EPA Regional Offices Need to

More Consistently Conduct 

Required Annual Reviews of 

Clean Water State Revolving 

Funds 

Report No. 16-P-0222 July 7, 2016

U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Spending Taxpayer Dollars
Report Contributors: Heriberto Ibarra

Janet Kasper

Doug LaTessa

Patrick McIntyre

Michael Petscavage

Mary Anne Strasser

Abbreviations

CFR Code of Federal Regulations

CWSRF Clean Water State Revolving Fund

EPA U.S. Environmental Protection Agency

FY Fiscal Year

OARM Office of Administration and Resources Management

OIG Office of Inspector General

PER Program Evaluation Report

SRF State Revolving Fund

Cover photo: A wastewater treatment plant in Stratford, Connecticut (EPA photo), with an 

OIG-prepared overlay showing how CWSRF funding has cumulatively 

exceeded $105 billion since 2000. A more detailed bar graph is provided as 

Figure 1 within the report.

Are you aware of fraud, waste or abuse in an

EPA program?

EPA Inspector General Hotline 

1200 Pennsylvania Avenue, NW (2431T)

Washington, DC 20460

(888) 546-8740

(202) 566-2599 (fax)

OIG_Hotline@epa.gov

Learn more about our OIG Hotline.

EPA Office of Inspector General

1200 Pennsylvania Avenue, NW (2410T)

Washington, DC 20460

(202) 566-2391

www.epa.gov/oig

Subscribe to our Email Updates

Follow us on Twitter @EPAoig

Send us your Project Suggestions
 

 16-P-0222

July 7, 2016

Why We Did This Audit 

We performed this audit to 

determine whether the Clean 

Water State Revolving Fund 

(CWSRF) annual reviews are 

achieving their intended 

purpose. 

The CWSRF has provided more 

than $100 billion to states since 

its inception to help improve 

water quality. The 

U.S. Environmental Protection 

Agency (EPA) allotted 

$1.4 billion in fiscal year 2014 to 

the CWSRF program. The EPA 

issued guidance for annual 

reviews of CWSRF programs in 

November 2013 to reflect a 

more focused, risk-based 

approach to conducting the 

annual review. The Water 

Quality Act of 1987 requires an 

annual review to be conducted 

for each state plan, and the 

annual review guidance says 

that EPA regions are 

responsible for conducting 

annual reviews of each of their 

states once per year.

This report addresses the 

following EPA goals and 

cross-agency strategies:

Protecting America's waters.

Protecting human health and 

the environment by 

enforcing laws and assuring 

compliance.

Embracing EPA as a highperforming organization.

Send all inquiries to our public

affairs office at (202) 566-2391

or visit www.epa.gov/oig.

Listing of OIG reports.

 

EPA Regional Offices Need to More 

Consistently Conduct Required Annual Reviews 

of Clean Water State Revolving Funds

 What We Found

The EPA did not always perform annual

reviews of state CWSRF grants as required, 

which may lead to undetected misuse of 

federal funds. Regions did not always review 

Single Audit reports or include Single Audit 

findings in Program Evaluation Reports. 

Annual reviews are an opportunity to identify 

program risks. Not comprehensively and 

accurately conducting the reviews increases 

the possibility that critical issues and 

deficiencies will not be identified, and the risk that misuse of funds will go 

undetected. We found that up to $156.5 million in fiscal year 2013 grant awards 

could be at risk of misuse due to EPA regions not properly assessing state 

CWSRF performance. When funds are misused, states lose opportunities to 

improve water quality, achieve and maintain compliance with environmental 

laws, protect aquatic wildlife, protect and restore drinking water sources, and 

preserve the nation’s waters for recreational use.

Also, administrative baseline monitoring reviews for fiscal years 2010 through 

2013 were not conducted as required. These are periodic reviews of a 

recipient’s progress in, and compliance with, a specific award’s scope of work, 

terms and conditions, and regulatory requirements. Failure to complete required 

reviews may not provide reasonable assurance that state performance is fully 

evaluated and EPA dollars are used responsibly and for intended purposes. 

 Recommendations and Agency Planned Corrective Actions

We recommend that the Assistant Administrator for Water make improvements 

to the CWSRF annual review guidance, and that Regions 3 and 4 require 

project officers to conduct the annual review according to the CWSRF annual 

review guidance. We also recommend that the Assistant Administrator for 

Administration and Resources Management develop and implement a plan to 

ensure administrative baseline monitoring reviews are completed as required.

The agency agreed with eight of the 10 recommendations, and provided 

estimated and actual completion dates. Corrective actions for 

Recommendations 1 through 5 and Recommendation 7 are completed. 

Corrective actions for Recommendations 8 and 10 are planned to be completed 

by the end of 2016. Region 3 provided an alternative for Recommendation 6 that

does not meet the intent of our recommendation. Further, the agency did not 

provide intended corrective actions or planned completion dates for 

Recommendation 9. Therefore, Recommendations 6 and 9 are unresolved. 

U.S. Environmental Protection Agency

Office of Inspector General

At a Glance

Conducting annual reviews in 

accordance with applicable 

guidance allows EPA regions 

to assess state CWSRF 

performance, and helps 

identify opportunities to 

improve clean water 

infrastructure and provide for 

better use of the billions of 

dollars in CWSRF funding.
July 7, 2016

MEMORANDUM

SUBJECT: EPA Regional Offices Need to More Consistently Conduct 

Required Annual Reviews of Clean Water State Revolving Funds

Report No. 16-P-0222

FROM: Arthur A. Elkins Jr.

TO: See Below

This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the 

U.S. Environmental Protection Agency (EPA). The project number for this audit was OA-FY15-0153. 

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. Final determinations on matters in this report will be made by EPA managers in

accordance with established audit resolution procedures.

The EPA offices responsible for the issues in this report are the Office of Water’s Office of Wastewater 

Management; the Office of Administration and Resources Management’s Office of Grants and 

Debarment; and EPA Regions 3 and 4. 

Action Required

In accordance with EPA Manual 2750, your offices provided planned and completed corrective actions 

and completion dates in response to OIG Recommendations 1, 3, 4, 5, 7, 8 and 10. During the exit 

conference, your offices agreed to a corrective action for Recommendation 2 that we believe meets the 

intent of our recommendation. Recommendations 1 through 5 and Recommendation 7 are considered 

closed because the corrective actions have already been completed. Recommendations 8 and 10 are 

considered open pending implementation of the corrective actions. 

Region 4 agreed with Recommendation 6 and provided corrective actions and a planned completion 

date. However, Region 3 did not explicitly agree with Recommendation 6 and proposed an alternative 

recommendation that only partially addresses the issue we identified. Therefore, in accordance with 

EPA Manual 2750 regarding unresolved recommendations, Region 3 is required to provide a written 

response to Recommendation 6 within 60 calendar days. The planned corrective actions and a 

completion date should be included.

The agency agreed with the intent of Recommendation 9, but it did not provide intended corrective 

actions and a planned completion date. The agency explained that it plans to wait for the results of an 

ongoing evaluation prior to addressing our recommendation. The estimated completion date of the 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, D.C. 20460

THE INSPECTOR GENERAL
evaluation is October 2016. In accordance with EPA Manual 2750 regarding unresolved 

recommendations, the Office of Administration and Resources Management is required to provide a 

written response to Recommendation 9 within 60 calendar days. The planned corrective actions and a 

completion date should be included. 

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

your responses. The responses 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 

responses 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 along with corresponding 

justification. 

This report will be available at www.epa.gov/oig. 

Addressees:

Joel Beauvais, Deputy Assistant Administrator, Office of Water 

Donna Vizian, Acting Assistant Administrator, Office of Administration and Resources Management

Shawn Garvin, Regional Administrator, Region 3 

Heather McTeer Toney, Regional Administrator, Region 4 

Robert Kaplan, Acting Regional Administrator, Region 5
EPA Regional Offices Need to More Consistently Conduct 16-P-0222

Required Annual Reviews of Clean Water State Revolving Funds

Table of Contents

Chapters

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

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

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

Responsible Offices .................................................................................. 4

Scope and Methodology ........................................................................... 5

2 Single Audit Findings Not Reviewed or Reported in PER ............................. 7

Regions Should Review Audit Reports and Include 

 Problematic Findings in PER............................................................... 7

Single Audit Findings Not Always Considered or Reported 

 in the PER........................................................................................... 8

Regional Staff Unclear as to Which Reports to Review and 

 Findings to Include in PER.................................................................. 11

Regions Cannot Properly Asses State CWSRF Performance .................... 12

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

Agency Response and OIG Evaluation ...................................................... 14

3 Annual Review Checklists and Worksheets 

Not Completed Consistently Across Regions................................................... 15

Regions Should Complete Checklists and Worksheets as 

 Part of Annual Review......................................................................... 15

Inconsistency in Completion of Checklists and Worksheets ....................... 16

Inconsistency Due to Alternative Methodology and 

 Insufficient Resources......................................................................... 18

Misuse of Funds May Go Undetected ........................................................ 19

Recommendations..................................................................................... 20

Agency Response and OIG Evaluation ...................................................... 20

4 Administrative Baseline Monitoring Not Conducted as Required ................... 22

Initial Administrative Baseline Monitoring Needed Within First Year........... 22

Regions 4 and 5 Grants Specialists Not Conducting 

 Required Reviews ............................................................................... 22

Reviews Not Completed Due to Competing Priorities and Workload.......... 24

Recommendations..................................................................................... 25

Agency Response and OIG Evaluation ...................................................... 25

Status of Recommendations and Potential Monetary Benefits ............................. 26

- continued -
EPA Regional Offices Need to More Consistently Conduct 16-P-0222

Required Annual Reviews of Clean Water State Revolving Funds

Appendices

A Agency Response to Draft Report................................................................... 27

B Distribution ...................................................................................................... 36
16-P-0222 1

Chapter 1

Introduction

Purpose

We conducted this audit to determine whether the U.S. Environmental Protection 

Agency’s (EPA’s) Clean Water State Revolving Fund (CWSRF) annual reviews 

are achieving their intended purpose. The purpose of the annual review is to 

assess the success of the state’s performance of activities identified in the 

intended use plan and annual report, and determine compliance with the terms of 

the capitalization grant agreement. 

