OFFICE OF INSPECTOR GENERAL

 

Catalyst for Improving the Environment

 Audit Report

Costs Claimed by the Tribal Association

on Solid Waste and Emergency

Response Under EPA Assistance

Agreement No. CR827181-01

Report No. 2003-4-00119

September 19, 2003

This audit report contains findings that describe problems the Office of Inspector General (OIG) has

identified and corrective actions the OIG recommends. The report represents the opinion of the OIG

and findings contained in this report do not necessarily represent the final EPA position. Final

determinations on matters in this report will be made by EPA managers in accordance with

established audit resolution procedures. 
Report Contributors: Keith Reichard

Richard Valliere

Juliet Ober

Abbreviations

Association Tribal Association on Solid Waste and Emergency Response

CERCLA Comprehensive Environmental Response, Compensation and Liability Act

CFR Code of Federal Regulations

EPA Environmental Protection Agency

FSR Financial Status Report

OIG Office of Inspector General

OMB Office of Management and Budget

RCRA Resource Conservation and Recovery Act
 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

 WASHINGTON, D.C. 20460

OFFICE OF 

INSPECTOR GENERAL

September 19, 2003

MEMORANDUM

SUBJECT: Report No. 2003-4-00119

Costs Claimed by Tribal Association on Solid Waste and Emergency Response

Under EPA Assistance Agreement No. CR827181-01

/s/ Keith Reichard for

FROM: Michael A. Rickey 

Director, Assistance Agreement Audits

TO: Richard Kuhlman

Director, Grants Administration Division

As requested, we have examined the costs claimed by the Tribal Association on Solid Waste and

Emergency Response (Association), located in Washington, DC, under Environmental Protection

Agency (EPA) Assistance Agreement No. CR827181-01. The agreement was to provide a

government-to-government mechanism through which tribes could be proactively involved in the

policy discussions that effect implementation of environmental programs on their land.

We questioned the total Federal share claimed of $2,357,376 as unsupported, because the

Association did not comply with the Federal rules, regulations, and terms of the assistance

agreement.

This audit report contains findings that describe problems the Office of Inspector General (OIG)

has identified and corrective actions the OIG recommends. The report represents the opinion of

the OIG, and findings contained in this report do not necessarily represent the final EPA position. 

The OIG has no objection to the release of this report to any member of the public upon request.

On July 1, 2003, we issued a draft report to the Association for comment, and on August 7, 2003,

comments were provided. The Association did not agree with the report’s findings. The

Association’s response is included in the report as Appendix B. We held a telephone exit

conference on September 11, 2003, and informed the Association of the final results of our audit.
Action Required

In accordance with EPA Manual 2750, the action official is required to provide this office with a

proposed management decision specifying the Agency’s position on all findings and

recommendations in this report. The draft management decision is due within 120 days of the

date of this transmittal memorandum.

If you have questions concerning this report, please contact Keith Reichard, Assignment

Manager, at (312) 886-3045.
Table of Contents

Independent Accountant’s Report ..................................... 1

Background ....................................................... 3

Results of Audit ..................................................... 5

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Appendices

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

B Association’s Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

C Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

1

Independent Accountant’s Report

We have examined the total outlay (costs) claimed by the Tribal Association on Solid Waste and

Emergency Response (Association) under the Environmental Protection Agency (EPA) financial

assistance agreement, as shown below:

Assistance

Agreement No.

Financial Status Report

Federal Share

Date

Submitted

Period

Ending

Cumulative

Total Outlays

Claimed

CR827181-01 2/27/03 12/31/02 $2,357,376 $2,357,376

The Association certified that the outlays reported on the Financial Status Report, Standard Form

269A, were correct and for the purposes set forth in the Agreement. The preparation and

certification of each claim was the responsibility of the Association. Our responsibility is to

express an opinion on the claim 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. Accordingly, on a test basis, we examined

evidence supporting the claimed costs and performed such other procedures as we considered

necessary in the circumstances (see Appendix A for details). We believe that our examination

provides a reasonable basis for our opinion.

As discussed in the Results of Audit section of this report, the Association’s financial

management system was not adequate to account for claimed costs in accordance with Federal

regulations. The Association also did not comply with Federal requirements when procuring

contractual services. 

In our opinion, because of the effects of the matter discussed in the preceding paragraph, claimed

costs on the Financial Status Report do not present fairly, in all material respects, the allowable

costs in accordance with the criteria set forth in the Agreement. As a result, the total costs

claimed of $2,357,376, are presently unallowable for Federal participation. The following

sections provide details on our examination and conclusions.

 /s/ Keith Reichard

Keith Reichard

Assignment Manager

Field Work End: April 14, 2003
2
3

Background

On September 25, 1998, EPA awarded Assistance Agreement No. CR827181-01 to the

Association. The following table provides some basic information about the authorized project

period and the funds awarded under the Agreement covered by this audit.

Assistance 

Agreement No.

EPA 

Share *

 Local 

Share

Total 

Costs

Project

Period

 CR827181-01 $3,100,000 $0 $3,100,000 09/25/98 - 08/31/03

* The EPA share is 100 percent of total costs.

