```

[Federal Register Volume 65, Number 107 (Friday, June 2, 2000)]
[Notices]
[Pages 35339-35345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13845]

-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

[FRL-6708-8]

Guidance on Exercising CERCLA Enforcement Discretion in 
Anticipation of Full Cost Accounting Consistent With the ``Statement of 
Federal Financial Accounting Standards No. 4''

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: The EPA Office of Enforcement and Compliance Assurance, Office 
of Site Remediation Enforcement is providing guidance to its regional 
components on the exercise of enforcement discretion, from May 30, 2000 
through October 2, 2000, in anticipation of EPA's implementation of 
full cost accounting.
    Attachments 1 and 2 were prepared by the Office of the Chief 
Financial Officer. They describe the reasons for full cost accounting 
and the methodology being used to implement full cost accounting.

EFFECTIVE DATE: May 30, 2000.

FOR FURTHER INFORMATION CONTACT: Chad Littleton, Office of Enforcement 
and Compliance Assurance, Office of Site Remediation Enforcement, U.S. 
EPA, 1200 Pennsylvania Ave., NW, Washington, DC 20460 (MC 2273A); e-
mail: [email protected]; phone: (202) 564-6064.

SUPPLEMENTARY INFORMATION:

Memorandum

Subject: Guidance on Exercising CERCLA Enforcement Discretion In 
Anticipation of Full Cost Accounting Consistent with the Statement of 
Federal Financial Accounting Standards No. 4
From: Steven A. Herman, Assistant Administrator, Office of Enforcement 
and Compliance Assurance
To:
    Regional Administrators, Regions I-X
    Deputy Regional Administrators, Regions I-X
    Regional Counsel, Regions I-X
    Superfund Division Directors, Regions I-X

    This memorandum provides guidance to EPA personnel on how to 
exercise enforcement discretion as it relates to upcoming changes in 
EPA's indirect cost accounting methodology.

A. Upcoming Revisions to Indirect Cost Accounting

    EPA's Office of the Chief Financial Officer (OCFO) recently 
announced that it is revising the Agency's methodology for allocating 
indirect costs to Superfund sites. These steps will bring Superfund 
into compliance with cost accounting standards issued by the Federal 
Accounting Standards Advisory Board (FASAB) on July 31, 1995, 
(Statement of Federal Financial Accounting Standards No. 4 (SFFAS No. 
4)).\1\ The principal goal of those standards is to make it possible 
for Federal agencies to determine and report the true costs of their 
programs and activities. The Federal Financial Management Improvement 
Act of 1996 (Title VIII, Public Law 104-208)\2\ requires all Federal 
agencies to develop and use cost accounting methodologies that are 
consistent with the SFFAS No. 4 and other applicable standards.\3\
---------------------------------------------------------------------------

    \1\ Available as SFFAS 4 at www.financenet.gov/financenet/fed/fasab/concepts.htm.
    \2\ Available from the 104th Congress catalog at 
www.access.gpo.gov/nara/publaw/104publ.html.
    \3\ ``(5) To rebuild the accountability and credibility of the 
Federal Government, and restore public confidence in the Federal 
Government, agencies must incorporate accounting standards and 
reporting objectives established for the Federal Government into 
their financial management systems so that all the assets and 
liabilities, revenues, and expenditures or expenses, and the full 
costs of programs and activities of the Federal Government can be 
consistently and accurately recorded, monitored, and uniformly 
reported throughout the Federal Government.
    (6) Since its establishment in October 1990, the Federal 
Accounting Standards Advisory Board (hereinafter referred to as the 
``FASAB'') has made substantial progress toward developing and 
recommending a comprehensive set of accounting concepts and 
standards for the Federal Government. When the accounting concepts 
and standards developed by FASAB are incorporated into Federal 
financial management systems, agencies will be able to provide cost 
and financial information that will assist the Congress and 
financial managers to evaluate the cost and performance of Federal 
programs and activities, and will therefore provide important 
information that has been lacking, but is needed for improved 
decision making by financial managers and the Congress.'' (Public 
Law 104-208, 110 STAT 3009-389-390).
    ``Each agency shall implement and maintain financial management 
systems that comply substantially with Federal financial management 
systems requirements, applicable Federal accounting standards, and 
the United States Government Standard General Ledger at the 
transaction level.'' (Id.)