Background

The Water Quality Act of 1987 established the CWSRF program, which has 

helped communities, homeowners, farmers and non-profit organizations

nationwide meet the goals of the Clean Water Act by improving water quality, 

protecting aquatic wildlife, protecting and restoring drinking water sources, and 

preserving our nation’s waters for recreational use. 

CWSRF programs operate much like environmental infrastructure banks that are 

funded with federal and state contributions. CWSRF monies are loaned to 

communities to address water infrastructure needs, and loan repayments are 

recycled back into the program to fund additional water quality protection 

projects. All states and Puerto Rico maintain revolving loan funds to provide 

independent and permanent sources of low-cost financing for a wide range of 

water quality infrastructure projects. The revolving nature of these programs is 

intended to provide an ongoing funding source that will last far into the future.

As of fiscal year (FY) 2013, building on a federal investment of over 

$37.4 billion, the state CWSRFs have provided more than $100 billion in funding 

to communities to ensure public health, protect valuable aquatic resources, and 

meet environmental standards. The more than 32,800 low‐interest loans to 

approximately 4,880 communities have provided benefits to hundreds of millions 

of people. Through 2014, the CWSRFs have provided over 34,000 assistance 

agreements to communities, financing $105.4 billion in projects (see Figure 1 for 

CWSRF cumulative funding).
16-P-0222 2

Figure 1: CWSRF cumulative assistance exceeds $105 billion (2000–2014)

Source: EPA’s Office of Water data.

The CWSRF program is one of the largest federally funded water infrastructure 

assistance programs. In FYs 2014 and 2013, the CWSRF program allotments 

were approximately 18 and 17 percent of the EPA’s enacted budget, respectively

(see Table 1).

Table 1: EPA-enacted budgets and CWSRF allotments in FYs 2014 and 2013 

FY

Total EPA enacted 

budget

CWSRF program 

allotment

2014 $8,200,000,000 $1,448,887,000

2013 $7,901,104,000 $1,376,082,000

Source: EPA data.

During FYs 2014 and 2013, Region 5 had the highest regional CWSRF allotment,

with approximately $303 million and $289 million, respectively.

Annual Review Guidance

The EPA issued its Annual Review Guidance for CWSRF Programs in 

November 2013 to reflect a more focused, risk-based approach to conducting the 

annual review. The Water Quality Act of 1987 requires an annual review to be 

conducted for each state plan, and the annual review guidance says that EPA 

$30.2 

$34.1 

$38.4 

$43.1 

$47.7 

$52.6 

$57.6 

$62.9 

$68.8 

$74.0 

$84.2 

$89.5 

$95.3 

$100.0 

$105.4 

 $-

 $20

 $40

 $60

 $80

 $100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Billions

34,902 Cumulative Assistance Agreements Cumulative Assistance
16-P-0222 3

regions are responsible for conducting annual reviews of each of their states once 

per year. It also states that the purposes of the annual review are to:

 Determine how the State Revolving Fund (SRF) is achieving the intent, 

overall goals and objectives of the Clean Water Act.

 Assess the state’s performance of activities identified in the intended use 

plan and annual report, and how the state manages risk.

 Determine compliance with the EPA capitalization grant agreement.

 Assess the financial status of the SRF based on the long-term goals of the 

fund.

 Assess the strategic management of the fund. 

The annual review guidance combines a framework for regions to develop riskbased protocol for the interviews and instruction on the checklist-based portion of 

the annual review, including the transaction testing worksheet, annual review 

checklist, and project file review checklist. 

In FYs 2014 and 2013, the EPA Office of Water’s Office of Wastewater 

Management headquarters staff participated in at least one onsite phase of the

annual review in each region to gain an understanding of the region’s 

implementation of the annual review guidance and to assess state performance. 

Also, the Office of Wastewater Management uses the transaction testing 

worksheets, completed during the annual reviews, to collect improper payment 

data and to report annually to the Office of the Chief Financial Officer.

As part of the annual reviews, regions perform the following activities:

 Review financial indicators.

 Conduct onsite reviews to complete checklists and conduct interviews.

 Follow up on corrective action. 

 Write the Program Evaluation Report (PER).

In addition, the annual review guidance says that regions should review 

independent audit reports and Single Audit reports in advance of the onsite phase 

of the annual review.

Single Audit Act

A single audit is an organization-wide audit of an entity performed in accordance 

with the Single Audit Act and generally accepted government auditing standards. 

These audits are conducted by a public accountant or a federal, state or local 

government organization selected by the auditee, and provide assurance to the 

EPA on the management and use of funds by recipients, such as states. The Single 

Audit report includes both an audit of an entity’s financial statements and a 

review of compliance with relevant federal regulations.
16-P-0222 4

As of December 26, 2014, the Code of Federal Regulations (CFR) in 2 CFR

Subpart F 200.501 stated that a nonfederal entity that expends $750,000 or more 

during the nonfederal entity’s fiscal year in federal awards must have a single 

audit conducted for that year. At the time regions completed the annual reviews 

included in our sample, the threshold for nonfederal entities was only $500,000.1

As of January 2014, 2 CFR Subpart F 200.516 stated that an auditor must report 

audit findings, including material noncompliance with the provisions of federal 

statutes, regulations, or the terms and conditions of federal awards related to a 

major program. The auditor’s determination of whether to report a material 

noncompliance finding is in relation to the type of compliance requirement for a 

major program identified in the compliance supplement. This standard was also in 

effect for the FY 2013 Single Audit findings included in our review, as Office of 

Management and Budget Circular A-133 included similar language as of June 

2007.

Responsible Offices

The Office of Water’s Office of Wastewater Management develops the policy, 

guidance, standard operating procedures, checklists and worksheets that regions 

use to conduct required annual reviews of each of their states. In addition, the 

Office of Wastewater Management trains regional and state staff on the laws, 

regulations, annual review guidance and policies related to the CWSRF annual 

reviews. The Office of Wastewater Management also reviews checklists, 

worksheets and PERs, and follows up with the EPA regions on findings and 

recommendations made to the states. In addition, the Office of Wastewater 

Management assists the EPA regions in conducting as many state annual reviews 

as possible.

The Office of Administration and Resources Management’s (OARM’s) Office of 

Grants and Debarment develops policy and guidance for completing 

administrative baseline monitoring for active grant awards. While the annual 

review guidance addresses programmatic and financial aspects of an SRF grant, 

EPA Order 5700.6A2 requires EPA administrative baseline monitoring. 

Administrative baseline monitoring is the periodic review of a recipient’s progress 

in, and compliance with, a specific award’s scope of work, administrative terms 

and conditions, and regulatory requirements. 

The regions are to assess the success of the states’ performance of activities 

identified in the intended use plan and annual report, and determine compliance 

with the terms of the capitalization grant agreement. Grants specialists are 

responsible for completing administrative baseline monitoring for active grant 

awards. Further, the EPA regional staff use baseline monitoring as a tool to 

evaluate the progress of the project and performance of the recipients, assess 

 

1 Office of Management and Budget Circular No. A-133, June 26, 2007.
16-P-0222 5

financial status of the award, and ensure that EPA dollars are used responsibly 

and for the intended purpose. Grants management officers ensure grants 

specialists complete baseline monitoring as instructed and provide necessary and 

appropriate guidance.

Scope and Methodology

We conducted this performance audit from April 2015 to March 2016 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 on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our audit 

objectives.

To determine whether the EPA’s CWSRF annual reviews are achieving their 

intended purpose, we reviewed the relevant laws, regulations, policies, 

procedures, and financial and allotment reports, as well as the Annual Review 

Guidance For EPA Annual Review of Clean Water State Revolving Fund 

Programs. Our audit focused on CWSRF annual reviews of six states in three 

regions, as shown in Table 2.

Table 2: EPA regions and states audited

Region States

Region 3 Pennsylvania

Region 4 Kentucky

North Carolina

Tennessee

Region 5 Michigan

Ohio

Source: Office of Inspector General (OIG) analysis.

During preliminary research, we selected Region 4 because the region has 

oversight of eight states, the largest number of any region. We judgmentally 

selected Tennessee and Kentucky as Region 4 states based on audit work 

performed. 

For fieldwork, we selected a judgmental sample based on an analysis of FY 2013 

CWSRF-related Single Audit findings, selecting states with significant findings 

(Pennsylvania in Region 3, North Carolina in Region 4, and Michigan and Ohio

in Region 5). For the six states, we audited project file checklists, PERs, state 

Single Audit reports, administrative baseline monitoring reviews, transaction 

testing worksheets, and annual review checklists. We also submitted a 

questionnaire to the EPA regional project officers responsible for the annual 

reviews, which addressed how the project officers determined compliance with 

key terms and conditions of the grant agreements. 
16-P-0222 6

We conducted interviews with Office of Wastewater Management staff to 

determine how headquarters expected regional offices to:

 Ascertain how the SRF is achieving the intent, overall goals and objectives 

of the Clean Water Act.