This Agreement was authorized under section 8001 of the Resource Conservation and Recovery

Act (RCRA) and section 311(c) of the Comprehensive Environmental Response, Compensation

and Liability Act (CERCLA). The Agreement provided financial support for the newly formed

Association, headquartered in Washington, DC, to provide a government-to-government

mechanism through which tribes could be proactively involved in the policy discussions that

effect implementation of environmental programs on their land. Activities under the Agreement

included education and training to Federally recognized tribes on all aspects of solid waste and

emergency response. The Agreement also authorized the compilation of research on tribes,

including the identification of existing services, problems, and needs. This research data was to

be used to detail the human health effects associated with waste programs on tribes and their

communities. The Federal share of the Agreement was 100 percent of total costs.

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

Claimed Costs: Program outlays identified by the State on the Financial 

Status Report (Standard Form 269 or 269A).

 Unsupported Costs incurred and claimed that are not supported by

Questioned Costs: adequate documentation and/or have not been approved by

a responsible agency official.
4
5

Results of Audit

The Association’s financial management and procurement systems did not comply with the

requirements of 40 Code of Federal Regulations (CFR) Part 30 and Office of Management and

Budget (OMB) Circular A-122.

The provisions of 40 CFR Part 30 establish uniform administration requirements for Federal

grants and awards to non-profit organizations. OMB Circular A-122 establishes principles used

by all Federal Agencies in determining the costs of work performed by non-profit organizations

under grants and cooperative agreements. In accepting the grant award, the Association agreed

that it would comply with 40 CFR Part 30 and OMB Circular A-122, and that all procurement

transactions would be conducted in a manner to provide, to the maximum extent practical, open

and free competition.

The Association’s financial management system was inadequate in that the Association could not

or did not: (1) provide a summary of claimed costs by cost element or reconcile claimed costs to

its general ledger, (2) support its salaries and wages, (3) competitively procure contractual

services or perform any of the required cost or pricing analyses, (4) provide a legal written

agreement to support its subgrant, and (5) appropriately draw down cash. As a result of these

deficiencies, we have questioned all $2,357,376 in costs claimed under the Agreement. Details

follow.

Claimed Costs Not Reconciled

The Association could not provide us with a summary of claimed costs by cost element

and did not reconcile the total claimed costs with the general ledger. Accordingly, we

attempted but were not able to reconcile the claimed costs on the financial status reports

(FSRs) with the Association’s general ledger.

Title 40 CFR 30.21(b) provides that the recipient’s financial management system shall

provide for accurate, current, and complete disclosure of the financial results of each

Federally sponsored project or program in accordance with the reporting requirements set

forth in 40 CFR 30.52. It also states the system shall provide for comparison of outlays

with budget amounts for each award.

The Association’s financial management system did not meet any of the above 

requirements for an adequate financial management system. Consequently, we

have questioned, as unsupported, the claimed costs of $2,357,376. The following

table outlines the differences between costs claimed on the FSRs and the

expenditures in the general ledger for the audited reporting periods:
6

Period

Date

Submitted

Costs 

Claimed

on FSR

Expenditures

Per General

Ledger Difference

10/01/98 - 9/30/99 8/13/02 $343,035 $338,019 $5,016 

10/01/99 - 9/30/00 8/13/02 $552,919 $549,746 $3,173 

10/01/00 - 9/30/01 8/13/02 $616,897 $622,417 ($5,520)

10/01/01 - 9/30/02 10/18/02 $777,056 $783,699 ($6,643)

10/01/02 - 12/31/02 2/27/03 $67,469 $67,469 $0 

Cumulative Totals $2,357,376 $2,361,350 ($3,974)

Association’s Response

The Association indicated it made a good faith effort to comply with 40 CFR30.21(b) and

40 CFR 30.52 during a startup period. While Association officials agreed that

discrepancies between the FSRs and general ledger should be zero, they indicated the

discrepancies were extremely close to zero, and they have every reason to believe the

FSRs and the general ledger will be completely reconciled in the future. They said the

Association for the first 2 years was working out of a paper checkbook and then

converted to a computerized system. An outside accounting firm has been hired to

prepare the FSRs. The FSRs in question were filled out retroactively, and there were

adjustments from previous periods that may have not been reflected in the transition from

checkbook to outsourced accounting services. The Association is now working with two

outsourced accounting firms. 

Auditor’s Reply

 While the Association does have two outsourced accounting firms (one is its OMB A-133

annual auditor and the other is performing the bookkeeping services) it still has not

submitted an FSR that will reconcile total costs reported to its general ledger. The

financial activity reported on the FSR for the period October-December 2002 could be 

reconciled to the general ledger; however, the Association still has not made a full

accounting of its financial activity as required by 40 CFR 30.21(b). Without the ability to

reconcile claim costs to the general ledger, the Association cannot identify the specific

costs being claimed, and EPA cannot assure that claimed costs are allowable under the

terms of the Agreement. 
7

Unsupported Labor Costs

The Association did not maintain support for its salaries and wages required by OMB

Circular A-122. As a result, we were unable to determine whether labor costs recorded in

the general ledger were allowable in accordance with the Agreement.

The requirements of 40 CFR 30.27 provide that non-profit organizations shall follow the

provisions of OMB Circular A-122 for determining allowable costs. That Circular

requires that: (1) charges to awards for salaries and wages, whether treated as direct costs

or indirect costs, will be based on documented payroll approved by a responsible

official(s) of the organization; and (2) labor reports reflecting the distribution of activity

of each employee must be maintained for all staff members (professionals and

nonprofessionals) whose compensation is charged, in whole or in part, directly to awards. 

