U.S. ENVIRONMENTAL PROTECTION AGENCY 

OFFICE OF INSPECTOR GENERAL 

Catalyst for Improving the Environment 

 Attestation Report 

Costs Claimed Under EPA Grant 

 XP97424901 Awarded to West Rankin 

Utility Authority, Flowood, Mississippi

 Report No. 10-4-0003 

 October 13, 2009 
 

Report Contributors: Richard Howard 

 Yeon Kim

 Leah Nikaidoh 

Abbreviations 

A&E Architectural and Engineering 

CFR Code of Federal Regulations 

EPA U.S. Environmental Protection Agency 

FAR Federal Acquisition Regulation 

FSR Financial Status Report 

OIG Office of Inspector General 

SAAP Special Appropriation Act Project 

Cover photo: West Rankin Slip-lining Project (photo provided by engineering firm.) 
 

U.S. Environmental Protection Agency 10-4-0003 

October 13, 2009 Office of Inspector General 

At a Glance 

Catalyst for Improving the Environment 

Why We Did This Review 

The U.S. Environmental 

Protection Agency (EPA) 

Office of Inspector General 

(OIG) conducts reviews of 

earmarked grants known as 

Special Appropriation Act 

Projects issued to State and 

tribal governments. The West 

Rankin Utility Authority, 

Flowood, Mississippi, was 

selected for review. 

Costs Claimed Under EPA Grant XP97424901 Awarded 

to West Rankin Utility Authority, Flowood, Mississippi

 What We Found 

The grantee did not meet the procurement and financial management 

requirements of Title 40 Code of Federal Regulations (CFR) Part 31. As a result, 

we questioned $1,745,457 in unsupported architectural and engineering (A&E) 

costs claimed. The grantee will need to repay $663,321 of grant funds. The 

grantee also did not comply with the requirements for monitoring operations of 

grant activities. Due to these noncompliances and internal control weaknesses, 

the grantee may not have the capability to manage future grant awards. 

Background 

EPA Region 4 awarded Grant 

No. XP97424901 (grant) on 

August 24, 2001, to the West 

Rankin Utility Authority 

(grantee). The grant provided 

federal assistance of 

$1,932,200 for sewer system 

evaluation, a water supply 

feasibility study, 

photogrammetric mapping, 

Geographic Information 

System development, 

topographic mapping, and 

sliplining of gravity sewer 

interceptors. EPA funded 

55 percent of the eligible 

project costs and the grantee 

funded 45 percent. 

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/ 

20091013-10-4-0003.pdf 

What We Recommend 

We recommend that the EPA Region 4 Regional Administrator: 

1.	 Require the grantee to provide the documentation demonstrating that it 

performed a cost analysis for the A&E contract at the time of negotiation. If 

the grantee is unable to do so, EPA should recover the federal share of 

questioned A&E costs of $663,321. 

2.	 Require the grantee to develop written policies and procedures on 

procurement in accordance with 40 CFR 31.36(b), and financial management 

procedures, including internal control and record keeping, in accordance with 

40 CFR 31.20(b). 

3.	 Require the grantee to develop written procedures for monitoring operations 

of grant activities and comply with 40 CFR 31.40(a). 

4.	 Review policies and procedures developed by the grantee to ensure they meet 

applicable federal requirements. If the grantee does not fully implement these 

recommendations, Region 4 should make a high-risk determination, in 

accordance with 40 CFR 31.12, before making additional awards to the 

grantee. 

The grantee agreed to establish written policies and procedures for procurement, 

financial management, and monitoring grant activities. The grantee did not concur 

with the questioned A&E costs, lack of a financial management system, grant 

monitoring noncompliance, and the designation as a “high risk” grantee. The 

grantee also disagreed with the audit finding on its record keeping. 
 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

INSPECTOR GENERAL 

October 13, 2009 

MEMORANDUM 

SUBJECT:	 Costs Claimed Under EPA Grant XP97424901 Awarded to 

West Rankin Utility Authority, Flowood, Mississippi 

Report No. 10-4-0003 

FROM:	 Robert K. Adachi 

Director of Forensic Audits 

TO:	 A. Stanley Meiburg 

Acting Regional Administrator 

EPA Region 4 

This report contains a time-critical issue the Office of Inspector General (OIG) identified. This 

report represents the opinion of the OIG and does not necessarily represent the final position of 

the U.S. Environmental Protection Agency (EPA). EPA managers will make final 

determinations on matters in this report. 

