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Improved Oversight of EPA’s 

Grant Monitoring Program 

Will Decrease the Risk of 

Improper Payments 

Report No. 15-P-0166 June 11, 2015 

U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Spending Taxpayer Dollars
Report Contributors: Janet Kasper 

Ethel Lowery 

Madeline Mullen 

LaTanya Scott 

Abbreviations 

AAM Advanced Administrative Monitoring 

CFR Code of Federal Regulations 

CY Calendar Year 

EPA U.S. Environmental Protection Agency 

GC&RA Grantee Compliance and Recipient Activity 

GMO Grants Management Office 

OARM Office of Administration and Resources Management

OGD Office of Grants and Debarment 

OIG Office of Inspector General 

OMB Office of Management and Budget 

Cover photo: Sulphur Springs City Hall was cleaned up with EPA Brownfield grant funds.

(Photo courtesy of the city of Sulphur Springs, Texas) 

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 15-P-0166

June 11, 2015

Why We Did This Review

The U.S. Environmental 

Protection Agency (EPA), 

Office of Inspector General 

(OIG), conducted this audit to 

determine whether the EPA’s

advanced administrative 

monitoring (AAM) system is 

effective for ensuring grant 

recipient costs are allowable, 

allocable and reasonable. 

The OIG conducted this audit 

in part to follow up on a 

recommendation from EPA 

OIG Report No. 13-P-0361,

EPA Needs to Improve STAR 

Grant Oversight, issued 

August 27, 2013. 

The purpose of AAM is to 

conduct an in-depth 

assessment of a grant 

recipient’s administrative and 

financial progress, as well as 

examine the management of 

the grant. AAM also includes 

tests to ensure that claimed 

costs are allowable, allocable 

and reasonable. 

This report addresses the 

following EPA goal or 

cross-agency strategy:

 Embracing EPA as a highperforming organization.

Send all inquiries to our public

affairs office at (202) 566-2391

or visit www.epa.gov/oig.

The full report is at:

www.epa.gov/oig/reports/2015/ 

20150611-15-P-0166.pdf

Improved Oversight of EPA’s Grant Monitoring Program 

Will Decrease the Risk of Improper Payments

 What We Found

Advanced administrative monitoring oversight was not 

always effective for ensuring grant recipient costs are 

allowable, allocable and reasonable. The Office of 

Management and Budget provides guidance on the 

allowability, allocability and reasonableness of costs, and 

the EPA provides guidance on conducting AAM reviews. 

However, EPA guidance and reference materials do not clearly state that AAM reviews 

are to assess whether the reviewed costs meet the requirements of applicable federal 

cost principles. Confusing or insufficient guidance contributes to the difficulties grant 

specialists have with AAM reviews. Insufficient oversight of AAM reviews increases the 

risk of improper payments, so that AAM reviews cannot be relied on to accurately 

identify whether costs are allowable, allocable and reasonable. During our audit, we 

found inadequate documentation of costs totaling $507,168 for AAM reviews that did 

not have adequate cost support for federal funds drawn. 

 Recommendations and Planned Agency Corrective Actions 

We recommend that the Assistant Administrator for the Office of Administration and 

Resources Management (OARM) implement a process to enhance quality-control 

reviews of AAM reports. The process should include review of supporting 

documentation. 

We also recommend that OARM issue national guidance to EPA Grants Management 

Offices. The guidance should clarify step-by-step processes needed to conduct 

transaction testing, and include provisions for tracing costs to source documents to 

ensure expended costs are allowable, allocable, reasonable, and aligned with the 

approved budget and project activities. In addition, we recommend that the EPA follow 

up on undocumented costs identified in the OIG finding and require grant recipients to 

reimburse the agency for costs deemed unallowable based on insufficient and/or 

unacceptable source documentation. 

In its response, OARM agreed with all of the recommendations and provided planned 

corrective actions with completion dates to address all of the draft report’s 

recommendations. 

Noteworthy Achievements

EPA Region 2 conducted an AAM review of a grant recipient. The recipient was not in 

compliance with EPA grant requirements for documenting policies, procedures and 

drawdown costs. Region 2 conducted extensive follow-up on this AAM review, and the 

region’s attention to detail helped to ensure taxpayer dollars are protected. 