To satisfy these requirements, reports maintained by non-profit organizations must meet

the following standards:

• The reports must reflect an after-the-fact determination of the actual activity of each

employee. Budget estimates (i.e., estimates determined before the services are

performed) do not qualify as support for charges to awards.

• Each report must account for the total activity for which employees are compensated

and which is required in fulfillment of their obligations to the organization.

• The reports must be prepared at least monthly and must coincide with one or more

pay periods. 

OMB Circular A-122 also provides that charges for the salaries and wages of

nonprofessional employees, in addition to the supporting documentation described above,

must also be supported by records indicating the total number of hours worked each day

maintained in conformance with Department of Labor regulations implementing the Fair

Labor Standards Act. 

Prior to November 9, 2002, there was no evidence that Association employees prepared

timesheets. Without supporting time records, labor costs are not allowable under Federal

regulations. On November 9, 2002, the Association’s Board of Directors approved new

time keeping policies for both exempt and nonexempt employees. This new policy and

timesheet are sufficient for an organization with only one cost objective. However, this

new policy and timesheet are not adequate for an organization with multiple cost

objectives. OMB Circular A-122 requires time records to report on time worked on each

cost objective. A cost objective is defined in OMB Circular A-122, as a particular

award, project, service, or other direct activity of the organization.
8

Association’s Response

The Association indicated the previous executive director evidently began using

timesheets but discontinued the process. The amount paid to employees is fully

documented in the records of the outsourced payroll entity. As part of the Corrective

Action Plan timesheets have been reinstated.

 

The Association indicated that while OMB Circular A-122 technically requires labor

documentation reports, given the fact the Association only has one award, they believed

the objective of the requirement has clearly been met. They said the Association’s payroll

system technically satisfies the requirement of Item 7(m) of Attachment B of A-122 in

several respects; e.g., after-the-fact determination of the actual activity of each employee,

and the reporting of total activity no less frequently than monthly. The Association

indicated that to take a literal reading of the requirement is not in keeping with the

spirit/objective of ensuring allowability. 

The Association believes that there is really no dispute over what the funding was being

used for. As for the division between CERCLA and RCRA, funding this grant uses a

predetermined percent to draw down funds; thus, there is not a need to identify time by

cost objective.

Auditor’s Reply

 The only timesheets that the Association made available to us were the ones used after the

Corrective Action Plan was instituted on November 9, 2002. Prior to this date, there

were no timesheets available to support the hours claimed under the Agreement as

required by Federal regulations. Consequently, the Association has not complied with the

terms of the Agreement. 

While the Association is correct in that it need not split time worked on CERCLA or

RCRA projects, since this assistance agreement was awarded for one project, the

Association needs to account for employees’ indirect time (e.g., paid absences) as well as

direct time to reflect after-the-fact determination of actual activities as future EPA

assistance agreements will not be combined funding.

Improper Procurement Practices

The Association did not competitively procure contractual services, and did not perform 

the required cost or price analysis for the procurement of contractual services. 

 The provisions of 40 CFR 30.43 provide that all procurement transactions shall be

conducted in a manner to provide, to the maximum extent practical, open and free

competition. Further, 40 CFR 30.45 requires some form of cost or price analysis to be

made and documented in the procurement files in connection with every procurement 
9

action. Price analysis may be accomplished in various ways, including the comparison of 

price quotations submitted, market prices, and similar indicia, together with discounts. 

Costs analysis is the review and evaluation of each element of cost to determine 

reasonableness, allocability, and allowability.

In October 2000, the Association awarded a sole source fixed price research contract for 

a two-year period with an anticipated 1-year option, for a total contract price of

$750,000, to the University of Tulsa. The Association did not provide any support to

demonstrate the selection process for this contract, or that a cost or pricing analysis was

conducted. Our review disclosed that a former Association board member was

instrumental in soliciting the University for this contract. Prior to the award of contract,

the former board member was hired by the University. Accordingly, because of a lack of

competition and a cost or pricing analysis, there was no assurance that the paid contract

costs were reasonable. Therefore, these costs are not allowable under Federal rules.

As of December 31, 2002, the Association had paid the University $500,000 of the

$750,000 contract amount ($250,000 in advance in each of the first 2 years). The

Association has not received a final accounting of the funds expended by the University

during that second year or received a refund for any uncompleted work. 

Association’s Response

The Association reaffirmed that its current practices provide for a competitive bid

process. As far as its past practices relating to the original University of Tulsa contract,

the Association contends that it solicited bidders verbally, with only one proposal being

received. Board members were asked on their own to investigate potential vendors.

Auditor’s Reply

The Association has not provided any information related to a cost or pricing review to

support the procurement for this contract. Title 40 CFR 30.45 requires that some form of

cost or price analysis shall be made and documented in the procurement files in

connection with every procurement action. Although the Association contends that it

solicited bidders verbally, there is no evidence to support this statement. Further, there is

no documentation to show what organizations were contacted or how the contract price

was determined. 

