OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Attestation Report 

Association of State and Interstate 

Water Pollution Control 

Administrators Incurred Costs for 

Seven EPA Assistance Agreements 

Report No. 2006-4-00122 

July 31, 2006 
Report Contributors: Keith Reichard 

 Richard Valliere 

Abbreviations 

CFR Code of Federal Regulations 

EPA U.S. Environmental Protection Agency 

OIG Office of Inspector General 

OMB Office of Management and Budget 
U.S. Environmental Protection Agency 2006-4-00122

Office of Inspector General July 31, 2006

At a Glance


Catalyst for Improving the Environment 

Why We Did This Review 

We conducted this 

examination to determine 

whether the total costs 

incurred for seven U.S. 

Environmental Protection 

Agency (EPA) assistance 

agreements were fairly

presented, in all material 

respects, and the incurred 

costs were allowable in 

accordance with the terms and 

conditions of the agreements 

and applicable regulations. 

Background 

EPA awarded seven assistance 

agreements to the Association 

of State and Interstate Water 

Pollution Control 

Administrators (Association) 

to assist States, Tribes, and 

territories in complying with 

the Clean Water Act. 

For further information, 

contact our Office of 

Congressional and Public 

Liaison at (202) 566-2391. 

To view the full report, 

click on the following link: 

www.epa.gov/oig/reports/2006/ 

20060731-2006-4-00122.pdf 

Association of State and Interstate Water 

Pollution Control Administrators Incurred 

Costs for Seven EPA Assistance Agreements

 What We Found 

The Association did not comply with the financial and program management 

standards and the procurement standards promulgated in Title 40 Code of Federal 

Regulations (CFR), Subchapter B, Part 30. Specifically, the Association (1) could 

not provide support for any of its general journal entries; (2) included duplicate 

recorded costs in its accounting system; (3) could not always trace grant draws to 

the accounting records; (4) could not always support labor charged to the EPA 

grants; (5) could not support the recorded indirect costs; (6) did not record all of 

its program income; (7) did not have adequate written procedures for determining 

reasonable, allocable, and allowable costs; (8) drew EPA grant funds in excess of 

the funds needed; and (9) did not complete the required single audits for fiscal 

years ended June 30, 2004, and June 30, 2005. 

The Association’s procurement system did not comply with the procurement 

standards. The Association awarded contracts to the America’s Clean Water 

Foundation, contrary to the requirements of Title 40 CFR 30.42 and 30.45. 

Because the Association did not adequately document its costs and did not 

comply with the EPA regulations, we questioned $1,883,590 paid to the 

Association. 

What We Recommend 

We recommend that EPA (1) recover $1,883,590 paid unless the Association is 

able to reconstruct its accounting records to meet the minimum financial 

management standards required in Title 40 CFR 30.21; (2) disallow contract costs 

procured in violation of Title 40 CFR 30.42 and 30.45; (3) rescind provisional 

indirect cost rates for the fiscal years ended June 30, 2005, and June 30, 2006; 

(4) stop work on all active grants and do not award any new grants until EPA has 

assurances that the Association meets minimum financial management 

requirements; (5) keep the Association on the reimbursement payment method 

until the Association meets minimum financial management requirements, settles 

current Federal liabilities, and repays all disallowed costs; and (6) require the 

Association to comply with single audit requirements for fiscal years ended 

June 30, 2004 and June 30, 2005. The Association stated many improvements 

have already been implemented and will continue to work to implement and 

address any remaining concerns. 
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL

July 31, 2006 

MEMORANDUM 

SUBJECT: Association of State and Interstate Water Pollution Control Administrators 

Incurred Costs for Seven EPA Assistance Agreements 

Report No. 2006-4-00122 

TO: Richard Kuhlman 

 Director, Grants Administration Division 

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

U.S. Environmental Protection Agency (EPA). 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 determination on matters in this report will be made by EPA managers in accordance with 

established audit resolution procedures. 

On April 13, 2006, we issued a draft report to the Association of State and Interstate Water 

Pollution Control Administrators (Association) for comments. The Association responded and 

generally agreed with our findings, and outlined numerous corrective actions completed or 

underway. The Association’s response and the OIG’s comments are included in Appendix B. 

The estimated cost of this report – calculated by multiplying the project’s staff days by the 

applicable daily full cost billing rates in effect at the time – is $88,404. 

Action Required 

In accordance with EPA Manual 2750, Chapter 3, Section 6(f), you are required to provide us 

your proposed management decision for resolution of the findings contained in this report before 

any formal resolution can be completed with the Association. Your proposed decision is due on 

November 28, 2006. To expedite the resolution process, please email an electronic version of 

your proposed management decision to reichard.keith@epa.gov. 

We have no objections to the further release of this report to the public. For your convenience, 

this report will be available at http://www.epa.gov/oig. We want to express our appreciation for 
the cooperation and support from your staff during our review. If you have any questions about 

this report, please contact Keith Reichard at (312) 886-3045. 

Sincerely, 

 Bill A. Roderick 

 Acting Inspector General 
Association of State and Interstate Water Pollution Control Administrators Incurred 

Costs for Seven EPA Assistance Agreements 

Table of Contents 

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

Independent Auditor’s Report................................................................................ 4 

Results of Examination........................................................................................... 6 

Recommendations .................................................................................................. 12 

Status of Recommendations and Potential Monetary Benefits .......................... 13 

Schedule 1: Comparison of Grant Payments with Incurred Costs ..................... 14 

Appendices 

A Scope and Methodology .............................................................................. 15 

B Recipient Response and OIG Comments................................................... 16 

C Distribution ................................................................................................... 26 
Background 

The U.S. Environmental Protection Agency (EPA) awarded seven assistance agreements1 

(grants) to the Association of State and Interstate Water Pollution Control Administrators 

(Association) totaling $2,020,696. The Association, which is located in Washington, DC, was 

formed in 1961, and is a Section 501(c) (3) not-for-profit organization (per Internal Revenue 

Code requirements). The following table provides some basic information about the authorized 

project periods and funds awarded under each of the seven grants: 

Grant 

No. 

Award 

Date 

EPA 

Share * 

EPA 

Payments 

Payment 

Date Project Period 

X82919901 

X82973401 

08/09/2001 

05/02/2002 

$125,000 

$240,000 

$125,000 

$171,339 

07/28/2003 

10/12/2005 

07/01/2001 – 10/01/2003 

04/01/2002 – 03/31/2006 

X783105101 06/09/2003 $360,000 $360,000 05/24/2004 05/15/2003 – 05/14/2006 

CP83106901 08/11/2003 $200,000 $200,000 05/05/2004 07/01/2003 – 06/30/2005 

CP83107001 08/18/2003 $440,000 $440,000 05/12/2005 06/01/2003 – 05/30/2006 

X783164601 03/24/2004 $206,892 $206,892 11/15/2004 02/19/2004 – 08/19/2005 

X783173901 09/24/2004 $448,804 $380,359 11/01/2005 05/15/2004 – 05/14/2006 

Total $2,020,696 $1,883,590 

* The EPA share for all seven grants was 100 percent of allowable project cost. 