U.S. Environmental Protection Agency

Office of Inspector General

At a Glance

EPA oversight of 

AAM reviews did not 

protect $507,168 in 

taxpayer dollars.
June 11, 2015 

MEMORANDUM

SUBJECT: Improved Oversight of EPA’s Grant Monitoring Program 

Will Decrease the Risk of Improper Payments 

Report No. 15-P-0166 

FROM: Arthur A. Elkins Jr. 

TO: Karl Brooks, Acting Assistant Administrator 

Office of Administration and Resources Management 

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. 

The office responsible for implementing the recommendations is the Office of Grants and Debarment 

within the EPA’s Office of Administration and Resources Management.

Action Required 

In response to the draft report, the agency provided planned corrective actions that address the 

recommendations and establishes milestone dates. Therefore, a response to the final report is not 

required. The agency should track corrective actions not implemented in the Management Audit 

Tracking System. 

We will post this report to our website at http://www.epa.gov/oig.

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, D.C. 20460

THE INSPECTOR GENERAL
Improved Oversight of EPA’s Grant Monitoring Program 15-P-0166

Will Decrease the Risk of Improper Payments 

Table of Contents

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

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

Responsible Office.................................................................................................... 2

Noteworthy Achievements ....................................................................................... 2

Scope and Methodology........................................................................................... 3

EPA’s Advanced Administrative Monitoring Reviews Generally Are 

Effective but Need Improvement.............................................................................. 4

EPA Provides Guidance for Cost Reviews.............................................................. 4

EPA Oversight Does Not Ensure All Reviewed Costs Are Allowable, 

Allocable and Reasonable........................................................................................ 5

Guidance and Oversight Should Be Improved........................................................ 8

Lack of AAM Oversight Increases Risk of Improper Payments............................. 10

Recommendations .................................................................................................... 11

Agency Response and OIG Evaluation.................................................................... 11

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

Appendices

A Agency Response to Draft Report................................................................... 14

B Distribution ....................................................................................................... 17
15-P-0166 1

Purpose 

The U.S. Environmental Protection Agency (EPA), Office of Inspector General

(OIG), conducted this audit in part to follow up on a recommendation concerning

advanced administrative monitoring (AAM), which was noted in EPA OIG 

Report No. 13-P-0361, EPA Needs to Improve STAR Grant Oversight, issued 

August 27, 2013. During that audit we found the EPA did not ensure costs were 

allocable to a sampled grant, and the agency did not request certified effort 

reports. 

Our audit objective for this review was to determine whether the EPA’s advanced 

administrative monitoring system is effective for ensuring grant recipient costs are 

allowable, allocable and reasonable.

Background

Grant responsibilities are shared between EPA program offices and the Office of 

Grants and Debarment (OGD) within the Office of Administration and Resources 

Management. OGD is responsible for the financial management of EPA grants.

OGD’s responsibilities include, among other things, baseline and AAM reviews.

Baseline monitoring is the periodic review of a grant recipient’s progress and 

compliance with an award’s scope of work, terms and conditions, and regulatory 

requirements. AAM monitoring is an in-depth assessment of a grant recipient’s 

progress and management of the grant. Statistical sampling is used to select a 

percentage of grants for AAM review each year. Most reviews are done by OGD 

staff from EPA headquarters or by the 10 EPA regions, but many are done by 

contractors.

The agency maintains the Grantee Compliance and Recipient Activity (GC&RA) 

summary database as a central repository for information related to EPA grant 

recipients. The database includes past grant activity and information about the 

capacity of recipients to effectively manage grant funds. All advanced monitoring 

activities must be recorded in the database, along with attached reports that count 

as part of the Grantee Compliance Assistance Initiative outlined in EPA Order 

5700.6. The primary purpose of the database is to provide accurate information 

about grant recipient compliance activities to EPA staff in headquarters, regional 

programs, and in Grants Management Offices (GMOs).

The Office of Management and Budget (OMB) provides guidance in the Code of 

Federal Regulations (CFR) regarding the allowability, allocability and 

reasonableness of costs charged to federal grants. The guidance is known as cost 

principles and determines whether costs can be charged to federal grants for the 

following types of recipients:
15-P-0166 2

 Nonprofit organizations (2 CFR Part 230).

 State, local and tribal governments (2 CFR Part 225).

Depending on the type of cost claimed, recipients are required to maintain 

different types of support documentation as shown in Table 1.

Table 1: Acceptable documentation for claimed costs

Source: OIG analysis of 2 CFR Part 225 (state, local and tribal governments)

and Part 230 (nonprofit).