Unsupported Subgrant

The Association made payments of $121,185, as of December 31, 2002, to vendors for

work performed under an apparent subgrant with the Cahto Tribe, but did not have a

written agreement with the Cahto Tribe supporting this subgrant. The subgrant was for

site assessment work and video documentation performed at the Laytonville Dump for

the Cahto Tribe of Laytonville, California. According to 40 CFR 30.5, the provisions of
10

40 CFR Parts 30 and 31, as applicable, shall apply to subrecipients performing work

under awards. The term subgrant is defined in 40 CFR 31.3 and includes financial

assistance when provided by a contractual legal agreement. The Association has not

provided any evidence it entered into a legal agreement with the Cahto Tribe, but made

payments directly to the vendors procured by the Tribe.

It is our understanding that the Cahto Tribe received separate funding from EPA to

develop an environmental office and to develop a water quality assessment program to

investigate potential mitgration of contaminations from the Laytonville Dump. Without a

legal agreement outlining the scope of work of the subgrant, we have no assurances that

the contract services paid by the Association do not duplicate the same services provided

for under the EPA grant provided to the Cahto Tribe. Since the vendor costs of $121,185

were not paid in accordance with a binding legal agreement, the costs are not allowable

under Federal rules. 

Association’s Response

The Association concurs that a written statement of award was lacking. Nonetheless, the

Association believes that the award itself was justified and, in its opinion, allowable. 

Auditor’s Response

Without documentation to support award of this subgrant, we cannot determine if the

costs are allowable under the Agreement.

Inappropriate Cash Drawdowns

The Association drew down EPA funds in advance of the actual need. This practice, 

which occurred due to the lack of written procedures, resulted in the Federal government 

incurring unnecessary interest costs on those funds, and can result in overpayments.

In addition, the excessive draws were contrary to 40 CFR 30.22 (b), which states in part:

Cash advances to a recipient organization shall be limited to the minimum

amounts needed and be timed to be in accordance with the actual,

immediate cash requirements of the recipient organization in carrying out

the purpose of the approved program or project. The timing and amount

of cash advances shall be as close as is administratively feasible to the

actual disbursement by the recipient organization for direct program or

project costs and the proportional share of allowable indirect costs.

We reviewed the Association’s average daily balances in its checking account per the

monthly statement and as of the day of EPA funds deposit, and found that the checking

account balances were often excessive. Of the 72 drawdowns that we tested, 26 were
11

made when the grantee had a checking account balance exceeding $10,000, which we

consider an appropriate threshold. These balances ranged from $10,787 to $26,195.

Association’s Response

In the Association’s response, the executive director states in part, “I do not know of the

circumstances involving these drawdowns because I was not here.” The executive

director goes on to explain that current practice is to request drawdowns that represent a

2-week need per EPA’s Grant Office. 

Auditor’s Reply

The U.S. Treasury’s current system – Automated Standard Application for Payment –

allows recipients to request daily drawdowns. EPA’s fundamental requirement is for

recipients to draw down immediate cash needs. Immediate cash needs have been

determined by EPA to be that amount of funds needed to cover expenses for 3 business

days. We believe that the past practice of cash drawdowns resulted in excess cash being

drawn down.
12
13

Recommendations

We recommend that EPA:

1. Recover the $2,357,376 that is not supported in accordance with 40 CFR Part 30 and

OMB Circular A-122.

2. Suspend work under the current agreements and make no new awards until the

Association can demonstrate that its accounting practices are consistent with Federal

requirements (see recommendation number 3).

3. Require the Association to modify its financial management system and practices to

meet the requirements of 40 CFR 30.21. At a minimum, the Association’s system

must:

a. Ensure that financial reports are current, accurate, complete, and supported by

accounting records.

b. Include records that adequately identify source and application of funds for

Federally-sponsored programs. These records should be in sufficient detail to

allow a comparison of the budgeted grant costs by cost element with the actual

incurred and claimed costs. 

c. Include written procedures to determine reasonableness, allocability, and

allowability of costs in accordance with the Agreement and OMB Circular

A-122.

d. Include accounting records that are supported by adequate source

documentation.

e. Require the Association to establish an adequate time distribution system that

meets the requirements of OMB Circular A-122, Attachment B, paragraph 7. 

The system should account for total hours worked and leave taken, and identify

the specific activities and final cost objectives that the employees work on

during the pay period. It should also serve as the basis for charging labor costs

to Federal grants and cooperative agreements.

f. Require the Association to follow all procurement standards under 40 CFR

30.40 through 30.48

g. Ensure compliance with cash draw requirements.
14
15

Appendix A

Scope and Methodology

EPA discovered a material weakness in the Association’s financial management system during

an on-site review conducted by Walker and Company LLP for the EPA. Consequently, the EPA

requested the OIG to conduct an audit of the Association. We performed our examination in

accordance with the Government Auditing Standards, issued by the Comptroller General of the

United States, and the attestation standards established by the American Institute of Certified

Public Accountants. We also followed the guidelines and procedures established in the OIG

Audit Process Handbook dated November 5, 2002. 

We conducted this examination to express an opinion on the claim, and determine whether the

Association was managing its EPA assistance agreement in accordance with applicable

requirements. To meet these objectives, we asked the following questions: 

1. Is the Association’s accounting system adequate to account for assistance agreement

funds in accordance with 40 CFR 30.21?