All seven grants were awarded under the authority of the Clean Water Act. The scopes of work 

for the seven agreements are summarized as follows: 

Agreement X82919901: Helped States improve monitoring programs required by the Clean 

Water Act for a full range of purposes including (1) improving the accuracy and completeness of 

impaired waters lists and comprehensive State water quality assessments reports, 

(2) streamlining the reporting requirements, and (3) enhancing public understanding and use of 

the reports. 

Agreement X82973401: Provided a State/Federal work group to improve water quality 

standards development and implementation. 

Agreement X783105101: This 3-year grant provided $360,000 for technical support to assist 

States, Indian Tribes, and territories in complying with the total maximum daily load 

1

 EPA’s assistance to the Association was either a grant or cooperative agreement. For reporting purposes, all 

assistance will be referred to as a grant. 

1
requirements. The scope of work is identical to Grant X783173901, listed below, and has an 

overlapping project period. 

Agreement CP83106901: The purpose of this grant was to improve integrating point and 

nonpoint source control problems on a national scale through improved communications and 

coordination with State water quality agencies responsible for implementing water quality 

monitoring and assessment, and data management requirements. 

Agreement CP83107001: Created State work groups for (1) permit program integrity and (2) 

prioritization and streamlining. The grant also provided a forum for national pollutant discharge 

elimination system managers to conference with EPA to address priority State concerns with 

point source-related water quality issues. 

Agreement X783164601: Provided planning, support, and facilitation for three regional forums 

to create and enhance a multi-agency approach to implement nonpoint source pollution 

management measures at the watershed level. 

Agreement X783173901: This 2-year grant provided $448,804 for technical support to assist 

States, Indian Tribes, and territories in complying with the total maximum daily load 

requirements. This grant provided the same services and overlaps the project period for Grant 

X783105101 listed above. 

Single Audit Activity 

On September 12, 2005, our office issued the Association’s single audit report for the year ended 

June 30, 2003. Nonfederal entities that expend $300,000 ($500,000 for fiscal years ending after 

December 31, 2003) or more in a year in Federal awards are required by Title 40 Code of 

Federal Regulations (CFR) 30.26 to have a single audit conducted in accordance with applicable 

requirements of the Office of Management and Budget (OMB) Circular A-133. The single audit 

report disclosed four findings that pertained to EPA grants: 

1. The Association did not have adequate procedures in place to accurately track and record 

grant balances. The auditor required significant adjustments after the end of the fiscal 

year to properly report grant balances. 

2. The Association’s books of accounts were not accurately maintained on an accrual basis. 

The auditor required significant adjustments to accrue account balances in accordance 

with generally accepted accounting principles. As a result, the audited financial 

statements reflected results that were significantly different from internal management 

reports. 

3. There were discrepancies in the net disbursements reported on the Financial Transaction 

Reports, SF-272, for several grants for the reporting periods ended December 31, 2002, 

and June 30, 2003. Cumulative disbursements reported for the same grants did not 

reconcile with the general ledger for these same periods. 

2
4. The Association did not have adequate procedures to ensure that payments to hourly 

employees were correct and adequately supported. Timesheets for several off-site 

employees were not signed by either the employee or a supervisor with knowledge of the 

activities. 

The single audit report disclosed that as of June 30, 2003, the Association drew advances from 

EPA in excess of expenditures resulting in a payable of $141,289 due EPA. 

Subsequent to the completion of the single audit for the fiscal year ended June 30, 2003, the 

Association hired Raffa & Associates to complete the Association’s single audit for the year 

ended June 30, 2004. However, Raffa & Associates discontinued audit work after identifying 

accounting irregularities that might extend back to prior years, including the year ended June 30, 

2003. Subsequently, the Association contracted with Raffa & Associates to provide accounting 

services and advice. After identifying the accounting irregularities, both the managing partner 

for Raffa & Associates and the Association’s Executive Director met with EPA officials to report 

the accounting irregularities. On July 18, 2005, after being notified of the accounting 

irregularities, EPA temporarily placed the Association on the “reimbursement” method of 

payment as authorized by Title 40 CFR 30.14 and 30.22(h)(1). EPA took this action pending 

completion of corrective action to comply with Title 40 CFR Part 30. 

Consequently, the single audit for the fiscal year ended June 30, 2003, remains unresolved, and 

the Association has not completed the single audits for the years ended June 30, 2004, and June 

30, 2005. 

To assist the reader in obtaining an understanding of the report, key terms are defined below: 

Incurred Costs: Expenses or outlays identified by the Association and 

recorded in the Association’s accounting system. 

Questioned Costs: Costs that are (1) contrary to a provision of a law, 

regulation, agreement, or other documents governing the 

expenditures of funds; or (2) not supported by adequate 

documentation. 

3
Independent Auditor’s Report 

We have examined the Schedules of Budgeted & Reported Outlays by Assistance Agreement 

prepared by the Association for each of the seven EPA grants: X82919901, X82973401, 

X783105101, CP83106901, CP83107001, X783164601, and X783173901. Preparing these 

schedules was the Association’s responsibility. Our responsibility is to express an opinion on 

these schedules to determine the allowable costs incurred in accordance with the terms and 

conditions of the grants and applicable EPA regulations. 

We conducted our examination in accordance with the Government Auditing Standards issued by 

the Comptroller General of the United States, and the attestation standards established for the 

United States by the American Institute of Certified Public Accountants. We also followed the 

guidelines and procedures established in the Office of Inspector General Project Management 

Handbook, dated January 14, 2005. We examined, on a test basis, evidence supporting the costs 

incurred, and performed such other procedures as we considered necessary in the circumstances 

(see Appendix A for details). We believe that our examination provides a reasonable basis for 

our opinion. 

In our opinion, because of the effects of the deficiencies discussed in the Results of Examination, 

the Schedules of Budgeted & Reported Outlays by Assistance Agreement do not present fairly, in 

all material respects, the allowable costs incurred in accordance with the terms and conditions of 

the grants and applicable EPA regulations. Accordingly, we questioned $1,883,590 paid to the 

Association because the Association’s financial management system was not adequate to account 

for grant funds in accordance with Title 40 CFR Part 30. 