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 $76,786. 

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 

you formally complete resolution with the recipient. Your proposed decision is due in 120 days, 

or on February 10, 2010. To expedite the resolution process, please e-mail an electronic version 

of your proposed management decision to adachi.robert@epa.gov. 

We have no objections to the further release of this report to the public. This report will be 

available at http://www.epa.gov/oig. If you or your staff has any questions regarding this report, 

please contact me at (415) 947-4537 or at the above e-mail address, or Leah Nikaidoh at 

(513) 487-2365 or nikaidoh.leah@epa.gov. 
Costs Claimed Under EPA Grant XP97424901 Awarded to 10-4-0003 

West Rankin Utility Authority, Flowood, Mississippi 

Table of Contents 

Introduction ................................................................................................................. 1 

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

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

Independent Attestation Report ................................................................................ 2 

Results of Examination .............................................................................................. 4 

Weaknesses in Procurement Procedures............................................................ 4 

Lack of Financial Management System ............................................................... 5 

Noncompliance with Monitoring of Grant Activities .............................................. 5 

 High Risk ............................................................................................................. 6 

 Recommendations ............................................................................................... 6 

Grantee Comments and OIG Analysis................................................................. 6 

Status of Recommendations and Potential Monetary Benefits.............................. 10 

Appendices 

A Grantee Response.............................................................................................. 11 

B Distribution ......................................................................................................... 16 
 

10-4-0003 

Introduction 

Purpose 

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

Special Appropriation Act Project (SAAP) grants to identify issues warranting further analysis. 

This includes reviewing the total project costs incurred by selected grant recipients. We 

reviewed the SAAP grant awarded to the West Rankin Utility Authority, Flowood, Mississippi 

(grantee). 

Background 

EPA Region 4 awarded Grant No. XP97424901 (grant) on August 24, 2001. The grant provided 

federal assistance of $1,932,200 for sewer system evaluation, water supply feasibility study, 

photogrammetric mapping, Geographic Information System development, topographic mapping, 

and sliplining of gravity sewer interceptors. This amount represents the contribution of the U.S. 

Environmental Protection Agency (EPA) of up to 55 percent of the eligible project costs, and is 

limited by the amount of the congressional appropriation. The grantee was responsible for 

matching, at a minimum, 45 percent of the eligible project costs. Per the Financial Status Report 

(FSR), project costs are $4,052,510. The grantee was responsible for the remaining project costs 

of $2,120,310 ($4,052,510-$1,932,200). The grant budget and project period was from August 

24, 2001, to December 31, 2006. 

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Independent Attestation Report 

As part of our continued oversight of SAAP grants awarded by EPA, we have examined the costs 

claimed by the grantee in its FSR covering the period from August 24, 2001, to December 31, 

2006. By signing the award documents, the grantee has accepted responsibility for preparing its 

cost claim to comply with the requirements of 40 CFR Part 31, Office of Management and 

Budget Circular A-87, EPA policies, and the terms and conditions of Grant No. XP97424901. 

Our responsibility is to express an opinion on the grantee’s FSR based on our examination. 

Our examination was conducted 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 examined, on a test basis, evidence 

supporting the amount claimed in the FSR and performed such other procedures as we 

considered necessary in the circumstances. We believe that our examination provides a 

reasonable basis for our opinion. 

We conducted our field work between March 30, 2009, and July 30, 2009, and performed the 

following steps: 

• Reviewed the grant agreement and the amendments. 

• Toured the facilities constructed under the grant. 

• Reviewed the grantee’s supporting documents for payment requests. 

• Verified deposits of grant cash draws to the bank statements. 

• Conducted interviews of personnel. 

• Reviewed the grantee’s procurement procedures and related documents. 

• Determined and verified that the grantee met the required match to the grant. 