2. Does the Association maintain an adequate labor distribution system that conforms to

requirements of OMB Circular A-122?

3. Is the Association properly drawing down assistance agreement funds in accordance

with the Cash Management Improvement Act?

4. Are the Association’s procurement procedures for contractual services complying

with 40 CFR 30.40 to 30.48?

5. Is the Association complying with its reporting requirements under 40 CFR 33.51 and

30.52?

6. Are the costs claimed/incurred under the Agreement adequately supported and

eligible for reimbursement under the terms and conditions of the Agreement,

OMB Circular A-122, and applicable regulations?

In conducting our examination, we reviewed the project files and obtained the necessary

assistance agreement information for our examination. We interviewed the grants specialist to

determine whether any concerns needed to be addressed during our examination. We also

interviewed Association personnel to obtain an understanding of the accounting system and the

applicable internal controls as they relate to the claimed costs. We obtained and reviewed the

single audit reports, and the Financial Management System Review, conducted by an outside

audit firm at the request of the EPA Grants Administration Division, Office of Grants and

Debarment, to determine whether there were any reportable conditions and recommendations

addressed in those reports.
16

We reviewed management’s internal controls and procedures specifically related to our

objectives. Our examination included reviewing the Association’s compliance with OMB

Circular A-122; Title 40 CFR Part 30; and the terms and conditions of the assistance agreement. 

We also examined the claimed costs on a test basis to determine whether the costs were

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

assistance agreement, OMB Circular A-122, and applicable regulations. We conducted our field

work from March 3, 2003, to April 14, 2003. 
17 

August 7, 2003 

Mr. Michael A. Rickey 

Director 

Assistance Agreement Audits 

U.S. Environmental Protection Agency 

Washington, D.C. 20460 

RE: Comments on July 1, 2003 Draft Audit Report of Costs Claimed by 

the Tribal Association on Solid Waste and Emergency Response 

(TASWER) under EPA Assistance Agreement No. CR8227181-01 

Dear Mr. Rickey: 

This letter is in response to your invitation to respond to the draft audit 

report referenced above. This letter contains comments under headings 

related to issues cited in the draft audit report. 

1. Corrective Actions. TASWER wishes to reiterate and stress that, in 

response to the EPA Stop-Work Order of July 6, 2002 TASWER instituted 

corrective actions that resulted in procedures that are now in place that 

addressed all of the issues cited in your report. A copy of the corrective 

actions report is attached as Appendix A. 

2. Improper Procurement Practices. One of the corrective actions taken 

was the institution of a fiscal management policy that includes a 

procurement policy. A concern of EPA's initial financial management 

review performed for EPA by Walker & Co. and the resulting stop-work 

order was that the agreement with the University of Tulsa (TU) should 

have been put out to competitive bids. This is also the focus of this issue in 

the draft audit report. 

a. Contract Has Been Put Out to Competitive Bids. As part of its condition to 

lift the stop work order, the EPA grants office requested that TASWER 

put the third-year of the contract out for competitive bids. (Your draft 

report contains an incorrect statement, by the way: "However, this contract 

was terminated during the second year of the contract." The contract did 

not terminate during the second year of the contract. It was a two-year 

contract for a three-year project, which thus allowed for a review of the 

project before completion. The contract with TU naturally terminated on 

September 20, 2002.) When it received no response to its request of the 

award of the third-year of the contract from TASWER, which was under 

Appendix B

Association’s Response 

Note: This letter is an electronic rendering of the official printed document. It has been 

formatted for electronic presentation. To request a printed version of this report please 

contact the Office of Congressional and Public Liaison at (202) 566-2391. 
18 

the stop-work order, TU made the award solicitation directly to the EPA 

Grants Office, which resulted in EPA's request that TASWER put the third 

year out for competitive bids. In making this request, as EPA 

Administrator Christie Todd Whitman noted in her response to Rep. John 

Sullivan (D-OK), who, at TU's request, had asked EPA to award the third 

year of the agreement to TU without a competitive bid process, EPA's 

actions were in accordance with 40 CFR 30.44(e)(1) and (5). Ms. 

Whitman wrote, "[T]he grant regulations at 40 CFR 30.44(e)(1) and (5) 

allow us to review the procedures that TASWER will follow in exercising 

the option on the Tulsa contract to ensure that exercising the option would 

be consistent with competitive procurement procedures." One way, and we 

believe the correct way, of looking at this is that the system, under 40 CFR 

30.44(e)(1) worked. TASWER made an awards decision for a two-year 

contract for a three-year project. In reviewing how the contract was 

awarded, EPA, based on its review under 40 CFR 30.44(e)(1), made a 

determination that it would be best if the third-year was put out for 

competitive bids, and therefore it was. Attached in Appendix B is a 

summary of the competitive bids procedure for the third year of the project 

agreement. 

b. TASWER Vigorously Affirmed the Competitive Bid Process. In April 

2003, the third year of the agreement was awarded to a bidder other than 

TU. TU filed a formal protest with the TASWER Board of Directors and a 

FOIA request with EPA to facilitate its further protests and potential 

litigation. The TASWER Board rejected TU's protest in June 2003, and 

TASWER responded that it would pursue litigation unless TU cooperated 

with the transition to the new vendor, stating that TU's protests were 

frivolous and were delaying the entire project. TU responded in turn by 

agreeing to drop its protest and to cooperate on a transition. Appendix C is 

a packet of materials presented to the TASWER Board of Directors at its 

July 2003 meeting; it mostly includes relevant correspondence with TU on 

this matter. On July 16, 2003 I, TASWER's grant specialist, 

representatives of the new vendor, and TU representatives met in Tulsa on 

the transition of vendors. The meeting was very successful. TU's work is 

being utilized by the new vendor, and TU is cooperating in the transition. 