---------------------------------------------------------------------------

    A copy of the OCFO memorandum announcing and describing EPA's 
implementation of an accounting methodology complying with the SFFAS 
No. 4 is attached for your reference (Attachment 1). That memorandum 
describes important background events and EPA's approach to 
implementing the revised methodology, defines many important accounting 
terms as they apply to EPA, lists preliminary estimated regional 
indirect rates based on the revised methodology, and states that OCFO 
will calculate actual indirect costs rates using the revised 
methodology (hereinafter ``revised rates'' or ``revised indirect 
rates'') for all fiscal years after 1989. The OCFO expects the revised 
rates to be completed and issued by October 2, 2000, at which time EPA 
will begin using the revised rates.

B. The Revised Rates and Superfund Site Costs

    As described more fully in the attached OCFO memorandum, direct 
costs are costs an organization incurs when it produces a specific 
result. Most of the other costs of running the organization are 
indirect costs. EPA's current indirect cost accounting methodology 
allocates to Superfund sites only about one-third of the indirect costs 
that are incurred by EPA and properly allocable to sites. SFFAS No. 4 
requires ``full cost accounting,'' which means that Superfund indirect 
costs must be allocated to sites. For that reason, implementing an 
indirect cost methodology based on SFFAS No. 4 will increase the 
aggregate amount of indirect costs allocated to sites.
    The effect of applying the revised rates will vary from site to 
site because the SFFAS-compliant methodology and the current 
methodology use different techniques for allocating indirect costs to 
individual sites. The SFFAS-compliant methodology allocates

[[Page 35340]]

indirect costs in proportion to direct costs, whereas the current 
methodology uses the number of Superfund staff hours charged to a site. 
As a result, sites with large direct Federal expenditures compared to 
the number of Superfund staff hours will generally see the largest 
indirect cost increases, and few if any decreases. Sites with smaller 
Federal expenditures compared to the number of Superfund staff hours, 
such as sites cleaned up by potentially responsible parties (PRPs) 
where EPA's costs are largely for oversight performed by EPA staff, 
will generally see smaller indirect cost increases, and are also more 
likely to see decreases.

C. Enforcement Discretion as It Relates to the Revised Indirect Rates

    As noted above, the OCFO expects the revised rates to be available 
on October 2, 2000, and will begin using them as soon as they are 
issued. In general this means that after October 2, 2000, site costs, 
including oversight costs, will be calculated using the revised rates. 
The following sections address areas of particular enforcement interest 
and describe how the Agency intends to exercise its enforcement 
discretion in individual cases to provide a fair and efficient 
transition to the revised accounting methodology.
1. Concluded Matters
    EPA has previously settled or litigated numerous claims for past 
response costs. The costs EPA sought in those cases included indirect 
costs based on the current rates. EPA recognizes the importance of 
repose and finality in those cases and therefore the Agency has no 
plans to re-open any concluded matters to apply the revised rates to 
claims for past costs that were presented and resolved in those 
matters. This includes consent decrees, litigated judgments and 
administrative orders on consent. It also includes ceilings established 
in settlements and judgments for oversight or other response costs that 
the Agency can bill to PRPs under those existing settlements or 
judgments.
2. Oversight Billings
    The Agency has no plans to recompute oversight bills that were 
prepared and sent to PRPs before the revised rates are issued.
3. Claims in Litigation Prior to October 2, 2000
    When EPA issues the revised indirect rates there will be a number 
of cost recovery cases pending in Federal courts. The past costs EPA is 
seeking in those cases will have been calculated using the current 
indirect rates. There may be special circumstances in those cases, 
especially if the litigation is at an advanced stage, that cause the 
case team to decide not to seek to amend the claim by applying the 
revised indirect rates. An example might be certain cases in which 
costs have already been presented to the court and the parties are 
awaiting the court's decision. These decisions will be made by the EPA/
Department of Justice (DOJ) case team on a case-by-case basis. This 
approach is intended to be consistent with prior practice (See, Policy 
on Recovering Indirect Costs in CERCLA Section 107 Cost Recovery 
Actions, OSWER Directive 9832.5, June 27, 1986) (superseded by this 
guidance).
4. Interim Settlement Policy in Anticipation of the Revised Rates
    This memorandum gives advance notice of the revised rates. One 
purpose of the advance notice is to provide PRPs who have unresolved 
cost recovery liabilities an opportunity to settle with the United 
States at the current rates. For sites where the revised rates would 
result in higher indirect costs, it may be advantageous for the PRPs to 
settle with the United States under the current rates. Therefore, until 
the revised rates are issued, which the OCFO expects to occur on 
October 2, 2000, the Agency will entertain settlement offers resolving 
the claims of the United States for CERCLA response costs based on the 
current indirect rates.