/s/Keith Reichard 

Office of Inspector General 

U.S. Environmental Protection Agency 

January 20, 2006 

4
Schedules of Reported Outlays by Assistance Agreement, Questioned C

and Amounts Due EPA 

Association of State and Interstate Water Pollution Control Agencie

Grant Number/Schedule Date 

X82919901 X82973401 X783105101 CP83106901 CP83107001 X83164601 X8

Description 01/10/2006 01/10/2006 01/09/2006 01/18/2006 01/18/2006 01/18/2006 01Personnel $44,352 $67,591 $17,246 $60,290 $99,048 $86,684 Fringe Benefits $47,149 $23,726 $15,786 $26,779 $33,378 $23,480 Travel $5,568 $56,927 $4,106 $52,456 $139,507 $115,023 Printing and Publications $0 $5,312 $0 $0 $0 $0 Other $107 $4,171 $0 $2,583 $5,097 $2,075 Supplies $0 $0 $1,853 $0 $0 $0 Contractual $1,125 $2,040 $286,966 $9,378 $122,186 $21,131 Indirect $36,264 $57,509 $36,690 $61,643 $99,649 $27,711 Total Incurred Costs $134,565 $217,276 $362,647 $213,129 $498,865 $276,104 Less: Program Income $0 $0 $0 ($2,268) ($22,732) ($29,256) Reported Outlays Note 1 $134,565 $217,276 $362,647 $210,861 $476,133 $246,848 Total Cost Questioned $134,565 $217,276 $362,647 $210,861 $476,133 $246,848 EPA Payments Note 2 $125,000 $171,339 $360,000 $200,000 $440,000 $206,892 Amount Due EPA $125,000 $171,339 $360,000 $200,000 $440,000 $206,892 Notes: 1. The Association provided separate schedules of reported outlays for each grant as of the date specified in 2. The source for the EPA payments was from EPA’s Financial Data Warehouse. 

5
Results of Examination 

Financial and Program Management, and Procurement Systems Did 

Not Comply with Standards 

The Association did not comply with the financial and program management standards and the 

procurement standards promulgated in Title 40 CFR, Subchapter B, Part 30. Because the 

Association did not to meet its fiduciary responsibilities under the regulations, the incurred costs 

are not allowable. 

When applying for grant assistance, the Association certified that it had the institutional, 

managerial, and financial capability to ensure proper planning, management, and completion of 

the project described in the grant application, and that it would comply with all applicable 

requirements of all Federal laws, executive orders, regulations, and policies governing the grant. 

EPA’s administrative grant regulations for nonprofit organizations are codified in Title 40 CFR, 

Subchapter B, Part 30. Under the provisions of Title 40 CFR Part 30, the Association was 

required to follow (1) the financial and program management standards codified in Title 40 CFR 

30.21 through 30.28, and (2) the procurement standards codified in Title 40 CFR 30.41 through 

30.48. 

The Association’s financial and program management system (1) could not provide support for 

any of its general journal entries; (2) included numerous duplicate recorded costs in its 

accounting system; (3) could not always trace grant draws to the accounting records; (4) could 

not always support labor charged to the EPA grants; (5) could not support the recorded indirect 

costs; (6) did not record all of its program income in the general ledger; (7) did not have 

adequate written procedures for determining reasonable, allocable, and allowable costs; (8) drew 

EPA grant funds in excess of the funds needed; and (9) did not complete the required single 

audits for fiscal years ended June 30, 2004, and June 30, 2005. 

The Association’s procurement system did not comply with the procurement standards. The 

Association awarded contracts to the America’s Clean Water Foundation, a related organization, 

without competition or a cost analysis contrary to the requirements of Title 40 CFR 30.42 and 

30.45. 

The provisions of Title 40 CFR 30.62 provides that if a recipient does not comply with the terms 

and conditions of an award, whether stated in a Federal statute, regulation, assurance, 

application, or notice of award, EPA may disallow all or part of the cost of the activity or action 

not in compliance. Because the Association did not adequately document its costs and did not 

comply with the grant regulations, we questioned $1,883,590 paid to the Association. Details on 

our findings follow. 

6
Unsupported General Journal Entries 

The Association did not provide any documentation to support and sufficiently explain 

any of its general journal entries for any grants as required by Title 40 CFR 30.21. The 

provisions of Title 40 CFR 30.21 (b) (7) require the Association’s financial management 

system to have accounting records that are supported by source documentation. The 

Association used general journal entries to (1) record accruals such as payroll costs, (2) 

reverse posting entries, (3) correct errors made in recording cash receipts or expenditures, 

(4) allocate indirect costs, (5) record revenue, and (6) post transactions which were not 

recorded in the general ledger by other means. However, the Association could not 

provide supporting documentation to explain and support these general journal entries. 

For the audit period from July 1, 2001, through November 30, 2005, the Association 

could not support or justify any general journal entries. For example, during the fiscal 

year ended June 30, 2005, the Association made a general journal entry to record almost 

$255,000 in labor and fringe benefit costs incurred during a 5-month period beginning in 

January 2005. However, the Association could not provide the supporting documentation 

for the general journal entry. The Association’s Executive Director indicated that the 

accounting was not done timely because the Association’s Comptroller passed away 

during the first part of 2005. The Executive Director also could not explain why the 

supporting documentation for any of the general journal entries was not available. As a 

result, the Association did not have sufficient records to support the allowability of the 

incurred costs. 

Duplicate Recorded Costs 

During the fiscal year ended June 30, 2005, the Association used two different databases 

to record grant expenditures in the general ledger. Based on our review of these 

databases, we noted numerous duplicate recorded costs. The provisions of Title 40 CFR 

30.21 require the Association to maintain a financial management system that is accurate, 

current, and complete, and provide for the effective control over and accountability for all 

funds. The Executive Director could not explain why the dual data bases were used, and 

why there were duplicate recorded costs. Because of the duplicate recorded costs, the 

Association’s financial management system was not accurate, and the incurred costs were 

incorrect and overstated. 

Unsupported Grant Draws 

Contrary to the provisions of Title 40 CFR 30.21, the Association could not always show 

the receipt of Federal cash draws in the Association’s accounting records. The provisions 

of Title 40 CFR 30.21 require that the Association’s financial management system 

provide records that identify adequately the source and application of funds for federallysponsored activities. For example, the Association could not show where almost 

$378,804 of Federal grant funds drawn under EPA grant X783173901 were recorded in 

the Association’s accounting records. The Executive Director could not explain the 

reason why grant draws were not properly recorded in the accounting system. Further, in 

7
the fiscal year ended June 30, 2003,2

 the Association’s single auditor reported as a 

material weakness that the Association did not have adequate procedures in place to 

accurately track and record grant balances. 

