that it had completed substantially all work 

under the final CA workplan. GH also reported that the work completed provided 

an annual emission reduction of 960 tons, exceeding the expected reduction of 

809 tons. We verified that the correct technology was installed on the items 

available for inspections, but we were unable to express an opinion as to whether 

GH met the objective of the CA due to the following: 

 Lack of adequate verifiable details in GH’s final progress report. 

 Not all vehicles were available for inspection during our site visits. 

 GH did not consistently document work completion verifications. 

Lack of Adequate Verifiable Details in Final Progress Report 

GH’s final progress report submitted to the EPA did not include adequate details 

identifiable to the retrofitted vehicles. As part of the final progress report, GH 

provided a final fleet list—a listing of all vehicles GH retrofitted under the CA. 

However, the list did not include vehicle identification information. The final fleet 

list identified and grouped items by equipment class and engine type. An 

equipment class (or one line item in the report) may consist of 1 vehicle or over 

50 vehicles. GH did not have supporting listings for the equipment class grouping 

or a complete listing of equipment with vehicle identification information that 

could facilitate physical inspections of the retrofitted vehicles. When asked, GH 

representatives said that the vehicle identification information was attached to the 

invoices. Based on our review of the documentation provided by GH, although 

many of the invoices included a listing of vehicle identification numbers, these 

VINs do not always correspond to equipment class groupings. GH also did not 

provide a complete listing of all VINs. In our opinion, GH is responsible for 

providing the necessary data to demonstrate work completion and facilitate 

verifications by the government. 

Not All Retrofitted Vehicles Were Available for Inspection 

Not all of the vehicles retrofitted under the CA were available for inspection. We 

made attempts to obtain a reasonable assurance about whether the work under the 

CA was completed by conducting three site visits. These site visits were to verify 

retrofit of school buses, a tugboat, and airport vehicles. 

13-R-0367 23 
 

 

For our visit to the school bus yard, because we did not have a complete listing of 

all school buses retrofitted, we pre-selected buses from contractor invoices for 

inspection. However, when we arrived at the site, we learned that several factors 

made locating the pre-selected sample items extremely difficult. Some of the 

vehicles were out running the routes. Buses that were not scheduled for routes were 

randomly parked at the various bus yards. As a result, the only verification we were 

able to perform was walking through the bus yard and verifying that the correct 

technology was installed on the buses located at the yard. The same verification 

was performed during the airport site visit. We were advised that due to safety 

concerns and vehicle work schedules, our inspection of the vehicles would be 

limited to those units not deployed for service on the airport grounds. 

The tugboat we selected for testing was not available for inspection until our final 

exit conference on July 11, 2013. Upon inspection, we found that the technology 

installed matched the contract and the bid documents, but not the project partner 

invoice. GH said it will work with the project partner to provide a satisfactory 

explanation to the EPA during audit resolution. 

Due to these issues, we were unable to obtain a reasonable assurance that the 

vehicles reported as completed actually existed and had been retrofitted. 

GH Did Not Consistently Document Work Completion Verification 

GH did not consistently document work completion verification. According to GH 

management, GH verified all contractor invoices for work completion with the 

project partners prior to making payments. Verification was either through site 

visits or telephone calls to project partners. When conducting site visits, instead of 

verifying a random selection of vehicles from the invoices, GH’s staff would walk 

through the site and only verify what they saw. This method of verification did not 

provide assurance that all vehicles invoiced actually existed and were retrofitted 

since GH did not select items for verification from the complete universe (i.e., all 

items listed in the invoice). It only verified whether the vehicles at the site were 

completed according to specification. Furthermore, under either verification 

method (site visit or telephone call), GH did not maintain evidence to document 

actual vehicles verified. 

According to GH management, GH’s contractor invoice payment packages should 

contain a Contractor Invoice Submission form. The form is required to be 

completed and attached to the check request for contractor invoice payments. The 

form includes a summary of the contractors work, date and signature of GH’s 

project manager inspection of work, and date and signature of the fleet manager or 

designee accepting the work. However, we identified invoice payments of 

$930,508 or 398 vehicles for which GH did not provide the Contractor Invoice 

Submission form. The $930,508 represents at least part of 8 of the 10 contract 

awarded under the CA. 

13-R-0367 24 
 

 

Conclusion 

Although we were able to verify that the appropriate technology was installed on 

the limited number of vehicles available for inspections, we were unable to 

determine whether the vehicles reported as completed actually existed and were 

retrofitted. As a result, we are unable to express an opinion as to whether GH met 

the objective of the CA. 

The fact that GH was unable to provide evidence that it consistently verified the 

work completion raised a question about the reliability of the information reported. 

EPA Region 7 staff also had concerns about the reliability of the data submitted by 

GH in its October 12, 2011, final progress report based on their cursory review of 

the data. As a result, Region 7 has advised GH to revise and resubmit the report to 

include a complete listing of the VINs for the vehicles retrofitted. 

Recommendation 

We recommend that the Region 7 regional administrator: 

4.	 Verify that vehicles GH reported as retrofitted under the CA were 

complete and retrofitted in accordance with the workplan requirements. 