    Generally, the Agency will consider a settlement offer based on 
site costs computed using the current indirect cost rates, if: (1) The 
offer is made prior to October 1, 2000; (2) the Agency determines, in 
its sole discretion, that there is sufficient information available on 
which to base a settlement decision; and (3) it appears to the Agency 
that the offer is likely to lead to an executed final settlement by 
March 30, 2001. For cases in litigation or that have been referred to 
DOJ, the DOJ/EPA case teams will determine the appropriate response to 
any settlement offer. For all other matters, regional case teams will 
determine the appropriate response to any settlement offer. Case teams 
may set alternative milestone dates for any individual PRP or site, if 
appropriate, based on PRP-specific or site-specific circumstances after 
consultation with the Regional Support Division (RSD) in the Office of 
Site Remediation Enforcement (OSRE).
    After such an offer has been received, if settlement negotiations 
are unproductive or it becomes evident that the applicable milestone 
dates have not been met, or are not likely to be met, the Agency may, 
at its sole discretion, withdraw the opportunity to enter a settlement 
based on the current rates.

D. Proving Indirect Costs

    Implementing the SFFAS accounting methodology will not alter the 
burden of proof that the Agency must meet when seeking recovery of 
indirect costs. EPA will continue to provide evidence acceptable in a 
court of law to prove that the indirect costs sought are allocable to 
the site that is the subject of the enforcement action.

E. National Consistency/Coordination

    Except for the specific transition related adjustments noted above, 
existing policy and guidance applicable to considering or accepting 
settlement offers is unchanged. Implementing the revised indirect rates 
will not affect the discretion of the Agency or DOJ to settle or 
compromise cost recovery claims, including those cases where costs are 
based on the revised rates. Litigation risk, equitable considerations, 
and other factors that are considered in determining whether to settle 
or compromise claims may still be taken into account. As always, EPA 
will exercise its discretion to ensure that any resulting settlements 
are fair, reasonable, and consistent with CERCLA.
    When EPA begins using the revised rates, we expect that the Agency 
will face questions about matters associated with the transition to the 
revised rates. EPA has a substantial interest in promoting a nationally 
consistent approach during this transition period. Therefore, I have 
asked the RSD to monitor EPA's implementation of the revised indirect 
rates. I also ask each regional office to designate a point of contact 
to assist RSD in our effort to quickly resolve key questions about 
EPA's use of the revised rates, and to promote national consistency 
among the regional offices. Please send the name and telephone number 
of your workgroup member to Maria Cintron-Silva, RSD, no later than 
three weeks after the date of this memorandum. Workgroup contacts will 
be expected to provide information regarding each of the offers 
received and their dispositions. For questions about this memorandum 
and OECA's implementation of the revised rates, please contact Chad 
Littleton, in the Office of Site Remediation Enforcement, at 202-564-
6064.

[[Page 35341]]

Attachments

    Dated: May 26, 2000.
Steven A. Herman,
Assistant Administrator, Office of Enforcement and Compliance 
Assurance.

Memorandum

Subject: Accounting for Indirect Costs Associated with Superfund Site-
Specific Activities
From: Joseph Dillon, Acting Comptroller (2731)
To: Senior Resource Officials

    This Policy Announcement provides the policies and procedures for 
implementing Statement of Federal Financial Accounting Standards 
(SFFAS) No. 4, Managerial Cost Accounting Standards for the Federal 
Government, for the Superfund Site Cleanup Program by providing a 
revised indirect cost methodology. This methodology along with existing 
policies and procedures regarding direct costs results in accounting 
for the ``full costs'' of actions taken at or in connection with 
Superfund Sites.

Background

    The Office of Management and Budget (OMB) issued SFFAS No. 4 on 
July 31, 1995, with an effective date of October 1, 1997. SFFAS No. 4 
requires federal agencies to determine the full cost of their outputs 
(programs). The full cost of programs includes both those costs 
specifically identifiable with each particular program, or direct 
costs, and those costs which collectively support the many programs, or 
indirect costs.
    Since 1985, EPA has been identifying the indirect costs associated 
with Superfund site-specific activities for all fiscal years after 
1982. However, the indirect cost methodology developed at that time was 
conservative and did not result in allocating all indirect costs to 
sites. As a result, the General Accounting Office, the EPA Office of 
Inspector General, OMB and Congress have repeatedly criticized EPA's 
methodology. The Office of the Chief Financial Officer (OCFO) has 
developed an indirect cost methodology to compute indirect cost rates 
for Superfund site-specific activities in accordance with SFFAS No. 4. 