Unsupported Labor Costs 

The Association could not support some of its labor costs. From July through October 

2004, the Association recorded labor charges twice in the accounting system. The 

duplicate labor transactions were caused by using two different databases to record grant 

expenditures in the general ledger. 

We also noted that for a 5-month period from January through May 2005, all labor costs 

were recorded in the accounting system using a single general journal entry. As stated 

above in the section entitled “Unsupported General Journal Entries,” the Association did 

not have any documentation to support and sufficiently explain the general journal entries 

for recorded labor.3 Further, in reviewing the labor charges, the Association could not 

provide all the required labor activity reports (timesheets). The provisions of Title 40 

CFR 30.21 (b) (7) require the Association’s financial management system to have 

accounting records that are supported by source documentation. The provisions of Title 

40 CFR 30.21 also require the Association to maintain a financial management system 

that is accurate, current, and complete, and provide for the effective control over and 

accountability for all funds. Because the Association’s accounting transactions were 

inaccurate and unsupported, the Association’s financial management system does not 

comply with the provisions of Title 40 CFR 30.21. 

While we cannot verify labor charges, the Association did require employees to prepare 

labor activity reports which met OMB labor documentation requirements. Therefore, if 

the Association is able to locate all of its timesheets, it may be able to reconstruct the 

allowable labor costs for each grant. 

Unsupported Indirect Cost Rates 

The Association could not support the recorded indirect costs. The Association recorded 

indirect costs in the general ledger using general journal entries. As discussed above in 

the section entitled “Unsupported General Journal Entries,” the Association did not have 

any documentation to support and sufficiently explain its general journal entries for the 

indirect costs. Accordingly, the Association could not demonstrate how the indirect cost 

rate was calculated or what costs were included in the indirect rate. 

The Association did not prepare,4

 submit, or receive approved final indirect cost rates 

from EPA for the fiscal years ended June 30, 2001, through June 30, 2005, as required by 

the applicable regulations. The provisions of Title 40 CFR 30.27 require non-profit 

2

 The single audit report was submitted by the Association to the Federal Audit Clearinghouse on January 19, 2005. 3

 The journal entries also included fringe benefits such as FICA and Medicare. 4

 On January 19, 2006, the Association emailed the OIG a worksheet of what appears to be the Association’s fiscal 

year 2003 provisional indirect rate. No explanation was provided with the spreadsheet. 

8
organizations to follow the provisions of OMB Circular A-122 for determining allowable 

costs. OMB Circular A-122, Attachment A, subparagraph E (2), requires a nonprofit 

organization to submit an initial indirect cost proposal to the cognizant Federal agency no 

later than 3 months after the effective date of the award. The Circular also includes the 

requirement that organizations with previously negotiated indirect cost rates must submit 

a new indirect cost proposal to the cognizant agency within 6 months after the close of 

each fiscal year. 

On behalf of EPA, the U.S. Department of the Interior’s National Business Center 

(Center) negotiated provisional indirect rates for the years ended June 30, 2005, and June 

30, 2006. However, the Center informed the Association that a final rate for 2005 would 

not be negotiated until the Association submitted a revised proposal containing actual 

costs, based on, and reconciled to, financial statements that meet the requirements of the 

Single Audit Act of 1984. To date, the Single Audit for 2005 has not been completed, 

and the Association has not submitted a revised final indirect cost rate proposal for 2005 

to either EPA or the Center. 

Under Reported Program Income 

The Association underreported program income under EPA grants CP83107001, 

X783164601, and CP83106901. The Association held various summits, forums, and 

other conferences, and earned program income from holding these meetings. The 

Association recorded $54,256 for program income under the three grants and reduced the 

grant costs by $54,256. However, the Association provided reports which show that the 

Association earned program income of at least $85,751 for the three grants. Thus, the 

Association’s general ledger does not accurately identify all of the program income 

earned. The Association did not have sufficient controls to ensure all the program 

income was properly recorded. By not properly recording the program income, the 

Association’s financial management system was not accurate, and the incurred costs may 

have been overstated for EPA grants CP83107001, X783164601, and CP83106901. 

Written Accounting Procedures Did Not Meet Standards 

The Association did not have adequate written accounting procedures for identifying 

direct and indirect costs, and the basis for allocating such costs to projects, as required by 

the regulations. Title 40 CFR 30.21(b) (6) states that the Association’s financial 

management system shall provide written procedures for determining that costs are 

reasonable, allowable, and allocable in accordance with the Federal cost principles and 

the terms of the agreement. 

In developing written procedures, the Association needs to address the requirements of 

OMB Circular A-122. Specifically, the Association needs to address (1) the allocability 

of costs (Attachment A, paragraph A.4), (2) the three allocation methods authorized for 

indirect costs (Attachment A, paragraph D), (3) definition of direct and indirect costs 

(Attachment A, paragraphs B and C), and (4) the negotiation and approval of indirect cost 

rates (Attachment A, paragraph E). 

9
As discussed above in the section entitled “Unsupported Indirect Costs Rates,” the 

Association did prepare provisional indirect rates for fiscal years ended June 30, 2005, 

and June 30, 2006; however, the Association could not explain, and did not have written 

accounting procedures to identify, what costs were actually included in the indirect cost 

rate calculations. Consequently, the Association could not demonstrate that the proposed 

indirect costs were allowable in accordance with OMB Circular A-122. 

For example, we noted that during the fiscal year ended June 30, 2005, the recipient 

accounted for membership services as an indirect cost in its accounting system. The 

provisions of OMB Circular A-122, Attachment A, subparagraph B (4), provides that the 

costs of activities performed primarily as a service to members, clients, or the general 

public when significant and necessary to the organization’s mission, must be treated as 

direct costs whether or not allowable and be allocated an equitable share of indirect costs. 

Since the Association could not explain to us what costs were included in the indirect 

cost rate calculation, we were unable to determine whether the Association correctly 

removed the membership services from the indirect cost pool and appropriately classified 

the membership services as direct costs. Without written policies and procedures to 

distinguish between direct and indirect expenses, the Association could not properly 

support either the direct or indirect costs reported for the EPA agreements. 

Noncompliance with Cash Management Requirements 

For the year ended June 30, 2003, the Association’s single auditor reported that the 

Association did not comply with the Federal cash management requirements. The single 

auditor disclosed that the Association received advances in excess of expenditures 

totaling $141,289. The single auditor reported that the reason for the excess advances 

was that the Association did not properly record grant draws. In addition, cash receipts 

were incorrectly posted to the wrong grant in the accounting records, resulting in the 

balances of the grants being misstated. 

The provisions of Title 40 CFR 30.22 provide that payment methods shall minimize the 

time elapsing between the transfer of funds from the United States Treasury and the 

issuance or redemption of checks, warrants, or payment by the recipient. Cash advances 

shall be limited to the minimum amounts needed and be timed to be in accordance with 

the actual, immediate cash requirements of the recipient organization in carrying out the 

purpose of the approved program or project. 