Responsible Office

The Office of Grants and Debarment within the EPA’s Office of Administration 

and Resources Management is responsible for oversight of AAM of grants. 

However, regional GMOs have responsibilities for assigned individual AAM 

reviews and follow-up. 

Noteworthy Achievements 

EPA Region 2 conducted an AAM review of a nonprofit grant recipient. 

The recipient was not in compliance with EPA grant requirements for 

documenting policies, procedures and drawdown costs. Region 2 said it has 

extensive experience with AAM reviews and has placed many recipients in the 

high-risk category. In the case of this particular nonprofit, Region 2 disallowed 

the costs and placed the recipient in the high-risk category. Region 2 also 

provided the nonprofit grant recipient with guidance for developing a successful 

grants management system that included guidance on personnel, fringe benefits, 

timekeeping, as well as templates to help the recipient draft procedures. Region 2 

conducted extensive follow-up on this AAM review, and the region’s attention to 

detail helped to ensure taxpayer dollars are protected. This is a best practice that 

should be considered by other regions.

Type of cost Type of documentation

Personal 

services 

(salaries)

When employees work on multiple activities, the distribution of 

salaries will be supported by personnel activity reports or equivalent 

documentation. 

Fringe benefits Support is from established leave policies. Costs are equitably 

allocated. The accounting basis is consistently followed. 

Travel Support indicates travel is allocable to a federal award and 

adequately documented.

Procurement Support indicates items such as supplies are allocable to a federal 

award and are adequately documented.
15-P-0166 3

Scope and Methodology

We conducted our performance audit from April 2014 through March 2015, in 

accordance with generally accepted government auditing standards issued by the 

Comptroller General of the United States. Those standards require that we plan 

and perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. 

We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objective. 

During calendar year (CY) 2013, the EPA reported 119 AAM reviews of 

drawdowns totaling $22,817,844. Of the 119 reviews, 64 reviews were performed 

by EPA and 55 by contractors. We selected a stratified random sample of 13 grant

recipients that experienced an AAM review during CY 2013. Our sample 

included AAM reviews of grants awarded by headquarters and each EPA region.

Five of the 13 reviews were performed by contractors and eight were performed 

by EPA staff. 

To answer our audit objective, we analyzed the following:

 EPA guidance and policies to determine grant specialist responsibilities

and oversight of AAM reviews. 

 CFR sections related to costs. 

 Sampled AAM records from the GC&RA database. 

When database information was not as complete as required, we requested

additional documentation. During our audit of AAM reviews, we analyzed 

documentation consisting of advanced monitoring reports, questionnaire results, 

financial drawdowns, and supporting documents. In the case of four of the AAM 

reviews, we obtained and reviewed missing supporting documentation from grant 

recipients.

We interviewed grant specialists, contractors and grant recipients about issues 

noted during our audit, and to obtain additional support for costs claimed. We also 

met with OGD staff to discuss the AAM monitoring process including: AAM 

procedures, challenges and results; grant recipient documentation of financial 

records; and responsibilities for ensuring costs are allowable, allocable and 

reasonable.

There are no prior U.S. Government Accountability Office audits impacting the 

objective of this assignment. One AAM recommendation was noted in EPA OIG 

Report No. 13-P-0361, EPA Needs to Improve STAR Grant Oversight, issued 

August 27, 2013 (www.epa.gov/oig/reports/2013/20130827-13-P-0361.pdf). 

We discuss the EPA’s implementation of the previous report’s recommendation 

on page 9 of this current report.
15-P-0166 4

EPA’s Advanced Administrative Monitoring Reviews Generally Are 

Effective but Need Improvement

EPA oversight of AAM reviews was not always effective for ensuring grant 

recipient costs are allowable, allocable and reasonable. OMB provides guidance 

on the allowability of costs, and the EPA provides guidance on conducting AAM 

reviews. However, EPA guidance and reference materials do not clearly state that 

advanced monitoring reviews are used to assess whether the reviewed costs meet 

the requirements of applicable federal cost principles.

Insufficient oversight of AAM reviews increases the risk of improper payments 

made with taxpayer dollars. AAM reviews cannot be relied on to accurately 

identify whether costs are allowable, allocable and reasonable. During our audit, 

we found inadequate documentation of costs totaling $507,168. This total 

includes grant recipients that did not have adequate documentation to support 

federal funds drawn, and AAM reviews completed without adequate support.