 Evaluate whether the state achieved the goals in the intended use plan via 

the state’s annual report.

 Determine how the state managed risk.

 Determine whether the state complied with the terms and conditions of the 

capitalization grant.

 Evaluate the financial condition of the SRF based on the long-term goals.

 Assess the strategic management of the fund.

 Report major findings in the PER. 

We conducted interviews with the EPA regional project officers to obtain an 

understanding of how they perform the annual review, determine their 

understanding of Single Audit findings, and determine how those findings should 

be reported in the PER. 

We interviewed grants specialists to determine their management and processing 

of Single Audit findings, their coordination and communication of those findings 

with project officers, and management of administrative baseline monitoring. 

Prior Audit Coverage 

We reviewed OIG Report No. 16-P-0162, EPA Needs to Assess Environmental 

and Economic Benefits of Completed Clean Water State Revolving Fund Green 

Projects, issued May 2, 2016. We did so because the findings in the report 

identified opportunities to improve clean water infrastructure and provide for 

better use of the billions of dollars in CWSRF funding. We reported routine

measurement and reporting of the benefits of completed projects can improve the 

EPA’s ability to effectively oversee, manage and monitor the environmental and 

economic benefits of the substantial investment of $3.24 billion in public funds 

for Green Project Reserve projects.
16-P-0222 7

Chapter 2

Single Audit Findings Not Reviewed 

or Reported in PER

The EPA did not always review and discuss Single Audit findings, resolutions 

and corrective actions with states, nor did the EPA consistently include Single 

Audit findings and corrective actions in state PERs. The EPA’s CWSRF annual 

review guidance says that regions should review independent and Single Audit 

reports and include a discussion of both positive and problematic findings in state

PERs. Single Audit reports were not reviewed due to project officers depending 

on other sources to obtain reports, not reviewing all available reports, or 

reviewing reports from the wrong fiscal year. We were also told that Single Audit 

findings and corrective actions were not included in PERs because the annual 

review guidance does not explicitly include Single Audit findings as problematic 

findings. Failure to review the Single Audit findings results in the regions not 

properly assessing performance of state SRF programs and the risk to federal 

funds, including a risk of misuse of $156,544,000 in FY 2013 grant awards for the 

three states we reviewed. Not including the findings in PERs prevents the EPA 

from communicating issues that put the CWSRF program at risk.

Regions Should Review Audit Reports and Include 

Problematic Findings in PER

Section 606.b of the Clean Water Act of 1987 requires each state to have 

independent reviews and audits conducted in accordance with the auditing 

procedures that include Chapter 75 of Title 31, United States Code.2 Section 606.e 

of the act says the EPA shall conduct an annual oversight review of each state’s 

plan and other such materials as are considered necessary and appropriate 

regarding the act. The EPA’s CWSRF annual review guidance says that regions 

should review independent audit reports and Single Audit reports in advance of 

the onsite phase of the annual review.

The annual review guidance also says that if the state has failed to comply with 

the terms of the SRF grant agreement or requirements, a corrective action plan 

may be prescribed in conjunction with a Notice of Noncompliance from the EPA. 

The term “finding” is often used to describe major, significant issues identified 

during the annual review. Such issues can put a state SRF program at risk for 

noncompliance or misuse of funds. 

The annual review guidance says that, “If the State is violating terms of the SRF 

grant or SRF program requirements and refuses to make changes to correct the 

 

2 31 U.S.C. § 7502.
16-P-0222 8

issue, the Region may have no choice but to issue a Notice of Noncompliance.”

3

The following are grounds for a Notice of Noncompliance:

1. Failure to comply with the SRF program requirements under Title VI 

of the Clean Water Act.

2. Failure to satisfy the terms of the federal capitalization grant 

agreement.

3. Failure to manage the SRF in a financially sound manner.

The PER is the final product of the annual review process and serves as a 

permanent record of the annual review. The PER discusses the most significant 

issues and risks identified during the review; a useful PER will serve as an 

ongoing reference document for both the region and the state. The region is 

expected to follow up on issues identified in the PER during the year and at the 

next annual review, if needed. The state should be able to rely on the PER to 

provide useful information on the SRF program’s strengths and areas needing

improvement. The PER should report that the region confirmed the state is 

meeting all SRF requirements.

The annual review guidance says the primary contents of the PER will be a 

discussion of the positive and problematic findings noted during the review, and 

should include the following types of issues:

 Systemic issues and risks that were observed across several projects.

 Issues related to the state’s standard process for implementing 

requirements.

 The status of issues and risks noted in the prior year’s PER and the state’s 

progress toward resolving those issues. 

 Issues arising from the state not following EPA guidance on specific 

requirements. 

Single Audit Findings Not Always Considered or Reported in the PER

The EPA did not always review and discuss Single Audit findings, resolutions 

and corrective actions with states. In addition, the EPA did not consistently 

include Single Audit findings and corrective actions in the states’ PERs. 

Specifically, we found that:

 In Region 3, the project officer for Pennsylvania did not review the Single 

Audit report. Three of the five findings listed in the Single Audit report 

were repeat findings and were addressed in a previously issued Notice of 

Noncompliance. Region 3 said it discussed a draft Single Audit finding 

regarding internal control weaknesses in subrecipient monitoring of 

 

3 Annual Review Guidance for EPA Annual Review of Clean Water State Revolving Fund Programs, page 40 of 47, 

November 2013.
16-P-0222 9

Davis-Bacon requirements with the state, and the finding was discussed in 

the FY 2013 PER. One finding was not addressed. 

 In Region 4, the project officer for Kentucky only reviewed the audited 

financial statements and not the Single Audit report findings. The project 

officer for North Carolina reviewed the Single Audit report but did not 

consider the findings in the review. In Tennessee, the project officer 

reviewed a Single Audit report, but it was not the most current report. The 

Region 4 project officers for the three states did not include the Single 

Audit findings in the PER.

 In Region 5, the project officers for Michigan and Ohio reviewed the 

Single Audit reports and discussed the findings, resolution and corrective 

actions during the onsite phase of the annual review. The Michigan Single 

Audit report did not include any Single Audit findings; thus, the project 

officer did not have any to include in the PER. However, the Ohio Single 

Audit report did include findings, which were not included in the PER. 

For FY 2013, the state Single Audit reports for Pennsylvania (Region 3), 

North Carolina (Region 4) and Ohio (Region 5) included findings categorized as 

significant deficiencies, material weaknesses and instances of noncompliance 

applicable to the CWSRF. Findings considered significant deficiencies relate to

designs and operations of controls that do not prevent, detect or correct 

misstatements on a timely basis. In some states, the findings were considered 

material weaknesses, which are deficiencies in internal controls. Material 

weakness, material noncompliance and/or significant deficiency findings listed in 

a Single Audit report should be considered major findings in accordance with the 

review guidance and included in the PER. Only one of the Single Audit findings

shown in Table 3, as well as the corrective actions and proposed resolutions, were

reported in the states’ FY 2013 CWSRF PER. Six of the nine findings were repeat 

findings.
16-P-0222 10

Table 3: FY 2013 Single Audit findings impacting the CWSRF program

Region–State Single Audit findings Type of finding

Region 3 -

Pennsylvania

1. Internal control weaknesses in subrecipient monitoring 

of Davis-Bacon requirements.

2. Internal control weakness and noncompliance with loan 

amortization requirements.

3. Internal control improvements needed in subrecipient 

loan monitoring system (repeat finding).

4. Noncompliance and control deficiencies exist in the 

commonwealth’s subrecipient audit resolution process 

(repeat finding).

5. Significant deficiencies in information technology 

controls at Pennsylvania Infrastructure Investment 

Authority.

Material weakness and 

material noncompliance

Significant deficiency and 

noncompliance

Material weakness and 

material noncompliance

Material weakness and 

material noncompliance

Significant deficiency

Region 4 a b –

North Carolina

1. Federal funds expended after the period of availability.

2. Failure to monitor subrecipients’ cash management

(repeat finding for 4 years).

Significant deficiency

Material weakness and 

material noncompliance

Region 5 c –

Ohio

1. Lack of invoice reviews (repeat finding).

2. Lack of subrecipient monitoring (repeat finding).

Material weakness

Material weakness

Source: OIG analysis of EPA information

a Tennessee – The FY 2013 Single Audit Report was not issued prior to the onsite phase of the annual review, 

and the Region 4 project officer should have reviewed the issued FY 2012 Single Audit report. However, the 

project officer incorrectly reviewed the FY 2011 Single Audit report.

b Kentucky – The FY 2013 Single Audit Report did not have any findings.

c Michigan – The FY 2013 Single Audit report was unavailable prior to the onsite phase of the annual review, 

and the region correctly reviewed the FY 2012 report, which had no Single Audit findings.

There were no noncompliance Single Audit findings in Region 5 states (Michigan 

and Ohio), but in Regions 3 and 4 there were five findings of noncompliance, as 

highlighted in Table 3, with North Carolina’s Single Audit finding of 

noncompliance repeated for 4 consecutive years. 

Region 3 sent a Notice of Noncompliance to Pennsylvania dated July 9, 2013, with 

two follow-up letters dated September 25, 2013, and November 4, 2013, because 

Pennsylvania had not completed corrective actions for findings identified in the 

Pennsylvania FYs 2011 and 2012 Single Audits (Findings 3, 4 and 5 for 

Pennsylvania in Table 3 above). In addition, Region 3 said it met with 

Pennsylvania on March 1, 2013, and November 10, 2013, to ensure corrective 

actions were fully implemented and the resolution of the July 9, 2013,

noncompliance letter was resolved in the same federal fiscal year as the state fiscal 

year 2013 audit.