10
Single Audits Not Completed 

The Association did not obtain single audits for the fiscal years ended June 30, 2004, and 

June 30, 2005, as required by Title 40 CFR 30.26. Title 40 CFR 30.26 provides that 

nonprofit organizations are subject to the audit requirements of OMB Circular A-133. 

OMB Circular A-133, Subpart B, requires nonfederal entities that expend $300,000 

($500,000 for fiscal years ending after December 31, 2003) or more in a year in Federal 

awards to have a single audit conducted in accordance with applicable requirements of 

the Circular. The certified public accountant firm contracted to conduct the Association’s 

single audit for the fiscal years ended June 30, 2004, discontinued work after finding 

accounting irregularities. On July 18, 2005, after being notified of the accounting 

irregularities, EPA temporarily placed the Association on the “reimbursement” method of 

payment, as authorized by Title 40 CFR 30.14 and 30.22(h)(1). EPA took this action 

pending completion of corrective action to comply with Title 40 CFR Part 30. 

Improper Procurement 

Under Grants X783105101 and X783173901, the Association awarded two sole source 

fixed price contracts to the America’s Clean Water Foundation, a related nonprofit 

organization.5 These contracts required the Foundation to provide “Circuit Rider” 

services to the Association. The first contract, under grant number X783105101, was for 

$284,514.6 The second contract, under grant X783173901, was for $368,524.7 Federal 

regulations (Title 40 CFR 30.42) provide that no employee, officer, or agent shall 

participate in the selection, award, or administration of a contract supported by Federal 

funds if a real or apparent conflict of interest would be involved. There was a conflict of 

interest since both the Association’s Executive Director and Deputy Director were paid 

employees of both organizations--the Association and the America’s Clean Water 

Foundation--and they both signed the contracts. In addition, the Association did not 

conduct a cost analysis of the two contracts in violation of Title 40 CFR 30.45. Without 

competition and the required cost analysis, there is no assurance that the prices paid were 

reasonable. 

The Association also entered into shared service agreements for financial and 

administrative support services. These agreements were fixed price and identified as 

“indirect expenses for ASWIPCA.” The value of these service agreements for a 2-year 

period ending June 30, 2005, was $152,099. These agreements also violate Title 40 CFR 

30.42 and 30.45. 

5

 The two nonprofit organizations are related through common management, and share office space, the telephone

system, and office equipment. 6

 The Association’s Schedule of Budgeted & Reported Outlays by Assistance Agreement reported $308,224 for this 

contract. 7

 The Association’s Schedule of Budgeted & Reported Outlays by Assistance Agreement reported $245,682 for this 

contract. 

11
Recommendations 

We recommend that the Director for the Grants Administration Division: 

1. Recover $1,883,590 unless the Association is able to: 

• Reconstruct its accounting records and exclude all duplicate recorded costs from 

its accounting records. 

• Provide explanations and support for all general journal entries. 

• Identify and record all grant draws and program income in its accounting system. 

• Ensure that all transactions are supported by adequate source documentation 

including labor activity reports. 

• Prepare and submit fringe and indirect cost rate proposals for fiscal years 2001 

through 2005 in accordance with OMB Circular A-122. 

• Develop written procedures to determine reasonable, allowable, and allocable 

costs in accordance with OMB Circular A-122. 

• Submit interim or final financial status reports for all seven grants included in this 

report. When submitting these status reports, include a schedule of reported 

outlays for each grant similar to those included in this report. 

2. Disallow contract costs procured in violation of Title 40 CFR 30.42 and 30.45. 

3. Rescind provisional indirect cost rates for fiscal years ended June 30, 2005, and 

June 30, 2006. 

4. Stop work on all active grants and do not award any new grants until EPA has 

assurances that the Association meets minimum financial management requirements. 

5. Keep the Association on the reimbursement payment method until the Association 

meets minimum financial management requirements, settles current Federal 

liabilities, and repays all disallowed costs. 

6. Require the Association to comply with single audit requirements for fiscal years 

ended June 30, 2004, and June 30, 2005. 

12
Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Incurred 

Amount 

Agreed To 

Amount 

1 

2 

12 

12 

Recover $1,883,590 unless the Association is able 

to (a) reconstruct its accounting records and 

exclude duplicate recorded costs, (b) provide 

explanation and support for all general journal 

entries, (c) identify and record all grant draws and 

program income in its accounting system, (d) 

ensure that all transactions are supported by 

adequate documentation including labor activity 

reports, (e) prepare and submit fringe and indirect 

cost rate proposals for fiscal years 2001 - 2005 in 

accordance with OMB Circular A-122, (f) develop 

written procedures to determine reasonable, 

allowable, and allocable costs in accordance with 

OMB Circular A-122, and (g) submit interim and 

final financial status reports, including a schedule 

of reported outlays for each grant similar to those 

included in this report. 

Disallow contract costs procured in violation of 

40 CFR 30.42 and 30.45. 

U 

U 

Director, Grants 

Administration Division 

Director, Grants 

Administration Division 

$1,884 

(a) 

3 

4 

5 

12 

12 

12 

Rescind provisional indirect cost rates for fiscal 

years ended June 30, 2005, and June 30, 2006. 

Stop work on all active grants and do not award 

any new grants until EPA has assurances that the 

Association meets minimum financial management 

requirements. 

Keep the Association on the reimbursement 

payment method until the Association meets 

minimum financial management requirements, 

settles current Federal liabilities, and repays all 

disallowed costs. 

U 

U 

U 

Director, Grants 

Administration Division 

Director, Grants 

Administration Division 

Director, Grants 

Administration Division 

(a) 

6 12 Require the Association to comply with single audit 

requirements for fiscal years ended June 30, 2004, 

and June 30, 2005. 

U Director, Grants 

Administration Division 

(a) The values for the questioned contract and indirect costs are $661,105 and $89,515, respectively, and are included in recommendation 1 to recover 

$1,883,590. 

