U.S. ENVIRONMENTAL PROTECTION AGENCY 

OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

Quick Reaction Report 

Internal Control Weaknesses 

under EPA Grant Nos. I004802070 

and BG96483308, Awarded to the 

Eastern Band of Cherokee Indians, 

Cherokee, North Carolina 

 Report No. 10-4-0001 

 October 5, 2009 
 

 

 

 

Report Contributors: John Trefry 

 Phil Cleveland 

Abbreviations 

EBCI Eastern Band of Cherokee Indians 

EPA U.S. Environmental Protection Agency 

OIG Office of Inspector General 

SF 272 Federal Cash Transaction Report 
 

U.S. Environmental Protection Agency 10-4-0001 

October 5, 2009 Office of Inspector General 

At a Glance 

Catalyst for Improving the Environment 

Why We Did This Review 

The Office of Inspector 

General (OIG) received a 

hotline complaint regarding 

U.S. Environmental Protection 

Agency (EPA) Assistance 

Agreement Numbers 

I004802070 and BG96483308, 

awarded to the Eastern Band of 

Cherokee Indians (EBCI), 

Cherokee, North Carolina. 

Background 

EPA Region 4 awarded EBCI 

Assistance Agreement Number 

I004802070 for $259,964 

(federal share) on June 20, 

2007. The Region subsequently 

issued two amendments that 

increased the available funds 

by $93,920 (total federal share 

of $353,884). EPA awarded 

Assistance Agreement Number 

BG96483308 for $152,000 

(federal share) on September 

24, 2007. The Region 

subsequently issued an 

amendment that increased the 

available funds by $124,967 

(total federal share of 

$276,967). 

For further information, 

contact our Office of 

Congressional, Public Affairs 

and Management at 

(202) 566-2391. 

To view the full report, 

click on the following link: 

www.epa.gov/oig/reports/2010/ 

20091005-10-4-0001.pdf 

Internal Control Weaknesses under EPA Grant Nos. 

I004802070 and BG96483308, Awarded to the Eastern 

Band of Cherokee Indians, Cherokee, North Carolina 

What We Found 

EBCI does not have a conflict of interest and its SF 272s are correct and prepared 

in compliance with federal requirements, EPA policies, and grant terms and 

conditions. However, during the course of our examination, we identified 

significant deficiencies in internal control concerning equipment purchases and 

segregation of duties that we believe require immediate attention. Regarding our 

concern with equipment purchases, we found that: 

•	 Some purchase authorizations were dated the same day equipment was 

delivered. 

•	 EBCI did not always obtain three quotes. 

•	 The Asset Compliance Officer did not always authorize purchases. 

Regarding our concern on segregation of duties, we found that one employee 

within the Office of Environment and Natural Resources – the Water Quality 

Section Supervisor – is authorized to write grant proposals; solicit funding to 

carry out the program goals; prepare budgets; oversee the expenditure of funds; 

and purchase, maintain, repair, and inventory all equipment. 

What We Recommend 

We recommend that the Regional Administrator, EPA Region 4, require EBCI to 

comply with its internal control policies and procedures with respect to 

equipment purchases, require all future purchases under these grants to be 

properly approved, and require that EBCI establish internal controls to ensure the 

proper segregation of duties for grant award and administration. 
 

 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

October 5, 2009 

MEMORANDUM 

SUBJECT:	 Internal Control Weaknesses under EPA Grant Nos. I004802070 and 

BG96483308, Awarded to the Eastern Band of Cherokee Indians, 

Cherokee, North Carolina 

Report No. 10-4-0001 

FROM: Robert Adachi 

Director, Forensic Audits 

TO:	 A. Stanley Meiburg 

Acting Regional Administrator 

 EPA Region 4 

Mr. Michell Hicks 

Principal Chief
 

Eastern Band of Cherokee Indians 

This is our report on the results of the Office of Inspector General (OIG) review of Grant Nos. 

I004802070 and BG96483308 awarded to the Eastern Band of Cherokee Indians (EBCI), located 

in Cherokee, North Carolina. Final determination on matters in this report will be made by the 

U.S. Environmental Protection Agency (EPA) managers in accordance with established 

resolution procedures. 

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 $38,221. 

Action Required 

We recommend the Regional Administrator require EBCI to comply with its internal control 

policies and procedures with respect to equipment purchases and require all future purchases 

under these grants to be properly approved, and require EBCI to establish internal controls to 

ensure the proper segregation of duties for grant award and administration. 
 

In accordance with EPA Manual 2750, you are required to provide a written response to this 

report within 180 calendar days of the date of this report. Please follow the directions of EPA 

Manual 2750 for the report resolution process. 

If you or your staff have any questions regarding this report, please contact me at (415) 947-4537 

or adachi.robert@epa.gov; or John Trefry, Associate Director of Forensic Audits, at 

(202) 566-2474 or trefry.john@epa.gov. 
10-4-0001 

Introduction 

Purpose 

The Office of Inspector General (OIG) received a hotline complaint regarding U.S. 