EPA Provides Guidance for Cost Reviews

EPA Order 5700.6A2, Policy on Compliance, Review, and Monitoring, states that 

the purpose of AAM is to conduct an in-depth assessment of a grant recipient’s 

administrative and financial progress, as well as examine the management of the 

grant. Each review must use the appropriate administrative protocol published by 

the OGD’s National Policy, Training and Compliance Division, and maintained 

on the OGD’s website. The protocol is a questionnaire that the grant recipient 

completes regarding the policies, procedures and cost information. The protocol

references OMB cost principles that require costs to be allowable, allocable and 

reasonable. 

Grant specialists are responsible for maintaining appropriate file documentation 

and recording monitoring reports within the GC&RA database. When the AAM 

review requires corrective actions, resolution of the actions is expected within 120 

calendar days of the draft report date (or final report date for contractor reviews), 

unless explained in the database and outlined in the report.

AAM reviews conducted by contractors are described in EPA contract

EP-W-12-015. The contract requires contractors to conduct limited-scope 

administrative and financial management system reviews. Those reviews require 

interviews; review of administrative policies, procedures and the recipient’s financial 

management system; and the testing of a limited quantity of financial transactions 

using the completed Advanced Post Award On-Site Protocol as a guide.

The EPA’s Required Format for Writing an Administrative Onsite/Desk Review 

Report provides additional details about AAM reviews. It states that the 

objectives are to assess the effectiveness of the recipient’s control and 

accountability of EPA grant funds, as well as determine whether the recipient’s 
15-P-0166 5

administrative and financial management systems generally meet the 

requirements of the applicable Code of Federal Regulations, OMB cost principles, 

and terms and conditions of the agreements. Support documents for EPA funds 

drawn should include detailed accounting records that document payroll, travel, 

other expenses, etc., by project. Payrolls, travel, fringe benefits, supplies, 

equipment, contracts and subgrant charges should be supported with timesheets, 

executed agreements, travel vouchers and invoices. 

EPA Oversight Does Not Ensure All Reviewed Costs Are Allowable, 

Allocable and Reasonable 

EPA oversight has not effectively ensured that grant specialists and contractors 

confirm grant recipient costs were allowable, allocable and reasonable during 

transaction testing, or that policies and procedures were acceptable. Also, the EPA 

did not always follow up on corrective actions, and some corrective actions only 

received follow-up after OIG inquiry. Table 2 shows the drawdown amounts tested, 

amounts the EPA questioned, and whether we found AAM reviews were adequate.

Table 2: Drawdown amounts reviewed for AAM 

Grant recipient Drawdown 

amounts

tested

Amount EPA 

questioned

Was AAM review 

adequate?

#1 $122,708 $0 No

#2 $200,000 $0 Yes

#3 $41,895 $0 No

#4 $64,459 $0 No 

#5 $200,000 $0 No

#6 $59,000 $59,000 Yes

#7 $25,000 $0 No

#8 $6,135 $0 Yes

#9 $51,330 $0 Yes

#10 $78,950 $0 Yes

#11 $95,873 $2,049 Yes

#12 $305,019 $0 No

#13 $74,219 $0 No

Total $1,324,588 $61,049 --

Source: OIG analysis of AAM documentation.

EPA Did Not Always Review Sufficient Cost Documentation

For seven out of 13 AAM reviews, the EPA did not review adequate supporting 

cost documentation to determine whether costs were allowable, allocable and 

reasonable. Those conducting the reviews said they:

 Did not realize that 100-percent review of documentation was required.

 Had limited access to records.

 Did not understand the grant recipient’s accounting system, so support 

was not obtained or used.
15-P-0166 6

In one case involving support for payroll costs, the EPA accepted time reports 

from the accounting system and pay stubs to support time charged to the grant,

even though the regulations require personnel activity reports signed by the 

employee to support labor charges.

The EPA questioned less than 5 percent of the tested transactions for the 13 

advanced monitoring reviews, but we found that 38 percent of the transactions 

should be questioned or were not adequately supported. The EPA did not review 

adequate supporting cost documentation as shown in Table 3.

Table 3: Inadequate documentation accepted by EPA during AAM reviews

Recipient Drawdown

amount 

tested

Type of cost Inadequate documentation Associated cost

#1 $122,708 Fringe 

benefits and

adjustments

Did not review any documentation to 

support $492 in fringe benefits charged 

to the grant.

Did not verify that adjustments of 

$40,900 were adequately supported.