By incorporating the resulting indirect cost rates into their analyses, 
Superfund Managers will be able to compute the full cost of their 
program.

Policy and Procedures

    The OCFO has developed a Superfund indirect cost methodology based 
upon full cost accounting concepts. Using that new methodology, OCFO is 
presently calculating and will issue indirect cost rates based upon the 
full cost accounting methodology (``revised rates''). The OCFO will 
issue revised rates for each Fiscal Year, by Region beginning with FY 
1990. The revised rates will be issued after the date of this Policy 
Announcement and are expected to be completed and issued by October 2, 
2000. Once the revised rates are issued, Superfund managers should use 
the revised rates to determine the full cost of Superfund site specific 
activities. In the meantime, EPA Superfund program managers may use the 
preliminary, estimated indirect cost rates identified in Attachment 1 
as the basis for estimating the full cost of Superfund site-specific 
activities.
    Beginning with FY 2001, the Agency will no longer compute nor 
issue, as provisional or final, indirect cost rates based upon the 
earlier Ernst & Whinney methodology.
    A brief description of the full cost methodology is as follows: 
EPA's annual costs are analyzed to determine whether the costs 
represent general Agency or Regional support activities, program 
support activities, or program direct costs. Those general Agency 
support activities and the Superfund program support activities are 
included in calculations that allocate these costs to programs and 
produce a Superfund indirect cost pool for each region. Each Region's 
indirect cost pool, including appropriate Regional support costs, is 
divided by the Region's direct costs incurred for site-specific 
activities to determine the Region's indirect cost rate for the fiscal 
year, which is expressed as a percentage of direct site costs. The 
Region's indirect cost rate is multiplied against the direct costs 
incurred for a particular Superfund site to determine the amount of 
indirect costs that will be allocated to that site. By adding the 
direct site costs and the indirect costs allocated to a particular 
site, or group of sites, the total cost for that site or group of sites 
is determined.
    For a more detailed description of the Superfund Indirect Cost Rate 
Methodology, please refer to Attachment 1.

Effective Date

    OCFO expects to complete and issue the new Superfund Full Indirect 
Cost Rates by October 2, 2000, at which time they will be effective for 
all accounting purposes.

Additional Information

    If you need further information on this Policy Announcement, please 
contact Charles Young of the Program and Cost Accounting Branch, 
Financial Management Division at (202) 564-4914.

Attachment 2

Superfund Full Cost Indirect Cost Rate Methodology

Background

    OMB, the Secretary of the Treasury and the Comptroller General 
established the Federal Accounting Standards Advisory Board (FASAB) in 
October 1990 to set Federal Government Accounting Standards. In 
September 1993, the Vice President in his report on the National 
Performance Review recommended an action which required the FASAB to 
issue a set of cost accounting standards for all federal agencies. 
FASAB issued the Statement of Federal Financial Accounting Standards 
(SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards for 
the Federal Government on July 31, 1995, which became effective for EPA 
on October 1, 1997. Title VIII of the Federal Financial Management 
Improvement Act of 1996 (Title VIII, Public Law 104-208) requires 
federal agencies to comply with the Federal Financial Accounting 
Standards and emphasizes that agencies' systems must report the total 
costs of programs and activities. EPA will comply with this requirement 
for all the Agency's programs, based on specific needs of each program 
and applicable accounting requirements. The methodology described in 
this Policy Announcement applies to EPA's Superfund site-specific 
activities as set forth below.
    SFFAS No. 4 sets forth five fundamental elements of managerial cost 
accounting to provide information on the cost of federal programs. One 
of those elements is to determine the full cost of government goods and 
services. According to the Standard, full cost includes both direct and 
indirect costs. Direct costs are defined as ``costs that can be 
specifically identified with an output.'' Indirect costs are costs that 
are common to multiple outputs but cannot be specifically identified 
with any particular output. In the context of the Superfund program, 
direct costs include those that are directly incurred by the United 
States for site-specific activities performed at or in connection with 
a particular site or a particular group of sites. Site-specific 
activities include the assessment, investigation and clean-up of a 
site, ancillary site-associated activities, and related enforcement 
actions. Indirect costs are those that support the Superfund program as 
a whole and cannot be identified to any one site or other ``output'' of 
the

[[Page 35342]]

program. The government's full cost at a Superfund site consists of the 
direct costs incurred for site-specific activities and the 
proportionate share of all the costs that provide indirect support to 
the site.