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

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

U = recommendation is undecided with resolution efforts in progress 

13

1 
Schedule 1 

Comparison of Grant Payments with 

Incurred Costs

Description 

Cash Payments by Grant 

X82919901 X82973401 X783105101 CP83106901 CP83107001 X83164601 X831

Reported Outlays8 $134,565 $217,276 $362,647 $210,861 $476,133 $246,848 $3EPA Grant Amount $125,000 $240,000 $360,000 $200,000 $440,000 $206,892 $4EPA Cash Payments9 $125,000 $171,339 $360,000 $200,000 $440,000 $206,892 $3Date of Last Payment 07/28/2003 10/12/2005 05/24/2004 05/05/2004 05/12/2005 11/15/2004 11/0Excess Cash Payments10 $0 $0 $0 $0 $0 $0 $Cost Overruns11 $9,565 $0 $2,647 $10,861 $36,133 $39,956 Funds Not Yet Draw12 $0 $68,661 $0 $0 $0 $0 $6Grant Period 

07/01/2001 

to 

10/01/2003 

04/01/2002 

to 

03/31/2006 

05/15/2003 

to 

05/14/2006 

07/01/2003 

to 

06/30/20005 

06/01/2003 

to 

05/30/2006 

02/19/2004 

to 

08/19/2005 

05/105/1

8 The Association provided separate schedules of reported outlays for each grant as summarized on page 5. 9 Source: EPA’s Financial Data Warehouse. 10 The difference between the reported outlays and the EPA cash payments. 11 The difference between reported outlays and the EPA grant amount. 12 Amount of funds remaining per EPA’s Financial Data Warehouse. 

14 
Appendix A 

Scope and Methodology 

We performed our examination in accordance with the Government Auditing Standards, issued 

by the Comptroller General of the United States, and the attestation standards established by the 

American Institute of Certified Public Accountants. We also followed the guidelines and 

procedures established in the Office of Inspector General Project Management Handbook, dated 

January 14, 2005. 

We conducted this examination to express an opinion on the incurred costs, and determine 

whether the recipient complied with all applicable laws and regulations, as well as any special 

requirements under the agreement. We conducted our field work from January 9, 2006, through 

January 20, 2006. 

In conducting our examination, we performed the following procedures: 

• We reviewed grant and project files to obtain background information on the Association 

and the agreement. 

• We interviewed recipient personnel to understand the accounting system and the 

applicable internal controls as they relate to the reported outlays. 

• We reviewed the most recent single audit reports to identify issues which may impact our 

examination. 

• We reviewed the recipient’s internal controls specifically related to our objectives. 

• We performed tests of the internal controls to determine whether they were in place and 

operating effectively. 

We examined the incurred costs on a test basis to determine whether the costs were adequately 

supported and eligible for reimbursement under the terms and conditions of the agreements and 

Federal regulations and cost principles. 

15 
Appendix B 

Recipient Response and OIG Comments 

June 29, 2006 

Mr. Michael A. Rickey 

Director, Assistance Agreement Audits 

U.S. Environmental Protection Agency 

Office of the Inspector General 

77 West Jackson Blvd 

Chicago, IL 60604-3507 

Re: ASIWPCA Response to Office of Inspector General Draft Attestation Report 

Draft Attestation Report on EPA Grants X82919901, X82973401, X783105101, 

CP83106901, CP83107001, X783164601, and X783173901 

Report No. 2006-00620 

Dear Mr. Rickey: 

The Association of State and Interstate Water Pollution Control Administrators 

(ASIWPCA) appreciates the opportunity to respond to the Office of Inspector General’s 

(OIG) draft audit report entitled, Association of State and Interstate Water Pollution 

Control Administrators Incurred Costs For Seven EPA Assistance Agreements (draft 

report) dated April 13, 2006. 

Please find our detailed response attached which addresses and clarifies the 

information in OIG’s draft report. Although we understand that not all of the issues 

raised in the draft report will be resolved before becoming final, the ASIWPCA Board 

asks that the OIG will reconsider aspects of its opinion based on the response provided. 

Specifically, the Association is requesting that incurred costs identified as questioned 

costs by OIG in the draft report be deemed unresolved, until such time as GAD has 

been given the chance to review the entire record. The Association also requests that 

the final report be tempered with an acknowledgement of the limitations of a general 

ledger for financial analysis when embezzlement has occurred. 

For those areas where OIG has identified weaknesses, ASIWPCA has revised its 

procedures and systems to ensure current and future compliance with Federal 

regulations. These have also been identified in the attached detailed response. 

Again, thank you for the opportunity to reply to these findings. 

16 
Sincerely, 

Karen Gautreaux 

ASIWPCA President and 

Deputy Secretary, Louisiana DEQ 

cc: ASIWPCA Board of Directors 

Linda Eichmiller, ASIWPCA 

Luis Luna, EPA 

Howard Corcoran, EPA 

Richard Kuhlman, EPA 

Michael Mason, EPA 

Bill Roderick, EPA 

Mark Bialek, EPA 

Melissa Heist, EPA 

Eileen McMahon, EPA 

John Manibusan, EPA 

Ben Grumbles, EPA 

James Hanlon, EPA 

Enclosure 

17 
ASIWPCA RESPONSE 

Draft Attestation Report: 

Association of State & Interstate Water Pollution Control Administrators 

Incurred Costs for Seven USEPA Assistant Grants 

Summary 

The Association of State & Interstate Water Pollution Control Administrators 

(Association) is hopeful that the Office of Inspector General (OIG) will revise its 

recommendation to recover the entire amount of grant monies utilized by the 

Association to complete the work on seven grants. OIG has identified several areas 

where the Association can improve its processes and procedures. Many improvements 

have already been implemented and we will continue to work with the Office of Grants & 

Disbarment (GAD) to implement and address any remaining concerns. 

We have made great strides in mitigating the damage caused by the bookkeeper who 

embezzled Association funds. We are well along in our effort to rebuild all direct 

expenses for USEPA grants with backup that provides much greater detail than the 

general journal entries. We have removed the duplicate entries caused by the use of 

two data systems. We are working to identify and record all grant draws and other 

program income. All of our program activity reports (timesheets) back to 2002 have 

been consolidated and the data entered into spreadsheets. We are working with GAD to 

determine the most cost effective way to deal with the final indirect cost rate proposals. 

Once our financial rebuild is completed we will be able to provide final financial status 

reports for all seven grants. 

The Association recognizes the report raises many legitimate issues and would like to 

work with the Agency to put into place and implement a corrective action plan. Since 

discovering the embezzlement, the Association has: 

3⁄4 Hired an accounting firm with a strong background in nonprofit organizations and 

USEPA grants 

3⁄4 Reorganized fiscal paper files which the bookkeeper intentionally put into 

disarray 

3⁄4 Secured provisional indirect cost rates for FY2005 and FY2006 

3⁄4 Started preparations for final indirect cost rate for 05/06 

3⁄4 Continued to rebuild the Association’s electronic accounting system 

3⁄4 Rebuilt the Payroll records for FY2002-2006 

3⁄4 Organized all fiscal supporting documentation for the original 4 grants identified 

by OIG as subject to review. The scope will be expanded to include all 7 grants 

reviewed in this report. 

18 
3⁄4 Updated the Association’s personnel and fiscal operation manuals as requested 

by USEPA 

3⁄4 Confirmed with USEPA that all prior year Single Audit issues have been 

resolved. 