As part of obtaining reasonable assurance about whether the grantee’s FSR is free of material 

misstatement, we performed tests of its compliance with the requirements of 40 CFR Part 31, 

Office of Management and Budget Circular A-87, EPA policies, and the terms and conditions of 

the grant. We also considered the grantee’s internal controls over cost reporting in order to 

determine our audit procedures for the purpose of expressing our opinion on the FSR and not to 

provide assurance on the internal controls over cost reporting. Our consideration of internal 

control would not necessarily disclose all matters in the internal control that might be material 

weaknesses. A material weakness is a significant deficiency, or combination of significant 

deficiencies, that results in more than a remote likelihood that a material misstatement will not be 

prevented or detected. A significant deficiency is a deficiency in internal control, or combination 

of control deficiencies, that adversely affects the grantee’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 is more than 

inconsequential will not be prevented or detected. 

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10-4-0003 

Our examination disclosed the following noncompliance and material weakness that resulted in 

the grantee not complying with the financial management requirements specified by Title 40 

CFR Part 31. 

Noncompliance: The grantee: 

•	 Did not perform a cost analysis required by 40 CFR 31.36(f) for the architectural and 

engineering (A&E) service contract. 

•	 Did not have its own written procurement procedures required by 40 CFR 31.36 (b) (1), 

(2), and (3). 

•	 Did not have a financial management system in accordance with 40 CFR 31.20(b). 

• Did not monitor grant activities as required by 40 CFR 31.40(a). 

Material Internal Control Weakness: The grantee: 

•	 Did not have an adequate procurement system. 

•	 Did not have its own written procurement procedures. 

•	 Did not have a financial management system. 

As a result of these issues, we were unable to determine the price reasonableness of A&E costs 

and have questioned $1,745,457 of costs claimed under the grant. 

In our opinion, the FSR did not meet, in all material aspects, the requirements of 40 CFR Part 31, 

for the period ended December 31, 2006. 

Robert K. Adachi 

Director for Forensic Audits 

July 30, 2009 

3
 
 

 

10-4-0003 

Results of Examination 

The grantee did not meet the procurement and financial management requirements of 40 CFR 

Part 31. As a result, we questioned $1,745,457 in unsupported A&E costs claimed. The grantee 

also did not comply with the requirements for monitoring operations of grant activities. Due to 

these noncompliances and internal control weaknesses, the grantee may not have the financial 

capability to manage future grant awards. The final amended grant award listed total project 

costs of $3,513,091. However, the grantee claimed total allowable project costs of $4,052,510, 

providing $539,419 in excess matching funds. The excess matching funds can be used to offset 

the $1,745,457 in questioned costs. As a result, the grantee is required to reimburse the EPA 

$663,321. Below is a summary of the questioned costs. 

 Table 1: Summary of Questioned Costs 

Cost Element Questioned Costs 

Total Project Costs $4,638,278 

Less: Ineligible Costs Per State of 

Mississippi Department of 

Environmental Quality 

(585,768) 

Allowable Project Costs 4,052,510 

Less: Questioned A&E Costs (1,745,457) 

Total Allowable Project Costs 2,307,053 

Federal Share (55%) 1,268,879 

Payments Made 1,932,200 

Amount to be Repaid $(663,321) 

Sources: Claimed costs are from the Financial Status Report. 

Costs questioned were based on OIG’s analyses of the supporting 

documentation provided by the grantee. 

Weaknesses in Procurement Procedures 

The grantee did not perform a cost analysis or negotiate a fair and reasonable profit as a separate 

element of the contract price. Title 40 CFR 31.36(f) requires grantees to perform a cost analysis 

to determine price reasonableness for procuring A&E professional services. It also requires 

grantees to negotiate a fair and reasonable profit as a separate element of the contract price in all 

cases where cost analysis is performed. Without a cost analysis, we were unable to determine 

whether the A&E contract price was fair and reasonable. Therefore, we questioned as 

unsupported the A&E costs of $1,745,457 claimed under the grant. 

The grantee did not meet the requirements of 40 CFR 31.36(f) because its managers involved in 

the award process believed that the applicable standard to follow was the State of Mississippi 

Purchase Law (State Law). The State Law allows the grantee to select an A&E firm based upon 

qualifications. Federal regulations also allow the selection of an A&E firm based upon 

qualifications but require the grantee to perform a cost analysis as part of the price negotiation 

process. 

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10-4-0003 

The grantee also did not have its own written procurement procedures. Title 40 CFR 31.36(b) 

requires grantees to: 

(1)	 Use their own procurement procedures that reflect applicable State and local laws and 

regulations, provided that the procurements conform to applicable federal laws and 

standards. 