The FY 2013 Single Audit report for North Carolina included a finding of the 

state’s failure to monitor subrecipients’ cash management. This finding was 
16-P-0222 11

reported in the state’s Single Audit reports for 4 consecutive years. The Region 4 

project officer said she reviewed the Single Audit report, but was not aware that the 

finding was reported for 4 consecutive years, and did not consider issuing a letter of 

noncompliance. However, the lead environmental specialist in the headquarters’ 

Office of Wastewater Management said the region should have issued a letter of 

noncompliance when the finding was not corrected after the first year.

Regional Staff Unclear as to Which Reports to Review and 

Findings to Include in PER

Regions should review the Single Audit report prior to the onsite phase of the 

annual review. The EPA project officers for North Carolina (Region 4) and 

Michigan and Ohio (Region 5) reviewed the report prior to the onsite phase of the 

annual review. However, that was not the case in Pennsylvania (Region 3) and

Kentucky and Tennessee (Region 4). Table 4 includes the reasons why project 

officers did not review Single Audit reports and findings:

Table 4: Reasons Single Audit reports not reviewed

Region - State Description

Region 3 -

Pennsylvania

The project officer did not have the Single Audit report at the time and waited for the 

state or EPA OIG to provide the Single Audit report. Region 3 told us that the onsite 

phase of the annual review was conducted April 1–3, 2014, and that the FY 2013 Single 

Audit report was signed on March 20, 2014. We confirmed that the report was posted to 

the Federal Audit Clearinghouse on March 19, 2014. 

Region 4 -

Kentucky

The state only provided the Kentucky Infrastructure Authority audited financial 

statement component, and key components of the Single Audit report, such as, audit 

findings, were missing. The project officer did not review the state’s Single Audit report.

Region 4 -

Tennessee

The project officer reviewed the FY 2011 Single Audit report rather than the FY 2012 

report, even though the FY 2012 report was issued prior to the onsite phase of the 

annual review.

Source: OIG analysis of EPA information.

The annual review guidance caused confusion when the state had a financing 

authority, since two separate reports are issued and the guidance does not say both 

reports should be reviewed. In addition, the guidance does not instruct users to 

obtain the Single Audit reports from the Federal Audit Clearinghouse. All 

auditees are to submit a reporting package, to include the auditor’s reports, to the 

Federal Audit Clearinghouse. The clearinghouse, operated on behalf of the U.S. 

Office of Management and Budget, maintains a database of completed audits and 

provides appropriate information to federal agencies. 

Region 3 said that regional staff were to retrieve the Single Audit report from the 

OIG based on EPA Manual 2750’s section on Single Audit management 

procedures. However, the OIG has confirmed that there is nothing in EPA Manual 

2750 that precludes EPA staff from obtaining Single Audit reports and using that

information in conducting annual reviews. Obtaining the Single Audit report does 

not circumvent the EPA Manual 2750 process. In addition, EPA Manual 2750 

does not include a time requirement for the OIG to begin the Single Audit report 
16-P-0222 12

review and issuance process. Thus, by waiting on the OIG to review and issue a 

report, valuable information may be missed in conducting the annual reviews.

The EPA’s Standard Operating Procedure on Compliance with Audit 

Requirements says that EPA staff should review state Single Audit reports for any 

findings. It also says that regions are responsible for obtaining and reviewing the 

audits to identify areas of concern. However, this guidance was not issued until 

September 2014, and does not fully address the issues identified, such as multiple 

reporting entities, documentation of actions the project officer takes, and 

discussions with the state or (if applicable) finance authority. 

The annual review guidance does not specifically address including Single Audit 

findings and corrective actions in the PER. However, Office of Wastewater 

Management staff said that while it is not exclusively identified in the guidance to 

include Single Audit findings in the PER, it is expected, and the criteria implies it 

should be included. As a result, Region 4 waits to discuss Single Audit findings in 

the PER until the audit resolution process in the EPA Manual 2750 has been 

completed, as in North Carolina. This process may take several years to complete.

For the remaining states in Region 4 (Kentucky and Tennessee), as well as 

Pennsylvania in Region 3, project officers did not review the Single Audit 

findings in the most recently issued reports, and were unable to report the findings 

in the PER. In Ohio, the Single Audit findings were not reported in the PER 

because the corrective actions had already been implemented prior to the onsite 

phase of the annual review. In Michigan, there were no findings to report in the 

PER.

According to the agency, when an issue of noncompliance is reported for 

consecutive years, a Notice of Noncompliance should be issued. However, in the 

case of North Carolina’s repeat finding of 4 consecutive years, the notice was not 

issued because Region 4 was not aware the finding had repeated for 4 years. 

Regions Cannot Properly Assess State CWSRF Performance

By failing to review Single Audit findings, the regions cannot properly assess 

performance of a state’s SRF program or the risk to federal funds. For 

Pennsylvania, North Carolina and Ohio, the findings in the FY 2013 Single Audit 

reports were repeat findings on failure to monitor subrecipients. The sum of the 

FY 2013 grant awards for the three states was $156,544,000. A portion of these 

funds could be at risk of misuse. Although we did not identify the misuse of 

funds, when funds are misused, states lose opportunities to improve water quality, 

achieve and maintain compliance with environmental laws, protect aquatic 

wildlife, protect and restore drinking water sources, and preserve the nation’s 

waters for recreational use.
16-P-0222 13

Single Audits help to provide assurance to the EPA that states are in compliance 

with the grant agreement, and help ensure that grant recipients are using funds 

appropriately. EPA regional staff may miss critical information about a state’s 

management and performance of the CWSRF by not being aware of audit 

findings and addressing the findings during the annual review. Also, EPA staff 

may not be able to determine whether corrective actions are implemented if the 

EPA staff are unaware of audit findings. When dollars are neither used 

responsibly nor for the purpose intended, opportunities to improve clean water 

infrastructure are missed. When the region fails to issue a Notice of 

Noncompliance, the state does not have to take any required actions and the 

region is unable to withhold capitalization grant payments to the state.

The PER should discuss the most significant issues and risks identified during the 

annual review. The Single Audit reports reviewed for the six states sampled 

included nine findings of either material or significantly deficient internal control 

weakness and noncompliance with federal laws and regulations. These findings 

are the types of issues that can put a state SRF program at risk for noncompliance 

or misuse of funds. By not including the findings in the PERs, the EPA has not 

communicated issues that put the program at risk, as well as issues of 

noncompliance. 

Recommendations

We recommend that the Assistant Administrator for Water:

1. Revise CWSRF annual review guidance to instruct program staff to obtain 

the statewide Single Audit from the Federal Audit Clearinghouse prior to 

the onsite phase of the annual review, or, if not available from the 

clearinghouse, obtain it from the state.

2. Revise CWSRF annual review guidance to include a description of both 

statewide Single Audits and independent audits of state finance authorities 

that operate the SRFs. 

3. Revise CWSRF annual review guidance to require EPA staff to review 

and discuss with the state and, if applicable, finance authority, all findings, 

resolutions and corrective actions from audit reports that review 

implementation of state CWSRF programs, and document these actions in 

the annual review checklist.

4. Revise CWSRF annual review guidance to include requirements for 

discussing Single Audit findings—including findings, resolution and 

corrective actions—in the PER.
16-P-0222 14

5. Revise CWSRF annual review guidance to require project officers to 

document the decision to issue or not issue to a state a Notice of 

Noncompliance if a Single Audit finding identifies a recurring 

noncompliance issue.

Agency Response and OIG Evaluation 

The agency agreed with Recommendations 1, 3, 4 and 5, and indicated that 

corrective actions for the recommendations were already complete. In 

December 2015 the agency revised its annual review guidance, and we verified 

that the revisions made to the guide address the recommendations. As a result, we 

consider Recommendations 1, 3, 4 and 5 to be closed. 

The agency’s initial response to Recommendation 2 did not address the intent of 

the recommendation. However, during the exit conference, the agency agreed to 

revise the name and number of the standard operating procedure to match the 

name and number in the annual review guidance. The agency provided the revised 

standard operating procedure on May 23, 2016. We reviewed the new standard 

operating procedure and, as revised, it meets the intent of our recommendation.

As a result, we consider Recommendation 2 to be closed.
16-P-0222 15

Chapter 3

Annual Review Checklists and Worksheets 

Not Completed Consistently Across Regions 

EPA regions were not consistent in fully and accurately completing the checklists 

and worksheet portions of the annual review guidance. Specifically, for the 

regions and states in our sample:

 Region 3’s annual review checklist for one state was incomplete. 

 Region 4’s transaction testing worksheets for two states were incomplete 

and inaccurate. 

 Region 5 fully completed the checklists and worksheets for its two states. 

According to the annual review guidance, three primary documents (transaction 

testing worksheet, annual review checklist, and project file review checklist) must

be completed for every review, and every item on the checklists must be 

completed in a useful manner. The inconsistencies stem from some regions 

choosing alternative approaches to completing the checklists, or not having 

adequate staff and time. When regional offices perform reviews using different 

methods, it may impede the EPA’s ability to identify programmatic and financial 

risks to the CWSRF program. In addition, not comprehensively and accurately 

conducting the annual review increases the possibility that critical issues and 

deficiencies will not be identified. As a result, misuse of grant funds may go 

undetected.

Regions Should Complete Checklists and Worksheets as Part of 

Annual Review

The State Revolving Fund Program Implementation Regulations in 40 CFR

Part 35, define the statutory requirement for an annual review of SRF programs. 

The purpose of the CWSRF annual review is to assess the success of the state’s 

performance of activities identified in the intended use plan and annual report, 

and determine compliance with the terms of the capitalization grant agreement. 