    In 1985, EPA, with the assistance of the accounting firm Ernst & 
Whinney, developed an indirect rate methodology for determining the 
government's cost of site-specific activities under CERCLA. The 
indirect rates developed were conservative. As a result of the 
conservative methodology, a substantial portion of the indirect cost 
pool was not allocated to individual Superfund sites, even though site-
specific activities are the direct output that the indirect costs 
support. As a result, the General Accounting Office (GAO), the EPA 
Office of Inspector General (OIG), OMB and Congress have repeatedly 
criticized the methodology for failing to identify the full cost of 
Superfund site clean-ups and therefore failing to allow potential 
recovery of all indirect costs. The OIG considered this method of 
recovering less than full overhead costs as a Federal Manager Financial 
Integrity Act (FMFIA) ``material weakness'' and suggested the Agency 
identify it as such.
    EPA has revised the Superfund indirect cost methodology to enable 
the Agency to report the full cost of the program in compliance with 
SFFAS No. 4 and with other federal mandates requiring the reporting of 
cost information. During the preparation of the revised methodology, 
EPA sought separate independent reviews of the methodology by both GAO 
and the national accounting firm KPMG. KPMG found the revised 
methodology in compliance with SFFAS No. 4, as well as ``easier to 
understand, more thorough and more complete than the previous 
methodology.'' GAO reviewed the revised methodology and found ``that 
the design of EPA's proposed Superfund indirect cost methodology 
complies with cost accounting standards for federal government'' as 
well as the requirements of SFFAS No. 4.

Approach

    EPA's approach to developing a full cost indirect cost methodology 
for Superfund is based on the guidance provided by SFFAS No. 4. In 
addition, certain other factors are also taken into account. These 
include the nature and classification of Agency costs, private sector 
cost accounting practices and the cost/benefit of obtaining the data 
necessary to compute indirect cost rates. Indirect cost rates will be 
developed for each region and each Fiscal Year beginning with FY 1990. 
We are beginning with FY 1990 because active Superfund sites have costs 
incurred in prior years generally no earlier than FY 1990, with limited 
exceptions. Thus, computing full cost indirect rates back to FY 1990 
will allow Superfund managers to determine the full cost of site-
specific activities for nearly all active sites, while going back 
before FY 1990 would be of primarily historic interest. Therefore, we 
consider it most cost effective to compute rates no further back than 
1990; if managers need indirect cost information for years prior to 
1990, the rates computed using the current methodology may be used for 
those earlier years. Use of the revised indirect cost rates will 
provide Superfund managers, other EPA management and Congress with the 
full cost of Superfund site-specific activities.
    The current Superfund indirect cost methodology uses indirect rates 
which are expressed as a rate per hour of labor effort. This rate is 
computed using a base consisting of all labor hours (including both 
site and non-site labor), but is applied to only site labor hours. This 
results in an under-allocation of indirect costs. This approach, 
although acceptable from an accounting standpoint, is conservative in 
its allocation of indirect costs to individual sites and led to the 
criticisms noted above. The principal conceptual change the Agency will 
make as it moves to full cost accounting in compliance with SFFAS No. 4 
with respect to Superfund site-specific activities, is to ensure that 
indirect costs that support site clean-up are fully allocated to site 
charges. In order to do so, EPA will allocate the appropriate indirect 
cost pool using total direct site costs as an allocation base. This 
will result in indirect cost rates expressed as a percentage of total 
direct site costs rather than a dollar rate per hour as is the current 
method. The change in the allocation base is the most important 
difference between the full cost accounting methodology and the prior 
methodology, with only minor changes to the indirect cost pool (further 
described below). The indirect cost pool identified for calculation of 
the new indirect cost rate will reflect only those costs which are 
appropriately allocable to and support the Superfund site-specific 
activities.
    In determining the indirect costs associated with the Superfund 
program, certain costs funded from non-Superfund appropriations are 
included as indirect costs because they provide services that benefit 
the Superfund program and are necessary to reflect full cost. SFFAS No. 
4 states that one of the components of full cost is the ``cost of 
support services provided by other responsibility segments * * * and by 
other reporting entities.'' We include other appropriations because our 
approach determines the allocability of indirect costs according to the 
organizational unit that provides the support services regardless of 
which appropriation has been charged with the costs. We begin with the 
total costs of organizational units and then allocate these costs to 
all units receiving support services.
    Not all appropriations, however, are included as indirect costs. 
