U.S. ENVIRONMENTAL PROTECTION AGENCY 

OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Special Report 

Open Audit Recommendations 

Affecting Recovery Act Activities 

 Report No. 09-X-0136 

 April 9, 2009
 
Report Contributors: Janet Kasper 

 Michael Davis 

 Melinda Burks 

 Randy Holthaus 

 Jennifer Hutkoff 

 Shannon Schofield 

Abbreviations 

EPA U.S. Environmental Protection Agency 

IA Interagency Agreement 

JOFOC Justification for Other than Full and Open Competition 

OAM Office of Acquisition Management 

OIG Office of Inspector General 

USACE U.S. Army Corps of Engineers 
U.S. Environmental Protection Agency 09-X-0136 

April 9, 2009 Office of Inspector General 

At a Glance
 

Catalyst for Improving the Environment 

Why We Did This Review 

We reviewed open 

recommendations from prior 

Office of Inspector General 

(OIG) audit reports that could 

impact the U.S. 

Environmental Protection 

Agency’s (EPA’s) American 

Recovery and Reinvestment 

Act activities. These 

recommendations involved 

grants, contracts, and 

interagency agreements. 

Background 

Open recommendations are 

those for which EPA has not 

completed corrective actions. 

Recent Office of Management 

and Budget guidance requires 

the expediting of actions on 

open recommendations to 

preclude the continuance of 

weaknesses or deficiencies 

that can impact Recovery Act 

funding. 

For further information, 

contact our Office of 

Congressional, Public Affairs 

and Management at 

(202) 566-2391. 

To view the full report, 

click on the following link: 

www.epa.gov/oig/reports/2009/ 

20090409-09-X-0136.pdf 

Open Audit Recommendations 

Affecting Recovery Act Activities

 What We Found 

We identified five open recommendations, from three EPA OIG reports, that 

could have an impact on Recovery Act funding. 

•	 In response to a 2008 report, EPA agreed to implement our 

recommendation to distribute revised terms and conditions to regions in 

June 2009 for spending brownfields grant funds more timely. EPA told 

us these terms and conditions would be in place before EPA awarded any 

Recovery Act grants. 

•	 A 2008 OIG report found that EPA had no assurance that use of CostPlus-Award-Fee contracts facilitates a higher level of performance than 

other types of contracts, and contractors were given award fees without 

sufficient support. To address these issues, the Office of Acquisition 

Management completed revisions to the Contracts Management Manual 

on April 7, 2009, and will have the information published by late April. 

We also noted EPA Region 5 paid award fees in excess of limits, and 

corrective action is still pending. 

•	 A 2007 OIG report found that EPA often entered into interagency 

contracts without conducting cost reasonableness assessments or 

identifying alternatives, such as whether EPA’s in-house staff should 

acquire the services or products. EPA is not planning to conduct its 

comprehensive review of interagency contracts to verify implementation 

of the corrective action until September 2010. EPA needs to ensure other 

corrective actions related to cost reasonableness assessments and 

considerations of alternatives to interagency contracts are implemented 

for Recovery Act interagency contracts. 

We also have concerns that EPA is considering granting a waiver related to 

several closed recommendations involving obtaining independent cost estimates 

for interagency agreements with the U.S. Army Corps of Engineers. 

We recommend that the Agency expedite corrective actions for the open 

recommendations as they pertain to Recovery Act funds. EPA should let us 

know within 30 days how it has acted, or plans to act, on these recommendations. 
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

April 9, 2009 

MEMORANDUM 

SUBJECT:	 Open Audit Recommendations Affecting Recovery Act Activities 

Report No. 09-X-0136 

FROM:	 Melissa M. Heist 

Assistant Inspector General for Audit 

TO:	 Craig Hooks, Acting Assistant Administrator 

 Office of Administration and Resources Management 

Barry Breen, Acting Assistant Administrator 

Office of Solid Waste and Emergency Response 

Bharat Mathur, Acting Regional Administrator 

Region 5
 

The Office of Inspector General (OIG) of the U.S. Environmental Protection Agency (EPA) has 

completed a review of open recommendations from prior audit reports that could impact EPA’s 

American Recovery and Reinvestment Act (Recovery Act) activities. This review was not an 

audit conducted in accordance with the Government Auditing Standards. Open 

recommendations are those for which EPA has not completed corrective action. In accordance 

with the Office of Management and Budget’s Recovery Act Implementation Guidance, dated 

April 3, 2009, if final action on report recommendations has not been taken, EPA should (1) 

expedite such action to preclude the continuance of weaknesses or deficiencies in the 

administration of Recovery Act funded programs, or (2) provide an explanation of why such 

corrective actions cannot or should not be taken in the administration of Recovery Act funded 

programs. 