(2)	 Maintain a contract administration system that ensures contractors perform in 

accordance with the terms, conditions, and specifications of their contracts or 

purchase orders. 

(3)	 Maintain a written code of standards of conduct governing the performance of their 

employees engaged in the award and administration of contracts. 

The grantee did not ensure that its A&E contract met all compliance standards because the 

grantee did not have written procurement procedures that complied with EPA regulations. 

Lack of Financial Management System 

The grantee did not have a financial management system in accordance with 40 CFR 31.20(b). 

Title 40 CFR 31.20(b)(2) requires grantees to maintain records that identify the source and 

application of funds provided for financially-assisted activities. The grantee is a small entity, 

with only one part-time employee (the Executive Director) and six board members. The grantee 

contracted with an accounting firm to manage its accounting system requirements. Various firms 

that the grantee contracted with maintained all other source documents related to the grant. 

However, the contractors’ records were not complete, and the recipient had to contact the 

Mississippi Department of Environmental Services to obtain information for our review. While 

it is acceptable to contract various services, the grantee is ultimately responsible for maintaining 

grant documentation, such as the grant application, the grant award and related amendments, 

copies of contracts, reimbursement requests with source documentation, payment to contractors, 

matching fund information, etc. In this case, the grantee only maintained some of these records, 

such as the board minutes, and relied on others for the information it needed to manage the grant. 

Additionally, 40 CFR 31.20(b)(3) requires grantees to maintain effective internal control and 

accountability for all grant and subgrant cash, real and personal property, and other assets. The 

grantee does not have any written policies and procedures for financial management, including 

internal control and record maintenance. 

Noncompliance with Monitoring of Grant Activities 

The grantee did not monitor grant activities required by 40 CFR 31.40(a). The grantee 

contracted with an A&E firm to manage the grant. The grantee, however, had no procedures for 

monitoring operations of grant activities. No grantee personnel oversaw the daily activities of 

the A&E firm even though the grantee contracted out 100 percent of the project costs to the firm. 

The A&E firm reported its activities at a monthly board meeting and billed the grantee monthly. 

The invoices were approved by the Executive Director and the board. Title 40 CFR 31.40(a) 

requires grantees to manage the day-to-day operations of grant and subgrant supported activities, 

including monitoring grant activities, to assure compliance with applicable federal requirements 

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10-4-0003 

and that performance goals are being achieved. Without an adequate grants management 

process, the grantee risks potential fraud, waste, and abuse of its grant funds. 

High Risk 

As noted, the grantee did not maintain an acceptable financial management system, had weak 

procurement procedures, and did not monitor its grant activities. When grantees do not have 

systems that meet financial management standards, EPA can identify them as “high-risk.” 

According to 40 CFR 31.12, a grantee may be considered “high-risk” if an awarding agency 

determines that the grantee: 

•	 Has a history of unsatisfactory performance. 

•	 Is not financially stable. 

•	 Has a management system that does not meet management standards. 

•	 Has not conformed to terms and conditions of previous awards. 

•	 Is otherwise not responsible. 

The grantee met two of the five criteria for high risk. The grantee’s financial management 

system was not adequate and the grantee did not meet grant award terms and conditions because 

it did not comply with federal regulations or monitor its grant. 

Recommendations 

We recommend that the Regional Administrator, EPA Region 4: 

1.	 Require the grantee to provide the documentation demonstrating that it performed a cost 

analysis for the A&E contract at the time of negotiation. If the grantee is unable to do so, 

EPA should recover the federal share of questioned A&E costs of $663,321. 

2.	 Require the grantee to develop written policies and procedures for procurement in 

accordance with 40 CFR 31.36(b), and for financial management, including internal control 

and record keeping, in accordance with 40 CFR 31.20(b). 

3.	 Require the grantee to develop written procedures for monitoring operations of grant 

activities and comply with 40 CFR 31.40(a). 

4.	 Review policies and procedures developed by the grantee to ensure they meet applicable 

federal requirements. If the grantee does not fully implement these recommendations, 

Region 4 should make a high-risk determination, in accordance with 40 CFR 31.12, before 

making additional awards to the grantee. 