The annual review guidance combines instructions on the prescriptive, checklistbased portion of the annual review, as well as a framework for regions to develop 

risk-based protocol for the interview portion of the review. The annual review is 

the critical opportunity to identify risks to the program, which should influence 

how the region makes decisions on (1) determining topics for interviews with 

state SRF managers, (2) selecting projects for review, and (3) selecting cash 

draws for transaction testing. 
16-P-0222 16

During the onsite phase of the annual review, the region should complete the 

annual review checklist, project file review checklist, and transaction testing 

worksheet:

 The annual review checklist is intended to be a discussion guide for the 

region to lead an in-depth conversation about the management and 

operations of the state’s SRF program. Open-ended questions require the 

region to enter a detailed response. 

 The project file review checklist is required to be completed by regions for 

CWSRF projects every year. The regional review team may select the

projects they wish to see and inform the state in advance of the review.

Ideally, the review team should select projects that appear in the state’s

annual report for the SRF program year under review.

 The transaction testing worksheet is used by the regions to review SRF

funds drawn from the U.S. Treasury and disbursed to SRF assistance

recipients to ensure that no improper payments occurred.

The guidance says that every item on the checklists must be completed in a useful 

manner, as the checklists serve as a written record of the annual review. Further, 

if an improper payment is discovered, a description of the payment—including 

the date, amount, assistance recipient, reason for the error, and the state’s plan for 

correcting the error—should be noted in the PER. It is important that the cash 

draw and improper payment amounts stated in the transaction testing worksheet 

match the amounts reported to EPA headquarters and in the PER.

Inconsistency in Completion of Checklists and Worksheets

The EPA did not consistently complete annual review checklists and worksheets 

across three regions reviewed. While Region 5 fully completed the checklists and 

worksheets for the two states in our sample (Michigan and Ohio), we found that

Region 3’s annual review checklist for Pennsylvania was incomplete, and 

Region 4’s transaction testing worksheets for two states—Kentucky and 

Tennessee—were incomplete and inaccurate. Specifically:

 In Region 3, Pennsylvania’s annual review checklist was incomplete.

o Region 3 answered one-third of the questions requiring a narrative 

response, and deferred answering two-thirds of the questions 

(approximately 22) until either the FY 2015 or FY 2016 annual 

review. Staff in the EPA’s Office of Wastewater Management

knew that Region 3 was taking this approach, and while the office

did not promote the approach it did not object either.
16-P-0222 17

o For the questions in which the annual review checklist required a 

response documenting the state’s process (as opposed to evaluation 

questions), we determined that the region provided the checklist to 

Pennsylvania staff to complete, rather than answering the questions 

itself. However, in the agency’s response to the draft report, 

Region 3 stated that the project officer reviewed the information 

prior to the site visit and discussed it in detail during the review. In 

addition, Region 3 stated that edits were made by the project officer 

to the final description as a result of these discussions. We did not 

verify that the project officer made edits to the final description.

 In Region 4, the transaction testing worksheets for Kentucky and 

Tennessee were incomplete or inaccurate. The issues we identified are 

discussed below and in Table 5.

o Two of Kentucky’s cash draws had numerous fields that were 

either incomplete or inaccurate.

o Improper payments were identified for three of four transactions 

tested in Tennessee. However, there was no indication as to the 

amount, date, assistance recipient, or plan for correcting the error 

for the improper payment associated with this cash draw on the 

transaction testing worksheets.

Table 5: Incomplete or inaccurate data in Region 4’s transaction testing worksheets

State Issues identified

Kentucky –

issues 

identified in 

two of the 

four cash 

draws tested 

 There were 26 projects, all of which included improper payments. For all 26 projects, the 

"Improper Payment Resolution" field was blank. 

 The "Explanation If Paid Amount is Different from Invoiced Total" field was missing required 

information for 25 of 26 projects.

 The "Total SRF Disbursements" field was inaccurate, as it should have included the state 

match but did not. 

 The "Improper Payment Amount" field was blank, meaning the project officer did not calculate 

the amount of the improper payment, despite identifying numerous improper payments.

 There were 54 projects that made up the funds drawn for this cash draw. For 21 of 54 projects, 

the transaction testing worksheet indicated there was an improper payment. However, the 

"Improper Payment Resolution Field" for each of the 21 improper payments was blank.

 For 33 projects, there was no indication of whether the regional office identified an improper 

payment or not, as the "Improper Payment (Yes/No)" field was blank. 

 The "Total SRF Disbursement” field was inaccurate, as it should have included the state match 

but did not.

 The "Improper Payment Amount" field was blank, meaning Region 4 staff did not calculate the 

amount of the improper payment, despite identifying numerous improper payments.

Tennessee  An outdated checklist was used for all four of the transactions tested, which led to missing 

information and/or incomplete information (e.g., blank and missing data fields).

 Three of four transactions indicated that the proportionality ratio was incorrect—80/20, not 

83.33/16.77—as per the capitalization grant regulations, and should have been reported as an 

improper payment. However, there was no indication as to the amount, date, assistance 

recipient, or plan for correcting the error for the improper payment.

Source: OIG analysis of EPA data.
16-P-0222 18

Additionally, the PERs for Kentucky and Tennessee did not include required 

information on improper payments.

Inconsistency Due to Alternative Methodology and

Insufficient Resources

The Office of Wastewater Management’s lead environmental protection specialist 

believed there was inconsistency between the regions due to lack of resources. 

The specialist said some regions do not have adequate staff to perform the onsite 

phase of the annual reviews and, thus, are not able to spend sufficient time on the 

onsite phase of the annual reviews called for by guidance. Interpretations of 

guidance also differed. 

Region 3 Took a Different Approach to Conduct Annual Reviews

Region 3 interpreted the annual review guidance differently than intended by the 

headquarters Office of Wastewater Management. Region 3 indicated that to make 

the most of the time invested onsite, and to focus on critical management areas, 

regional project officers made an informed, professional judgement to stagger 

responses to certain questions. The project officer for Pennsylvania stated that 

their approach was acceptable because the EPA’s annual review guidance says 

that a risk-based approach should be taken when conducting annual reviews of 

state CWSRF programs. The project officer also said that because there were so 

many new questions on the checklist, it made sense to defer answering all 

questions during that review cycle, particularly since the project officer said she 

had 15 years of experience and personal knowledge of state processes. However,

this approach opposes the annual review guidance, which explicitly says that 

every item on the checklists must be completed in a useful manner, as the 

checklists serve as a written record of the annual review. It was unclear whether 

the selection of questions addressed in the review was risk based. In the agency’s 

response to the draft report, Region 3 said that a total of 26 out of 149 questions 

were deferred. However, this information was provided as an attachment to the 

response, and we did not confirm the numbers. 

Also causing confusion is that instructions on the annual review checklist—an 

appendix to the annual review guidance—says that:

all of the topics must either be specifically addressed or noted as 

not being covered during this review. If an area was not reviewed, 

note the reason for not reviewing it and any future review 

activities.

In the checklists discussion summary, Region 3 provided information as to which

fiscal year the questions would be addressed. However, this contradicts the annual 

review guidance. Office of Wastewater Management staff confirmed that while

they were aware of Region 3’s alternative approach to the annual review, they did 
16-P-0222 19

not oppose it. However, the intent of the annual review guidance was that all 

questions be completed each year. 

Region 4 Cited Limited Resources to Perform Annual Reviews

Region 4 followed the annual review guidance but stated that, due to limited 

resources, transaction testing worksheets were incomplete or inaccurate. 

Currently, Region 4 has two project officers covering eight states for both the 

Clean Water and Drinking Water SRF programs. Each project officer also serves 

as a financial analyst for the annual reviews. For FY 2013, the reviews for each 

state were staffed by:

 Kentucky: One CWSRF staff member, assisted by one engineer.

 North Carolina: Two CWSRF staff members.

 Tennessee: Two CWSRF staff members and one contractor. 

Region 4 indicated the required fields were not completed in Kentucky because 

either the project officer did not have enough time to complete all the fields or 

human error occurred. In Tennessee, none of the reviewers brought the correct 

forms to the onsite phase of the annual review to conduct both the transaction 

testing and project file review. While Region 4 has the most states to review, it 

does not have the most CWSRF staff available to conduct the reviews. 

The improper payment information was excluded from the PER because Region 4 

was waiting for a resolution from Office of Wastewater Management as to 

whether the error was or was not an improper payment. The PER was finalized 

before a decision was made.

Misuse of Funds May Go Undetected

Region 3’s process for answering one-third of the narrative questions, and 

electing to answer the remaining two-thirds in subsequent reviews, is not a riskbased approach because there is no risk analysis performed in deciding which 

Best Practices by Region 5, 

Where Annual Review Guidance Was Followed

Region 5 followed the annual review guidance and completed all of the documentation. 

Region 5 has a team of five CWSRF staff members, including a financial analyst, who 

perform the annual review for Ohio and Michigan. Region 5 has the most number of 

staff conducting annual reviews of the three regions we reviewed. The Michigan project 

officer stated that for every annual review, she reviews two reports: the latest Single 

Audit report available and the current financial authority’s financial audit. In addition, 

during the annual review, the project officer asks the state about anticipated issues for 

the current Single Audit and correction of past findings. Also, the Region 5 financial 

analyst said that the region tries to streamline the annual review checklist by performing 

tasks ahead of the onsite visits, and also has ongoing conversations with the states. 
16-P-0222 20

questions to address. Rather, this approach defers answering all questions over a

3-year period. A risk-based approach would allow the EPA to identify potentially 

high-risk areas within state CWSRF programs, and answer only those questions. 