For example, charges under the Oil Spill appropriation are not 
included. Oil Spill disbursements support only the Oil Spill program 
and should not be allocated to other programs. State and Tribal 
Assistance Grants appropriations are also excluded. These are grants to 
states, local and tribal governments which fund a variety of 
environmental programs and infrastructure projects pertaining to water 
quality initiatives. Funding under the Science and Technology 
appropriation is excluded. These funds support research and development 
initiatives. The treatment of research and development costs is 
discussed under the section on direct costs. The programs funded by the 
appropriations listed above are considered to be separate from 
Superfund and have their own outputs. These appropriations do not 
include any indirect costs that are allocable to the Superfund program.
    As explained below under Exclusions from the Pool, costs associated 
with certain organizational units are also removed from the indirect 
cost pool depending on their relationship to the Superfund program.
    The concept of full cost, according to the Standard, also requires 
that inter-entity costs or the costs of services received from other 
entities be recognized. Costs of employee benefits funded by the Office 
of Personnel Management (OPM) are considered inter-entity costs and 
will be included as indirect costs. Because methodologies to estimate 
the costs of services received from federal agencies other than OPM are 
still under development, these costs are not included in the indirect 
cost pool at this time.
    The methodology for determining indirect costs allocable to 
Superfund site-specific activities is patterned after private sector 
models that group costs according to levels of organization and 
benefit. Indirect costs are classified hierarchically. At the highest 
level are Agency-wide costs, i.e., national costs which benefit all 
organizations. Examples of these are facilities management, budget 
functions, human resource management, and OPM inter-

[[Page 35343]]

entity costs. The next level incorporates regional costs which benefit 
each of the Agency's ten regions. These are general costs which are 
essentially counterparts of national costs but benefit regions only. 
Examples include the costs of regional administration, support, and 
policy and planning functions. Superfund program management costs 
comprise the next two levels. These are the support costs incurred at 
both headquarters and regions to implement Superfund site-specific 
activities. Costs from each of these four levels form the basis of the 
indirect cost pool. The final product--separate indirect cost rates for 
each of EPA's ten regions--will be expressed as a percentage of direct 
(site-specific) costs for each region.

Direct Costs

    In determining the direct costs of the Superfund program, we use 
SFFAS No. 4's definition of direct costs. However, the direct costs of 
the Superfund program as a whole, are not necessarily synonymous with 
the direct costs of Superfund site-specific activities. Superfund site-
specific activity is one component of the Superfund program.
Site-Specific Costs
    The major component of Superfund direct costs is the costs of site-
specific activities, i.e. the cost of all activities that go toward the 
assessment, investigation and actual clean up of a site, related 
enforcement actions, and other site-associated activities. Examples 
include, but are not limited to, the costs of salaries and benefits of 
employees who work directly at the site or provide other site-related 
effort, contractor costs of removal or remedial activities, and 
analytical work performed for the site.
    Certain other Superfund-related costs are also considered direct 
costs, although they may or may not be associated with site-specific 
activities. These costs are described in the next several paragraphs.
ZZ Costs
    ``ZZ'' costs are expenses incurred for site work before a site is 
established as a Superfund site and assigned a site-specific 
identifier. If a site-specific identifier is established, the ZZ costs 
incurred in connection with the site are reclassified to that site-
specific identifier. If reclassified, they become part of direct site-
specific costs, but for purposes of the indirect rate calculation, ZZ 
costs are classified as direct costs even if not reclassified.
R&D Costs
    Research and Development (R&D) costs are treated as direct costs. 
All costs incurred within the Office of Research and Development, a 
separate and distinct organizational unit within the Agency, are 
excluded from the indirect cost pool. Research and Development costs 
are considered to be directly incurred for production of R&D outputs. 
Superfund-related research and development costs are mainly related to 
the Superfund Innovative Technology (SITE) program. This program 
evaluates the application of emerging remediation technologies.
NIEHS Costs
    Costs associated with the National Institute of Environmental 
Health Sciences (NIEHS) interagency agreement (IAG) are treated as 
direct costs. This indirect cost methodology is designed to determine 
the indirect costs that support Superfund site-specific activities. 
Therefore NIEHS costs are excluded in their entirety from the indirect 
cost pool.
OSWER Immediate Office Program Area Costs
    Costs associated with certain offices within the Office of Solid 
Waste and Emergency Response (OSWER) Immediate Office are treated as 
direct costs. Although these costs are related to the Superfund program 
and are direct costs of the functions they perform, they are not 
allocable to Superfund site-specific activities and so are not included 
in the indirect cost pool for site-specific response costs. For 
example, the Chemical Emergency Preparedness and Prevention Office 
(CEPPO), which reports directly to the OSWER Assistant Administrator, 
implements Agency-wide chemical emergency preparedness and prevention 
programs. The costs connected with Federal Facilities activities, 
whether within OSWER or OECA, as well as the costs of activities 
associated with Brownfields and the Emergency Planning and Community 
Right-to-know Act, are also considered direct and thus excluded from 
the indirect cost pool.