Grantee Comments and OIG Analysis 

We held an exit conference with representatives from EPA Region 4 and the grantee on 

August 17, 2009, to obtain comments regarding the factual accuracy of the discussion draft. The 

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grantee provided a written response to the OIG on August 31, 2009, to verify their exit 

conference comments. Appendix A provides the full text of the grantee’s comments. 

The grantee concurred with the recommendations in the discussion draft for establishing written 

policies and procedures for procurement, financial management, and monitoring grant activities. 

The grantee stated that it has completed a comprehensive procurement manual, which also 

covers financial management and monitoring grant activities. The grantee will provide the 

procurement manual in final draft form to EPA OIG and to the Region requesting comment. The 

grantee, however, did not concur with the questioned A&E costs, the lack of a financial 

management system, grant monitoring noncompliance, and the designation as a “high risk” 

grantee. The grantee also disagreed with the audit finding on its record keeping. 

The grantee also emphasized that it executed the grant activities in accordance with the contracts, 

and as approved by Region 4. The grantee also stated that all monies, both federal and the 

grantee’s local match, were properly expended, all monies are accounted for, and all work was 

received. As part of our audit, we did not find any indications of fraud, waste, or abuse of 

federal funds. 

Weaknesses in Procurement Procedures: A&E Contract Procured without 

Cost Analysis 

The grantee stated that it did not have a written cost or price analysis for the A&E service. 

However, the grantee indicated that it negotiated a fair and reasonable price for the services 

it received, and its contract price was fair and reasonable. The grantee prepared 

documentation to support its after-the-fact analysis to demonstrate the reasonableness of 

the costs. 

The grantee’s assertion that it did negotiate a fair and reasonable price for the services it 

received is unsupported. The cost analysis is to be performed at the time of negotiation. 

Our position that the A&E costs of $1,745,457 are unsupported remains unchanged. Title 

40 CFR 31.36(f)(3) requires that the costs included in negotiated prices be consistent with 

the federal cost principles outlined in 40 CFR 31.22. The cost principle applicable to forprofit organizations, such as the grantee’s A&E firm, is the Federal Acquisition Regulation 

(FAR), which provides detailed guidance on cost or price analysis. According to FAR 

15.404-1(c), cost analysis is the review and evaluation of the separate cost elements and 

profit in the offeror’s proposal (including cost or pricing data). FAR 15.404-1(c)(2)(iii) 

provides cost analysis techniques and procedures to ensure a fair and reasonable price. 

These techniques and procedures include the comparison of costs proposed by the offeror 

for individual cost elements with: 

•	 Actual costs previously incurred by the same offeror, 

•	 Previous cost estimates from the offeror or from other offerors for the same or 

similar items, 

•	 Other cost estimates received in response to the government’s request, 

•	 Independent government cost estimates by technical personnel, and 

•	 Forecasts of planned expenditures. 

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10-4-0003 

Absence of Written Policies and Procedures for Procurement, Financial 

Management System, and Monitoring Grant Activities 

In response to the audit, the grantee has developed a procurement manual that is under 

review by the grantee’s board for comment. The board will formally adopt it in September 

2009 subject to any comments provided by EPA OIG and Region 4. We concur with the 

grantee’s actions to date to address this finding. The grantee should finalize its 

procurement manual and submit to Region 4 as part of the audit resolution process. 

Lack of Financial Management System 

The grantee stated that it believed the financial management system in place at the 

accounting firm was sufficient to meet federal requirements. However, based upon audit 

results, the grantee has developed and is adopting a formal financial management system. 

We concur with the grantee’s actions to adopt a formal financial management system. As 

part of audit resolution, the grantee should provide written policies and related documents 

for Region 4’s review. 

The grantee asserted that it maintained all of its records at the City of Flowood, 

Mississippi, including the final payment request and board meeting minutes. We agree that 

the grantee maintained board meeting minutes, but do not agree with the grantee’s 

remaining assertions. 

During field work, project records and procurement files were delivered to the grantee’s 

offices from the A&E firm. At no time during our field work, did the grantee indicate that 

it has complete official files maintained at the City of Flowood offices. The documents of 

the request for reimbursement were not provided by the grantee but by the A&E and the 

accounting firms. For the final request for reimbursement, however, both firms had 

improper supporting documents for this payment. We requested proper supporting 

documents, and the grantee contacted the Mississippi Department of Environmental 

Quality to get the proper documents. Therefore, our position on this issue remains 

unchanged. 