$41,392

#3 $41,895 Subaward Accepted the invoice from the 

subrecipient as support for subrecipient 

costs, but did not review how the 

recipient evaluated subrecipient costs.

$41,895

#4 $64,459 Payroll, 

indirect costs, 

fringe 

benefits and

procurement

Payroll—Employee pay stubs with total 

salary and a computer printout of time 

charges to various projects were 

accepted as support for some payroll 

costs. The documentation did not show 

total dollars charged to the grant.

Indirect costs and fringe benefits—The 

costs as claimed were accepted 

without verifying if the rates were 

approved.

Procurement—Invoices were accepted, 

but the documents did not show how 

the grantee determined costs were 

allocable to the grants.

$50,071

#5 $200,000 Travel Supporting documentation was 

reviewed, but the documentation did 

not add up to the total cost requested 

for reimbursement.

$88

#7 $25,000 Payroll Timesheets and a payroll ledger for 

costs claimed were accepted, but the 

documentation did not reconcile to the 

total costs drawn down by the recipient.

$25,000
15-P-0166 7

Recipient Drawdown

amount 

tested

Type of cost Inadequate documentation Associated cost

#12 $305,019 Payroll, 

fringe 

benefits, 

travel and

procurement

Payroll—A pay register and timesheets

were reviewed, but those documents 

did not account for all costs claimed for 

reimbursement. 

Fringe benefits—Documentation that

supports fringe benefits charged to the 

grant were not reviewed. 

Travel—A general ledger was 

reviewed, but receipts that support the 

expenses of one traveler were not 

reviewed.

Procurement—A statement of revenue 

and expenditures was reviewed, but 

not all costs were supported.

$287,336

#13 $74,219 Procurement

and travel

Two invoices were reviewed, but not all

the detailed support.

Contractor did not have any support for 

two of the tested drawdowns.

$61,386

Total $833,300 $507,168

Source: OIG analysis of AAM documentation.

Recipient Policies and Procedures Were Not Always Reviewed

The EPA reviewed the adequacy of policies and procedures for 10 of the 13 AAM 

reviews. However, for three AAM reviews, the EPA did not review recipient 

policies and procedures for compliance with federal regulations (Table 4).

Table 4: Policies and procedures not reviewed

Recipient Not reviewed

#7 A grant specialist said he was not familiar with the recipient’s 

policies and procedures for drawing funds and payroll/personnel, 

so the policies and procedures were not reviewed.

#12 The contractor stated that he was working alone on the review, so 

he did not have time to review them. 

#13 The contractor said he asked for policies and procedures, but they 

were not reviewed to ensure consistency with federal cost 

principles.

Source: OIG analysis of AAM documentation.
15-P-0166 8

Not All Corrective Actions Were Completed in a Timely Manner

The EPA conducted timely follow-up within 120 days for six of the nine reviews. 

Three reviews were not timely. If follow-up is not timely, needed improvements 

could be delayed (Table 5).

Table 5: Delayed follow-up on AAM review findings

Grant 

recipient

EPA or 

contractor

Date of 

report

Corrective 

action due 

Date 

follow-up 

occurred 

Closure 

date in 

IGMS

Time 

elapsed

Did followup exceed 

120 days?

#5 EPA 01/23/14 05/15/14 09/19/14 09/19/14 8 months Yes

#12 Contractor 08/22/13 09/23/13 10/27/14 Not 

closed

14

months

Yes

#10 Contractor 01/31/14 Not 

specified

11/04/14 11/05/14 9 months Yes

Source: OIG analysis of AAM and follow-up documentation.

Guidance and Oversight Should Be Improved

EPA guidance and reference materials do not clearly state that AAM reviews are 

used to assess whether the costs being reviewed meet the requirements of 

applicable federal cost principles. EPA grant reference materials do not clearly 

identify the criteria the grant specialist or contractor are to use during advanced 

monitoring reviews. EPA Order 5700.6A2 states that each review must use the 

appropriate administrative protocol. However, according to the Director of the 

OGD’s National Policy, Training and Compliance Division, the information on 

OGD’s website, which includes the administrative protocol, is not mandatory. 