We identified five open recommendations, from three EPA OIG audit reports, that pertain to 

grants, contracts, and interagency agreements. Details on those five recommendations and the 

status of each follow. We also provide details on one closed recommendations where we have 

concerns about a current EPA decision to waive an Office of Management and Budget 

requirement. We will issue a separate document identifying contractors and grant recipients that 

have open audit recommendations. 

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Grants 

Report: EPA Should Continue Efforts to Reduce Unliquidated Obligations in Brownfields Pilot 

Grants (08-P-0265), September 16, 2008 

Recommendation 2: Assistant Administrator for Solid Waste and Emergency 

Response revise model terms and conditions for assessment grants to include a 

definition for the term “insufficient progress.” 

EPA had not consistently implemented a national policy or process that provided 

reasonable assurance that brownfields grant funds would be spent in a timely manner. 

EPA Headquarters had not provided specific guidelines on when grants should be 

terminated, nor had it defined inadequate progress for grant performance. As a result, 

grant funds that could have been used by other communities sat idle. This could impact 

grants awarded with Recovery Act funds because grantees need to commence 

expenditures and activities quickly to accomplish objectives of the Recovery Act (job 

creation, programmatic results, and economic recovery). EPA agreed to implement our 

recommendation to distribute the revised terms and conditions to the regions in June 

2009. In March 2009, the OIG discussed this issue with the Director of the Office of 

Brownfields and Land Revitalization, who said the revised terms and conditions would 

be in place before EPA awarded any Recovery Act grants. EPA needs to ensure the 

revised terms and conditions are completed in sufficient time to include in the Recovery 

Act grants. 

Contracts 

Report: EPA Should Further Limit Use of Cost-Plus-Award-Fee Contracts (08-P-0093), 

February 26, 2008 

Recommendation 2-1: Assistant Administrator for Administration and Resources 

Management revise the Contracts Management Manual to require that a costbenefit analysis be conducted prior to awarding a Cost-Plus-Award-Fee contract, 

and all Cost-Plus-Award-Fee contracts be approved by the contracting officer’s 

Service Center Manager. 

Recommendation 2-2: Assistant Administrator for Administration and Resources 

Management revise the Contracts Management Manual to require work assignment 

managers, project officers, contracting officers, and performance evaluation board 

members to explicitly document the basis for award-fee decisions made. 

EPA had no assurance that use of Cost-Plus-Award-Fee contracts facilitated a higher 

level of performance than other types of contracts. These contractors were consistently 

given high ratings and award fees, but EPA did not have sufficient documentation to 

justify those ratings and award fees. To address our recommended corrective actions, the 

Director, Office of Acquisition Management, approved Contracts Management Manual 

revisions on April 7, 2009, and expects to publish the changes by late April. In awarding 

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and monitoring the Recovery Act contracts, EPA should be taking steps to ensure that the 

actions that are described in the Contracts Management Manual update are performed. 

Although the President’s Memorandum of March 4, 2009, on “Government Contracting” 

establishes a preference for firm-fixed price contracts, it does not preclude EPA from 

awarding new contracts or adding funds to existing contracts that are not firm-fixed price. 

If EPA carries through with it plans to use existing cost plus award fee contracts to award 

Recovery Act funds, it needs to ensure that our recommendations are implemented to 

ensure the costs incurred for awards fees are reasonable and justified. 

Recommendation 3-1: Region 5 Regional Administrator negotiate with contractors 

to modify contracts currently providing base fees in excess of the 3-percent limit 

cited by EPA Acquisition Regulations 1526.404-273(b) so that the fees no longer 

exceed the 3-percent limit. 

For some Region 5 Cost-Plus-Award-Fee contracts, base award fees were in excess of the 

3-percent limit allowed by the EPA Acquisition Regulations. This resulted in an 

overpayment of $100,000 in base award fees through July 2007, with a potential 

overpayment of $760,000 over the remaining life of the contracts. In response to the 

report, Region 5 had agreed to modify contracts by January 2009. However, according to 

correspondence from the Region 5 audit coordinator, Region 5 plans to revise this date to 

April 15, 2009. Before awarding contracts with Recovery Act funds, Region 5 needs to 

ensure contracts have been modified to comply with EPA Acquisition Regulations. 