Noncompliance with Monitoring of Grant Activities 

The grantee asserted that although it had no written procedures for monitoring grant 

activities, an appropriate representative of the grantee oversaw the activities of the A&E 

firm. Our position remains unchanged. The grantee did not provide any additional 

supporting evidence to support its claim. 

High Risk 

The grantee asserted that there was insufficient reason to classify itself as “high risk.” 

However, our position remains unchanged. If the grantee completes its proposed actions to 

develop policies and procedures to formally institute a financial management system, 

including procurement procedures, these actions may mitigate the need for a high-risk 

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determination. Region 4 will make the final determination after reviewing the grantee’s 

action taken per the audit recommendations. 

9 
 

 

 

 

 

 

10-4-0003 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Planned 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Completion 

Date 

Claimed 

Amount 

Agreed To 

Amount 

1 6 Require the grantee to provide the documentation 

demonstrating that it performed a cost analysis for 

the A&E contract at the time of negotiation If the 

grantee is unable to do so, EPA should recover the 

federal share of questioned A&E costs of 

$663,321. 

U Regional Administrator, 

Region 4 

$663.3 

2 6 Require the grantee to develop written policies and 

procedures on procurement procedures in 

accordance with 40 CFR 31.36(b), and financial 

management procedures, including internal control 

and record keeping, in accordance with 40 CFR 

31.20(b). 

O Regional Administrator, 

Region 4 

3 6 Require the grantee to develop written procedures 

for monitoring operations of grant activities and 

comply with 40 CFR 31.40(a). 

O Regional Administrator, 

Region 4 

4 6 Review policies and procedures developed by the 

grantee to ensure they meet applicable federal 

requirements. If the grantee does not fully 

implement these recommendations, Region 4 

should make a high-risk determination, in 

accordance with 40 CFR 31.12, before making 

additional awards to the grantee. 

U Regional Administrator, 

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 

10 

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Appendix A 

Grantee Response 

Mayor Gary Rhoads 

Chairman Mayor Tim Coulter 

Mr. Joe F. Donald, Jr. Mayor Brad Rogers Mr. Benny French Vice Chairman 

WEST RANKIN UTILITY Dirk Vanderleest

Mayor Mark Scarborough Garry Miller 

Executive Director 

Secretary/Treasurer 

Delivery by Email August 31, 2009 and by U.S. mail 

Mr. Robert Adachi 

Director of Forensic Audits 

US EPA - Office of the Inspector General 

75 Hawthorne St. 7th Floor 

MC: IGA-1 

San Francisco, CA 94105 

Re: West Rankin Utility Authority Response to Draft Attestation Report entitled Costs Claimed 

Under EPA Grant XP97424901 Awarded to West Rankin Utility Authority, Flowood, 

Mississippi Project No. 2009-843 July 30, 2009 

Mr. Adachi: 

West Rankin Utility Authority (hereinafter “Grantee”) provides this written response to the Draft 

Attestation Report entitled Costs Claimed Under EPA Grant XP97424901 Awarded to West 

Rankin Utility Authority, Flowood, Mississippi Project No. 2009-843 July 30, 2009 (hereinafter 

the “Draft Report”). We request that these comments be included in the final report you prepare 

for delivery to EPA Region IV. 

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Grantee’s General Statement in Response to EPA OIG Findings: 

At the time of the 2001 Grant, the Grantee was a newly-formed public entity, without staff of its 

own. To ensure compliance with EPA Guidelines, representatives of the Grantee were sent to 

the Region IV seminars which train grantees and grant administrators on compliance with 

Special Appropriations Grants; Grantee hired an accounting firm well-known for its experience 

in Government Accounting to account for the grant expenditures; and Grantee made certain all 

contracts, changes in work scope and pay applications were sent to EPA Region IV for review in 

advance of execution. Despite these efforts, the audit performed by EPA OIG (the “Audit”) 

identified deficiencies in the Grantee’s procurement, financial management and grant monitoring 

systems. While EPA OIG identified areas where Grantee’s systems could be improved upon, 

Grantee did properly manage the Grant monies, as evidenced by EPA OIG’s finding that all 

monies spent under the Grant have been properly accounted for; did negotiate a fair and 

reasonable price for the A&E Services, as evidenced by the cost and price analysis performed by 

Grantee in preparation for this response; and did properly observe and monitor the activities of 

its contractors performing work pursuant to the Grant, as evidenced by the many meetings held 

between the contractors and Grantee. In addition, Grantee has prepared and will adopt written 

policies and procedures as recommended in the Draft Report. Therefore, based upon the above, 

and Grantee’s comments below, Grantee should not be required to refund federal monies 

received under the Grant, nor should it be designated high-risk. These actions are not warranted 

by the findings. 