Guidance Is Not Clear

While EPA policy requires the use of the administrative protocol, the protocol 

does not specify how the grant specialist or contractor is to evaluate information 

the recipient provides. OGD reference material does not clearly identify which

criteria are to be used to evaluate grant recipient costs. OGD’s website contains 

three reference documents for AAM reviews: 1) required format; 2) guidance for 

on-site reviews; and 3) guidance for desk reviews (Table 6). Each document 

provides some information about testing transactions, but does not provide 

specific guidance on evaluating transactions.
15-P-0166 9

Table 6: OGD reference instructions

OGD reference Instructions for reviewing costs

Required Format for 

Writing an Administrative 

Onsite/Desk Review 

Report

In describing what is to be included in the advanced 

monitoring report, the reference material identifies the 

types of supporting documentation that the recipient should 

have to support the sampled drawdowns. However, the 

reference document does not identify the criteria for 

evaluating the documentation.

Grants Management 

Office On-Site Review 

Preparation Guidance

The reviewer is to judgmentally select samples to ascertain 

whether procedures are working and costs claimed are 

allowable, allocable and reasonable under the assistance 

agreement. This guidance mentions the cost principles, but 

does not provide any guidance for applying the cost 

principles when reviewing cost documentation.

Off-Site/Desk Review 

Guidance

The guidance does not contain any instructions concerning

how to review costs.

Source: OIG analysis of OGD reference materials.

Confusing or insufficient guidance contributes to the difficulties grant specialists 

have with AAM reviews. One grant specialist said that she did not receive formal 

training, even though she was conducting her first review. Thus, she was not 

aware of subaward requirements and did not determine whether the grant 

recipient was complying with subaward monitoring requirements. Another grant 

specialist said the process associated with verifying costs was not easy, so he 

relied on assistance from the grant recipient. The grant specialist was not aware of 

support that he should have obtained. The lack of clarity in reference materials 

also contributes to the confusion that grant specialists experience when 

conducting AAM reviews.

Oversight Should Be Improved

For quality assurance purposes, OGD reviews AAM draft reports to ensure the 

reports show what was covered in the review. However, supporting 

documentation is not reviewed. Consequently, OGD was not aware that some 

grant specialists and contractors were not reviewing the supporting documentation 

needed to verify whether costs are allowable, allocable and reasonable. Without 

reviewing supporting documentation, OGD cannot be assured that AAM reviews 

are thorough and reliably reflect improper payments.

The AAM point of contact for OGD said grant specialists are not accountants or 

auditors, and AAM reviews are not formal audits. OGD oversight also did not 

include checking on whether grant specialists were following up on corrective 

actions needed as a result of AAM reviews. In light of these challenges, AAM 

reviews would benefit from increased OGD oversight and quality assurance

checks.
15-P-0166 10

Corrective Actions From Previous OIG Report Incomplete

The EPA did not take the corrective action that the OIG intended for a 

recommendation made in EPA OIG Report No. 13-P-0361, EPA Needs to 

Improve STAR Grant Oversight, issued August 27, 2013

(www.epa.gov/oig/reports/2013/20130827-13-P-0361.pdf). The OIG 

recommended that OGD issue guidance to grant specialists to remind them that 

during transaction testing they are required to trace costs to source documents and 

make a determination as to whether costs are related to the activities funded by 

the grant. 

The EPA reported in its Management Audit Tracking System that corrective 

actions were complete, but the agency only sent an email reminder to grant 

specialists in EPA headquarters. Since it was not national guidance, the email 

reminder did not reach the grants staff in any of the regions, because the EPA 

believed the recommendation was for grant specialists monitoring Science to 

Achieve Results or “STAR” grants in headquarters and not the regions.

Lack of AAM Oversight Increases Risk of Improper Payments 

The EPA’s insufficient oversight of AAM reviews increases the risk of improper 

payments with taxpayer dollars. Without reviewing supporting documentation, 

OGD cannot be assured that AAM reviews reliably reflect improper payments or 

accurately identify whether costs are allowable, allocable and reasonable. 

Questioned and unsupported costs represent funds that can be put to better use. 

The EPA has a fiduciary responsibility to ensure that all claimed costs reviewed 

during AAM are allowable, allocable and reasonable. When a grant recipient does 

not provide the EPA with the supporting documentation needed to verify the 

allowability of costs, this may indicate the costs are not allowable or that the 

required documentation does not exist. 

AAM reviews did not have adequate documentation to support federal funds 

drawn totaling $507,168. For example, in one of the AAM reviews, labor costs 

were charged to several EPA grants. However, the grantee did not have 

timesheets to show how the time was allocated. In addition, if a grant recipient 

mistakenly charges time for other activities to an EPA grant that was funded to 

sample and assess surface water quality, those charges could reduce the time and 

number of samples and assessments expected under the EPA grant. 