Interagency Agreements 

Report: Interagency Agreements to Use Other Agencies’ Contracts Need Additional Oversight 

(2007-P-00011), March 27, 2007 

Recommendation 2: Grants Administration Division require that the Interagency 

Agreement (IA) decision memorandum better explain why an IA is more cost 

effective, and include an evaluation of cost reasonableness assessments in the Grant 

Administration Division’s oversight reviews of IA management. 

EPA often entered into interagency contracts without conducting cost reasonableness 

assessments or identifying alternatives, such as whether EPA’s in-house acquisition staff 

should acquire the services or products. As a result, we found interagency contracts 

where EPA could have saved money if it had awarded the contracts directly through its 

in-house contracting staff. The Office of Grants and Debarment received an extension 

for conducting its comprehensive program review of IAs to September 2010. This 

extension was granted because of the Office of Federal Procurement Policy’s delay in 

issuing government-wide guidance on IAs. As a result, the comprehensive program 

review that the Office of Grants and Debarment committed to perform in Fiscal Year 

2008 is scheduled for completion in Fiscal Year 2010, a year after implementation of the 

Office of Federal Procurement Policy guidance. While the comprehensive evaluation 

may not be completed before Recovery Act IAs are awarded, EPA should ensure that 

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other recommendations in the report, including cost reasonableness assessments and 

consideration of alternatives to IAs, are performed. 

Additional Issue on Closed Recommendations

We have identified an issue that we brought to the attention of the Directors for 

Acquisition Management and Grants and Debarment regarding recommendations where 

the corrective actions were completed but a waiver was being considered. In OIG Report 

No. 2007-P-00021, EPA Can Improve Its Managing of Superfund Interagency 

Agreements with the U.S. Army Corps of Engineers, issued April 30, 2007, we made the 

following two recommendations: 

Recommendation 2-1: Require that regional offices develop an EPA 

independent cost estimate for the Corps’ oversight of IAs. 

Recommendation 2-2: Require that regional offices conduct a cost 

analysis of alternatives when determining whether to award an IA and 

evaluate the analysis against an EPA-developed cost estimate. 

The draft IA guidance mentioned that the Office of Solid Waste and Emergency 

Response was requesting a class determination that the USACE IAs are in the best 

interest of the government. While we have not seen the details on the basis for this 

request, we are concerned that EPA will not be considering alternatives and the cost 

effectiveness of using the USACE when awarding the IA. This issue has also received 

congressional interest. In the House Report that accompanied the Fiscal Year 2008 

appropriation (H.Rept 110-87), the committee stated it agreed with the OIG report and 

EPA needs to develop its own independent cost estimates for USACE work and conduct 

cost analyses of alternatives prior to determining whether to engage the USACE. The 

House Report noted that cost considerations should always be an important consideration 

when determining how best to perform work at a Superfund site. Further, in the Fiscal 

Year 2009 appropriation, Congress requested that EPA provide an update on its oversight 

of regional decisions to use the USACE. 

In making the decision as to whether to approve a waiver of the best interest 

determination for the USACE, we believe the Agency should consider the past OIG 

recommendations and congressional statements on this issue. We have discussed this 

issue with the Office of Grants and Debarment and Superfund contracting office and they 

have stated that they will consider the issue we have raised in making a decision on the 

waiver request. 

Action Required 

We recommend that the Agency expedite corrective action for these open recommendations as 

they pertain to Recovery Act funds. Please provide a response within 30 days describing the 

actions EPA is taking, or has taken, to address the recommendations. 

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If you or your staff has any questions regarding this review, please contact me at (202) 566-0899 

or heist.melissa@epa.gov; or Janet Kasper, Director for Contracts and Assistance Agreement 

Audits, at (312) 886-3059 or kasper.janet@epa.gov. 

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Appendix A 

Distribution 

Office of the Administrator 

Acting Assistant Administrator for Administration and Resources Management 

Deputy Acting Assistant Administrator for Administration and Resources Management 

Acting Assistant Administrator for Solid Waste and Emergency Response 

Acting Regional Administrator, Region 5 

Agency Follow-up Official (the CFO) 

Agency Follow-up Coordinator 

Acting General Counsel 

Acting Associate Administrator for Congressional and Intergovernmental Relations 

Acting Associate Administrator for Public Affairs 

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

Audit Follow-up Coordinator, Office of Solid Waste and Emergency Response 

Audit Follow-up Coordinator, Region 5 

Director, Office of Brownfields and Land Revitalization 

Director, Office of Grants and Debarment 

Director, Office of Acquisition Management 

Audit Follow-up Coordinator, Office of Acquisition Management 

Acting Inspector General 

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