SPECIFIC FINDINGS: 

EPA OIG Statement: The Grantee did not perform a cost analysis or negotiate a fair and 

reasonable profit as a separate element of the contract price. 

Grantee’s Comment: 

Grantee was in compliance fully with all State regulations governing procurement of public 

contracts. In order to make certain that the Grant was properly administered under the federal 

regulations, Grantee sent its representative, along with a representative of the engineering firm 

performing work under the Grant to the Region IV seminar which trains grantees and grant 

administrators on compliance with Special Appropriations Grants. Region IV approved each 

disbursement and Grantee, its engineers and management believed that all guidelines were being 

observed. Despite these efforts, the audit performed by EPA OIG (the “Audit”) identified 

deficiencies in the Grantee’s procurement system, in that a written cost and/or price analysis was 

not performed in accordance with 40 CFR 31.36(f) in connection with the procurement of the 

A&E Services. 

While Grantee did not have a written cost analysis or price analysis for the A&E services, 

Grantee did negotiate a fair and reasonable price for the services it received. The bid selection 

committee for the A&E services had over 60 years, collectively, of experience in the 

procurement of public works contracts, including experience with the same type of A&E and 

construction work performed under this Grant. The bid selection committee had available to it 

all information necessary to make an informed decision, including current rates for similar 

services for its own and for other public bodies. 

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The proof of the appropriateness of the selection made by Grantee and of the reasonableness of 

cost and price is shown by the cost and price analysis performed in preparation for this response 

to the Draft Report. Grantee obtained from the A&E contractors and each of their subcontractors detailed information necessary to perform a cost and price analysis of the work, and 

subsequently performed the cost and price analysis. The result of the analysis demonstrates that 

the amounts paid for the services received were fair and reasonable, and that had the Grantee 

followed 40 CFR 31.36(f) at the time of procurement, the decision to choose the A&E firm and 

the price paid would not have been different. 

EPA OIG Statement: The Grantee also did not have its own written procurement procedures. 

Grantee’s Comment: 

Grantee followed the written State regulations on procurement, which are comprehensive. 

Following the Audit, Grantee began preparation of and has completed a comprehensive 

procurement manual, which also covers financial management and contractor supervision. This 

Procurement Manual is being provided in final draft form to EPA OIG and to Region IV 

requesting comment. The Procurement Manual has been delivered to Grantee’s Board for 

comment, and will be formally adopted by the Board in September, subject to any comments 

provided by EPA OIG and Region IV. 

EPA OIG Statement: The Grantee did not have a financial management system in accordance 

with 40 CFR 31.20(b). 

Grantee’s Comment: 

As stated earlier, Grantee was a newly-formed entity, without staff of its own. Grantee 

employed the services of an experienced government accounting firm. Grantee believes that the 

financial management system in place at the accounting firm was sufficient to meet this 

requirement. However, as EPA OIG found this system to be insufficient, Grantee has developed 

and is adopting a formal Financial Management System. 

In this same section of the Draft Report, EPA OIG states “[V]arious firms that the Grantee 

contracted with maintained all other source documents related to the grant.” This statement is 

factually incorrect. All records of Grantee, including all grant documentation, such as the grant 

application, the grant award and related amendments, copies of contracts, reimbursement 

requests with source documentation, payment to contractors, matching fund information, were 

maintained by Grantee at the Grantee’s offices in Flowood, Mississippi, offices which are 

provided at no cost to Grantee by one of its Members, City of Flowood, Mississippi. EPA OIG 

noted that one document, Application for Payment Number 17, could not be found at Grantee’s 

location. This is incorrect. This Application for Payment was in Grantee’s files, but Grantee 

was required to contact Mississippi Department of Environmental Quality to receive the final 

version of this document. MDEQ had not returned a corrected version of this document to 

Grantee following its review. 