When regional offices elect not to answer numerous questions during the annual 

review, it may impede their ability to identify programmatic and financial risks to 

the CWSRF program. Additionally, there is a risk that misuse of grant awards 

may go undetected; Pennsylvania received $52.9 million in FY 2013. 

The annual review is the opportunity to identify risks to the program. Not 

comprehensively and accurately conducting the review increases the possibility 

that critical issues and deficiencies will not be identified. By Region 4 providing 

inaccurate and incomplete answers to the transaction testing worksheets, there is a 

risk that misuse of grant awards may go undetected; Kentucky received 

$17.0 million in FY 2013, while Tennessee received $19.4 million in FY 2013. 

The EPA uses the transaction testing worksheets to collect and report improper 

payments for the CWSRF program. Inaccurate reporting of this information on 

the worksheets or in the PER put the EPA at risk of reporting inaccurate 

information to Congress.

Recommendations

We recommend that the Regional Administrators, Regions 3 and 4:

6. Require CWSRF project officers to conduct the annual review according 

to the CWSRF annual review guidance, fully completing all checklists and 

other requirements of the review.

We recommend that the Assistant Administrator for Water:

7. Review and revise the annual review guidance to eliminate inconsistencies 

between guidance and the instructions in the checklists. 

8. Evaluate regional approaches to conducting the annual reviews of CWSRF 

programs, and address issues to ensure regions perform consistent reviews

in accordance with the annual review guidance.

Agency Response and OIG Evaluation

Recommendation 6 was a combined recommendation to both Regions 3 and 4. 

Region 4 provided corrective actions, including back-filling the additional project 

officer position, assigning administrative project officer duties to additional staff 

members, immediately requiring peer reviews of all checklists and transaction 

worksheets for each annual review, and making the first-line supervisor 

responsible for ensuring peer reviews have been completed. The proposed 

completion date for the corrective actions in Region 4 is September 30, 2016. 

When implemented, the corrective actions should address the recommendation for 
16-P-0222 21

Region 4. However, Region 3 did not explicitly agree with Recommendation 6,

and did not provide a corrective action plan with milestone dates to address the 

recommendation. Instead, Region 3 provided an alternative recommendation that

does not fully address the issue identified. As a result, we consider 

Recommendation 6 unresolved.

The agency agreed with Recommendation 7 and indicated that it had already 

revised the annual review guidance in December 2015 to address the 

recommendation. We verified that the revisions to the guidance addressed the 

recommendation, and consider this recommendation closed.

For Recommendation 8, the agency indicated that EPA headquarters participated 

in 13 state annual reviews in 2016. Also in 2016, for the first time, EPA 

headquarters will send a memo to the Regional Water Division Directors on what 

headquarters observed while participating in the reviews. The proposed 

completion date for the corrective actions is September 2016. When implemented, 

the corrective actions should address the recommendation.

Region 3 provided technical comments in an attachment to the EPA’s response to 

the draft report. We made revisions to the report to address Region 3’s technical 

comments where appropriate.
16-P-0222 22

Chapter 4

Administrative Baseline Monitoring 

Not Conducted as Required

For FYs 2010 through 2013, grants specialists for four of the six states we 

reviewed completed less than 60 percent of the required administrative baseline 

monitoring reviews. In addition, a number of the reviews were not completed 

within the required timeframe. EPA policy states that awards with project periods 

longer than 18 months must have an administrative baseline monitoring review 

completed within the first year of the award date, and on an annual basis until the 

grant ends. Other tasks took priority over completing the administrative baseline 

monitoring reviews. By failing to either complete the reviews or complete them

timely, the EPA cannot fully evaluate the performance of the state, ensure state 

compliance with the approved scope of work, and ensure that dollars are used 

responsibly and for intended purposes. 

Initial Administrative Baseline Monitoring Needed Within First Year

Administrative baseline monitoring is the periodic review of a recipient’s progress 

in, and compliance with, a specific award’s scope of work, terms and conditions, 

and regulatory requirements. Documented administrative baseline monitoring is 

required for all awards covered by EPA Order 5700.6A2, “Policy on Compliance, 

Review and Monitoring.” The order requires that for awards with a project period 

longer than 18 months, the initial administrative baseline monitoring must take 

place within the first year (no later than 1 year from the project award date), and 

then on an annual basis until the grant ends. The EPA guidance IGMS Post-Award 

Database: Administrative Baseline Monitoring For Grants recommends that the 

initial baseline monitoring be completed in the latter part of the first year. 

The EPA OARM’s Office of Grants and Debarment serves as the National 

Program Manager for administrative grants management, and has responsibility 

for assistance regulations, policy, and guidance and for assistance-related training.

Regions 4 and 5 Grants Specialists Not Conducting Required Reviews

The EPA grants specialists for Regions 4 and 5 did not conduct administrative 

baseline monitoring reviews in accordance with EPA policy. We obtained the 

administrative baseline monitoring reviews for CWSRF grants awarded in 

FYs 2010 through 2013 for Region 3 (Pennsylvania); Region 4 (Kentucky, 

Tennessee and North Carolina); and Region 5 (Ohio and Michigan). We found 

that for four of the six states, less than 60 percent of the required administrative 

baseline monitoring reviews were completed, as highlighted in Table 6. 
16-P-0222 23

Table 6: Administrative baseline monitoring reviews completed for grants by fiscal year

Region - State

FY 2010 

grant

FY 2011 

grant

FY 2012 

grant

FY 2013

grant Total

Region 3 - Pennsylvania 2 of 3 2 of 2 2 of 2 1 of 1 7 of 8 – 87.5% complete

Region 4 - Kentucky 1 of 2 1 of 4 2 of 3 1 of 2 5 of 11 – 45.5% complete

Region 4 - North Carolina 1 of 2 2 of 3 2 of 3 0 of 1 5 of 9 – 55.6% complete

Region 4 - Tennessee 4 of 4 3 of 3 2 of 2 2 of 2 11 of 11 – 100% complete

Region 5 - Michigan 0 of 3 No cap 

grant

1 of 3 1 of 2 2 of 8 – 25% complete

Region 5 - Ohio N/A 0 of 4 0 of 4 0 of 3 0 of 11 – 0% complete

Source: OIG analysis of EPA data.

In addition to not conducting the required administrative baseline monitoring 

reviews, a number of completed reviews were not finished within the required 

timeframe. In several cases, the initial review was not conducted within the first 

year, and subsequent reviews were not completed on an annual basis, as shown in 

Table 7. 

Table 7: Timeliness of initial and subsequent administrative baseline monitoring reviews 

Region - State FY 2010 grant FY 2011 grant FY 2012 grant FY 2013 grant

Region 3 -

Pennsylvania

 Initial review: late

 2nd review: late

 3rd review: 

not completed

 Initial review: late

 2nd review: late

 Initial review: 

on time

 2nd review: on time

 Initial review: 

on time

Region 4 -

Kentucky

 Initial review: 

on time

 2nd review: 

not completed

 Initial review: late

 2nd review: 

not completed

 3rd review: 

not completed

 4th review: 

not completed

 Initial review: 

on time

 2nd review: late

 3rd review: 

not completed

 Initial review: 

late

 2nd review: 

not completed

Region 4 -

Tennessee

 Initial review: 

on time

 2nd review: late

 3rd review: late

 4th review: late

 Initial review: late

 2nd review: late

 3rd review: late

 Initial review: late

 2nd review: late

 Initial review: 

on time

 2nd review: late

Region 4 -

North Carolina

 Initial review: late

 2nd review: 

not completed

 Initial review: on time

 2nd review: late

 3rd review: 

not completed

 Initial review: 

on time

 2nd review: late

 3rd review: 

not completed

 None completed

Region 5 -

Ohio

 N/A  None completed  None completed  None completed

Region 5 -

Michigan

 None completed  No capitalization 

grants

 Initial review: late

 2nd review: 

not completed

 3rd review: 

not completed

 Initial review: 

late

 2nd review: 

not completed

Source: OIG analysis of EPA data.
16-P-0222 24

The amount of time that the administrative baseline monitoring reviews were late 

varied, but we found 16 of 21 late reviews were 1 month late or more:

4

 For Pennsylvania, one review was 3 weeks late, two were 1 month late,

and one was 7 months late. 

 For Kentucky, one review was 6 months late, a second was 9 months late, 

and a third was more than 2 years late.

 For Tennessee, four of nine reviews were less than 14 days late, while the 

remaining five were between 1 to 4 months late. 

 For North Carolina, one review was 1 month late, while the remaining two 

were 3 months late. 

 For Michigan, one review was 6 months late, and one was more than

1 year late. 

When asked who was responsible for providing oversight of the administrative 

baseline monitoring process, a Region 4 grants management officer said that the 

team leader and grants management officer oversaw the process. The team leader 

and grants management officer pull reports, or email the grants specialists to 

remind them to complete the reports. 

Reviews Not Completed Due to Competing Priorities and Workload 

Grants specialists in Regions 4 and 5 indicated that workload was the reason that 

administrative baseline monitoring reviews were not completed or were not 

completed timely. The Region 5 section chief was aware that the work was not 

completed, but stated that four staff members left the group and the grants 

specialist took on additional work, including being the grants specialist for 

Indiana and portions of five other states. 

The Region 4 grants specialist for Tennessee said administrative baseline monitoring 

reviews were not completed timely because her main concern in September was to 

issue grants, and the baseline reviews were put on hold until October, causing the 

reports to be late. The Region 4 grant management officer agreed that awarding

grants in September took priority over completing administrative baseline 

monitoring reviews. However, the reviews can be completed prior to September,

and she had completed reviews as early as July in the past.