The EPA uses the results of AAM review transaction testing to conduct a 

quantitative risk assessment for improper payments. Costs that are paid to 

recipients, and are not found to be allowable, allocable and reasonable, meet the 

definition of improper payments. When the EPA does not adequately review costs 

during AAM reviews, the agency underestimates the improper payments that may 

exist within the grant program. 
15-P-0166 11

Recommendations 

We recommend that the Assistant Administrator for Administration and 

Resources Management:

1. Implement a process to enhance quality-control reviews of AAM reports. 

The process should include review of supporting documentation. 

2. Issue national guidance to the agency’s GMOs. The guidance should

clarify step-by-step processes needed to conduct transaction testing, and 

include provisions for tracing costs to source documents to ensure 

expended costs are allowable, allocable, reasonable, and aligned with the 

approved budget and project activities.

3. Follow up on undocumented costs identified in the OIG finding and 

require grant recipients to reimburse the agency for costs deemed 

unallowable based on insufficient and/or unacceptable source

documentation.

Agency Response and OIG Evaluation

The agency agreed with the recommendations and provided planned corrective 

actions with milestone dates. 

In response to Recommendation 1, the EPA included two corrective actions:

 All GMOs will be required to implement quality control measures for AAM 

reviews (desk and on-site) conducted by EPA staff. This will include 

reviewing supporting documentation prior to finalizing and transmitting the 

AAM report to the recipient.

 OGD will develop and implement quality control procedures to ensure that 

all contractor-conducted, AAM on-site reviews are properly conducted. 

This includes reviewing contractor work papers and source documentation 

provided during the course of the review prior to transmitting the AAM 

report to the recipient. 

These actions will be completed by September 30, 2015. When implemented, the 

corrective actions should address Recommendation 1. 

In response to Recommendation 2, the EPA stated that OGD is in the process of 

developing a standard operating procedure for AAM, which will address each of 

the areas identified by the OIG. Once the procedure is finalized, all GMOs and 

EPA grants staff will be required to follow the procedure when conducting AAM 

reviews. These actions will be completed by September 30, 2015. When 

implemented, the corrective actions should address Recommendation 2. 
15-P-0166 12

In response to Recommendation 3, the EPA included two corrective actions:

 GMOs will follow up with each of the recipients directly to request 

additional documentation to support questioned costs. 

 GMOs will review the documentation and require reimbursement with 

unallowable costs in accordance with applicable agency procedures.

These actions will be completed by December 31, 2015. When implemented, the 

corrective actions should address Recommendation 3. 
15-P-0166 13

Status of Recommendations and 

Potential Monetary Benefits

RECOMMENDATIONS

POTENTIAL MONETARY 

BENEFITS (in $000s)

Rec.

No.

Page 

No. Subject Status1 Action Official

Planned 

Completion 

Date

Claimed 

Amount

Agreed-To 

Amount

1 11 Implement a process to enhance quality-control 

reviews of AAM reports. The process should 

include review of supporting documentation.

O Assistant Administrator for 

Administration and 

Resources Management

09/30/15

2 11

Issue national guidance to the agency’s GMOs. 

The guidance should clarify step-by-step 

processes needed to conduct transaction testing, 

and include provisions for tracing costs to source 

documents to ensure expended costs are 

allowable, allocable, reasonable, and aligned with 

the approved budget and project activities. 

O Assistant Administrator for 

Administration and 

Resources Management

09/30/15

3 11 Follow up on undocumented costs identified in 

the OIG finding and require grant recipients to 

reimburse the agency for costs deemed 

unallowable based on insufficient and/or 

unacceptable source documentation. 

O Assistant Administrator for 

Administration and 

Resources Management

12/31/15 $507.2

1 O = Recommendation is open with agreed-to corrective actions pending.

C = Recommendation is closed with all agreed-to actions completed. 

U = Recommendation is unresolved with resolution efforts in progress.
15-P-0166 14

Appendix A

Agency Response to Draft Report

MAY 7 2015

MEMORANDUM

SUBJECT: Response to Office of Inspector General Draft Report No. OA-FY14-0188,

Improved Oversight of EPA’s Grant Monitoring Program Will Decrease the Risk 

of Improper Payments, dated March 20, 2015

FROM: Karl Brooks, Deputy Assistant Administrator

TO: Arthur A. Elkins, 

 Office of the Inspector General

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

audit report. We agree with the three recommendations and have developed corrective actions 

and estimated completion dates as described in the attachment. 