Indirect Cost Pool

    The indirect cost pool consists of all costs classified as indirect 
for all appropriations that fund administrative, management and support 
functions. The pool includes Superfund non-site-specific costs that 
provide support to Superfund site-specific activities and the other 
direct Superfund activities. The indirect cost pool includes the non-
site portion of: Personnel compensation and benefits, travel, rent, 
communications, utilities, contracted services, materials and supplies 
costs. Depreciation and inter-entity costs are also included. The major 
organizational units contributing costs to the indirect cost pool are 
described below.
    EPA headquarters organizations providing services on an Agency-wide 
or national basis include the Office of the Administrator, the Office 
of Administration and Resources Management (human resources, 
procurement, facilities), the Office of the Chief Financial Officer 
(Comptroller, budget, finance), the Office of Information Resources 
Management, the Office of Policy, Planning and Evaluation, the Office 
of the Inspector General and the Office of General Counsel. The ten EPA 
regional offices have corporate structures similar in function to those 
of headquarters. Each region has a regional administrator's office and 
offices providing general regional support services such as personnel, 
finance, policy and information management. Costs for these 
organizations comprise regional indirect costs.
    Management and support costs associated with carrying out the 
Superfund program are another component of the indirect cost pool. 
These costs are incurred at both headquarters and the regions. At the 
headquarters level, these are the program management and support costs 
incurred by the Office of Solid Waste and Emergency Response (OSWER) 
and by the Office of Enforcement and Compliance Assurance (OECA). At 
the regional level, Superfund program management costs incurred by 
regional program divisions in support of Superfund site-specific 
activities are included in the indirect cost pool. Any of the offices 
noted above may also have Superfund site-specific charges. Those site-
specific charges are subtracted from the total cost of the organization 
during the indirect cost computation.
    The Superfund indirect cost pool, that is, the pool of indirect 
costs which is ultimately allocable to Superfund sites, will consist of 
proportionate amounts of Agency-wide, regional and program-related 
costs. In other words, the Superfund indirect cost pool will be 
comprised of only the portion of Agency-wide, regional and program-
related costs which supports Superfund sites, with the remaining costs 
supporting all other Agency programs.
Exclusions From the Pool
    Superfund non-site specific contractor costs, such as program 
management, that are distributed through the annual allocation process 
are excluded from the

[[Page 35344]]

indirect cost pool. Annual allocation is the process by which response 
action contractor non-site support costs are allocated to sites on 
which the contractor worked. The site-allocable portion of these 
contracts is removed from the pool because it is allocated to 
individual sites under a separate process and is treated as a portion 
of direct site-specific costs incurred by EPA.
    Costs of organizational units that provide no direct or indirect 
support to Superfund are excluded. Examples include the Office of 
International Activities and certain organizations within the Office of 
the Administrator, such as the Science Advisory Board and the Office of 
Administrative Law Judges.

Indirect Cost Base

    To properly distribute costs, the indirect cost base must reflect 
the services provided to each organizational recipient and finally, to 
the Superfund sites themselves. There are several intermediate 
allocations of costs, as described below, which use appropriate 
allocation bases. The choice of allocation base depends on the type of 
cost to be allocated.
    Agency-wide or national indirect costs, also referred to as general 
and administrative (G&A) costs, are allocated using one of two 
allocation bases. Facilities, human resources and OPM inter-entity 
costs are allocated to all EPA organizations based on personnel 
compensation and benefits (PC&B) costs. The rationale for using PC&B 
costs as the allocation statistic is that these indirect costs are 
purely workforce-related and would not otherwise be incurred. Costs 
associated with other organizations providing Agency-wide benefits, 
such as procurement, budget, finance, information management, policy, 
planning, general counsel and inspector general, are distributed across 
the entire Agency based on total Agency costs. Depreciation will be 
allocated to all EPA organizations using appropriate cost accounting 
principles. We are in the process of gathering these costs and 
determining the appropriate allocation base. Depreciation costs will be 
incorporated into the rates as soon as possible.
    The next level of indirect costs is regional costs which provide 
general and administrative support similar to that provided at the 
Agency-wide level. Regional G&A cost pools, including each region's 
share of national G&A, personnel and facilities costs, depreciation and 
inter-entity costs are distributed across the entire region based on 
total regional costs. This is similar to the distribution of Agency-
wide support costs across total Agency costs.