In addition, the Region 4 grant management officer became aware that the grants 

specialist had not completed all required reviews when we brought the matter to 

her attention. She periodically pulled administrative baseline monitoring reports, 

but the reports only indicated the lag times between the last completed baseline 

monitoring review until the next one was due. When the grants specialist 

completes an administrative baseline monitoring review for any active award, the 

lag time is reset until the next scheduled baseline monitoring is due.

 

4 The time periods cited are approximate. 
16-P-0222 25

While team leaders were aware that administrative baseline monitoring reviews

were not completed, there was no immediate action taken to complete the reviews.

CWSRF project officers rely on regional grants specialists to review the 

administrative terms and conditions of CWSRF grants. 

The administrative baseline monitoring is a tool used by EPA employees to:

 Evaluate the progress of the project and performance of the recipient.

 Ensure recipient compliance with the approved scope of work, 

administrative terms and conditions, and regulatory requirements.

 Ensure that EPA dollars are being used responsibly and for intended 

purposes.

By not completing administrative baseline monitoring reviews, the EPA cannot 

achieve the purpose of the monitoring.

Recommendations

We recommend that the Assistant Administrator for Administration and 

Resources Management:

9. Develop and implement a plan to ensure administrative baseline 

monitoring reviews are completed as required by scheduling reviews 

around peaks in workloads.

10. Improve the capability to monitor the timing of reviews by providing 

project officers with data regarding the timeliness of administrative 

baseline reviews.

Agency Response and OIG Evaluation

While the agency agreed with the underlying intent of Recommendation 9, its 

response indicated that, in March 2014, OARM convened a team to examine ways 

to streamline the unliquidated obligation and administrative baseline monitoring 

processes. OARM is currently evaluating whether to exclude CWSRF awards from 

administrative baseline monitoring. Thus, OARM believes that it would be 

premature to develop and implement the OIG’s recommended plan. OARM did 

not provide a corrective action plan with milestone dates for this recommendation;

it provided a completion date for the evaluation of October 2016. As a result, we 

consider Recommendation 9 unresolved.

For Recommendation 10, the agency agreed with the recommendation and stated 

that OARM will add a reporting capability to the Quik Reports tool to track the 

timeliness of administrative baseline reviews. The estimated completion date is

December 31, 2016. When implemented, we believe the corrective actions will 

address the recommendation.
16-P-0222 26

Status of Recommendations and 

Potential Monetary Benefits

RECOMMENDATIONS

POTENTIAL MONETARY 

BENEFITS (in $000s)

Rec. 

No.

Page 

No. Subject Status1 Action Official

Planned 

Completion 

Date

Claimed 

Amount

Agreed-To 

Amount

1 13 Revise CWSRF annual review guidance to instruct 

program staff to obtain the statewide Single Audit 

from the Federal Audit Clearinghouse prior to the 

onsite phase of the annual review, or, if not available 

from the clearinghouse, obtain it from the state.

C Assistant Administrator 

for Water

12/31/15

2 13 Revise CWSRF annual review guidance to include a 

description of both statewide Single Audits and

independent audits of state finance authorities that 

operate the SRFs.

C Assistant Administrator 

for Water

5/23/16 

3 13 Revise CWSRF annual review guidance to require 

EPA staff to review and discuss with the state and, if 

applicable, finance authority, all findings, resolutions 

and corrective actions from audit reports that review 

implementation of state CWSRF programs, and

document these actions in the annual review 

checklist.

C Assistant Administrator 

for Water

12/31/15 $156,544 $156,544

4 13 Revise CWSRF annual review guidance to include 

requirements for discussing Single Audit findings—

including findings, resolution and corrective actions—

in the PER.

C Assistant Administrator 

for Water

12/31/15

5 14 Revise CWSRF annual review guidance to require 

project officers to document the decision to issue or 

not issue to a state a Notice of Noncompliance if a 

Single Audit finding identifies a recurring 

noncompliance issue.

C Assistant Administrator 

for Water

12/31/15

6 20 Require CWSRF project officers to conduct the 

annual review according to the CWSRF annual review 

guidance, fully completing all checklists and other 

requirements of the review.

U Regional Administrators,

Regions 3 and 4

7 20 Review and revise the annual review guidance to 

eliminate inconsistencies between guidance and the 

instructions in the checklists.

C Assistant Administrator 

for Water

12/31/15

8 20 Evaluate regional approaches to conducting the 

annual reviews of CWSRF programs, and address 

issues to ensure regions perform consistent reviews

in accordance with the annual review guidance.

O Assistant Administrator 

for Water

9/30/16 

9 25 Develop and implement a plan to ensure 

administrative baseline monitoring reviews are 

completed as required by scheduling reviews around 

peaks in workloads.

U Assistant Administrator for 

Administration and 

Resources Management

10 25 Improve the capability to monitor the timing of reviews 

by providing project officers with data regarding the 

timeliness of administrative baseline reviews.

O Assistant Administrator for 

Administration and 

Resources Management

12/31/16

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.
16-P-0222 27

Appendix A

Agency Response to Draft Report

May 5, 2016

MEMORANDUM

SUBJECT: Response to Office of Inspector General Draft Report No. OA-FY15-0153 “EPA 

Regional Offices Need to More Consistently Conduct Required Annual Reviews 

of Clean Water State Revolving Funds,” dated March 28, 2016

FROM: Joel Beauvais 

Deputy Assistant Administrator

TO: Michael Petscavage, Director

Contract and Assistance Agreement Audits

Office of Audit

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

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

of the report recommendations. For those report recommendations with which the agency agrees 

we have provided high-level intended corrective actions and estimated completion dates. For 

your consideration, we have included a Technical Comments Attachment to supplement this 

response. 

AGENCY’S OVERALL POSITION

The draft report makes ten recommendations – seven for the Assistant Administrator for Water, 

one for Regions 3 and 4 and two for the Assistant Administrator for Administration and

Resources Management (OARM). Except for one recommendation for OARM, we agree with 

the OIG’s recommendations. In regard to the OW recommendations, the Annual Review 

Guidance used for this audit was developed in October 2013. Since that time, the guidance has 

been revised and we believe the most recent Annual Review Guidance dated December 2015, 

incorporates most of the OW recommendations. The two recommendations not covered by the 

revised Annual Review Guidance, are met by the SOP entitled, “Compliance with Audit 

Requirements,” dated September 2014 and by Headquarters participation in State annual reviews 

conducted by the Regions. This year Headquarters participated in thirteen reviews and hope to 

continue next year in participating in as many reviews as possible. 
16-P-0222 28

AGENCY’S RESPONSE TO REPORT RECOMMENDATIONS

Agreements

No. Recommendation High-Level Intended Corrective 

Action(s)

Estimated Completion 

Date

1

2

3

Revise CWSRF 

annual review 

guidance to instruct 

program staff to 

obtain the statewide 

Single Audit from 

the Federal Audit 

Clearinghouse prior 

to the onsite phase of 

the annual review, or, 

if not available from 

the clearinghouse, 

obtain it from the 

state.

Revise CWSRF 

annual review 

guidance to include a 

description of both 

statewide Single 

Audits and 

independent audits of 

state finance 

authorities that 

operate the SRF.

Revise CWSRF 

annual review 

guidance to require 

EPA staff to review 

and discuss the state 

and, if applicable, 

finance authority, all 

findings, resolutions

and corrective 

actions from audit 

reports that review 

implementation of 

state CWSRF 

The Annual Review Guidance was 

revised in December 2015. Page 12 of 

the guidance addresses this 

recommendation. A copy of the

guidance is attached. In addition to 

obtaining a copy of the Single Audit 

from the state or the clearinghouse, 

Regions can request from the OIG, 

through their audit resolution liaison, 

an expedited issuance of Single Audits 

prior to state annual reviews.

December 2015

In September 2014, CWSRF 

developed and distributed to the 

Regions a SOP entitled, “Compliance 

with Audit Requirements.” The SOP 

addresses this recommendation. A 

copy of the SOP is attached.

The revised Annual Review Guidance 

contains two separate checklists –

general checklist and the project file 

checklist. Section 2.6 of the general 

checklist addresses this 

recommendation. A copy of the 

checklist is attached.

September 30, 2014

December 2015
16-P-0222 29

4

5

6

programs, and 

document these 

actions in the annual 

review checklist.

Revise CWSRF 

annual review 

guidance to include 

requirements for 

discussing Single 

Audit findings –

including findings, 

resolution and 

corrective actions –

in the PER.

Revise CWSRF 

annual review 

guidance to require 

project officers to 

document the 

decision to issue or 

not issue to a state a 

Notice of 

Noncompliance if a 

Single Audit finding 

identifies a recurring 

noncompliance issue.

Require CWSRF 

project officers to 

conduct annual 

reviews according to 

the CWSRF annual 

review guidance, 

fully completing all 

checklists and other 

requirements of the 

review.

This recommendation is addressed in 

the Annual Review Guidance on page 

36.

This recommendation is addressed in 

the Annual Review Guidance on page 

39.

Region 4 corrective action:

- Back-fill additional project 

officer position, thereby 

decreasing the burden on the 

two current project officers;

- assign administrative project 

officer duties to additional staff 

members within the Section, 

thereby freeing time for the 

SRF Coordinator POs to focus 

on other areas of the program;

- immediately require peer 

review of all checklists and 

transaction worksheets for each 

annual review; and

- the first line supervisor will be 

responsible for insuring the 

December 2015

December 2015

September 30, 2016
16-P-0222 30

7

8

9

Review and revise 

the annual review 

guidance to eliminate 

inconsistencies 

between guidance 

and the instructions 

in the checklists.