Environmental Protection Agency (EPA) Assistance Agreement Numbers I004802070 and 

BG96483308, awarded to the Eastern Band of Cherokee Indians (EBCI), Cherokee, North 

Carolina. The complainant expressed concerns about an apparent conflict of interest involving 

EBCI contracts with previous employees. The purpose of our examination was to determine 

whether a conflict of interest existed within EBCI’s Office of Environment and Natural 

Resources and whether EBCI complied with federal requirements, EPA policies, and grant terms 

and conditions. 

Background 

On June 20, 2007, EPA Region 4 awarded EBCI Assistance Agreement Number I004802070 for 

$259,964 (federal share). The grant project period was from October 1, 2006, through 

September 30, 2008, and was for developing and implementing a strategy to monitor the quality 

of tribal waters. The Region subsequently issued two amendments that increased the available 

funds by $93,920 (total federal share of $353,884) and extended the project period to 

September 30, 2009. 

On September 24, 2007, EPA Region 4 awarded EBCI Assistance Agreement Number 

BG96483308 for $276,967(federal share). The grant project period was from October 1, 2007, 

through September 30, 2009, for work in several areas including regulatory development and 

compliance, responding to underground storage tank leaks or spills, and operating and 

maintaining ozone and fine particulate matter monitors. 

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10-4-0001 

Independent Attestation Report 

As part of our continued oversight of the grants awarded by EPA, we have examined a hotline 

complaint regarding Assistance Agreement Numbers I004802070 and BG96483308, awarded to 

EBCI, Cherokee, North Carolina. The purpose of our examination was to determine whether a 

conflict of interest existed within EBCI’s Office of Environment and Natural Resources and 

whether EBCI complied with federal requirements, EPA policies, and grant terms and 

conditions. By signing the award documents, EBCI has accepted responsibility for complying 

with these requirements, and by signing the Federal Cash Transaction Report (SF 272) EBCI 

certifies “...that all disbursements have been made for the purpose and conditions of the grant or 

agreement.” Our responsibility is to express an opinion on EBCI’s compliance based on our 

examination. 

We examined the complainant’s assertion concerning the apparent conflict of interest involving 

EBCI contracts with previous employees. Further, we examined management’s assertion that its 

SF 272s are adequately supported and prepared in compliance with federal requirements, EPA 

policies, and grant terms and conditions. EBCI’s management is responsible for preparing SF 

272s. Our responsibility is to express an opinion based on our examination. 

Our examination was conducted in accordance with generally accepted government auditing 

standards issued by the Comptroller General of the United States. Our review was also 

conducted in accordance with attestation standards established by the American Institute of 

Certified Public Accountants and, accordingly, included examining, on a test basis, evidence 

supporting management’s assertion and performing such other procedures as we considered 

necessary in the circumstances. We believe that our examination provides a reasonable basis for 

our opinion. Field work was completed between January 5, 2009, and February 5, 2009. 

We made site visits to EPA’s Region 4 office in Atlanta, Georgia, and performed the following 

steps: 

•	 Reviewed EPA Assistance Agreement Numbers I004802070 and BG96483308 and 

modifications to determine criteria relevant to our objectives. 

•	 Reviewed all payments made under these grants to determine whether there was a history 

of suspended or disallowed costs. 

•	 Conducted interviews with and reviewed files maintained by EPA’s Project Officers to 

gather information concerning any apparent conflict of interest and assess EBCI’s 

performance under the subject grants. 

We made site visits to EBCI’s Cherokee, North Carolina, offices and performed the following 

steps: 

•	 Reviewed EBCI’s accounting records and supporting documentation for costs associated 

with Assistance Agreement Numbers I004802070 and BG96483308. 

•	 Traced labor and other direct costs to time sheets, invoices, and labor distribution reports. 

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10-4-0001 

•	 Conducted interviews with EBCI managers and staff to gather information concerning 

any apparent conflict of interest. 

•	 Made inquiries of EBCI’s Legal Counsel to acquire legal opinions related to potential 

conflicts of interest. 

•	 Verified that EBCI’s Water Quality Section Supervisor satisfied the educational and 

experience requirements for the labor category for which he was billed. 

•	 Gained an understanding and assessed the effectiveness of the internal controls applicable 

to EBCI’s Department of Water Quality. 

In our opinion, EBCI does not have a conflict of interest and its SF 272s are correct and prepared 

in compliance with federal requirements, EPA policies, and grant terms and conditions. 

However, during the course of our examination, we identified significant deficiencies in internal 

controls concerning equipment purchases and segregation of duties that we believe require 

immediate attention. Generally accepted government auditing standards define a significant 

deficiency in internal controls as “a deficiency...that adversely affects the entity’s ability to 

initiate, authorize, record, process, or report data reliably in accordance with the applicable 

criteria or framework such that there is more than a remote likelihood that a misstatement of the 

subject matter that is more than inconsequential will not be prevented or detected.” 

Robert K. Adachi 

Director, Forensic Audits 

February 5, 2009 

3 
10-4-0001 

Results of Examination 

We identified significant deficiencies in internal control concerning equipment purchases and 

segregation of duties that we believe require immediate attention. 