    Headquarters program management and support costs incurred by OSWER 
and OECA must be allocated to program areas within each office of an 
EPA Assistant Administrator and to the regions. Program areas are 
designated by sub-organization or by funding vehicle such as 
interagency agreements which fund a particular type of activity. The 
allocation of headquarters program management and support costs is 
based on the total costs associated with each program area and region. 
The headquarters allocation base includes administrative and program 
costs from appropriations other than Superfund and Superfund site-
specific and non-site-specific costs. The regional allocation base 
consists of regional site charges made within each office of an EPA 
Assistant Administrator.
    The final Superfund indirect cost pool is allocated using Superfund 
site charges. These site charges include both headquarters and regional 
site charges, ZZ charges, site charges made under the Department of 
Justice (DOJ), Corps of Engineers, Bureau of Reclamation, etc., 
interagency agreements and the Superfund response contract program 
management costs that are allocated to sites in a separate process. EPA 
charges arising from mixed funding settlements are direct site costs 
and are also included in the indirect cost base. The charges for the 
Agency for Toxic Substances and Disease Registry (ATSDR) are not 
included in the indirect cost base because their funding mechanism--a 
``transfer allocation''--does not result in a charge to EPA's 
accounting system. Again, instead of a rate per hour as in the current 
methodology, the indirect cost rate will be expressed as a percentage 
of direct (site) costs.

Computation of Indirect Cost Rates

    Data used for the indirect cost computations are obtained from the 
Agency's Integrated Financial Management System.
    The indirect cost pool supporting Superfund site-specific 
activities in each region for a given fiscal year consists of 
proportionate shares of the following: program management and support 
costs incurred by relevant units of EPA headquarters (including their 
share of nationwide G&A); the region's G&A; and the region's non-site 
Superfund costs.
    The computation of the indirect cost rates consists of nine steps. 
A detailed document more fully describing the accounting methodology 
employed will be released with the calculated rates by region by fiscal 
year. That document will contain a detailed description of each of the 
nine steps. Briefly, steps 1 and 2 compute the nationwide G&A rate and 
step 3 computes the regional G&A rates. Steps 4 through 9 perform 
various allocations and refinements of costs ensuring that the regional 
Superfund cost pools, which are summarized in step 9, reflect only 
costs by region associated with Superfund site-specific activities.

Estimated Indirect Rates by Region

    As noted above, the revised indirect cost rate methodology will for 
the first time provide information on the full costs of the outputs of 
Superfund site-specific activities. The process of computing rates 
using the full cost methodology is ongoing. As noted above, the revised 
rates by region by fiscal year will not be issued for several months. 
In the meantime, we are providing an approximation of the rates that 
can be used as a means to estimate the full cost of Superfund site-
specific activities. These rates are based on the average of 
preliminary computed rates for fiscal years 1994, 1997 and 1998. It 
should be noted that rates for any given region may vary considerably 
from year to year; therefore, the final calculated rates may differ 
from the estimated average rates listed below.
Estimated Rates*
(Subject to Change)

Region 1--30.0%
Region 2--30.8%
Region 3--43.6%
Region 4--48.1%
Region 5--41.6%
Region 6--29.0%
Region 7--54.4%
Region 8--35.1%
Region 9--40.9%
Region 10--38.6%

    * Based on the average of preliminary rates for Fiscal Years 
1994, 1997 and 1998.

    The overall effect of implementing the full cost accounting 
methodology for Superfund indirect costs will be to increase the 
aggregate amount of indirect costs allocated to site-specific 
activities. As compared to indirect costs allocated using the current 
methodology, the indirect costs allocated to individual sites may 
increase or decrease, depending on a number of factors, and will not be 
known with certainty until all the rates are computed. The estimated 
rates provided above, however, may be used to predict generally the 
amount of indirect costs to be allocated to a particular site using the 
full cost accounting methodology.

[[Page 35345]]

    To apply these rates to an individual site, identify the total 
direct site-specific costs of that site (including any DOJ costs but 
excluding any ATSDR costs) and multiply that total by the appropriate 
region's indirect cost rate. If you have total site costs including 
indirect costs using the current labor hours-based rates, total direct 
site-specific costs consists of the total site costs minus the 
previously-assessed indirect costs. Adding the direct site-specific 
costs and the indirect costs calculated under the new methodology will 
result in the full cost of that site.

[FR Doc. 00-13845 Filed 6-1-00; 8:45 am]
BILLING CODE 6560-50-P
```