The draft report also mentions a corrective action made in Office of Inspector General Report 

No. 13-P-0361, EPA Needs to Improve STAR Grant Oversight issued August 27, 2013. The draft 

report states that Office of Administration and Resources Management’s Office of Grants and 

Debarment did not take the corrective action intended by the OIG. The recommendation in 

question called for OGD to “issue guidance to grant specialists to remind them that during 

transaction testing, they are required to trace costs to source documents and make a 

determination as to whether costs are related to the activities funded by the grant.” The OGD 

issued the guidance to the OGD grants specialists administering STAR awards. In the OIG’s 

view, the guidance should have been distributed to both OGD and Regional Grants Specialists. 

The authority to award STAR grants is reserved for OGD award officials and the issues 

addressed in the STAR audit report dealt with inadequate STAR cost documentation. Based on 

these factors, the OGD disseminated guidance to OGD grants specialists administering STAR 

awards. We regret the misunderstanding and note that under the attached corrective action plan, 

the OGD will be distributing advanced monitoring guidance to all grant specialists in the fourth 

quarter of this fiscal year. 

If you have any questions about this response, please contact me at (202) 564-4600 or have your 

staff contact Frederick Griefer, Office of Grants and Debarment, at (202) 564-5059 or via email 

at Griefer.Frederick@epa.gov.

Attachment
15-P-0166 15

cc: Howard Corcoran

Denise Polk

Kysha Holliday

 Frederick Griefer

Janet Kasper

Madeline Mullen
15-P-0166 16

No. Recommendation High-Level Intended Corrective Actions

Expected 

Completion 

by Quarter 

and FY

1

Implement a process to enhance 

quality-control reviews of AAM 

reports. The process should 

include review of supporting 

documentation.

1.1 – All GMOs (HQs and regional) will be 

required to implement quality control measures 

for Advanced Administrative Monitoring 

reviews (desk and onsite) conducted by EPA 

staff. This will include reviewing supporting 

documentation prior to finalizing and 

transmitting the AAM report to the recipient. 

4

th Quarter 

FY 2015

1.2 - OGD will develop and implement quality 

control procedures to ensure that all contractorconducted AAM (onsite) reviews are properly 

conducted. This includes reviewing contractor 

work papers and source documentation provided 

during the course of the review prior to 

transmitting the AAM report to the recipient.

4

th Quarter 

FY 2015

2

Issue national guidance to the 

agency’s Grants Management 

Offices. The guidance should 

clarify step-by-step processes 

needed to conduct transaction 

testing, and include provisions 

for tracing costs to source 

documents to ensure expended 

costs are allowable, allocable, 

reasonable, and aligned with the 

approved budget and project 

activities.

2.1 – OGD is in the process of developing a 

comprehensive Standard Operating Procedure 

for Administrative Advanced Monitoring that 

will address each of the areas identified by the 

OIG. Once the SOP is finalized, all GMOs and 

EPA grants staff will be required to follow it 

when conducting AAM reviews.

4

th Quarter 

FY 2015

3

Follow up on undocumented 

costs identified in the OIG 

finding and require grant 

recipients to reimburse the 

agency for costs deemed 

unallowable based on 

insufficient / unacceptable 

source documentation. 

3.1 – GMOs will follow up with each of the 

recipients directly to request additional 

documentation to support questioned costs. 

1

st Quarter 

FY 2016

3.2 – GMOs will review the documentation and 

require reimbursement for unallowable costs in 

accordance with applicable agency procedures.

1

st Quarter 

FY 2016
15-P-0166 17

Appendix B 

Distribution

Office of the Administrator 

Assistant Administrator for Administration and Resources Management

Principal Deputy Assistant Administrator for Administration and Resources Management 

Agency Follow-Up Official (the CFO) 

Agency Follow-Up Coordinator 

General Counsel 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for Public Affairs 

Director, Grants and Interagency Agreements Management Division, 

Office of Administration and Resources Management 

Director, Office of Policy and Resource Management,

Office of Administration and Resources Management 

Deputy Director, Office of Policy and Resource Management, 

Office of Administration and Resources Management 

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

Audit Follow-Up Coordinator, Office of Grants and Debarment, 

Office of Administration and Resources Management