Evaluate regional 

approaches to 

conducting the 

annual reviews of 

CWSRF programs, 

and address issues to 

ensure regions 

perform consistent 

reviews in 

accordance with the 

annual review 

guidance.

Develop and 

implement a plan to 

ensure administrative 

baseline monitoring 

reviews are 

completed as 

required by 

scheduling reviews 

around peaks in 

workloads.

peer reviews have been 

completed. 

Region 3: see OIG note at the end of 

the response.

Annual Review Guidance revised.

In 2016, EPA Headquarters CWSRF 

participated in thirteen State annual 

reviews This year, for the first time, 

Headquarters will be sending a memo 

to the Regional Water Division 

Directors on what Headquarters 

observed while participating in the 

reviews.

OARM agrees the underlying intent of 

this recommendation, namely to ensure 

that CWSRF awards receive effective 

EPA oversight. It is unclear at this 

time, however, whether administrative 

baseline monitoring of CWSRF 

awards adds independent value to the 

annual CWSRF review process. In 

this regard, in March 2014, OARM 

convened a LEAN team to examine 

ways to streamline the Unliquidated 

Obligation (ULO) and Administrative 

Baseline Monitoring processes. The 

Team’s report contained a number of 

recommendations to 

simplify/consolidate the ULO and 

December 2015

September 2016

October 2016
16-P-0222 31

10 Improve the 

capability to monitor 

the timing of reviews 

by providing project 

officers with data 

regarding the 

timeliness of 

administrative 

baseline reviews.

baseline monitoring processes, which 

OARM implemented in FY 2015. 

Significantly, the Team’s report also 

recommended that the agency revised 

the monitoring requirements in EPA 

Order 5700 6a2 to exclude CWSRF 

awards from administrative baseline 

monitoring due to the extensive 

oversight already provided by the 

annual CWSRF review process.

OARM is currently in the process of 

evaluating the recommendation to 

exclude CWSRF awards from 

administrative baseline monitoring. 

This evaluation includes comparing 

the administrative baseline monitoring 

questions with the CWSRF annual 

guidance and checklists to determine 

whether there is overlap between the 

two processes, and, if so, whether there 

are opportunities to reallocate 

administrative baseline monitoring 

resources to recipients with higher 

financial risk. OARM will share the 

results of the evaluation with the OIG.

OARM agrees with this 

recommendation and will add a 

reporting capability to the Quik 

Reports tool to track the timeliness of 

administrative baseline reviews.

December 31, 2016
16-P-0222 32

Disagreement

No. Recommendation Agency Explanation/Response Proposed Alternative

9 Develop and implement a 

plan to ensure 

administrative baseline 

monitoring reviews are 

completed as required by 

scheduling reviews around 

peaks in workloads.

Given the ongoing evaluation 

described above, OARM 

believes that it would be 

premature to develop and 

implement the plan 

recommended by the OIG. In 

coordination with the agency’s 

Grants Management Council, 

OARM will assess the need for 

the plan once the evaluation is 

completed.

TBD

CONTACT INFORMATION

If you have any questions regarding this response, please contact George Ames, Chief of the 

State Revolving Fund Branch on (202) 564-0661 or Sheila Platt on (202) 564-0686.

Attachments

cc: Donna Vizian

 Shawn Garvin

 Heather McTeer Toney

 Robert Kaplan

 Andrew Sawyer

 Howard Corcoran

 Jon Capacasa

 James Giattina

 Tinka Hyde

OIG note: Subsequent to the submission of the EPA’s response, we were notified that 

Region 3 offered an alternative to Recommendation 6. Region 3 proposed: 

Based on the facts, a more appropriate recommendation regarding Region 3 

is to recommend that the Regional Administrator of Region 3: Ensure that 

all of the deferred process documentation questions have subsequently been 

completed. Planned Completion Date: July 2016

We do not believe the alternative recommendation fully addresses the issue we identified.
16-P-0222 33

TECHNICAL COMMENT ATTACHMENT

Region 3 Comments on the Factual Accuracy of the Draft Report

Chapter 1 Introduction

Background

1. Communities are not the only borrowers. CWSRF non-point source projects include 

borrowers such as homeowners, farmers, and non-profit organizations which should be included.

Responsible Offices

1.The annual review guidance includes programmatic and financial aspects. The second 

paragraph of this section should include the financial aspects.

Chapter 2 Single Audit Findings - Single Audit Findings Not Always Considered or 

Reported in the PER

1. Please include in the draft that in preparation for the annual review, Region 3 proactively 

obtained and reviewed the financial statement audit which had an unqualified opinion and no 

findings were mentioned. 

2. Table 3, the 3rd paragraph of page 12, and the paragraph above “Recommendations” on page 

13: Please update the text to more accurately reflect the situation. The reported Pennsylvania 

findings were an error and not material weaknesses, non-compliance; the independent Certified 

Public Accountants who conducted the Single Audit did not have a complete understanding of 

the CWSRF program requirements. Region 3’s memo dated September 1, 2015 to the OIG, 

explained the inaccuracies. The OIG accepted the Region’s response and closed the audit in the 

tracking system on October 10, 2015 (within the scope of this audit (April 2013–March 2016)). 

Regional Staff Unclear as to Which Reports to Review and Findings to include in PER

3. Table 4 – please update the first sentence of the Region 3-Pennsylvania language to reflect 

comments made previously i.e. “The project officer did not have the Single Audit report at the 

time and relied upon EPA OIG to provide the Single Audit report in accordance with EPA 

Manual 2750 audit resolution process”. 

Second paragraph under Table 4 - EPA Manual 2750 does not preclude EPA from obtaining the 

audit reports, however, the 2750 Manual states “The OIG transmits single audit reports to the 

EPA, making recommendations for corrective action when necessary” and “The single audit 

process begins once the OIG has issued a final report to the agency.” (pages 89-101). 

Chapter 3: Annual Review Checklists and Worksheets Not Completed Consistently Across 

Regions

1.The statement: “When regional offices perform reviews using different methods, it may 

impede the EPA’s ability to identify programmatic and financial risks to the CWSRF program” 
16-P-0222 34

overlooks the valued uniqueness of each State’s program. The ability to approach each State’s 

annual review in a flexible manner allows the regional offices to spend their limited staff 

resources on the highest priority areas in each State’s program. Given the importance of this 

aspect of the SRF program, please consider omitting the sentence.

Regions Should Complete Checklists and Worksheets as Part of Annual Review

Inconsistency in Completion of Checklists and Worksheets

1. Region 3’s approach was consistent with the checklist guidance. The checklist states “. . . all

of the topics must either be specifically addressed or noted as not being covered during this 

review. If an area was not reviewed, note the reason for not reviewing it and any future review 

activities.” Please clarify that postponed questions were all related to documenting vs. 

implementation, of state processes. Questions related to evaluating the state’s program and 

determining compliance (historically high risk areas) were all answered. 

2. The description of how process documentation questions were addressed is inaccurate. The 

Region only provided to the State the select process documentation questions from the checklist. 

Questions related to evaluating the States program and determining compliance were answered 

solely by the project officer. Further, although the state provided written input documenting 

their processes, the information was reviewed by the project officer prior to the site visit and 

discussed in detail during the review; edits were made by the project officer to the final 

description as a result of these discussions. 

Inconsistency Due to Alternative Methodology and Insufficient Resources

Region 3 Took a Different Approach to Conduct Annual Reviews

2. To balance the written account, please include in the final report that there were a total of 149 

questions on the annual review checklist. 15 process documentation questions were deferred for 

one year and 11 process documentation questions deferred for two years for a total of 26 process 

documentation questions of 149 questions. 

Misuse of Funds May Go Undetected

3. As stated above, 26 process documentation questions of 149 does not seem to equate to 

“numerous”. Please insert the actual number or more appropriately quality using terms like 

“few” or “some”.

4. Please balance the discussion by adding “The project officer reported that by using the risk 

based approach, the Region was able to focus its limited resources in higher risk areas such as 

ensuring compliance, evaluating the State’s program and confirming implementation of State 

processes”.
16-P-0222 35

OIG actions: Based on our analysis of Region 3’s comments on the factual accuracy of 

the draft report, we made revisions to Chapters 1 and 3 of our report as appropriate. 

Chapter 1 will now include additional information on CWSRF borrowers, and state that 

the annual review guidance includes financial aspects. Chapter 3 will include Region 3’s 

response to the draft report, stating that the project officer reviewed written input prior 

to the site visit and that edits were made by the project officer as a result of discussions. 

Chapter 3 will also include Region 3’s response to the draft report stating that a total of 

26 questions out of 149 were deferred. No other changes were made to the report. 
16-P-0222 36

Appendix B

Distribution

Office of the Administrator

Assistant Administrator for Water

Assistant Administrator for Administration and Resources Management

Regional Administrators, Regions 1–10

Agency Follow-Up Official (the CFO)

Agency Follow-Up Coordinator

General Counsel

Associate Administrator for Congressional and Intergovernmental Relations

Associate Administrator for Public Affairs

Principal Deputy Assistant Administrator for Water

Principal Deputy Assistant Administrator for Administration and Resources Management

Director, Office of Wastewater Management, Office of Water

Director, Office of Ground Water and Drinking Water, Office of Water

Director, Grants and Interagency Agreements Management Division,

 Office of Administration and Resources Management

Deputy Regional Administrators, Regions 1–10

Audit Follow-Up Coordinator, Office of Water

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

Audit Follow-Up Coordinators, Regions 1–10