The end result is that the project has been put out to competitive bids and 

the work of the first two years is being utilized by the third-year vendor. 

This has been done, to my understanding, to the satisfaction of the EPA 

Grants Office. 

c. Uncommitted Balances. The draft audit mentions the issue of uncommitted 

balances of the TU agreement. On June 29, 2003, I called Richard M. 

Valliere of your office to say that he had mentioned the issue of 

uncommitted balances when he was here; I told him we were working out 
19 

a settlement agreement with TU and asked his advice. He indicated that I 

should talk to our grants officer, Jeanne Conklin, and work out an 

arrangement with her. Appendix C includes e-mails with her and with our 

projects officer, Felicia Wright, that resulted in Ms. Conklin's approval of 

our plan concerning these balances, which I then included in the 

settlement and release agreement. There was some continued dispute as to 

the amount of balances, which was resolved, as reflected in the 

correspondence included in Appendix. C.

d. Competitive Investigations. TASWER has put the third-year of this 

research contract out to competitive bids and now has a formal 

procurement policy. The only explanation for why such a policy did not 

exist previously was that TASWER was a new organization and the TU 

project was its first service contract. But TASWER thinks it is important 

to point out that 40 CFR 30.43 does not require competitive bids but that 

competition for procurement transactions, "to the maximum extent 

possible," be "open and free." As the history of this project shows, there is 

evidence that a competitive investigation was performed by TASWER and 

that a good faith effort was made to solicit bidders, given the limited 

resources and the fact that the decision was almost the first major 

transaction of the association. 

In February 2000, TASWER created a Board committee to determine how 

to utilize TASWER's CERCLA grant money. Committee Members were 

Board members Marcie Philips, Calvin Murphy, and Earl Hatley. The 

committee recommended that TASWER fund a risk assessment model for 

Tribes that included a map of hazardous waste sites. On April 18, 2000, 

the TASWER Board unanimously voted to fund the project. As Appendix 

D, a fax from TASWER's then-executive director Jeff Tomhave to 

TASWER's new project manager, Felicia Wright, indicates, Board 

members were asked on their own to investigate potential vendors, and 

they did. As the Board minutes document, finding vendors with Native 

American experience as well as sufficient technical expertise was a 

concern (and it, incidentally, still is.) Messers. Hatley and Tomhave both 

had experience with the University of Tulsa's National EnergyEnvironment Law and Policy Institute, which had mapping capabilities--it 

had purchased ArcView mapping software for other projects--and had 

relationships with various Tribes through its Native American Center. 

They both approached TU, and TU agreed to send TASWER a proposal. 

Although other Board members talked to potential bidders, none of these 

potential bidders submitted a proposal. On its own, TU approached Mr. 

Hatley about working on the project, and, as Appendix D indicates, Mr. 

Tomhave and the Board had concerns about this. Mr. Hatley resigned 

from the Board but not because of these concerns (of which he says he 
20 

was unaware and Appendix D shows he was not part of the meeting 

discussing this) or because of the project but because he was no longer 

employed by the Quapaw Tribe and therefore could not represent the 

Tribe on the Board. His letter of resignation, which is Appendix E, 

confirms this. He could not have remained on the Board, regardless. Once 

off the Board and unemployed, Mr. Hatley was hired by TU for various 

projects, one of which was, potentially, the TASWER research project. 

The draft audit report contains another incorrect statement related to this, 

which has an unfortunate and negative connotation: "Further, this board 

member had resigned from the Association's board in July 2000 and was 

subsequently hired by the University in August of 2000 to conduct the 

research under the Association's contract." This is incorrect on several 

counts. Mr. Hatley resigned from the Board on June 23, 2000 for the 

reasons given in his letter, was hired by TU on July 10, 2000, but not to 

"conduct the research on the project," since the TASWER Board did not 

vote to award the contract to TU until September 14, 2000 and the contract 

was not executed until October 20, 2000. Mr. Hatley was available to 

work for TU not because he resigned from the TASWER Board to avoid a 

conflict of interest but because his employment was terminated by his 

Tribe; his actually working on the project was not assured until the Board 

vote in mid-September 2000, three months after his resignation from the 

TASWER Board. And the vote to give the contract to TU was not 

unanimous--7-1-1 abstention. 

And so, nothing was handed on a platter to TU. Bids were solicited 

verbally. TU was the only bidder, but it did submit a detailed proposal that 

was reviewed by the Board as to its costs and effectiveness and voted on. 