Equipment Purchases 

EBCI’s internal controls over equipment purchases do not operate as designed. EBCI policy and 

procedures for equipment purchases require a purchase authorization for any proposed capital 

acquisition exceeding $1,000, quotes from three vendors, and authorization by the Asset 

Compliance Officer. A second authorization is required for purchases over $5,000. 

We found that: (1) some purchase authorizations were dated the same day equipment was 

delivered, (2) EBCI did not always obtain three quotes, and (3) the Asset Compliance Officer did 

not always authorize purchases. Specifically: 

•	 Our examination found three invoices from a specific vendor that violated EBCI internal 

control polices. One invoice did not contain a purchase authorization as required. The 

other two invoices contained purchase authorizations but the authorizations were not 

prepared until after the equipment was invoiced. EBCI did not obtain three bids for any 

of the purchases nor were proper authorizations obtained prior to purchase. 

•	 On September 26, 2007, EBCI ordered a meter costing $2,143.16. The vendor billed 

EBCI for the meter on October 9, 2007, and was paid on October 26, 2007. EBCI 

records for this transaction showed that no purchase authorization was completed. The 

purchase was processed without quotes from three vendors or authorization by the Asset 

Compliance Officer. The Water Quality Section Supervisor authorized payment of this 

purchase. Further, the Water Quality Section Supervisor would have been responsible for 

placing an inventory tag on the meter, as well as maintaining and inventorying the meter. 

We found that this meter was not tagged and was still unopened in its original box and 

considered a spare. EBCI officials could offer no explanation as to why this transaction 

was not processed in compliance with its policies and procedures. 

We believe EBCI is not consistently following its internal control procedures related to 

equipment purchases because too much authority has been given to the Water Quality Section 

Supervisor. 

Despite this internal control weakness, nothing came to our attention that led us to believe that 

equipment purchases were either unreasonable in price or not applicable to the grant. 

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10-4-0001 

Segregation of Duties 

EBCI’s internal controls are not properly designed to allow proper segregation of duties. One 

employee within the Office of Environment and Natural Resources, the Water Quality Section 

Supervisor, is authorized to write grant proposals; solicit funding to carry out the program goals; 

prepare budgets; oversee the expenditure of funds; and purchase, maintain, repair, and inventory 

all equipment. 

Government Accountability Office Standards for Internal Control in the Federal Government 

state that key duties and responsibilities need to be divided or segregated among different people 

to reduce the risk of error or fraud. This separation should include the responsibilities for 

authorizing transactions, processing and recording them, reviewing the transactions, and 

handling any related assets. No one individual should control all key aspects of a transaction or 

event. 

EBCI, by allowing the Water Quality Section Supervisor to perform these tasks, circumvents 

sound internal control practices as described above. EBCI officials assert its Water Quality 

Section Supervisor knows what equipment is required under the grant. EBCI defers to the Water 

Quality Section Supervisor’s expertise when ordering equipment with respect to whether it is 

needed or authorized under the grant. 

Recommendations 

We recommend that the Regional Administrator, EPA Region 4: 

1.	 Require EBCI to comply with its internal control policies and procedures with respect 

to equipment purchases and require all future purchases under these grants to be 

properly approved. The Project Officer should monitor all grant purchases closely 

and conduct periodic unannounced site visits to review EBCI property records. 

2.	 Require that EBCI establish internal controls to ensure the proper segregation of 

duties for grant award and administration. 

Region 4 and Auditee Comments 

On September 14, 2009, an exit conference was held with the Region. The Region concurred 

with our report findings and recommendations. Based on this report, the Region agreed to take 

steps to inform the EBCI and assist it with ensuring its internal control policies are sufficient and 

being followed. The Region also noted that in its annual training held with grant and contract 

officials, of which the OIG participates, internal controls will be emphasized. 

On September 17, 2009, the grantee notified us that it had no comments to provide with the 

report. As a result, the final report is being issued without the grantee’s comments on our 

recommendations. 

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1 

10-4-0001 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed To 

Amount 

1 

2 

5 

5 

Require EBCI to comply with its internal control 

policies and procedures with respect to equipment 

purchases and require all future purchases under 

these grants to be properly approved. The 

Project Officer should monitor all grant purchases 

closely and conduct periodic unannounced site 

visits to review EBCI property records. 

Require that EBCI establish internal controls to 

ensure the proper segregation of duties for grant 

award and administration. 

O 

O 

Regional Administrator, 

EPA Region 4 

Regional Administrator, 

EPA Region 4 

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 

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10-4-0001 

Appendix A 

Distribution 

Regional Administrator, Region 4 

Director, Office of Wastewater Management, Office of Water 

Director, Office of Grants and Debarment 

Director, Grants and Interagency Agreements Management Division 

Agency Follow-up Official (the CFO) 

Agency Follow-up Coordinator 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for Public Affairs 

Region 4 Audit Follow-up Coordinator 

Region 4 Public Affairs Office 

Acting Inspector General 

7