3⁄4 Documented and summarized all program income for each grant 

The accounting system and the related software have been “real time” for an entire year 

since July 1, 2005. Accruals are made when they occur, receipts are processed as they 

are received, and checks are written within the system. Grant expenditures are tracked 

against the grant or cooperative agreement and against the remaining grant balance to 

ensure propriety and timeliness of incurring the costs and billing the cost to the Federal 

government. The books are closed within 10 days of the subsequent month with a 

reconciliation prepared for the cash and other major accounts and the subsidiary 

ledgers. Checks and balances are maintained between bookkeeping staff and the onsite out sourced accounting firm that provide oversight. 

The Association understands the difficulty that the OIG Inspectors had in reviewing the 

financial status of the organization. The general ledger (GL) had numerous errors, 

poorly supported general journal entries, and for a short time period contained 

redundant transactions. As such, it is clearly within the purview of the Office of Inspector 

General to recommend disallowance of all incurred costs in situations where a grantee 

does not comply with financial, program management and procurement standards as 

outlined in the federal regulations. 

The Association is instead requesting that these costs be deemed unresolved, until 

such time as GAD has been given the chance to review the entire record. The 

Association also requests that the final report and analysis be tempered with an 

acknowledgement of the limited utility of the general ledger available at the time of 

review. 

OIG Comment: Deeming the questioned costs as unresolved would be

inconsistent with the OIG’s long-standing reporting practice and the Inspector

General Act of 1978. The OIG’s opinion is based on the condition of the records,

observations and results of analysis at the time field work was conducted. This

basis is consistent with the requirements of the Government Auditing Standards.

Questioned costs are defined in the report as costs that are (1) contrary to a

provision of a law, regulation, agreement, or other documents governing the

expenditures of funds, or (2) not supported by adequate documentation. The

action official for this report will resolve the report’s finings in accordance with

EPA’s Audit Management Process. If the action official decides to provide a

supplementary analysis of the findings and recommendations, the action official

will inform the recipient of the specific information or documentation that will be

needed in support of the findings. Any disputes with the action official’s decision

will be resolved in accordance with Title 40 CFR 30.63.

19 
We agree that the general ledger had limited utility at the time of our review.

However, the limited use of the general ledger did not relieve the Association of

its responsibility for maintaining an adequate financial management system as

required by Title 40 CFR 30.21.

1. Unsupported General Journal Entries 

The Association recognizes this was a problem with general journal entries which 

made it difficult to use the general ledger (GL) and validate the entries with 

supporting documentation. However, we are concerned that the scope of this 

issue was mischaracterized by stating that the Association “could not provide 

support for any of its general journal entries” [emphasis added]. This supporting 

documentation was available but because the investigators did not request these 

materials, we did not think to offer them at that time. For example, support for 

FY2005 general journal entries were all kept in a single binder in the 

bookkeeping office and to our knowledge this was not requested by the 

investigators during the review process. 

The specific example provided in the draft report represents another instance 

where supporting documentation was actually available during the review. The 

$255,000.00 general journal entry for labor and fringe benefit costs incurred 

during a 5-month period had supporting documentation behind it. Our new 

accounting firm, Raffa & Associates was responsible for this particular general 

journal entry and did maintain the appropriate materials as supporting 

documentation. (See Appendix 113) Behind these spreadsheet schedules were all 

of the individual timesheets, payroll documents, and fringe benefit vendor files. 

Due to the chaos caused by the former bookkeeper and the need to deal with the 

embezzlement, the journal entry was believed by Raffa to be the best approach 

under the circumstances. 

For many general journal entries in the GL the documentation is available. 

However, we recognize general journal entries can be a potential vulnerability in 

an accounting system. As we rebuild our financial records, the use of general 

journal entries will be limited, and proper source documentation will be 

scrupulously retained. 

OIG Comment: According to notes in our audit work papers, the auditors 

(not investigators) made several requests to the Association’s Executive 

Director, and the accounting firm’s personnel for the documentation 

needed to support all the general journal entries. The supporting 

documentation was not provided, including the $255,000 general journal 

entry prepared by the accounting firm. 

The support for the journal entries will be necessary to support the 

reconstruction and revised claims to EPA. 

13 The appendices are available from the OIG upon request. 

20 
2. Duplicated Recorded Costs 

During our in-house review, the Inspector was given a ledger for FY2004 which 

continued past June 30 and ran to the first week of November. The Inspector 

was also given the FY2005 ledger which started July 1, 2004. The net effect was 

that from July 2004 to November 2004 there were two data systems or ledgers 

tracking our financial status. Although our accountants did not know at that time 

which of the two systems more accurately represented those months, they did 

explain to the Inspector our intent to rebuild our financial records using the more 

accurate of the two sets of data. 

Since that time, we have initiated action to go back and document all direct 

expenditures for each grant and put them in spreadsheet schedules, which will 

eliminate all issues with duplicate entries per OIG’s recommendation. 

OIG Comment: The Association will need to revise its Schedules of 

Budgeted & Reported Outlays by Assistance Agreement that were 

incorrect and overstated due to the duplicate recorded costs. The 

Association will also need to revise the outlays reported on the Financial 

Status Reports. 

3. Unsupported Grant Draws 

The Association recognizes that this was an issue for our grants. Although we 

have not yet determined whether this was an artifact of the embezzlement or not, 

we do understand the importance of properly tracking this information. As part of 

the rebuild, Federal cash draws are now and will be appropriately documented in 

the future to comply with Title 40 CFR 30.21. This issue is also addressed in the 

revised ASIWPCA Accounting Policies Manual. 

4. Unsupported Labor Costs 

As was noted in the duplicate transaction section, there were two databases 

tracking our income and expenses during the time period of July 2004 to 

November 2004. This was fully disclosed to the Inspectors at the time of the 

review. A decision had not been made by our accountants as to which database 

represented the correct information. The Inspectors were informed that as part of 

the rebuild this could be determined and all redundant entries for those months 

would be eliminated. 

Also noted in general journal entry section above, recorded in the GL is general 

journal entry for $255,000.00 representing 5 months of labor and fringe. Backup 

support documentation was available at the time and has been provided as apart 

of this response. The organization’s bookkeeper passed away in March of 2005, 

after having been hospitalized off and on for the three months prior. In June of 

21 
2005 it was discovered that the labor costs for the prior months had not been 

entered into the financial system and the new accounting firm determined that a 

general journal entry was appropriate under the circumstances. 