And the Board could always have voted against TU--one Board member 

did and one abstained. There was a competitive process. 

e. Conclusions In short, not withstanding the fact that EPA regulations 

specifically provide for instances where it is not practical or possible to 

award large procurements competitively,1

 the TASWER Board attempted 

to satisfy and arguably did satisfy in substance the competitive 

requirement. It solicited bidders verbally, one entity submitted a proposal, 

and that proposal was reviewed by the committee and Board and voted on 

by the Board.2

 The fax memo in Appendix D describing this process was 

 

1

 See 40 CFR 30.44(e)(2); see also 40 CFR 30.44 (d), which specifically notes that "Contracts shall be 

made only with responsible contractors who possess the potential ability to perform successfully under the 

terms and conditions of the proposed procurement," These criteria were clearly utilized during the 

TASWER Board's review of the TU proposal, and TU was eminently qualified and responsible. 

2

 As such, it is not accurate to say that there was a lack of cost/pricing analysis; rather, the deficiency is 

more an issue of documentation. 
21 

sent to TASWER's EPA project manager on July 9, 2001 at her request 

and was in the material available to the OIG auditors when they were in 

our offices early this year, as were the Board minutes.3 (Mr. Hatley's letter 

of resignation was not made available to them because they did not ask to 

see Board appointment and resignation letters and because I did not know 

their inquiry was following this particular tact.) And, if that competitive 

process, however much in good faith, was inadequate, TASWER has 

attempted to rectify that by putting the third year out to competitive bids. 

Consequently, TASWER made a good faith effort at the time to comply 

with 40 CFR 30.43 through 40 CFR 30.45 and has made a vigorous effort 

to do so this year, as Appendices B and C illustrate. 

3. Claimed Costs Not Reconciled. TASWER was formed in 1998 but its 

first board meeting was not until 1999 and until the Tulsa grant in 2000, 

which was its first big decision, it was basically in a startup mode. For the 

first two years, the executive director was working out of a paper 

checkbook and then a computer checkbook. In 2000, an outside 

accounting firm was hired, and a month-to-month general ledger is 

electronically available from then onward. The FSRs in question were 

filled out retroactively, and there were, of course, adjustments from 

previous periods that may have not been reflected in the transition from 

checkbook to outsourced accounting. We now have a fiscal management 

plan in place. We are also working with two outsourced accounting firms. 

One of the OIG auditors told me when he was here that the FSR for the 

period October-December 2002 tied in "to the penny." In retrospect, the 

previous executive director should have been more diligent in submitting 

FSRs and in reconciling any discrepancy. And yet, in spite of this and the 

transition from checkbook to outsourced accounting, the cumulative 

difference between the general ledger and the submitted FSRs was 

($3,974), which represents only .168% of the $2,357,376 claimed on the 

FSRs. A good faith effort was made by TASWER to comply with 40 CFR 

30.21(b) and 40 CFR 30.52 during a startup period, and while the 

discrepancies between the FSRs and general ledger should be zero, they 

are extremely close to zero, and, we have every reason to believe, the 

FSRs and general ledger will be completely reconciled in the future. To 

have such an insignificant difference (not to mention that the difference is 

in favor of EPA, which is to say that the claimed costs were less than the 

costs reported in the general ledger) as a justification for disallowing the 

entire award amount does not appear to us to be a reasonable conclusion. 

4. Unsupported Labor Costs. The previous executive director evidently 

began using timesheets but discontinued the process, for reasons to be 

 

3

 Not to mention that TU's funding was clearly part of FY01 budget submitted to and agreed to by EPA. 
22 

discussed. The amount paid to employees is fully documented in the 

records of the outsourced payroll entity, Paychek. Timesheets are now in 

use. As far as the previous period during which timesheets were not used, 

it should still be noted that EPA was and is TASWER's sole source of 

funding and the activities described in its cooperative agreement are its 

only activities. 

While OMB Circular A-122 technically requires labor documentation 

reports, given the fact that TASWER only has one award, the objective of 

this requirement has clearly been met. Furthermore, TASWER's payroll 

system technically satisfies the requirements of Item 7,m of Attachment B 

of A-122 in several respects; e.g. after-the-fact determination of the actual 

activity of each employee; the reporting of total activity no less frequently 

than monthly; etc. To take a literal reading of requiring a labor distribution 

report in this situation is not in keeping with the spirit/objective of 

ensuring allowability. 

So there is really no dispute over what the money was being used for. As 

for the division between CERCLA and RCRA funding--the draft audit 

report says that even the current timesheet is inadequate because "it does 

not provide for the identification of time by cost objective"--that division 

is predetermined. Attached in Appendix F is the cost breakout between 

TASWER's CERCLA and RCRA funds provided to me in April 2003 by 

TASWER's project manager. As you can see, the previous executive 

director changed the percentages from year-to-year to reflect changing 

emphasis. No matter what actually happens, no matter how much time is 

spent on hazardous waste projects as opposed to RCRA projects, the grant 

for TASWER is drawn down entirely on the basis of these predetermined 

percentages. I have been told that "this is how Las Vegas is set up" when it 

comes to divided grants. I have also been told that since the remaining 

amounts of the divided grant funding will extend into FY04, EPA will 

continue the divided grant funding for one more year but no more. After 

that point, TASWER will apply for individual grants for specific projects. 

And so, the current timesheets with their lack of designation as to cost 

objective reflect the current situation whereby data about time spent on 

cost objectives would have no effect on the way the RCRA and CERCLA 

grant monies are drawn down. The previous executive director's 

discontinuance of the timesheets and his continual and frustrated changes 

of the grant percentages may also reflect this situation. 