Recipient Comments 

GH disagreed with our recommendation. GH stated that it prepared the final 

report and final fleet list in accordance with instructions. As part of the draft 

response, GH provided the verification details for the equipment on the fleet lists 

submitted with the final report. GH said the fleet list verification details 

demonstrated that there is no reasonable basis for doubting whether GH met the 

objectives of the CA. 

GH also stated that there is no requirement to make all retrofitted units available 

for inspection during site visits or for the recipient to verify work completion. 

GH explained that the vehicles were not all available for inspection because of 

their service schedules, which GH had no control over. GH acknowledged that the 

tugboat we selected for testing was not initially made available for inspection due 

to misunderstanding about the site visit arrangement. The tugboat was later made 

available for inspection at the time of our final exit conference on July 11, 2013. 

Furthermore, GH acknowledged that the contractor invoice payment packages 

were developed midway through the project and was not used in the earlier 

payments. 

GH’s complete written response is included in appendix A. 

13-R-0367 25 
 

 

OIG Response 

Our position on this issue remains unchanged. Although GH provided the vehicle 

identification details for the fleet lists as part of its draft response, this information 

was not available for sample selection during our fieldwork. Since our fieldwork 

phase has already passed, the new information provided by GH will not affect our 

position on the issue. 

We disagree with GH’s statement that there is no requirement to make all 

retrofitted units available for inspection or for the recipient itself to verify work 

completion. Recovery Act Section 1515, as incorporated into administrative 

condition 17 of the CA, requires the recipient to allow any appropriate 

representative of the OIG to examine any records of the recipient, any of its 

procurement contractors and subcontractors that pertain to, and involve 

transactions relating to the grant. Based on our interpretation of this requirement, 

we believe GH is required to make the retrofitted units available for inspection. 

Programmatic condition 11 of the CA also states that the work under the CA must 

be completed in accordance with the approved workplan. Item 5 of the workplan 

states that GH will assure retrofits are ordered, installed and maintained in a 

timely manner. Without some form of verification, GH would not be able to 

provide this assurance. Furthermore, the final report is GH’s representation to the 

EPA that it had completed all of the tasks under the agreement. It is GH’s 

responsibility to ensure that its final representation is accurate, complete, and 

properly supported. 

In connection with the consistency in work completion verification, GH 

acknowledged that invoice payment packages verification was not done for the 

earlier payments. No additional comment is needed from the OIG. 

Details of our responses to GH’s comments are in appendix B. 

13-R-0367 26 
 

 

 

 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL 

MONETARY BENEFITS 

RECOMMENDATIONS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed 

To 

Amount 

1 7 Disallow $1,615,343 in questioned costs and recover 

$1,423,028 of that amount under the CA. If GH provides 

documentation that meets appropriate federal 

requirements or demonstrates the fairness and 

reasonableness of the contract prices, the amount to be 

recovered may be adjusted accordingly. 

U Regional 

Administrator, 

Region 7 

$1,615 

2 18 Verify, prior to any future EPA award, that the recipient has 

adequate controls to ensure that: 

a) Procurement practices comply with federal 

regulations and the company’s own procedures. 

b) Contract personnel have adequate federal 

procurement knowledge. 

c) Contract and bid information are accurate and 

complete. 

d) Unallowable costs are properly segregated and 

financial management data are properly supported. 

e) Labor charges comply with federal requirements. 

f) Cash draws meet immediate cash needs and 

documentation requirements. 

U Regional 

Administrator, 

Region 7 

3 21 Verify that the recipient reported the number of jobs 

created and retained in accordance with the requirements 

of Recovery Act Section 1512 and the guidance issued by 

OMB. 

U Regional 

Administrator, 

Region 7 

4 25 Verify that vehicles GH reported as retrofitted under the 

CA were complete and retrofitted in accordance with the 

workplan requirements. 

U Regional 

Administrator, 

Region 7 

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

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

U = recommendation is unresolved with resolution efforts in progress 

13-R-0367 27 
 

 

 

Appendix A 

GH’s Comments on the Draft Report 

Due to the length of the recipient’s comments and the need to redact the sensitive information in 

the comments, appendix A is presented in a separate file. See the following link: 

www.epa.gov/oig/reports/2013/20130830-13-R-0367_appendix A.pdf 

13-R-0367 28 
 

 

 

Appendix B 

OIG Evaluation of GH Comments 

Due to the length of the recipient’s comments and the need to redact the sensitive information in 

the comments, appendix B is presented in a separate file. See the following link: 

www.epa.gov/oig/reports/2013/20130830-13-R-0367_appendix B.pdf 

13-R-0367 29 
 

 

Appendix C 

Distribution 

Regional Administrator, Region 7 

Deputy Regional Administrator, Region 7 

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 7 

President and Chief Executive Officer, Grace Hill Settlement House 

Grants Management Officer, Region 7 

Public Affairs Officer, Region 7 

Director, Air and Waste Management Division, Region 7 

Chief, Air Planning Branch, Air and Waste Management, Region 7 

13-R-0367 30