We have traditionally been very diligent about tracking our time in labor activity 

reports. In the past, both the employee and supervisor were required to sign off 

on the paper copies. Almost every single signed paper copy for the last 5 years 

has been found to reconstruct our financial records and all data from these labor 

activity reports have been entered into spreadsheet schedules which have been 

shared with GAD through the reimbursement process. (See Appendix 2) 

OIG Comment: The supporting documentation for the $255,000 journal 

entry is not sufficient to fully support the entry. The assumptions and 

methodology used to determine the labor allocation and associated costs 

are not clear. Further, the hours on the schedules supporting the journal 

entry vary somewhat from the hours shown in Appendix 2 of the 

Association’s response. 

5. Unsupported Indirect Cost Rates 

As was noted in the section above, in the future, the Association will avoid using 

general journal entries for direct or indirect expenses unless absolutely 

necessary and will retain all appropriate supporting documentation. 

The Association has made a good faith effort to properly document indirect cost 

rates in compliance with the USEPA policy. There appeared to be some 

inconsistencies between the USEPA policy and the Office of Management and 

Budget (OMB) circulars regarding indirect cost documentation. Subsequently, 

the USEPA and OMB policies were amended to reconcile these apparent 

inconsistencies. Because the Association relied on and complied with the 

original USEPA policy, any failure to submit annual indirect cost rate proposals to 

USEPA was unintended. Thus, the Association should not be penalized for the 

previously-submitted documentation. 

The Association acknowledges an understanding of the OMB Circular A-122, 

which requires the recipient to submit new indirect cost proposals to the 

cognizant agency within six months after the close of each fiscal year. The 

Association further understands USEPA cannot accept the reported outlays for 

indirect costs until we resubmit final indirect cost rate proposals for all 

appropriate prior years. Our efforts to do so are now underway with GAD to get 

final rates for FY2005 and FY2006. 

OIG Comment: EPA’s policy to allow the recipient to retain the indirect 

cost rate proposal(s) on file did not comply with OMB Circular A-122, 

Attachment A, subparagraph E (2) and has been rescinded. 

Nevertheless, both EPA and OMB policies required the Association to 

22 
prepare an indirect cost rate proposal. The Association did not provide 

any evidence that it prepared or maintained such documents. 

Accordingly, all indirect costs remain unsupported until the Association 

submits and receives approved indirect rates for all years beginning with 

the fiscal year ended June 30, 2001. 

6. Underreported Program Income 

The Association agrees that this was an issue with the GL. However, it should be 

noted that ASIWPCA’s program staff tracked and documented this information in 

detail on spreadsheets (by event, participant and payment method). The 

methodology was explained to the investigators and those records were available 

for review. To the extent the GL differs from those records, we recognize 

changes must be made as part of the rebuild. 

OIG Comments: The Association may have more program income than is 

supported by supplemental records. In reviewing the general ledger we 

identified program income from the CAFO roundtables/summits meeting; 

however, there were no Regonline14 reports provided for that meeting. 

Therefore, the program income may be greater than the amount identified 

in the supplemental records. By not properly recording and reconciling the 

program income, the Association’s financial management system was not 

accurate, and the incurred costs may have been overstated for EPA 

grants CP83107001, X783164601, and CP83106901. 

7. Inadequate Written Accounting Procedures 

The Association agrees there were deficiencies in our written accounting 

procedures. Further, where there may not have been written deficiencies, there 

were areas of concern relating to implementation. 

We request that the OIG review the Association’s Accounting Policies Manual, 

dated August 2005, prepared for us by Raffa & Associates. If upon further 

review, more details must be provided, the Association is very willing as part of a 

corrective action plan, to provide more information in those areas. Several layers 

of checks and balances have been instituted to ensure implementation. 

As part of our provisional indirect cost rate application, the Association now 

provides detailed descriptions of any and all assumptions made to develop the 

rate. Although in the past our provisional rate calculations included member 

services, for all current and future applications these costs will be treated as 

direct costs. The Association will further ensure that EPA is provided all relevant 

materials to support rate calculations and that appropriate written procedures are 

14 Online event registration software and services for meetings, conferences, training classes, and other corporate 

functions. 

23 
in place to provide explanation to EPA regarding our treatment of direct and 

indirect expenses. 

OIG Comment: The Association did not provide us with the Accounting 

Policies Manual either during our field work or in response to this report. 

Accordingly, we cannot comment on the adequacy of the procedures. 

8. Noncompliance with Federal Cash Management Requirements 

The Association agrees that this was an ongoing problem that comes up in the A133 Single Audits Reports. Although no Federal funds have been identified as 

having been stolen, the report provides insight into the methodology of the 

embezzler to use different funds to back pay other expenses. Procedures with 

checks and balances have been put into place to assure this will not be a 

problem in the future. 

9. Single Audits Not Completed 

As was noted above, the FY2003 Single Audit Report was not finalized until June 

24, 2004. In an attempt to go forward with the FY2004 Single Audit, Raffa & 

Associates discovered the embezzlement and the Association agreed that the 

audit should be put on hold until we could place confidence in our financial 

records. The Association is aware that under OMB Circular A-133, nonfederal 

entities that expend $300,000 ($500,000 for fiscal years ending after December 

31, 2003) or more in a year in Federal awards must have a Single Audit 

conducted. We are currently rebuilding our records and will work with our 

accountants and the Office of Grants to determine the appropriate timing and 

solution for this issue. 

The OIG draft report indicates that issues identified in the FY2003 Single Audit 

have not been addressed and resolved. ASIWPCA has since submitted to the 

agency a summary of actions that have been completed to resolve the issues 

identified in that audit (See Appendix 3). Those measures are in place and 

operational. 

10. Improper Procurement 

It is agreed that in situations where two organizations are related through 

common management, share office space, the telephone system, office 

equipment, etc., that greater scrutiny must exist to avoid a conflict of interest for 

decisions to spend Federal grant dollars on contractual services interorganizationally. The specific issues raised in the OIG draft report focused on the 

TMDL Circuit Rider Grants and the Shared Services Agreement with America’s 

Clean Water Foundation (ACWF) as well as several other smaller contracts. 

24 
The Association believes that these issues can be worked out with USEPA 

upon further discussion and review of ASIWPCA records. For instance we 

believe that information can be provided and presented by ASIWPCA that the 

rates from most work were at or below market rates and that the work was 

effectively completed. We look forward to discussing this further with USEPA. 

25 
Appendix C 

Distribution 

Office of the Administrator 

Director, Grants Administration Division (Action Official) 

(responsible for report distribution to recipient) 

Director, Office of Grants and Debarment 

Audit Followup Coordinator, Office of Grants and Debarment 

Assistant Administrator for Water 

Assistant Administrator for Air and Radiation 

Agency Followup Official (the CFO) 

Agency Followup Coordinator 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for Public Affairs 

General Counsel 

Acting Inspector General 

26