TASWER's accomplishments in Appendix G reflect the work that 

TASWER has done in conformity with its grants. And again, EPA has 

been TASWER's sole source of funding. EPA can have confidence that 
23 

the work paid was paid to accomplish the amounts budgeted and the work 

described. 

To conclude, TASWER has met the substance of the requirements under 

OMB A-122 and in many regards the technical requirements as well. 

5. Inappropriate Cash Drawdowns. The draft report states that 26 of the 72 

drawdowns were made "when the grantee had a checking account balance 

exceeding $10,000." I do not know of the circumstances involving these 

drawdowns because I was not here. I do know that when the drawdowns 

are made at the end of the month the executive director knows that he will 

have payroll and rent due and that amount alone exceeds $10,000, not 

including other bills. Sometimes invoices that you count on being received 

on such and such a date do not come in--they come early or they come 

late. The current situation at TASWER is that we only ask for the amount 

that we believe we will use in the next two weeks, which is the directive 

we have received from the grants office. But there are dangers in this, and 

it could be that the previous executive director anticipated these dangers. I 

will tell you a recent relevant anecdote. On June 27, 2003, I made a 

drawdown request of $28,000. Payroll had been approved, and that would 

leave us with $1,981 in the bank. I knew I had other bills that had to be 

paid soon. These would leave us with $518, and the rent would still have 

to be paid. So, I faxed in the drawdown request of $28,000, anticipating 

that 48-hour turnaround Las Vegas promises. By July 1, the money had 

not been received by our bank. I called the Las Vegas Finance Center on 

July 2 and was told that there had been "electronic problems with 

Treasury" but that the money would be in our bank on July 2. When it 

didn't hit July 2, I called and was told there were still "problems with 

Treasury" and that because of the July 4th holiday the money would not be 

transferred until the next Tuesday, July 8! Further, it didn't come on July 8 

and when I called Las Vegas I was told there was nothing more I could 

do--it would come when it comes. It arrived on July 9. During this 13-day 

period TASWER had $518 in the bank and could not pay the rent. I paid it 

on the 10th and was billed for a late fee (which under OMB Circular A-122 

item 16 of Attachment B is arguably an "allowable" cost). And this is not 

the first time this situation has happened in the 10 months I have been with 

TAWSER. When I told the story to other people "in the know," they said, 

"Oh, you have to keep an emergency reserve." And of course the concept 

of an "emergency reserve" is what you have criticized. TASWER is trying 

diligently to conform with regulations and yet still be able to pay its bills, 

with the overall intent to achieve EPA's mandate for TASWER. 

It is, incidentally, our understanding that this type of drawdown problem 

was also experienced by my predecessor. 
24 

6. Unsupported Subgrant. The draft audit report notes the lack of a written 

agreement between the Cahto Tribe and TASWER to award a subgrant to the 

Tribe whereby TASWER would pay the Tribe for the expenses of its 

subcontractor and also pay some other contractor expenses directly. This lack 

was pointed out to us late in the OIG auditors' stay with us. We contacted the 

Tribe and provided the auditors with the e-mails in Appendix G. After they 

left, we prodded the Tribe to provide us with the material also included in 

Appendix G. There is extensive documentation of what TASWER paid for 

and a detailed draft report and justification. The draft report to the Tribe 

continually refers to the award, and TASWER's actions and its documentation 

of its payments and its justifications in paying clearly indicate that a subgrant 

was made. What is lacking, as has been noted, is a written statement of award. 

The award itself was justified and, in our opinion, allowable. 

7. Response Conclusion. To conclude our response, we firmly state that the 

occasional lack of documentation noted in the draft audit report does not 

justify the harsh response of disallowing the entire claim. TASWER's EPA 

project manager was fully informed, albeit sometimes informally, on all 

aspects of TASWER's operations. 

We ask your office, in its final report, not to repeat the disallowance 

conclusion indicated in the draft audit report, since, as we have tried to show 

in this response, 1) TASWER's requirement of competitive procurement 

practices has been satisfied by the recent competitive bid and was satisfied by 

the competitive investigation of the initial award; 2) that the small--.168 % in 

favor of EPA--difference between the FSRs and TASWER's general ledger is 

too small to, in any way, justify an action of disallowance; 3) TASWER's 

labor costs reporting was in conformity with the substance and in many 

instances the technical requirements of the regulations; 4) the drawdowns 

were not inappropriate under the circumstances; and 5) the unsupported 

subgrant was supported by TASWER's actions, although, in this case, as in the 

other case of the other items noted, documentation could admittedly have been 

better. Our corrective actions have specifically addressed the documentation 

issue. 

Sincerely, 

John T. Aquino 

Executive Director 

TASWER 

cc. TASWER Board of Directors 
25

Appendix C

Distribution

EPA Headquarters

Director, Grants Administration Division (3903R)(Action Official)

 (Responsible for report distribution to recipient.)

Director, Office of Grants and Debarment (3901R)

Agency Audit Followup Coordinator (2724A)

Associate Administrator for Congressional and Intergovernmental Relations (1301A)

Associate Administrator for Communications, Education, and Media Relations (1101A)

Audit Followup Coordinator (GAD)

Office of Inspector General

Inspector General (2410)