In addition. EPA OIG in follow-up correspondence to Grantee has stated that minutes of the 

Grantee were provided by the attorneys for Grantee and that financial records were provided by 

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the accountants. The field auditors for EPA OIG misunderstood where these documents were 

maintained. With respect to the minutes, all original minutes are maintained by Grantee in 

Flowood. However, as a courtesy to EPA OIG, the attorneys representing Grantee scanned in 

the minutes into electronic form and delivered these to EPA OIG, at their request, in advance of 

their arrival for the audit. Similarly, at the request of EPA OIG, certain financial records were 

provided in advance by the accountants, although the originals of those same records were 

maintained by Grantee at Grantee’s location. In addition, EPA OIG states that project reports, 

procurement documents and the SF271 were maintained at the engineering firm. While it is true 

that the engineering firm had copies of these documents, all of these documents were also 

maintained by Grantee in the Flowood offices. Finally, Grantee maintained all Grant 

documentation at its Flowood office, which EPA OIG chose to obtain from the EPA Project 

Officer. 

EPA OIG Statement: The Grantee did not monitor grant activities required by 40 CFR 

31.40(a). 

Grantee’s Comment: 

While the Grantee had no written procedures for monitoring grant activities, the activities of the 

A&E firm were overseen by a representative of the Grantee as was appropriate for the work 

being performed. The A&E firm reported its activities at a monthly board meeting and billed the 

Grantee monthly. The invoices were approved by a part-time Executive Director and the Board. 

Day-to-day operations of grant and sub-grant supported activities, including monitoring grant 

activities to assure compliance with applicable federal requirements and that performance goals 

are being achieved, would have been unnecessary and impractical for the type of work being 

performed. When field activities were underway, Grantee monitored those activities as was 

deemed appropriate for the work being performed. For example, while aerial photographs were 

being taken for mapping purposes, Grantee was in contact with the engineers regarding the 

performance of the work. When sewer camera services were underway, Grantee was in contact 

with not only the engineers, but also the contractor, with respect to the performance of and 

findings resulting from the work. 

EPA OIG Statement: The Grantee met two of the five criteria for high risk. The Grantee’s 

financial management system was not adequate and the Grantee did not meet grant award terms 

and conditions because it did not comply with federal regulations or monitor its grant. 

Grantee’s Comment: 

Grantee does not have a history of unsatisfactory performance; is financially stable; is adopting a 

management system that meets management standards; has never had a previous award and 

therefore has not failed to conform to terms and conditions of previous awards; and is otherwise 

responsible. Therefore, there is insufficient reason to classify Grantee as “high risk.” 

Grantee’s Conclusion: 

All monies under the Grant are accounted for and all work under the Grant has been properly 

delivered. While EPA OIG takes issue with the method of Grantee’s procurement system, 

financial management and contract monitoring systems, it is incorrect to conclude that Grantee 

had no systems in place or that the Grantee’s systems were inadequate. Although Grantee 

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acknowledges that the Audit identified several areas for improvement, Grantee asserts that the 

system in place did insure proper administration of the Grant monies and proper monitoring of 

contract activities. After preparing cost analyses and price reviews, Grantee has determined that 

the amounts paid for the A&E services received were fair and reasonable, and that had the 

Grantee followed 40 CFR 31.36(f) at the time of procurement, the decision to choose the A&E 

firm and the price paid would not have been different. 

This was a Special Appropriations Grant. Congress stated its intent that this work be performed. 

The work was performed, in accordance with the contracts, and as approved by EPA Region IV. 

All monies, both federal and Grantee’s local match, were properly expended, all monies are 

accounted for and all work was received. While there may be technical flaws in the method by 

which Grantee procured the services, there was no harm resulting, and no reimbursement of 

Grant monies should be recommended nor should Grantee be designated high risk. 

Sincerely, 

West Rankin Utility Authority 

Gary L. Rhoads, President /s/ 

cc: Leah Nikaidoh, National Single Audit Coordinator 

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Appendix B 

Distribution 

Acting Regional Administrator, Region 4 

Director, Office of Wastewater Management, Office of Water 

Director, Office of Wastewater Management - Municipal Support Division, 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 

Region 4 Special Appropriation Act Project Coordinator 

Chairman, West Rankin Utility Authority, Flowood, Mississippi 

Acting Inspector General 

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